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CYCLOPEDIA
OF THE LAW OF
PRIVATE CORPORATIONS
By WILLIAM MEADE FLETCHER

Author of "Corporation Forms," "Illinois Corporations," "Equity-
Pleading and Practice," etc.
VOLUME I
CHICAGO
CALLAGHAN AND COMPANY
1917
PREFACE
But little explanation is required in connection with the presenta-

tion of this great treatise on the Law of Private Corporations to the
profession. The tremendous development
in this branch of the law
during the past ten years, as illustrated by the great increase in
decisions and in legislative regulations, demands a complete, ex-
haustive and scientific exposition.
This in brief has been the aim of the publishers, and neither time
nor expense has been spared in its attainment.
Every branch of the Law of Private Corporations has been covered
thoroughly and well. Many phases of the subject have never before
received text treatment.
The exhaustiveness of the treatment will be apparent. It has not
been sought merely to collect a vast number of citations, many of
which might have little or no bearing upon the subject, nor to exhaust
the authorities upon elementary principles. The work is intended for
the use of the practitioner interested in corporation law, not for the
law student.
So exhaustive is the treatment that the discussion of any one of
several of the more important branches of the subject is sufficiently
complete to make a textbook by itself. Among them are the fol-
lowing :
Objects for Which Corporations May Torts,

Be Created, Monopolies,
Promoters, Actions hy and Against,
De Facto Corporations, Governmental Control and Regulation,
Corporations by Estoppel, Taxation,
Underwriting, Stock and Stockholders,
By-Laws, Insolvency,
Subscriptions to Stock, Dissolution a«d Winding Up,
Corporate Powers, Reorganization,
Bonds and Mortgagee, Receivers,
Officers and Directors, Foreign Corporations.
The subject has received scientific treatment at the hands of the

greatest collection of specialists ever assembled on any legal work.
iji
Peefaoe
Mr. "William Meade Fletcher needs no introduction to the profession.

His works on Corporation Forms, Illinois Corporations, and Equity
Practice, have already established his reputation. He has been ably
assisted by Mr. James C. Cahill, Chief of the Publishers' Editorial
Staff; Mr. Basil Jones, also of the Publishers' Editorial Staff, who
has had charge of the revision of the work; Mr. Clark A. Nichols,
Associate Editor of McQuillin's Municipal Corporations, and author
of Nichols' New York Pleading, Practice and Forms; Mr. Hascal R.
Brill, Jr. Prof. I. Maurice Wormser of New York, author of the
;
new edition of Clark on Corporations; Mr. Frank C. McKinney of

New York; Hon. Thomas H. Calvert of Raleigh, North Carolina,
author of the new edition of Daniel, on Negotiable Instruments; Mr.
Greorge F. Longsdorf, author of Ohio Notes, Minnesota Notes and the
Cyclopedic Law Dictionary and Messrs. Frederick M. Hinch, Lewis
;
W. Morrison and William "W. Culver of the Publishers' Editorial

Staff.
Parallel references to the National Reporter System, Lawyers'
Reports Annotated, American Reports, American Decisions, Ameri-
can State Reports, and Annotated Cases have been incorporated in
all cases, and wherever possible references to the ofScial reports have
also been given.
With every confidence in its merit, the publishers take pleasure in
presenting Fletcher's Cyclopedia of the Law of Private Corporations
to the legal profession.
CALLAGHAN AND COMPANY.
Chicago, October, 1917.
IT
,
.
TABLE OF CONTENTS
VOLUME I
CHAPTER 1
. > -. — -
k
•
*
History and General Considerations '
,
'
i. history
Pag«
1. Origin of the corporate concept .' "" 2
§ .
S 2. Primitive and ancient forma 4

§ 3. Modern development T
II. DEPINITIONS and ATTRIBUTES
§ 4. Leading definitions ; 9
§ 5. Attributes —In general 12
§ 6. — Continuing
' succession , . . , 12
§ 7. — personality
Artificial 13
I 8. — Name 13
S 9. — Seal 14
§ 10. By-laws 14
§ 11. — Power to hold realty 14
§ 12. — Transfer of membership 15
§ 13. — Individual for indebtedness
liability 15
III. THE CORPORATE TKANCHISE
§ 14. Primary 16
§ 15. Secondary 17
IV. DISTINGUISHED FROM OTHER FORMS OF ASSOCIATED BUSINESS
§ 16. Partnerships 18
1 17. Joint stock associations 27
§ 18. Societies, fraternities and clubs 39
§ 19. Basic distinguishing features —Domestic associations 41
§ 20. — Associations under foreign laws : 41
§ 21. Advantages of incorporation 42
V. CORPORATE ENTITY IN DEALING WITH THIRD PERSONS
§ 22. In general 1
.."... 43
§ 23. Contractual powers and obligations —In general. . .. 49-
V
.
Table of Contents
Page
{ 24. — Agency 49
S 25. — Acquisition and transfer of property— Title to property 50
§ 26. — Transfers and conveyances 50
$ 27. — Eeal and mortgages
chattel 51_
§ 28. — Property restrictions 51
I 29. — Bights of action as property to 51
§ 30. — Execution and attachment 52
§ 31. Torts 52
§ 32. Crimes : 52
f 33. Actions —General considerations , 52
§ 34. — Members as parties 53
§ 35. — Rights of by members
set-ofE 53
I 36. — Judgments 54
S 37. — Notice to members 54
§ 38. — Admissions of members 54
{ 39. — Besidence and citizenship for jurisdictional purposes 54
i 40. Statute of frauds 55
{ 41. Taxation 55
I 42.Disregard of corporate entity— General statement 55
{ 43.— Acts of members 58
§ 44.— Fraudulent acts 61
I 45.— Agency for parent corporation 63
§ 46.— Evasion of statutory obligation 64
S 47.— Equitable mortgages 65
§48. — Members as '
interested in corporate property
'
'
' 65
VI. THE JURISTIC PEESON AND ITS INTERNAL RELATIONS
§ 49. In general 66
§ 50. Contracts 67
§ 51. Transfers and conveyances 67
! 52. Actions 68
VII. CONSIDERED AS A PERSON, RESIDENT OR CITIZEN
i 54. Person 68
§ 55. Eesident or inhabitant 73
S 56. Citizen 74
CHAPTER 2
Classification op Corporations
57. Aggregate and sole corporations — În general 79

58. — Distinctions 80
59. — Nature of corporations in Eome and England 81
60. — Corporations aggregate and sole in the United States 81
61. — Particular public officers as sole corporations 83
vi
Table of Contents
Pagb
§ 62. — Private business corporations 84
§ 63. Ecclesiastical and lay corporations 84
§ 64. Eleemosynary and civil corporations 86
§ 65. Public and private corporations In general — 88
§ 66. — Importance of division 89
§ 67. — Public corporations proper 90
S 68. — Private corporations 95
§ 69. -~ Public character of particular classes of corporations —In general ... 95
§ 70. — Cities, villages, etc 96
§ 71. — Levee, drainage, reclamation and irrigation districts 97
§ 72. — Educational and charitable institutions 98
§ 73. Quasi public corporations 101
§ 74. The United States, the states and territories as corporations 110
§ 75. Stock and nonstock corporations 112
§ 76. Quasi corporations In general — 112
§ 77. — Counties 113
I 78. — Towns 115
§ 79. — School districts 116
§ 80. — Eoad districts 117
§ 81. — Public officers or public boards 117
§ 82. — Joint stock companies 119
§ 83. Domestic and foreign corporations 119
§ —In general
84. Statutory classification of corporations 119
§ — Tests for ascertaining
85. of corporation class 120
§ — "Trading" corporations
86. 121
§ — " Mercantile " or " commercial corporations
87. '
' 124
§ — " Manufacturing corporations
88. '
' 125
§ — " Transportation and railroad corporations
89. '
'
'
'
'
' 130
§ — Corporations for
90. pursuits " '
' industrial 131
§ — " Business corporations
91. '
' 131
§ — Corporations for pecuniary
92. " '
' profit 132
§ — " Moneyed corporations
93. '
133
— Banking corporations—Trust companies
' ,
§ 94. '
'
'
' 134
§ — "Beneficial" corporations
95. ^
135
§ — " Insurance corporations
96. '
' 135
§ — Building and loan
97. associations 136
§ — " Literary corporations
98. '
' 137
§ —"
99. corporations
Scientific '
' 138
§ 100.— " Charitable and benevolent corporations
'
'
'
'
'
' 139
§ 101.
— Religious corporations
'
'
'
' 141
§102. — Corporations for "work of improvement," internal "public im-
provement" or "public utility" 142
CHAPTER 3
Who May Be Incoepoeated
S 103. In general 146

§ 104. Residence and citizenship 149
vii
Table of Contents
Paqb
i
105. Infants 151
i
106. Married women 152
i
107. Corporations as corporators 154
i
108. Corporators not having substantial interest in the corporation 157
1 109. Number of incorporators 158
i
110. Effect upon, corporate existence of lack of qualification of incorpo-
rators 160
j 111. Necessity of articles showing qualifications —Presumptions 161
CHAPTER 4
Objects for Which Corporations May Be Created

i
112. In general 163
1 113. Purposes of corporations created Tinder authority of congress 171
i
114. Unlawful or injurious purposes 176
\ 115. Attempt to incorporate under inapplicable statute 189
i
116. General words in statutes defining objects 193
I
117. Number of purposes for which corporations may be formed 198
j 118. How character of a corporation is determined 207
\ 119. Statement of objects in incorporation paper 212
1 120. Corporations for manufacturing or mechanical purposes 217
i
121. Corporations for trade and commerce 229
j 122. Corporations for industrial pursuits 233
i
123. Corporations for agricultural purposes 235
i
124. Corporations for benevolent, charitable, literary or educational pur-
poses 235
i
125. Corporations for scientific purposes 241
i
126. Corporations for purposes of pecuniary profit 242
i
127. Corporations for owning or dealing in real estate 243
i
128. Corporations for work of "internal improvement," "public improve-
ment" or "public utility" 246
( 129. Corporations for purpose of acquiring and holding stock in other cor-
porations 249
i
130. Corporations for the practice of law or -medicine 253
i
131. Miscellaneous illustrations of authorized purposes 256
CHAPTER 5
Promoters
( 132. Who are promoters 264

) 133. Rights and liabilities of promoters inter ae 268
i
134. Relation of promoters to corporation and stockholders 271
! —In general
135. Secret profits 277
! 136. — Gist of wrong 280
i
137. — Sale by promoter corporation
to 282
viii
.
Table of Contents
Paob
i
138. Qualification of general rules as to sales 289
J
139. —Joint and several liability. 292
\ 140. — Actions against promoters —Nature and form of remedy 292
i
141. Defenses 295
i
142. Parties 297
i
143. Limitations and laches 299
( 144. —— •
'Pleading 299
! 145. Burden of proof. ;
'.
300
j
146. Character and measure of relief 300
J 147. — Commission from third person. 302
i
148. — Liability of persons conspiring with promoters, i 303
i
149. —Enforcement of claim. 305
i
150. Liability of corporation on promoters' contracts —In general 306
[151. — Liability imposed by statute :
'.
310
i
152. —Âdoption or ratification of contracts ,
310
1 153. —'
Power to adopt or ratify ultra vires contracts 318
i
154. — Mode of adoption or ratification in general 320
155. — who may adopt
îPersons or ratify 320
— Implied adoption or
i
i
156. ratification 321
i
157. Enforcement of promoters' contracts by eorporiltion ,
328
1 158. Personal liability of promoters on contracts executed by them —In gen-
eral 329
i
159. — Effect of adoption or by corporation
ratification of contracts 331
i
160. Eight of action of promoters on contracts executed by them 333
i
161. Notice to or knowledge by promoters ".
334
i
162. Admissions and declarations of promoters 335
I
163. Demand upon promoter 335
i
164. Liability of corporation for services and expenses of promoters 335
i
165. Liability of promoters on failure to create corporation 339
i
166. Subscriptions to stock procured by promoters' fraud 340
CHAPTER 6
Power to Create Corporations
} 167. Power as attribute of sovereign 343

! 168. Power of state legislature —In general 347
i
— Limitations in the •United States Constitution
169. 347
— Limitations in the
170. generally
state constitutions 348
(171. — Form of incorporating
i
acts 348
(
— Enactment of incorporating
172. • acts 353
173. — Exclusive franchises and privileges '
354
— Creation by two or more
1
J
174. concurrently states 356
( Power of congress—In general
175. 357
i — In the
176. and of Columbia
territories District 360
i
177. Powers of the territorial legislatures 361
1 178. Delegation of power to incorporate 361
1 179. Purchase of property and franchises of corporation 364
ix
Table oi Contents
CHAPTER 7
Cbeation Under General Laws

i. matters to be consideked betoke incokporating
Page
S 180. In general 369
II. STATUTORY REQUIREMENTS IN GENERAL
§ 181. Preliminary considerations 370

§ 182. Conditions precedent —In general; 373
{ 183. — Creation as distinguished from organization 377
i 184. — Corporate existence as distinguished from power to commence busi-
ness 377
1 185. — Subscription to stock and payment therefor 379
1 186. Conditions subsequent 380
§ 187. Directory provisions 382
f 188. Substantial compliance 384
i 189. Surplusage 385
§ 190. Waiver and cure of defects 386
§ 191. What law governs .
'. 390
III, INCORPORATION PAPERS
S 192. In general f 390

§ 193. —
Contents In general 393
§ 194. — Name of proposed corporation 394
1 195. — Purpose of creation and nature of business 394
§ 196. — Place of business 397
i 197.
— 'Amount of capital stock 399
§ 198. — Limitations on amount of indebtedness 399
§ 199. — Duration of corporate existence 400
§ 200. — Name, residence and of incorporators
eligibility 400
I 201. — Statements as to membership 401
I 202. — Statements as and agents
to officers 401
§ 203. — Subscriptions to stock and payment therefor 403
§ 204. — Manner of carrying on business 405
§ 205. — Description of seal , 405
§ 206. — Route and termini of railroad company 405
§ 207. — Additional provisions not required by statute 406
§ 208. Signatures : . .•. 411
§ 209. Seals 412
§ 210. Acknowledgment and verification 413
§ 211. Publication 416
§ 212. Powers and duties of officer or court 418
§ 213. Issuance of certificate by officer or court 422
§ 214. Revocation of certificate 424
§ 215. Piling and recording —
General rules 424
§ 216. —With county officer 430
{ 217. — With state officer 433
§ 218. — Subsequent papers 434.
X
Tab£e or Contents
Page
§ 219. — What constitutes filing 434
§ 220. — Distinction between and filing refeording 435
§ 221. — Eecording copy or original 436
§ 222. — "Duplicate" distinguished
as from "copy" 436
§ 223. — Time and sufficiency
of record •.
437
§ 224. — Filing back
as relating 437
IV. FEES
§ 225. Necessity for payment and amount 437
V. CHARTER
§ 226. What constitutes 440

§ 227. Acceptance 441
CHAPTER 8
Creation Undek Special Acts
§ 228. Constitutional provisions agafnst special acts . 442

§ 229. Exceptions 444
§ 230. General rules of construction .^ 447
§ 231. Corporations within prohibition , -449
§ 232. What is special act 450
§ 233. What constitutes creation of corporation —In general 456
§ 234. — Amendment of charter 460
§ 235. — Eatification of charter or cure of defects 462
§ 236. What constitutes granting or conferring of corporate powers or privi-
leges —In general 462
§ 237. — Amendment of charter 464
§ 238. Retroactive operation of prohibition 466
§ 239. Acceptance of charter —^Necessity 466
§ 240. — Conditions precedent 467
§ 241 — Conditional or acceptance
partial w 468
I 242. — Persons accepting
T 468
§ 243. — Time 469
§ 244- 7— Place 470
§ 245. — Formal acceptance 470
§ 246. — Presumption of acceptance
' 471
§ 247. — Question for jury 473
§ 248. — Effect 473
§ 249. — Proof of nonacceptance 474
CHAPTER 9
Organization
§ 250. Terminology 475
§ 251. Elements 479
xi
Table of Contents
Page
§ 252. Necessity of organization 483
§ 253. —
Time for organization In the absence of statute 491
§ 254. — Under constitutional and statutory provisions 493
§ 255. Time for election of directors and officers 498
§ 256. Place of organization 499
§ 257. Procedure generally to effect organization 504
^ 258. Commissioners —Qualifications 509
§ 259. — Powers 509
§ 260. — Duties 511
§ 261. — Termination
• or revocation of autliority 512
§ 262. Notice of first meeting —Provision for 513
§ 263. — Purpose of provision for notice 513
§ 264. — By wliom given 514
I 265. — Time for giving 515
§ 266. — Form and contents
• 515
5 267. — Service 516
§ 268. — Effect of noncompliance with provisions as to notice 516
§ 269. Postponement of meeting 520
§ 270. Conduct of meeting and persons who may participate 520
I 271. Report of commissioners, corporators or officers 521
I 272. Certificate of organization; issuing and recording 524
CHAPTER 10
De Facto Corporations
I. GENERAL CONSIDERATIONS
) 273. Definition and nature 530
II. DOCTRINE IN RELATION TO COLLATERAL ATTACK
j 274. Statement of the rule 531

S
275. Statutory provisions 542
i
276. Basis of and reasons for the rule 545
i
277. Limitations of and exceptions to rule 547
III. REQUISITES OF CORPORATIONS DE TACTO
j 278. General statement 551

279. Lawful authority for existence of corporation —In general 557
— Organization under unconstitutional
i
i
280. statute 564
\ 281. — Corporations prohibited by statute or contrary to public policy 508
t
282. — Organization under inapplicable statute 571
t
283. — Unauthorized consolidation 572
) 284. — Corporations organized one in state to do business in or to evade
laws of another 574
) 285. — Expiration forfeiture of charter
or 576
i
286. — Effect of ouster by state 579
i
287. Effect of fraud— Special charters , 579
xii
.
Table of Contents
Paob
§ 288. — Organization
under general laws , 580
§ 289. Bona fide attempt to incorporate 589
§ 290. Compliance with provisions of statute or charter —In general 592
§ 291. —
View that substantial compliance necessary 593
§ 292. —
View that colorable. compliance sufficient 595
§ 293. — Provisions as persons who may incorporate
to 599
§ 294. — Execution of articles or certificate 600
§ 295. — Contents of or
articles and certificate affidavits. 602
§ 296. — Corporate name 604
§ 297. — Provisions as stock
to capital 605
§ 298. — Piling recording
or or articles certificate 608
§ 299. — Payment of and deposit of
fees securities 616
§ 300. —Îssuance of authorization by public
certificatci or officer 616
§ 301. — Provisions as organization
to 617
§ 302. — Consolidation, reorganization and amendment 620
§ 303. Assumption or user of corporate powers 621
IV. RIGHTS AND LIABILITIES OF DE FACTO COBPOEATIONS AND THEIR MEMBERS

§ 305. Contracts with de facto corporations 628
§ 306. Ownership of property and conveyances of same 634
§ 307. Mortgages 635
§ 308. Devises or bequests to corporation 636
§ 309. Eight to exercise special franchises 637
§ 310. Eight to exercise power of eminent domain 639
§ 311. Eight to exercise taxing power 645
§ 312. Actions by and against— In general 647
§ 313. — Actions by and against state 650
§ 314. Torts by and against — Torts by 651
§ 315. — Torts against 651
§ 316. Criminal proceedings— Criminal responsibility 652
§ 317. — Crimes against de facto corporations 653
§ 318. Eights and of members and
liabilities —In generalofficers 655
§ 319. — Controversies between members or members and officers 656
§ 320. — Liability on subscriptions to capital stock 656
§ 321. — Statutory for corporate debts
liability 657
CHAPTER 11
CORPOBATIONS BY EsTOPPEIj
I 322. Nature of corporations by estoppel 660
II. ESSENTIAL REQUISITES OF ESTOPPEL
§ 323. Necessity for recognition or holding out of pretended corporation. . . 661

§ 324. Necessity for equitable grounds of estoppel and effect of fraud 662
§ 325. Good faith, knowledge, notice and reliance 6^4
xiii
—
Table of Contents
Page
\ 326. Necessity for de facto corporate existence 668
5 327. Necessity for lawful authority 671
\ 328. Corporations prohibited by statute or public policy 677
i
329. Organization outside of the state 679
i 330. EfEect of dissolution of corporation — ^Dissolution before acts consti-
tuting estoppel 679
i
331. — Dissolution after acts constituting estoppel 681
III. ACTS CONSTITUTING ESTOPPEL AND PERSONS ESTOPPED
5 332. General nature of acts constituting estoppel —General considerations

as to recognition 683
333. — General considerations as to holding out 687
i
i
334. Estoppel of persons contracting or dealing with corporation — În gen-
eral 689
i
335. — Statutory provisions 696
i
336. — Contracting in name implying corporate existence 699
i
337. — Conveyances, mortgages and leases 703
i
338. — Bonds 708
339. — Further illustrations ,709
— Right to sue members
I
\ 340. as individuals
or ofScers 710
\ 341. — Estoppel in cases other than actions on contract 715
\ 342. — Limitations upon and exceptions to the rule 718
\ 343. Estoppel of pretended corporation—In general 719
\ 344. — Statutory provisions 722
] 345. — Use of name importing corporate existence 723
5 346. — Applications of the rule 725
5 347. — Estoppel in actions other than on contract 727
I 348. Estoppel of promoters, members and officers of pretended corporation
Estoppel of promoters and members 728
I
349. — Estoppel of officers 730
§ 350. — Estoppel of members and officers as between themselves or as against
the corporation 732
I 351. Estoppel of sureties or guarantors for corporation 737
i 352. Estoppel arising from actions by or against pretended corporation
Estoppel of persons suing or sued by corporation 737
g 353. — Actions and proceedings by the state 745
§ 354. — Estoppel of corporation 747
§ 355. Estoppel by judgment 750
g —
356. Estoppel as affected by privity of contract or estate Estoppel result-
ing from privity 755
g 357. -~ Estoppel in favor of persons in privity with corporation or its mem-
bers 757
CHAPTER 12
Incorporation of Partnerships, Associations and Tenants in

Common
g 358. General considerations 759
I 359. Agreement of members to incorporate 760
xiv
Table of Contents
Page
1 360. Statutory provisions and compliance therewith 762
§ 361. Name of corporation 764
§ 362. Effect of formation of corporation on existence of partnership or asso-
ciation 765
§ 363. Notice of change from partnership to corporation 767
§ 364. Conveyance of firm or association property to corporation —In general. 769
§ 365. — Transfer of by charter or
title of articles incorporation 772
§ 366. — Effect of charter on powerrestrictions 774
§ 367. — acquired by corporation
Title 774
§ 368. — Equitable title 775
§ 369. — Conveyance corporation not organized
to 776
§ 370. — Incorporation of association after devise
• or bequest to it 776
§ 371. — Statute of frauds 779
§ 372. — Estoppel and ratification 779
§ 373. — Eraud and fraudulent conveyances 780
§ 374. Eights of corporation as to contracts of and debts due to partnership
or association 786
§ 375. Liability of corporation on debts or contracts of partnership or asso-
—
ciation In general 789
§ 376. — Express assumption of debts 790
§ 377. — Assumption express or implied
either 794
§ 378. — Presumption where others become stockholders 795
§ 379. — Presumption from of of partnership
receipt assets 796
§ 380. — Eunning accounts; mechanic's lien 799
§ 381. — Statute of frauds 800
§ 382. — Effect of assumption of debts by corporation 801
§ 383. — of
Priorities creditors 802
§ 384. Liability of partners ormembers on contracts and for debts 803
§ 385. Eights of partners or members of association inter se and against the
corporation 806
§ 386. Incorporation of tenants in common 812
CHAPTER 13
Citizenship, Domicile, Residence and Habitancy

§ 388. Clause of Fourteenth Amendment of Federal Constitution defining
citizenship 823
§389. Equal privileges and immunities clause of Federal Constitution 824
§ 390. For purposes of federal jurisdiction Diversity of citizenship— 826
§ 391. —
Suits for infringement of patents, and for wrongful use of trade-
'
marks 840
§ 392. — Court of claims 843
§ 393. For purpose of holding corporate meetings and transacting corporate
business .' 843
§ 394. Within acknowledging and recording statutes 845
§ 395. For purposes of taxation 845
§ 396. For purposes of venue Suits — in federal courts 851
XV
Table of Contents
PiGE
i 397. — Suits in state courts 855
i 398. Within statutes of limitations , 859
\ 399. For purposes of attachment and garnishment 862
\ 400. Statute relating to judgment on filing affidavit of claim 865
j 401. Corporations created by congress In general — 865
i
402. — National banks 867
} 403. ' ' Principal place of business ' ' and ' ' residence ' within bankruptcy
'
acts 870
CHAPTER 14
CoEPORATE Existence
I. NECESSITY rOR EXISTENCE
i
404. Existence essential to corporate acts 877
II. COMMENCEMENT, DURATION AND EXTENSION OF EXISTENCE
i
405. Commencement of existence —Acceptance of charter 879
i
406. — Performance of conditions precedent 881
( 407. Duration and termination of existence 882
i
408. Extension —
and revival of charters Definitions and distinctions 883
i
409. — The power and its exercise in general 884
410. — Right as against nonoonsenting stockholders 887
411. — Extension by
i
( actspecial 888
i 412. —Extension under general laws 890
i
413. — Effect of extension 894
i
414. — Revival of charters 896
S
415. — Acceptance of extension or revival 898
III. PROOF or EXISTENCE
i
416. Necessity to prove incorporation. 898
i
417. What must be proved —In general 900
i
418. — De jure corporate existence 901
419. — De facto corporate existence 901
— Estoppel
i
i
420. to deny corporate existence 901
i
421. Burden of proof 902
i
422. Presumptions and prima facie proof În general — 904
423. — Use of name importing a corporation 906
— Presumption
i
i
424. ' of continued existence 909
j 425. Parol evidence of incorporation; reputation —In general 910
i
426. — In criminal actions 912
I
427. — Direct testimony that a company is a corporation 915
\ 428. Proof and judicial notice of special charters and general laws —Public
acts 916
i
429. — Private and foreign acts 920
i
430. Acceptance of charter 924
xvi
Table of Contents
Page
§ 431. Organization of corporation and performance of conditions precedent
—
Corporate books and records 925
§ 432. — 'Articles, certificates, letters patent, etc 926
§ — National banks
433. 929
§ — Confirmatory
434. act 929
§ —435. parol evidence
Affidavits; 929
§ — Presumptions
436. 930
§437. — Foreign corporations 934
§ — Conclusiveness of
438. certificates, etc 940
§ 439. Proof of user 942
§ 440. Statutory provisions 943
CHAPTER 15
Underwriting Agreements
§ 441. Introductory statement 949
§ 442. Definition 950
§ 443. Distinctions — În general 950
§ 444. — Subscriptionagreements f 951
§ 445. Form of agreement 952
§ 446. Eelation of underwriter to corporation 954
§ 447. Corporations as underwriters or guarantors 955
§ 448. Acceptance of agreement —Necessity of acceptance ; notice 955
§ 449. — What constitutes acceptance 956
§ 450. — Time of acceptance 957
§ 451. — Estoppel to deny acceptance 957
§ 452. Consideration for underwriting— Payment in general nature right ; ; to
pay commission 958
§ 453. — Construction of particular words as to consideration 960
§454. — Actions for consideration , 961
§455. Conditions in agreements—As to place of business of corporation.... 961
§456. — As to other subscriptions 961
5457. — Parol evidence 962
§458. Application for shares of stock—Necessity of formal application 962
S459. — Application by agent 963
\460. —Extent of agent's authority. . 963
\461. — Calling upon underwriter to perform contract 964
\462. Extent of obligation to take stock 964
\463. Breach of contract—Election of remedies 965
464. — Parties 965
465. — Breach of covenants
i
965
466. — Delivery of stock
i
( 966
i
467. — Insolvency as defense 966
i
468. — Measure of damages 967
i
469. — Effect of indemnity agreement 967
i
470. performance
Specific 967
i
471. Discharge or of underwriter —Lapse of time
release 967
i
472. Alterations or variations of underwriting agreements 968
xvii
Table of Contents
Page
S
473. Fraud in procuring underwriting —In general 369
! 474. — Remedies 970
J
475. Underwriter 's liabilities to third persons 970
] 476. Eights of underwriters to interest on bonds 971
J
477. Pledges of underwriting agreements 971
1 478. Assignment of underwriting agreements —Assignability and nego-
tiability 971
i
479. — Eights of assignee 972
CHAPTER 16
By-Laws
I. DEFINITION AND DISTINCTIONS
§ 480. Definition 975

§ from resolutions
481. Distinguished iJ77
§ 482. Distinguished from laws of municipal corporations 978

§483. Distinguished from rules and regulations operating upon third persons. 978
II. ADOPTION AND PBOOP
§ 484. Adoption —^Power in general 979

§ 485. — Necessity 982
I 486. — By whom power exercised 982
§ 487. — Mode 986
§ 488. Proof 989
III. VALIDITY
§ 489. Consonance with law 990

§ 490. Consonance with public policy and public welfare 995
§ 491. Ousting courts jurisdiction
' 996
§ 492. Impairment of obligation of contracts and destruction or impairment
of vested rights 1005
§ 493. Eestraint of trade 1007
§ 494. Consonance with charter and with nature, purposes and objects of cor-
poration 1008
§ 495. Eeasonableness 1013
§ 496. Uniformity of operation 1015
§ 497. Effect of partial invalidity 1016
§ 498. Eight to enforce invalid by-law as contract 1016
IV. CONSTEUCTION
§ 499. General rules as to construction 1017
V. NOTICE
g 500. Presumption of knowledge 102?

xviii
;
Table of Contents
vi. operation and effect

Pagb
§501. On stockholders or members 1025
§ 502. On third persons 1033
VII. WAIVER
§ 503. Power of corporation, members and officers as to waiver of by-laws

proof of waiver 1036
VIII. AMENDMENT AND SUBSEQUENT ADOPTION
§ 504. Power in general 1040

§ 505. Eeservation of power 1047
i 506. Who may amend 1065
§ 507. Mode 1067
IX. REPEAL
\ 508. Power in general 1071

\ 509. Who may repeal 1071
! 510. Mode 1072
X. REGULATION OF PARTICULAR, MATTERS
\ 511. Acquisition of and expulsion from membership; fines 1073

5 512. Stock; issue;payment; assessments; rights and liabilities of stock-
holders in general 1075
i
513. —
Transfer of stock Restrictions on alienation 1079
i
514. — Protective regulations 1085
! 515. — Creating or reserving lien on stock .1091 .
! 516. Corporate meetings 1100

) 517. Right to vote and manner of voting at corporate meetings 1101
i
518. Directors and officers 1105
t
519. Inspection of books and papers 1114
SIX
1
PRIVATE CORPORATIONS
VOLUME I
CHAPTER 1
History and General Considerations
i. histoet
§ 1. Origin of the corporate concept.
§ 2. Primitive and ancient forms.
§ 3. Modern development.
II. DEriNITIONS AND ATTEIBUTES

§ 4. Leading definitions.
§ 5. —In
Attributes general.
§ 6. — Continuing succession.
§ 7. — personality.
Artificial
§ 8. — Name.
§ 9. —Seal.
§10. —By-laws.
§ 11. — Power to hold realty.
§ 12. — Transfer of membership.
§ 13. — Individual for indebtedness.
liability
III. THE CORPORATE FRANCHISE

§ 14. Primary.
§ 15. Secondary.
IV. DISTINGUISHED PROM OTHER TORMS OP ASSOCIATED BUSINESS

§ 16. Partnerships.
§ 17. Joint stock associations.
§ 18. Societies, fraternities and clubs.
§ 19. Basic distinguishing features — Domestic associations.
§ 20. — Associations under foreign laws.
§ 21. Advantages of incorporation.
V. CORPORATE ENTITY IN DEALING WITH THIRD PERSONS

§ 22. In general.
§ 23. Contractual powers and obligations —In general.
§ 24. — Agency.
1
I Priv. Corp. —
§ 1] Pbivate Cobpoeations [Ch. 1
§ 25. — Acquisition and transfer of property— Title to property.

§ 26. — Transfers and conveyances.
§ 27. — Eeal and mortgages.
chattel
§ 28. — Property restrictions.
§ 29. — Eights of action as property. to
§ 30. — Execution and attachment.
§31. Torts.
§32. Crimes.
§ 33. Actions —General considerations.
§ 34. — Members as parties.
§ 35. — Eights of by members.
set-off
§ 36. — Judgments.
§ 37. — Notice members.
to
§ 38. — Admissions of members.
§ 39. — Eesidence and for citizenship jurisdictional purposes.
§ 40, Statute of frauds.
§41. Taxation.
§ 42.Disregard of corporate entity —General statement.
§ 43. — Acts of members.
§ 44. — Fraudulent acts.
§ 45. — Agency for parent corporation.
§ 46. — Evasion of statutory obligation.
§ 47. — Equitable mortgages.
§ 48. — Members as '
corporate property.
' interested '
' in
VI. THE JURISTIC PERSON AND ITS INTERNAL RELATIONS

§ 49. In general.
§ 50. Contracts.
§ 51. Transfers and conveyances.
§ 52. Actions.
VII. CONSIBERED AS A PERSON, RESIDENT OR CITIZEN

§ 53. In general.
§ 54. Person.
§ 55. Besident or inhabitant.
§56. Citizen.
I. HISTORY
§ 1. Origin of the corporate concept. There is authority for the

statement that the concept of collective entity antedates that of the
individual; that "groups of men united by the reality or fiction of
'
blood relationship ' into families, elans or tribes were recognized units
of primitive society even before the individual was so regarded.^
Upon assumed ethnological predicate has been erected the
this
theory that the basic principle of corporate organization, the embodi-
ment of which is now described as a fictitious, intangible person,
1 Maine, Ancient Law (4th Ed.),

183.
'
Ch. 1] HiSTOBY AND GeNEBAL CoNSIDEBATIONS [§ 1
created by law and existing only in contemplation thereof, is in reality

but a manifestation of the gregarious instinct in man, existing inchoate
from earliest times and before law itself became an effective social
force. The law, it is argued, has done no more than to recognize the
existence of this phase of human activity,guide its development and
define its functions and relations. In short, instead of the role of
creator, assumed by the law for its own convenience, the relation
would be more aptly described by assigning to the law the part of one,
who, having discovered a foundling upon his doorstep, clothes and
feeds it and thereafter treats it as his own.^
Furthermore, as a corollary to this proposition, it is declared that
the corporate idea is theproduct of no one people and no one country,
but, on the contrary, developed more or less independently, in varying
forms, among the several ethnological units.'
Other students, committed to the imitative theory of jural develop-
ment, disregard these faint foreshadowings of the modern corporation
and trace its genesis to the Greece of Solon (638-559 B. C), citing the
Commentaries of Gaius on Eoman law and passages from the Pandects
of Justinian as authority for the assertion that laws fathered by the
great Hellenic jurist permitted the formation of private corporations
for certain purposes, upon condition that they did not operate in
violation of other laws of the state.*
Blackstone, on the other hand, ascribes the birth of the corporation
Numa Pompilius (715-672 B. C), who,
to the political necessities of
upon power in Rome, desiring to end the disrupting
his accession to
influence of the private war being waged between the Sabine and the
Roman factions, "thought it a prudent and politic measure to sub-
divide these two into many smaller ones, by instituting separate
'
societies of every manual trade and profession. ^ '
8 Common Law Conception of a Eeferenee may also be made, for side

Corporation, 42Am. L. Eeg. 529-30; lights upon this point, to the intro-
The Genesis of the Corporation, 19 duetory chapters of Taylor's The
Harv. L. Eev. 350 et seq. Science of Jurisprudence, and to the
3 Pollock and Maitland, Hist, of translations of the valuable studies of
Eng. Laws (2nd Ed.), I, 486: "Every several French, German and Italian
system of law that has attained a authors compiled by Koeourek and
certain degree of maturity seems com- Wigmore in the Evolution of Law
pelled by the ever-increasing com- series of selected readings under the
plexity of human affairs to create volume heading, "Primitive and An-
persons who are not men, or rather cient Legal Institutions."
(for this may be a truer statement), 4AylifEe, Treatise on Civil Law, 197=
to recognize that such persons have 6 1 Bl. Com. 468-9.
come or are coming into existence. '

'
§ 2] Pbivate Corporations [Ch, 1
§ 2. Primitive and ancient forms. Be this as it may, it is neverthe-

less generally agreed that under the auspices of Roman jurisprudence
there was evolved the prototype of the modern corporation ; that the
collegium or universitas of the Civil Law were clothed with practically
the same elementary attributes that to-day distinguish the corporation
from other associations of individuals. Subsequent jurists have
developed refinements of classification and have applied the principles
borrowed from Roman jurisprudence to fields perhaps not then con-
templated, but the essential characteristics of a corporation are still
enumerated substantially as in the days of the Caesars.^
"Roman law," says Sohm, "contrived to accomplish a leritable
masterpiece of juristic ingenuity in discovering the notion of a col-
lective person ; in clearly grasping and distinguishing from its mem-
bers the collective whole as the ideal unity of the members bound
together by the corporate constitution; in raising this whole to the
rank of a person (a juristic person, namely) and securing it a place
in private law as an independent subject of proprietary capacity,
'
standing on the same footing as other private persons. '
This development, however, was gradual, and for a long period in

the face of more or lesS' pronounced governmental hostility. From
the time of the Twelve Tables until the days of the emperors, cor-
porate activity was closely hedged about by restrictions, and decrees
denouncing as illicit those corporations that had started upon their
careers without authority, or had transgressed in any way, were of
frequent occurrence.^
According to Savigny, the earliest Roman corporations were those
devised for the government of towns, villages and colonies. "But
once established definitely for dependent towns," he observes, "the
institution of the legal person was extended little by little to cases
6 Ene. Brit. "Corporation." demia induced Pliny to recommend

">
Institutes of Roman Law, 105-6. to theEmperor Trajan the institution
8 Taylor, Civil Law, 567-70. Kent for that city of a fire company of 150
(2 Com. 217), in diaeussing this at- men fabrorum), with an
(collegium
titude of the early Komans, points assurance that none but those of that
out, oi the authority of Suetonius, business should be admitted into it,
that the Emperor Augustus, discover- and that the privileges granted them
ing that certain licensed associations should not be extended to any other
had become hotbeds of disorder and purpose. But the Emperor refused to
rivalry, decreed the dissolution of grant it, and observed that whatever
all save the ancient and legal cor- name he gave them and for whatever
pOrations. In the same connection he purpose they might be instituted, they
refers to the narrative of the younger would not fail to be mischievous."
Pliny: "A
destructive fire in Nico-
' "
Ch. 1] HiSTOHY AND GeNEKAL CONSIDERATIONS [§ 2
for whieh one would hardly have thought of introducing it. Thus,
it was applied and artisajis, then, by-
to the old brotherhoods of priests
way of abstraction, to the state, which, under the name of fiscus, was
treated as a person and placed within the jurisdiction of the court.
Finally, to subjects of a purely ideal nature, such as gods and
' '
temples.
Corporations were classified under the Eoman law as civitates, or
municipal corporations, collegia of priests and other religious groups,
seribffi and similar organizations of public officials, and finally trade
societies, exemplified by the fabri, pictores and navicularii. This last

group, however, included many societates not incorporated, and dis-
tinguishable from the true corporations by tests similar to those now

employed to mark the boundary between partnerships and corpora-
tions. Indeed, this distinction was well established in Roman law,
which recognized as essential corporate attributes, in addition to the
complete separation of the rights of the collegium as a body from
those of its members as individuals, the corporate right to acquire,
hold and transfer property, to enact by-laws, not in conflict with the
general law, for its own government, to sue and be sued by its agent
(syndieus) and to so effect changes in its membership that its life and
identity would be perpetual, subject only to the revocation of its

license by the state, or its dissolution by voluntary act.^*
The conclusion of Blackstone as to the source of the corporate idea
having been quite generally accepted, law writers have likewise fol-
lowed him in tracing the earliest forms of English corporations to
the Civil Law, crediting the church with being the medium of transfer
across the black gap of the Middle Ages.^^
This assumption, however, is not wholly satisfactory, ignoring as
it does, the historical fact that the Civil Law was unknown in England
prior to the Norman conquest, having been first introduced by the
Norman Abbott Theobald, afterwards Archbishop of Canterbury ,^2
and the equally well authenticated assertion that corporations existed
in England long before Roman textbooks were known in that
country. ^^
It would perhaps be more satisfactory to accept the conclusion Hi
the writer last cited, that the English corporation, in its origin, was a
product of local evolution, while admitting freely that its subsequent

development was unquestionably influenced by the introduction of
the Civil Law.
9 System des Heutigen Eomisehen llEnc. Brit. "Corporation."
Bechts, II, 86 et seq.
§ 12 28 N. J. L. J. 101.
10 Enc. Brit. ' ' Corporation. 13 19 Harv. L. Eev. 353-4.
5
§ 2] Pbivate Cokpobations [Ch. 1
In any event there grew up in the England of pre-Conquest days

several classes of organizations embodying many of the elements of
corporations. The first of these, according to Kyd, were those peculiar
to the church, and grew out of the necessity of providing means for
holding property.^*
was out of this situation that there developed the corporation
It
sole,an offset of the corporate concept and subsequently applied, by
analogy, to municipal affairs and to the state.^^
Contemporaneously with these ecclesiastical corporations, if not
antedating them, as some authorities say, there existed in England
certain forms of temporal corporations known first as peace guilds,
the members of which were pledged to stand together for mutual
protection.^®
These, it seems, were of two classes, one including neighborhood
groups, the other embracing those exercising similar occupations.
Both of these, in time, developed into an approximation of the mod-
ern municipal corporation, each exercising minute supervision over
those under its jurisdiction, the one dealing with all persons living
within a certain territory, and the other with all of those of like
occupation residing within a certain district. It thus came to pass
that as late as the time of Henry VI the terms guildated and incor-
porated were practically synonymous.^''
The trade guilds, like those conceived in the development of the
idea of purely neighborhood solidarity, made by-laws governing their
respective trades, which ruled not only recognized members but all
of like occupation as well, so long as they did not conflict with public
policy or general law.^'
It was not, however, until the middle of the 17th century that
there came into existence the great trading corporations of England,
which of all ancient forms come nearest to approximating the com-
mercial giants of modern times. Familiar examples of these were
the East Indian Company, chartered by Elizabeth, and the corpora-
tions which undertook the colonization and exploitation of the New
World, notable among which was the Hudson Bay Company, the
activities of which continued down to the middle of the last century.^*
Kyd on Corporations, 95.

14 1 18 Butchers ' Company v. Morey, 1
IBl Bl. Com. 468; 1 Kyd on Cor- H. BI. 370; Kirk v. Nowill, 1 T. E.
porations, 28; Pollock and Maitland, 118.
Hist, of Eng. Law (2nd Ed.), I, 488, 19 1867, according to Winsor, Criti-
note 1. cal and Narrative Hist, of America,
16 Bretano, Hist, of Guilds. AÎI, 60.
17 Madox, Firma Burgi, 29.
"
Ch. 1] History and Genebal Considebations [§ 3
And even these, up to the beginning of the 18th century, were, far
from being regarded merely as organizations designed for the more
convenient prosecution of business. They were, rather, looked upon
as public agencies, to which had been confided the duty of regulat-
ing foreign trade, just as the domestic trades were subjected to the
government of the guilds.^"
§ 3. Modem development. Leaving to the students of comparative

law the task of tracing the subsequent development of the corporate
idea in England and upon the Continent, there remains for consid-
eration the growth of corporations in America, as a prelude to the
discussion of the body of law governing them in this country. In
passing, it is interesting to note the reminder of Judge Baldwin:
"The law of corporations was the law of their being for the four
original New England colonies. * * * It governed all the rela-
tions of life * * * whether the government to which they were
subject was set up under a charter from the crown or those who held
a royal patent, or * * * -vâs a theocratic republic, owing its
authority to the consent of the inhabitants. The one rested on the
law of private corporations de jure the other on that of public cor-
;
porations de facto. * * * Por all the charter governments the

17th century * * * -was one long school of study for their lead-
ers into the rights of private corporations as founders of colonies,
and then into those of the colonies as they grew into public corpora-
tions * * * and received as such, new authority from the crown.
And it was largely out of the divergent interpretations of these
foundation corporate charters, he points out, that there arose the

issues that ultimately resulted in the Declaration and the Revolu-
tion.2i
In order clearly to understand the successive stages of develop-
ment of corporations in America, it is necessary to bear in mind that
the corporate idea came to this continent stamped with the salient
features of the English corporation of that time. These were, first,
that a corporation could be created only by the will of Parliament
or of the Crown; second, that this creative act was symbolized by
the granting of a charter of powers, and third, that at least in so
far as the trading corporations were concerned, these charter rights
and powers were exclusive and monopolistic in a high degree.^'^
20 The Law of Corporations. This 21 Two Centuries ' Growth of Ameri-
work, the first England devoted
in can Law, 261-5.
exclusively to corporations, was pub- 22 2 Harv. L. Rev. Ill ; 42 Am. L.
lished anonymously in 1702. Eeg. 541.
7
§ 3] Peivatb Cobpoeations [Ch. 1
In these circumstances, there is little reason to wonder that there

existed in colonial America and afterwards a distrust of all cor-
porations and hostility towards all moves looking towards making
their establishment possible in this country. Without multiplying
instances of this attitude it is sufficient for present purposes to note
the views of the delegates who framed the Federal Constitution's
and of the states which ratified it with misgivings."*
During the colonial period of American history there were but six
purely native-bom business corporations.'*

To were added but twenty during the thirteen-year period
this list
preceding the adoption of the Federal Constitution, of which one
was created by the Confederacy itself, entitled, "The President,
Directors and Company of the Bank of North America."'®
The cloud of disfavor under which corporations labored in America
was not dissipated until near the end of the 18th century, and during
the last eleven years of that period the total number of charters
granted did not exceed two hundred, most of the business of that
period being transacted by unincorporated joint stock companies
more in the nature of limited partnerships." Chief among the
causes for the changed popular attitude towards business corpora-
tions that marked the opening of the 19th century was the elimina-
tion of their inherent monopolistic character.This was accomplished
primarily by an extension to this class of corporations of the prin-
ciple of free incorporation under general laws. The way for this
23 Madison's Journal (Scott's Ed.), for Trade and Commerce, in Connect-

549-50, 725-6. icut,1732; (4) The Union Wharf
24 "In ratifying the Constitution, Company in New Haven, 1760; (5)
four states (Massachusetts, New The Philadelphia Contributionship
Hampshire, North Carolina and Ehode for the Insuring of Houses from Loss
Island), recommended that it be by Fire, 1768; (6) The Proprietors
amended by a provision that Congress of Boston Pier, or the Long Wharf in
should erect no company (or no com- the Town of Boston in New England,
pany of merchants) 'with exclusive 1772.
advantages of trade, ' and New York 26 Originally organized as a volun-
asked for a further prohibition of all tary association of capitalists for the
grants of monopolies." Baldwin, purpose of restoring the failing credit
American Business Corporations be- of the Confederacy, but subsequently
fore 1789, 8 Am. Hist. Rev. 464. granted a charter by congress and
26 8 Am. Hist. Eev. 450. They later by each of the states, by virtue
were: (1) The New York Company of which it enjoyed a monopoly of the
"for Settleing a Fishery in these banking business for several years, it
parts," 1675; (2) The Free Society still operates, under the ancillary ohar-
of Traders in Pennsylvania, 1682; ter granted by Pennsylvania in 1787.
(3) The New London Society United 27 8 Am. Hist. Rev. 459.
Ch. 1] HisTOEY AND Geneeal Consideeations [§ 4
innovation was paved by North Carolina, which in 1795 enacted a

law of this nature, although limited, at this time, to canal com-
panies.^'
The new idea did not become well established, however, until after
the Supreme Court had given sanction to the doctrine that a cor-
poration, instead of having the right to do all things that a natural
person could do, unless prohibited therefrom by its charter, had such
powers only as were expressly granted to it by its enabling act.^®
With removed, and with a vast territory open for

this obstacle
commercial development, business corporations from this point mul-
tiplied rapidly in number and importance. The detailed discussion
of the lines of their growth, and the evolution of the present day
legislative and judicial attitude towards them, will be presented in
succeeding chapters.
n. DEFINITIONS AND ATTRIBUTES
§ 4. Leading definitions^ Lord Coke stated "Persons capable of :
purchasing are of two sorts, persons natural, created of God, and

persons created by the policy of man, as persons incorporated into a
body politic. " ^^ He also stated that the reason for calling the body
a corporation is "because the persons composing it are made into
one body."'^
An early English writer on the law of corporations, Kyd, said
that "a corporation * * * is a collection of many individuals,
united into one body, under a special denomination, having perpetual
succession under an artificial form, and vested, by the policy of the
law, with the capacity of acting, in several respects, as an individual,
particularly of taking and granting property, of contracting obliga-
tions, 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 subsequent period of its existence. " ^^ It will be noted that
Kyd lays stress on the fact that a corporation essentially is a col-
lection of indwidiMls.
The famous definition of a corporation given by Chief Justice
28 Baldwin, Mod. Pol. Inst. 148, 174, 30 1 Inst. 202, 250.

193-4; Laws of North Carolina (1821), 31 lo Co. Eep. 50.
I, 769. 32 1 Kyd on Corporations, 13.
29 HeadProvidence Ins.
v. Co., 2
Cranoh (U. S.) 127, 2 L. Ed. 229.
9
§ 4] Peivate Cobpoeations [Ch. 1
Marshall emphasizes rather the notion of the legal entity of the cor-
poration. "A corporation," he said, "is an artificial being, invisible,
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 inci-
dental to its These are such as are supposed best
very existence.
calculated 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 a single
individual. They enable a corporation to manage its own affairs, and
to hold property without the perplexing intricacies, the hazardous
and endless necessity, of perpetual conveyances for the purpose of
transmitting it from hand to hand. It is chiefly for the purpose of
clothing bodies of men, in succession, with these qualities and ca-
pacities, that corporationswere invented, and are in use. By these
means, a perpetual succession of individuals are capable of acting for
the promotion of the particular object, like one immortal being. ^^
'
'
Chancellor Kent in his Commentaries indicates that a franchise

from the state is an important element of a corporation. He said
"A corporation a franchise possessed by one or more individuals,
is
who subsist, as a body politic, under a special denomination, and are

vested, by the policy of the law, with the capacity of perpetual suc-
cession, and of acting in several respects, however numerous the asso-
may '
^*
ciation be, as a single individual. '
human beings
Blackstone laid stress upon the legal immortality of
once they were united into a corporation, saying: "The privileges
and immunities, the estates and possessions, of the corporation, when
once vested in them, will be forever vested, without any new con-
veyance to new succession, for all the individual members that have
existed from the foundation to the present time, or shall ever here-
after 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 compose it are changing every instant.
'
^^
'
Chief Justice Baldwin of Connecticut has defined a corporation

as "an association of persons to whom the sovereign has offered a
artificial, juridical person, with a name of its
franchise to become an
own, under which they can act and contract, and sue and be sued,
83 Dartmouth College v. Woodward, ford v. Livingston, 2 Den. (N. Y.)

i Wheat. (U. S.) 518, 636, 4 L. Ed. 629. 380, per Hand, Senator.
34 2 Kent 'a Com. 267. See also Gif- 36 1 Bl. Com. 467-8.
10
'
Ch.l] HiSTOKT AJSTD GeNEEAL CONSIDERATIONS [§4
and who have * * * accepted the offer and effected an organiza-

tion in substantial conformity with its terms. "^^
It has been said that "A corporation IS a mere concep-
tion of the legislative mind. It exists only on paper through the

command of the Legislature that its mental conception shall be
clothed with power. "^'' This statement is misleading. A corpora-
tion is not a mere mental conception. It is as much of a reality as
any other collective unit. Any collective unit is not only a reality
but a very substantial reality. The only "mental conception" in-
volved in the idea of a corporation is found in the fact that the law,
for purposes of its own, indulges in a benevolent fiction and endows
the corporation with personality. A
corporation, in truth and in
fact, is assuredly not a person. The law, however, conceives of it as
a person and treats it as a person for most purposes. Other defini-
tions are collected in the notes.**
36 Maekay v. New York, N. H. & H. of the corporation. ' ' Nelson, C. J., in
Eiver E. Co., 82 Conn. 73, 81, 24 L. B. Thomas v. Dakin, 22 Wend. (N. Y.) 9.
A. (N. S.) 768, 72 Atl. 583. "An artificial being, created by law,
37 People V. Knapp, 206 N. Y. 373, and composed of individuals * * «
Ann. Cas. 1914 B 243, 99 N. E. 841, per with the capacity of perpetual succes-
Vann, J. sion, and of acting, within the scope of
38 "A corporation is a body, created its charter, as a natural person."
by law, composed of individuals united Fietsam v. Hay, 122 111. 293, 13 N. E.
under a common name, the members of 501.
which succeed each other, so that the "A
corporation aggregate * * •
body continues the same, notwith- isan artificial intellectual being, the
standing the change of the individuals mere creature of the law, composed
who compose it, and is, for certain pur- generally of natural persons in their
poses, considered as a natural person. '
natural capacity; but may also be com-
Angell & Ames, Corp. § 1. posed of persons in their political
"A corporation is an artificial per- capacity of members of other corpora-
son, created by law, having a conti- tions. " Eegents of University of
nuity of existence, either definite or Maryland v. Williams, 9 Gill & J.
indefinite, and capacity to do au- (Md.) 365, 393, 31 Am. Dec. 72.
thorized acts, and capable, however In his concurring opinion in North-
numerous the persons that compose it ern Securities Co. v. United States,
may be, of acting a^ a single indi- 193 U. S. 197, 362, 48 L. Ed. 679, Mr.
vidual." Dwight, Persons & Pers. Justice Brewer, referring to a corpora-
Prop. 350. tion said: "It is an artificial person,
"A corporation aggregate is an ar- created and existing only for the con-
tificial body of men, composed of di- venient transaction of business."
vers individuals, the ligaments of "A corporation is a body of per-
which body are the franchises and sons upon whom the state has con-
liberties bestowed upon it, which bind ferred such voluntarily accepted but
and unite all into one, and in which compulsorily maintained relations to
consists the whole frame and essence one another and to all others that as an
11
"
§ 5] Pbivate Coepoeations [Ch. 1
—
§ 5. Attributes In general. Blackstone, in his Commentaries,
enumerates tbe attributes of a corporation in substance as follows:
(1) the capacity of perpetual succession; (2) the power to sue or
be sued in the corporate name; (3) to acquire or transfer property
and do other acts in its corporate name; (4) to purchase and hold
real estate; (5) to have a common seal; (6) to make by-laws for the
internal government of the corporate body.^^ It is doubtful whether
even in Blackstone 's day all of these attributes were essential to
corporate existence however, this may be, it is well settled to-day that
;
some of the faculties above described are not at all essential to the
modem private corporation for pecuniary profit. It is true that
these faculties are ordinarily incident to corporate existence, but
some of them are not in the least essential. In a leading New York
case, Chief Justice Nelson said, "that the essence of a corporation
consists in a capacity (1) to have perpetual succession under a special
name, and in an artificial form; (2) to take and grant property,
contract obligations, sue and be sued, by its corporate name as an
individual; and (3) to receive and enjoy in common grants of privi-
leges and immunities. *"
'
'
§6. —
Continuing succession. As has been seen, Blackstone re-
garded the capacity of perpetual succession as an essential attribute
of a corporation, and the same view has been taken by other authori-
ties.*^' In this connection it may be well to observe that the term
"perpetual succession" is not generally construed to imply corporate

immortality, but rather a continuity of existence, irrespective of
that of its component members, limited in duration to the period
stated in its charter or the act authorizing the granting thereof.*^
autonomous, self-sufficient and self -re- Mich. 214, 12 Am. Eep. 243; Merrick v.
newing body they may determine and Van Santvoord, 34 N. Y. 208; People v.
enforce their common will, and in the Assessors of Watertown, 1 Hill (N. Y.)
pursuit of their private interest may 616, 620; Gibbs' Estate, 157 Pa. St. 59,
exercise more efficiently social fune- 22 L. K. A. 276, 27 Atl. 383; State v.
tions both specially conducive to pub- Milwaukee, L. S. & W. Ey. Co., 45 Wis.
lie welfare and most appropriately 579.
exercised by associated persons. 39 1 Bl. Com. 475.
Davis, Corp. 1, 34. 40 Thomas v. Dakin, 22 Wend. (N.
See also Hollins v. Brierfield Coal & Y.) 9; and see Andrews Bros. Co. v.
Iron Co., 150 U. S. 371, 382, 37 L. Ed. Youngstown Coke Co., 86 Fed. 585.
1113; Allen v. Curtis, 26 Conn. 456; 41 Andrews Bros. Co. v. Youngstown
Board Com'rs Tippecanoe Co. v. La- Coke Co., 86 Fed. 585; Nelson, G. J.,
fayette, M. & B. E. Co., 50 Ind. 85, in Thomas v. Dakin, 22 Wend. (N.
108; McKim v. Odom, 3 Bland (Md.) Y.) 9.
407, 418; Thompson v. Waters, 25 42 People v. Wayman, 256 111. 151,
12
Ch. 1] HiSTOBY AND GbMEBAL CONSIDERATIONS [§ 8
The capacity of eontinuing succession, as will be seen in discussing

the difference between the partnership and the corporation as types
of business organization, furnishes to a corporation the faculty of
existing for a period of time despite the withdrawal or the demise
of the individual associates. The death or withdrawal of a stock-
holder does not affect corporate existence or identity in any respect.
The artificial person, the corporation, continues to exist as the same
corporation, "in like manner as the River Thames is still the same
river though the parts which compose it are changing every in-
stant. "«
§ 7. — A corporation is not in fact and in
Artificial personality.
reality a person, but the law treats it as though it were a person by
process of fiction. It is regarded as an artificial person distinct and
separate from its individual stockholders. It has a real existence
with rights and liabilities as a separate legal entity. It is a live
thing with a separate existence which cannot be swept aside as a
technicality.** So far, however, as its personality is eoneerhed, the
corporation has no physical existence but exists only in contempla-
tion of law. This attribute is universally regarded as the most dis-
tinctive corporate faculty and as distinguishing a corporation, above
all other features, from unincorporated organizations.*^ It was re-
cently held in England that a corporation chartered in the United
Kingdom is English, and is entitled to sue as such in the English
courts, even though practically all of its shares of stock were held
by alien enemies, namely, subjects of the German Empire residing
in Germany.*^
§ 8. — Name, In Rolle 's Abridgment, citing the Sutton Hospital

case, it is laiddown that the name of incorporation is as a proper
name or a name of baptism, and that a name is, therefore, essential
to a corporation.*'' Blackstone says that "when a corporation is
99 N. E. 941; State v. Scott County 47Eolle'a Abridgment, "Corpora-.

Macadamized Eoad Co., 207 Mo. 54, 13 tion, '
'See also Smith v. Tallas-
512.
Ann. Gas. 656, 105 S. W. 752. see Branch of Central Plank-Eoad Co.,
43 1 Bl. Com. 468. 30 Ala. 650; Glass v. Tipton, T. & B.
44 Continental Tyre & Rubber Co., Turnpike Co., 32 Ind. 376; Bridgeford
Ltd. V. Daimler Co., Ltd., [1915] IK. & Co. v. Hall, 18 La. Ann. 211; Con-
B. 893. servators of River Tone v. Ash, 10
45 Thomas v. Dakin, 22 Wend. (N. Barn. & C. 349. It is essential that a
T.) 9. corporation should have a name. Senn
46 Continental Tyre & Rubber Co., v. Levy, 111 Ky. 318, 63 S. "W. 776.
Ltd. V. Daimler Co., Ltd., [1915] 1 K.
B. 898.
13
§ 8] Peivatb Corpobations [Ch. 1
erected a name must be given to it and by that name alone it must

sue and be sued and do all legal acts; though a very minute varia-
tion therein is not material. Such name is the very being of its
constitution * * * without which it could not perform its cor-
porate functions."*' A corporation may, however, use more than
one name, and may conduct a portion of its business in its artificial
name and the remainder in the name of its president without ceasing
to be a corporation.*^
§ 9. — Seal. At common law a corporation has an implied power

to use a seal.*" This is not an essential corporate attribute. It is
settled law to-day that a corporation may make contracts without
the use of a seal, and the doctrine that no corporate act can be binding
without bearing the corporate seal, has long ceased to be maintained.*^
Corporations to-day, accordingly, are held on implied contracts in
precisely the same manner as individuals.*^
§ 10. — By-laws.
The implied power to make by-laws is incident
to every corporation mnless prohibited by its charter, but it is not at
all essential to corporate life.** But if the charter provides suffi-
ciently for internal regulation and government of the corporate
body, it is clear that by-laws would be superfluous.**
§ 11. —
Power to hold realty, Blaekstone regarded the power to
purchase and hold lands as an inseparable incident of corporate ex-
istence.**It is true that this power is ordinarily implied, even
though not granted in terms in the corporate charter, but it is not
by any means a vital corporate attribute unless the sole purpose of
creation of the corporation necessitates its acquisition of real estate.*®
48 1 Bl. Com. 474, 475. 52 Lawford v. Billerieay Kural Dist.

49 Liverpool Ins. Massachu-
Co. v. Council, [1903] 1 K. B. 772. See Chap,
setts, 10 Wall. (U. S.) 566, 19 L. Ed. 22, infra.
1029, aff'g 100 Mass. 531; Bdgeworth M Leggett v. New Jersey Manufao-
V. Wood, 58 N. J. L. 463, 33 Atl. 940;
_ ,
.
turing
. !
&%, ^ ^/ ^
,
Banking
. „
N. J. Eq. 541,
^ .„
„, '
„„ ™- ,
. ,,T tr V /> Co., 1
Thomas V. Dakin, 22 Wend. (N. Y.) 9. ^,. „
,.
'
J î-xe
„„
23 Am. Dec. „„„%,,
. -r^
728; Thomas v. Dakin, 22
A corporation may act under diicerent
.
x <.
_ ' '
^^''^- ^^- ^'^ ^' ^""^^ ^- ^t^ps, Ho-

names Wilhite v.
at different times.
^^"^^'^ ^^^p. 210b, 211a. See also Chap.
Convent of Good Shepherd, 117 Ky.
251, 78 S. W. 138. ^^' ^"^'*-
BO 1 Bl. Com. 475. ** Thomas v. Dakin, 22 Wend. (N.

51 Thomas Dakin, 22 Wend. (N.
v. Y.) 9.
Y.) 9; Leinkauf v. Caiman, 110 N. Y. 551 Bl. Com. 475.

50, 17 N. E. 389. 56 Thomas v. Dakin, 22 Wend. (N.
14
Ch. 1] History and Genebal Considekations [§ 13
Thus, a body might be expressly prohibited by its charter or by

statute from acquiring real estate, yet it might be none the less a
corporate entity. What is ordinarily incident to corporate existence
must not be confounded with what is really vital, and the power to
acquire and hold real estate is not at all essential.
§ 12. —
Transfer of membership. A
corollary of the capacity of
continuing succession is the incident in modern business corporations
of the transfer of membership. "While some courts have gone far in the
direction of upholding restraints on the freedom of alienation of
shares of stock,^'' yet the general rule permits a shareholder freely
to transfer his stock to another, thereby working a novation, the
transferee becoming a stockholder in place of the transferor. This
is not a positive distinguishing feature of corporate existence. "For
instance, it does not enter into the constitution of our chartered col-
leges, academies, hospitals,and other corporate institutions founded
by public endowment, or private beneficence. It does not enter
into the charters of incorporated scientific and literary societies. It
does not even form a feature in our corporate societies for mutual
benefit or charity, in the funds of which the members have a bene-
ficial interest.
'
'
^*
§ 13. — Individual liability for indebtedness. Many jurisdictions,

notably New York, regard the exemption of members from personal
liability for the debts of the association as a criterion of corporate
existence.^® It is true that one of the main reasons for the popu-
larity of corporations is that the stockholders therein are not per-
sonally liable for the debts of the corporation. The corporation and
it alone is liable. A stockholder stands to lose what he has dedicated
to the corporate enterprise and nothing more. This is not, however,
an essential attribute. In many jurisdictions, statutes have been
enacted making stockholders personally liable to a greater or less
extent, and such legislation does not make the association any the
less a corporation.^" "Amongst us, as in England, bodies politic or
corporate may exist where the ultimate personal liability is still
Y.) 9. See, in this connection, Chap. ner v. Beers, 23 Wend. (N. T.) 103.
29, infra. B9 Hibbs v. Brown, 190 N. Y. 167, 82
67 Barrett v. King, 181 Mass. 476, 63 N. E. 1108; People v. Coleman, 133 N.
N. E. 934; Borland's Trustee v. Steel Y. 279, 16 L. R. A. 183, 31 N. E. 96.
Bros. & Co., Ltd., [1901] 1 Ch. Div. 60 Liverpool Ins. Co. v. Massachu-
279. See Chap. 16, infra. setts, 10 Wall. (U. S.) 566, 19 L. Ed.
68 Per Verplanck, Senator, in War-
15
§ 13] Private Cokpoeations [Ch. 1
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.
'
'
®^ Besides, individuals may contract, in the absence of statute,
to make payment only from a certain specific fund.*''
in. THE COEPOEATE FEANCHISE
§ 14. Primary. A corporation cannot be created by mere agree-

ment of the associates, but it is necessary to obtain sovereign sanction,
for corporations to-day can be created only by or under legis-

lative authority. The privilege which the legislature confers upon
human beings enabling them to act as a legal unit is the corporate
franchise.®' To be a corporation is, therefore, in a certain sense a
franchise, and for this reason some authors define a corporation
itself as a "franchise." Chancellor Kent says: "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
and of acting in
of the law, with the capacity of perpetual succession,
several respects, however numerous the association may be, as a single
individual."®* The Supreme Judicial Court of New Hampshire has
similarly said: "A corporation is itself a franchise belonging to
the members These and similar statements
of the corporation."®*
are not correct. A corporation itself is not a franchise, although it
exists in consequence of a franchise conferred by the state upon the
incorporators. The primary franchise of a corporation is nothing
1029, aff 'g 100 Mass. 531; Roberts v. Railway & PowerCo., 65 N. J. Eq. 347,
Anderson, 226 Fed. 7. See chapter on 103 Am. Eep. 786, 54 Atl. 413;
St.
Stock and Stockholders, infra. Southern Gum Co. v. Laylin, 66 Ohio
61 Per Verplanck, Senator, in War- St. 578, 64 N. E. 564. ' The grant '
ner v. Beers, 23 Wend. (N. Y.) 103; of its corporate existence is a grant of
People V. Coleman, 133 N. Y. 279, 16 special powers and privileges to its in-
L. E. A. 183, 31 N. E. 96. corporators to pursue the objects of its
62 Warner v. Beers, 23 Wend. (N. creation and transact its corporate
Y.) 103. business the same as an individual
63 State V. Business Men 's Club, 178 transacts his privc-te business. ' ' A.
Mo. App. 548, 163 S. W. 901. See also Booth & Co. v. Weigand, 28 Utah 372,
Bank of California v. San Francisco, 79 Pac. 570.
142 Cal. 276, 64 L. E. A. 918, 100 Am. 64 2 Kent's Com. 267. See also 1 Bl.
St. Eep. 130, 75 Pac. 832; American Com. 123; Gifford v. Livingston, 2 Den.
Smelting & Eefiniug Co. v. People, 34 (N. Y.) 380, per Hand, Senator.
Colo. 240, 82 Pac. 531; Cedar Eapids 6B Pierce v. Emery, 32 N. H. 484, per
Water Co. v. Cedar Eapids, 118 Iowa Perley, C. J.

234, 91 N. W. 1081; Coler v. Tacoma
16
^ ,
2
Ch. 1] History AND Gehteeal CoNSiDEKATioNS [§15
more than the right or privilege of being a corporation which the

state confers upon the applicants for this faculty. This "primary
'
franchise, or the right to be and act as a juristic body, vests in the
'
individuals who compose the corporation and not in the corporation

itself.®® It follows that a corporation, in the absence of statutory
authority, has no right to sell or transfer its
primary franchise, which
is not in its own nature Although the importance
transmissible.®''
of the corporate franchise has been minimized by some recent
writers,®^ the fact remains that it is a valuable privilege, and the
mere ciroumstance that modern legislation makes it comparatively
easy to obtain a corporate franchise, does not do away with its in-
herent worth.®'
§ 15. Secondary. The right to exist as a corporation or the "pri-

mary franchise" must be carefully distinguished from the powers
and and to be exercised by, the corporate body
privileges vested in,
as such.'® These latter are generally called "secondary franchises"
and they are the property of the corporation itself, as distinguished
from the primary franchise, which is the property of the cor-
porators.''^ An example of secondary franchises is the power of
eminent domain generally conferred by the state upon a public service
corporation.
68 Fietsam v. Hay, 122 111. 293, 3 Am. 70 United States. Memphis & L. E.
St. Eep. 492, 13 N. E. 501. See also R. Co. v. Railroad Comr's, 112 tJ. S.
Mercantile Bank v. Tennessee, 161 U. 609, 28 L. Ed. 837.
S. 161, 40 L. Ed. 656; Memphis & L. California. San Joaquin & K. E.
R. R. Co. V. Railroad Com'rs, 112 U. S. Canal & Co. v. Merced
Irrigation
609, 28 L. Ed. 837; State v. Georgia County, 2 Cal. App. 593, 84 Pao. 285.
Medical Society, 38 Ga. 608, 95 Am. Nebraska. Western U. Tel. Co. v.
Dee. 408. City of Omaha, 73 Neb. 527, 103 N.
67 Memphis & L. R. R. Co. v. Rail- W. 84.
road Com'rs, 112 TJ. S. 609, 28 L. Ed. Utah. Cooper v. Utah Light &
837. The primary franchise is insepa- Railroad Co., 35 Utah 570, 136 Am.
rable from the corporate body. San St. Eep. 1075, 102 Pae. 202.
Joaquin & K. R. Canal & Irrigation Co. Wisconsin. State v. Milwaukee, B.
V. Merced County, 2 Cal. App. 593, 84 & L. G. R. Co., 116 Wis. 142, 92 N. W.
Pac. 285. 546.
fiSMorawetz, Priv. Corp. (2nd Ed.), A " 'franchise,' i. e., the right to
§§ 922-923. See also State v. Western exist and perform certain things, is
Irrigating Canal Co., 40 Kan. 96, 10 a thing distinct from the property
Am. St. Rep. 166, 19 Pac. 349, per Hor- rights which the corporation when
ton, C. J. created may acquire from individ-
69 Home Ins. Co. v. New Tork, 134 uals." Thompson v. Schenectady Ey.
U. S. 594, 599, 33 L. Ed. 1025, per Mr. Co., 124 Eed. 274.
Justice Field. 71 See cases cited in preceding note^
17
I Priv. Corp.—
§ 16] Peivate Coepokations [Ch. 1
IV. DISTINGUISHED PROM OTHER FORMS OP ASSOCIATED BUSINESS
§ 16. Partnerships. At common law the distinction between the

corporation and the partnership as a type of business organization
was very marked. In point of fact, one of the reasons for the rapid
development in the use of corporations was the inadequacy of the
partnership to serve many of the needs of business and commerce.
In the absence of statutory modification or of special agreement
between the associates, the following are the chief respects in which
the partnership differs from the corporation.
A partnership may be created by mere agreement between the
partners. The approval of the state is not necessary. On the other
hand, in order to form a corporation something more is needed than
the mere agreement of the incorporators. It is necessary to obtain
special authority from the state in order to incorporate. "Without
the consent and sanction of the sovereign state so obtained, the in-
corporators cannot be trea,ted by the law as a legal person.''^ The
Supreme Court, of Illinois has aptly said: "A corporation cannot
be constituted by agreement of parties. It can only be created by
'
or under legislative enactment. '^ However, the fact that legis-
'
lative authorization has been obtained for the creation of an associa-

tion does not necessarily indicate that the association is a corporation,
since joint stock companies and similar unincorporated associations
are frequently authorized by state authority.''* Thus, the Joint Stock
Association Law of New York authorizes the creation of associatjona
possessing many of the capacities and attributes of corporations yet ;
in th-e eye of the law, these bodies have a distinct identity of their
own.
Partners may dissolve their partnership at any time that they see
fit. A corporation, however, cannot be dissolved by the mere agree-
especially Cooper V. Utah Light & Rail- authority, usually, if not necessarily,
road 35 Utah 570, 136 Am. St. Rep.
Co., emanating from the legislature, and
1075, 102 Pac. 202. conferring extraordinary privileges."
72 Boca Mill Co. V. Curry, 154 Cal. Per Oowen, J., in Thomas v. Dakin, 22
326, 97 Pac. 1117; Stowe v. Plagg, 72 "Wend. (N. Y.) 9.
111. 397. 73 Stowe v. Tlagg, 72 111. 397.
"Both partnerships and private cor- 71 See People v. Coleman, 133 N. T.
porations are conventional so far as 279, 16 L. R. A. 183, 31 K. E. 96; War-
the members are concerned. The dif- ner v. Beers, 23 Wend. (N." Y.) 103.
ference consists in this, the former is Another example is the Pennsylvania
authorized by the general law among Limited Partnership Ass'n (Purdon's
natural persons, exercising their ordi- Joint Stock Company), formed under
nary powers; the latter by a special the Act of May 29, 1885, P. L. 29.
18
Ch. 1] History and G-enekal Considekations [§ 16
ment of the stockholders; something more is necessary, namely, the

approval and consent of the sovereign state. Just as the consent of
the state is necessary in order to endow the associates with the breath
of corporate life, so the consent of the state must be manifested as
to corporate death.''^
One of the chief characteristics of the partnership is the delectus
personcB.'^^ In other words, the personal equation is all-essential in
the case of a partnership ; thus, if a partner dies, the partnership auto-
matically ceases. The same result follows if a partner sells or other-
This conclusion follows
wise transfers his interest in the partnership.
even though the other partners consent to the transfer, since in
legal theory, a new partnership is thereby formed and the old part-
nership is dissolved.
In the case of the corporation- the precise opposite is true. The
death of a stockholder does not affect the existence of the corpora-
tion in any respect. No matter how important a stockholder may be,
no matter how many shares of stock he may own, the corporate life
continues unimpaired despite the death of the stockholder, "in like
manner as the Eiver Thames is still the same river though the parts
which compose it are changing every instant." Likewise a share-
holder's sale or other transfer of his stock is immaterial so far as the
continued existence of the corporation is concerned. Its corporate life
not only continues (but it is the identical corporation. Though a great
judge has cast some doubt upon the proposition,''''' it would seem that
the element of delectus persona is entirely foreign to the sound juridi-
cal conception of a corporation.
This corporate characteristic of continuity of life to which reference
has just been made, is not, however, an infallible earmark of a cor-
poration. Partners may agree when they form their partnership that
the partnership life shall continue in spite of the death of a partner
or the transfer of his interest in the firm. Thus, it is frequently
stipulated in articles of copartnership, that the heir or personal
representative of a partner shall become a member of the copartner-
ship in the event of death. In such cases a partnership would seem
to possess the attribute of continuity of life.''*
75 Boston Glass Manufactory v. 63 N. B. 934, per Holmes, C. J. Com-

Langdon, 24 Pick. (Mass.) 49, 35 Am. pare In re Klaus, 67 Wis. 401, 29 N. W.
Dec. 292; Wilde v. Jenkins, 4 Paige 582.
(N. Y.) 481. Contra, Merchants' & 78 Kingman v. Spurr, 7 Pick. (Mass.)
Planters Line v. Waganer, 71 Ala. 581.
' 235; Hoadley v. Essex, 105 Mass. 519;
76Burdick, Partnership, pp. 8, 9. Warner v. Beers, 23 Wend. (N. T.)
77Bar):ett v. King, 181 Mass. 476, 103; Tenney, Ballister & Co. v. New
19
§ 16] Pbivate Coepobations [Ch. 1
A collective or common name is an invariable attribute of a cor-

poration but this does not serve necessarily to distinguish a corpora-
tion from a partnership, since a partnership may use a trade name
and act and contract thereunder v?ithout becoming a corporation^*
In such eases, however, the acts or contracts are still those of the
individual members of the copartnership. The mere use of a com-
mon name does not convert the partnership associates into a legal
entity or artificial person.
If a partnership wishes to make a conveyance or to enter into a
contract under seal, each partner must employ his individual seal.
The reason for this is that the contract or conveyance is not so much
that of the firm as it is that of the individual partners. On the other
hand, if a corporation desires to act under seal, the corporate seal
is annexed to the instrument.*" This is because the contract or con-
veyance is that of the corporation, and not in any sense the contract
or conveyance of the individual members.
A partnership may do anything by agreement among the partners
which is not unlawful, and may engage in any enterprise in which a
single person might engage. A corporation, on the other hand, may
not lawfully exercise any powers except those powers conferred upon
it by the instrument of its creation and such implied powers as are
reasonably incidental to, and consequential upon, the exercise of the

powers expressly conferred.*^ Any act which is unauthorized by its
corporate charter, either expressly or by necessary implication, is
ultra vires. A corporation cannot increase its powers without the
consent of the state, whereas a partnership may do so by simple
agreement of the copartners.
When a partnership makes a contract, the contract is that of the
individual members of the copartnership. The rights thereunder
belong to them as individuals, and the obligations thereunder are
likewise theirs individually.*^ But, whenever a corporation makes
a contract, it is the contract of the legal entity, of the artificial per-
son sanctioned by the corporate charter, and not in any sense the
contract of the individual shareholders.** Similarly a corporation's
England Protective Union, 37 Vt. 64; [1907] A. C. 415. See article by I.
Wrexham Hudleston, 1 Swanst. 514.
v. Maurice Wormser, 25 Yale L. J., pp.
79 Warner v. Beers, 23 Wend. (N. 177-8.
T.) 103; Eex v. Webb, 14 East 406. 82 James Parsons, Prin. of Partner-
801 Bl. Com. 475; Quackenboss v. ship (1st Ed.), §§95-96.
Globe & Rutgers Fire Ins. Co., 177 N. 83 Bank of Augusta v. Earle, 13 Pet.
Y. 71, 69 N. E. 223. (U. S.) 519, 587, 10 L. Ed. 274; Sellers
81 Attorney-General v. Mersey By. v. Greer, 172 111. 549, 40 L. R. A. 589,
Co., L. E. [1907] 1 Ch. Div. 81, 50 N. E. 246.
20
Ch. 1] History and General Considerations [§ 16
promissory note is the obligation of the corporation, and of it alone,

and is not a debt of the stockholders, whereas a partnership's note
binds the partners jointly as individuals.**
When partners acquire property the title belongs to them as tenants
in common. If a partner dies, his share in the partnership real estate
descends to his heirs, his share in the partnership personal property
goes to his administrator or executor. Transfers of partnership
property are made by the partners as individuals.*^ On the other
hand, when a corporation acquires property the title vests in the
corporate entity. It is the sole property of the collective whole.'®
The stockholders are not the owners as joint tenants, tenants in com-
mon, or in any other respect.*' The corporate title is not affected in
any respect by the death of a stockholder or the transfer of his shares
of stock. Conveyances of corporate property are made by the cor-
poration as such, and not by the individual stockholders.** It has
been held that even the sole owner of the stock of a corporation haa
no authority, as such, to convey the real estate of the corporation,
The corporation, and no one else, may transfer the property.*^ While
the corporation exists, the stockholders are mere stockholders and.
nothing else. They are not the corporation, in the eye of the law,
They are merged, in legal contemplation, in the corporate identity.
In the case of a partnership the rule at common law is that it must;
sue and be sued in the name of all of the members composing the
partnership, however numerous -they may be.^" Suit cannot be
brought by or against the partnership in a trade name. On the other
hand, the corporation sues and is sued in its corporate name. Suit
cannot be brought by or against the stockholders individually upon
a corporate undertaking or obligation.'^
This again, however, is not a necessary criterion or &b<solute dis-
84Erickson v. Revere Elevator Co., 89 Baldwin v. CanfieW, 26 Minn. 43,

110 Minn. 443, 126 N. "W. 130. 1 N. "W. 261, 276; Parker v. Bethel
85 Batty V. Adams Co., 16 Neb. 44, Hotel Co.,96 Tenn. 852, 31 L. R. A.
20 N. W. 15. 706, 34 S. W.
209. Oontra, Bundy v.
86 Button V. Hoffman, 61 Wis. 20, 50 Opliir Iron Co., 38 Onio St. 300. See, in
Am. Eep. 131, 20 N. W. 667. this connection, Chap. 32, infra.
87 Harton v. Johnston, 166 Ala. 317, 90 Burdiek, Partnership, pp. 92, 93.
322, 51 So. 992; Home Fire Ins. Co. v. 91 Lewis v. Tilton, 64 Iowa 220, 52
Barber, 67 Neb. 644, 668, 60 L. B. A. Am. Eep. 436, 19 N. W. 911; Hearst v.
927, 108 Am. St. Eep. 716, 93 N. W. Putnam Min. Co., 28 Utah 184, 66 L.
1024. E. A. 784, 107 Am. St. Eep. 698, 77 Pae.
88 Palmer v. Eing, 113 N. Y. App. 753.
Div. 643, 99 N. T. Supp. 290; Parker v.
Bethel Hotel Co., 96 Tenn. 252, 31 L.
E. A. 706, 34 S. W. 209.
21
§ 16] Private Cobpoeations [Oh. 1
tinguishing mark of a corporation. The state may authorize actions

to be brought by or against partnerships or large unincorporated
associations in the name of a designated officer, as for example, the
president or treasurer, or it may even authorize actions to be brought
in the common name of the partnership or association.®^ The mem-
bers of a partnership or an unincorporated association cannot, how-
ever, in the absence of a statute so providing, sue or be sued in this
privileged manner.®'
In a partnership, unless it is otherwise stipulated in the articles
of copartnership, each partner an agent for the firm and his acts
is
and contracts are binding thereon, but not so with a corporation; it

must do its business in a corporate way and by means of its regularly
elected board of directors and officers. A stockholder in his indi-
vidual capacity, or any number of stockholders, cannot bind the cor-
poration in its corporate capacity, unless the board of directors or
trustees of the corporation has so directed and ordered.®* In other
words, a stockholder, merely as such, has no authority to bind the
corporation, no matter how large a proportion of the capital stock
may belong to him.
If an individual partner has notice, it follows in law that the
copartnership regarded as having notice.®^ Notice to a stockholder
is
of a corporation, however, is not regarded as notice to the corpora-

tion, unless the stockholder was authorized to act on behalf of the
corporation in regard to the subject-matter concerning which the
notice was received.®®
Partners in a partnership are liable for the full extent of the in-
debtedness of the copartnership.®'' This follows from the rule of
law heretofore referred to, that the acts and contracts of a partner-
92 Roberts v. Anderson, 226 Fed. 7; 96 Mercantile Nat. Bank of Cleve-

Warner v. Beers, 23 Wend. (N. T.) land v. Parsons, 54 Minn. 56, 40 Am.
103. St. Rep. 299, 55 N. W. 825.
93 Roberts Anderson, 226 Fed. 7;
v. 97 Iowa. Lewis v. Tilton, 64 Iowa
Van Aernam N. T.
v. Bleistein, 102 220, 52Am. Rep. 436, 19 N. W. 911.
355, 7 N. E. 537; Westeott v. Fargo, 61 Maine. Frost v. Walker, 60 Me. 468.
N. T. 542, 19 Am. Rep. 300; Hybart . Massachusetts. Tappan v. Bailey, 4
Parker, 4 C. B. (N. S.) 209. Mete. 529.
94 Palmer v. Ring, 113 N. Y. App. Missouri. Heath v. Goslin, 80 Mo.
Div. 643, 99 N. T. Supp. 290. Compare 310, 50 Am. Rep. 505.
Galbraith v. First Nat. Bank of Alex- New York. Skinner v. Dayton, 19
andria, 221 Fed. 386. Johns. 513, 10 Am. Dec. 286.
95 Watson V. Wells, 5 Conn. 468; See also Burdick, Partnership, p.
Quinn Cush. (Mass.) 224;
v. Fuller, 7 155 et seq.
Jeffrey v. Bigelow & Tracy, 13 Wend.
(N. Y.) 518, 28 Am. Dec. 476.
22
Ch. 1] HisTOKY AND General Considekations [§ 16
ship are those of the individual members thereof. If the obligations

of a copartnership are considerable, every dollar of the personal for-
tune of a partner may be swallowed up to the fullest extent for the
partnership debts." On the other hand, in the absence of contrary
statutory provision, the stockholder in a corporation who has fully
paid for his shares of stock is not personally liable for a single dol-
lar's worth of the indebtedness of the corporation.'^ This follows
from the proposition that the debts of a corporation are the debts of
and of it alone, and are not in any sense of the word,
the legal entity,
the debts of the individual stockholders. The most, therefore, that
the stockholder in an ordinary corporation stands to lose in the
event of the failure of the corporate enterprise, is the amount invested
by him in the corporation, that is, his respective proportion of the
corporate capital.In Merchants' Nat. Bank of Cincinnati v. Wehr-
mann,^ Mr. Justice Holmes said: "We may assume further, in
accordance with a favorite speculation of these days, that philosophi-
callya partnership and a corporation illustrate a single principle,
and even that the certificate of a share in one represents property in
very nearly the same sense as does a share in the other. In either
case the members could divide the assets after paying the debts.
But, from the point of view of the law, there is a very important
difference. The corporation is legally distinct from its members, and
its debts are not their debts. when a paid-up share in a
Therefore,
corporation is taken, no assumed, apart from statute, but
liability is
simply a right equal in value to a corresponding share in the assets
and good will of the concern after its debts are paid. If the right
is worth something, it is a proper security and if it is worth nothing,
;
no harm is done."
The exemption of the individual members from liability for cor-
porate indebtedness has frequently been referred to as a positive
criterion of a corporation and as distinguishing the corporation from
the partnership. While it is ordinarily true, as has been seen, that
the stockholders in a corporation' are not liable for the corporate
indebtedness, whereas the partners in a partnership are liable for the
partnership indebtedness, yet this is not necessarily or always the
case. A corporation may exist where the stockholders are sever-
ally individually liable to the creditors of the corporation for all
its debts or liabilities.^ New York, for example, expressly pro-
98 Hinds v. Heath, 68 N. H. 551, 38 Eudolph Sohm, Institutes of Roman

Atl. 382. Law, pp. 104-6.
99 Weehselberg v. Flour City Nat. 1 202 V. S. 295, 50 L. Ed. 1036.
Bank, 64 Fed. 90, 26 L. R. A. 470; 2 Liverpool Ins. Co. v. Massaehusetta,
23
§ 16] Peivatb Coepobations [Ch, 1
vides for the creation of "full liability corporations," through the

insertion of a statement in the certificate of incorporation that
the corporation thereby formed is intended to be a "full liability
corporation. " 2 Again, stockholders are sometimes made liable by
statute to creditors up to the amount of the total par value of the
shares of stock owned by the stockholder, as for instance, in the case
of national banks. And, on the other hand, it is perfectly possible to
find exemption from liability existing in the case of a partnership.
This may either be the result of statutory enactment as in the case
of "limited partnerships," or the result of a provision to this effect
in the articles of copartnership, brought home to the notice of
creditora.* In a leading New York decision the court said: "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 contract, whereby those who tender it stipulate not to be
bound beyond the amount of some specific pledged fund, must be a
natural right growing out of the very nature of contracts. If a com-
pany or association, or an individual, offers to contract to make cer-
tain payments only to the amount of certain specific funds, and
others choose to accept that contract on those conditions, there can
be nothing to prevent the validity of such a contract, except some
positive rule of law founded on policy or on arbitrary enactment.
In the absence of such restriction, it is and must be good. Such a
limitation, then, must be binding on all who accept the conditions. ^
'
'
So we see on the one hand, individual responsibility of share-

that,
holders for the debts of the corporation is not incompatible with the
corporate conception, and, on the other hand, that an association is
not necessarily a corporation because of the immunity of the indi-
vidual members thereof from personal liability.
Because of the element of delectus personce which characterizes a
partnership, the partners cannot transfer their interest in the part-
nership unless the other partners consent, and even when the other
10 Wall. (TJ. S.) 566, 19 L. Ed. 1029, B Per Verplanck, Senator, in Warner
aff'g 100 Mass. 531; Andrews Bros. Co. v. Beers, 23 Wend. (N. Y.) 103. See
V. Youngstown Coke Co., Ltd., 86 Fed. also Lennig v. Penn Morocco Co., 16
585; Warner v. Beers, 23 Wend. (N. Wkly. Notes Cas. (Pa.) 114; Minnet
Y.) 103. V. Whinnery, 3 Bro. P. C. 323; Alder-
3N. Y. Bus. Corp. L. § 6. son v. Clay, 1 Camp. 404, note.
4Burdick, Partnership, Chap. IX.
24
Ch. 1] HiSTOBY AND Genekal Consideeations [§ 16
partners do consent, the transfer alters the legal identity of the co-
partnership.^
On the other hand, shares of stock in the ordinary corporation for
pecuniary profit are freely transferable at the will of the sharehold-
ers, and a transfer of his shares by a member in no respect alters
or affects the legal identity of the corporation.''
This freedom of transferability is not, however, a positive criterion
of corporate existence. It is not essential to corporate existence and
it may be provided against.^ Moreover, there are many forms of
corporations, notably, educational, charitable and eleemosynary cor-
porations, which exist without transferable shares.' On the other
hand, partners may stipulate, either in the copartnership agreement
or afterwards, that a partner's interest shall be transferable, and
there have been cases where the capital of the partnership has been
divided into transferable shares without altering the legal status of
the bodies as copartnerships.^" It has also been held that an agree-
ment for a voluntary association with transferable shares is legal;
the transferable shares prevent dissolution in the event of death or
transfer.^^
While popularly a copartnership is regarded as an entity and
though it is sometimes so treated, the law as a rule does not look
upon it as a legal entity. ^^ There is no merging of the members of
the partnership in the artificial personality. The partnership is
merely the sum total of the individual partners.^* It may well be
6 Kingman v. Spurr, 7 Pick. (Mass.) Great Southern Fire Proof Hotel Co.
235; Marquand v. New York Mfg. Co., v. Jones, 177 TJ. S. 449,
44 L. Ed. 842.
17 Johns. (N. Y.) 525; Moddewell v. 9 See Chap. 2, infra.
Keever, 8 Watts & S. (Pa.) 63; Bray lOHoadley v. Essex, 105 Mass. 519;
V. Fromont, 6 Madd. Ch. 5. See also Warner v. Beers, 23 Wend. (N. Y.)
Burdick, Partnership, pp. 8-9. 103.
7 Warner v. Beers, 23 Wend. (N. Y.) 1^ Hopsack v. Ottawa Development
103; Townsend v. Goewey, 19 Wend. Ass'n, 244 111. 274, 91 N. E. 439.
(N. Y.) 427; Nockels v. Crosby, 3 Compare Greene v. People, 150 la. 513,
Bam. & C. 814; Pratt v. Hutchinson,
^"^ ^- ^- ^^2.
^2 Burdick, Partnership, p. 81 et seq.
15 East 515; Rex v. Webb, 14 East
^^^ ^^"'^ °* ^"^^^^^ ^- Thompson,
406; 1 Bl. Com. 467-68.
'
101 V 280,
NT Y. OQn 24
O/l TlT jirro. T-_ — __
121 N. T31
N. E. 473; Jones v.
^
8 Andrews Bros. Co. v. Youngstown

n ^ o^ -L, J ôr Bl"°. 145 N. Y. 333, 39 N. E. 954;
,
Coke Co., 86 Fed. 585. But see T^j
TJ ^
Ed- „ . v i.^ -1.1 «« ' ' A.
Ex partp 14 /^v
Ch. t^-
re
'
„ . , .
Corbett, Div. 122. <<
wards V. Warren Linoline & Gasoline
partnership is not a person either
Works, 168 Mass. 564, 38 L. E. A. 791, ^^t^.î „^ artificial." Adams v.
47 N. E. 502: It would seem that An- church, 42 Ore. 270, 59 L. B. A. 782,
drews Bros. Co. v. Youngstown Coko 95 Am. St. Rep. 740, 70 Pae. 1037.
Co., supra, has been overruled by the 13 Iowa. Lewis v. Tilton, 64 Iowa
Supreme Court of the United States. 220, 52 Am. Rep. 436, 19 N. W. 911.
25
;
§ 16] Peivate Cokpoeations [Ch. 1
true that, in fact, the partnership or firm is a real entity, but the
courts do not generally regard it as such. For example, if a partner-
ship acquires property the title is vested in the partners individually
it is not vested in the copartnership, as such, since there is no legal
entity or artificial person in which the title of the property might be
vested.
A is a legal entity distinct and separate
corporation, however,
from members. The general doctrine is well established and
its
obtains both at law and equity that a corporation is a distinct entity

to be considered separate and apart from the individuals who com-
pose it, and is not to be affected by the personal rights, obligations
and transactions of its stockholders.^* This is not a mere techni-
cality. A corporation is a living thing with a separate existence dis-
tinct and apart from its stockholders.^* This is not a fiction, but a
positive fact. Only to the extent that the law treats the corporation
as a person and endows it with personality, is there anything of
fiction involved in the corporate conception.^^ It is true, however,
that the artificial legal person called the corporation, has no physical
existence and that its personality is involved, it exists only
so far as
in contemplation of law. This existence of a corporation as an arti-
ficial person entirely separate and distinct from its members, is the
most fundamental characteristic of a corporation and primarily

serves to distinguish a corporation on the one hand, from a partner-
ship on the other hand. "The most peculiar and strictly essential
characteristic of a corporate body, which makes it to be such, and
not some other tiling, in legal contemplation, is the merging of the
Maine. Frost v. Walker, 60 Me. 468. Missouri. Boatmen's Bank v. Gil
Massachusetts. Hallowell v. Black- lespie, 209 Mo. 217, 108 S. W. 74.
stone Nat. Bank, 154 Mass. 359, 13 L. New York. Brock v. Poor, 216 N.
B. A. 315, 28 N. E. 281; Hoadley v. Y. 387, 111 N. E. 229.
Essex, 105 Mass. 519. Washington. State v. Tacoma Bail-
New York. Bank of Buffalo v. way & Power Co., 61 Wash. 507, 32 L.
Thompson, 121 N. Y. 280, 24N. E. 473. ^- ^- C^- ^0 720, 112 Pac. 506.
Pennsylvania. In Wlsconsdn. Button v. Hoffman, 61
re Gibb's Estate,
157 Pa. St. 59, 22 L. B. A. 276, 27 Atl. ^'^- Ô. 50 Am. Rep. 131, 20 N. W.
®®^"
383
_'
Texas. w •
Wiggins TJ1 , oe
v. Blaekahear, 86
1.
England. Queen v. Arnaud, 9 Q. B.
.^ ^ j, .
g^^
^ '
W.
&toSources ofn the
Tei. 665, 26 S. 939. a n w" ^ ^-l.
'
See Gray, Nature
14 United States. Aiello v. Cramp-
Law, §§ 111-136.
ton, 201 red. 891. IB Continental tyre & Rubber Co.,
Illinois. Fietsam v. Hay, 122 III. Ltd. v. Daimler Co., Ltd., 1
[1915]
293, 13 N. E. 501. K. B. 893.
Louisiana. Mioton v. Del Corral, 18 United States v. Milwaukee Re
132 La. 730, 61 So. 771. frigerator Transit Co., 142 Fed. 847.
26
Ch. 1] History and Geneeax. Considerations [§ 17
individuals composing aggregate body into one distinct, artificial

tlie
Courts have frequently remarked that the

'
individual existence. '
^^
only absolutely essential attribute of a corporation is "the capacity

to exist and act within the powers granted, as a legal entity, apart
from the individuals who constitute its members."^' And yet it
must be observed that it is oftentimes a mere begging the question
to say that a certain body is a corporation if it be a legal entity. In
the last analysis, the attributes conferred upon the body must be
regarded and weighed.
Mining partnerships differ from ordinary partnerships in that they
possess continuing existence.^^ A mining partnership exists when a
number of the owners of a mine combine to operate it.^" The ele-
ment of delectus 'persona is entirely absent. These bodies, however,
are not corporations but are partnerships controlled by exceptional
legal rules.*^ Ditch companies, organized in order to supply water
to the associates therein, are much similar in this respect to mining
partnerships.^"
§ 17. Joint stock aôciations. A joint stock company is a tjê of

business organization which stands midway between the partnership
on the one hand and the corporation on the other hand. In many
instances, however, it is to-day no easy matter to distinguish the unin-
corporated joint stock company from the corporation, since by statu-
tory enactment many of the most characteristic capacities and
attributes of corporations have been conferred upon joint stock
associations."' So true is this that a learned judge said recently that
IT Warner v. Beers, 23 Wend. (N. v. Burnham, 77 Mo. 52; Lamar's Ex'r
Y.) 103, per Verplanek, Senator. v. Hale, 79 Va. 147.
18 Andrews Bros. Co. v. Youngstown 21 United. States. Kahn v. Central
Coke Co., 86 Fed. 585; Thomas v. Smelting Co., 102 U. S. 641, 26 L. Ed.
Dakin, 22 Wend. (N. Y.) 9; Gifford v. 266; Santa Clara Min. Ass'n v. Quick-
Livingston, 2 Den. (N. Y.) 380, 395. silver Min. Co., 17 Fed. 657.
19 Bissell V. Foss, 114 TT. S. 252, 29 California. Dougherty v. Creary, 30
L. Ed. 126; Kahn
Smelting Co., 102
v. Cal. 290, 89 Am. Dee. 116.
TT. S. Taylor v.
641, 26 L. Ed. 266; Colorado. Higgins v. Armstrong, 9
Castle, 42 Cal. 367; Jones v. Clark, Colo. 38, 10 Pae. 232; Manville v.
42 Cal. 180; Duryea v. Burt, 28 Cal. Parks, 7 Colo. 128, 2 Pac. 212.
569; Skillman v. Lachman, 23 Cal. 198, Connecticut. Hotehkiss v. Brainerd
83 Am. Dec. 96; Higgins v. Armstrong, Quarry Co., 58 Conn. 120, 19 Atl. 521.
9 Colo. 38, 10 Pae. 232; Charles v. Missouri. Snyder v. Burnham, 77
Eshleman, 5 Colo. 107; Lamar's Ex'r Mo. 52.
v. Hale, 79 Va. 147. See Burdick, Partnership, p". 200.
20 Skillman v. Lachman, 23 Cal. 198, 22MoConnell v. Denver, 35 Cal. 365,
83 Am. Dee. 96; Higgins v. Armstrong, 95 Am. Dec. 107.
9 Colo. 38, 10 Pac. 232; Manville v. 2SHibbs v. Brown, 190 N. T. 167,
Parks, 7 Colo. 128, 2 Pac. 212; Snyder 82 N. E. 1108; In re Jones' Estate,
27
'
§17] Peivate Coepokations [Ckl

"the idea that these companies occupy some undefined and unde-
finable ground midway between a partnership and a corporation has
practically faded away. "2*
At common law, however, a joint stock association was a group of
individuals organized for certain purposes into an association similar
to a partnership, but, unlike a partnership, having a capital stock
divided into shares transferable by the owner.^^ Partners may asso-^
ciate themselves without statutory authority in a joint stock company
with transferable shares.^® Joint stock companies have sometimes
been spoken of as quasi corporations.^'' So many of the attributes
and characteristics of a corporation have been impressed by statutes
upon the modern joint stock association that the use of this term is
172 N. Y. 575, 60 L. E. A. 476, 65 N. Hibbs v. Biovm,

24 O'Brien, J., in
E. 570. But compare the remarks of
supra.
In People v. Eose, 219 111. 46, 76 Edward T. Bartlett, J., in the same
N. E. 42, the court said: "A joint case.
stock company is defined in the text- 25 People V. Eose, 219 111. 46, 76 N.
books to be 'an association of individ- E. 42; Phillips v. Blatchford, 137 Mass.

uals for purposes of profit, possessing 510; Attorney General v. Mercantile
a common capital, which is divided Marine Ins. Co., 121 Mass. 524; People
into shares, of which each member V. Coleman, 133 N. T. 279, 16 L. E. A.
possesses one or more, and which are 183, 31 N. E. 96; In re Gibb's Estate,
transferable by the owner. These asso- 157 Pa. St. 59, 22 L. E. A. 276, 27 Atl.
ciations, formed for business purposes, 383. And see the other cases cited
were at common law, and as a general under this section.
rule still are, considered merely as The term joint stock company "de-
partnerships, and their rights and lia- notes a union of persons owning to-
bilities are in the main governed by gether a capital stock which they
the same rules and principles which have devoted to a common purpose,
regulate commercial partnerships. under an organization analogous to
* * * While it is true that many that of a corporation, or a body upon
companies called joint stock companies which some of the privileges or pow-
have many of the essential characteris- ers of corporations have been con-
tics of a corporation, yet there is a dis- ferred by statute, but which is not in a
tinction between such companies and full sense a corporation." 2 Addison,
regularly organized corporations so Cont. (Abb. & Wood's Ed.) p. 805,
called. * * * 'In respect to their note.
formation there is a broad distinction 26 Eliot V. Freeman, 220 IT. S. 178,
between a corporation, technically so 55 L. Ed. 424; Eoberts v. Anderson,
called, which always owes its existence 226 Fed. 7. See also Warner v. Beers,
to the sovereign power of the state, 23Wend. (N. T.) 103, 147; Lindley,
and a joint stock company, which, be- Company Law (6th Ed.), p. 193.
ing essentially a partnership, is Hibbs V. Brown, 190 N. T. 167,
27
brought into being by the contract of 82 N. E. 1108, per Hiscoek, J., and
its members inter sese.' " See also O'Brien, J. See also Oak Eidge Coal
Spotswood v. Morris, 12 Idaho 360, 6 Co. V. Eogera, 108 Pa. St. 147, 150.
L. E. A. (N. S.) 665, 85 Pac. 1094.
28
Ckl] History and Gekebal, Considekations [§1V
not without substantial justification. For example, it is very diffi-

cult to avoid the conclusion that joint stock companies at this day
in the state of New York possess substantially and practically all the
attributes of corporations. In spite of this, it seems upon the whole
more correct to describe a joint stock association as a large partner-
ship possessing some of the characteristics and- powers of the private
corporation.^^ In fact, except to the extent that remedial legislation
has altered the rule, joint stock associations are subject to the prin-
ciples oflaw relating to common-law copartnerships.^^
The and joint stock associations is
distinction between corporations
not a mere academic one. The question is at times a momentous one
to answer. Joint stock companies are not liable for taxes under a
statute which imposes a tax upon "corporations."^" In order to
avoid this result, statutes are so phrased to-day as to embrace within
their purview both corporations and joint stock a.ssociations.^^ The
28 People V. Coleman, 133 N. T. 279, Minnesota. State v. Adams Exp.

16 L. E. A. 183, 31 N. B. 96, per Finch, Co., 66 Minn. 271, 38 L. E. A. 225, 68
J. Compare Andrews Bros. Co. v. N. W. 1085; Pennsylvania Ins. Co. v.
Youngstowu Coke Co., Ltd., 86 Fed. Murphy, 5 Minn. 36.
585. The authority of the last cited Nebraska. Batty v. Adams County,
case is undermined by the decision of 16 Neb. 44, 20 N. W. 15.
the Supreme Court of the United States New York. Schuylerville Nat. Bank
in Great Southern Fire Proof Hotel V. Van Derwerker, 74 N. Y. 234; Den-
Co. V. Jones, 177 U. S. 449, 44 L. Ed. nis V. Kennedy, 19 Barb. 517; Wells
842. V. Gates, 18 Barb. 554.
zsunlted States. Clagett v. Kil- Pennsylvania. Tide Water Pipe
bourne, 1 Black 346, 17 L. Ed. 213; Co. V. Kitchenman, 108 Pa. St. 630;
Eountree v. Adams Exp. Co., 165 Fed. Eliot V. Himrod, 108 Pa. St. 569; Logan
152. V. McNaugher, 88 Pa. St. 103; In re
California. BuUard v. Kinney, 10 Hedge's Appeal, 63 Pa. St. 273;
Cal. 60. Kramer v. Arthurs, 7 Pa. St. 165.
Illinois. People v. Eose, 219 111. 46, Vermont. Henry v. Jackson, 37 Vt.
76 N. E. 42; Pettis v. Atkins, 60 HI. 431; Tenney v. New England Pro-
454; Eobbins v. Butler, 24 111. 387. tective Union, 37 Vt. 64.
Indiana. Manning v. Gasharie, 27 England. Hybart v. Parker, 4 C. B.
Ind. 399. (N. S.) 209.
Maine. Frost v. Walker, 60 Me. 80 Liverpool Ins. Co. v. Massachu-
468; MeGreary v. Chandler, 58 Me. setts,10 Wall. (U. S.) 566, 19 L. Ed.
537. 1029, aff'g 100 Mass. 531; People v.
Massachusetts. Phillips v. Blatch- Coleman, 133 N. Y. 279, 16 L. E. A.
ford, 137 Mass. 510; Whitman v. Por- 183, 31 N. E. 96.
ter,107 Mass. 522; Hoadley v. Eases Freeman, 220 U. S. 178,
81 Eliot V.
County Com'rs, 105 Mass. 519; Tappan 55 L. Ed. 424; Eoberts v. Anderson,
V. Bailey,4 Mete. 529. 226 Fed. 7.
Michigan. Butterfleld v. Beardsley, "By statute all joint stock com-

28 Mieh. 412. panies having the privileges of
29
'
§ 17] Private Coepobations [Ch. 1
facility in doing business is substantially the same in both forms of

organizations, and it is this facility or advantage which it is the pur-
pose of the taxing statute to assess.^^ Again, joint stock companies
are exempt from the effect of a constitutional provision requiring
corporations to be created only under general law or requiring a two-
thirds vote of the state legislature for the creation of corporations.^'
Sometimes the unincorporated joint stock association is given so
many attributes of a corporation that courts have differed as to the
legal status of the type of organization.'*
In a New York ease,'^ Judge 'Brien of the- Court of Appeals of
New York regarded the Adams Express Company, which is a large
joint stock association, as a "quasi corporation," saying: "A joint
stock company, whatever else may be said about it, is certainly for
most, if not all practical, purposes, a legal entity, capable in law of
acting and assuming legal obligations quite independent of the share-
holders." And, in the same case. Judge Hiscock said: "A great
association like theAdams Express Company is very unlike an ordi-
nary copartnership, and * * * it has assumed for ordinary, prac-
tical purposes in its business and contractual relations the features
and characteristics of a corporate creation, whereby the joint aggre-
gate entity has been made prominent, and the individual units com-
posing it have been overshadowed and obscured. On the other hand, '
'
Judge B. T. Bartlett declared: "It is unnecessary to point out in

detail the very great difference between the joint stock association
and a corporation" and Judge "Werner said
; : "The company is con-
cededly not a corporation, although our statutes have invested it with
certain corporate attributes."
corporations, enjoyed by neither of organization." Eliot v. Freeman,
individuals nor partnerships, may be 220 TJ. S. 178, 55 L. Ed. 424.
embraced within the term ' corpora- 33 Warner v. Beers, 23 Wend. (N.
" Fred Macey Co. v. Maoey,
tions.' T.) 103; Thomas v. Dakin, 22 Wend.
135 Fed. 725. (N. Y.) 9.
By statute the word ' corporation

'
'
34 Great Southern Fire Proof Hotel
may be made to embrace joint stock Co. v. Jones, 177 IT. S. 449, 44 L. Ed.
companies. Com. v. Adams Exp. Co., 842; Liverpool Ins. Co. v. Massa-
29 Ky. L. Eep. 1280, 97 S. W. 386. chusetts, 10 Wall. (TT. S.) 566, 19 L.
32 The United States Supreme Court Ed. 1029; Andrews Bros. Co. v. Younga-
said recently, per Mr. Justice Day, in town Coke Co., 86 Fed. 585; People v.
discussing the Federal Corporation Coleman, 133 N. Y. 279, 16 L. R. A.
Tax Law: "It was the purpose of the 183, 31 N. E. 96; Warner v. Beers, 23
act to treat corporations and joint Wend. (N. Y.) 103; Thomas v. Dakin,
stock companies, similarly organized, 22 Wend. (N. Y.) 9.
in the same way, and assess them upon 35 Hibbs v. Brown, 190 N. T. 167, 82
the facility in doing business which is N. E. 1108.
substantially the same in both forms
30
Ch.i] HiSTOBY AND GeNEBAL CoNSIDBEATIONS [§17
The federal courts regard corporations as citizens under article

III, sec. 2 of the Constitution of the United States, conferring juris-
diction upon the federal courts over controversies between citizens
of different states.^^ They refuse, however, to regard joint stock
companies as citizens for purposes of federal jurisdiction." Where
the bill alleged that the Adams Express Company was a joint stock
company duly organized and existing under the laws of the state of
New York and a citizen of that state, and that the defendant was a
citizen of the state of Missouri, the federal court directed that the
suit be dismissed for want of jurisdiction, saying: "The averment
that the complainant is a joint stock company is not equivalent to
the statement that it is a corporation." ^*
If the legislature confers upon an association all the essential

attributes of the corporate body, it thereby creates it a corporation
and it would seem immaterial that the term "corporation" is not
used.'' If the legislature declares that the association shall not be
See Chap. 13, infra, and Doctor

36 16 L. E. A. 183, 31 N. E. 96; Thomas v.
V. Harrington, 196 U. S. 579, 49 Dakin, 22 Wend. (N. Y.) 9; People v.
L. Ed. 606; Shaw v. Quincy Min. Assessors of Watertown, 1 Hill (N. Y.)
Co., 145 V. S. 444, 36 L. Ed. 768; Mar- 616, 620.
shall V. Baltimore & O. B. Co., 16 How. In Thomas v. Dakin, supra, Cowen,
(U. S.) 314, 14 L. Ed. 953; Louisville, J., said (p. 103): "It has been im-
C. & C. E. Co. V. Letson, 2 How. (U. possible for me to see the force of the
S.) 497, 11 L. Ed. 353. argument that, because the legislature
37 Thomas v. Ohio State University, have constantly avoided to call these
195 U. S. 207, 49 L. Ed. 160; Great associations, or any of their machin-
Southern Fire Proof Hotel Co. v. ery, a corporation, therefore we can-
Jones, 177 U. S. 449, 44 L. Ed. 842; not adjudge them to be so." His
Chapman v. Barney, 129 IT. S. 677, 32 reasoning follows: "If they have the
L. Ed. 800; Eountree v. Adams Exp. attributes of corporations, if they are
Co., 165 Fed. 152; Gregg v. Sanford, so in the nature of things, we can no
65 Fed. 151. The case of Andrews more refuse to regard them as such,
Bros. Co. v. Youngstown Coke Co., 86 than we could refuse to acknowledge
Fed. 585, must be regarded as over- John or George to be natural persons,
ruled. because the legislature may, in mak-
38 Eountree v. Adams Exp. Co., 165 ing provisions for their benefit, have
Fed. 152, per Amidon, J. been pleased to designate them as be-
89 Liverpool Ins. Co. v. Massachu- longing to some other species."
setts, 10 "Wall. (XT. S.) 566, 19 L. Ed. In People v. Assessors of Watertown,
1029, aff'g 100 Mass. 531; Fargo v. supra, Bronson, J., said (p. 623): "It
Louisville, N. A. & C. Ey. Co., 6 Fed. may be true * * * that the legis-
787; Edgeworth Wood, 58 N. J. L.
v. lature intended to make a legal being,
463, 33 Atl. 940; Tide Water Pipe and give it all the essential attributes
Co. V. State Board of Assessors, 57 of a corporation body, and yet that it
N. J. L. 516, 27 L. E.
A. 684, 31 Atl. should not be a corporation. That the
220; People v. Coleman, 133 N. Y. 279, legislature could not do. * * * The
31
§17] JPeivate Coepobations [Ch.l
a corporation, no matter how may

be in the domestic
conclusive this
jurisdiction, it does not bind foreign jurisidictions or prevent their
courts from inquiring into the true character of the association when-
ever that may come in issue.*" Its attributes, as well as the intention
of the domestic legislature, determine its status abroad.*^
Joint stock compaaies unlike corporations may be formed by a
mere agreement of association' among the members. A joint stock
company with transferable shares is valid at common law, and will
not be held can be shown to be of a dangerous
illegal unless it
character.*^ To-day, joint stock companies frequently derive from a

statutory source further qualities or benefits not existing at common
law. Such statutory authority is not at all essential, however, to the
existence of the joint stock company, which is absolutely legal at
common law. The statutory authority simply confers rights and
privileges which no unincorporated association as such enjoys at
common law.*'
As we have seen, a partnership may be dissolved at any time with-
out the consent of the state, and the same rule applies to joint stock
constitution —
of things the order of In Edwards v. Warren Linoline &
—
nature ^forbids it. Human powers are Gasoline Works, supra, the Supreme
not equal to the task of changing a Judicial Court of Massachusetts held
thing by merely changing its name." that a Pennsylvania '
partnership as-
'
But it might be fairly inquired, why sociation" is not to be regarded as a

cannot the domestic legislature do any- corporation in the state of Massa-
thing it pleases so far as the domestic chusetts, but the court used the fol-
jurisdiction is concerned in the ab- lowing language: "If the question
sence of constitutional prohibition? presented were an open one in this
Of course, this could not prevent the commonwealth, it might well be held
courts of a foreign jurisdiction from that such an association could be con-
inquiring into the true character of sidered to have so many of the char-
the association. See Liverpool Ins. Co. acteristics of a corporation that it
V. Massachusetts, supra. might be treated as one."
40 Liverpool Ins. Co. v. Massa- 41 See cases cited in preceding note.
chusetts, 10 "Wall. (TJ. S.) 566, 19 L. Ed. 42 Roberts v. Anderson, 226 Fed. 7;
1029, aff'g 100 Mass. 531; Edgeworth Phillips v. Blatchford, 137 Mass. 510;
V. Wood, 58 N. J. L. 463, 33 Atl. 940; People V. Coleman, 133 N. T. 279, 16
Tide Water Pipe Co. v. State Board of L. B. A. 183, 31 N. E. 96; Warner v.
Assessors, 57 N. J. L. 516, 27 L. K. A. Beers, 23 Wend. (N. Y.) 103; In re
684, 31 Atl. 220. Compare Edwards v. Aston, 27 Beav. 474; Harrison v. Hea-
Warren Linoline & Gasoline Works, thorn, 6 M. & G. 81. See also Liudley
168 Mass. 564, 38 L. E. A. 791, 47 N. E. on Company Law (6th Ed.), p. 193.
502; Taft v. Warde, 111 Mass. 518, 106 43 Hibbs v. Brown, 190 N. Y. 167, 82
Mass. 518; State v. Adams Exp. Co., N. E. 1108.
66 Minn. 271, 38 L. R. A. 225, 68 N. W.
1085.
32
3
Ch. 1] History akd Genekal Considebations [§ 17
companies except in so far as it may be modified by statute.** In

this respect joint stock companies differ from corporations.
The element of delectus persona, is characteristic of a partnership,
and the death of a partner or the transfer of his interest ipso facto
dissolves the partnership. We have seen that the precise opposite is
true in the case of a corporation. In this respect, the joint stock
company resembles the corporation rather than the partnership, since
the demise or withdrawal of an associate in a joint stock company
does not dissolve it.*^ However, as we have seen, the right to transfer
shares in a partnership business may by agreement be incorporated
even in partnership articles.
Like corporations, joint stock companies are known by a common
name. This does not make the body a corporation and, as has been
seen, partnerships are often commonly known by a trade name under
which they carry on their business.*®
"We have seen that each partner is an agent of the firm and that,
on the other hand, a stockholder in a corporation is not an agent of
the corporation, which acts through its duly constituted board of
directors or officers. In this regard, again, a joint stock company
resembles a corporation. Joint stock companies conduct their busi-
ness through their boards of trustees or directors; their members as
such, have no power to bind them. This circumstance of resemblance
does not make a joint stock association a corporation.*''
Each and every member of a joint stock company is liable upon the
contracts entered into by it.*' Under some statutes an action may
even be brought in the first instance against the individual members
of the association.*^ It is more generally provided, however, that
action cannot be brought against the individual members of the joint
stock association until after judgment and execution unsatisfied
44 Lake v. Munford, 4 Smedes & M. Y.) 103. And see Roberta v. Anderson,
(Miss.) 312; Mann v. Butler, 2 Barb. 226 Fed. 7.
Ch. (N. Y.) 362. 48 Frost v. "Walker, 60

Me. 468; Me-
45 Gleason v. McKay, 134 Mass. 419; Greary Chandler, 58 Me. 537; Tap-
v.
Tyrrell v. Washburn, 6 Allen (Mass.) pan v. Bailey, 4 Mete. (Mass.) 529;
466; In re Jones' Estate, 172 N. Y. Hibbs v. Brown, 190 N. Y. 167, 82 N.
575, 60 L. E. A. 476, 65 N. E. 570; E. 1108; Kingsland v. Braisted, 2 Lans.
Willis V. Chapman, 68 Vt. 459, 35 Atl. (N. Y.) 17.
459; Tenney, Ballister & Co. v. New In Hibbs v. Brown, supra, Edward
England Protective Union, 37 Vt. 64; T. Bartlett, J., said: "The distiu-
Burnea v. Pennell, 2 H. L. Cas. 497. guishing feature of the joint stock
46 Warner v. Beers, 23 Wend. (N. association is the personal liability of
Y.) 103; Oak Ridge Coal Co. v. Rogers, its members."
108 Pa. St. 147. 49 Hibbs v. Brown, 190 N. Y. 167,
47 Warner v. Beers, 23 Wend. (N. 82 N. B. 1108, per Hiseock, J.
33
I Priv. Corp.—
§ 17] Peivate Ookpoeations [Ch. 1
against the association.*" In this regard, a joint stock association is

more similar to a partnership than to a corporation since, as we have
seen, the contracts of a corporation are the contracts of the legal
entity, and of it alone, and are not in any sense the contracts of the
individual members of the corporation.
Except as modified by statute, a joint stock company cannot acquire
and convey property by its common name. Title must be taken and
conveyed by the members as individuals. Property may also be taken
and conveyed by an officer in trust for the members.^^ It is not
necessary that an unincorporated association should have statutory
authorization to have its real estate held by its president or other
officer as a trustee for its members.*^ Indeed, in a case decided by
the Supreme Court of the United States, the property of an unincor-
porated joint stock company was held by trustees, and it was conceded
by the court that its right in this regard was not derived from any
statute.'*
In the case of the joint stock company, the rule at common law is
that cannot sue or be sued in the name of the association or of its

it
officers, but must sue or be sued in the name of all of the members
composing it, however numerous they may he. All are necessary
parties at the common law.** The hardship and inconvenience of
making all the members of large unincorporated associations parties
to actions soon led to important remedial legislation both in England
and in this country.** This legislation provides that such associations
may sue and be sued in the name of a designated officer, as, for
example, the president or treasurer of the company. This officer, for
the purposes of suit, is regarded substantially as the company, as
distinct from the individuals composing it. Such statutes, however,
do not make joint stock associations, corporations.*^ On the other
hand, if all other corporate attributes are conferred upon the associa-
tion, the mere fact that it is sued in the name of an officer
sues and
rather than in its artificial name should not be held to prevent the
courts from treating the company as a corporation. The result is in
BOHibbs V. Brown, supra. 355, 7 N". E. 537; Westcott v. Fargo,
Pratt V. California Min. Co., 24
61 61 N. Y. 542, 19 Am. Eep. 300; Hybart
Fed. 869; Byam v. Biekford, 140 Mass. v. Parker, 4 C. B. (N. S.) 209.
31, 2 N. B. 687; Batty v. Adams Coun- 65 See Roberts v. Anderson, supra.
ty, 16 Neb. 44, 20 N. "W. 15. 66 People v. Coleman, 133 N. T. 279,
B2Eoberts v. Anderson, 226 Fed. 7. 16 L. E. A. 183, 31 N. E. 96; Van Aer-
63 Eliot V. Freeman, 220 U. S. 178, nam v. Bleiatein, 102 N. Y. 355, 7 N.
55 L. Ed. 424. E. 537; Warner v. Beers, 23 Wend.
64Eoberts v. Anderson, 226 Fed. 7; (N. Y.) 103; Oak Ridge Coal Co. v.
Van Aernam v. Bleistein, 102 N. Y. Rogers, 108 Pa. St. 147.
34
Ch. 1] HisTOBY AND Geneeal Considebations [§ 17
effect, the same, for process would have to be served on some officer
even the suit were brought in the artificial name.*' It must be
if
noted that suits may never be brought by or against a joint stock
company in its artificial name unless this is expressly authorized by
statute.*^
As we have seen, a corporation may sue its stockholders or be sued
by them, and, under some statutes it is held that a joint stock com-
pany is so similar to a corporation that an action may be brought by
a member against the officer designated by statute as the representative
of the association, and vice versa.*^ The constitution of New York
(art. VIII, see. 3), expressly provides that the term "corporation"
shall include joint stock companies, and accordingly, joint stock com-
panies have the right to sue, and are subject to be sued, in all cases
just like corporations. Under provisions of this nature it is plain that

joint stock companies for all practical purposes are constituted corpo-
rations.*" There is a recognition of the joint stock association as an
entity recognized by the law
as something quite distinct and separate
from its individual members.
The capital of a joint stock company unlike that of a partnership,
but like that of a corporation, is divided into shares which dre appor-
tioned among the members in proportion to the respective amounts
which they have dedicated to the common enterprise. These shares
are assignable by their owners like shares of corporate stock. By
the common law, as we have seen, shares may be made transferable
absolutely, and the right to transfer shares may by agreement be
inserted in articles of copartnership. It follows that this attri-
bute of transferability of shares does not make a joint stock associa-
tion a corporation.®^ In the ease of certain types of joint stock
67 Liverpool Ins. Co. v. Massachu- Waterbury v. Merchants' Union Exp.

setts, 10 Wall. (TJ. S.) 566, 19 L. Ed. Co., 50 Barb. (N. Y.) 157. See also
1029, afe'g 100 Mass. 531. New York Code of Civ. Proc, §§ 1919-
BSPipe V. Bateman, 1 Iowa 369; Mc- 1924.
Greary v. Chandler, 58 Me. 537; Van BOHibbs v. Brown, 190 N. T. 167,
Aernam v. Bleiatein, 102 N. T. 355, 82 N. E. 1108, per Hiscock, J. See also
7 N. E. 537; Austin v. Searing, 16 N. Liverpool Ins. Co. v. Massachusetts, 10
Y. 112, 69 Am. Dec. 665. Wall. (IT. S.) 566, 19 L. Ed. 1029, aff'g
In equity, when the members are 100 Mass. 531; Com. v. Adams Exp.
numerous, one or more may sue for the Co.,29 Ky. L. Rep. 1280, 97 S. W.
benefit of all. Birmingham v. Galla- 386, as to effect of kindred provisions,
gher, 112 Mass. 190. 81 Phillips v. Blatchford, 137 Mass.
59Maltz American Exp. Co., 1
v. 510; Gleason v. McKay, 134 Mass.
Flip. 611, Fed. Cas. No. 9002; Hibbs 419; Whitman v. Porter, 107
v. Brown, 190 N. Y. 167, 82 N. E. Mass. 522; Hibbs v. Brown, 190 N. Y.
1108; Westcott v. Fargo, 61 N. Y. 542; 167, 82 N. E. 1108; People v. Coleman,
35
companies the transferee, however, will not become an associate

unless the consent of the other members is given, either antecedently
in the articles of association, or at the time of the transfer, or sub-
sequently.*^
Unless it is provided to the contrary by statute, or by a provision
in the articles of association which has been brought to the atten-
tion of creditors, the associates in a joint stock company are per-
sonally liable for its debts. ^' We have seen that the stockholders in
a corporation are not liable for the debts of the corporation, and that
the debts are regarded as those of the corporate entity and of it
alone. On the other hand, partners are liable for the debts of a
partnership. Joint stock companies have nevertheless some-t-imes been
regarded as oorporations for all practical purposes, even though their
members do not possess the important corporate attribute of limited
liability.®* As we have seen, corporations themselves may exist,
under charter or statutory provision, where the members do not
enjoy a restricted liability, without making the association any the
less a corporation. was held that under the constitution
Thus, it
and laws of the state of New

York, the United States Express Com-
pany, a joint stock association, was "for all practical purposes a
corporation," even though its individual associates were liable for
the debts of the company.®^ The statutes and constitution endowed
joint stock associations with so many corporate characteristics, and
with so many capacities and attributes not in possession of a part-
nership at common law, that the decision was quite correct. On the
133 N". T. 279, 16 L. E. A. 183, 31 N. E. 554; Skinner v. Dayton, 19 Johns. 513,
96; Warner v. Beers, 23 Wend. (N. Y.) 10 Am. Dee. 286; Kingsland v. Brai-
103. sted, 2 Lans. 17.
62 Edwards v. Warren Linoline & In Wadsworth v. Duncan, 164 111.
Gasoline Works, 168 Mass. 564, 38 L. 360, 45 N. E. 132, the Supreme Court
E. A. 791, 47 N. E. 502; Sheble v. of Illinois said: "The members of a
Strong, 128 Pa. St. 315, 18 Atl. 397. joint stock association are partners,
And see Kingman v. Spurr, 7 Pick, and each membei- is liable for the
(Mass.) 235; Alvord v. Smith, 5 Pick. debts of the association unless he has
(Mass.) 232; Harper v. Eaymond, 3 ii. the very mode
shifted his liability
Bosw. (N. Y.) 29. pointed out in the articles of associa-
63 Illinois. Pettis v. Atkins, 60 111. tion." This language was cited ap-
454. provingly in People v. Eose, 219 111.
Iowa. Lewis v. Tilton, 64 Iowa 220, 46, 76N. E. 42.
19 N. W. 911. 64Eoberts v. Anderson, 226 Fed. 7;
Maine. Frost v. Walker, 60 Me. 468; Hibbs v. Brown, 190 N. Y. 167, 82 N,
McGreary v. Chandler, 58 Me. 537. E. 1108.
Massachusetts. Tappan v. Bailey, 4 66 Hibbs v. Brown, supra, per HiS'
Mete. 529. cock, J., and O'Brien, J.
New York. Wells v. Gates, 18 Barb.
36
Cli.l] HiSTOBY AND GeNEEAL CoNSIDBEATIONS [§17
other hand, the common-law liability for debts on the part of mem-
bers of joint stock associations be removed by statute, or by
may
provision brought home to the notice of creditors without thereby
creating the association a corporation.®^
The distinction between corporations and joint stock companies
with regard to individual liability would seem to be that stockholders
in a corporation axe not liable for its debts unless they are ex-
pressly made liable by statute, whereas, on the other hand, the asso-
ciates in a joint stock association are individually liable for its debts
is expressly removed by statutory enactment or
unless this liability
by agreement brought home to the notice of creditors. Th& creation
of a corporation obliterates, so to speak, the individual liability of
the members, whereas the creation of a joint stock association has
not this inherent effect unless so provided by express affirmative
enactment or stipulation.®'' Indivi<lual liability for debts is, how-
Be Warner v. Beera, 23 Wend. (N. course new statutory liabilities which
Y.) 103. never, at common law, rested upon the
67 People V. Coleman, 133 N. T. 279, individual members. The retained
16 L. E. A. 183, 31 N. E. 96. "It is," liability occasionally established is in
Finch, J., said, "an essential and in- the nature and a parcel of such original
herent characteristic of a corporation liability, * * * but is retained by
that'it alone is primarily liable for its force of the express command of the
debts, because it alone contracts them, statute,and in that manner saved
except as that natural and necessary from the destruction which otherwise
consequence of its creation is modified would follow the simple creation of
in the, act of its creation by some ex- the corporation. Ordinarily these in-
plicit command of the statute which dividual liabilities exist upon other
either imposes an express liability up- than common-law conditions, and make
on the corporators in the nature of a the corporators rather sureties or guar-
penalty, or aflrmatively retains and antors of the corporation that origi-
preserves what would have been the nal debtors^ since in general their
common-law liability of the members liability ariseis after the usual reme-
from the destruction involved in the dies against the corporation have
corporate In other words,
creation. been exhausted. But, where that is
the individual liability of the mem- not so, the invariable truth is that the
bers, as it would have existed at com- creation of the corporation necessarily
mon law, is lost by their creation into destroys the common-law liability of
a corporation, and exists thereafter the individual members for its debts,
only by force of the statute, upon some and requires at the hands of the cre-
new and modifying conditions, to some ating power an afSrmative imposition
partial or changed extent, and so far of new personal liabilities, or a spe- '
preventing by the intervention of an cificretention of old ones from the de-

express command the total destruction struction which would otherwise fol-
of individual liabilities which other- low. Exactly the opposite is true of
wise would flow from the inherent ef- joint stock companies. Their forma-
fect of the corporate creation. The tion destroys no part or portion of
penalties sometimes imposed are of their common -law liability for the
37
ever, not a positive criterion whereby to distinguish corporations from

joint stock associations, since, as has been seen, the principle of stock-
holders' personal liability is not at all inconsistent with the fact
of corporate existence.^'
We have seen that a joint stock company isnot a corporation sim-
ply because it is authorized by the state, or because its shares are
transferable, or because it has an artificial name, or even because
its associates may not be personally liable for its debts. It has been
suggested that the distinguishing mark between a joint stock com-
pany and a corporation is whether the association exists as a legal
entity distinct and separate from the associates as individual per-
sons; if there is such separate entity and artificial personality, the
body is a corporation, otherwise it is a joint stock company.*' The
diifieulty with this is that it is begging the question to assert that
the body is a corporation if it be a legal entity. In order to deter-
mine whether the body is a legal entity, it is necessary to consider
the legislative intent and the attributes conferred upon the body.
In a well-known New York case. Judge Finch suggested that the
distinction "is that the creation of the corporation merges in the arti-
ficial 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. "'
' '
This suggestion is not altogether satisfactory, for associations have

frequently been held by the courts to be corporations even though
the members are by charter made individually liable for the debts
of the body. The principle of stockholders' personal liability is not
necessarily inconsistent with the fact of corporate existence,'^ and
as said by Justice Miller, speaking for the Supreme Court of the
United States, "it is quite certain that the principle of personal lia-
bility of the shareholders attaches to a very large proportion of the

corporations of this country, and it is a principle which has warm
advocates for its universal application when the organization is for
debts contraoted. Those debts are Hibbs v. Brown, 190 N. T. 167, 82 N.

their debts, for which they must B. 1108; In re Jones' Estate, 172 N.
answer." Y. 575, 60 L. R. A. 476, 65 N. E. 570;
«8See Roberts v. Anderson, 226 Gifford v. Livingston, 2 Den. (N. Y.)
Fed. 7; AtfSrews Bros. Co. v. Youngs- 380; Board Sup'rs Niagara Co. v.
town Coke Co., 86 Fed. 585. People, 7 Hill (N. Y.) 504; People v.
89Andrews Bros. Co. v. Youngstown Assessors of Watertown, 1 Hill (N.
Coke Co., 86 Fed. 585, per Lurton, J. Y.) 616; Warher v. Beers, 2^ Wend.
70 People V. Coleman, 133 N. Y. 279, (N. Y.) 103.
16 L. R. A. 183, 31 N. E. 96. See also 71 Roberts v. Anderson. 22P Fed. 7-
opinion of Edward T. Bartlett, J., in
38
Ch. 1] History and General Conhidbrations [§ 18
pecuniary gain. '* The Court of Appeals of New York, however,

'
'
has never altogether abandoned its position that the distinguishing

feature of the joint stock association, as contrasted with the corpora-
tion, is the personal liability of its members and ; this feature of per-
sonal liability has been regarded as so coexistent with the life of the
joint stock association that it cannot be abrogated by the contract of
the parties in interest.'^
The truth is, in fine, that the modem joint stock association as the
result of statute law is so frequently endowed with most of the
familiar attributes of the private corporation that to-day it is a mat-
ter in many instances of the greatest difficulty to determine pre-
cisely where the twilight zone occupied by joint stock associations
begins and ends.
The so-called "partnership association" of the state of Pennsyl-
vania is recognized in that state as a body quite distinct from a cor-
poration,''* and it is so treated in some of the states, for example, in
Massachusetts.''^ On the other hand, other states regard it as a cor-
poration, insisting that the essential attributes of the body are those
of a corporate entity and that, therefore, it is a corporation.''^ These
latter states insist that the true test is not so much what the legisla-
ture intended to do as what the legislature really has done, and that
a legislature actually can create a corporation although not intending
to do so.''''
§ 18. Societies, fraternities and clubs. Societies, fraternities and

clubs are sometimes corporations, but more frequently they are unin-
corporated. When unincorporated they are regarded simply as vol-
untary associations. An unincorporated club has no legal existence
as such. It cannot in the absence of statute sue or be sued. Suit
72 Liverpool Ins. Co. v. Massa- Board of Assessors, 57 N. J. L. 516,

ehusetts, 10 Wall. (TJ. 8.) 566, 19 L. 27 L. E. A. 684, 31 Atl. 220 Edgeworth
;
Ed. 1029, afe'g 100 Mass. 531. v. Wood, 58 N. J. L. 463, 33 Atl. 940.
73 Hibbs v. Brown, 190 N. T. 167, 77 See eases cited in preceding note;
82 N. E. 1108, per Edward T. Bartlett, and see also Liverpool Ins. Co. v.
J.,and Cullen, Ch. J. Massachusetts, 10 Wall. (U. S.) 566,
74Sheble v. Strong, 128 Pa. St. 315, 19 L. Ed. 1029, afE'g 100 Mass. 531.
18 Atl. 397; Eliot v. Himrod, 108 Pa. In the respondent's argument in the
St. 569; Brightly ''s Purdon's Digest last cited case. Attorney General
(12th Ed.) 1086-1088. Charles Allen, of Massachusetts, said:
76 Edwards v. Warren Linoline & "But in ascertaining the legal char-
Gasoline Works, 168 Mass. 564, 38 L. acter of the company, we are not to
R. A. 791, 47 N. E. 502. look at what they are called but at
76 Tide Water Pipe Co. v. State what they are." (10 Wall, at p. 572.)
39
;
§18] Pkivate Cokpoeations [Ckl
must be brought by or against the individual members.''* Such a

body is similar to a corporation in that it possesses the attribute of
continuous succession. It is not, however, a legal entity distinct
and separate from its individual members.''® Voluntary associations
of this kind are ordinarilymanaged by a board of trustees or direc-
tors.*" They enter into contracts and acquire and convey property
on behalf of the association. The rights and obligations of the
associates depend entirely upon their articles of association.*^
A corporation must also be distinguished from a stock exchange,
which is regarded by the law as a voluntary association, and not as
a corporation.*^ Stock exchanges are, however, essentially public
agencies, and itwould seem desirable to compel their incorporation
under state or federal auspices rather than to permit them to remain
unincorporated self-governing associations similar to fraternities or
private clubs. The public is not concerned with the latter, whereas
the public is vitally interested in the conduct of stock exchanges.
Corporations must also be distinguished from cost-book mining cora-
''Slowa. Lewis v. Tilton, 64 Iowa Pennsylvania. Crawford v. Gross,

220, 52 Am. Eep. 436, 19 N. W. 911; 140 Pa. St. 297, 21 Atl. 356.
Pipe V. Bateman, 1 Iowa 369. Au incorporated social club cannot
Kentucky. Curd v, Wallace, 7 Dana be classified as a legal entity within
190, 32 Am. Dee. 85. the meaning of the bankruptcy act as
Michigan. ScliuetzenBund v. Agita- to permit it to go into voluntary bank-
tions Verein, 44 Micli. 318, 38 Am. ruptcy. In re Pulton Club, 113 Fed.
Eep. 270, 6 N. W. 675. 997.
New York. Niven v. Spiekerman, 80 Bast Haddam Cent. Baptist
12 Johns. 401. Church V. Bast Haddam Baptist Ec-
England, Lloyd v. Loaring, 6 Ves. clesiastical Society, 44 Conn. 259;
773. Birmingham v. Gallagher, 112 Mass.
In Lewis v. Tilton, supra, Seevers, 190; Liggett v. Ladd, 17 Ore. 89, 21
J., said:"Tlie club is a myth. It has Pac. 133; Crawford v. Gross, 140 Pa.
no legal existence and never had. It St. 297, 21 Atl. 356.
cannot sue or be sued." SlWaite V. Merrill, 4 Me. 102, 16
79 Connecticut. East Haddam Cent. Am. Dec. 238 (society of Shakers)
Baptist Church v. Bast Haddam Bap- Austin V. Searing, 16 N. Y. 112, 69
tist Ecclesiastical Society, 44 Conn. Am. Dec. 665; Mann v. Butler, 2 Barb.
259. Ch. (N. Y.) 362; Logan v. McNaugher,
Kentucky. Curd v. Wallace, 7 Dana 88 Pa. St. 103; Leech v. Harris, 2
190, 32 Am. Dec. 85. Brewst. (Pa.) 571; Henry v. Jackson,
New York. White v. Brownell, 3 37 Vt. 431.
Abb. Pr. N. S. 318, aff 'd 4 Abb. Pr. N. 82 Green v. Board of Trade of Chi-
S. 62; Lafond v. Deems, 52 How. Pr. cago, 174 111. 585, 49 L. B. A. 365, 51
41, 1 Abb. N. Cas. 318, rev'd 81 N. Y. N. E. 599, aff'g 63 HI. App. 446;
507, 8 Abb. N. Cas. 344. Board of Trade of Chicago v. Nelson,
Oregon. Liggett v. Ladd, 17 Ore. 162 111. 431, 53 Am. St. Eep. 312, 44
89, 21 Pac. 183. N. E. 743, rev'g 62 HI. App. 541; Bel-
40
Gil. 1] HisTOBY AND Genebax, Consideeations [§ 20
panics. While these are similar to a corporation in some respects,

they occupy a distinct legal status of their own.^*
§ 19. Basic distinguishing features—Domestic associations. It is

generally said that whether or not a particular body is a corporation
depends entirely upon the faculties and powers conferred upon it.
As said by Chief Justice Nelson in a leading New York case: "In
order to determine this question, we must first ascertain the proper-
ties essential to constitute a corporate body, and compare them with
those conferred upon the associations; for if they exist in common,

or substantially correspond, the answer will be in the affirmative.
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 unimportant,
except as it will imply the possession of these. They may be
expressly conferred and then they denote this legal being as unerr-
ingly as if created in general terms. " ** It has been said that if
all the essential attributes of a corporate body are given to an asso-
ciation, it is a corporation, even in the jurisdiction of its creation,

though the legislature has expressly declared that it should not be
a corporation.^^ It is urged that such a legislative declaration cannot
change the inherent character of the association, since "human pow-
ers are not equal to the task of changing a thing by merely changing
its name. ^^ Why cannot a domestic legislature, however, do any-
'
'
thing it pleases, within constitutional limits, so far as the domestic

jurisdiction is concerned? The legislative fiat would seem to con-
trol within the boundaries of the state of creation.
§ 20. — Associations
under foreign laws. Whatever may be the
effect of a legislative declaration in the domestic jurisdiction, it is
certain that such a declaration cannot prevent the courts of a for-
eign jurisdiction from inquiring into the actual character of the
associationwhenever that may come in issue.*'' Courts of a foreign
ton V. Hatch, 109 N. T. 593, 4 Am. town Coke Co., 86 Fed. 585; Fargo v.
St.Rep. 495, 17 N. E. 225. Louisville, N. A. & C. Ry. Co., 6 Fed.
83 See Jones v. Clark, 42 Cal. 180; 787; GifCord v. Livingston, 2 Den. (N.
Skillman v. Laohman, 23 Cal. 198, 83 Y.) 395; People v. Assessors of Water-
Am. Dec. 96. town, 1 Hill (N. Y.) 616, 620; Sand-
84 Per Nelson, C. J., in Thomas v. ford v. Board Sup'rs of New York,
Dakiu, 22 Wend. (N. Y.) 9; Edgeworth 15 How. Pr. (N. Y.) 172.
V. Wood, 58 N. J. L. 463, 33 Atl. 940. 86 Bronson, J., in People v. Assessors
Thomas v. Dakin, 22 Wend. (N.
85 of Watertown, 1 Hill (N. Y.) 616, 623.
Y.) 9; Andrews Bros. Co. v. Youngs- 87 Liverpool Ins. Co. v. Massachu-
41
§ 20] Pbivate Cokfobations [Ch. 1
jurisdiction may inquire into the essential nature of the association

and in spite of the declaration of the legislature of the state of crea-
tion may regard an association as possessing so many of the charac-
teristics of a corporation that it may be treated as such. "Where the
question arises, then, as to associations existing under foreign laws,
the essential test to apply is the nature of the organization itself as
evidenced in the powers and attributes bestowed upon it.**
In a well-known case in the Supreme Court of the United States,

it appeared that the English parliament in creating an association
had declared expressly that it should not be regarded as a corporation,

yet that court, after inquiring into the actual character of the com-
pany, held it to be a corporation and liable as such to pay a corpora-
tion tax; the declaration of parliament, however conclusive so far
as English courts were concerned, was held to be in no way binding
upon other jurisdictions.'*
§ 21. Advantages of incorporation. The advantages of incorpora-

tion are so well understood that it seems almost superfluous to enu-
merate them. The chief advantages are these: First, through the
process of incorporation, any number of persons may unite in a
single enterprise without using their own names, without difficulty
or inconvenience, and with the valuable right to contract, to sue and
be sued, to hold or convey property in the corporate name. Second,
an individual stockholder may dedicate to the corporate enterprise
as much or as little as he sees fit, without risking more, and, in the
absence of statutes to the contrary, this is the limit of his liability,
since stockholders are not personally liable for the debts of the cor-
poration. Third, the rights and obligations of a corporation are not
affected by the death or change
of the individual members, but the
corporate business continues uninterrupted and unaffected so long
as the corporate entity continues. Fourth, the modern corporation
makes great undertakings feasible since it enables many individuals
to co-operate in order to furnish the large amounts of capital neces-
sary to finance the gigantic enterprises of modern times.
The desirability of the corporate type of business organization is
best demonstrated by the constantly increasing importance, size,
setts, 10 Wall. (IT. S.) 566, 19 L. Ed. Warren Linoline & Gasoline Works,
1029, afC'g Oliver v. Liverpool & Lon- 168 Mass. 564, 38 L. E. A. 791, 47 N.
don Life & Fire Ins. Co., 100 Mass. E. 502; Edgeworth v. Wood, 58 N. J.
531. L. 463, 33 Atl. 940.
88 Liverpool Ins. Co. v. Massaehu- 89 Liverpool Ins. Co. v. Massachu-
setts, 10 Wall. (IT. S.) 566, 19 L. Ed. setts, 10 Wall. 566, 19 L. Ed.
(IT. S.)
1029, aff'g 100 Mass. 531; Edwards v. 1029, aff'g 100 Mass. 531.
42
Ch. 1] History and General Considerations [§22
wealth and number of corporations. These bodies, if appropriately

regulated and supervised, constitute one of the most substantial
blessings of our civilization of this era. The Supreme Court of the
United States has said: "The continuity of the business, without
interruption by death or dissolution, the transfer of property inter-
ests by the disposition of shares of stock, the advantages of business
controlled and managed by corporate directors, the general absence
of individual liability, these and other things inhere in the advan-
tages of business thus conducted, which do not exist when the same
business is conducted by private individuals or partnerships."'"
President Nicholas Murray Butler of Columbia University recently
said "' "I weigh my words when I say that in my judgment the lim-
:
ited liability corporation is the greatest single discovery of modern

times, whether you judge it by its social, by its ethical, by its indus-
trial or, in the long run, —
after we understand it and know how
to use it, by its —
political, effects. Even steam and electricity are
far less important than the limited liability corporation, and they
would be reduced to comparative impotence without it. * * * It
substitutes co-operation on a large scale for individual, cut-throat,
parochial, competition. It makes possible huge economy in produc-
tion and in trading. It means the modern provision of industrial
insurance, of care for disability, old age and widowhood. It means
* * * the only possible engine for carrying on international trade
on a scale commensurate with modern needs and opportunities."
v. corporate entity in DEALnSTG WITH THIRD PERSONS
§ 22. In general. The general doctrine is well established, and

ofttains both at law and in equity, that a corporation is a distinct
legal entity to be considered as separate and apart from the individ-
ual stockholders who compose it, and is not to be affected by the per-
sonal rights, obligations and transactions of its stockholders."'* This
90 Flint V. Stone Tracy Co., 220 U. Bank of Augusta v. Earle, 13 Pet. 519,
S. 107, 162, 55 L. Ed. 389, Ann. Cas. 587, 10 L. Ed. 274; Pittsburgh & Buf-
1912 B 1312. falo Co. v. Duncan, 232 Fed. 584; Aiello
91 Address at the 143rd Annual Ban- v. Crampton, 201 Fed. 891 In re Water-
;
quet of the Chamber of Commerce of town Paper Co., 169 Fed. 252; United
the State of New York, November 16, States v. Milwaukee Refrigerator
1911. Transit Co., 142 Fed. 247; Glucose
92 United States. J. J. McCaskill Sugar Eefining Co. v. St. Louis Syrup
Co. V. United States, 216 U. 8. 504, 514, & Preserving Co., 135 Fed. 540; In re
54 L. Ed. 590; Humphreys v. McKis- Haas Co., 131 Fed. 232; People's Nat.
sock, 140 U. S. 304, 35 L. Ed. 473; Bank of Lynchburg v. Marye, 107 Fad.
43
§22] Peivate Coepokations [Ch.l
faculty is easily the mast characteristic ant distinctive attribute of

the corporate type of business organization. A corporation is a
distinct entity, an artificial person, created by law, and as such, is
570; Syndicate Ins. Co. v. Bohn, 65 lins,31 Ind. App. 493, 66 N. E. 780;
Fed. 165, 169, 27 L. E. A. 614. . State V. Anderson, 31 Ind. App. 34, 67
Alabama. Moore & Handley Hard- N. E. 207.
ware Co. V. Towers Hardware Co., 87 Iowa. Warren v. Davenport Fire
Ala. 206, 13 Am.
Eep. 23, 6 So. 41;
St. Ins. Co., 31 Iowa Am. Eep. 160.
464, 7
Pope V. Brandon, 2 Stew. 401, 20 Am. Kansas. Foster-Cherry Commission
Dec. 49. Co. V. Caskey, 66 Kan. 600, 72 Pac. 268;
Arkansas. Ex parte Booker, 18 Ark. Atchison, T. & S. P. E. Co. v. Cochran,
338. 43 Kan. 225, 7 L. E. A. 414, 19 Am. St.
California. Hawkins v. Mansfield Eep. 129, 23 Pac. 151.
Gold Min. Co., 52 Cal. 513; Morrison v. Kentucky. Taylor v. Com., 119 Ky.
Gold Mountain Gold Min. Co., 52 Cal. 731, 75 S. W. 244; Stagg Co. v. Taylor,
306; Barnstead v. Empire Min. Co., 5 113 Ky. 709, 68 S. W. 862; Illinois Cent.
Cal. 299. E. Co. V. Buchanan, 27 Ky. L. Eep.
Colorado. Liebhardt v. Wilson, 38 1215, 88 8. W. 312. Compare Louisville
Colo. 1, 120 Am. St. Eep. 97, 88 Pac. Banking Co. v. Eisenman, 94 Ky. 83, 19
173. L. E. A. 684, 42 Am. St. Eep. 335, 21
Connecticut. Maekay v. New York, S. W. 531.
N. H. & H. Eiver E. Co., 82 Conn. 73, Iionisiana. Mioton v. Del Corral,
24 L. E. A. (N. S.) 768, 72 Atl. 583; 132 La. 730, 61 So. 771. See also Civil
Spencer v. Champion, 9 Connl 536. Code Louisiana, art. 427; Goodwin v.
Georgia. Garmany v. Lawton, 124 BodeaW Lumber Co., 109 La. 1050, 34
Ga. 876, 110 Am. St. Eep. 207, 53 S. E. So. 74; In re Belton, 47 La. Ann. 1614,
669; Exchange Bank of Macon v. Ma- 30 L. E. A. 648, 18 So. 642.
eon Const. Co., 97 Ga. 1, 33 L. E. A. Maine. Wells v. Dane, 101 Me. 67,
800, 25 S. "E. 326; Newton Mfg. Co. v. 63 Atl. 324; Ulmer v. Lime Eoek E.
White, 42 Ga. 148; Eoss v. Eoss, 25 Co., 98 Me. 579, 66 L. E. A. 387, 57 Atl.
Ga. 297. 1001.
Illinois. Coal Belt Elec. E. Co. v. Maryland. Pott v. Schmucker, 84
Peabody Coal Co., 230 HI. 164, 13 L. E. Md. 535, 35 L. E. A. 392, 57 Am. St.
A. (N. S.) 1144, 120 Am. St. Eep. 282, Eep. 415^ 36 Atl. 592.
82 N. E. 627; Sellers v. Greer, 172 HI. Massachusetts. Brighton Packing
549, 40 L. E. A. 589, 50 N. E. 246; Home Co. v. Butchers' Slaughtering & Melt-
Nat. Bank of Chicago v. Waterman's ing Ass'n, 211 Mass. 398, 97 N. E. 780;
Estate, 134 HI. 461, 29 N. E. 503, afe'g Old Dominion Copper Mining & Smelt-
30 HI. App. 535; Pietsam v. Hay, 122 ing Co. v. Bigelow, 203 Mass. 159, 40
111. 293, 13 N. E. 501; Hopkins v. Eose- L. E. A. (N. S.) 314, 89 N. E. 193; Old
clare Lead Co., 72 111. 373. Compare Colony Boot & Shoe Co. v. Parker-
Benedict v. Dakin, 243 111. 384, 90 N. E. Sampson-Adams Co., 183 Mass. 557, 67
712; Sands v. Potter, 165 III. 397, 56 N. E. 870; England v. Dearborn, 141
Am. St. Eep. 253, 46 N. E. 282, afe'g 59 Mass. 590, 6 N. E. 837.
HI. App. 206. Michigan. Eough v. Breitung, 117
Indiana. Allemong v. Simmons, 124 Mich. 48, 75 N. W. 147.
Ind. 199, 23 N. E. 768; Tomlinson v. Minnesota. Erickson v. Eevere Ele-
Bricklayers' Union No. 1, 87 Ind. 308; vator Co., 110 Minn. 443, 126 N. W.
Ho;ne Elec. Light & Power Co. v. Col- 130; Gallagher v. Germania Brewing
44
Ch.l] History and Gekeeal Considehations [§22
capable of suing and being used, of acquiring, owning and disposing

of property, within the objects of its creation, as though it were a
natural person, and one may deal with it respecting its property
Co., 53 Minn. 214, 54 N. W. 1115; Bald- St. 180, 21 Am. St. Eep. 798, 24 N. E.
win V. Canfieia,26 Minn. 43, 1 N. W. 259; Bundy v. Ophir Iron Co., 38 Ohio
261, 276. St. 300.
Mississippi. Woodberry v. McClurg, Oklahoma. People's Nat. Bank v.
78 Miss. 831, 29 So. 514. Board Com 'rs Kingfisher Co., 24 Okla.
Idjssouri. Boatmen 's Bank v. Gilles- 145, 104 Pac. 55.
pie, 209 Mo. 217, 108 S. W. 74; Central Oregon. Poley v. Lacert, 35 Ore.
Mfg. Co. V. Montgomery, 144 Mo. App. 166, 58 Pae. 37.
494, 129 S. W. 460. Pennsylvania. Com. v. Monongahela
Montana. Orient Ins. Co. of Hart- Bridge Co., 216 Pa. 108, 8 Ann. Cas.
ford V. Northern Pae. R. Co., 31 Mont. 1073, 64 Atl. 909; Ehawn v. Edge Hills
502, 78 Pac. 1036; Princeton Mjn. Co. Furnace Co., 201 Pa. 637, 51 Atl. 360;
V. First Nat. Bank of Butte, 7 Mont. Monongahela Bridge Co. v. Pittsburg
530, 19 Pae. 210. & B. Traction Co., 196 Pa. St. 25, 79
Neliraska. Home
Fire Ins. Co. v. Am. St. Eep. 685, 46 Atl. 99.
Barber, 67 Neb. 644, 60 L. E. A. 927, Bhode Island. New England Com-
108 Am. St. Eep. 716, 93 N. W. 1024; mercial Bank v. Newport Steam Fac-
Western Travelers' Ace. Ass'n v. Tay- tory, 6 E. L 154, 75 Am. Dec. 688;
lor,62 Neb. 783, 87 N. "W. 950. Atwood V. Rhode Island Agr. Bank, 1
Nevada. O 'Connor v. North Truekee E. I. 376.
Bitch Co., 17 Nev. 245, 30 Pac. 882. South Carolina. Waring v. Catawba
New Jersey. Pomeroy Ink Co. v. Co., 2 Bay 109.
Ponieroy, 77 N. J. Eq. 293, 78 Atl. 698; Tennessee. Parker v. Bethel Hotel
Gifford V. New Jersey E. & Transp. Co., Co., 96 Tenn. 252, 31 L. E. A. 706, 34
10 N. J. Eq. 171. S. W. 209.
New York. Brock v. Poor, 216 N. T. Lang v. Dougherty, 74 Tex.
Texas.
387, 111 N. E. 229; Irvine v. New York W. 29.
226, 12 S.
Edison Co., 207 N. Y. 425, Ann. Cas. Utah. Hearst v. Putnam Min. Co.,
1914 C 441, 101 N. E. 358; Stone y. 28 Utah 184, 66 L. E. A. 784, 107 Am.
Cleveland, C, C. & St. L. E. Co., 202 St. Rep. 698, 77 Pac. 753.'
N. Y. 352, 35 L. E. A. (N. S.) 770, 95 Vermont. Wheeloek v. Moulton, 15
N. E. 816; Anglo-American Provision Vt. 519.
Co. V. Davis Provision Co., 169 Virginia. People's Pleasure Park
N. Y. 506, 88 Am. St. Rep. 608, 62 Co. V. Eohleder, 109 Va. 439, 63 S. E.
N. E. 587; Saranae & L. P. R. Co. v. 981, 61 S. E. 794.
Arnold, 167 N. Y. 368, 60 N. E. 647; Washington. State v. Taeoma Rail-
Buffalo Loan, Trust & Safe Deposit Co. way & Power Co.,61 Wash. 507, 32
v. Medina Gas & Elee. Light Co., 162 L. R. A. (N. S.) 720, 112 Pae. 506.
N. Y. 67, 56 N. E. 505; Palmei- v. West Virginia. West Virginia
Eing, 113 N. Y. App. Div. 643, 99 N. Y. Transp. Co. v. Standard Oil Co., 50 W.
Supp. 290; New York Air Brake Co. v. Va. 611, 56 L. R. A. 804, 88 Am. St.
International Steam Pump Co., 64 N. Eep. 895, 40 S. E. 591.
Y. Misc. 347, 120 N. Y. Supp. 683. Wisconsin. Button v. Hoffman, 61
North Carolina. Ehodes v. Love, 153 Wis. 20, 50 Am. Eep. 131, 20 N. W. 667.
N. C. 468, 69 S. E. 436. England. Continental Tyre & Rub-
Ohio. Barriok v. Giiford, 47 Ohio ber Co., Ltd. V. Daimler Co., Ltd.,
45
§22] Pkivate Cokpoeations [Ch.l
the same as with an individual owner.^' Its individuality is con-

ferred upon it by law,'* which also endows it with a juridical exist-
ence independent of any or all of its stockholders. The acts of a

corporation through duly authorized agents are the acts of the
its
artificial personality, the corporation, and are not the acts of the
stockholders composing it.'* "The corporation is the real, though
artificial, person substituted for the natural person who procured its
creation, and have pecuniary interests in it, in which all its prop-
erty is and by which it is controlled, managed, and disposed
vested,
of. must purchase, hold, grant, sell, and convey the corporate
It
property, and do business, sue and be sued, plead and be impleaded,
for corporate purposes, by its corporate name. The corporation must
do its business in a certain way, and by its regularly appointed offi-
cers and agents, whose acts are those of the corporation only as they
[1915] 1 K. B. 893; Gramophone & NewJersey. Groel v. United Elec.

Typewriter Co., Ltd. v. Stanley, [1908] Co., 69 N. J. Eq. 397, 60 Atl. 822.
2 K. B. 89; Kodak, Ltd. v. Clark, New York. Anglo-American Pro-
[1903] 1 K. B. 505; Id., [1902] 2 K. B. vision Co. V. Davis Provision Co., 169
450; Salomon v. Salomon & Co., [1897] N. Y. 506, 88 Am. St. Eep. 608, 62 N.
A. 0. 22; John Poster & Son, Ltd. v. E. 587.
Commissioners of Inland Eevenue, L. Ohio. Humphreys v. State, 70 Ohio
E. [1894] 1 Q. B. 516; Queen v. Ar- St. 67, 65 L. E. A. 776, 101 Am. St. Eep.
naud, 16 L. J. Q. B. (N. S.) 50, 9 Q. B. 888, 1Ann. Cas. 233, 70 N. E. 957.
(A. & E., N. S.) 806; Goulburn Val. Texas. Chapman v. Hallwood Cash
Butter Factory Co. v. Bank of New Eegister Co., 32 Tex. Civ. App. 76, 73
South Wale^, [1900] 26 Viet. L. E. 351. S. W. 969.
93 Hearst v. Putnam Min. Co., 28 West Virginia. Lowther v. Bridge-
Utah 184, 66 L. E. A. 784, 107 Am. St. man, 57 Va. 306, 50 S. E. 410; Floyd
"W.
Eep. 698, 77 Pae. 753. V. National Loan & Investment Co., 49
United States. Caasatt v. Mitchell
94 "W. Va. 327, 54 L. E. A. 536, 87 Am.
Coal & Coke Co., 150 Fed. 32, 10 L. E. St. Eep. 805, 38 S. E. 653.
A. (N. S.) 99; Kirven v. Virginia-Caro- 95 Indiana. Tomlinson v. Bricklay-
lina Chemical Co., 145 Fed. 288, 7 Ann. ers ' Union No. 1, 87 Ind. 308.
Cas. 219. Louisiana. "Williamson v. Smoot,
California. Bank
of California v. 7 Mart. 31, 12 Am. Dec. 494.
City & County
of San Francisco, 142 Massachusetts. Smith v. Hurd, 12
Cal. 276, 64 L. E. A. 918, 100 Am. St. Mete. 371, 46 Am. Dec. 690.
Eep. 130, 75 Pao. 832; Laidlaw v. Pa- Vermont. Wheelock v. Moulton, 15
cific Bank, 137 Cal. 392, 70 Pae. 277. Vt. 519.
Indiana. State v. Anderson, 81 Ind. Wisconsin. Button v. HofEman, 61
App. N. E. 207; Bowlley v. Kline
34, 67 Wis. 20, 50 Am. Eep. 131, 20 N. W. 667.
(Ind. App.), 60 N. E. 712. England. Queen v. Arnaud, 16 L.
Louisiana. Milwaukee Trust Co. v. J. Q. B. (N. S.) 50, 9 Q. B. (A. & E.)
Germania Ins. Co., 106 La. 669, 31 So. 806.
298.
Minnesota. Tolerton & Stetson Co.
V. Barck, 84 Minn. 497, 88 N. W. 19.
46
Ch. 1] History and Geneeal Considebations [§ 22
are within the powers and purposes of the corporation. In an ordin-

ary copartnership the members of it act as natural persons and as
agents for each other, and with" unlimited liability. But not so with
a corporation; its members, as natural persons, are merged in the
corporate identity."'® In ordinary business transactions and for
the purpose of determining the respective rights, responsibilities and
powers of corporations, their officers, stockholders and creditors, it is
absolutely necessary that the distinction between the corporation, as

a legal entity, and its members, be strictly maintained.^' Thus, it
has been held by high authority that in order to determine whether
a corporation is an English or a foreign corporation no inquiry will
be made into the share register for the purpose of ascertaining whether
the stockholders of the corporation are English or foreign, and that
once a corporation has been authorized by England in accordance
with the requirements of the English law, it is an English company,
notwithstanding that all of its shareholders may be foreign.'* Simi-
larly, a foreign corporation does not become English and cease to
be foreign because all of its members happen to be subjects of the
British Crown." This illustrates that a corporation is, in the
eye of the law, a different person altogether from the subscribers
to its articles of incorporation or the shareholders on its register
of shares.
The foregoing rule obtains even though one individual acquires the
He and the corporation are not
entire capital stock of a corporation.
one and the same, but are distinct and separate legal entities and
must be so treated.^ That one person may own a majority or even
98 Button V. Hoffman, 61 Wis. 20, 50 Georgia. Exchange Bank of Macon
Am. Eep. 131, 20 N. W. 667. See also v. Macon Const. Co., 97 Ga. 1, 33 L. R.
State V. Tacoma Railway & Power Co., A. 800, 25 S. E. 326; Newton Mfg.
61 Wash. 507, 32 L. R. A. (N. S.) 720, Co. v. White, 42 Ga. 148.
112 Pac. 506. Coal Belt Elec. R. Co. v.
Illinois.
97 Erickson v. Revere Elevator Co., Peabody Coal Co., 230 111. 164, 13 L. R.
110 Minn. 443, 126 N. W. 130. See also A. (N. S.) 1144, 120 Am. St. Rep. 282,
Gallagher v. Germania Brewing Co., 53 82 N. E. 627; Hopkins v. Roseclare
Minn. 214, 54 N. W. 1115. Lead Co., 72 111. 373.
98 Continental Tyre & Rubber Co., Indiana. AUemong v. Simmons, 124
Ltd. V. Daimler Co., Ltd., [1915] 1 K. Ind. 199, 23 N. B. 768.
B. 893. See also Queen v. Arnaud, 16 Kentucky. George T. Stagg Co. t.
L. J. Q. B. (N. S.) 50, 9 Q. B. (A. & E.) E. H. Taylor, Jr., & Sons, 113 Ky. 709,
806. 68 8. W. 862.
99 Janson v. Dreifontein Consol. Louisiana. In re Belton, 47 La. Ann.
Mines, [1902] A. C. 484, 497, 501, 505, 1614, 30 L. R. A. 648, 18 So. 642.
5 B. R. C. 810. Maine. TTlmer v. Lime Rock R. Co.,
1 Connecticut. Spencer v. Champion, 98 Me. 579, 66 L. R. A. 387, 57 Atl.
9 Conn. 53fi. 1001.
47
§22] Peivate Coepoeations [Ch.l
all of the stock of a corporation does not establish a legal identity

between him and it, so as to make acts by him in his individual name
its acts and binding on it.^ The circumstance that the owner of
the entire capital stock is another corporation "makes no difference
in principle. " ^ case, the owner of all the
In a leading Minnesota
capital stock in a corporation executed and delivered a deed of a
certain piece of realty owned by it; an action was subsequently
brought to have this deed declared null and void as a cloud upon
the title of the corporation. The court held that the deed was void
upon its face, being the deed of a total stranger to the title, and that,
therefore, there was no cloud upon the corporate title, and the action
would not lie.* The Supreme Court of Wisconsin has decided that
the owner of the entire capital stock of a corporation cannot main-
tain an action of replevin to recover personal property wrongfully
taken from the corporate entity since title is in it and not in the
sole stockholder, saying: "the owner of all the capital stock of a
corporation does not, therefore, own its property, or any of it, and
does not himself become the corporation, as a natural person, to own
its property, and do its business in his own name. "While the eor-
Massachusetts. Old Dominion Cop- burg & B. Traction Co., 196 Pa. St. 25,
per Mining & Smelting Co. v. Bigelow, 79 Am. Eep. 685, 46 Atl. 99.
St.
203 Mass. 159, 40 L. E. A. (N. S.) 314, Tennessee. Parker v. Bethel Hotel
89 N. E. 193; England v. Dearborn, 141 Co., 96 Tenn. 252, 31 L. E. A. 706, 34
Mass. 590, 6 N. E. 837. S. "W. 209.
Michigan. Rough v. Breitung, 117 Wisconsin. ButtonHoffman, 61
v.
Mich. 48, 75 N. W. 147. "Wis. 20, 50 Am. Rep. N. W. 667.
131, 20
Minnesota. Baldwin v. Canfield, 26 England. Gramophone & Typewrit-
Minii. 43, 1 N. W. 261, 276. er Co., Ltd. V. Stanley, [1908] 2 K. B.
Missouri. Central Mfg. Co. v. Mont- 89; Goulburn Valley Butter Factory
gomery, 144 Mo. App. 494, 129 S. W. Co. V. Bank of New South Wales,
460. [1900] 26 Viet. L. E. 351; Salomon v.
Ifebraska. Harrington v. Connor, Salomon & Co., [1897] A. C. 22," rev 'g
51 Neb. 214, 70 N. W. 911. Broderip v. Salomon, [1895] 2 Ch. Div.
New York. Brock v. Poor, 216 N. Y. 323.
387, 111 N. E. 229; BujEEalo Loan, Trust ZGarmany v. Lawton, 124 Ga. 876,
& Safe Deposit Co. v. Medina Gas & 110 Am. St. Eep. 207, 53 S. E. 669;
Elec. Light Co., 162 N. Y. 67, 56 N. E. Newton Mfg. Co. v. White, 42Ga. 148;
505; Palmer v. Eing, 113 N. Y. App. In re Owen's Estate, 30 Utah 351, 85
Div. 643, 99 N. Y. Supp. 290. Pac. 277.
Pennsylvania^ Com. v. Mononga- 3 Exchange Bank of Macon v. Ma-
hela Bridge Co., 216 Pa. 108, 8 Ann. con Const. Co., 97 Ga. 1, 33 L. E. A.
Cas. 1073, 64 Atl. 909; Ehawn v. Edg? 806, 25 S. E. 326.
Hill Furnace Co., 201 Pa. 637, 51 Atl. 4 Baldwin v. Canfleld, 26 Minn. 43,
360; Monongahela Bridge Co. v. Pitts- 1 N. W. 261, 276.
48
4
Ch. 1] History and General. Considerations [§ 24
poration exists he is a mere stockholder of it, and nothing else."^

A few courts, however, have adopted the view that when one indi-
vidual owns all the shares of stock of a corporation, he, by virtue
of such ownership, becomes the owner of the. corporate property and
may sell and dispose of it if he chooses to do so, and that, in short,
he becomes the corporation.^ This disregard of the doctrine of cor-

porate entity would appear to be unsound ; the fact that a corporation
is reduced in number to one or two stockholders does not warrant a
disregard of the corporate conceptionJ
§ 23. Contractual powers and obligations —In general.

The con-
tract of a corporation is the contract of the legal entity, and not of
the stockholders individually. "Whenever a corporation makes a
contract, it is the contract of the legal entity; of the artificial being
created by the charter; and not the contract of the individual mem-
bers. "^ Suits cannot be brought by or against the individual stock-
holders but must be brought by or against the corporation.' A
contract made by a stockholder as such is not treated as a contract of
the corporation unless the corporation thereafter formally ratifies or
adopts it.^"
§ 24. —
Agency. The acts of the agent of a corporation are bind-
ing only upon a corporation and do not bind the stockholders indi-
vidually. Thus, a stockholder is not individually bound by a fraud
6 Button V. Hoffman, 61 Wis. 20, 50 pete with the purchaser, is not binding
Am. Rep. 131, 20 N. W. 667. on a stockholder as an individual,
6 First Nat. Bank of Gadsden v. Win- even though he acted in behalf of the
Chester, 119 Ala. 168, 72 Am. St. Eep. corporation in the transaction. Hall's
904, 24 So. 351; Louisville Banking Co. Safe Co. v. Herring-Hall-Marvin Safe
V. Eisenman, 94 Ky. 83, 19 L. E. A. 684, Co., 146 Fed. 37, 14 L. E. A. (N. S.)
42 Am. St. Eep. 335, 21 S. W. 531, 1182, modified in 208 U. S. 554, 52 L.
1049; Swift v. Smith, 65 Md. 428, 5 Ed. 616.
Atl. 534; The Bellona Co. Case, 3 10 Moore & Handley Hardware Co. v.
Bland. (Md.) 442 (semble). Towers Hardware Co., 87 Ala. 206, 13
See article by I. Maurice Wormser,
'?
Am. St. Eep. 23,' 6 So. 41; Sellers v.
12 Columbia L. Eev. 496, 515-517. Greer, 172 111. 549, 40 L. E. A. 589, 50
8 Bank of Augusta v. Earle, 13 Pet. N. E. 246, rev'g 64 111. App. 505; Davis
(tr. S.) 519, 587, 10 L. Ed. 274. v. Eavenna Creamery Co., 48 Neb. 471,
9 Smith v. Hurd, 12 Mete. (Mass.) 67 N. W. 436.
371, 46 Am. Dec. 690. The individual consent of the stoek-
An agreement by a corporation upon holders is not sufficient to bind the eor-
selling its property, business and good- poration. Demarest v. Spiral Eiveted
will, that it will not thereafter com- Tube Co., 71 N. J. L. 14, 58 Atl. 161.
49
I Priv. Corp. —
;
§ 25] Pbivate Cokpokations [Ch. 1
committed by the officer of his corporation, to which fraud he was

not privy.^^
§ 25. — Acquisition and transfer of property—Title to property.

The title to and personal property of a corporation is vested
the real
in the legal entity as such and not in its stockholders. In a leading
English case, a British corporation sought to register a vessel owned
by it; registration was refused because the statute applicable per-
mitted the registration only of vessels belonging entirely to sub-
jects of Great Britain, andappeared that some of the stockholders
it
in the corporation were foreigners. It was held that the vessel was
entitled to British registry on the ground that "the British corpora-
'
tion is to all intents the legal owner of the vessel. '
^* While the
stockholders are interested, of course, in the property of the cor-
poration, they are not the owners thereof in any legal sense; the
corporation, and it alone, is the owner.^' The shares in a corporation
which owns nothing but real estate are nevertheless mere personal
property since the stockholders are not the owners of the real estate,
but the corporation alone.**
§ 26. — Transfers and conveyances. Property must be transferred

by the corporation as such in the name of the corporation, and not
11 Moffat & Curtis v. Winslow, 7 28 Utah 184, 66 L. E. A. 784, 107 Am.

Paige (N. Y.) 124. St. Eep. 698, 77 Pae. 753.
12 Queen v. Arnaud, 16 L. J. Q. B. Washington. Oudin & Bergman Fire
(N. S.) 50, 9 Q. B. (A. & E.) 806; and Clay Min. & Mfg. Co. v. Conlan, 34
see Princeton Min. Co. v. First Nat. Wash. 216, 75 Pao. 798.
Bank of Butte, 7 Mont. 530, 19 Pae. Wisconsin. Huber v. Martin, 127
210. Wis. 412, 3 L. E. A. (N. S.) 653, 115
IS United States. Sabre v. United Am. St. Eep. 1023, 7 Ann. Cas. 400, 105
Traction & Electric Co., 225 Fed. 601 N. W. 1031, 1135.
People 's Nat. Bank of Lynchburg v. The owner of the entire capital stock
Marye, 107 Fed. 570. does not own the corporate property.
Kentucky. Taylor v. Com., 119 Ky. Qarmany v. Lawton, 124 Ga. 876, 110
731, 75 S. W. 244. _^jj_ gt. Rep. 207, 53 S. E. 669; City of
Maine. Wells v. Dane, 101 Me. 67, Loîg^me v. McAteer, 26 Ky. L. Eep.
63 Atl. 324.
425, 81 S. W. 698.
Nebraska. Home Fire Ins. Co. v.
Even the corporate good-will belongs
Barber, 67 Neb. 644, 60 L. E. A. 927, ^ ^^ ^. T^ :. ox x-
*^'
108 Am. St. Eep. 716, 93 N. W. 1024. ""'^^'fT;
*f v. Dodge, ,^,l^lfl^*'"?;/
ô. 145 Cal. 380, 78 Pae. 879;
New York. Saranac & L. P. E. Co.
^^rrett v. Bloomfleld Sav. Inst., 64
V. Arnold, 167-N. Y. 368, 60 N. E. 647.
Huet Piedmont N. J. Eq. 425, 54 Atl. 543.
North Carolina. v.
Springs Lumber Co., 138 N. C. 443, 50 "Eussell v. Temple, 3 Dane's Abr.
S. E. 84B.
(Mass.) 108; Bradley v. Holdsworth, 3
mab Hearst v. Putnam Min. Co., Mees. & W. 422.
50
;
Ch. 1] History and Genebal Consideeations [§29
by the stockholders. Even where the owner of the entire capital

stock of the corporation transfers corporate property, no title thereto
is acquired by the transferee, since the transfer is not a corporate
act.^^ A transfer by all of the stockholders is likewise ineifectual,
since the title is in the corporation alone. ^®
§27. — Real and chattel mortgages. A mortgage must be exe-

cuted by the corporation as such and in the corporate name. A
mortgage executed by all of the stockholders individually is not a
good mortgage at law.^'' In equity, howeyer, it may be recognized
as a valid equitable mortgage.^'
§28. — Proi>erty restrictions. A careful distinction must be

drawn between a transfer to individuals and a transfer to a cor-
poration where a property covenant or restriction is concerned.
Where a restriction forbids the transfer of real estate to "a person
or persons of African descent" or "colored persons," the restric-
tion is not violated by a transfer of the real estate to a corporation
composed exclusively of negroes as stockholders.^® The corporation
is an artificial person altogether distinct and separate from its oflfi-
cers, directors, and stockholders and hence no violation of the restric-

tion was shown.
§ 29, — Rights of action as to property. The corporation and it
alone may sue to recover property of the corporation or to recover

damages for injuries done to it.^" The members cannot sue in their
A transfer of stock in a real estate Eep. 904, 24 So. 351; Swift v. Smith,
corporation not a transfer of real es-
is 65 Md. 428, 57 Am. Eep. 336, 5 Atl.
tate. Albany Mill Co. v. HufE Bros., 534; Bundy v. Ophir Iron Co., 38 Ohio
24 Ky. L. Bep. 2037, 72 S. W. 820. St. 300.
IB Palmer v. Ring, 113 N. Y. App. People 's Pleasure Park Co. v. Eoh-
19
Div. 643, 99 N. T. Supp. 290. leder, 109 Va. 439, 63 S. E. 981, 61 S.
16 Parker v. Bethel Hotel Co., 96 E. 794. See article "The Personality
Tenn. 252, 31 L. K. A. 706, 34 S. "W. 209 of Associations, ' ' 29 Harv. L. Eev. 404.
Wheelock v. Moulton, 15 Vt. 519. But 20 Georgia. McAfee v. Zettler, 103
see Manhattan Brass Co. v. Webster 6a. 579, 30 S. E. 268; Bethune v. Wells,
Glass & Queensware Co., 37 Mo. App. 94 Ga. 486, 21 S. E. 230.
145. Indiana. Tomlinson v. Bricklayers'
17 Bundy v. Ophir Iron Co., 38 Ohio Union No. 1, 87 Ind. 308.
St. 300. Massachusetts. Bartlett v. Brickett,
18 First Nat. Bank of Gadsden v. 14 Allen 62; Smith v. Hurd, 12 Mete.
Winchester, 119 Ala. 168, 72 Am. St. 371, 46 Am. Dec. 690.
individual names. Not even the sole owner of all the capital stock
of a corporation may sue to recover property unlawfully taken from
it."
§30. —
Execution and attachment. The creditors of a stock-
holder of a corporation cannot attach property belonging to the
corporation.^^
§ 31. Torts. The stockholders of a corporation, unless they per-

sonally participate therein, are not liable individually for torts com-
mitted by the corporation. The corporation, and it alone, is legally
liable. Similarly, where a tort is committed against a corporation,
the corporation alone has a right of action and not the individual
stockholders of the corporation.^^ These rules apply even though
one person owns the entire capital stock of a corporation.^*
§ 32. Grimes. The same rules are applicable to crimes which, we

have just seen, are applicable to corporate torts. Stockholders are
not personally liable for crimes committed by the corporation unless
it can be proven that they personally participated.*^
§ 33. Actions —
General considerations. In the ease of an associa-
tion which is unincorporated, whether a joint stock company or a
partnership, the common-law rule it must sue or be sued in the
is that
name however numerous they may
of all of the individual members,
be. On the other hand, a corporation sues and is sued as a legal
body in the name of the corporation. Suit must be brought by or
against the legal entity and not by or against the individual stock-
holders. The latter cannot sue either at law or in equity on rights
New York. Bennett v. American Art Massachusetts. Smith v. Hurd, 12
Union, 5 Sandf. 614. Mete. 371, 46 Am. Dec. 690.
Wisconsin. Button v. Hoffman, 61 Michigan. Talbot v. Scripps, 31
Wis. 20, 50 Am. Eep. 131, 20 N. W. 667. Mich. 268.
21 Button V. Hoffman, 61 Wis. 20, 50 A corporation cannot waive a claim
Am. Eep. 131, 20 N. W. 667. for damages for torts against its stock-
22 Williamson v. Smoot, 7 Mart. holders. Orient Ins. Co. of Hartford v.
(La.) 31, 12 Am. Dec. 494. Northern Pac. E. Co., 31 Mont. 502,
23 Connecticut. Allen v. Curtis, 26 78 Pac. 1036.
Conn. 456. 24 Werner v. Hearst, 177 N. Y. 63,
Georgia. McAfee v. Zettler,103 Ga. 69 N. E. 221.
579, 30 S. E. 268 ; Bethune v. Wells, 94 26 Union Pac. Coal Co. v. United
Ga. 486, 21 S. E. 230. States, 173 Fed. 737. Compare Polwell
Indiana. Tomlinson v. Bricklayers' v. Miller, 145 Fed. 495, 10 L. R. A. (N.
Union, 87 Ind. 308. 8.) 332, 7 Ann. Cas. 455.
52
Ckl] History and General, Considekations [§35
of action belonging to the corporation.^^ Even though an individ-

ual owns all of the corporate stock, it is not necessary that he
be joined as a party plaintiff or defendant.^''' Suit brought against
the stockholders of the corporation in no vsray affects the corpora-
tion.^*
§34. —
^Members as parties. Actions, as has been seen, are
brought by or against the corporation as a legal entity, and the
stockholders are in no legal sense parties thereto. This distinction
has been carried so far that it has even been held that a stockholder
in a corporation is not disqualified to serve as judge in a litigation
involving the corporation,^' but such decisions are of questionable
soundness and there are others to the contrary.^'
§ 35. — Rights of set-off by members. In a suit against a corpora-

tion by a creditor of the corporation, demands due by the plaintiff
to the stockholders as individuals cannot be interposed as equitable
set-offs against the plaintiff's demand, even though the plaintiff is
insolvent and even though the stockholders interposing the set-off
26 Connecticut. Allen v. Curtis, 26 28 Lillard v. Porter, 2 Head (Tenn.)

Conn. 456. 177.
Georgia. McAfee v. Zettler, 103 Ga. 29 Merchants ' Bank v. Cook, 4 Pick.
579, 30 S. E. 268; Bethune v. Wells, 94 (Mass.) 405; Stuart v. Mechanics' &
Ga. 486, 21 S. E. 230. Farmers ' Bank, 19 Johns. (N. Y.) 496;
Indiana. Tomlinson v. Bricklayers' Searsburgh Turnpike Co. v. Cutler, 6
Union, 87 Ind. 308. Vt. 315.
Massachusetts. Bartlett v. Brickett, It has been held that a stockholder
14 Allen 62; Smith v. Hurd, 12 Mete. or officer of a corporation may testify
371, 46 Am. Dec. 690. in a litigation to which his corporation
Michigan. Talbot v. Seripps, 31 isa party with regard to transactions
Mich. 268. with a deceased individual. Bank of
New York. Bennett v. American Southwestern Georgia v. McGarrah,
Art Union, 5 Sandf. 614. 120 Ga. 944, 48 S. B. 393; WoM
Shirt
Wisconsin. Button v. Hoffman, 61 Co. V. Frankenthal, 96 Mo. App. 307,
Wis. 20, 50 Am. Eep. 131, 20 N. W. 667. 70 S. W. 378.
A suit must be brought by the cor- 30 State V. Young, 31 Pla. 594, 19 L.
poration in its own name. New Orleans E, A. 636, 34 Am. St. Eep. 41, 12 So.
Terminal Co. v. Teller, 113 La. 733, 2 673; Inhabitants of Northampton v.
Ann. Cas. 127, 37 So. 624. Smith, 11 Mete. (Mass.) 390; Wash-
A suit must be brought against the ington Ins. Co. V. Price, Hopk. Ch. (N.
corporation in its own name. Posner y.) 1; Gregory v. Cleveland, C. & C,
V. Southern Exhaust & Blow Pipe Co., K. Co., 4 Ohio St. 675.
109 La. 658, 33 So. 641.
27 Pox V. Bobbins (Tex. Civ. App.),
62 S. W. 815.
53
§ 35] Private Cokpobations [Ch. 1
own all the stock in the corporation.'^ The reason for this rule is
that the corporation is a legal entity distinct from the stockholders.
A claim against the corporation is quite different from a claim against
the stockholders and vice versa.
§ 36. — Judgments. A
judgment against a corporation does not
property of the stockholders, although it is res adjudicata
affect the
in an action to enforce against them a statutory personal liability
for corporate debts.^*
§ 37. —
Notice to membeirs. Since the stockholders of a corpora-
tion are not its agents simply because of their status as stockholders,
notice to them is not notice to the corporation.^' In order to bind
the corporation it must be shown that notice was given to its duly
authorized officer or agent.
§ 38. —
Admissions of members. Declarations against interest or
admissions made by stockholders of a corporation, as such, are incom-
petent evidence against the corporation.'*
The stockholders are not parties upon the record. The record
speaks only of the artificial entity created by the act of incorpora-
tion.'*
§ 39. —Residence and citizenship for jurisdictional purposes.

The residence, domicile or citizenship of the individual stockholders
is immaterial as regards the jurisdiction of a suit brought by or
against a corporation. The controlling factor is the residence and
citizenship of the legal entity. Generally speaking, the cases hold that
SI Gallagher v. Germania Brewing writ of error dismissed 13 Pet. (TT. S.)

Co., 53 Minn. 214, 54 N. W. 1115. 157, 10 L. Ed. 105.
32 Hale V. Harden, 95 Fed. 747; Mu- Incidentally, according toJudge El-
tnal Fire Ins. Co. v. Phoenix Furniture liott,
'
' The between the
distinction
Co., 108 Mich. 170, 34 L. E. A. 694, 62 rights of a corporation and the rights
Am. St. Eep. 693, 66 N. W. 1095. of its members is well illustrated by
33 Mercantile Nat. Bank of Cleve- the rule of the Roman law that a slave
land V. Parsons, 54 Minn. 56, 40 Am. could not be tortured for the purpose
St. Eep. 299, 55 N. W. 825. of extorting information to be used
84 Dean v. Eoss, 105 Gal. 227, 38 Pac. against his master. But the slave of
912; Fairfield County Turnpike Co. v. a corporation could by torture be eom-
Thorp, 13 Conn. 173 Hartford Bank v.
; pelled to give information against the
Hart, 3 Day (Conn.) 491, 3 Am. Deo. members of the corporation." Elliott
274; New Bbenezer Ass'n v. Gress Corp. (4th Ed.) 11.
Lumber Co., 89 Ga. 125, 14 S. E. 892; 36 Fairfield County Turnpike Co. v.
Polleys v. Ocean Ins. Co., 14 Me. 141; Thorp, 13 Conn. 173.
54
Ch. 1] History and Geneeal. Considebations [§ 42
a corporation is to be treated for jurisdictional purposes as a resident

of that place where its principal ofSce or place of business is situated,
and a citizen of that state under whose laws it is organized.'^
§ 40. Statute of frauds. The oral promise of a stockholder to pay

the debt of his corporation is within the statute of frauds.^'' It is
a promise to pay the debt "of another," since a corporation is, in
the eye of the law, a different person from any of its members and
hence it is in every sense a promise to pay another's debts.
§41. Taxation. Property of the corporation cannot be taxed

against the individual shareholders, nor can a tax on the value of
the shares of stock in the corporation be levied on the corporation.'*
Thus, where part of an estate consisted iri shares of stock in a cor-
poration whose only tangible property had already been assessed
and the taxes thereon duly paid, it was held that the state could
nevertheless tax the shares of stock in the corporation also.'' The
shares of stock are the property of the individual shareholders
whereas the property of the corporation is held by it as a legal entity.
This well illustrates that the corporation is a person distinct from
its stockholders. The corporation is a person in law. Its stock-
holders are distinct and different persons.**
§ 42. Disregard of corporate entity General statement. While it —

has been seen that a corporation is a legal entity and an artificial
person quite separate and distinct from the individual stockholders,
yet it must not be overlooked that fundamentally a corporation
must, after all, be considered as a collection of human beings. Kyd,
an early English writer, treats a corporation, as we have seen, as "a
36 Doctor V. Harrington, 196 IT. S. 40 ShelbyCounty v. Union & Plant-
579, 49 L. Ed. 606. ers' Bank, 161 U. S. 149, 40 L. Ed. 650;
STMeDavid v. McLean, 202 111. 354, Bank of Commerce v. Tennessee, 161
66 N, E. 1075, modifying 104 111. App. IJ. S. 134, 40 L. Ed. 645; Van Allen v.
627; Home Nat. Bank of Chicago v. The Assessors, 3 Wall. (U. S.) 573, 18
Waterman's Estate, 134 111. 461, 29 N. L. Ed. 229; People v. Coleman, 126 N.
E. 503, aff 'g 30 111. App. 535; Brown v. Y. 433, 12 L. E. A. 762, 27 N. E. 818.
Reinberger, 177 111. App. 297. Compare Mayor & City Council v. Bir-
38 Greenleaf v. Board Eeview Mor- mingham & O. E. E. Co., 6 Gill (Md.)
gan Co., 184 111. 226, 75 Am. St. Eep. 288, 48 Am. Dec. 531; Singer Mfg. Co.
168, 56 N. E. 295; Porter v. Eockford, v. Heppenheimer, 58 N. J. L. 633, 32
E. I. & St. L. E. Co., 76 111. 561. L. E. A. 643, 34 Atl. 1061.
39 Cook V. City of Burlington, 59
Iowa 251, 44 Am. Eep. 679, 13 N. W.
113.
55
'
§42] Pbivate Coepobations [Ch.l
collection of many individuals united into one body,

'
' etc.** A num-
ber of writers have taken the same point of view.*^ Thus an emi-
nent authority says: "While a corporation may, from one point of
view, be considered as an entity without regard to the corporators
who compose it, the fact remains self-evident that a corporation is
not in reality a person or a thing distinct from its constituent parts.
The word 'corporation' is but a collective name for the corporators
or members who compose an incorporated association; and where it
issaid that a corporation is itself a person, or being, or creature, this
must be understood in a figurative sense only."*^ Some judges
have so held.** Practically all authorities agree that in certain
41 1 Kyd on Corporations, 13. ditch V. Jackson Co., 76 N. H. 351, Ann.

The corporate fiction will be disre- Cas. 1913 A 366, 82 Atl. 1014.
garded whenever it is urged for an "While it is true that in general a
object not within its policy. corporation is a distinct entity from
United States. Bank of United its stockholders, nevertheless, where
States V. Deveaux, 5 Cranch 61, 3 L. an individual owns practically all of
Ed. 38; Marshall v. Baltimore & O. R. itsstock and controls all of the opera-
Co., 16 How. 314, 14 L. Ed. 953; Gay tions of the corporation, they are, in
V. Hudson Eiver Elec. Power Co., 187 proper cases, regarded by the courts
Ted. 12; In re Rieger, Kapner & Alt- as one and the same. ' ' Per Ross, C. J.,
mark, 157 Fed. 609; Andrews Bros. in Smith v. Moore, 199 Fed. 689.
Co. V. Youngstown Coke Co., 86 Fed. 42 Taylor, Corp. § 51 ; Morawetz,
585. Priv. Corp. §§ 1, 227, also preface;
Alabama. First Nat. Bank of Gads- Pomeroy, "Legal Idea of a Corpora-
den V. Winchester, 119 Ala. 168, 72 Am. tion," 19 Am. L. Rev. 114 et seq.
St. Rep. 904, 24 So. 351. 43 Morawetz, Priv. Corp. § 1.
Connecticut. Woodbridge v. Pratt & In another place Mr. Morawetz says*
Whitney Conn. 304, 37 Atl. 688.
Co., 69 "The statement that a corporation is
Delaware. v. D. B. Martin
Martin an artificial person, or entity, apart
Co. (Del. Ch.), 88 Atl. 612. from its members, is merely a descrip-
Illinois. Donovan v. Purtell, 216 111. tion, in figurative language, of a cor-
629, 1 L. R. A. (N. S.) 176, 75 N. E. poration viewed as a collective body: a
334, aff'g 119 111. App. 116. corporation is really an association of
New York. People v. North River persons, and no judicial dictum or leg-
Sugar Refining Co., 121 N. Y. 582, 9 L. islative enactment can alter this fact. '
R. A. 33, 18 Am. St. Rep. 843, 24 N. E. 1 Morawetz, Priv. Corp. § 227.

834; Garrigues v. International Agr. 44 "Private corporations are but as-
Corporation, 159 N. Y. App. Div. 877, sociations of individuals united for
144 N. Y. Supp. 982. some common purpose and permitted
Ohio. First Nat. Bank of Chicago v. by the law to use a common name, and
Trebein Co., 59 Ohio St. 316, 52 N. E. to change its members without a disso-
834; State v. Standard Oil Co., 49 Ohio lution of the association." Per Mr.
St. 137, 15 L. R. A. 145, 34 Am. St. Rep. Justice Field in Baltimore & P. E. Co.
541, 30 N. E. 279. V. Fifth Baptist Church, 108 U. S. 317,
The corporate fiction is not viewed S30, 27 L. Ed. 739.
with favor in New Hampshire. Bow- Mr. Justice Story said: "An ag-
56
Ch. 1] History and Genbbal Consideeations [§42
cases and at certain times a corporation is to be regarded as a legal

entity and personality. There is also substantial agreement that at
certain times the fiction of corporate entity is inapplicable. Some-
times a corporation is looked upon as a unit, at other times as a collec-
tion of persons. The doctrine of separate existence may be carried
too far, and it is properly disregarded in cases of fraud, circum-
vention of contract or statute, public wrong, monopoly, and like
instances. "If any general rule can be laid down, in the present
state of authority, it is that a corporation will be looked upon as a
legal entity as a general rule, and uiitil sufficient reason to the con-
trary appears but, when the notion of legal entity is used to defeat
;
public convenience, justify wrong, protect fraud, or defend crime,

'
*^
the law will regard the corporation as an association of persons. '
It has been aptly said: "This distinction between a corporation as

being an impalpable entity, and a corporation as being the living
persons of whom it consists, is for many purposes a substantial
distinction, necessarily involved in the creation and use of corpora-
tions, but for some purposes it is not only a but a useless and
fiction,
unreasonable fiction; and it is a settled principle that in certain

cases, where the fiction can serve no purpose but to accomplish injus-
tice, and to screen the corporation from the just consequences of its
wrongs, the court will not permit this legal fiction to prevail against
real substance."*^
gregate corporation at eommon law aff'g 196 Fed. 593, 181 Fed. 545. See
is a eolleetion of individuals united also opinion of Bowling, J., in Gar-
into one collective body, under a spe- rigues v. International Agr. Corpora-
oial name, and possessing certain im- tion, 159 N. Y. App. Div. 877, 880, 144
munities, privileges, and capacities in N. T. Supp. 982; dissenting opinion of
its collective character which do not Seabury, J., in Brock v. Poor, 216
belong to the natural persons compos- N. Y. 387, 111 N. E. 229.
ing it. ' ' Dartmouth College v. Wood- 46 Starr Burying Ground Ass 'n v.
ward, 4 Wheat. (U. S.) 518, 4 L. Ed. North Lane Cemetery Ass'n, 77 Conn.
629. 83, 58 Atl. 467.
See also Shaw, Ch. J., in Overseer v.- In San Diego Gas Co. v. Frame, 137
Sears, 22 Pick (Mass.) 122; Lumpkin, Cal. 441, 70 Pac. 295, the court quoted
J., in Hightower v. Thornton, 8 Ga. Morawetz, Priv, Corp. § 1, as follows:
486, 52 Am. Dee. 412, "The existence of a corporation inde-

4B United States v. Milwaukee Ee- pendently of its is a fic-
shareholders
frigerator Transit Co., 142 Fed. 247, tion. Its and duties are in
rights
255, per Sanborn, J. The United States reality the rights and duties of per-
Supreme Court adopts the same view. sons who compose it, and not of an
Linn & Lane Timber Co. v. United imaginary being." And see Armour
States, 236 U. S. 574, 59 L. Ed. 725, v. E. Bement's Sons, 123 Fed. 56.
57
:
§ 43] Private Cobpokations [Ch. 1
§ 43. —
Acts of memibers. Ordinarily the acts of the stockholders
are regarded, as has been seen, not as corporate acts but as merely
their own personal acts. This is because of the rule that a corpora-
tion will be regarded as a legal entity distinct from its members.
However, there are times when the corporate fiction will be disre-
garded.*' There are many cases in the books where the acts of the
stockholders of a corporation have been regarded as corporate acts
and the corporation has been held to be bound by them. Thus in the
famous case of State v. Standard Oil Co.,*' practically all of the
stockholders comprising a corporation entered into an illegal and
monopolistic trust agreement in their individual capacities in order
to conceal the real nature and object of their action. The property
and business of their corporation were affected in the same manner
and to the same extent as if there had been a formal resolution of
the corporate board of directors. The state of Ohio, in order to pre-
vent the gross abuse of corporate power, brought a proceeding of
quo warranto. The corporation urged that it, the legal entity as
such, could not be affectedby any acts or agreements except such
as were executed in formal manner on its behalf by its corporate
directors or duly authorized agents. The court disregarded this
argument, and held in substance that the actions of the stockholders
were in legal effect the acts of the corporation, and rendered a judg-
ment of ouster.*® Under circumstances like these it would have
47 Distilling & Cattle-Feeding Co. curate knowledge on the subject. It
V. People, 156 111. 448, 47 Am. St. Sep. has been introduced for the conven-
200, 41N. E. 188; Ford V. Chicago Milk ience of the company in making
Shippers' Ass'n, 155 111. 166, 27 L. R. contracts, acquiring property for
in
A. 298, 39 N. E. 651, rev'g 46 111. App. corporate purposes, and in suing and
576; People v. North River Sugar Re- being sued, and to preserve the limited
fining Co., 121 N. T. 582, 9 L. R. A. 33, liability of the stockholders, by distin-
18 Am. St. Rep. 843, 24 N. E. 834; State guishing between the corporate debts
V. Standard Oil Co., 49 Ohio St. 137, 15 and property of the company, and of
L. R. A. 145, 34 Am. St. Rep. 541, 30 the stockholders in their capacity as
N. E. 279. individuals. All fictions of law have
48 49 Ohio St. 137, 15 L. R. A. 145, been introduced for the purpose of con-
34 Am. St. Rep. 541, 30 N. B. 279. venienee, and to subserve the ends of
49 In this case, Judge Minshall said justice. It is in this sense that the
"The general proposition that a cor- maxim, in fictione juris subsistit aequi-
poratiou is to be regarded as a legal tas, is and the doctrine of fictions
used,
entity, existing separate and apart applied. But when they are urged to
from the natural persons composing it, an intent and purpose not within the
is not disputed; but that the statement reason and policy of the fiction they
is a mere fiction, existing only in idea, have always been disregarded by the
is well understood, and not contro- courts. * * * 'It is a certain rule
verted by any one who pretends to ac- that a fiction of law shall never be con-
58
'
Ch.l] HiSTOKY AND GeNEEAL (ÔNSIDEEATIONS [§43
been abhorrent to the genius and spirit of the common law to per-
mit the concept of corporate entity to stand in the way of justice
and public policy;
In another leading case, North River Sugar Refining
People v.
Co.,^" proceedings in quo warranto were brought against the cor-

poration by the state of New Tork to deprive it of its corporate
franchise, because of alleged abuse of its powers by becoming a party
to an illegal agreement. The corporation
,
insisted that it, as a legal
entity, had never entered into the contract, but the evidence disclosed
that the contract had been signed by every stockholder in the cor-
poration. It was argued on behalf of the corporation that the agree-
ment and combination were merely the dealings and acts of the
stockholders, and were not the result of any corporate action, and
that therefore the legal entity, the corporation as such, was free
from guilt and was not chargeable with any wrongdoing. The court
rendered a judgment of dissolution and held that inder the circum-
stances of the case the acts of the stockholders were to be regarded
as the acts of the corporation itself. The court pointed out the
ridiculousness of the corporation's argument that "while all that
tradicted so as to defeat the end for cal; for it may as likely lead to a
which it was invented, but for every false, as to a true result. Now, so long
other purpose it may be contradicted. as a proper use is made of the fiction,
* * *
'They were invented for the that a corporation is an entity apart
advancement of justice, and will be from its shareholders, it is harmless,
applied for no other purpose.' And it and, because convenient, should not
is in this sense that they have been be called in question; but where it is
constantly understood and applied in urged to an end subversive of its pol-
this state. * * * No reason is per- icy, or such is the issue, the fiction
ceived why the principles applicable to must be ignored, and the question de-
fictions in general, should not apply to termined, whether the act in question,
the fiction that a corporation is a per- though done by shareholders, that is to
sonal entity, separate from the natural say, by the persons united in one body,
persons who compose it, and for whose was done simply as individuals, and
* * *
benefit it has been invented. with respect to their individual inter-
The idea that a corporation may be a ests as shareholders, or was done os-
separate entity, in the sense that it tensibly as such, but, as a matter of
can act independently of the natural fact, to control the corporation and
persons composing it, or abstain from affect the transaction of its business,
acting, where it is their will that it in the same manner as if the act had
shall,has no foundation in reason or been clothed with all the formalities
authority, is contrary to the fact, and, of a corporate act." State v. Stand-
to base an argument upon it, where the ard Oil 49 Ohio St. 137, 15 L. E. A.
Go.,
question is, as to whether a certain 145, 34 Am. St. Eep. 541, 30 N. E. 279.
act was the act of the corporation, or BO 121 N. T. 582, 9 L. E. A. 33, 18
of its stockholders, cannot be decisive Am. St. Eep. 843, 24 N. E. 834.

of the question, and is therefore illogi-
59
43] Peivaoê Coepoeations [Ck.l
was human and could act had sinned, yet the impalpable entity had
not acted at all and must go free."*^ The result arrived at in this
decision would appear to be sound. The stockholders, the acting and
living men and women, had been guilty of misconduct. It would
be nothing short of absurd to say that although they were guilty,
the corporate robe that enveloped them was spotless and they mui?t,
a fortiori, be left to wear it free and undisturbed. To hold other-
Bl Judge Fineh, in this case, said in is not formal corporate action; and
part: "And yet argued that the
it is where that conduct is directed or pro-
corporation, the legal entity, has done duced by the whole body, both of offi-
nothing; that Searles was guilty, but cers and stockholders, by every living
the corporate robe that enveloped him instrumentality which can possess and
was innocent, and so he must be left to wield the corporate fra,nchise, that con-
wear it undisturbed; that while all duct is of a corporate character, and
that was human and could act had if illegal and injurious may deserve
sinned, yet the impalpable entity had and receive the penalty of dissolution.
not acted at all and' must go free. I There always is, and there always must
believe that the history of what oc- be, corporate conduct without formal
curred, as I have already described it, corporate action where the thing chal-
furnishes a sufiScient answer, assuming lenged is an omission to act at all. A
that stockholders and trustees acting corporation organized in the public
together can do a corporate act at all. interest, with a view to the public wel-
There was corporate action in making fare, and in the expectation of benefit
the combination agreement which to the community, which is the mo-
bound the defendant. The revocation tive of the state's grant, may accept
of an executed authority left the con- the franchise and hold it in sullen si-
tract standing. The corporation thus lence, doing nothing, resolving nothing,
helped to make the trust and became furnishing no formal corporate action
an element of it. If there was any- upon which the state can put its finger
thing imperfect in its action, the new and say, this the corporation has done
stockholder and his associates waived by the agency through which it is au-
the imperfection by acting upon the thorized to act. That is corporate con-
agreement of the corporation, and so duct which the state may question and
confirming it in all particulars. punish without searching for a formal
'
'But the assumption underlying the corporate act. The directors of a cor-
view, I have expressed ia itself con- poration, its authorized and active
tested, and a proposition asserted agency, may see the stockholders per-
which denies the possibility of any verting its normal purposes by handing
corporate action, except by the trus- it over, bound and helpless, to an ir-
tees or directors acting formally as responsible and foreign authority, and
such; a proposition which, if sound, omit all action which they ought to
dominates the whole field of contro- take, offer no resistance,make no pro-
versy, and, establishing that there has test,but silently acquiesce as directors
been no corporate action at all, effec- in the wrong which as stockholders
tually shuts out every question of ille- they have themselves helped to com-
gality or public injury. I cannot admit mit. That again is corporate conduct,
that proposition. I think there may though there be an utter absence of
be actual corporate conduct which directors' resolutions. • * • The
60
Cli.l] HisTOKY AND General, Considerations [§44
wise would be to ignore the real and substantial parties in interest,

blinding the eyes not only to the facts but to the justice of the situ-
ation, and, admitting the sins of the body, to insist that the sinner
remains pure. 62
§ 44. —
Fraudulent acts. The doctrine of corporate entity is not
permitted to stand in the way of defeating fraud. It follows that it
is idle to promote a corporation for the purpose of endeavoring to
accomplish fraud or other illegal acts under the cloak of the cor-
porate fiction. "Where this is attempted, courts of law, equity, or
bankruptcy, do not hesitate to tear aside the veil of corporate entity
and to look beyond it and through
it at the actual and substantial
beneficiaries. A found in cases where it is sought

notable instance is
to delay, hinder and defraud creditors by means of "dummy" incor-

porations. The courts have uniformly held that there is no magic
in incorporation and refuse to apply the doctrine of corporate entity
to enable such schemes to be successful.*^
abstract idea of a corporation, the taken from them as individuals and

legal entity, the impalpable and incorporators, and the legal fiction dis-
tangible creation of human thought is appears. The benefit is theirs, the pun-
itself a fiction, and has been appro- ishment is theirs, and both must
priately described as a figure of speech. attend and depend upon their conduct;
It servesvery well to designate in our and when they all act, collectively, as
minds the collective action and agency an aggregate body, without the least
of many individuals as permitted by exception, and so acting, reach results
the law; and the substantial inquiry and accomplish purposes clearly cor-
always is what in a given case has porate in their character, and affect-
been that collective action and agency. ing the vitality, the independence, the
As between the corporation and those utility, of the corporation itself, we
with whom it deals, the manner of cannot hesitate to conclude that there
its exercise usually is material, but aa has been corporate conduct which the
between it and the state, the substan- state may review, and not be defeated
tial inquiry is only what that collective by the assumed innocence of a conven-
action and agency has done, what it ient fiction."
has, in fact, accomplished, what is
82 See article by I. Maurice Worm-
seen to be its effective work, what has
ser,12 Columbia L. Eev. at pp. 509-513.
been its conduct. It ought not to be
Corporations, in modern law, are
otherwise. The state gave the fran-
treated as similarly as possible to
chise, the charter, not to the impal-
natural persons. Meily Co.- v. London
pable, intangible and almost nebulous
& L. Fire Ins. Co., 142 Fed. 873; Kess-
fiction of our thought, but to the cor-
ler & Co. V. Ensley Co., 129 Fed. 397;
porators, the individuals, the acting
Baines v. Coos Bay Nav. Co., 45 Ore.
and living men, to be used by them, to
307, 77 Pao. 400.
redound to their benefit, to strengthen
their hands and add energy to their 63 TTnited States. In re Eieger, Kap-
capital. If it is taken away, it is ner & Altmark^ 157 Fed. 609; Hibernia
61
§44] Private Coepoeations [Ch. 1
Where a corporation is organized as a device in order to evade

an outstanding legal or equitable obligation, the courts, even with-
out reference to actual fraud, refuse to apply the doctrine of cor-
porate entity.^* In a California case,*^ a lessee corporation with
latent to evade the payment of royalties under a lease, conveyed
title to a second corporation. Thereafter the second corporation
conveyed to a third, with the same end in view. It appeared that
all of the three corporations had been formed by the same per-
sons, had their offices together in the same room and had practically
the same officers. The court did not was any actual find that there
fraud. was held that the trans-
"Without regard to this, however, it
fers were constructively fraudulent as against the lessor and that

all three corporations were jointly liable for the payment of the roy-
alties. In a recent English case, a German vessel owned by a Ger-
man corporation, while sailing from Hamburg to London, was sold
by telegraph on August 1, to an English corporation, controlled by
the German corporation. On August 4, war was declared between
Germany and England. Next day, the vessel arrived in England
and was seized as a prize. The English corporation claimed that
the transfer to it made the seizure illegal. The Prize Court held
Ins. Co. V. St. Louis & N. O. Transp. Pennsylvania. Montgomery Web
Co., 13 Fed. 516. Co. V. Dienelt, 133 Pa. St. 585, 19 Am.
niiuois. Donovan v. Purtell, 216 St. Eep. 663, 19 Atl. 428.
111. 629, 1 L. E. A. (N. S.) 176, 75 N. E. Tennessee. Vance v. McNabb Coal
334, aff'g 119 111. App. 116. & Coke Co., 92 Tenn. 47, 20 S. W. 424.
Indiana. Dorsey Maeh. Co. v. Mc- Compare Irvine v. New York Edison
Caffrey, 139 Ind. 545, 47 Am. St. Eep. Co., 207 N. Y. 425, Ann. Cas. 1914 C
290, 38 N. E. 208. 441, 101 N. E. 358.
Iowa. Des Moines Gas Co. v. West, Where stockholders are identical and
50 Iowa 16. the facts demand it, two corporations
Kansas. Kellogg v. Douglas Co. have been deemed identical. Bloch
Bank, 58 Kan. 43, 62 Am. St. Eep. 596, Queensware Co. v. Metzger, 70 Ark.
48 Pac. 587. 232, 65 S. W. 929. But see, contra,
Michigan. Chicago & G. T. Ey.. Co. Brighton Packing Co. v. Butchers'
V. Miller, 91 Mich. 166, 51 N. W. 981. Slaughtering & Melting Ass'n, 211
New Jersey. Terhune v. Hacken- Mass. 398, 97 N. E. 780.
sack Sav. Bank, 45 N. J. Eq. 344, 19 64 Higgins v. California Petroleum &
Atl. 377. Asphalt Co., 147 Cal. 363, 81 Pac. 1070;
New York. Booth v. Bunce, 33 N. Donovan v. Purtell, 216 111. 629, 1 L. R.
T. 139, 88 Am. Dec. 372. A. (N. S.) 176n, 75 N. E. 334, aff'g
OMo. Andres v. Morgan, 62 Ohio St. 119 111. App. 116; Brundred v. Eice,
236, 78 Am. St. Eep. 712, 56 N. E. 875; 49 Ohio St. 640, 34 Am. St. Eep. 589,
First Nat. Bank of Chicago v. Tre- 32 N. E. 169.
bein Co., 59 Ohio St. 316, 52 N. E. 834. 65 Higgins V. California Petroleum &
Oregon. Bennett v. Minott, 28 Ore. Asphalt Co., 147 Cal. 363, 81 Pac. 1070.
339, 44 Pac. 288, 39 Pac. 997.
62
'
Ch. 1] HlSTOBY AND GeNEEAL CONSIDERATIONS [§ 45
tli3 proper and that the claim was invalid.*^

seizure It would
clearly seem that in such ease the transfer was within the purview
of the rule which holds a transfer not valid when made in contem-
plation of war and to avoid seizure as a prize.''' In such circum-
stances, the application of the doctrine of distinct corporate entity,
is uncalled for.
§ 45. — Agency for parent corporation. The legal fiction of dis-

tinct corporate existence may also be disregarded in a case where a
corporation is so organized and controlled, and its affairs are so
conducted, as to make
merely an instrumentality, conduit or
it
adjunct of another corporation.*' It is not enough, however, that

shareholders in the corporation are identical.'® Nor is it enough that
one corporation owns shares in the other and that they have inter-
related dealings. In order to warrant treating them as one, it must
further appear that they are the business conduits and the alter ego
of one another. Where it appeared that a railroad corporation
caused a telegraph company to be incorporated, became the sole
owner of all of its stock, elected its own officers and employees as
officers thereof, and held out the telegraph company as authorized
to contract for the railway telegraph system, it was held that the
railway company was in substance the owner of the telegraph com-
pany, that the telegraph company was a mere department or a bureau
B6 The Tommi, 59 Sol. J. 26. corporate entity, to the end that rights
57 See The Ann Green, 1 Gall. (XT. S.) of third parties shall be protected. '
274. Per Ellis, J.

58 Hunter v. Baker Motor Vehicle 59 United States. Eiehmond & I.
Co., 225 Fed. 1006; Gay v. Hudson Const. Co. v. Richmond, N. I. & B. K.
Eiver Elee. Power Co., 187 Fed. 12; Co., 68 Fed. 105, 108, 34 L. R. A. 625.
Westinghouse Elee. & Mfg. Co. v. AUis- Arkansas. Lange v.Burke, 69 Ark.
Chalmers Co., 176 Fed. 362; In re Mun- 85, 88, 61 S. "W. 165.
cie Pulp Co., 139 Fed. 546; O'Brien v. Georgia. Wayeross Airline R. Co. v.
Champlain Const. Co., 107 Fed. 338; Offerman & W. R. Co., 109 Ga. 827, 35
Kelly V. Ning Yung Benev. Ass'n, 2 S. B. 275.
Cal. App. 460, 84 Pac. 321 Spokane ; Louisiana. Goodwin v. Bodcaw Lum-
Merchants Ass 'n v. Clere Clothing
' ber Co., 109 La. 1050, 34 So. 74.
Co., 84 Wash. 616, 147 Pac. 414. New York. New York Air Brake Co.
In the last cited case, one company v. International Steam Pump Co., 64
was the mere agent or instrumentality N. Y. Misc. 347, 120 N. Y. Supp. 683.
through which the parent company did Soutli Carolina. Ex parte Fisher, 20
business. The parent company owned S. C. 179.
practically the entire capital stock. Texas. White v. Pecos Land &
The court said: " Courts
no longer hes- Water Co., 18 Tex. Civ. App. 634, 45
itate to look through forms to sub- S. W. 207.
stance, to ignore a mere colorable
63 y
of the railroad, and that they were in legal contemplation identi-

eal.*" In> another case, under much similar facts, a different result
was reached on the grounds, first, that separate corporate organi-
zations were kept up, second, that each corporation had its oAvn
assets and creditors, and conducted business in its own name, and
third, The dividing
that separate books of account were kept.®^
line is veryshadowy and is pricked out by the gradual approach and
contact of decisions on the opposite sides.**
§46. — Evasion of statutory obligation. Where the corporate

form of organization is adopted in an endeavor to evade a statute
or to, modify its intent, courts will disregard the corporate concept
and. look at the substance and reality of the matter.*'
'
The Commodities Clause of the Hepburn Act provides in sub-
'
'
'
stance that it is unlawful for a railroad company to transport in

interstate commerce, any articles manufactured, produced or mined
by it, or which it owns in whole or in part, or in which it has any
interest direct or indirect. In a proceeding brought by the United
States against a railroad company, the government alleged that it
owned stock in a coal company whose coal it was carrying. The

court held that this was not a violation of the statute.®* In an
amended complaint, the government then alleged, in addition, that
the railroadcompany was using the coal company merely as a depart-
ment of its business, and as a sham and device in order to evade the
"Commodities Clause." The Supreme Court of the United States
60 Interstate Tel. Co. v. Baltimore & 63 United States v. Lehigh Valley R.

O. Tel. Co., 51 Fed. 49, aff'd 54 Fed. Co., 220 V. S. 257, 55 L. Ed. 458;
50. And see dissenting opinion of Northern Securities Co. v. United
Seabjiry, J., in Brock V. Poor, 216 N. Y. States, 193 U. S. 197, 48 L. Ed. 679;
387, 111 N. E. 229; Garrigues Co. v. United States v. Milwaukee Eefrigera-
InternatiOnal Agr. Corporation, 159 tor Transit Co., 142 Fed. 247; Stock-
N. Y. App. Div. 877, 880, 144 N. Y. ton v. Central R. Co.of New Jersey,
Supp. 982. 50 N. J. Eq. 52, 17 L. K. A. 97, 24 Atl.
61 In re Watertown Paper Co., 169 964; Brundred v. Bice, 49 Ohio St. 640,
Fed. 252. See aUo Pittsburgh & Buf- 34 Am. St. Bep. 589, 32 N. E. 169.
falo Co. V. Duncan, 232 Fed. 584; Compare Stone v. Cleveland, C, C. &
Gramophone & Typewriter Co., Ltd. v. St. L. B. Co., 202 N. Y. 352, 35 L. E.
Stanley, [1908] 2 K. B. 89, afC'g [1906] A. (N. S.) 770, 95 N. E. 816.
2 K. B. 856. 64 United States v. Delaware & Hud-
62 Compare In re Watertown Paper son Co., 213 V. S. 366, 413, 53 L. Ed,
Co., 169 Fed. 252, and In re Muncie 836.
Pulp Co., 139 Fed. 546,
64
5
Ch. 1] History and General Considerations [§48
held thereupon that an injunction should issue, declaring in effect

that no such evasion could succeed.®^
A
corporation will not be regarded as a distinct entity ivhere the
form is used to justify statute violation thereby defeating public
convenience. Such a flimsy device may be stripped off^ and is pow-
erless to thwart the purpote of the law.*®
§ 47. — Equitable mortga,ges. As has been seen, a mortgage exe-

cuted by all of the stockholders of a corporation in their own names
as individuals is not regarded as a good mortgage at law. The rule
is otherwise in equity. Chancery, recognizing the fact that the sub-
stantial ownership is in the stockholders, will enforce the document
as an equitable mortgage of the corporation not only
'
iagainst them,
but also as against subsequent incumbrancers with notice.*''
§48. — Members as "interested" in corporate property. While

the legal title to corporate property, as has been seen, is in the legal
entity and not in the stockholders, yet the stockholders are undoubt-
edly interested in the property of the corporation. Accordingly, it
is held that stockholders in a corporation have an insurable inter-

est in the corporate property, since they would be pectiniarily hurt
if the corporate property were destroyed.*' In such cases the fic-
tion of corporate entity is not disregarded, since the courts do not
say that the stockholders are insuring their own property, but merely
hold that stockholders have an "insurable interest" which is not at
all the equivalent of legal or equitable title.** Under a statute
65 v. Lehigh Valley E.
United States 68Warren v. Davenport Fire Ins. Co.,
Co., 220 U. S. 257, 55 L. Ed. 458. SI Iowa 464y 7 Am. Eep. 160; Riggs v.
66 Stockton V. Central R. Co., 50 N. Commereial Mut. Ins. Co., 135 N. Y.
J. Eq. 52, 17 L. R. A. 97, 24 Atl. 964. 7,10 L. R. A. 684, 21 Am. St. Rep. 716,
Where a corporation is formed for 25 N. E. 1058.
the purpose of invoking the jurisdie- 69 Warren v. Davenport Fire Ins. Co.,
tion of the federal courts, its corporate 31 Iowa 464, 7 Am. Eep. Speak-
160.
existence will be disregarded, since it ing untechnieally, it has been said that
is a mere shift to evade the law. Mil- ownership of stock creates a relation
ler & Lux v. East Side Canal & Irriga- between the stockholder and the cor-
tion Co., 211 U. S. 293, 53 L. Ed. 189, poration similar to that between a part-
and cases cited therein. nership and a partner. Barrett v.
67 First Nat. Bank of Gadsden v. King, 181 Mass. 476, 63 N. E. 934. See
Winchester, 119 Ala. 168, 72 Am. St. also opinion of Holmes, J., in Mer-
Rep. 904, 24 So. 351; Swift v. Smith, chants' Nat. Bank v^ Whehrmann, 202
65 Md. 428, 57 Am. Eep. 336, 5 Atl. U. S. 295, 50 L. Ed. 1036; Bauern-
534; Bundy V. Ophir Iron Co., 38 Ohio sehmidt v. Bauernschmidt, 101 Md.
St. 300. 148, 60 Atl. 437.
65
I Priv. Corp. —
§48] Pbivate Cobpobations [Ch. 1
imposing a penalty on "every person in any manner interested in

the use of" a distillery, stockholders are liable since they have a
"direct pecuniary interest in the business."'"' While a stockholder
in a private corporation is not in any proper sense the legal or equita-
ble owner of the property of the corporation as such, he has, how-
ever, a direct interest in the property.''^
VI. THE JURISTIC PERSON AND ITS INTERNAL RELATIONS
§49. In general. When

the courts have under consideration the
internal relations of a corporation, growing out of discordant views
as to the reciprocal rights and obligations of the stockholders and
the corporation, of necessity the fiction of corporate unity is neces-
sarily abandoned to a considerable degree, and the corporation is
considered rather as an association of individuals for certain pur-
poses. Thus, in actions brought to enforce the liability of a sub-
scriberupon a subscription to the capital stock of a corporation, not
only courts of equity, but courts of law as well, are necessarily war-
ranted on many occasions in taking cognizance of the human fac-
tors -composing the corporate whole. ''^ Again, in working out the
rights of individual members, it stands to reason that courts, whether
of law or of equity, must view the corporation as an association of
individuals. This is emphasized in stockholders' suits for corpor-
ate mismanagement. Where the corporation refuses to bring suit
in its own name, the objecting stockholders may bring an action in
equity to obtain relief, and equity will set its machinery in motion,
and will do justice between the parties.''^ And a stockholder may
sue in equity for an injunction to prevent officers or directors from
interfering with his rights as a stockholder.''* Conversely, where
the body of individual stockholders is so circumstanced that no equita-
ble relief should be afforded them, relief is likewise denied to the
corporate entity.''* When the corporation comes into equity the sub-
70 United States v. Wolters, 46 Fed. 7, 51 L. E. A. (N. S.) 112, Ann. Cas.

509. 1914 A 777, 99N. E. 138; Fobs. v. Har-
71 Eichter v. Henningsan, 110 Cal. bottle, 2 Hare 461; Mozley v. Alston,
530, 42 Pac. 1077. 1 Phil. 790.
72 See 1 Morawetz, Priv. Corp. 74 Board Com 'rs Tippecanoe Co. v.
§ 231; 12 Columbia L. Eev. at p. 513. Lafayette, M. & B. E. Co., 50 Ind. 85;

73 Hawes v. Oakland, 104 IT. S. 450, Tomkiiison v. Southeastern Ey. Co., 35
26 L. Ed. 827; Dodge v. Woolsey, 18 Ch. Div. 675.
How. (TT. S.) 331, 15 L. Ed. 401; Allen 7B Home Fire Ins. Co. v. Barber, 67
V, Curtis, 26 Conn. 456; Continental Neb. 644, 60 L. E. A. 927, 108 Am. St.
Securities Co. v. Belmont, 206 N. T. Eep. 716, 93 N. W. 1024. See article
66
Ch.l] History and General Considerations [§51
stance of the matter is looked at, "and if the beneficiaries of the

judgment sought have no standing in equity to recover, we ought
not to become befogged by the fiction of corporate individuality,
and apply the principles of equity to reach an inequitable result."
"
§ 50. Contracts. The law^ is well settled that an individual cannot

enter into a contract with himself.''"' A
corporation has the same
freedom of contracting with its stockholders that it has of contract-
ing with any other person, since, as has been seen, a corporation
is a separate and distinct legal entity from any or all of its stock-
holders.''*
§ 51. Transfers and conveyances. It is equally well settled that

since an individual cannot act as both grantor and grantee, he can-
not transfer property to himself.''® A stockholder, however, may
transfer real estate to his corporation, or the corporation to him,
since they are distinct entities in the eye of the law.*" A transfer
by the members of a partnership to a corporation organized by
themselves for the purpose of taking over the partnership property
by I. Maurice Wormser, 12 Columbia L. 17 B. Mon. 412, 439, 66 Am. Dec. 165.
Eev. 496, 513-514. Louisiana. Goodwin v. Bodeaw
76 Home Fire Ins. Co. v. Barber, 67 Lumber Co., 109 La. 1050, 34 So. 74.
Neb. 644, 669, 60 L. E. A. 927, 108 Massachusetts. Old Colony Boot &
Am. St. Eep. N. W. 1024.
716, 93 Shoe Co. Parker-Sampson-Adams
V.
See also Arkansas River Land, Town Co., 183 Mass. 557, 67 N. E. 870.
& Canal Co. v. Farmers' Loan & Pennsylvania. Gordon v. Preston, 1
Trust Co., 13 Colo. 587, 22 Pae. 954; Watts 385, 26 Am. Dec. 75.
Chicago Union Traction Co. v. Chicago, Vermont. Eogers v. Danby Univer-
199 111. 579, 65 N. E. 470; Sheldon Hat salist Society, 19 Vt. 187; Saviryer v.
Blocking Co. v. Eickemeyer Hat Block- Methodist Episcopal Society, 18 Vt.
ing Mach. Co., 90 N. T. 607, 613; An- 405.
dres V. Morgan, 62 Ohio St. 236, 78 Am. England. Poster v. Commissioners
St. Eep. 712, 56 K. E. 875. of Inland Eevenue, [1894] 1 Q. B. Div.
7T Eastman v. Wright, 6 Pick. 516.
(Mass.) 316; Faulkner v. Lowe, 2 79 Cameron v. Steves, 9 New Bruns.
Exeh. 595. 141.
78 Alabama. Pope v. Brandon, 2 80 Pope V. Brandon, 2 Stew. (Ala.)
Stew. 401, 20 Am. Dec. 49. 401, 20 Am.
Dec. 49; Gordon v. Preston,
Iowa. Bobzin v. Gould Balance 1 Watts (Pa.) 385, 26 Am. Dec. 75;
Valve Co., 140 Iowa 744, 118 N. W. 40; Foster v. Commissioners of Inland Eev-
Kennedy v. Monarch Mfg. Co., 123 enue, [1894] 1 Q. B. Div. 516.
Iowa 344, 98 N. W. 796. A corporate officer may act as a no-
Kentucky. Bramblet v. Common- tary public in the acknowledgment of
wealth Land & Lumber Co., 26 Ky. L. a mortgage made to his corporation.
Eep. 1176, 83 S. W. 599; Lexington Keene Guar. Sav. Bank v. Lawrence,
Life, rire & Marine Ins. Co. v. Page, 32 Wash. 572, 73 Pac. 680.
67
isregarded as a conveyance, and is subject to a stamp tax imposed

by statute on transfers and conveyances of property.*^
It is, of course, true that an individual cannot sue

§ &2, Actions.
himself. Stockholders of a corporation may, however, sue the cor-
poration, or be sued by it, since the corporation and its stockholders
are not in any legal sense the same.*^
VII. CONSIDERED AS A PERSON, RESIDENT OR CITIZEN
§ 53. In general. A corporation is regarded as a "person," "resi-

dent," "inhabitant," or "citizen" within the purview of those
terms as Used in constitutional or statutory provisions, whenever
this becomes necessary in order to give full effect to the purpose or
spirit of the constitution or statute. The tendency is to regard cor-
porations, as far as their inherent nature will permit, as standii^g
on the saine footing as ordinary individuals. Consequently, whether
ebrporations are included within a statute depends largely upon its
object.
§ 54. Person. A
corporation is an artificial person created by law
for certain specific purposes, the extent of whose existence, powers
and liberties is fixed by its charter.*' "While it is an artificial per-
son, impalpable and intangible,** yet it is ordinarily treated as a
person in the eye of the law. The general rule is that the construc-
tion of the word "person" in a statute or a constitutional provi-
81 John roster & Sons v. Commis- Louisiana. New Orleans Terminal
sioners of Inland Bevenue, [1894] 1 Co. v. Teller, 113 La. 733, 2 Ann. Cas.
q. B. Div. 516. 127, 37 So. 624.
82 Culbertson v. Wabash Nav. Co., Old Colony Boot &
Massachusetts.
4 McLean 544, Fed. Cas. No. 3,464; Shoe Co. Parker-Sampson-Adams Co.,
v.
Waring v. Catawba Co., 2 Bay (S. C.) 183 Mass. 557, 67 N. E. 870.
109; Sogers v. Danby TTniversalist So- New York. Anglo-American Provi-
ciety, 19 Vt. 187; Sawyer v. Methodist eion Co. v. Davis Provision Co., 169
Episcopal Society, 18 Vt. 405; Geer v. N. T. 506, 62 N. E. 587; H. B. Schar-
Tenth School Dist., 6 Vt. 76. mann & Sons v. DePalo, 66 N. T. App.
83 Venable Bros. v. Southern Grranite Div. 29, 72 N. T. Supp. 1008.
Co., 135 Ga. 508, 32 L. E. A. (N. S.) West Virginia. State v. Dry Fork R.
446, 69 8. E. 822. Co., 50 W. Va. 235, 40 S. E. 447.
That the law regards a corporation Com. 123 Dartmouth College
84 1 Bl. ;
as a "person," see: v. Woodward, 4 Wheat. (TJ. S.) 518,

United States. Northern Securities 4 L. Ed. 629.
Co. V. United States, 193 TJ. S. 197, 331,
48 L. Ed. 679; In re Haas Co., 131 Fed.
232.
68
Ch.l] History and Genebal Considebations [§54
sion may embrace a corporation whenever this is necessary in order

to give effect to the reason and Corporations are
spirit thereof.'*
not embraced within the term "person," however, if they are not
within the purpose and spirit of the statute.'^ While such a pro-
vision is not necessary, yet, in many states, statutes have been enacted
to the effect that the word "person" may extend to bodies corpo-
rate and even to joint stock associations unless a contrary intention
clearly appears.*''
A corporation has been held in Nebraska to be a "person" within
the meaning of a statute giving any person the right to file a
mechanic's lien.'* But, on the other hand, the Indiana court has
held that it is not a "person" under a statute giving a mechanie's
85 United States. Thornton v. Bank Wisconsin. Fisher v. Horicon Iron &

of Washington, 3 Pet. 36, 42, 7 L. Ed. Manufacturing Co., 10 Wis. 351.
594. England. Union Steamship Co. v.
Alabama. Planters' & Merchants' Melbourne Harbor Trust Com'rs, 9
Bank v. Andrews, 8 Port. 404. App. Cas. 365.
California. People v. City of River- 86 Illinois. Betts v. Menard, 1 111.
side, 66 Cal. 288, 5 Pac. 350; Douglass 395.
V. Pacific Mail Steamship Co., 4 Cal. Louisiana. Factors &
Traders' Ins.
304. Co. V. New Harbor Protection Co., 37
Connecticut. Emerson v. Goodwin, La. Ann. 233; JefEries v. Belleville Iron
9 Conn. 422. Works Co., 15 La. Ann. 19.
Iowa. Stewart v. Waterloo Turn Maryland. City of Baltimore v.
Verein, 71 Iowa 226, 60 Am. Eep. 786, Boot, 8 Md. 95, 63 Am. Dec. 692.
32 N. W. 275. New York. McQueen v. Middletown
Massachusetts. C. H. Batehelder & Mfg. Co., 16 Johns. 5.
Co. V. Batehelder, 220 Mass. 42, 107 N. Pennsylvania. School Directors v.
E. 455, interpreting Mass. E. L. c. 72, Carlisle Bank, 8 Watts 289.
sec. Bicker v. American Loan &
5; England. Pharmaceutical Society v.
Trust Co., 140 Mass. 346, 5 N. E. 284. London & Provincial Supply Ass'n, 5
Michigan. Turnbull v. Prentiss App. Cas. 857; Ingate v. La Commis-
Lumber Co., 55 Mich. 387, 21 N. W. sione Del Lloyd Austriaco, Prima
375. Sezione, 4 C. B. (N. S.) 704.
Mississippi. Commercial Bank "V. 87 North Missouri E. Co. v. Akers,
Nolan, 7 How. 508, 523. 4 Kan. 453, 96 Am. Dec. 183. See also
Nebraska. Chapman v. Brewer, 43 N. Y. Stat. Construction L. § 5.
Neb. 890, 47 Am. St. Eep. 779, 62 N. The Massachusetts statute, E. I^
W. 320. c. 8, §-5, provides that the word "per-
New York. People v. Barker, 140 N. son" may extend to corporations "un-
Y. 437, 23 L. E. A. 785, 35 N. E. 657; less a contrary intention clearly ap-
Oleott V. Tioga E. Co., 20 N. Y. 210, pears.". .
75 Am. Dee. 393 ; People v. TJtiea Ins. 88Chapman v. Brewer, 43 Neb. 890,
Co., 15 Johns. 353, 8 Am. Dee. 243. 47 Am. St. Eep. 779^ 62 N. W. .320.
Virginia. Miller v. Com., 27 Gratt. See also Wetzel & T. Ey. Co. v. Tennis
110; Western U. TeL Co. v. Eichmond, Bros. Co., 145 Fed. 458, 7 Ann. Gas..
26 Gratt. 1. 426; London v. Coleman, 59 6a. 65?
69
§54] Peivate Cobpoeations [Ch.l
lien to "all persons performing labor. "^^ A corporation has been

held to be included by the word "person" in statutes concerning
attachment,'" taxation,*^ usury,'^ insolvency and bankruptcy ,»3
limitations,^* notice prior to bringing suit,*^ right to appeal,®* allow-
ing action of trespass,''' prohibiting the banking business,®' confer-
ring a cause of action for wrongful death," allowing suit against
usurpation of a public office or franchise,^ allowing a petition to
quiet title,^ and offering public lands for appropriation "by all
persons" who enter upon them.' The word "person" has also been
deemed to apply to a corporation as used in statutes providing for
suit because of the wrongful exercise of a franchise by a "person," *
punishing "any person" employing a minor child,® and providing
89 Ward V. Yarnelle, 173 Ind. 535, 23 L. B. A. 47, 37 Am. St. Bep. 545, 35
91 N. E. 7. N. E. 425.
90 Alabama. Planters' & Mer- 94Blossburg & C. B. Co. v. Tioga
chants' Bank of Mobile v. Andrews, 8 B. Co., 5 Blatchf. 387, Fed. Cas. No.
Port. 404. 1,563; North Missouri B. Co. v. Akers,
Connecticut. Bray v. Town of 4 Kan. 453, 96 Am. Dee. 183; People
WallingfoTd, 20 Conn. 416; Knox v. V. Eector, etc., of Trinity Church, 22
Protection Ins. Co., 9 Conn. 430, 25 N, Y. 44, 57; Olcott v. Tioga B. Co., 20
Am. Dec. 33. N. Y. 210, 75 Am. Dec. 893. Compare
Illinois. Mineral Point B. Co. v. Connecticut Mut. Life Ins. Co. v. Duer-
Keep, 22 111. 9, 74 Am. Dec. 124. son's Ex'r, 28 Gratt. (Va.) 630.
New Hampshire. Libbey v. Hodg- 9B Boyd V. Croydon E. Co., 4 Bing.
don, 9 N. H. 394. N. Cas. 669.
Virginia. Bank of United States v. 96 People V. May, 27 Barb. (N. Y.)
Merchants' Bank of Baltimore, 1 Kob. 238.
573. 97Bartee v. Houston & T. Cent. B.
Contra, McQueen v. Middletown Co., 36 Tex. 648.
Mfg. Co., 16 Johns. (N. Y.) 5. 98 People V. trtica Ins. Co., 15 Johns.
Contra, also, as to a municipal corpora- (N. Y.) 358,. 8 Am. Dec. 243.
tion. City of Baltimore v. Boot, 8 Md. 99 Southwestern B. Co. v. Paulk, 24
95, 63 Am. Dec. 692. Ga. 356.
91 Louisville & N. B. Co. v. Com., 1 1 People V. City of Eiverside, 66 Cal.
Bush (Ky.) 250; People V. Commission- 288, 5 Pae. 350.
ers of Taxes, 23 N. Y. 242. 2 Proprietors of Jeffries Neck Pas-
Contra, Fox's Appeal, 112 Pa. St. ture V. Inhabitants of Ipswich, 153
337, 351, 4 Atl. 149; School Directors Mass. 42, 26 N. E. 239.
V. Bank, 8 Watts (Pa.) 289.
Carlisle 3 State V. Nashville tTniversity, 4
Thornton v. Bank of Washing-
92 Humph. (Tenn.) 157.
ton, 3 Pet. (tr. S.) 36, 42, 7 L. Ed. 594; 4 State V. Seattle Gas & Electric Co.,
Commercial Bank of Manchester v. No- 28 Wash. 488, 70 Pac. 114, 68 Pac. 946;
lan, 7 How. (Miss.) 508, 523; Grand State V. Milwaukee, B. & L. G. E. Co.,
Gulf Bank v. Arcler, 8 Smedes & M. 116 Wis. 142, 92 N. W. 546.
(Miss.) 151, 174. 6 Overland Cotton Mill Co. v. People,
93 Earth v. Baohus, 140 N. Y. 230, 32 Colo. 863, 105 Am. St. Bep. 74, Vo
70
Ch.l] HiSTOBY AND GENERAL CONSIDERATIONS [§54
for a civil action against any person unlawfully holding a franchise.^

"Where the word "person" is used in a definition of libel, corpora-
tions are included.'
A
corporation is not a "person" within the mortmain laws,' or
within a statute imposing a penalty and allowing it to be sued for
"by the person or persons" informing,^ or imposing a penalty upon
any person acting as a druggist without being qualified and regis-
tered as provided by law.^" A corporation is not a "person" so that
it may be licensed to practice medicine,^^ or law.^'^
In the earlier eases and before corporations had become important
in the industrial and commercial world, it was held that as penal
statutes should be strictly construed, they did not apply to corpora-
tions unless corporations were included in express terms or by clear
implication.^^ Thus, it was held in an early Massachusetts ease that
Pac. 924. In this case, the court said: Clark & Marshall's Private Corp.
"In the earlier cases, and before cor- §252; Bishop's Stat. Crimes (3d Ed.)
porations had hecome such important §212; Stewart v. Waterloo Turn Ve-
factors in industrial affairs, it was held rein, 71 Iowa 226, 60 Am. Eep. 786, 32
that, as statutes imposing a penalty N. W. 275. Whether corporations are
were to be strictly construed, they did included within the statute depends
not apply to corporations, unless they largely upon its object. Pharmaceuti-
included them in express terms or by cal Society v. London & P. Supply
clear implication. This view is no Ass 'n.
longer entertained by the modern de- 6 State V. Des Moines City E. Co.,
cisions, either in England or this coun- 135 Iowa 694, 109 N. W. 867.
try, for various reasons, among which 7 State V. Williams, 74 Kan. 180,
may be noticed that it ignored the 85 Pae. 938. And see People v. Paler-
principle that statutes are to be ap- mo Land & Water Co., 4 Cal. App. 717,
plied to corporations, when they can 89 Pac. 723, 725.
be, the same as to natural persons; 8 Walker v. Bichardson, 2 Mees. &
that, so far as their nature will permit, W. 882.
they are amenable to the laws of the 9 Guardians of Poor of St. Leonard 's
land, the same as individuals; and that V. Franklin, 3 C. P. Div. 377.
to exempt them from the operation of 10 Pharmaceutical Society v. London
a statute would result in conferring & Provincial Supply Ass'n, 5 App. Cas.
upon them rights which natural per- 857.
sons were not permitted to enjoy. 11 State Electro-Medical Institute v.
10 Cyc. 1208. Prima facie, the word State, 74 Neb. 40, 12 Ann. Cas. 673,
'person,' in a penal statute which is 103 N. W. See also State Electro-
1078.
intended to inhibit an act, means 'per- Medical Institute v. Platner, 74 Neb.
son in law' (that is, an artificial as 23, 121 Am. St. Rep. 706, 103 N. W.
well as a natural person), and there- 1079.
fore includes eoirporations, if they are 12 In re Co-operative Law Co., 198
within the spirit and purpose of the N. Y. 479, 32 L. E. A. (N. S.) 55, 139
statute. Pharmaceutical Society v. Am. St. Eep. 839, 19 Ann. Cas. 879.
London & P. Supply Ass 'n, 5 App. Cas. 92 N. E. 15.
857; 7 Enc. of Law (2d Ed.) 841; 1 13 Androscoggin Water Power Co. v.
71
§ 54] Private Cobpoeations [Ch, 1
a corporation was notunder a statute penalizing an "owner,

liable
agent, or superintendent of any manufacturing establishment," for
employing minor children for more than a certain number of hours
per day.^* And it was held in Maine, that where a statute penalized
"any person" who converted logs of another to his own use, a cor-
poration was not within the purview of the law.^^ This view is no
longer entertained by the modern decisions which tend to apply
penal statutes to corporations the same as to natural persons so far
as possible.^® Prima facie, the word "person" in a penal statute
which is enacted to forbid the doing of an act means "person in
law," and, therefore, includes corporations
. if they are within the
purpose and spirit of the statute.^''
Corporations are included in a congressional act elonferring a
cause of action upon "any person within the jurisdiction of the
United States" for the deprivation, under color of any law, of rights,
privileges or immunities secured by the Federal Constitution.^'
They are also included within a statute punishing any person destroy-
ing a vessel with intent fraudulently to obtain the insurance
thereon.^'
A corporation is a "person" within the meaning of the Fourteenth
Amendment of the Federal Constitution, and it follows that it can-
not be deprived of life, liberty or property without
due process of
law and that it is entitled to the equal protection of the law in like
manner as other persons in the same situation.*" A corporation is,
Bethel Steam Mill Co., 64 Me. 441; Overland Cotton Mill Co. v. Peo-
17
Benson v. Monson & Brimfield Mfg. pie,32 Colo. 263, 105 Am. St. Eep. 74,
Co., 9 Mete. (Mass.) 562; Pharmaceuti- 75 Pac. 924; Proprietors of Jeffries
cal Society v. London & Provincial Neck Pasture v. Inhabitants of
Supply Ass 'n, 5 App. Cas. 857. Ipswich, 153 Mass. 42, 26 N. E. 239.-
14 Benson v. Monson & Brimfleld 18 Act Cong. April 20, 1871; North-
Mfg. Co., 9 Mete. (Mass.) 562. western Fertilizing Co. v. Hyde Park,
18 Androscoggin Water" Power Co. 3 Biss. 480, Fed. Cas. No. 10,336.
V. Bethel Steam Mill Co., 64 Me. 441. 19 Act Cong. March 26, 1804; United
But there were provisions in the stat- States v. Amedy, 11 Wheat. (U. S.)
ute which could not reasonably apply 392, 412, 6 L. Ed. 638.
to a corporation. 20 Southern R. Co. v. Greene, 216
18 Overland Cotton Mill Co. v. Peo- XT. S. 400, 54 L. Ed. 536, 17 Ann. Cas.
pie, 32 Colo. 263, 105 Am. St. Eep.. 74, 1247; Gulf, C. & S. F. R. Co. v. Ellis,
75 Pac. 924. 165 U. S. 150, 154, 41 L. Ed. 666; Cov-
Where a statute punishes the ob- ington & Lexington Turnpike Road Co.
taining of property by false pretenses v. Sandford, 164 IT. S. 578, 41 L. Ed.
from "any person," the word "per- 560; Minneapolis & St. L. E. Co. v.
son" includes corporations. Norris v. Beckwith, 129 IT. S. 26, 32 L. Ed. 585;
State, 25 Ohio St. 217, 18 Am. Rep. Missouri Pac. E. Co. v. Mackey, 127
291. U. S. 205, 32 L. Ed. 107; Pembina
72
Ch. 1] HiSTOEY AND GiENEEAL CONSIDERATIONS [§ 55
however, not a "person" within the Fifth Amendment of the Fed-

eral Constitution.*^ A corporation comes within the protection of
the Fourth Amendment of the Federal Constitution insuring "the
'
right of the people to be secure in their persons ' against unlaw-
ful seizures or searches.**
A
corporation is a "living person" under a statute allowing a
party to a lawsuit to be examined in his own behalf when the adverse
person in interest is living.*' Even a municipal corporation is
within this statute.**
"When the words "private person" are employed in a statute they
include private corporations but not municipal corporations.*^
A corporation may be deemed "a responsible and respectable
person" within the meaning of those words as used in an indenture
of lease, provided it is shown that the corporation is solvent and on
a going basis.*®
A corporation has been deemed a "merchant" where this term
was used in a statute taxing merchants in certain cases.*''
The term "whoever" applies to corporations and it was so held
where a penalty was imposed for the sale of adulterated milk.**
§ 55. Resident or inhabitant. A corporation may be a "resident,"

"inhabitant" or "occupier." Thus, a college corporation seized of
lands in fee is the "inhabitant" and "occupier" of such lands,
within the meaning of a taxing statute.*®
The status of corporations as residents within the meaning of con-
Consol. Silver Mining & Milling Co. v. Co., 22 N. T. 352; Johnson v. Mcintosh,
Pennsylvania, 125 V. S. 181, 31 L. Ed. 31 Barb. (N. Y.) 267 ; Field v. New
650; Santa Clara County v. Southern York Cent. E. Co., 29 Barb. (N. Y.)
Pac. E. Co., 118 TJ. S. 394, 30 L. Ed. 176.
118; Railroad Tax Cases, 13 Fed. 722; 24 Wallace v. City of New York, 2
McGuire v. Chicago, B. & Q. E. Co., 130 Hilt. (N. Y.) 440.
Iowa 340, 8 L. E. A. (N. S.) 376, 108 N. 86 Coats v. People, 22 N. Y. 245.
W. 902; Hammond Beef & Provision 26 Wilmott v. London Eoad Car Co.,
Co. v. Best, 91 Me. 431, 42 L. E. A. 528, [1910] 2 Ch. Div. 525.
40 Atl. 338; Harbison v. Knoxville 27 American Book Co. v. Shelton,
Iron Co., 103 Tenn. 421, 56 L. E. A. 117 Tenn. 745, 100 S. W. 725; American
316, 76 Am. St. Eep. 628, 53 S. "W. 955; Steel & Wire Co. v. Speed, 110 Tenn.
Railroad Co. v. Harris, 97 Tenn. 684, 524, 100 Am. St. Eep., 814, 75 S. W.
705, 43 S. W. 115; Dugger v. Meehan- 1037.
ics' & Traders' Ins. Co., 95 Tenn. 245, 28Com. v. Graustein & Co., 209 Mass.
250, 28 L. E. A. 796, 32 S. W. 5. 38, 95N. E. 97. And see Com. v. New
21 In re Bornn Hat Co., 184 Fed. 506. York Cent. & H. Eiver R. Co., 206
22 HaleV. Henkel, 201 V. S. 43, 74- Mass. 417, 19 Ann. Cas. 529, 92 N. E.
75, 50 L. Ed. 652. 766.
23 La Farge v. Exchange Fire Ins. 29 Rex v. Gardner, 1 Cowp. 79.
73
§55] Peivate Cobpokations [Ch.l
stitutional and statutory provisions governing jurisdiction is discussed

subsequently.*" It is sufficient to state generally here that for juris-
dictional purposes corporations are deemed "residents" or "inhabi-
tants" of particular places.*^ A corporation, however, is not deemed
'
a ' resident
'
' if the terms or spirit of the statute employing the term
render it inapplicable to corporations.*^
The Supreme Court of the United States adopted

§ 56. Citizen.
the language of the year books and agreed with Coke that "a cor-
poration aggregate of many is invisible, immortal and rests only in
intendment and consideration of the law. " ** If a corporation is
merely a legal entity, if it is clothed only with invisibility and intan-
gibility, it cannot, strictly speaking, be a subject or a citizen. The
Constitution of the United States in article III, sec. 2, limits, inter
alia, the jurisdiction of the federal courts "to controversies between
citizens of different states." For the purposes of this provision of
the Federal Constitution and of the acts of congress carrying it into
effect, corporations are treated, in effect, as citizens.** This was
necessary in order to preserve the jurisdiction of the federal courts
over corporations.*^ One theory of federal jurisdiction regards a
30 See Chap. 13, infra. 32 People V. Schoonmaker, 63 Barb.

United States. United States v.
31 (N. Y.) 44.
Northern Pac. E. Co., 134 Fed. 715; 33 10 Co. Rep. 32b; Co. Litt. 250a.
McKane v. Burke, 132 Fed. 688; Olson See Dartmouth College v. Woodward,
V. Buffalo Hump Min. Co., 130 Fed. 4 Wheat. (U. S.) 518, 4 L. Ed. 629;
1017; Weller v. Pennsylvania R. Co., Bank of United States v. Deveaux, 5
113 Fed. 502. Cranch (U. S.) 61, 3 L. Ed. 38.
Idaho. Boyer v. Northern Pac. R. 31 See Chap. 13, infra, and Doc-
Co., 8 Idaho 74, 70 L. E. A. 691, 66 tor v. Harrington, 196 U. S. 579,
Pac. 826. 49 L. Ed. 606; Continental Nat.
Kansas. H. Parker Grain Co. v. Bank ofMemphis v. Buford, 191 U.
Chicago, B. I. & P. Ey. Co., 70 Kan. S. 119, 48 L. Ed. 119; Barnes v. West-
168, 78 Pac. 406. ern Union Tel. Co., 120 Fed. 550;
Missouri. Sidway v. Missouri Land Jameson v. Simonds Saw Co., 2 Cal.
& Live Stock Co., 187 Mo. 649, 86 S. App. 582, 84 Pae. 289; North American
W. 150; Meyer v. Phoenix Ins. Co., 184 Ins. Co. v. Yates, 214 111. 272, 73 N.
Mo. 481, 83 S. W. 479. E. 423, aff'g 116 111. App. 217; Sun
New York. India Rubber Co. v. Printing & Publishing Ass'n v. Ed-
Katz, 65 N. Y. App. Div. 349, 72 N. wards, 194 U. S. 377, 48 L. Ed. 1027;
Y. Supp. 658; Goldzier v. Central R. Continental Wall-Paper Co. v. Lewis
Co. of New Jersey, 43 N. Y. Misc. 667, Voight & Sons Co., 106 Fed. 550. S&e
88 N. Y. Supp. 214. article by I. Maurice Wormser, 12
Washington. Hastings v. Anacortes Columbia L. Rev. at pp. 497-98.
Packing Co., 29 Wash. 224, 69 Pac. SB Bank of United States v. Deveaux,
776. 5 Cranch (U. S.) 61, 3 L. Ed. 38. See
74
—
Ch.l] History and General Considerations [§56
corporation "to all intents and purposes as a person, although an

artificial person, capable of being treated as a citizen of that state,
as much as a natural person."'®Another theory of federal juris-
diction treats a corporation as an association of persons—citizens
and by a process of arbitrary legal fiction conclusively presumes that
these persons are all citizens of the state under whose laws the cor-
poration in question was organized.'''
Chap. 13, infra, in which these are In Doctor v. Harrington, supra, Mr.
discussed at length. Justice McKenna said: "The reason
36 Wayne, J., in Louisville, C. & C. of the presumption (we will so denom-
R. Co. V. Letson, 2 How. (TJ. S.) 497, inate it) was to establish the citizen-
11 L. Ed. 353. In this case it was said: ship of the legal entity for the purpose
"But there a broader ground upon
is of jurisdiction in the federal courts.
which we desire to be understood, up- Before its adoption difBculties had
on which we altogether rest our pres- been encountered on account of the
ent judgment, although it might be conditions under which jurisdiction
maintained upon the narrower ground was given to those courts. A corpora-
already suggested. It is, that a cor- tion is constituted, it is true, of all
poration created by and doing busi- its stockholders; but it has a legal ex-
ness in a particular State, is to be istence from them, rights
separate —
deemed to all intents and purposes as and obligations separate from them;
a person, although an artificial person, and may have obligations to them. It
an inhabitant of the same State, for can sue and be sued. At first this
purposes of its incorporation, capable could be done in the circuit court of
of being treated as a citizen of that the United States only when the cor-
State, as much as a natural person. poration was composed of citizens of
Like a citizen it makes contracts, and the state which created it. Bank of
though in regard to what it may do in United States v. Deveaux, 5 Cranch
some particulars it differs from a (U. S.) 61, 3 L. Ed. 38; Hope Ins. Co.
natural person, and in this especially, V. Boardman, 5 Cranch (U. S.) 57, 3
the manner in which it can sue and be L. Ed. 36. But the limitation came
sued, it is substantially, within the to be seen as almost a denial of juris-
meaning of the law, a citizeii of the diction to or against corporations in
State which created it, and where its the federal courts, and in Louisville,
business is done, for all purposes of C. & C. R. Co. V. Letson, 2 How. (U.
suing and being sued." See, on thi^ S.) 497, 11 L. Ed. 353, prjor cases were
question, Chap.' 13, infra. reviewed, and this doctrine laid down:
37 See Chap. 13, infra, and Doe- 'That a corporation created by and
tor V. Harrington, 196 IT. S. 579, doing business in a particular state
49 L. Ed. 606; Shaw v. Quincy Min. is to be deemed, to all intents and
Co., 145 IT. S. 444, 36 L. Ed. 768; purposes, as a person, although an
Barron v. Burnside, 121 V. S. 186, 30 artificial person, * * * capable of
L. Ed. 915; MuUer v. Dows, 94 U. S. being treated as a citizen of that state,
444, 24 L. Ed. 207; Baltimore & Ohio as much as a natural person.' And
E. Co. V. Harris, 12 Wall. (V. S.) 65, 'when the corporation exercises its
20 L. Ed. 354; Marshall v. Baltimore powers in the state which chartered
& Ohio R. Co., 16 How. (TJ. S.) 324, it, that is its residence, and such an
14 L. Ed. 958. averment is sufficient to give the cir-
75
' :
§56] Pbivate Corpoeations [Ch.l
A corporation is not regarded as a citizen, however, within the

purview of article IV, sec. 2 of the Constitution of the United States,
reserving to the citizens of each state all of the privileges and
immunities of citizens in the several states.^' "A corporation could
not claim the benefit of those provisions of the Federal Constitution
which confer upon the citizens of each state a general citizenship, and
secure to them in other states all the privileges and immunities to
which the citizens would there be entitled, under the constitution
'
and laws of the state, under like circumstances. '
*' Likewise, a cor-
poration is not regarded as a citizen within the Fourteenth Amend-
ment to the Federal Constitution.*"
cuit courts jurisdiction.' The pre- New Jersey. Tatem v. Wright, 23

sumption that the citizenship of N. J. L. 429, 441.
the corporators should be that of New York. Anglo-American Provi-
the domicile of the corporation was sion Co. V. Davis Provision Co., 169 N.
not then formulated. That came after- Y. 506, 88 Am. St. Rep. 608, 62 N. E.
wards, and overcame the difH.culty and 587; In re American Security & Trust
objection that the legal creation, the Co., 45 N. Y. Misc. 529, 92 N. Y. Supp.
corporation, could not be a citizen 974.
within the meaning of the Constitution. Vermont. Hawley v. Hurd, 72 Vt.
Marshall v. Baltimore & O. E. Co., 16 122, 52 L. R. A. 195, 82 Am. St. Eep.
How. (IT. S.) 314, 14 L. Ed. 953. This, 922, 47 Atl. 401.
then, was its purpose, and to stretch Wisconsin. Chicago Title & Trust
beyond this is to stretch it to wrong. '
Co. v. Bashford, 120 Wis. 281, 97 N. W.
38 See § 389, infra, and the follow- 940.
ing authorities: 39 Anglo-American Provision Co. v.
United States. New York Life Davis Provision Co., 169 N. Y. 506,
Ins. Co. V. Deer Lodge Co., 231 IT. S. 88 Am. St. Eep. 608, 62 N. E. 587.
495, 58 L. Ed. 332; Pembina Consol. 40 See § 388, infra, and the following
Silver Mining & Milling Co. v. Penn- authorities
sylvania, 125 U. S. 181, 31 L. Ed. 650; United States. Western Turf Ass'n
Western Turf Ass'n Greenberg, 204
v. V. Greenberg, 204 U. S. 359, 51 L. Ed.
TJ. S. 359, 51 L. Ed. 520; Ducat v. City 520; Kirven v. Virginia-Carolina
of Chicago, 10 "Wall. (TJ. S.) 410, 19 Chemical Co., 145 Fed. 288, 7 Ann.
L. Ed. 972, aff'g 48 Dl. 172, 95 Am. Cas. 219.
Dec. 529; Paul v. Virginia, 8 Wall. Georgia. .S)tna Insurance Co. v.
(CJ. S.) 168, 19 L. Ed. 357; Kirven v.
Brigham, 120 Ga. 925, 48 S. E. 348.
Virginia-Carolina Chemical Co., 145
lUinols. In re Speed's Estate, 216
Fed. 288, 7 Ann. Cas. 219.
111. 23, 108 Am. St. Eep. 189, 74 N. E.
IlUuois. In re Speed's Estate, 216 809, afE'd 203 IT. 8. 553, 51 L. Ed. 314.
111. 23, 108 Am. St. Eep.' 189, 74 N. E. Vermont. Hawley v. Hurd, 72 Vt.
809, afE'd 203 IT. S. 553, 51 L. Ed. 314. 122, 52 L. E. A. 195, 82 Am. St. Eep.
Massachusetts. Attorney General v.
922, 47 Atl. 401.
Electric Storage Battery Co., 188 Mass. Wisconsin. Chicago Title & Trust
239, 3 Ann. Cas. 631, 74 N. E. 467.
Co. V. Bashford, 120 Wis. 281, 97 N. W.
Minnesota. Tolerton & Stetson Co. 940.
v. Barck, 84 Minn. 497, 88 N. W. 19. In Western Turf Ass 'n v. Greenberg,
76
Ch. 1] ^
History and Gteneeal Consideeations [§56
A corporation is regarded as a British subject although some, or

even all, of its stockholders are foreigners." Accordingly, a cor-
poration chartered by Great Britain is entitled to register its ves-
under a statute permitting the registry of vessels owned wholly
sels
by a British subject, though many of the stockholders are for-
eigners.*^ Likewise, a British corporation is entitled to sue in the
courts of Great Britain, though practically all of its shareholders
are alien enemies who would not be entitled to sue in the English
courts.**
Mr. Justice Harlan said: "The liber- Mines, [1902] A. C. 484; Queen v«
ty guaranteed by the 14th Amend- Arnaud, 16 L. J. Q. B. (N. S.) 50, 9
nient against deprivation without due Q. B. (A. & E.) 806.
process "of law is the liberty of natural, 42 Queen v. Arnaud, 16 L. J. Q. B.
not persons."
artificial, (N. S.) 50, 9 Q. B. (A. & E.) 806.
41 Continental Tyre & Rubber Co., 43 Continental Tyre & Rubber Co.,
Ltd. V. Daimler Co., Ltd., [1915] K. B. Ltd. v. Daimler Co., Ltd., [1915] 1
893; Janson v. Dreifontein Consol. K. B. 893.
77
CHAPTER 2
Classification op Corporations
§ 57. Aggregate and corporations—

sole general. În
§ 58. — Distinctions.
§ 59. — Nature of corporations in Rome and England.
^ 60. — Corporations aggregate and in the United sole States.
§ 61. — Particular public as corporations.
officers sole
§ 62. — Private business corporations.

§ 63. Ecclesiastical and lay corporations.
§ 64. Eleemosynary and civil corporations.
§ 65. Public and private corporations In general. —
§ 66. -7- Importance of division.
§ 67. — Public corporations proper.

§ 68. — Private corporations.
§ 69. — Public character of particular classes of corporations — În generaL
§ 70. — Cities, villages, etc.
§ 71. — Levee, drainage, reclamation and irrigation districts.

§ 72. — Educational and charitable institutions.
§ 73. Quasi public corporations.

§ 74. The United States, the states and territories as corporations.
§ 75. Stock and nonstock corporations.
§ 76. Quasi corporations —In general.
§ 77. — Counties.
§ 78. —Towns.
§ 79. — School districts.
§ 80. — Eoad districts.
§ 81. — Public public boards.

officers or
§ 82. — Joint stock companies.

§ 83. Domestic and foreign corporations.
§ 84. Statutory classification of corporations— general. În
§ 85. — Tests for ascertaining of corporation.

class
§ 86. — "Trading" corporations.
§ 87. — "Mercantile" or "commercial" corporations.
§ 88. — " Manufacturing corporations.
'
'
§ 89. — "Transportation" and "railroad" corporations.

§ 90. — Corporations for "industrial pursuits."
§ 91. — "Business" corporations.
§ 92. — Corporations for "pecuniary profit."
§ 93. — "Moneyed" corporations.
§ 94. — "Banking" corporations—Trust companies.
I 95. — "Beneficial" corporations.
§ 96. — "Insurance" corporations.
§ 97. — Building and loan associations.
J 98. — "Literary" corporations.

78
' '
Ch.2] Classification of Corpokations [§57
§ 99. —" Seientifio '

corporations.
§ 100.
— '
' Charitable
'
'
' and '
' benevolent '
' corporations.
§101. —;" Religious" corporations.
§ 102. — Corporations for '
'
" public utility.

work of internal improvement, '
'public improve-
ment " or '
§57. Aggregate and sole corporations —In general. "The first
division of corporations," says Blackstone, "is into aggregate and

'
sole, '
^ and a similar classification was recognized by Chancellor
Kent.2
An aggregate corporation is a corporation consisting of more than
one member, and has been defined as "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. '
A sole corporation consists of* one person or member only, and his
successors. It "consists of a single individual having an artificial or
legal personality distinguished from his natural character.
'
'
*
1 1 Bl. Com. 469. officers, etc., a corporation aggregate

2 2 Kent Com. 273. was created. Overseers of Poor of Bos-
3 Overseers of Poor of Boston v. ton V. Sears, 39 Mass. (22 Pick.) 122.
Sears, 39 Mass. (22 Pick.) 122; Thomas 4 Eoman
Catholic Archbishop of San
V. Dakin, 22 Wend. (N. Y.) 9. Francisco v. Shipman, 79 Cal. 288,
"Corporations aggregate consist of 21 Pac. 830; Santillan v. Moses, 1 Cal
many persons united together into one 92; McCloskey v. Doherty, 97 Ky. 300
society, and are kept up by a perpet- 30 S. W. 649; Overseers of Poor of Bos
ual succession of members, so as to ton V. Sears, 39 Mass. (22 Pick.) 122
continue forever: of which kind are the Weston V. Hunt, 2 Mass. 500.
mayor and commonalty of a city, the "A corporation sole consists of a
head and fellows of a college, the dean single person, who is made a body cor-
and chapter of a cathedral church." porate and politic, in order to give him
1 Bl. Com. 469. some legal capacities and advantages,
"The corporations generally in use and especially that of perpetuity,
with us are aggregate, or the union of which, as a natural person, he cannot
two or more individuals in one body have. A bishop, dean, parson, and
politic, with a capacity of succession vicar are given in the English books
and perpetuity. ' 2 Kent Com. 274. '
as instances of sole corporations; and
So where a statute was passed pro- they and their successors in perpetuity
viding that overseers of the poor be take the corporate property and priv-
incorporated, and that they and their ileges; and the word 'successors' is
successors have perpetual succession generally necessary for the suc-
as
that property given to the poor be vest- cession of property in a corporation
ed in the overseers and their successors sole, as the Vv'ord 'heirs' is to create
in corporate capacity, for the
their an estate of inheritance in a private
of the poor; that they have a com-
use-
'
individual. ' 2 Kent Com. 273. To the
mon seal, make by-laws, and choose same effect see 1 Bl. Cam. 469.
79
'
57] Private Corporatiohts [Ch.2
This division of corporations into sole and aggregate is, in this

country at least, principally of historical interest, as nearly all cor-
porations are aggregate.^ Corporations whether sole or aggregate can
he created by or under legislative authority only.*
§58. —
Distinctions. "There are," says Chancellor Kent, "very
few points of corporation law applicable to a corporation 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
'
succession and perpetuity. '
« Thomas v. Dakin, 22 Wend. (N. wise provided by charter or by-law;

Y.) 9. they must regularly keep a record,
6 See § 168, infra. journal or other written account of
7 2 Kent Com. 273, 274. their votes and proceedings, which
At common law, corporations aggre- is the proper evidence of their acts,
gate could take in succession both real ahd may elect and qualify a clerk or
and personal property, but corpora- secretary for that purpose; they may
tions sole could not take goods and elect a president or head, a treasurer,
chattels for the benefit of themselves managers, directors, and other suit-
and their successors. The reason giv- able officers, with such powers, as the
en was that such movable property terms import, and such as may be
was liable to be lost or embezzled, and specially conferred upon them, by vote,
this would give rise to a multitude of or deed, to manage their affairs; they
disputes between the successor and may elect members to fill vacancies,
the executor, which the law was care- when it is not otherwise provided by
ful to avoid. 1 Bl. Com. 477. the charter. Indeed this last qualifica-
"An aggregate corporation may tion must be added, in regard to al-
have and use a common seal, by which most all these enumerated powers, and
the will of the body is expressed, and it may be remarked generally, that
its acts executed; they are to take when these are denominated incidents
and grant by their appropriate cor- to an aggregate corporation, it is to
porate name; may take and hold real be understood that they are the most
and ipersonal property may make by-
; common and usual characteristics of
laws for the regulation of all mat- such a corporation, and that they exist
ters within the scope of their author- by implication, in eases where it is
ity, not contrary to the law of the not otherwise provided in the charter;
land, or repugnant to the provisions but that its constitution and organi-
of the charter or act of incorporation; zation, the mode in which individuals
they must perform all corporate acts, may become and cease to be members,
by deed under their common seal, by and also its action in all respects, the
vote, or by agency of officers or agents manner, times, places and occasions,
duly authorized for the purpose; they on which meetings may be held, the
must appear by attorney and cannot members or particular individuals who
appear in person; the will of the ma- must be present and vote to constitute
jority, orderly taken, at a meeting a valid act, the officers who may or
duly vcalled and held, is the will of must be chosen, the property they
the body and must govern, unless other- may hold, the powers they may exer-
80
6
Ch.2] Classification of Corporations [§60
§59. — Nature of corporations in Rome and Engfland. Among

the Romans, all corporations were aggregate, and Blackstone says
that with regard to sole corporations, consisting of one person only,
the Roman lawyers had no notion of them; "their maxim being that
'ires faciunt cMegium,.' * * * Though they, held that if a cor-
poration, originally consisting of three persons, be reduced to one, 'si
universitas ad unwm redit ' * * *, it may still subsist as a corpora-
tion, 'et stet nomen universitatis/ "*
A corporation sole was the creation of English law for the purpose
of some of the English institutions. Thus, at common law, the king
was regarded as a corporation sole with the capacity of succession, in
order to prevent a possible interregnum and to preserve the possession
of the crown.8 Sole corporations were also mostly employed to hold
in succession the rights and property of the ecclesiastical establish-
ments ^^ and the English books give as instances of sole corporations,
bishops, deans, parsons, and vicars.^^
§ 60. —
Corporations aggregate and sole in the United States. As
has been stated above, sole corporations are not common in the United
cise, the duration of their existence, own right." Overseers of Poor of Bos-
may all be modified and regulated ton V. Sears, 39 Mass. (22 Pick.) 122.
ad libitum, by the power which con- See also Archbishop of San Francisco
stitutes the corporation. * * * In V. Shipman, 79 Cal. 288, 21 Pac. 830.
all these respects, the distinction 8 1 Bl. Com. 469.
between an aggregate and sole cor- 9 Co. Litt. 43; 1 Bl. Com. 469.
poration, growing out of their different 10 Thomas v. Dakin, 22 Wend. (N.
modes of constitution and forms of Y.) 9.
action, is striking and obvious. A 11 2 Kent Com. 273; 1 Bl. Com. 469.
bishop or parson acting in a corporate See Ford v. Harrington, L. B. 5 C. P.-
capacity and holding property to him 282.
and his successor in right of his of&ce, It is said by Blackstone: "At the
has no need of a corporate name, he original endowment of parish churches,
requires no peculiar seal, he per- the freehold of the church, the church-
forms all legal acts under his own seal, yard, the parsonage house, the glebe,
in his own name and name of office; and the tithes of the parish, were vest-
his own will alone regulates his acts ed in the then parson by the bounty
and he has no oeeasion for a secre- of the donor, as a temporal recompense
tary, for he need not keep a record of to him for his spiritual care of the in-
his acts; no need of a treasurer, for habitants, and with intent that the
he has no personal property except same emoluments should ever after-
the rents and proceeds of the corporate wards continue as a recompense for
estate, and these he takes to his own the same care. But how was this to
use when received. By-laws are un- be effected? The freehold was vested
necessary, for he regulates his own in the parson; and, if we suppose it
action, by his own will and judgment, vested in his natural capacity, on his
like any other individual acting in his death it might descend to his heir,
81
I Priv. Corp.—
§60] Private Coepobations [Ch.2
States.^^ In fact, it has been held, in one state at least, that such
corporations are not recognized and do not exist therein.^^ But in
other states, in the early decisions, corporations sble have been recog-
nized. has been held that the ministei^ of a town or parish
Thus it
who any lands in the right of the town or parish, which

is seized of
is the case of all parsonage lands or lands granted for the use of the
ministry, or of the minister for the time being, is for that purpose a
sole corporation and holds the same to himself and his successors.^*
A priest of a Catholic mission has also been held to be, with respect
and would be liable to his debts and allowing "any numberof persons" to
incumbrances: or at best, the heir associate "together" and form a cor-
might be compellable, at some trouble poration. Louisville Banking Co. v.
and expense, to convey these rights to Eisenman, 94 Ky. 83, 19 L. R. A. 684,
the succeeding incumbent. The law 42 Am. St. Rep. 335, 21 S. W. 531,
therefore has wisely ordained, that the 1049. But see McCloskey v. Doherty,
parson, quatenus (as) parson, shall 97 Ky. 300, 30 S. W. 649.
never die, any more than the king; 14 Inhabitants of First Parish in
by making him and his successors a Brunswick v. Dunning, 7 Mass. 445.
corporation. By which means all the In another Massachusetts case, the
original rights of the parsonage are minister of a parish, who was seized
preserved entire to the successor; for of parsonage lands in right of his par-
the present incumbent, and his prede- ish was held to be a corporation sole,
cessor who lived seven centuries ago, in accordance with the English law, so
are in law one and the same person; that he could sue as such to recover
and what was given to the one was possession of the same. Weston v.
given to the other also." 1 Bl. Com. Hunt, 2 Mass. 500.
470. "By the provincial statute of 28 G.
IZ Thomas v. Dakin, 22 V^Tend. (N. 2, c. 9, the ministers of the several
Y.) 9. Protestant churches were made sole
"We are not aware, that there is corporations, capable of taking in suc-
any instance of a sole corporation, in cession any parsonage lands, granted
this Commonwealth, except that of a to the minister and his successors, or
person, who may be seised of parson- to the use of the ministry. And no
age lands, to hold to him and his suc- alienationmade by any minister of
cessors, in the same office, in right of any parsonage lands, holden by suc-
his parish. There are some instances cession, shall be valid any longer than
in which certain public officers are he shall continue minister; unless, be-
empowered by statute to maintain ac- ing minister of some particular town,
tions, as successors, such as judges of district, or precinct, such alienation
probate, county and town treasurers; be made with the consent of such town,
but it is only where expressly provided district, or precinct; or,
being a min-
by statute." Overseers of Poor of ister of some Episcopal church, the
Boston v. Sears, 39 Mass. 122. alienation be made with the consent
13 In one Kentucky case it was said: of the vestry." Weston v. Hunt, 2
"There is no such being in this state Mass. 500. And see Terrett v. Taylor,
as a sole corporation, and certainly 9 Cranch (TJ. 43, 3 L. Ed. 650;
S.)
none such allowed to be created by Town of Pawlet v. Clark, 9 Graneh
the statute," referring to a statute (U. S.) 292, 322, 3 L. Ed. 735.
82
Ch.2] Classification of Corporations [§'61
to the lands of the mission, in a position analogous to that of a cor-

poration sole in England, and in that character could maintain an
action to recover possession of the lands. ^^ In other cases Catholic
bishops or archbishops have been held sole corporations with respect
to lands held in such character.^^
§ 61. —
Particular public oifBcers as sole corparations. It has been
held that particular public officers who are clothed with certain powers
with respect of their office, and who are vested with the capacity of
succession, are corporations sole, or quasi corporations sole. Thus, a
town supervisor has been held a quasi corporation sole.^'' And when
a statute directs bonds to be made payable to the governor op some
other functionary having legal succession, the office is the payee and
the successor may maintain an action on such bond. It follows that
such officer is made by statute and for public benefit, quoad hoc, a
corporation sole.'*
15 Santillan v. Moses, 1 Cal. 92. interregnum in this office would be to

16 Eoman Catholic Archbishop of hold to the temporary anarchy of the
San Francisco v. Shipman, 79 Cal. 288, state; and in order to hold that there
21 Pac. 830; MeCloskey v. Doherty, 97 13 no such interregnum we must hold
Ky. 300, 37 S. W. 649. that the governor, as such, never dies;
In Illinois, the Catholic bishop of to do this he must be a corporation
Chicago was created a corporation sole sole, with succession in offtce. Such we
by statute. See Chiniquy v. Catholic think he is, constituted so by the
Bishop of Chicago, 41 111. 148. organization of our state government,
ITJansen v. Ostrander, 1 Cow. (N. and not by any particular statute or
y.) 670. statutes; and therefore when bonds are
18 V. Plummer, 21 Tenn. 500,
Polk directed to be made payable to him in
87 Am.Dec. 566. See afeo Kinney v. his official capacity, they are payable
Etheridge, 25 N. C. 360. to him in his capacity as a corpora-
In a Tennessee ease it was said: tion sole quoad that particular trans-
"The governor of this state is the action." Governor v. Allen, 27 Tenn.
executive of it; it is one of his duties, 176, in which a number of the earlier
'among many others, to see that the decisions are reviewed.
laws of the state are executed and But the mere fact that a court di-
obeyed; this is a great and funda- rects a bond to be made payable to
mental duty, without the proper ob- a particular officer does not make him
servance of which society might and a corporation sole, so that his suc-
would necessarily be greatly distracted, cessor can sue on the bond. In the
and the proper security of life, liberty, absence of a statute, he himself indi-
and property seriously endangered for" vidually, or, if he be dead, his per-
the purpose of enforcing the execution sonal representative, must sue thereon.
of the laws, and the protection of the Kinney v. Etheridge, 25 N. C. 360.
state from rebellion and invasion; he And see McDowell v. Hemphill, 60
is the commander of the forces of the N. C. 96.
state; to hold that there can be an
83
'
§ 62] Private Cokpobations [Cb. 2
§ 62. —
Private business corporations. In most states the general
laws authorizing the formation of corporations expressly require
that there shall be a certain number of corporators, or at least more
than one,^^ and there are very few instances of corporations sole
created for business purposes. But in the absence of constitutional
restrictions there is nothing to prevent the legislature from creating
such a corporation. A person cannot be regarded as a corporation
sole except by virtue of an act of the legislature conferring corporate
powers. The fact that all the shares of stock of a corporation become
vested by transfers in a single individual does not make it a corpora^
tion sole. The corporation still retains its original character, since
the several shares may be redistributed by the holder .2"
A legislative grant of corporate powers to one person and his suc-
cessors and associates was held merely to permit him to take associ-
ates, and not to render it necessary for him to do so before the act
could take effect. In other words, the act conferred upon him alone
the right to exercise all the corporate powers, and made 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.''^
§63. Ecclesiastical and lay corporations. Another division of

corporations, by the English law, is into ecclesiastical and lay,*^ and
Blackstone says that "ecclesiastical corporations are where members
that 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" and, at one time, prior and
convent, abbot and monks and the
like, which were corporations
aggregate. These were erected for the furtherance of religion, and
for perpetuating the rights of the church.^'
Chancellor Kent says that "with us they are called religious cor-
porations," and states that this is the description given them by the
statutes of various states providing generally for the incorporation"
of religious societies for the purpose of managing with more facility
and advantage, the temporalities belonging to the church or congre-
'
gation.2* Strictly speaking, there are no ecclesiastical corporations '
'
19 See § 109, infra. 21 Penobscot Boom Corporation v.

20 Newton Mfg. Co. v. White, 42 Ga. Lamson, 16 Me. 224, 33
Dec. 656;Am.
148, 159; Louisville Banking Co. v. -Day v. Stetson, 8 Greenl. (Me.) 365.
Eisenman, 94 Ky. 83, 19 L. R. A. 684, 22 2 Kent Com. 274.
42 Am. Rep. 335, 21 S.- W. 581,
St. 23 1 Bl. Com. 470. See Robertson v.
1049; Russell v. McLellan, 14 Pick. Bullions, 9 Barb. (N. Y.) 64; Ford v.
(Mass.) 63, 69; Baldwin v. Canfield, Harrington, L. E. 5 C. P. 282.
26 Minn. 43, 1 N. W. 261, 276. 24 2 Kent Com- 374.
84
Ch.2] Classification of Cobpobations [§63
in the United States, in the proper sense of the term, there being no
established church. It is true that provision is made in all the states
for the formation of religious corporations, but they are regarded as
mere civil corporations and differ from ordinary, business corporations
in their purpose chiefly.''*
A distinctive feature of ecclesiastical corporations as known to the

English law is that they are subject to the jurisdiction of the ecclesi-
astical courts or the visitatorial power of the ordinary.^^ It is not
the profession of piety by the individuals that renders the corporation
of which they are the members The corporation must
ecclesiastical.
be spiritual in a legal and not in a popular 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 ecclesias-
tical.^'' According to the line of demarcation drawn) by Blackstone,
all corporations other than ecclesiastical are called "lay corporations."
They are created for a variety of temporal or secular purposes, and
are according to their object either eleemosynary or civil.**
2B Calkins v. Cheney, 92 111. 463; system, of the king's bench; and in

Robertson v. Bullions, 11 N. Y. 243. the same manner, if such power did
See § 101, infra. formerly exist here at all, as the king 's
In the latter case, the court, per bench superintends the civil corpora-
Hand, J.,, said, "I doubt whether, in tions of the kingdom. Bobertson v.
a technical sense, there are any eccle- Bullions, 9 Barb; (N. Y.) 64.
siastical corporations in this state, par- In a general way our courts have no
ticularly under the third geetion of ecclesiastical jurisdiction. The rule is
this act. As an ecclesiastical body, stated in an Indiana case as follows:
they have no legal existence; they "While the courts of this state have
have no ecclesiastical power. They no ecclesiastical jurisdiction whatever,
are not controlled by and can not con- yet they are charged with the duty
trol the church, or any church judi- and clothed with the jurisdiction of
catory, or interfere in spiritual con- protecting property rights of religious
cerns. Their object and purpose is to societies, corporations, and churches,
manage the temporalities ,of the so- as well as that of individuals, and
ciety. ' ' Eobertson v. Bullions, 9 Barb. thereby of necessity they may be com-
(N. Y.) 64. pelled to decide questions of ecclesias-
261 Bl. Com. 471; Robertson v. Bul- tical law when that law becomes a
lions, 9 Barb. (N. Y.) 64. fact upon which property rights de-
no
Civil corporations are subject to pend." Smith V. Pedigo, 145 Ind. 361,
visitation, except in England by the 19 L. E. A. 433, 44 N. E. 363, 33 N. E.
king, who exercises this power in the 777.
king's bench, which is his representa^, 27 Eobertson v. Bullions, 9 Barb. (N.
tive, by mandamus, or quo warranto; Y.) 64.
and here this power, in a degree, be- 281 Bl. Com. 470. See Dartmouth
longs to the government, and was ex- College V. Woodward, 4 Wheat. (U.
ercised in our supreme court; which S.) 518, 4 L. Ed. 630; 2 Kent Com.
is the representative, in our judicial 274.
85
§64] Pbivate Coepobations [Ch.2
§64. Eleemosynary and civil corporations. Eleemosynary cor^

porations, sometimes called "charitable corporations" are such as are
created, not for private gain nor profit, but for charitable purposes, —
for the administration of charitable trusts. They are distinguished
from "civil" corporations. Included in the class of eleemosynary
corporations are corporations created for the purpose of maintaining
hospitals and homes for the sick, insane and poor, and for the purpose
of maintaining endowed libraries or colleges.*'
A society which is incorporated for the administration of a public
charity, and which
endowed by private benefactions from such per-
is
sons as bestow them, is a private eleemosynary corporation though it
29 United States. Society for Propa- Eleemosynary corporations '

' are
gation of Haven, 8
Gospel V. New such as are constituted for the per-
Wheat. 464, 5 L. Ed. 662; Dartmouth petual distribution of the free alms,
College V. Woodward, 4 Wheat. 518, 4 or bounty, of the founder of them to
L. Ed. 630. such persons as he has directed. Of
Comiecticut. Hearns v. Waterbury this kind are all hospitals for the
Hospital, 66 Conn. 98, 31 L. B. A. 224, maintenance of the poor, sick, and
33 Atl. 595; Bishops' Fund v. Eagle impotent: and all colleges both in our
Bank, Conn. 476; American Asylum
7 universities and out of them; which
V. Phoenix Bank, 4 Conn. 172, 10 Am. colleges are founded for two purposes:
Dee. 112. 1. For the promotion of piety and
Illinois. See Board of Education v. learning by proper regulations and or-

Bakewell, 122 III. 339, 10 N. E. 378; dinances. 2. For imparting assistance
Board of Education, State of Illinois to the members of those bodies, in or-
V. Greenebaum & Sons, 39 111. 609. der to enable them to prosecute their
Massaclmsetts. McDonald v. Massa- devotion and studies with greater ease
chusetts General Hospital, 120 Mass. and assiduity. And all these eleemosy-
432, 21 Am. Eep. 529; Nelson v. Gush- nary corporations are, strictly speak-
ing, 56 Mass. (2 Cush.) 519. ing, lay and not ecclesiastical, even
Missouri. State v. Adams, 44 Mo. though composed of ecclesiastical per-
570. sons, and although they in some things
New
York. See Robertson v. Bul- partake of the nature, privileges, and
lions, 9Barb. 64; People v. Fitch, 16 restrictions of ecclesiastical bodies."
N. Y. Misc. 464, 39 N. Y. Supp. 926. 1 Bl. Com. 471.
England. Durant v. Kennett, L. E. "An eleemosynary corporation is a
5 C. P. 262. private charity, constituted for the per-
"The true test of an institution ia petual distribution of the alms and
its originand objects. If it is found- bounty of the founder. In this class
ed on donations, and has for its pur- are ranked hospitals for the relief of
pose the accomplishment of a charity, poor, sick, and impotent persons, and
by the distribution of alms, it most un- colleges and academies established for
questionably is eleemosynary. ' ' Ameri- the promotion of learning and piety,
can Asylum v. Phoenix Bank, 4 Conn. and endowed with property, by public
172, 10 Am. Deo. 112. See also Santa and private donations." 2 Kent Com.
Clara Female Academy v. Sullivan, 274.
116 111. 375, 56 Am. Eep. 776.
86
Ch.2] Classification of CoRPoisATioNS [§64
iscreated by a charter from the crown.^" Likewise, a hospital incor-

porated by special act of the legislature, but which has no capital stock
and which is not organized for the benefit of its members, is clearly a
' '
'^
' charitable corporation. '
The establishment of an institution for the dissemination of learn-

ing has always been considered a charity. The true test of such an
institution is its origin and founded on donations,
objects. If it is
and has for its purpose the accomplishment of a charity by the dis-
tribution of alms, it most unquestionably is eleemosynary .^^ Thus it
has been held that a corporation having for its sole object the
education and instruction of the deaf and dumb, supporting and
instructing indigent persons of that class gratuitously, and receiving
a pecuniary compensation from pupils able to pay it, deriving its
means of support from the donations of individuals and the public,
and applying its funds exclusively to the general object of the insti-
tution, was a charitable or eleemosynary corporation.^' And a uni-
80 Society for Propagation of Gos- into the minds of the deaf and dumb;
pel V. New Haven, 8 "Wheat. (TJ. S.) to elevate them from the lowest deg-
464, 5 L. Ed. 662. radation of intellect to the dignity of
31 Hearns v. Waterbury Hospital, 66 intelligent, and fit them to become
Conn. 98, 31 L. B. A. 224, 33 Atl. 595. •moral and religious, beings; to open
38 American Asylum v. Phoenix their blind eyes, and unstop their deaf
Bank, 4 Conn. 172, 10 Am. Dec. 112. ears; and to accomplish this, through
Thus trustees of a school created un- the means of funds, derived from the
der provisions of a will, and confirmed gratuities of the benevolent. A pur-
by an act of incorporation held an pose so honourable and noble, and free
eleemosynary corporation for the pur- from the dross of self interest, brings
pose of education. Nelson v. Gushing, the American Asylum peculiarly with-
56 Mass. 519. in the spirit, as it is obviously within
33 American Asylum v. Phoenix the letter, of the law, which authorises
Bank, 4 Conn. 172, 10 Am. Dec. 112. a compulsory subscription of the stock
In this case the court said, "The of the Phoenix bank. The Asylum, in
American Asylum may, with the strict- no sense of the expression, is a money-
est propriety, be defined an incorpo- making institution. All its funds are
rated school for charitable purposes. necessarily applicable to the charitable
It is a school, which is a generic term, object educating the deaf and
of
denoting an institution for instruction dumb; and this is done gratuitously,
or education; and, from the nature of except so far as the power of doing is
its object, is a private incorporation. enlarged, by the sums paid for instruc-
Its objects and operations are all of tion, by the rich and able. By this
a private character; and the donations operation, the funds of the institution
of states to aid in effectuating them, are not absorbed, but augmented; the
do not, in the minutest degree, change charitable object of the Asylum is not
its nature. The institution is exclu- diminished, but promoted; and the na-
aively 'for charitable purposes;' its ture of it is not changed, but pur-
sole object being to pour instruction sued. The funds of the institution
87
§ 641, Peivate Coepoeations [Ch. 2
verslty founded for the purpose of the gratuitous distribution of

knowledge of the art of teaching and conducting common schools, and
erected at the expense of individuals, must also be regarded as an
eleemosynary corporation.^* A cemetery corporation '* and a Young
Men's Christian Association,^^ have been held not to be charitable
corporations;*'' A corporation does not become invested with the char-
acter of an eleemosynary corporation merely by performing an act
of charity, but if it undertakes an act of charity without the purposes
of its incorporation it assumes the same duties, neither more nor less,
that an individual assumes who undertakes a similar act of charity."
Corporations other than ecclesiastical -and eleemosynary, whether
public or private, are called civil corporations, and a corporation
organized, not for the purpose of a public charity, but for the benefit,
pecuniary or otherwise, of its members, is not in any sense an eleemosy-
nary or charitable corporation but is a private civil corporation, and
subject to the same principles and rules of law as other private civil
corporations. It has been so held, for example, in the case of an asso-
ciation whose articles described. its business to be "such as was usually
transacted by savings institutions," and whose by-laws provided for
receiving deposits, and for paying interest thereon at such rates as to
indicate that its purpose was the pecuniary profit of its stockholders."
§65. Public and private corporations —In general. Another

division of corporations is into public and private,*" the distinction
are not applicable to any but eleemosy- tery Ass'n, 146 Mass. 163, 15 N. E.
nary purposes, nor have they been 505.
otherwise applied. If they had, it 36 Chapin v. Holyoke Y. M. C. A.,
would have constituted a breach of 165 Mass. 280, 42 N. E. 1130.
trust, for which therea most ob-
is 87 For other cases, see State v. Me-
vious remedy. And the trustees
as Grath, 95 Mo. 193; In re St. Louis In-
are alone authorized to act for the stitute of Christian Science, 27 Mo.
promotion of the benevolent object of App. 633; West's Appeal, 64 Pa. St.
the institution; so the donors are, in 186; People v. Gunn, 96 N. T. 317;
no event, entitled to any profit, which People v. Nelson, 46 N. Y. 477, 60
might arise, from the enlargement of Barb. (N. Y.) 159, 3 Lans. (N. Y.) 394.
its funds. Be they greater or less, 88 Union Pae. Ey. Co. v. Artist, 60
they are consecrated to charity; and Fed. 365, holding also that a corpora-
this decisively marks the eleemosynary tion in administering a trust fund dis-
character of the institution." Ameri- tinct from its corporate funds, held
can Asylum v. Phoenix Bank, 4 Conn, by it on a specific trust, stands in the
172, 10 Am. Dee. 112. same position as an individual who ad-
84Board of Education v. Bakewell, ministers a trust fund for a similar
122 111. 339, 10 N. E. 378; Board of purpose.
Education, State of Illinois v. Greene- 89 Sheren v. Mendenhall, 23 Minn,
baum & Sons, 39 HI. 609. 92.
86 Donnelly v. Boston Catholic Ceme- 40 Hammond v. Clark, 136 6a. 313,
88
—
Ch.2] Classification of Cobpobatioks [§66
having reference to their powers and the purposes of their ereation."

This division was recognized by Chancellor Kent, who mentions the
fact that corporations, both private and public or municipal, were well
known to the Roman law, and they existed from the earliest period of
the Roman Republic.**
Modern statutes recognize this division of corporations as private
and public.
§ 66. —
Importance of division. The division of corporations into
public and private is of considerable importance in view of the differ-
ence in the rules of law which apply. A private corporation involves
the idea of consent of the individuals who compose it, and after incor-
poration cannot be changed or dissolved without their consent, unless
the power to do so is reserved at the time of creation, or unless it has
forfeited the right to do business or by virtue of the abuse or non-
exist
user of its powers. On the other hand, a public corporation, being an
38 L. E. A. (N. S.) 77, 71 S. E. 479; like a single individual; and if they
Ehodes V. Love, 153 N. C. 468, 69 S. B. abused their right, or assembled for
436; Lyon v. Board Com'ra Granville any other purpose than that expressed
Co., 120 N. C. 237, 26 S. B. 929. in their charter, they were deemed
Civil corporations are established for illidta, and many laws, from the time
a variety of purposes and they are of the Twelve Tables down to the times
either public or private. 2 Kent Com. of the emperors, were passed against
274. all illicit or unauthorized companies.
41 Inhabitants of Tarmouth v. In- In the age of Augustus, as we are in-
habitants of North Yarmouth, 34 Me. formed by Suetonius, certain corpora-
411, 56 Am. Dec. 666. tions had become nurseries of faction
42 2 Kent Com. 268. and disorder; and that emperor inter-
"It would appear, from a passage posed, as Julius Csesar had done before
in the Pandects, that the provisions him, and dissolved all but the ancient
on this subject were copied from the and legal corporations cuneta collegia,
laws of Solon, who permitted private prater antiquitus constituta distraxit.
companies to institute themselves at We find, also, in the younger Pliny,
pleasure, provided they did nothing a singular instance of extreme jeal-
contrary to the public law. But the ousy indulged by the Eoman govern-
Eomans were not so indulgent as the ment of these corporations. A destruc-
Greeks. They were very jealous of such tive fire inNicomedia induced Pliny
combinations of individuals, and they to recommend to the Emperor Trajan
restrained those that were not specially the institution, for that city, of a fire
authorized; and every corporation was company of one hundred and fifty men
illicit that was not ordained by a de- (colltigium fabrorwm), with an assur-
cree of the senate or of the emperor. ance that none but those of that busi-
Collegia licita, in the Eoman law, were, ness should be admitted into it, and
like our incorporated companies, so- that the privileges granted them
cieties of men united for some useful shoutd not be extended to any other
business or purpose with power to act purpose. But the emperor refused to
89
§ 66] Peivate Cohpokations [Ch. 2
instrument or means of government, is subject to creation or dissolu-

tion at the will of the legislative body or lawmaking power, and in
total disregard of the wishes of the members who compose it. In the
same manner its charter is subject to change or amendment.**
The right to establish, alter or abolish such corporations 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 auxiliaries of the government in
the great business of municipal rule, cannot have the least pretension
to sustain their privileges or th«ir existence upon anything like a
contract between them and the government, because there can be no
reciprocity of stipulation, and because their objects and duties are
incompatible with everything of the nature of such a compact.**
The difference in the application of rules of law is further mani-
fested by the fact that the property of a public corporation is not
usually taxable, while that of a private corporation is; though the
mere fact that the property of a corporation is exempt from taxation
does not necessarily determine that the corporation is either public
or quasi public in character.**
§ 67. — Public corporations proper. While, as will be seen later,

all corporations are public in the sense that they affect and are
dependent upon the public to a greater or less extent,*® strictly speak-
ing, a public corporation is one that is created for political purposes
with political powers to be exercised for purposes connected with the
public gbod in the administration of civil government. It is an instru-
ment of the government subject to the control of the legislature, and
its members are officers of the government appointed for the discharge
grant, and observed that societies of land, and the government has the sole
that sort had greatly disturbed the right, as trustee of the public interest,
peace of the cities; and he observed, to inspect, regulate, control, and direct
that whatever name he gave them, and the corporation, funds and fran-
its
for whatever purpose they might be chises. That is of the essence of a
instituted, they would not fail to be public corporation." Regents of TJni-
mischievous. " 2 Kent Com. 268. versity of Maryland v. "Williams, 9
43 See chapter on Amendment or Gill& J. (Md.) 365, 31 Am. Dec. 72.
Repeal of Charter, infra. See also In- 44McKim v. Odom, 3 Bland (Md.)
habitants of Yarmouth v. Inhabitants 407.
of North Yarmouth, 34 Me. 411, 56 Am. 45 People v. Forest Home Cemetery
Dec. 666. Co., 258 111. 36, Ann. Cas. 1914 B 277,
"Public corporations are to be gov- 101 N. E. 219.
erned according to the laws of the 46 See § 69, infra.
90
'
Ch.2] Classification of Cobpobations [§67
of public duties,*' and a corporation, all of the franchises of which

are exercised for public purposes, isa public corporation.** To con-
stitute a public corporation, it is not essential that it shall exercise
all the functions of government within a prescribed district.*®
In other words, a public corporation is a corporation created merely
for purposes of government, as distinguished from a private corpora-
47 Regents of University of Mary- foundation be private, though under
land V. (Md.)
Williams, 9 Gill & J. the charter of the government, the
365, 31 Am. Dec. 72, quoted with ap- corporation is private, however ex-
proval in Downing v. Indiana State tensive the uses may be to which it is
Board of Agriculture, 129 Ind. 443, 12 devoted, either by the bounty of the
L. E. A. (N. S.) 664, 28 N. B. 123, founder or the nature and objects of
614; State v. Carr, 111 Ind. 335, 12 the institution. For instance, a bank
N. B. 318. See also Board of Directors created by the government for its own
for Leveeing Wabash Eiver v. Hous- uses, whose stock is exclusively owned
ton, 71 111. 318; Inhabitants of Yar- by the government, is, in the strictest
mouth V. Inhabitants of North Yar- sense, a public corporation. So a hos-
mouth, 34 Me. 411, 56 Am. Dee. 666; pital created and endowed by the gov-
McKim V. Odom, 3 Bland (Md.) 407, ernment for general charity. But a
417. bank, whose stock is owned by private
"A public corporation is one that persons, is a private corporation, al-
is created for political purposes, with though it is erected by the govern-
political powers to be exercised for ment, and its objects and operations
purposes connected with the public partake of a public nature. The same
good, in the administration of civil doctrine may be affirmed of insurance,
government, an instrument of the canal, bridge, and turnpike companies.
government, subject to the control of In all these eases, the uses may, in
the Legislature and its members, of- a certain sense, be called public,
ficers of the government, for the ad- but the corporations are private; as
ministration or discharge of public much so, indeed, as if the franchises
duties. '
' Phillips v. City of Baltimore, were vested in a single person. This
110 Md. 431, 25 L. E. A. (N. S.) 711, reasoning applies in its full force to
72 Atl. 902. eleemosynary corporations. A hos-
In the celebrated ease of Dartmouth pitalfounded by a private benefactor
College V. Woodward, 4 Wheat. (XI. is, in point of law, a private corpora-
S.) 518, 4 L. Ed. 630, Justice Story, in tion, although dedicated by its charter
discussing the distinction between pub- to general
charity. So a college,
lic and private corporations, says: founded and endowed in the same man-
"Public corporations are generally ner, although, being for the promotion
esteemed such as exist for public of learning and piety, it may extend
political purposes only, such as towns, its charity to scholars from every class
cities, parishes, and counties; and in in the community, and thus acquire the
many respects they are so, although character of a public institution. '
they involve some private interests; See also Washingtonian Home of
but strictly speaking, public corpora- Chicago V. City of Chicago, 157 111.
tions are such only as are founded by 414, 29 L. E. A. 798, 41 N. E. 893.
the government for public purposes, 48 Dartmouth College v. Woodward,
where the whole interests belong also 1 N. H. 111.
to the government. If, therefore, the 49 Dean v. Davis, 51 Cal. 406.
91
'
§67] Peivate Cokpokations [Ch.2
tion, which is one that is created for other purposes than those of
government.*" But a corporation is not public merely because its
BO United States. Vincennes TJni- proved both by courts and textwriters:

veraity v. Indiana, 14 How. 268, 14 L. "Most people acquainted at all with
Ed. 416; Dartmouth College v. Wood- corporate action, understand that cor-
ward, 4 Wheat. 518, 4 L. Ed. 630; porations other than municipal, which
Bonaparte v. Camden & A. B. Co., are purely public, naturally divide in-
Baldw. 205, Fed. Gas. No. 1,617. to public and private corporations;
California.Thus, Civ. Code, § 284, that is, into those that are agencies
provides that "corporations are either of the public directly affecting it and
public or private. Public corporations those which only affect it indirectly
are formed or organized for the gov- by adding to its prosperity in devel-
ernment of a portion of the state." oping its natural resources or in im-
Dean Davis, 51 Cal. 406.
v. proving its mental or moral qualities. '
Georgia. Cleaveland v. Stewart, 3 Arrison v. Company D, North Dakota
Ga. 283. The Georgia code defines a Nat. Guard, 12 N. D. 554, 98 N. W. 83.
public corporation as "one having for Public corporations are such as are
its object the administration of a por- created for political purposes. Tins-
tion of the powers of government, dele- man V. Belvidere D. E. Co., 26 N. J.
gated to it for that purpose." Ham- L. 148, 69 Am. Deo. 565. They "are
mond 136 Ga. 313, 38 L. E. A.
V. Clark, the auxiliaries of the government in
(N. S.) 77, 71 S. E. 479. the important business of municipal
Illinois. School Trustees v. Tatman, rule." Dean v. Davis, 51 Cal. 406.
13 111. 27. And are but parts of the machinery
Iowa.Miners' Bank of Dubuque v. employed in carrying on the affairs of
United States, 1 G. Greene 553, writ of the state, subject to be changed, modi-
error dismissed, 12 How. (TJ. 8.) 1, fied or destroyed, as the exigencies of
13 L. Ed. 867. the public may demand. The state may
Kentucky. City of Louisville v. exercise a general superintendence and
University of Louisville, 15 B. Mon. control over them and their rights and
642. effects, so that theirproperty is not
Maryland. State v. Maryland In- divested from the uses and objects for
stitute for Promotion of Mechanic which it was given or purchased.
Arts, 87 Md. 643, 41 Atl. 126; Univer- School Trustees v. Tatman, 13 111. 27.
sity of Maryland v. Williams, 9 Gill It was held in a Kentucky case that
& J. 365, 31 Am. Dec. 72. a corporation is not a public corpora-
New Jersey. Tinsman
Belvidere v. tion (in regard to which the state may
D. R. Co., 26 N. J. L. 148, 69Am. Dee. legislate at pleasure) unless it be in-
565; Ten Eyck v. Delaware & E. Canal vested with political power; or be cre-
Co., 18 N. J. L. 200, 37 Am. Dee. 233. ated to be employed and partake in
Virginia. Maia'a Adm'r v. Eastern the administration of the government;
State Hospital, 97 Va. 507, 47 L. B. A. or to control funds belonging to the
577, 34 S. E. 617; Phillips v. Univer- state; or to conduct business in which
sity of Virginia, ff7 Va. 472, 47 L. B. the state alone is interested, or unless
A. 284, 34 S. E. 66; Sayre v. North- itbe the mere instrument of the state,
western Turnpike Eoad, 10 Leigh 454. created for government purposes. City
The classification made by Chief of Louisville v. University of Louis-
Justice Thompson in Foster v. Fowler, ville, 15 B. Mon. (Ky.) 642, per Mar
60 Pa. St. 27, has been uniformly ap- shall, C. J., referring to and following
92
Ch.2] Classification of Oobpoeations [§67
object is of a public character and will result in benefit to the public.^'

Another element necessary to make a corporation public is that the
whole interests must belong to the government.**
Where the control of the state appears in' the charter itself, as if
the trustees or directors consist of public ofScials, or the corporation
is created to carry out some functions of government, this may itself
indicate conclusively its public character.** And "if the property
the Dartmouth College case. See also ingtonian Home of Chicago v. City of
Board of Directors for Leveeing Wa- Chicago, 157 414, 29 L. R. A. 798,
111.
bash Eiver v. Houston, 71 111. 318. 41 N. E. 893; Wagner v. City of Rock

61 Tinsman v. Belvidere D. R. Co., Island, 146 111. 139, 21 L. E. A. 519,
26 N. J. L. 148, 69 Am. Dee. 565. 34. N. E. 545; Springer v. Walters, 139
The fact of the public having an 111. 419, 28 N. E. 761; Board Directors
interest in the works or the property for Leveeing Wabash River v. Hous-
or the object of a corporation does ton, 71 111. 318; Gage v. Graham, 57
not make it a public corporation. Ten 111. 144; Hessler v. Drainage Com'rs,
Eyck V. Delaware & E. Canal Co., 18 53 105; Harward v. St. Clair &
111.
N. J. L. 200, 37 Am. Dec. 233. Monroe Levee & Drainage Co., 51 111.
62 Dartmouth College v. Woodward, 130; Coles v. Madison County, 1 111.
4 Wheat. (U. S.) 669, 4 L. Ed. 667. And 154, 160, 12 Am. Dec. 161.
see Downing v. Indiana State Board of "Where a corporation is composed
Agriculture, 129 Ind. 443, 12 L. E. A. exclusively of officers of the govern-
664, 28 N. E. 28, 614; Ten Eyck v. ment having no personal interest in it
Delaware & E. Canal Co., 18 N. J. L. or with its concerns, and only acting
200, 37 Am. Dec. 233; Lewis v. Whittle, as the organs of the state in effleeting
77 Va. 415. a great public improvement, it is a
Public corporations are not limited public corporation." Dean v. Davis,
to those created for municipal purposes 51 Cal. 406.
only but, strictly speaking, public cor- In Dartmouth College v. Woodward,
porations are such as are founded
all 4 Wheat. (U. S.) 518, 4 L. Ed. 629, it
for public purposes, where the whole is held that public corporations are
interests belong to the government. such only as are founded by the gov-
University of Nebraska v. McConnell, ernment for public purposes, where
5 Neb. 423. the whole interests belong to the gov-
In Eundle v. Delaware & E. Canal, ernment. In this case it is held that
1 Wall. Jr. 275, Fed. Cas. No. 12,139, no authority exists in a government to
the court said, "In the popular mean- regulate, control, or change a corpora-
ing of the term nearly every corporation created by it, except when the
tion is public inasmuch as they are all corporation is, in the strict sense, a
created for the public benefit. Yet public one, and its franchises the ex-
if the whole interest does not belong to clusive property of the government it-
the government, or if the corporation self. In such a case the officers of the
is not created for the administration corporation would be public officers.
of political or municipal power, it is The corporation in this case was cre-
a private corporation." ated by a charter, in which the trus-
63 University of Illinois v. Bruner, tees were mentioned by the name of
175 111. 307, 51 N. E. 687; Spalding v. "The Trustees of Dartmouth College,"
People, 172 111. 40, 49 N. E. 993; Wash- granting to them and their successors
93
§67] Peivate Cobpokations [Ch.2
possessed by a corporation is altogether the property of the state if ;
the corporators have paid nothing amounting to a valuable considera-

tion for the act of incorporation ; in fine, if there is no contract upon
valuable consideration between the state and the corporators, it is a
'
public corporation. '
^* The courts have, with practical unanimity,
held that if the whole interest does not belong to the public, or if the
corporation is not created for the administration of political or munici-
pal powers, it is a private corporation.** The fact that some of the
stock in a corporation is held by the state does not make it a public
corporation.** But it seems that it is otherwise where all the stock is

owned by the state.*'
If a corporation is of such a character as to be a private corpora-
the usual corporate privileges and v. United States, 234 Fed.

powers, and authorizing tlie trustees, 842,was a writ of error to reverse a
who are to govern the college, to fill judgment finding defendant guilty of
lip all vacancies which may be cre- a conspiracy to defraud the United
ated in their own body, and it was States in violation of section 37 of the
held to be a private corporation. See Penal Code. The conspiracy alleged
Downing v. Indiana State Board of consisted in an agreement between
Agriculture, 129 Ind. 443, 12 L. E. A. three persons to share in the profits
664, 28 N. E. 123, 614. to be made by the sales of a certain
B4 Mobile School Com'rs v. Putnam, brand of tobacco by defendant and
44 Ala. 506; University of Alabama v. one of the others to the Panama Eail-
Winston, 5 Stew. & P. (Ala.) 17. road Company of a department of
6B Washingtonian Home of Chicago which the third alleged conspirator
v. City of Chicago, 157 111. 414, 29 L. was manager and charged with the
E. A. 798, 41 N. E. 898; Arrison v. duty of ordering and passing upon the
Company D, North Dakota Nat. Guard, tobacco and approving the vouchers
12 N. D. 554, 1 Ann. Cas. 368, 97 N. W. therefor. The evidence showed that
83. the United States had, for purposes of
66 Bank of United States v. Plant- its own, continued the original cor-
ers' Bank, 9Wheat. (U. S.) 904, 907, porate organization of the railroad
6 L. Ed. 244; Miners' Bank of Du- company and was the owner of the
buque v. United States, 1 G. Greene whole capital stock of the railroad
(Iowa) 553, 562; Bardstown & L. E. company, absolutely dominating it and
Co. v. Metcalfe, 4 Mete. (Ky.) 199, being the only one profiting or losing
81 Am. Dec. 541; Turnpike Co. v. Wal- by its operation and that the railroad
lace, 8 Watts (Pa.) 816. company sues and is sued in its own
67 Allen V. McKean, 1 Sumn. 297, name, just as any other corporation.
Fed. Cas. No. 229; State Bank of Illi- The theory on which the judgment
nois V. Brown, 1 Scam. (111.) 106; below was based was that the rail-
Miners' Bank of Dubuque v. United road company was a governmental de-
States, 1 G. Greene (Iowa) 553. Con- partment and that the department
tra, Bank of Alabama v. Gibson's manager, though on the pay roll of
Adm'rs, 6 Aia. 814; Bank of South and paid by the company, was in fact
Carolina v. Gibbs, 3 McCord (S. C.) an ofBcer of the United States. The
377. Circuit Court of Appeals refused, how-
94
Ch. 2] Classification of Corpokations [§69
tion, the fact that the legislature has in its charter declared it to be a
public corporation does not make it so.**
§ 68. —
Private corporations. A
private corporation involves the
idea of private parties and private rights.*'
Private corporations are those which are created for the immediate
benefit and advantage of and their franchises may be con-
individuals,
sidered as privileges conferred on a number of individuals, to be
exercised and enjoyed by them in the form of a corporation. These
privileges may be given to the corporators for their own benefit, or for
the benefit of other individuals. In either case the corporation must
be viewed in relation to the franchises as a trustee, and each of those
who are beneficially interested in them, as a cestui que trust. The
property of this kind of corporations and the profits arising from the
employment of their property and the exercise of their franchises, in
fact, belong to individuals.*"
§ 69. — Public character of particular classes of corporations — În

general. As the objects of corporations, to a greater or less extent,
affect the whole community and derive their existence from the consent
of the public, they in a measure partake of a public nature.*^ And all
corporations, whether' public or private, are in contemplation of law
founded upon the principle that they will promote the interest or
convenience of the public to a greater or less degree.** Also, "a cor-
ever, to accede to this view, but held 47 Mo. 220, aff'd 19 Wall. (TT. S.) 526,
that on entering into a commercial 22 L. Ed. 160.
business the TTnited States abandoned 60 Dartmouth College v. Woodward,
its sovereign capacity and was to be 1 N. H. 111. See McKim v. Odom, 3
treated like any other corporation and Bland (Md.) 407.
reversed the judgment, citing in sup- 61 Bhodes v. Love, 153 N. C. 468, 69
port of its view Bank of TTnited S. E. 436; Lyon v. Board Com'rs
States V. Planters' Bank, 9 Wheat. Granville Co., 120 N. C. 237, 26 S. E.
(U. S.) 904, 6 L. Ed. 244. 929.
The fact of the capital having been 68 Ten Eyck v. Delaware & E. Canal
furnished by the state in no way varies Co., 18 N. J. L. 200, 37 Am.
Dec. 233;
or affects the responsibilities of the Economic Power & Construction Co.
corporation to its creditors, and the v. City of Buffalo, 195 N. Y. 286, 88
rights of those creditors, as against N. E. 389.
a corporation with which they dealt, "All private corporations are more
looking to the grants in the charter or less for public use. If they were
as the security for their debts. State considered of no public utility or ad-
V. State Bank, 1 S. C. 63. vantage, it is presumed they would
Bonaparte V. Camden
B8 & A. B. Co., never be chartered. " Whiting v. She-
Baldw. 205, Fed. Cas. No. 1,617. boygan & F. R. Co., 25 Wis. 167, 3 Am.
59 Head v. University of Missouri, Bep. 30.
95
§ 69] Private Coepokations [Ch.2
poration may be private and yet the charter contain provisions of a

purely public character, introduced solely for the public good and as
a general police regulation of the state. *' And some private cor- '
'
porations are created for* public purposes and are not for the profit
of the individual members. In this class may be included foundations
for public charitable purposes, such as free hospitals, free libraries
and public educational institutions.^*
§ 70. — Cities, villages, etc. Among the corporations which are

clearly public are incorporated cities, villages and towns, commonly
called "municipal corporations,"®^ and municipal corporations have
Washingtonian Home of Chicago
63 more, 110 Md. 431, 25 L. B. A. (N. S.)
V. City of Chicago, 157 111. 414, 29 L. 711, 72 Atl. 902.
B. A. 798, 41 N. B. 893. See also '
' Public corporations, commonly
Cleaveland v. Stewart, 3 Ga. 283; called municipal corporations, are not
People V. McAdams, 82 111. 356; City associations, but subdivisions of the
of Louisville v. University of Louis- state." Goodwin v. East Hartford,
•
ville, 15 B. Mon. (Ky.) 642. 70 Conn. 18.
64 See § 72, infra. " 'Subdivisions of the state's terri-
66 United States. Dartmouth Col- tory, such as counties, townships,
lege V. Woodward, 4 Wheat. 518, 4 school districts, and the like, which
L. Ed. 630. are createdby the Legislature for pub-
Florida. -Waller v. Osban, 60 Pla. licpurposes and without regard to the
268, 52 So. 970. wishes of the inhabitants, are to be
Georgia. Hammond v. Clark, 136 included in the class known as "pub-
Ga. 313, 38 L. E. A. (N. S.) 77, 71 S. lic quasi corporations." ' They are,
E. 479. in essence, local branches of the state
Maryland. Phillips v. City of Balti- government, though clothed in a cor-
more, 110 Md. 431, 25 L. E. A. (N. S.) porate form in order that they may
711, 72 Atl. 902. the better perform the duties imposed
New Hampshire. Wooster v. Ply- upon them." Smith v. Bobersouville
mouth, 62 N. H. 193. Graded School, 141 N. C. 143, 8 Ann.
Texas. Short v. Gouger (Tex. Civ. Cas. 529, 53 S. E. 524, quoting Abbott
App.), 130 S. W. 267. on Municipal Corporations.
"Public corporations are such as In State v. Narragansett Dist., 16
are created by the government for po- E. I. 424, 3 L. E. A. 295, 16 Atl. 901, a
litical purposes, as counties, cities, constitutional provision, prohibiting
towns, and villages; they are invested the enactment of a bill creating any
with subordinate legislative powers, to corporation other than religious, chari-
be exercised for local purposes con- ta'ble, literary, military, or for fire in-
nected with the public good; and such surance, unless consideredby two suc-
powers are subject to the control of cessive legislatures,was held not to
the legislature of the state." 2 Kent include municipal corporations; and a
Com. 275. See Winspear v. Holman, somewhat analogous provision in the
37 Iowa 542. Constitution of Illinois received the
"Public corporations are synony- same construction in Owners of Land
mous with municipal or political cor- V. People, 113 111. 296, 314.
porations." Phillips V. City of Balti-
96
7
Ch.2] Classification of Cokpokations [§71

' '
been spoken of as and considered, in this connection, ' purely ' public.^^
"They are public corporations created by the legislature for political
purposes, with political powers, to be exercised for purposes connected
with the public good, in the administration of civil government. They
are instruments of government subject at all times to the control of
the legislature with respect to their duration, powers, rights and
property. It is of the essence of such a corporation that the govern-
ment has the sole right as trustee of the public interest, at its own
good will and pleasure, to inspect, regulate, control and direct the
^"^ '
corporation, its funds and franchises. '
In this connection it should be noted that the corporate character

—
of a municipal corporation is twofold in the exercise of its govern-
mental functions, as a subdivision of the government, and as a private
corporation, enjoying powers and privileges conferred for its own
benefit.®'
The discussion of the rights, duties and liabilities of municipalities
as affectedby this dual character is not, however, one that falls prop-
erly within a treatment of the law of private corporations.®'
§71. — Levee, drainage, reclamation and irrigation districts. A

levee district which is but an instrumentality of the state has' been
66 Foster v. Fowler, 60 Pa. St. 27. Kentucky. City of Louisville v.
67City of Hagerstown v. Sehner, 37 University of Louisville, 15 B. Mon.
Md. 180, 193, per Miller, J. See also 642.
Town of East Hartford v. Hartford Massachusetts. Hill v. City of Bos-
Bridge Co., 10 How. (U. S.) 534, 13 L. ton, 122 Mass. 344, 23 Am. Eep. 332.
Ed. 528; Phillips v. City of Baltimore, A town acts in the dual capacities
110 V. S. 431, 25 L. E. A. (N. S.) 711, of an imperiwm in imperio, exercising
72 Atl. 902. governmental duties, and of a private
While a business corporation has a corporation enjoying powers and priv-
board of trustees, or directors and ileges conferred for its own benefit.
other ofiScera, municipal corporations Moffitt V. City of Asheville, 103 N. C.
have no such trustees or other officers 237, 14 Am. St. Eep. 810, 9 S. E. 695.
performing corresponding functions. The distinction between an act done
Uvalde Asphalt Paving Co. v. City of by a city in a public capacity and as a
New York, 149 N. T. App. Div. 491, part of the political subdivisions of a
134 N. Y. Supp. 50. state,and for an act done for its pri-
68 Alabama. Dargan v. Mobile, 31 vate advantage, and relating to things
Ala. 469, 70 Am. Deo. 505. in which the state at large has no in-
Connecticut. See Jewett v. New terest, is clearlydefined and is well
Haven, 38 Conn. 368, 9 Am. Eep. 382. recognized. LaClef v. City of Con-
Illinois. Johnston v. City of Chi- cordia, 41 Kan. 323, 13 Am. St. Eep.
cago, 258 HI. 494, 45 L. E. A. (N. S.) 285, 21 Pac. 272.
1167, Ann. Cas.1914 B 339, 101 N. 69 See McQuillin on Municipal Cor-
E. 960; Doane v. Chicago City Ey. Co., porations.
51 111. App. 353, aff'd 160 HI. 22.
97
I Priv. Corp. —
.
§ 71] Peivate Coepobations [Ch. 2
held to be a public corporation,''*' but it is otherwise where a corpora-

tion is created to advance the private interests of the corporators,
though the general public is benefited.'^
In a like manner the character of a sanitary or drainage district as
a public or private corporation is dependent upon the nature and
extent of the powers conferred. If the district is merely a part of the
machinery for carrying on the purposes of the state and its powers are
limited to those given for public or political purposes and are exercised
under the control of the state, the district is a public corporation.''*
But if the district's powers do not operate upon the general public
and are confined in their exercise to a restricted locality, it is a private
corporation,''^ even though the attainment of the purposes which it is
authorized to effect will result in a public benefit.''* Such private
corporations are often invested with the power of taxation.''^
Reclamation districts have been repeatedly held to be public cor-
''^
porations or of a quasi public character.'''' Irrigation districts are
also held to be public corporations, though not strictly municipal in
the sense of exercising governmental functions.'"
§ 72. — Educational and charitable institutions. Educational in-

stitutions, such as academies and universities, are public if they are
exclusively owned and controlled by the state '" and in some cases
70 Dean V. Davis, 51 Cal. 406. L. E. A. 755, 27 Am. St. Eep. 106, 28

71 Board of Directors for Leveeing Pao. 272, 675; Indian Cove Irrigation
Wabash Eiver v. Houston, 71 111. 318. Dist. v. Prideaux, 25 Idaho 112, Ann.
People V. Bowman, 247 111. 276, 93
72 Cas. 1916 A 1218, 136 Pao. 618; Pioneer
N. E. 244. Irrigation Dist. v. Walker, 20 Idaho
73 Hessler v. Drainage Com'rs, 53 111. 605, 119 Pac. 304.
105. An irrigation company is not so
74 Harward v. St. Clair & Monroe plainly of a quasi public character as
Levee & Drainage Co., 51 111. 130. a railroad company since it may be
75 Hessler v. Drainage Com'rs, 53 111. engaged in business either wholly pri-
105. vate or of a partly public character.
76 People V. Williams, 56 Cal. 647; Borden v. Trespalaeios Rice & Irriga-
People v. Reclamation Dist. No. 108, tion Co., 98 Tex. 494, 107 Am. St. Rep.
53 Cal. 346; Dean v. Davis, 51 CaL 640, 86 S. W. 11.
406,409. Compare, however, Harward 79 Alabama. Mobile School Com'rs
V. St. Clair & Monroe Levee & Dfain- v. Putnam, 44 Ala. 506; University of
age Co., 51 HI. 130. Alabama v. Winston, 5 Stew. & P. 17.
77 Reclamation Dist. No. 542 v. Florida. State v. Knowles, 16 Pla.
Turner, 104 Cal. 334, 37 Pac. 1038. 577.
78 Fallbrook Irrigation Dist. v. Brad- Georgia. Trustees of Academy of
ley, 164 U. S. 112, 41 L. Ed. 369; In re Richmond Co. v. City Council of Au-
Madera Irrigation Dist., 92 Cal. 296, 14 gusta, 90 Ga. 634, 20 L. R. A. 151, 17
98
such corporations are provided for by constitutional provisions."

But the fact that a corporation is established for educational or chari-
table purposes does not of itselfmake it a public corporation.'*
Appropriations or donations by the state of money or land for the
benefit of certain educational institutions, such as state universities,
do not render the institutions public corporations, even though the
state in making the appropriations or donations imposes conditions
for the benefit of the public, or reserves some power of control over
the conduct of their affairs.'^
S. E. 20; Board of Education Glynn cational Fund's Adm'rs v. Board of
Co. V. City of Brunswick, 72 Ga. 353; Assessors, 38 La. Ann. 292.
Dart Houston, 22 Ga. 506.
V. 80 The Board of Regents of the Uni-
Missouri.Harris v. Williams B. versity of Michigan is a constitutional
Compton Bond & Mortgage Co., 244 Mo. body and is the only corporation pro-
664, 149 S. W. 603; Head v. University vided for in the Constitution whose
of Missouri, 47 Mo. 220, aff'd 19 Wall. powers are defined therein. Sterling
(U. S.) 526, 22 L. Ed. 160. v. University of Michigan, 110 Mich.
Nebraska. University of Nebraska 369, 34 L. R. A. 150, 68 N. W. 253. See
V. MeConnell, 5 Neb. 423. also Weinberg v. University of Michi-
Virginia. Phillips v. University of gan, 97 Mich. 246, 56 N. W. 605.
Virginia, 97 Va. 472, 47 L. E. A. 577, 81 Dartmouth College v. Woodward,
34 S. E. 66; Lewis v. Whittle, 77 Va. 4 Wheat. (U. S.) 518, 4 L. Ed. 629,
415. rev 'g 1 N. H. 111. In this case Justice
Wisconsin. Curtis v. Whipple, 24 Story says that a "charity * • •
Wis. 350. may * * * be public, although it
Trustees of schools are public cor- may be administered by private trus-
porations. School Trustees v. Tatman, tees; and, for the same reason, it may
13 111. 27; Bush v. Shipman, 5 111. 186; thus be public, though administered
Bradley v. Case, 4 111. 585. See Heller by a private corporation. The fact,
v. Stremmel, 52 Mo. 309. then, that the charity is public, affords
The University of Illinois has been no proof that the corporation is also
held a public corporation because it public; and, consequently, the argu-
was largely endowed by funds from ment, so far as it is built on this foun-
the state, and the act of its organiza- dation, falls to the ground. If, indeed,
tion places its control in the state, the the argument were correct, it would
governor being required to appoint its follow that almost every hospital and
trustees subject to confirmation by the college would be a public corporation;
senate. Spalding v. People, 172 111. a doctrine utterly irreconcilable with
40, 49 N. E. 993; Thomas v. Illinois the whole current of decisions since
Industrial University, 71 111. 310. the time of Lord Coke." See Wash-
Corporation having charge of Uni- ingtonian Home of Chicago v. City of
versity of Michigan, since organiza- Chicago, 157 111. 414, 29 L. R. A. 798,
tion of Board of Regents under Law 41 N. E. 893; McLeod v. Central Nor-
of 1837 is a public corporation. Uni- mal School Ass'n, 152 Pa. St. 575, 25
versity of Michigan v. Board of Edu- Atl. 1109; Curtis v. Whipple, 24 Wis.
cation of Detroit, 4 Mich. 213. 350.
University of Louisiana is a public 82 United States. Vincennes Uni-
educational institution. Tulane Edu- versity V. Indiana, 14 How. 268, 14 Ij-
99
§72] Private Cobpoeations [Ch.2
The same principle applies to other institutions created by private

persons for general charitable purposes, such as hospitals or asylums
for the insane and weak minded, schools for the blind, deaf and dumb,
sick or poor, historical societies, or institutions for the care, cure and
reclamation of inebriates. In a certain sense these are public institu-
tions,but the fact that they are founded and endowed for the benefit
of the public do not make them public corporations for, "strictly
speaking, public corporations are such only as are founded by the
government for public purposes, where the whole interests belong also
'
to the government. *' Thus a hospital which acts exclusively as an
'
Ed. 416; Allen v. MoKean, 1 Sumn. 276, so, notwithstanding its funds had been
Fed. Caa. No. 229. generally derived from the bounty of
Georgia. Cleaveland v. Stewart, 3 the government. ' ' Cleaveland v. Stew-
Ga. 283. art, 3 Ga. 283.
Illinois. Board of Education v. Thus an institute incorporated for
Bakewell, 122 111. 339, 10 N. E. 378; the promotion of the mechanic arts,
Board of Education, State of Illinois holding its property in its own right,
V. Greenebaum & Sons, 39 111. 609. and managing its business according
Indiana. State v. Carr, 111 Ind. 335, to its discretion, within the limitations
18 N. E. 318. See State v. White, 82 of its charter, free from control by the
Ind. 278, 42 Am. Rep. 496. state, has been held a mere private
Kentucky. City of Louisville v. Uni- corporation, notwithstanding an act of
versity of Louisville, 15 B. Mon. 642. the legislature renewing its charter
Maryland. University of Maryland granted it an annual appropriation.
v. Williams, 9 Gill. & J. 365, 31 Am. State V. Maryland Institute for Pro-
Dec, 72. motion of Mechanic Arts, 87 Md. 643,
'
' An incorporated academy, founded 41 Atl. 126.
on private funds, is, like a college, a 83 Society for Propagation of Gospel
private corporation. It is no denial V. New Haven,
8 Wheat. (U. S.) 464,
of this position, that they are entitled, 5 L. Ed. 662; Dartmouth College v.
under certain conditions, to share in Woodward, 4 Wheat. (U. S.) 518, 4
the academic fund. This bounty the L. Ed. 630; Harris v. Williams E.
academy can receive or not. It is the Compton Bond & Mortgage Co., 244
beneficiary of the state, but that gives Mo. 664, 149 S. W.-603. See also Allen
the state no rights over it; it may V. McKean, 1 Sumn. 297, Fed. Cas. No.
withdraw its bounty, but it has no 229; State v. Adams, 44 Mo. 570.
visitorial powers over it. This princi- A non-stock institution which may,
ple was settled in the case of Allen v. under certain conditions be used by
McKean, reported in 1 Sum. C. C. E. the city or county for the commitment
276. That case made the question of females convicted of crimes or mis-
whether Bowdoin College was or not a denleanors and which is made subject
public incorporation; it was argued to the visitation and inspection of
that it was, because its funds had been state, city and county officers and from
generally derived from the bounty of which no one derives any pecuniary
the government. Mr. Story, in a profit, has been held to be so far a pub-
learned opinion, decided that it was a liccorporation as to permit of its re-
private corporation; and that it was ceiving appropriations of public funds.
100
'
Ch. 2] Classification of Coeporations
agency of the state and under the exclusive control and ownership
is
of the state is But hospitals founded and

a public corporation.**
endowed by private enterprise and liberality are private corpora-
tions.'^
§ 73. Quasi public corporations. There is another group com-

posed of corporations which, when tested by the definitions hereto-
fore given, fall within the class of private corporations, but which,
nevertheless, by reason of the nature and extent of their operation
and effect upon the welfare of the public at large, have been styled
quasi public corporations.'^ Comprised in this group, in fact, form-
ing its principal components, are those corporations which under
more recent terminology are called public service corporations or
public utilities.*''
Quasi public corporations have been defined as private corporations

which have accepted from the state the grant of a franchise or
contract involving the performance of public duties." A quasi public
or public service corporation has been defined also as one private
in its ownership but having an appropriate franchise from the state
to provide for a necessity or convenience of the general public inca-
pable of being furnished through the ordinary channels of private
City of Indianapolis v. Indianapolis vided for its management. Washing-

Home for Friendless Women, 50 Ind. tonian Home of Chicago v. City of
215. Chicago, 157 111. 414, 29 L. E. A. 798.
Indiana Historical Society, created ^^ N- ^- ^^3.
86 In MeCarter v. Firemen 's Ins. Co,,
by special act, is a private corpora-
tion. Bullock v. Billheimer, 175 Ind. 74 N. J. Eq. 372, 29 L. E. A. (N. S.)
428 94 N. ^. 763. 11^4, 135 Am. St. Eep. 708, 18 Ann.
^^^- Ô**' ^^ ^^^- Ô- Garrison, J.,
84Maia's Adm'r v. Eastern State
*^^* .'^^^ expression 'corporation
Hospital, 97 Va. 507, 47 L. E. A. 577, ^^J^
affected with a public interest ' is to be
34 S. E. 617.
preferred to the term 'quasi public
85 See Cleaveland v. Stewart, 3 Ga. Corporation' as tending, in some meas-
283 ure at least, to characterize the class of
In a leading ease on this subject it corporations indicated, whereas the
was held that an institution whose ob- term '
quasi public ' is characterized
ject was the care, cure and reclamation only by its unmeaning vagueness. '
of inebriates, was a private corpora- 87 See chapter on Public Utility
tion, and thus could not receive dona- Eegulationa, infra,

tions from the city of Chicago after 88 City of Danville v. Danville Water
the adoption of the Constitution of Co., 180 111. 235, 54N. E. 224; People
1870, because under its charter the in- v. Suburban E. Co., 178 111. 594, 49 L. E.
stitutionmight have required payment A. 650, 53 N. E. 349 Eogers Park
;
from its it had never

patients (though Water Co. v. Fergus, 178 111. 571, 53
done so), and no state control was pro- N. E. 363.
101
§73] Pbivate Cobpoeations [Ch. 2
competitive business and dependent for its exercise upon eminent

domain or some agency of government."
To bring a corporation into the quasi public class it is not neces-
sary that its charter should have originally contained a grant of
powers of a nature such as to impose this character upon the cor-
poration, but the nature of the business conducted may become there-
after so affected with a public interest that the corporation thus
becomes quasi public."*
While quasi public corporations are frequently given the power of
eminent domain, the delegation of this power does not of itself make
the recipient a public corporation, as, where the public interest is
involved, the state may delegate the power to private corporations.'^
89 Attorney General v. Haverhill Gas posed that such public interest might
Light Co., 215 Mass. 394, Ann. Cas. be the better safeguarded. * * * This
1914 C 1266, 101 N. E. 1061. is the principle that was recognized
90 Munn V. Illinois, 94 TT. S. 113, 24 and applied in Munn v. Illinois (94 U.
L. Ed. 77; Inter-Ocean Pub. Co. v. As- S. 113), and if it be sound as applied
sociated Press, 184 111. 438, 48 L. R. A. to individuals, it must a fortiori be
Am. St. Eep. 184, 56 N. B. 822;
568, 75 ôund as regards corporations. To the
New York & Chicago Grain & Stock eye of the law and in the interest of
Exchange v. Board of Trade of City of the public it is one and the same thing
Chicago, 127
111. 153, 2 L. E. A. 411, 11 whether a corporation be created to
Am. Eep. 107, 19 N. E. 855; Chicago
St. subserve a public interest, or whether
Open Board of Trade v. French, 61 such corporation achieve success of
111.App. 349. such a nature that the duty of regard-
"Eailways, ferries, inns, ware- ing the interests of the public is thrust
houses, or what not have in their day upon it. Aptly the words of the great
had this same origin and history. When dramatist may be paraphrased, viz.,
the first waterman held out to his that some corporations are born to
neighbors a means of ferriage other serve the public, some achieve that end,
than in their separate boats, and when and some have it thrust upon them;
the first teamster undertook to carry and (as in the state of man) the last
families and their produce to the mar- two conditions are so correlated that,
ket town, the foundation of the mod- when the interest of the public has
ern law of common carriage was laid, been woven into a business as a sine
and, as success attended these under- qua non of the success thus
its success,
takings by their successful appeal to achieved thrusts upon such business a
the public, a public interest in them co-ordinate duty that clothes it, to that
arose which in time was recognized and extent, with a public interest." Mc-
acted upon by Legislatures and by Carter v. Firemen's Ins. Co., 74 N. J.
courts alike, the power of eminent Eq. 372, 29 L. R. A. (N. S.) 1194, 135
domain and privileges being
other Am. St. Rep. 708, 18 Ann. Cas. 1048,
granted in order that such public in- 73 Atl. 80.
terest might be the better served; the 91 United States. Thomson v. Union
duty of serving all alike, and of re- Pac. R. Co., 9 Wall. 579, 19 L. Ed. 792;
fraining from excessive charges by Rundle v. Delaware & R. Canal Co., 1
combination or otherwise, being im- Wall. Jr. 275, Fed. Cas. No. 12,139.
102
Ch. 2] Classification op Cobporations [§73
Such corporations, particularly drainage districts and the like, are also
often intrusted with the power of taxation, being empowered to levy
special assessments to defray the cost of the improvement contem-
plated. As agencies of the government they are public corporations,
but frequently the company is merely a quasi public corporation
with delegated powers. Corporations of this kind are not public in
such a sense as to render their property exempt from taxation. ^'^
A prominent type of quasi public corporations are those engaged
in the common carriage of passengers and goods.^' But a corporate
California. Miners' Diteh Co. v. ville Suburban & N. E. Co. v. Evans-

Zellerbach, 37 Cal. 543, 99 Am. Dee. ville & E. Elee. R. Co., 50 Ind. App.
300. 502, 98 N. E. 649; Lake Shore & M. S.
Illinois. Board of Directors for E. Co. V. Chicago, L. S. & S. B. E. Co.,
Leveeing Wabash River v. Houston, 71 48 Ind. App. 584, 95 N. E. 596, 92 N.
111. 318. B. 989.
Maryland. Brady v. State, 26 Md. Kansas. Atchison, T. & S. F. E. Co.
290. V. Spaulding, 69 Kan. 4S1, 66 L. E. A.
New Jersey. Tinsman v. Belvidere 587, 105 Am.
Eep. 175, 2 Ann. Cas.
St.
D. E. Co., 26 N. J. L. 148, 69 Am. Dee. 546, 77 Pac. 106; St. Joseph & D. C.
565; v. Delaware & E. Canal
Ten Eyek E. Co. V. Eyan, 11 Kan. 602, 15 Am.
N. J. L. 200, 37 Am. Dec. 233.
Co., 18 Eep. 357.
New York. Economic Power & Kentucky. Louisville & N. E. Co. v.
Construction Co. v. City of Buffalo, Central Stock Yards Co., 133 Ky. 148,
195 N. Y. 286, 88 N. E. 389. 97 S. W. 778.
92 See cases cited, notes infra, this Maine. Eailroad Com 'rs v. Portland
section. See Com. v. Lowell Gas Light & O. Cent. E. Co., 63 Me. 269, 18 Am.
Co., 12 Allen (Mass.) 75. Eep. 208.
93 United States. United States v. Maryland. McKim v. Odom, 3
Trans-Missouri Freight Ass'n, 166 TJ. Bland 407, 418.
S. 290, 291, 41 L. Ed. 1007; Thomson Massachusetts. Evans v. Boston
v. Union Pae. Ey. Co., 9 Wall. 579, Heating Co., 157 Mass. 37, 31 N. E.
19 L. Ed. 792; Chicago, M. & St. 698.
P. Ey. Co. V. Wabash, St. L. & P. Ey. Missouri. Paeifie E. E. Co. v. See-
Co., 61 Fed. 993 ;Bonaparte v. Camden ley, 45 Mo. 212, 100 Am. Dee. 369.
& A. E. Co., Baldw. 205, Fed. Cas. No. New Messenger v. Pennsyl-
Jersey.
1,617. vania R. Co., 37 N. J. L. 531, 18 Am.
California. Southern California B. Rep. 754. See Tinsman v. Belvidere
Co. v. Workman, 146 Cal. 80, 2 Ann. D. E. Co., 26 N. J. L. 148, 69 Am. Dec.
Cas. 583, 82 Pac. 79, 79 Pac. 586. 565.
Colorado. Pueblo & A. V. E. Co. v. North Carolina. Phelps v. Windsor
Taylor, 6 Colo. 1, 45 Am. Eep. 512. Steamboat Co., 131 N. C. 12, 42 S. E.
Illinois. St. Louis, J. & 0. E. Co. v. 335.
Mathers, 71 111. 592, 22 Am. Rep. 122; Oklahoma. McGufflu v. Coyle &
Doane v. Chicago City E. Co., 51 111. Guss, 16 Okla. 648, 6 L. E. A. (N. S.)
App. 353, aff'd 160 111. 22. 524, 86 Pae. 962; Piper v. Choctaw
Indiana. Tippecanoe Co. v. Lafay- Northern Townsite & Improvement Co.,
ette, M. & B. E. Co., 50 Ind. 85; Evans- 16 Okla. 436, 85 Pac. 965; Enid Eight
103
'
§73] Pkivate Coepoeations [Ch.2
lessor of a steamboat which has received no special privileges or
of Way & Townsite Co. v. Lile, 15 leges from the public, depends upon the
Okla. 328, 82 Pac. 810. public for its income, and invites the
Oregon. Holliday v. Patterson, 5 public to ride upon its cars. Cameron
Ore. 177. v. Lewiston, B. & B. St. E. Co., 103 Me.
Pennsylvama. Pierce v. Com., 104 482, 18 L. E. A. (N. S.) 497, 125 Am.
Pa. St. 150; Foster v. Fowler, 60 Pa. St. Eep. 315, 70 Atl. 534.
St. 27.
"Eailroad companies are private
South Carolina. Mays v. Seaboard corporations, but not in the strict sense
Air Line Ey., 75 S. C. 455, 56 S. E. 30. of the ordinary business corporation,
Washington. Kakeldy v. Columbia because they are charged with duties
& P. S. B. Co., 37 Wash. 675, 80 Pac.
of a public nature which distinguish
205.
them from the purely and strictly pri-
Wisconsin. Whiting v. Sheboygan & vate corporation; but in many respects
P. E. Co., 25 Wis. 167, 3 Am. Eep. 30.
they are private corporations in all
"Eailroad companies are incorpo- that the term implies. They cannot be
rated by authority of law not for the
treated as public corporations, such as
promotion of mere private ends, but cities, counties, townships, and other
in view of the -public good they sub-
like governmental subdivisions. Their
serve. It is the circumstance of pub-
foundation is private. They are or-
lic use which justifies the exercise on ganized for gain, and their strictly
their behalf of the right of eminent do-
private rights are as much beyond leg-
main in the taking of private property
islative control as are the rights of the
for the purpose of their construction.
purely private corporation." Man-
They have come be almost a public
to
nington v. Hocking Valley Ey. Co., 183
necessity, the general welfare being
Fed. 133.
largely dependent upon these modes of
inter-communication, and the manner
On the other hand, has been said
it
to be " a misnomer even the

to attach
of carrying on their operations."
name quasi public corporation to a
'
'
Marsh v. Fairbury, P. & N. W. Ey.
railroad company, for it has none of
Co., 64 111. Am. Eep. 564.
414, 16
the features of such corporations, if
"A railway company is a private
corporation, yet it is designed to pro-
we except its qualified right of eminent
domain, and this it has because of the
mote the general public good as well as
right reserved to the public to .use
advance private speculation. * * »
The interest, therefore, which the pub-
its way for travel and transportation.
lic may have in a corporation, unless

Its officers are not public officers, and
its business transactions are as private
it has all the interest, does not neces-
as those of a banking house. Its road
sarily make
a public incorporation. '
it
Board of Directors for Leveeing Wa-

may be called a quasi public highway,
but the company itself is a private
bash Eiver v. Houston, 71 111. 318.
corporation and nothing more." Pierce
Eailroads, whether built, owned and
V. Com., 104 Pa. St. 150.
conducted by the state or private cor-
porations, and whether exacting tolls, Where a railroad company seeks an
or free, are public highways. Eailroad easement to pass over land, it does not
Com'rs V. Portland & O. C. E. Co., 63 seek a right of passage to the public,
Me. 269, 18 Am. Eep. 208. for, while the public may ride in the
A street railway company is a public railroad cars, the company is not the
corporation since it receives its privi- public, but a private, corporation.
104
Ch.2] Classification of Corpoeations [§73
benefits of great value from the state is not a quasi public corpora-
tion.8*
The rule that the fact that the public is interested in the objects
of a corporation does not determine its character as a public or
private corporation applies to canal companies,*^ and they are usu-
ally private corporations.^®
The fact that the state is a shareholder in the capital stock of such
a company does not impart to the company any of the sovereignty
of the state.®''
In general turnpike companies are private corporations,®* although

the use in a certain sense may be called public,^ and these corpora-
tions are created and exist for a work essentially of a public char-
acter.^ "Where a road is built by the state exclusively, and the
corporation is created for the purpose of maintaining and managing
Presbyterian Society v. Auburn & B. "If the legislature should incorpo-
E. Co., 3 Hill (N. y.) 567. rate a number of individuals, for the
94 Phelps V. Windsor Steamboat Co., purpose of making a canal, and should
131 N. C. 12, 42 S. E. 335. reserve all the profits arising from it to
95 A canal company is a private com- the state, though all the funds might
pany, yet the public have an interest be given to the corporation by indi-
in the use of their works, subject to viduals, it would in fact be a public
such tolls and restrictions as the char- corporation. So if the state should
ter has imposed. Ten Eyck v. Dela- purchase all the shares in one of our
ware & E. Canal Co., 18 N. J. L. 200, banking. companies, it would immedi-
37 Am. Dec. 233. ately become a public corporation. Be-
96 Bundle v. Delaware & B. Canal cause in both cases all the property
Co., 1 Wall. Jr. 275, Fed. Cas. No. and franchises of the corporations
12,139; Hooker v. New Haven & North- would in fact be public property."
ampton Co., 15 Conn. 312; Ten Eyck v. Dartmouth College v. Woodward, 1 N.
Delaware & E. Canal Co., 18 N. J. L. H. 111.
200, 37 Am. Dee. 233; Economic Power 98Tinsman v. Belvidere D. E. Co.,
& Construction Co. v. City of Buffalo, 26 N. J. L. 148, 69 Am. Dee. 565; Eco-
195 N. Y. 286, 88 N. E. 389. See Uni- nomic Power & Construction Co. v.
versity of Maryland v. Williams, 9 City of Buffalo, 195 N. T. 286, 88 N.
Gill & J. (Md.) 365, 31 Am. Dec. 72; E. 389.
Arrison v. Company D, North Dakota 1 Tinsman
Belvidere D. E. Co., 26
v.
Nat. Guard, 12 N. D. 554, 1 Ann. Cas. N. J. L. Am. Dee. 565; Ten
148, 69
368, 97 N. W. 83; Foster v. Fowler, 60 Eyck V. Delaware & E. Canal Co., 18
Pa. St. 27. N. J. L. 200, 37 Am. Dee. 233; Eco-
The Chesapeake and Ohio Canal Com- nomic Power & Construction Co. v.
pany, a corporation created for the City of Buffalo, 195 N. Y. 286, 88 N.
promotion of public interests, is a pri- E. 389; Foster v. Fowler, 60 Pa. St.
vate corporation. Brady v. State, 26 27. See Huntington Turnpike Co. v.
Md. 290. Wallace, 8 Watts (Pa.) 316.
97 v. State, 26 Md. 290; Tins-
Brady 2 Tinsman v. Belvidere D. E. Co., 26
man Belvidere D. E. Co., 26 N. J. L.
V. N. J. L. 148, 69 Am. Dec. 565.
148, 69 Am. Dec. 565.
105
§73] Private Coepokations [Ch.2
it, and is composed of public officers only, a turnpike corporation is a

public corporation,' but it is otherwise if the state merely holds
some of the stock in a turnpike corporation*
A beink is usually a private corporation, although it is designed
for the public benefit,*and its objects, uses and operations partake
of a public nature.^ The mere fact that a bank is used by the state
as a depository for public funds, or because the state owns part of
the capital stock, does not render it a public corporation,'' although
it seems otherwise if the bank is exclusively owned and controlled
by the state.'
3 Sayre v. Northwestern Turnpike 6 L. Ed. 244; Miners ' Bank of Dubuque

Boad, 10 Leigh (Va.) 454. V. United States, 1 G. Greene (Iowa)
4 Huntington Turnpike Co. v. Wal- 553, writ of error dismissed, 12 How.
lace, 8 Watts (Pa.) 316. (U. S.) 1, 13 L. Ed. 867. See Bank of
BPiqua Branch State Bank of Ohio Alabama v. Gibson's Adm'rs, 6 Ala.
V. Knoop, 57 U. S. 369, 14 L. Ed. 977; 814.
Ten Eyek v. Delaware & R. Canal Co., So when a state invests its funds,
18 N. J. L. 200, 37 Am. Dee. 233. either alone or with others, in a bank-
6 State V. New Orleans Gas Light & ing or other company, it does not carry
Banking Co., 2 Bob. (La.) 529. into it any of the elements of its sov-
Where the stock of a bank is owned ereign powers, but occupies the bare
by individuals, it is a private cor- position of any other stockholder.
poration in which the public has no in- Bank of Commonwealth of Kentucky
terest or control except to exercise a V. Wister, 2 Pet. (U. S.) 318, 7 L. Ed.
supervisory power and to annul its 437; Bank of United States v. Plant-
charter when the franchises granted ers' Bank of Georgia,
9 Wheat. (U. S.)
are misused or abused. Miners' Bank 904, 907, 6 L. Ed. 244. And see State
of Dubuque v. United States, 1 G. v. State Bank, 1 S. C. 63.
Greene (Iowa) 553, writ of error dis- 8 State Bank of Illinois v. Brown, 2
missed, 12 How. (U. S.) 1, 13 L. Ed. HI. 106; Miners' Bank of Dubuque v.
867. United States, 1 G. Greene (Iowa) 553,
Incorporation gives to many insti- writ of error dismissed, 12 How. (U.
tutions such as banks a certain public S.) 1, 13 L. Ed. 867.
character; the public are interested in Mr. Justice Story, in his learned and
them, and they subserve valuable pub- able remarks in the Dartmouth Cc^llege
lic purposes; but they are not legally case (Dartmouth College v. Woodward,
public incorporations. Cleaveland v. 4 Wheat. (U. S.) 518, 4 L. Ed. 629),
Stewart, 3 Ga. 283. says: "A bank created by the govern-
"Banks and discount, as
of deposit ment for its own uses, whose ptock is
well as those that issue circulation, and exclusively owned by the government,
also savings banks, are quasi public in- is, in the strictest sense, a public cor-
stitutions." Campbell v. Watson, 62 poration. But a bank, whose stock is
N. Eq. 396, 50 Atl. 120.
J. owned by private persons, is a private
7Piqua Branch Ohio State Bank v. corporation, although it is erected by
Knoop, 16 How. (U. S.) 369, 14 L. Ed. the government, and its objects and
977; Bank of United States v. Plant- operations partake of a public nature.
ers' Bank, 9 Wheat. (U. S.) 904, 907, The same doctrine, '
' he says, '
' may be
106
Ch.2] Classification of Cokpobations [§73
A corporation organized to do a general storage and elevator

business, and authorized to issue warehouse receipts, advance money
thereon, and to hold and convey real and personal property neces-
sary for its purposes, is not a public corporation.^
Corporations which furnish telegraph or telephone service to the

public also fall within the category of quasi public corporations.^"
The class of quasi public corporations also includes companies
engaged in supplying water,^^ heat,^^ gas ^^ and light. ^* A fire
affirmed of insurance, canal, 'bridge poration of waterworks companies, and

and turnpike companies." There can which furnishes water to a village for
be no doubt that these definitions are a consideration, is not in any sense an
sound, and are sustained by the settled agent or instrument of the municipal
principles of law. See Piqua Branch corporation. People v. Forrest, 97 N.
State Bank of Ohio v. Knoop, 57 XJ. S. Y. 97.
369, 14 L. Ed. 977; Tinsman v. Belvi- 12 State V. Marion Light & Heating
dere D. R. Co., 26 N. J. L. 148, 69 Am. Co.,174 Ind. 622, 92 N. E. 731; Evans
Dec. 565. Contra, Bank of South Caro- v. Boston Heating Co., 157 Mass. 37,
lina V. Gibbs, 3 McCord (S. C.) 377. 31 N. E. 698.
And see State v. State Bank, 1 S. C. 13 United States. Quinby v. Com-
63. Bumers' Gas Trust Co., 140 Fed. 362.
9 Girard Point Storage Co. v. South- Connecticut. MeCune v. Norwich
wark Foundry Co., 105 Pa. St. 248.
City Gas Co., 30 Conn. 521, 79 Am. Dec.
10 See chapter on Public Utility
278.
Regulations, infra. See also Cumber-
land Telephone & Telegraph Co.
Louisiana. State v. New Orleans
Gas Light & Banking Co., 2 Rob. 529.
V City of Evansville, 127 Fed. 187;
Massachusetts. Attorney General v.
Swayze v. City of Monroe, 116 La. 643,
Haverhill Gas Light Co., 215 Mass. 394,
40 So. 926.
Ann. Cas. 1914 C 1266, 101 N. E. 1061;
11 United States. Quinby v. Con-
Weld V. Board of Gas & Electric Light
sumers ' Gas Trust Co., 140 Fed. 362;
Com'rs, 197 Mass. 556, 84 N. E. 101;
Wiemer Water Co., 130
v. Louisville
Opinion of Justices, 150 Mass. 592,
Fed. 251; New
Albany Waterworks v.
8 L. B. A. 487, 24 N. E. 1084; Com. v.
Louisville Banking Co., 122 Fed. 776.
Lowell Gas Light Co., 12 Allen 75.
California. Miners ' Ditch Co. v. Zel-
lerbach, 37 Cal. 543, 99 Am. Dee. 300.
New York. New York Cent. & H.
Biver B. Co. v. Metropolitan Gas Light
Florida. City of Tampa v. Tampa
Co., 63 N. Y. 326.
Water Works Co., 45 Fla. 600, 34 So.
631.
14 Weld V. Board of Gas & Electric
Maine. Bobbins v. Bangor B. & Light Com'rs, 197 Mass. 556, 84 N. E.
Blee. Co., 100 Me. 496, 1 L. E. A. (N. 101.
S.) 963, 62 Atl. 136. A gas light company is not a quasi

New York. Economic Power & Con- public corporation like railroad and
struction Co. V. City of Buffalo, 195 other like corporations so as to be ex-
N. Y. 286, 88 N. E. 389. empt from taxation, there being no
Pennsylvania. Foster v. Fowler, 60 public duty imposed upon them, and
Pa. St. 27. they not being chargeable with any
A corporation which is organized un- public trust. Com. v. Lowell Gas Light
der statutes providing for the incor- Co., 12 Allen (Mass.) 75.
107
§73] PeIVATB CORPOEATIONS [Ch. 2
engine company has been held to be a public or quasi municipal

corporation.^* So a corporation organized for the protection of the
property of fellow citizens from fire is not for the private gain and
members but for the public benefit,^® and a fire engine
profit of its
company, the charter of which made all persons not minors, who
should hold freehold titles to buildings within certain limits, mem-
bers of the company, and gave it the power of levying taxes within
such limits, has been held to be a quasi municipal corporation.^''
In a Massachusetts case, a corporation was created by a statute
which limited its membership to officers and agents of fire insurance
companies in the city of Boston. Power was given the corporation
to maintain a corps of men and suitable apparatus for discovering
and preventing fires and saving life and property, and its employees
were given the right to enter buildings and assist at fires, and certain
rights in the streets, subordinate to those of the fire department.
The expenses of the corporation were paid by assessments on all fire
insurance agencies or organizations doing business in Boston, each
of which was required, subject to a penalty for failure to do so, to
make a report of the aggregate amount of premiums received by it.
The corporation had no capital stock and had no income except
from the assessments. No distinction was made at fires in protecting
insured property and property not insured. It was held that the
corporation was not a charitable corporation, but a private civil
corporation.^*
Incorporated school districts are also held to be quasi public
corporations.^®
The extent of the capacity of such districts as corporations is
A private manufaeturing corporation pal corporation. Cole v. Fire-Engine

which furnishes gas to individuals and Co., 12 E. I. 202.
for the lighting of public streets, on 16 Fire Ins. Patrol v. Boyd, 120 Pa.
such terms as are agreed upon, is not St. 624, 1 L. E. A. 417, 15 Atl. 553;
from that fact a public corporation. Bethlehem v. Perseverance Fire Co., 81
New York Cent. & H. Eiver E. Co. v. Pa. St. 445.
Metropolitan Gas Light Co., 63 N. Y. 17 Cole v. Fire-Engine Co., 12 E. I.
326. 202.
15 Where a close corporation was 18 Newcomb v. Boston Protective
created, resembling the old English Department, 151 Mass. 215, 6 L. E. A.
borough corporation rather than an 778, 24 N. E. 39.
ordinary municipal corporation, and 19 Arkansas. A. H. Andrews Co. v.
its object was to purchase and sup- Delight Special School Dist., 95 Ark.
port a fire engine, for protection 26, 128 8. W. 361; First Nat. Bank of
against fire, it being authorized to as- Waldron v. Whisenhunt, 94 Ark. 583,
sess and levy taxes on certain inhabit- 127 S. W. 968.
ants, it was a public or quasi munici- California. Los Angeles City School
108
Ch. 2] Classification of Coepoeatioks [§73
considered in the discussion of quasi corporations in a subsequent

section.'^"
Boom companies engaged in the business of driving logs for the

public generally are held to be quasi public corporations,^^ and a
like rule applies to corporations organized for the purpose of con-
ducting race tracks,^^ or agricultural corporations.^*
So, too, an agricultural college created by the state and subject to
its simply public agents to manage public
control, the officers being
pi'operty, is a public corporation.** But, on the other hand, the
view has been taken that state agricultural societies, or boards of
agriculture, created for the purpose of promoting agriculture, hold-
ing fairs, etc., are private corporations, and this is true though the
state makes appropriations of money for their benefit.**
A company organized to purchase and hold lands and to sell lots
for cemetery purposes has also been held to be a public corporation.*®
Dist. V. Longden, 148 Cal. 380, 83 Pac. of Agriculture, 129 Ind. 443, 12 L. E.
250. A. (N. S.) 664, 28 N. E. 123, 614; Is-
Missouri. State v. Gordon, 231 Mo. mon Loder, 135 Mich. 345, 97 N. W.
V.
547, 133 S. W. 44. 769; Dunn
v. Brown County Agr. So-
North Carolina. Smith v. Koberson- ciety, 46 Ohio St. 93, 1 L. E. A. 754,
villeGraded School, 141 N. C. 143, 8 15 Am. St. Eep. 556, 18 N. E. 496.
Ann. Cas. 529, 53 S. E. 524. 26 Davis V. Coventry, 65 Kan. 557,
Oklahoma. School Dist. No. 71 Ok- 70 Pac. 583. In this case the court said,
lahoma County V. Overholser, 17 Okla. "Is this corporation public or for
147, 87 Pac. 665. profit? Many reasons may be found
20 See § 76, infra. in the law for concluding that it is
21 Osborne v. Knife Falls Boom Cor- public and "none supporting the con-
poration, 32 Minn. 412, 50 Am. Eep. trary idea. For instance, the property
590, 21 N. W. West Branch Boom
704; so platted and held is exempt from tax-
Co. V. Pennsylvania Joint Lumber & ation. It has not been the policy of
Land Co., 121 Pa. St. 143, 6 Am. St. the state, even if it were constitu-
Eep. 766, 15 Atl. 509. tional, to exempt private property
22 Corrigan v. Coney Island Jockey from taxation. No reason can be sug-
Club, 2 N. Y. Misc. 512, 22 N. Y. Supp. gested why a private cemetery corpora-
394. Such a corporation exercising no tion, operated for profit, should receive
franchises which clothe it with any any more grace at the hands of the
public duty may choose its own cus- legislature than a private corporation
tomers and may do or refuse to do any organized for any other purpose. An-
particular business offered it. other instance indicating that it is a
23Kent County Agr. Society v. public corporation is the limitation
Houseman, 81 Mich. 609, 46 N. W. 15. placed upon the corporation in its dis-
See also Stewart v. Hardin County position of the property. It can sell
Agr. Society, 60 Ohio Dec. 751, 7 Am. 'by and for the purpose of
lot or lots,'
L. Eec. 668. 'sepulture' only, and the plat, when
ZC- State V. Knowles, 16 Fla. 577. recorded in the oflSce of the register of
25 Downing v. Indiana State Board deeds, ' shall not be afterwards changed
109
§74] Pbivate Coepokations [Ch.2
§ 74. The United States, the states and territories as corporations.

The word "corporation" in its most extensive signification applies to
a nation or state, and thus used, the United States, and the several
states, or commonwealths, composing the Union, may be termed "cor-
porations.
'
'
*''
Accordingly, there are many decisions holding that the
United States is a corporation or a body corporate, and it may, like
other corporations, enter into contracts, take, hold and convey prop-
erty and sue or be sued, if it consents.** In. a like manner, the various
or altered. ' Similar limitations are not as Alphenus, from the philosophers,
found in the law governing other pri- argues.' " Thomas v. Dakin, 22 Wend.
vate corporations. Private corpora- (N. Y.) 9.
tions are left to manage their property The extensive meaning of the term
with as much independence and free- "corporation" is evidenced by the
dom as natural persons." meaning given to that word in the con-
27 State V. Atkins, 35 Ga. 315. struction of statutes. In one case a
" 'The same relation exists in all federal internal revenue act, providing
corporate property, whether it belongs for the payment of duty by "every
to a county, a town, a city, a college, person, firm, company, or corporation,
an academy, a church or a bank.' owning or possessing, or having the
Grotius, speaking of the state, substan- care, or management of any railroad,
tially furnishes Blackstone 's definition canal, steamboat, ship," etc., "en-
of a corporation. from BookI quote gaged, or employed in the business of
II, ch. 9, §3. 'Isoerates, and after transporting passengers, or property
him the Emperor Julian, said that for hire," was construed. The court
states were immortal; that is, they held that the term "corporation" as
might possibly prove so; because the used in this act was to be understood
people is one of those kind of bodies in its general, obvious and natural
{popvlus est ex eo corporum genere), meaning, and therefore it did not in-
that consist indeed of separate and clude the term "state." State v.
distinct members, but are, however, Atkins, 35 Ga. 315.
united in name (unique nomini sub- 28 United States v. Bradley, 10 Pet.
jectum est) , as having one constitution (IT. S.) 343, 9 L. Ed. 448; Dugan v.
only, according to Plutarch; one spirit United States, 3 Wheat. (U. S.) 172, 4
(spwitum unum), as Paulus speaks. L. Ed. 362; Eespublica v. Sweers, 1
Now this spirit or constitution in the Dall. (Pa.) 41, 1 L. Ed. 29; United
people, is a full and complete associa- States V. Maurice, 2 Brock. 96, 109
tion for political life (est mice civilis Fed. Gas. No. 15,747; Dixon v. United
eonsooiatio plena atque perfeeta). And States, 1 Brock. 177, Fed. Gas. No.
the first and immediate effect of it is 3,934; Dickson v. United States, 125
the sovereign power, the bond that Mass. 311, 28 Am. Eep. 230.
holds the state together, the breath of "The.power to take property by the
life which so many thousands breathe, right of eminent domain for the public
as Seneca expresses it. For these arti- use has been declared by the Supreme
ficial bodies are like the natural. The Court to exist in the United States not
natural body continues to be still the by virtue of any express grant in the
Bame, though its particles are perpet- Constitution, but as an inherent attri-
ually upon an insensible flux and bute of sovereignty." Kohl v. United
change, whilst the same form remains. States, 91 U. S. 367, 23 L. Ed. 449.
110
Ch.2] Classification of Coepobations [§74
states have been held to be corporations,*' and the same rule applies to
territories.^"
At the common law, the king was regarded as a corporation sole,
Chief Justice Marshall said, "The propriate to the just exercise of those
United States is a government, and, powers. * * * To adopt a different
consequently, a body politic and corpo- principle would be to deny the ordi-
rate, capable of attaining the objects nary rights of sovereignty, not merely
for which it was created, by the means to the general government, but even to
which are necessary for their attain- the state governments within the
ment. This great corporation was or- proper sphere of their own powers, un-
dained and established by the Ameri- less brought into operation by express
can people, and endowed by them with legislation. A doctrine, to such an ex-
great powers for important purposes. tent, is not known to this court as ever
Its powers are unquestionably limited; having been sanctioned by any judicial
but while within those limits, it is a tribunal." United States v. Tingey, 5
perfect government as any other, hav- Pet. (U. S.) 114, 128, 8 L. Ed. 66.
ing all the faculties and properties be- 29 Illinois. People v. City of St.
longing to a government, with a per- Louis, 10 111. 351, 48 Am. Dec. 339.
fect right to use tl em freely, in order Massachusetts. Dickson v. United
to accomplish the objects of its institu- States, 125 Mass. 311, 28 Am. Eep. 230.
tions. It will certainly require no Michigan. Michigan State Bank v.
argument to prove that one of the Hastings, 1 Dougl. 225, 41 Am. Dec.
means by which some of these objects 549.
are to be accomplished, is contract; the New York. State of Indiana v. Wo-
government, therefore, is capable of ram, 6 Hill 33, 40 Am. Dec. 378.
contracting, and its contracts may be Texas. Conley v. Daughters of Be-
made in the name of the United public, 106 Tex. 80, 156 S. W. 197, 937;
States." United States v. Maurice, 2 Dikes V. Miller, 25 Tex. 281, 78 Am.
Brock. 96, 109, Fed. Cas. No. 15,747. Dec. 571.
Mr. Justice Story, delivering the Wisconsin. Whiting v. Sheboygan &
judgment of the Supreme Court upon F. B. Co., 25 Wis. 167, 3 Am. Bep. 30.
the question "whether the United In Cotton V. United States, 11 How.
States have, in their political capacity, (U. S.) 229, 231, 13 L. Ed. 675, Mr.
a right to enter into a contract or to Justice Grier said, "Every sovereign
take a bond in cases not previously state is of necessity a body politic,
provided for by some law," said, and as such capable
or artificial person,
"Upon full consideration of this sub- of making contracts and holding prop-
ject, we are of opinion that the United erty, both real and personal."
States have such a capacity to enter A state, said the New York court,
into contracts. It is in our opinion an "is a legal being, capable of transact-
incident to the general right of sov- ing some kinds of business like a nat-
ereignty; and the United States being ural person, and such a being is a
a body politic, may, within the sphere corporation." State of Indiana v.
of the constitutional powers confided to Woram, 6 Hill (N. Y.) 33, 40 Am. Dec.
it, and through the instrumentality of 378.
the proper department to which those 30 Territory v. Hildebrand, 2 Mont.
powers are confided, enter into eon- 426.
tracts not prohibited by law, and ap-
Ill
§75] Private Coepoeations [Ch.2
this being for the purposes of succession, and to preserve the property
of the crown.*'
Stock and nonstock corporations. A stock corporation or

§ 75.
joint stock corporation is a corporationhaving a capital stock divided
into shares, and which is authorized by law to distribute to the holders
thereof dividends or shares of the surplus profits of the corporation.
The capital of a nonstock corporation is not so divided. The ordinary,
modern business corporations such as trading, banking and railroad
companies are stock corporations, while religious corporations, mutual
insurance companies and the like are nonstock corporations.*^
§ 76. Quasi corporations —In general. A further line of cleavage

in the law of corporations drawn between corporations which
is that
are fully endowed with corporate powers and those which have only
a limited corporate capacity. Those composing the latter class are
known as "quasi corporations."
The characteristics of quasi corporations partake rather of those of
public or quasi public corporations than of those of private corpora-
tions. "They possess," it has been said, "some corporate functions
31 1 Bl. Com. 470. See also § 57, A

corporation organized under N. Y.
supra. Law 1851, e. 122, is not a stock cor-
32 A joint stock corporation is one poration but a membership corporation.
organized under a general statute Leighton v. Leighton Lea Ass'n, 146
authorizing such corporations, and is K Y. App. Div. 255, 130 N. Y. Supp.
distinct from corporations created by 935.
special resolutions or acts of the gener- There are three kinds of insurance
al Barber v. Morgan, 89
assembly. companies^stock, mutual and mixed.
Conn. 583, Ann. Cas. 1916 E 102, 94 A "stock company" is one where the
Atl. 984. stockholders contribute all the capital,
Under N. Y. Gen. Corp. Law (Gen. pay all the losses, and take all the
L., e. 35; L. 1892, c. 687) § 3, subd. 2, profits.A "mutual company" is one
as amended by L. 1895, e. 672, a stock wherein the members constitute both
corporation is a corporation having a the insurer and the insured, where the
capital stock divided into shares and members all contribute, by a system of
which is authorized by law to distrib- assessments, to the creation of a fund
ute to the holders thereof dividends from which all losses and liabilities are
or shares of the surplus profits of the paid, and wherein the profits are di-
corporation, and a corporation is not vided among themselves in proportion
a stock corporation because of having to their A "mixed com-
interests.
issued "certificates of stock" which pany" such as the term implies. It
is
are in fact merely certificates of mem- embodies the characteristics of both
bership. Leighton v. Leighton Lea the others. State v. Willett, 171 Ind.
Ass'n, 146 N. Y. App. Div. 255, 130 N. 296, 23 L. R. A. (N. S.) 197, 87 N. E.
Y, Supp. 935. 68.
112
8
Ch. 2] Classification of Corpoeations 77
and attributes, but they are primarily political subdivisions, —agencies

in the administration of civil government, —and their corporate func-
tions are granted to enable them more readily to perform their public
duties.
'
'
^^ On the other hand, they are distinguished from municipal
corporations proper, in that the creation of the latter is the voluntary
act of the members, whereas the formation of quasi corporations is, as
a rule, not the voluntary act of the persons on v^hom they operate.^*
§ 77. — Counties. Counties are involuntary corporations, organized

as political subdivisions of the state for governmental purposes.^^
"While, to a certain extent, they are invested with corporate powers,
33 Freeland v. Stillman, 49 Kan. 197, bridges, etc." Attorney General v.
30 Pac. 235. Lowrey, 131 Mich. 639, 92 N. W. 289,
As further illustrating this principle, quoted in Ex parte Corliss, 16 N. D.
see: 470, 114 N. W. 962.
United States. School Dist. No. 56 v. 34 Barnes v. District of Columbia, 1
St. Joseph Fire & Marine Ins. Co., 103 Otto (U. S.) 540, 23 L. Ed. 440; Han-
U. S. 707, 26 L. Ed. 601. son V. City of Cresco, 132 Iowa 533, 109
AIa,bania. Mobile School Com'rs v. N. W. 1109; Kiddle v. Merrimac Eiver
Putnam, 44 Ala. 506. Locks & Canals, 7 Mass. 169, 5 Am.
Illinois. Hedges v. Madison County, Dec. 35; White v. City Council of Char-
6 111. 567. leston, 2 Hill (S. C.) 571.
Maine. Adams v. Wiscasset Bank, 1 35 Askew V. Hale County, 54 Ala.
Greenl. 361, 10 Am. Dec. 88. 639, 25 Am. Kep. 730; Board Com'rs
Maryland. County Com'rs Talbot Jasper Co. v. Allman, 142 Ind. 573, 39
Co. V. County Com'rs Queen Anne's L. R. A. 58, 42 N. E. 206; State v.
Co., 50 Md. 245. Denny, 118 Ind. 449, 4 L. R. A. 65, 21
Massachusetts. Fourth School Dist. N. E. 274.
in Rumford v. Wood, 13 Mass. 193; Counties are a political division of
Mower v. Inhabitants of Leicester, 9 the state government, organized as
Mass. 247, 6 Am. Deo. 63. part and parcel of its machinery, like
New York. Lorillard v. Town of townships, school districts and kindred
Monroe, 11 N. Y. 392, 62 Am. Dec. 120; subdivisions. They do not derive any
Jansen v. Ostrander, 1 Cow. 670; Town of the corporate powers they possess by
of North Hempstead v. Town of Hemp- a special charter. Their functions are
stead, 2 Wend. 109. wholly of a public nature, and their
"They consist of counties, town- creation a matter of public conven-
ships, school districts, highway dis- ience and governmental, necessity, and
tricts, etc. They are governmental in order that they may the better sub-
agencies, and it is, to say the least, serve the public interest, certain cor-
doubtful if they are in any respect porate powers are conferred on them.
anything else, or have any rights that "Whether they will assume their corpo-
can be called private. They perform rate powers and perform the duties and
many functions, but these are for and obligations imposed, are questions over
about the business and policies of the which they have no choice, but their
state, which has imposed upon them assumption is wholly involuntary.
the responsibility and expense of main- Granger v. Pulaski County, 26 Ark. 37.
taining highways, schools, drains, When a county is established, it is
113
I Priv. Corp.—
77] PBIVATE COBPOBATIONS [Ch.2
sucli asholding property and making contracts for county purposes,

because of their imperfect powers they are not corporations ia the
proper sense, but are properly designated as quasi corporations.'*
done at the mere will of the legislature, Co., 16 Mass. 76, 87; Eiddle v. Merri-
because, in its opinion, the public good mac Biver Locks & Canals, 7 Mass.
will be thereby promoted. There is no 169, 5 Am. Dec. 35.
contract, for no consideration moves Minnesota. State v. Gunn, 92 Minn.
from anyone, and without a considera- 436, 100 N. W. 97.
tion, there cannot be a. contract. The MissouriCassidy v. City of St.
discharge of certain duties by the per- Joseph, 247 Mo. 197, 152 S. W. 306.
sons who are appointed justices of the New York. Hughes v. Monroe
peace, or sheriff, clerk, or constable, County, 147 N. Y. 49, 39 L. E. A. 33,
can, in no sense of the word, be looked 41 N. B. 407; Kennedy v. Queens
upon as a consideration for establish- County, 47 N. T. App. Div. 250, 62 N.
ing the county. In legal parlance, the y. Supp. 276.
—
"consideration is past" the thing is Dunn v. Brown Co. Agr. So-
Ohio.
done, before their appointment. Some ciety, 46Ohio St. 93, 1 L. E. A. 754, 15
act for the honor of the station; others Am. St. Eep. 556, 18 N. E. 496.
for the fees end perquisites of office, Oklahoma. James v. Wellston Tp.,
but their so doing does not form a con- 18 Okla. 56, 13 L. E. A. (N. S.) 1219,
sideration for the erection of the 11 Ann. Cas. 938, 90 Pac. 100.
county, and is a mere incident to their South Carolina. White v. City Coun-
relation as citizens of the county. cil of Charleston, 2 Hill 571.
Mills V. Williams, 33 N. C. 558. Tennessee. Burnett v. Maloney, 97
Prior to 1868, counties were only Tenn. 697, 34 L. E. A. 541, 37 S. W.
politicaldivisions of the state and 689.
were not municipal corporations. Witt- Wyoming. Powder Eiver Cattle Co.
kowsky V. Board Com'rs Jackson V. Johnson County Com 'rs, 3 Wyo. 597,
County, 150 N. C. 90, 63 S. E. 275. 29 Pa«. 361, aff'd 3 Wyo. 777, 31 Pac.
36 TTnited States. Barnes v. District 268, 3 Wyo. 597, 31 Pac. 278.
of Columbia, 1 Otto 540, 23 L. Ed. 440. England. Eussell v. The Men of De-
Alabama. Slaughter v. Mobile von, 2 T. E. 667.
County, 73 Ala. 134; Askew v. Hale "Counties owe their creation to the
County, 54 Ala. 639, 25 Am. Rep. 730. statutes, and the statutes confer on
^ Arkansas. Granger v. Pulaski them all the powers which they possess,
County, 26 Ark. 37. prescribe all the duties they owe, and
California. Sherbourne v. Tuba impress all the liabilities to which they
County, 21 Cal. 113, 81 Am. Dec. 151. are subject. Considered with respect
Illinois. Scates v. King, 110 111. to their powers, duties, and liabilities,
456; HoUenbeck v. Winnebago Co., 95 they stand low down in the scale or
HI. 148, 35Am. Eep. 151; Hedges v. grade of corporate existence. For this
Madison County, 6 HI. 567. reason they are ranked among what
Kentucky. Lawrence County . are styled 'quasi corporations.' This
Chattaroi E. Co., 81 Ky. 225, 5 Ky. designation is employed to distinguish
L. Eep. 36. them from private corporations ag-
Maine. Adams v. Wiscasset Bank, gregate, and from municipal corpora-
Am. Dee. 88.
1 Greenl. 361, 10 tions proper, such as cities acting un-
Massacbnsetts. Inhabitants of Hamp- der general or special charters, more
shire Co. V. Inhabitants of Pranklin amply endowed with corporate life and
114
Cli.2] Classification of Cokpoeations [§78
§ 78. — Towns. For the same reason, towns are generally considered
quasi corporations. Limited powers are conferred upon them, such
as the power to make certain contracts, and to sue and be sued.''
functions, conferred in general at the Board Com 'rs Jackson County, 150 N.
request of the inhabitants of the mu- C. 90, 63 S. E. 275.
nicipality for their peculiar and spe They are "mere organizations for
cial advantage and convenience.' public purposes, liable to have their
Soper V. Henry County, 26 Iowa 264, public powers, rights and duties modi-
quoted in Burnett \ Maloney, 97 Tenn
.
fied or abolished at any moment by the
697, 34 L. E. A. 541, 37 S. W. 689. See, Legislature. They are incorporated for
in this connection, McQuillin on Mu' public, and not private objects. They
nicipal Corporations, § 111. are allowed to hold privileges or prop-
37 United States. Madden
Lancas- v. erty only for public purposes. The
ter County, 65 Fed. 188; Aetna Life members are not shareholders, nor joint
Ins. Co. V. Pleasant Tp., 53 Fed. 214. partners in any corporate estate which
Illinois. Johnston v. City of Chi- they can sell or devise to each other,
cago, 258 m. 494, 45 L. R. A. (N. S.) or which can be attached and levied
1167, Ann. Cas. 1914 B 339, 101 N. E. on for their debts; hence, generally the
960 HoUenbeck v. Winnebago Co., 95
; relations between them and the Legis-
111. 148, 35 Am. Eep. 151; Bush v. lature are in the nature of legislation
Shipman, 5 111. 186. rather than compact, and therefore to
Iowa. Hanson v. City of Cresco, 132 be considered as not violated by sub-
Iowa 533, 109 N. W. 1109. sequent legislative changes. ' ' City of
Maine. Adams v. Wiscasset Bank, 1 Hagerstovm v. Sehner, 37 Md. 180.
Greenl. 361, 10 Am. Dee. 88. At an early day in Massachusetts in
Massachusetts. Hill v. City of Bos- Eiddle v. Merrimac Eiver Locks & Ca-
ton, 122 Mass. 344, 23 Am. Eep. 332; nals, 7 Mass. 169, 5 Am. Dec. 35, Par-
Mower Inhabitants of Leicester, 9
v. sons, C. J., in delivering the opinion
Mass. 247, 6 Am. Dec. 63; Inhabitants of the court, said: "We distinguish
of Springfield v. Connecticut Eiver E. between proper aggregate corporations
Co., 4 Cush. 63; Damon v. Inhabitants and the inhabitants of any district
of Granby, 2 Pick. 345. who by statute invested with par-
are
Michigan. Highway Com 'rs v. Mar- ticular powers without their consent.
tin, 4 Mich. 557, 69 Am. Dee. 333. These are in the books sometimes called
Missouri. Cassidy v. City of St. quasi corporations. Of this descrip-
Joseph, 247 Mo. 197, 152 S. W. 306. tion are counties and hundreds
in Eng-
Nebraska. Wilson v. Ulysses Tp., land, and counties, towns, etc., in this
72 Neb. 807, 9 Ann. Cas. 1153, 101 N. state. Although quasi corporations are
W. 986. liable to information or indictment
New Hampshire. Hooksett v. Amos- for a neglect of public duty imposed
keag Mfg. Co., 44 N. H. 105; Troy v. upon them by law, yet it is settled
Cheshire E. Co., 23 N. H. 83, 55 Am. * * * that no private action can be
Dec. 177. maintained against them for a breach
New York. Lorillard v. Town of of their corporate duty, unless such ac-
Monroe, 11 N. T. 392, 62 Am. Dec. 120; tion be given by statute."
Tovim of North Hempstead v. Town Towns as well as counties, territorial
of Hempstead, 2 Wend. 109. parishes and school districts, by virtue
North Carolina. Wittkowsky v. of their existence as quasi corpora-
115
§79] Pbivate Cokpoeations [Ch.2
In some states, however, the statutes render towns full corporations,

like incorporated cities and villages.^*
§ 79. —
School districts. It has been seen in a preceding section
that school districts are not to be regarded as private corporations, but
so far partake of the character of public corporations that they are
deemed to belong to the class of quasi public corporations.^' As to
the extent to which they are to be considered as endowed with cor-
porate capacity, they have been held to be public corporations, or
quasi corporations created by statute for the purpose of executing the
general laws and policy of the state, which require the education of
all its youth.*" Such school corporations are involuntary corporations,
tions, arecapable of holding property immunities, and are subject to its lia-
and making contracts. Hill v. City of bilities. Higginson v. Treasurer &
Boston, 122 Mass. 344, 23 Am. Eep. School House Com'rs of Boston, 212
332. Mass. 583, 42 L. E. A. (N. S.) 215, 99
While townships and other taxing N. E. 523.
sometimes referred to as
districts are 39 See § 73, supra.
quasi municipal corporations, they are 40 United States. School Dist. No.
but territorial sections cf counties, 56 V. St. Joseph Fire & Marine Ins.
upon which for appropriate purposes, Co., 103 IT. S. 707, 26 L. Ed. 601.
power is conferred to perform func- Connecticut. McLoud v. Selby, 10
tions ofgovernment of local applica- Conn. 390, 27 Am. Dec. 689.
tion and interest. Wittkowsky v. Illinois. School Trustees v. Tatman,
Board Com'rs Jackson County, 150 13 III. 27.
N. C. 90, 63 S. E. 275. Iowa. Lane v. Dist. Tp. of Wood-
38 East Hartford v. Hartford Bridge bury, 58 Iowa 462, 12 N. W. 478. Under
Co., 10 How. (U. S.) 534, 13 L. Ed. 528. _
Laws 1862, c. 172, § 5, school district
And see City of Hagerstown v. Sehner, townships were by positive declaration
37 Md. 180. of the statute made corporations, and
Cities and towns are territorial sub- as such they have power to hold prop-
divisions of the state created as public erty,become parties to suits and con-
corporations for convenience in the ad- tracts,and do other corporate acts.
ministration of government. They ex- Winspear v. Holman, 37 Iowa 542.
powers which have been
ercise only the Massachusetts. Fourth School Dist.
conferred by express enactment of the in Eumford v. Wood, 13 Mass. 193;
legislature or by necessary implication Gaskill V. Dudley, 6 Mete. 546, 39 Am.
from undoubted prerogatives vested in Dee. 750.
them. They have a twofold character, Ohio. State v. Powers, 38 Ohio St.
the one governmental and the other 54.
private. In the one they execute the Oregon. Board of Directors v. Peter-
functions and possess the attributes of son, 64 Ore. 46, 129 Pac. 123, 128 Pac.
sovereignty which have been delegated 837.
by the legislative department of gov- Wisconsin. Montpelier Sav. Bank
ernment; in the other they are clothed & Trust Co. V. School Dist. No. 5, 115
with the capacities of a private cor- Wis. 622, 92 N. W. 439.
poration, and may claim its rights and "They may be considered » * »
116
1
organized not for the purpose of profit or gain but solely for the public
benefit,and have only such limited powers as are deemed necessary
for that purpose.*^
§ 80. —
Road districts. Road districts, created in some states for
the improvement of highways, are usually classified as public, or quasi
corporations, being similar to school districts.**
§ 81. — Public officers or public boards. There are some public

officers, or public boards that are given corporate capacity for certain
particular specified ends, and thus are quasi corporations. They are
authorized to sue and be sued as artificial persons, and are given the
power to make contracts in reference to public affairs.** And among
as quasi corporations, with limited On the other hand it has been held
powers, coextensive with the duties that a school town or township is a
imposed upon them by statute or purely public corporation, and the trus-
usage; but restrained from a general tees thereof public agents. School
use of the authority which belongs to Town of Montioello v. Kendall, 72 Ind.
these metaphysical persons by the 91, 87 Am. Eep. 138.
common law.The same may be said «Freel v. School City of Craw-
of all the numerous corporations which fordsville, 142 Ind. 27, 37 L. R. A. 301,
have been, from time to time, created 41 N. B. 312.
by various acts of the legislature; all 42 Board of Directors v. Peterson, 64
of them enjoying the power which is Ore. 46, 128 Pac. 837, 129 Pac. 123.
expressly bestowed upon them; and Special road districts are created un-
perhaps, in all instances where the act der and by authority of Chapter 102,
is silent, possessing, by necessary im- R. S. 1909.They are authorized to is-
plication, the authority which is sue bonds, and have authority to levy
requisite to execute the purposes of taxes for the purpose of paying the
their creation." Parker, C. J., in principle and interest of bonds so is-
Fourth School Dist. in Eumford v. sued by them. That authority is un-

Woods, 13 Mass. 193. limited by the statute empowering
School districts are corporations of the districts to issue the bonds except
a lower grade and of less power than as therein stated. Harris v. William
cities, have less the characteristics of R. Oompton Bond & Mortgage Co., 24
private corporations and resemble more Mo. 664, 149 S. W. 603.
mere agents of the state. School Dist. But in Custer County Bank v. Cus-
City of Erie v. Fuess, 98 Pa. St. 600, ter County, 18 S. D. 274, 100 N. W.
42 Am. Rep. 627. 424, it was held that a road district
They are quasi corporations for cer- is not a corporation or a quasi corpo-
tain purposes, such as the building and ration.
repair of school houses. Andrews v. 43 United States. Levy Court of
Estes, 11 Me. 267, 26 Am. Dec. 521. Washington v. Woodward, 2 Wall. 501,
An incorporated township, for com- 17 L. Ed. 851.
mon school purposes,is a public cor- Johnston v. City of Chica-
Illinois.
poration, or rather a qu&si corporation. go, 258 494, 45 L. E. A. (N. S.)

111.
Bush V. Shipman, 5 111. 186. 1167, Ann. Cas. 1914 B 339, 101 N. E.
117
181] Pbivate Coepobations [Cli.2
such quasi corporations with the power to sue and be sued may be
mentioned boards of county commissioners,** county levy courts,**
school trustees,*® boards of education,*'' overseers or trustees of the
poor,*' town supervisors,*^ and the like.*"
Also the governor of a state has been held to be a quasi corporate

sole, with respect to his office, so that when, under a statute, bonds
are made payable to him, he or his successor may sue thereon in his
official capacity.*^
960; School Trustees v. Tatman, 13 111. ferred on it, is a quasi corporation.

27. Finch V. Board of Education, 30 Ohio
Mississippi. Governor v. Gridley, St. 37, 27 Am. Eep. 414.
Walk. 328. In Kinnare v. City of Chicago, 171
New York. Jansen v. Ostrander, 1 111. 332, it was held that the board
Cow. 670; Eouse v. Moore, 18 Johns. of education of the city of Chicago

407. was a quasi corporation created by
North Carolina. Justices of Cumber- general law to aid in the administra-
land V. Armstrong, 14 N. C. 284. tion of the city government, these
Ohio. Finch v. Board of Education, duties being purely of a governmental
30 Ohio St. 37, 29 Am. Eep. 414. character, being thrust upon it with-
Bhode Island. See Cole v. Fire-En- out its consent by the legislature, and
gine Co., 12 E. I. 202. that therefore the board of education
Tennessee. Polk v. Plummer, 2 was not liable for the negligence of its
Humph. (21 Tenn.) 500, 37 Am. Deo. employees. It is also intimated in the
566. same decision that if these same duties
See also 2 Kent Com. 278. were thrust upon the municipality it-
44 Perry v. Kinnear, 42 111. 160; self it would not be liable. See John-
County Com'rs Talbot County v. ston V. City of Chicago, 258 111. 494,
County Com'rs Queen Anne's County, 45 L. E. A. (N. S.) 1167, Ann. Cas.
50 Md. 245. 1914 B 339, 101 N. E. 960.
46 The levy court of a county, 48 Governor v. Gridley, Walk.
charged with the duty of laying out (Miss.) 328.
and repairing roads, building bridges, Trustees or overseers of the poor
and keeping them in repair, providing have been held quasi corporations,
poorhouses, etc., and laying and col- with the capacity to sue coextensive
lecting taxes for such purposes and with their public duties. Eouse v.
for the payment of other county ex- Moore, 18 Johns. (N. Y.) 407.
penses, is a quasi corporation, and, as 49JanBen v. Ostrander, 1 Cow. (N.
such, has the capacity to sue an? be Y.) 670.
sued. Levy Court of Washington v. 60 In addition, Chancellor Kent men-
Woodward, 2 Wall. (IT. S.) 501, 17 L. tions loan oflScers and commissioners of
Ed. 851. loan, commissioners of common schools
48 School Trustees v. Tatman, 13 HI. and commissioners of highways as in-
27; Bush v. Shipman, 5 111. 186. See stances of quasi corporations for the
People V. Board of Education, Paris purpose of holding and transmitting of
Union School Dist., 255 111. 568, 99 N. the public property, with corporate at-
E. 659. tributes sub modo. 2 Kent Com. 278.
47 A board of education, having only 51 Governor Allen & McMurdie, 8
v.
S very limited number of powers con- Humph. (27 Tenn.) 176; Polk v. Plum-
118
Ch. 2] Classification of Cokpoeations [§84
In one ease a board of health has been held not to be a corporation

in any sense,'^ and in another case a board of trade, tiiough incor-
porated under a legislative act, has been held to be merely a voluntary
organization.*'
§82. — Joint stock companies. Associations known as "joint

stock companies," though unincorporated, have many features in
common with corporations and for this reason have sometimes been
called quasi corporations.'*
§ 83. Domestic and foreign corporations. A corporation is deemed

to be a citizen of the state or country which creates it, and with
respect to that state or country is a "domestic corporation." A for-
eign corporation one that owes its existence to the laws of another
is
state or country. This distinction is not based upon any difference

in the nature of corporations, but upon the status alone.
A detailed discussion of the citizenship, residence and domicile of
corporations and of the law relating to foreign corporations is given
elsewhere in this work.*'
§84. Statutory classification of corporations În general. The —

general classifications of corporations noted in the preceding sections
are frequently further subdivided by statutory provisions. These
provisions generally classify corporations according to their nature
or object, as "business" corporations, "transportation" corporations,
"manufacturing," "trading" and "mercantile" corporations,
"moneyed" corporations, "banking" corporations, "religious,"
"charitable" or "benevolent" corporations, corporations for "inter-
nal improvements" or "public utility," corporations for "industrial
pursuits," etc.
The statutory classifications thus adopted frequently affect the

application of other acts to corporations, such as the acts relating to
exemptions, taxation, bankruptcy and insolvency, and the like. The
frequency with which the construction of such terms and the deter-
mer, 2 Humph. (21 Tenn.) 500, 37 Am. such mode as it may deem most ad-
Dee. 566. visable and proper, and when it has
Gardner v. Board of Health City
52 adopted by-laws and a forum for their
of NewYork, 10 N. Y. 409. enforcement, the courts will not inter-
63 The Board of Trade of Chicago, fere to control their action.People v.
though incorporated under an act of Board of Trade of Chicago, 80 111. 134.
the general assembly, is merely a vol- M See § 17, supra,
untary organization, which is fully em- 66 See Chap. 13, infra and chapter
powered by its charter to govern in on Foreign Corporations, infra.

119
mination of whether they apply to particular corporations are involved

in various decisions, rendering desirable a brief consideration of them.
§ 85. — Tests for ascertaining class of corporation. The particu-

lar classification withinwhich a corporation falls depends upon the
purposes for which it is formed and the powers conferred upon it.^^
The puiôses for which it is organized are primarily to be sought and
found in its charter or certificate of incorporation.*'' Thus in order
to determine if a "manufacturing," "trading" or "benevolent"
corporation is organized, it is necessary to ascertain the meaning of
the particular descriptive term, and then determine whether the pur-
poses of the corporation, as shown by its charter, bring it within such
terms.**
If the powers of a corporation set forth in its articles of association
or certificate of incorporation are such as to bring it within the class
of corporations covered by a particular statute, it is within such class,
although the articles or certificate may recite that it was organized
under a statute authorizing the formation of a different class of cor-
porations.*®
The character of the corporation cannot be changed or modified by
B6 Bardstown & L. E. Co. v. Metcalf, States Leather Co., 75 N. J. Eq. 229, 19

61 Ky. 199, 81 Am. Dee. 541; State v. Ann. Cas. 1262, 72 Atl. 126.
McGrath, 95 Mo. 193, 8 S. W. 425. utah. GitzhofEen v. Sisters of Holy
B7 Louisiana. State v. New
Orleans Cross Hospital Ass 'n, 32 Utah 46, 8
Water Supply Co., Ill La. 1049, 36 So. L. R. A. (N. S.) 1161, 88 Pac. 691.
^^'- Nicholson's
58 Succession, 37 La.
Maine. Penobscot Boom Corpora- Ann. 346; State v. Minnesota Thresher
tion V. Lamson, 16 Me. 224, 33 Am. Mtg. Co., 40 Minn. 213, 3 L. E. A. 510,
Dec. 656. 41 N. W. 1020; In re St. Louis Insti-
MicMgau. Detroit Driving Club v. tute of Christian Science, 27 Mo. App.
Fitzgerald, 109 Mich. 670, 67 N. W. 633.
899. 59 State v. Minnesota Thresher Mfg.
Minnesota. Minneapolis & St. P. S. Co., 40Minn. 213, 3 L. E. A. 510, 41
E. Co. V. Manitou Forest Syndicate, N. W. 1020.
101 Minn. 132, 112 N. W. 13; Interna- in McComb v. Belknap, 30 Abb. N.
tional Boom Co. v. Eainy Lake Eiver o. (N. Y.) 119, 24 N. Y. Supp. 935, it
Boom Corporation, 97 Minn. 513, 107 ^vas held that the fact that a eertifi-
N.W. 735; Craig V.Benedictine Sisters cate of incorporation recited that it
Hospital Ass'n, 88 Minn. 535, 93 N. W. âs under the manufacturing eorpora-
669; State v. Minnesota Thresher Mfg. tions act, when the corporation was of
Co., 40 Minn. 213, 3 L. E. A. 510, 41 a character not authorized by that act,
N. W. 1020. di^ not bring it within the provisions
New Jersey. Colgate v. United of the act.
120
Ch.2] Classification of Cobporations [§86
parol evidence ^^ nor by the declarations or acts of the ofScers or

agents of the corporation.®^
§86. — "Tradinif" corporations. Where the statute establishes

engaged in "trading" or "trade and
as a separate class corporations
commerce," those words must be interpreted in the sense in which
they are commonly used and received.®'' Corporations engaged in
"trading" or "trade and commerce" include all the corporations
engaged in a business which properly falls within the definition of
60 GitzhofPen v. Sisters of Holy Cross though some yearly purchases may

Hospital Asa 'n, 32 Utah 46, 8 L. K. A. be made by the seller in order to
(N. S.) 1161, 88 Pac. 691. keep up his regular supply. * * "
61 State V. New Orleans Water Sup- These terms' are restricted also to deal-
ings in merchandise, goods or chattels,
ply Co., Ill La. 1049, 36 So. 117.
the ordinary subjects of commerce; so
62 '
' The word '
trade, ' in its broadest
that a railroad contractor, or a specu-
significance, includes not only the
lator in stocks, whether on his own
business of exchanging commodities by account, or as broker, is not deemed a
barter, but the business of buying and trader or merchant. * * * It has
selling for money, or commerce and also been held that incidental pur-
traffic generally." May v. Sloan, 101
chases or sales by a person not other-
TJ. S. 231, 25 L. Ed. 797, quoted in wise a trader, will not make him
Pocono Spring Water Ice Co. v. Amer- such."
ican Ice Co., 214 Pa. 640, 64 Atl. 398. Any person who buys and sells goods,
In re New York & W. Water Co., 98 or any other property which is the sub-
Fed. 711, aff 'd sub nom. In re Morris, ject of trade and commerce, as a busi-
102 Fed. 1004. With reference to the ness, for the purpose of making a
definition of "trader" and "trad- profit, is a trader. In re Cowles, Fed.
ing," the court said: "In Bouv. Law Cas. No. 3,297. See Gallagher v. De
Diet, a trader is defined as 'one who Lancy Stables Co., 158 Fed. 381.
makes it his business to buy merchan- "The character of a trader embraces
dise or goods and chattels and to sell a wide field of operation. It is of no
the same for the purpose of making a consequence in what one may trade,
profit.' Black, Law Diet., says: 'One the only question is, does he buy and
whose business is to buy and sell mer- sell articles which are subject to trade
chandise or any class of goods deriving and commerce?" In re Kenyon, 1

a profit from his dealings; ' and. the Utah 47.
weight of authority seems to be, that In determining whether one is a
the proper description of the business trader, the amount of the trading and
of a trader includej both buying and the amount of the profit is immaterial.
selling, either goods or merchandise, or If there is a buying and selling for. a
other goods ordinarily the subject of profit, it is sufficient. See Newland v.
traffic. * * * Selling merely the Bell, Holt, N. P. 221; Ex parte Moule,
natural products of one 's own land, it 14 Ves. 602; Holroyd v. Gwynne, 2
has been held, d'oes not constitute Taunt. 176.
trading, or a mercantile pursuit, even
121
86] Pbivate Cobpoeations [Ch.2
trading,*' and any corporation engaged in such a business is a trading

corporation, or corporation engaged in trade.**
Corporations for "trade and commerce" have been held to inchide
mining companies which are engaged in both buying and selling cer-
tain articles,*^ and a corporation for the purpose of "buying, owning,
improving, selling, and leasing of lands, tenements, and hereditaments,
real, personal, and mixed estates and property, including the construc-
tion and leasing of a building, ®* but not one dealing in improved
'
'
and unimproved real estate.*'' The term applies also to a corporation

for the "purchase of swamp and overflowed lands and adjacent high
lands, * * * the construction of dykes, levees, canals, reservoirs,
£ind other works,
'
' and it was held to be within a statute authorizing
corporations for manufacturing, or mining, or for "engaging in any
other species of trade, business, or commerce.""**
Ice companies, gas companies and water companies, intended to
supply a city and its inhabitants respectively with ice, gas and water,
have been held within a statute providing for the formation of cor-
porations "for the purpose of engaging in any species of trade or
commerce,"*® and a water company which, in addition to owning a
source of supply and furnishing water therefrom to its customers, also
63 In re San Gabriel Sanatorium Co., 67 In re Kingston Eealty Co., 163

95 Fed. 271. Fed. 445.
64 In re San Gabriel Sanatorium Co., 68 People V. Hager, 52 Cal. 171, 184,
95 Fed. 271. writ of error dismissed, 154 IT. S. 639,

66 Thus a mining company buys coal 24 L. Ed. 1044.
ov ore from other companies or persons, 69 People V. Blake, 19 Cal. 579. The
and sells it :again, it is to that extent decision in this case was that a water-
a trading corporation, although not ex- works corporation, organized for the
clusively engaged in trade. Turner v. purpose of supplying the city of San
Hardeastle, 11 C. B. (N. S.) 683. Francisco and its inhabitants with
On the other hand, it would seem water, was within a statute providing
that pursuant to the definition there for corporation^ "for the purpose of
must be both a buying and selling to engaging in any species of trade or
constitute one a "trader," and that a commerce." The court said: "It was
corporation which owns a mine, or a to deal in water as a matter of business
source of water supply, etc., and merely —to. furnish the article to consumers
sells the product therefrom, is not en- upon considerations to be received—
gaged in trade and commerce. In re that the company was formed. Water,
New York & Westchester Water Co., when collected in reservoirs or pipes,
98 Fed. 711, aff'd sub nom., In re Mor- and thus separated from the original
ris, 102 Fed. 1004, on the opinion of source of supply, is personal property,
the court below. and is as much the —an
subject of sale
66 Finne'gan v. Noerenberg, 52 Minn. article of commerce —as ordinary goods
239, 18 L. E. A. 778, 38 Am. St. Sep. and merchandise. Engaging in the
552, 53 N. W. 1150. business of furnishing it to the inhabit-
122
' ;
Ch.2] Classification of Coepoeations [§86
purchases water from another company or person at a certain price

per gallon, and furnishes it to customers, or a gas company purchasing
and selling gas, is engaged in trade to the extent of such purchase
and sale.'"
While, on the one hand, a corporation buying and selling electric
power has been held to be a trading corporation,''^ on the other, an
electric company transmitting and selling electricity and electrical
supplies to various patrons and consumers, but which does not gen-
erate its own electricity, has been held not to be engaged in trading
or mercantile pursuits within the meaning of the bankruptcy actJ*
Nor is a building and loan association engaged in trading.''^
A corporation engaged in buying and selling stocks, bonds and
securities is not a trading corporation.''* But the contrary has been
ants of a city for equivalent consid- gallons per day of its supply from the
erations to be received is engaging in city of New York at an agreed price of
a species of trade or commerce within ten cents per 1,000 gallons; and his
the meaning of the act." The dictum decision was afirmed by the circuit
also includes ice companies and gas court of appeals. In re New York &
companies. It is said, however, that Westchester Water Co., 98 Fed. 711,
they are not "in the technical accep- aff'd sub nom., In re Morris, 102 Fed.
tation of the terms, ' trading ' or ' com- 1004. The fact that water was pur-
mercial ' corporations. '
chased as above stated appears in the
A company incorporated for the pur- record of the ease, although not in
pose of erecting a dam and for the the report or opinion.
cutting, storing and selling of ice is a It may be noted that one who
trading corporation. Pocono Spring buys and sells goods, or any property
Water Ice Co. v. American Ice Co., 214 which is the subject of trade and com-
Pa. 640, 64 Atl. 398. merce, is a trader; that water and gas,
A corporation chartered for the pur- when confined in pipes, are " personal
pose of carrying on a wholesale and goods," within the definition of lar-
retail ice business, and which in fact ceny (Com. V. Shaw, 4 Allen (Mass.)
sold not only ice of its own harvesting, 308, 81 Am. Dee. 706; State v. Well-
but also large quantities which it pur- man, 34 Minn. 221; Hutchinson v.
chased from third parties, is engaged Com., 82 Pa. St. 472; Ferens v. O'Brien,
chiefly in trading and mercantile pur- 11 Q. B. Div. 21, 15 Cox, Cr. Cas. 332)
suits, within the meaning of Bank- and the subject of trade and commerce.
ruptcy Act, July 1, 1898, e. 541, § 4b, People V. Blake, 19 Cal. 579; Dudley v.
30 Stat. 546. First Nat. Bank of Jamaica Pond Aqueduct Corp., 100
Wilkes Barre v. Wyoming Valley lee Mass. 184.
Co., 136 Fed. 466. Nash Co. v. City of Council
71 C. B.
70 It was held by Judge Brown, in Bluffs, 184 Fed. 986.
the district court for the southern dis- 72 In re Hudson Eiver Elec. Power
trict of New York, that a water com- Co., 173 Fed. 934.
pany was not engaged principally in 73 In re New York Building-Iioan
trade, within the meaning of the bank- Banking 127 Fed. 471.
Co.,
ruptcy although the evidence
law, 74 In re Surety Guaranty & Trust
showed that it had purchased 500,000 Co., 121 Fed. 73. Contra, In re Pitts-
123
;
§ 86] Private Cobpoeations [Ch. 2
held to be true of a corporation selling grain, merchandise and the

like and buying and selling, on its own aecoiint, stocks and bonds.''*
Carrying on the business of an insurance agency is not trading ''^ ;
nor is the soliciting and placing of newspaper advertising nor the ''"'
business of renting films for moving pictures.''*

A hotel company is not engaged principally in "trading" though
it incidentally operates a bar, cigar and news stand and is also
engaged in outside trading, where the amount of business done is not

large,''^ and a corporation engaged in the business of conducting a
restaurant and cafe has also been held not so engaged.*" But a cor-
poration which conducts a private hospital for the cure of consump-
tives, and which charges for treatment, board, etc., and sells cigars and
other articles to its customers, is principally engaged in trading, within
the meaning of the bankruptcy act.*^
Where a corporation is chartered "for the purpose of transacting
the business of a common carrier of propertyand persons," and the
evidence shows that it is to some extent engaged in trading, and in
the letting of horses and wagons, it is not a trading corporation
within the bankruptcy act,even if it is assumed that such letting

constitutes trading. In such case the evidence does not show that
the principal business of the corporation is trading.*^
§87. — "Mercantile" or "commercial"

corporations. In speak-
ing of "mercantile" or "commercial" corporations, a term is used
which is practically synonymous with "trading." The words imply
the buying and selling of articles of merchandise as an employment
and for profit.** Accordingly the cases in the previous section as to
"trading" corporations may be considered in determining what con-
burg Stock Exchange, 26 Pittsb. Leg. United States Hotel Co., 134 Fed. 225,
J. N. S. (Pa.) 308. 68 L. B. A. 588.
76 In re H. B. Leighton & Co., 147 *" I" re Excelsior Cafe Co., 175 Fed.
Fed. 311. ZQi; In re Wentworth Lunch Co., 159
76 In re Moore & Muir Co.,' 173 Fed.

^'«^- "^5 ^
^^ Chesapeake Oyster &
Fish Co., 112 Fed. 960.
732
_' 81 In re San Gabriel Sanatorium Co.,
„ , ,, ^
77 In re Snyder •' &„ Johnson Co.,'
.
133 „, c„j o^-i
95 Fed. 271. mT,-
^ j-
This ruling was disap-
® proved, however, in In re White Star
78 In re Imperial Film Exchange, Laundry Co., 117 Fed. 570; In re
198 Fed. 80. Surety Guaranty & Trust Co., 121 Fed.
79 Toxaway Hotel Co. v. Smathers, 73.
216 r. S. 439, 54 L. Ed. 558. See also 82 Philpot v. O 'Brion, 126 Fed. 167.
First Nat. Bank of Tombstone v. Abi- 83 Graham v.Hendricks, 22 La. Ann,
lene Hotel Co., 46 Tex. Civ. App. 595, 523. And see In re New York &
103 S. W. 1120. Westchester Water Co., 102 Fed. 1004,
A contrary view was taken in In re 98 Fed. 711; In re Cameron Town Mut.
124
' '
Ch. 2] Classification of Coepoeations [§88
stitutes "mercantile corporations." In addition it may be mentioned

that a mutual insurance company
not engaged in mercantile pur-
is
suits within the meaning of the bankruptcy law.'*

It has also been held that the te«'m
'
mercantile partnership ' and '
'
—
the same would be true of "mercantile corporation" does not prop- —
erly include an association which mines and sells ore and coal from
its own lands, or which sinks oil or gas wells and sells their products.'*
§88. — "Manufacturing" corporations. "The process of manu-

facture supposed to produce some new article by the application
is
of skill and labor to raw material,"" and the verb "manufacture"

has been defined as "the operation of making goads or wares of any
kind the production of articles for use from raw or prepared mate-
;
rials by giving to these materials new forms, qualities, properties, or

combinations, whether by hand labor or by machinery. *'' Accord-
'
'
ingly the expression "manufacturing corporations," or corporations

for "manufacturing purposes" clearly includes a corporation engaged
in the business of making and selling lumber, flour or meal " a ;
corporation for manufacturing all kinds of lumber, and the sale of

Fire, Lightning & Windstorm Ins. Co., of 1867. In re Independent Ins. Co., 1
96 Fed. 756. Holmes 103, Fed. Cas. No. 7,017.
'
' The word mercantile, '
'
in its ordi- 85 Com. V. Natural Gas Co., 32 Pittsb.
nary acceptation, pertains to the busi- Leg. J. (Pa.) 310.

ness of merchants, and has to do with' People V. Roberts, 145 N. Y. 375,
86
trade or the buying and selling of com- 377, 40 N. E. 7.

modities. ' A merchant is one who 87 Century Diet. & Cyc, "Manu-
traflics, or who buys and sells goods or facture. '
commodities. He would be a merchant Worcester defines '
' manufacture '
if his business consisted in buying as follows: "(1) The process of mak-

without selling, and he might be a mer- ing anything by art, or of reducing
chant by simply selling. The term materials into form fit for use by hand
'
mercantile pursuit ' necessarily carries or by machinery; as 'an establishment
—
with it the idea of traflie, the buying for the manufacture of cloth.' (2)
of something from another, or the sell- Anything made or manufactured by
ing of something to another, and is — hand or manual dexterity, or by ma-
allied to trade." Phillips, J., In re chinery." See Attorney General v.
Cameron Town Mut. Fire, Lightning & Lorman., 59 Mich. 157, 60 Am. Rep.
Windstorm Ins. Co., 96 Fed. 756. See 287, 28 N. W. 311.
also In re New York & W. Water Co., 88 Cross V. Pinekneyville Mill Co.,
98 Fed. 711. 17 HI. 54.

84 In re Cameron Town Mut. Fire, It was held in Carlin v. Western
Lightning & Windstorm Ins. Co., 96 .Assur. Co. of Toronto, Canada, 57 Md.
Fed. 756. 515, 40 Am. Rep. 440, that a flouring
But an insurance company was held mill was within the term "manufac-
to be a " business or commercial ture": "Its meaning has expanded as
'
cor- '
poration, within the Bankruptcy Act workmanship and art have advanced.
125
'
188] PbIVATB CoEPOEATIOJSrS [Cli.2
the same, and the purchasing and selling of mills, lands, standing
timber, logs and lumber for the purpose of such business *^ a cor- ;
poration organized to "plant, harvest, store, purchase, manufacture,

market,sell and deal in chicory;" ^^ and a corporation for the purpose
of making illuminating gas or electricity, and furnishing the same to

consumers for lighting, heating or power,*^ unless there is something
to show that the legislature did not intend to include them.
The term has been held to include also a corporation for the pur-
pose of "refining and preparing for use oil, coal and other miner-
als ;"^^ a corporation for the manufacture and sale of mineral and
other waters; ^* a corporation organized for the purpose of catching,
preserving and marketing fish ^* and corporations for the purpose
;
of making and selling artificial ice.'*
so that now nearly all artificial prod- Power Co., 145 Pa. St. 105, 117, 14 L.
ucts of human industry, nearly all such R. A. 107, 22 Atl. 839.
materials as have acquired changed "Manufacturing corporations" do
conditions, or new and specific combi- not include corporations engaged in
nations, whether from the direct ac- liberating natural gas or oil from the
tion of the human hand, from chemical earth and transporting it to consum-
processes devised and directed by hu- ers. Com. V. Northern Elec. Light &
man skill, or by the employment of Power Co., 145 Pa. St. 105, 117, 14 L.
machinery, which, after all, is but a E. A. 107, 22 Atl. 839.
higher form of the simple implements 92 Hawes
V. Anglo-Saxon Petroleum
with which the human hand fashioned Co., 101 Mass. 385.
its creations in ruder ages, are now 93 Carlsbad Water Co. v. New, 33
commonly designated as 'manufac- Colo. 389, 81 Pac. 34.
tured.' We think, therefore, that 94 In re Alaska American Fish Co.,
plaintiff 's fiourmill was clearly a man- '
162 Fed. 498.
ufacturing' establishment." 95 See Com. v. Northern Elec. Light
89 Wagner v. Corcoran, 2 Pa. Dist. & Power Co., 145 Pa. St. 105, 117, 14
R. 440. L. R. A. 107, 22 Atl. 839.
90 Bolton V. Nebraska Chicory Co., In Michigan it has been held that a
69 Neb. 681, 96 N. W. 148. corporation for the purpose of collect-
91 Alabama. Beggs v. Edison Elec- ing natural ice, and selling the same
tric Illuminating Co., 96 Ala. 295, 38 after reducing it by manual labor or
Am. St". Rep. 94, 11 So. 381. machinery to a form adapted to sale
Colorado. Lamborn v. Bell, 18 Colo. and use, is a manufacturing corpora-
346, 20 L. E. A. 241, 32 Pac. 989. tion. Attorney General v. Lorman, 59
Massachusetts. Dudley v. Jamaica Mich. 157, 60 Am. Rep. 287, 26 N. W.
Pond Aqueduct Corporation, 100 Mass. 311. The contrary, however, was held
183, 184. in New York, on the ground that this
New York. Nassau Gas Light Co. is merely the selling of a natural prod-
v. City of Brooklyn, 89 N. Y. 409, 25 uct. People V. Knickerbocker lee Co.,
Hun 567. 99 N. Y. 181, 1 N. E. 669. And see the
Com. v. Allegheny
Pennsylvania. dictum in Com. v. Northern Elec. Light
Gas Dauph. Co. Rep. 93. See
Co., 1 & Power Co., 145 Pa. St. 105, 117, 14
also Com. v. Northern Elec. Light & L. R. A. 107, 22 Atl. 839.
126
Ch. 2] Classification of Cobpokations [§ 88
Grinding bone dust of commerce has been held "manufacturing,"

within the meaning of the revenue laws of the United States ^* timber ;
split into staves, or into long pieces designed for shovel handles, was
manufactured, and not covered by a reciprocity treaty .^'^
' '
' '
It has also been held that "manufacturing" corporations include

a corporation "to conduct and prosecute the business of book printing
and job printing, engraving, electrotyping, and lithographing," cap-
ital of which is invested in that business, and which manufactures only
on orders.®* The same was held true of a corporation for the purpose
of carrying on the business of "publishing books, and of printing and
book binding," ^® but the term "manufacturing corporations" does not
include corporations for the purpose of publishing a daily newspaper,
although they also carry on a general jobbing, printing and publishing
business.^
Aqueduct or other corporations engaged in taking water from a
natural source and distributing it through ditches or pipes are not
"manufacturing" corporations,^ and the same rule applies to corpora-
tions engaged in mining and selling coal or ores ' corporations for ;
purchasing sheep and lambs, slaughtering them, pulling the wool from
the hides, converting the offal into fertilizer, reducing the carcasses to
a temperature which will retard decomposition, and shipping them to
places of delivery * or a corporation engaged in the sale of spices,
;
96 Schrief er v. Wood, 5 Blatchf 215,

. company. People v. Eoberts, 19 N. Y.
Fed. Cas. No. 12,481. App. Div. 632, 155 N. Y. 1, 46 N. Y.
97 United States v. Hathaway, 4 Supp. 1099. Compare In re Kenyon,
18 L. Ed. 395.
"Wall. (tr. S.) 404, 408, 1 Utah 47.
98 Evening Journal Ass 'n v. State 2 Dudley v. Jamaica Pond Aqueduct
Board of Assessors, 47 N. J. L. 36, 54 Corporation, 100 Mass. 183.
Am. Eep. 114. See In re Kenyon, 1 3 Byera v. Franklin Coal Co., 106
Utah 47. Mass. 131. See also People v. Horn

99 Com. V. J. B. Lippincott Co., 156 Silver Min. Co., 105 N. Y. 76, 11 N. E.
Pa. St. 513, 27 Atl. 10; Com. v. Wm. 155.
Mann Co., 150 Pa. St. 64, 24 Atl. 601. 4 People v. Roberts, 155 N. Y. 408,
1 Evening Journal Ass'n v. State 41 L. E. A. 228, 50 N. E. 53, rev'g 20
Board of Assessors, 47 N. J. L. 36, 54 N. Y. App. Div. 521, 47 N. Y. Supp.
Am. Eep. 114. 123.
A which publishes a
corporation It was held, however, in Engle v.
newspaper, but which does not own or Sohn & Co., 41 Ohio St. 691, 52 Am.
operate any plant for printing it, and —
Eep. 103, that a pork packer a person
takes no part in printing it further engaged in the business of purchasing
than to have a foreman who watches and slaughtering hogs, curing the meat,
the work as it progresses in the hands packing the same, and selling it ^was —
of a contractor, by whom the type is a manufacturer. Compare Jackson v.
set and the paper printed at a price State, 15 Ohio 652.
agreed upon, is not a manufacturing
127
§88] Peivate Cokpoeations [Ch. 2
baking powder, coffee and tea, not manufactured by it, but purchased
by it in bulk although it puts up the spices and baking powder
in packages for sale, mixes different kinds of tea together, puts them in
packages, and sells them as "combination tea," and purchases coffee
raw and roasts and grinds it.* Nor is a corporation engaged in re-
pairing automobiles, where the work consists principally of adjusting
various parts of automobiles bought from other persons to existing
automobiles, engaged in manufacturing;* nor can a corporation for
the purpose of constructing and providing docks for building, raising
and repairing and steamers be held to be a "manufacturing"
vessels
corporation.' In a Pennsylvania case a statute of the state exempted
from taxation corporations organized exclusively for manufacturing
purposes, and the question was whether a corporation engaged in the
manufacture of wood, iron and steel bridges was within the terms of
the statute. And it was held that it was. Doubt was expressed as to
whether the word "manufacturing" could be properly applied to the
putting of bridges in place, but it was held that the preparation of the
parts for putting them together from material either raw or unfinished
was "clearly manufacturing, within any accepted definition of the
'
*
word. '
"Where the certificate of incorporation of a company states that it

is organized "to lease, produce and exploit plays and other theatrical
and dramatic products, to produce and sell theatrical costumes and

properties," and it appears that such corporation has only produced
one play since its organization, it is not eng'aged principally either in
manufacturing, trading or mercantile pursuit within the bankruptcy
act.® And a like rule has been applied to a corporation organized to
operate a cold storage plant, where refrigeration is accomplished by
means of brine in' pipes made by mixing calcium chloride in water by

ordinary workmen, the cooling rooms being rented.^**
A particular statute may use the term "manufacturing," in refer-
B People V. Eoberts, 145 N. T. 375, large vessels and in repairing
steel
377, 40 N. E. 7. others, is a corporation engaged prin-
6 Gate V. Connell, 173 Fed. 445. cipally in manufacturing and mercan-
7 People V. New York Floating Dry tile pursuits, within the bankruptcy
Dock Co., 63 How. Pr. (N. Y.) 451, act. Columbia Iron Works v. National
92 N. T. 487. Lead Co., 127 Fed. 99, 64 L. R. A. 645.
But a corporation chartered to con- 8 Com. v. Keystone Bridge Co., 156
struct and repair vessels, carry on a Pa. St. 500, 27 Atl. 1.
general shipbuilding and ship repairing 9 In re J. J. Reisler Amusement Oo.,
business, construct and operate a ma- 171 Fed. 283.
rine dry dock, etc., and whose main 10 In re Philadelphia Freezing Co.,
business consists in the building of 174 Fed. 702.
128
9
Ch.2] Classification of Corpoeations [§88
ence to corporations, in a different sense from that given by lexicog-

raphers, and of course the intention of the legislature must govern.
Thus, in Pennsylvania it was held that a corporation organized for
the purpose of supplying light, heat and power by means of electricity
was not a "manufacturing corporation," within the meaning of a
statute of that state exempting such corporations from taxation, al-
though it was conceded that its operations might be within the defini-
tion of "majiufacture" given by lexicographers.^^
If the business of a corporation
is not manufacturing, the fact that
itdoes a trifling or insignificant amount of manufacturing will not

make it a manufacturing corporation, within the meaning of a statute.
In a Minnesota case it was held on this ground that the stockholders
of a corporation were not exempt from liability fc^r its debts under a
statute or constitutional provision exempting the stockholders of
manufacturing corporations, where it was evident, not only from its
articles of association, but also from the business actually transacted,
that its primary object was to carry on a business wholly foreign to
—
manufacturing, the buying, selling, shipping and storing of grain,
—
building materials, cattle, etc., although an insignificant part of its
business was the manufacturing of flour and feed.^^
11 Com. V. Northern Elee. Light & be the manufacturing of clothing of

Power 145 Pa. St. 105, 14 L. E. A.
Co., every description, and the sale of cloth-
107, 22 Atl. 839. See also Com. v. Edi- ing so manufactured, and the transac-
son Elee. Light & Power Co., 170 Pa. tion of all other business necessary
St. 231, 32 Atl. 419 ; Com.
Keystone v. and incidental to such manufacture
Elee. Light, Heat & Power Co., 4 Lack. and sale of clothing, " is a manufactur-
Leg. N. (Pa.) 353, 2 Dauph. Co. Eep. 1. ing corporation exclusively. Nicollet
12 Mohr V. Minnesota Elevator Co., Nat. Bank v. Frisk-Turner Co., 71
40 Minn. 343, 41 N. W. 1074. Minn. 413, 70 Am. St. Eep. 334, 74 N.
A corporation organized not only for W. 160.
the purpose of mining, hut also for the "It is immaterial that the corpora-
business of "buying and selling and tionwas organized under the statute
dealing in mineral lands, ' ' is not with- providing for organizing manufactur-
in the Minnesota constitutional pro- ing corporations or what the actual
vision relating to corporations organ- intention of the incorporators was, or
ized for manufacturing or mechanical that the corporation in fact carried on
business. Duluth Iron Min-
Holland v. only a manufacturing business, but its
ing & Development Minn. 324,
Co., 65 articles of incorporation are the sole
60 Am. St. Eep. 480, 68 N. W. 50. See criterion as to such intention and the
Anderson v. Anderson Iron Co., 65 purposes for which the corporation was
Minn. 281, 68 N. W. 49; St. Paul Bar- organized; and, unless it fairly appears
rel Co. v. Minneapolis Distilling Co., 62 therefrom that it was organized for
Minn. 448, 64 N. W. 1143. the exclusive purpose of engaging in
A corporation whose articles of incor- manufacturing and such incidental
poration state that "its business shall business as may be reasonably neces-
129
I Priv. Corp.—
§ 89] Peivate Corporations [Ch. 2
§89. —
"Transportation" and "railroad" corporations. A
"transportation" corporation, as the term is generally understood, is a
corporation engaged in the carriage or transportation of passengers,
or of goods belonging to others, for hire or reward, as in the case of a
railroad company, steamboat company, express company, and the like.
To render a corporation a "transportation" company, however, it
need not necessarily carry the goods, as in the case of a railroad or
express company. It is sufficient if it transports or removes them by
other means. It has been held, therefore, that a corporation engaged
in the removal of petroleum from place to place, for hire, by means of
pipes, is a transportation company, within the meaning of a statute
taxing such corporations.^^ The same is true of a corporation engaged
in transporting natural gas in pipes.'* And it has been held that a
water company furnishing water to consumers through pipes, from its
own source of supply, was a "transportation" company.'^ But this
construction seems of doubtful authority. The term, as commonly
used, is confined to corporations engaged in the business of transport-
ing either passengers, of goods belonging to others, or both, and does
not include corporations which merely transport their own goods to
purchasers. According to the decision referred to, the term "trans-
portation company" would include a trading corporation transporting
its goods to purchasers in wagons. In an Ohio case (in the circuit
court) it has been held that a corporation organized for the purpose
of constructing waterworks, and supplying a city and its inhabitants
with water from a source of supply owned by it, is not a transporta-
tion company, within the meaning of a statute giving to corporations
organized for the purpose of transporting petroleum, water, etc., the

power of eminent domain.'*
If a corporation is engaged in carrying freight, has the equipment
and operates as a railroad, it may be so designa,ted, and it is immaterial
sary for effectuating the purpose of 1* Carothers v. Philadelphia Co., 118
its organization, its stockholders are Pa. St. 468, 474, 12 Atl. 314.
not within the exception to the general 15 In re New York & Westchester
rule of constitutional liability of stock- Water Co., 102 Ped. 1004, 98 Fed. 711.
holders for the debts of their corpora- 16 "It is well known that the object
tion. ' ' Merchants ' Nat. Bank of St. of transportation companies is to carry
Paul V. Minnesota Thresher Mfg. Co., or convey property from one place to
90 Minn. 144, 95 N. W. 767: another, for hire, by means of convey-
13 Columbia Conduit Co. v. Com., 90 anoes," etc. State v. Salem Water Co.,
Pa. St. 307. See also West Virginia 5 Ohio Cir. Ct. 58.
Transp. Co. v. Volcanic Oil & Coal Co.,
5 W. Va. 382.
130
'
Ch. 2] Classification of Coepoeations [§ 91
that it is not a common carrier.^'' Also interurban railroads, from the

nature of their business and manner of operation, are to be considered
rather as "railroads" than street railroads. Thus it was held in an
Ohio case (in the circuit court) that they were within a statute as to
railroads and subject to municipal ordinances as to the lighting of
street crossings.^*
§90. — Corporations for "industrial pursuits." The expression

broader than trading " or " manufacturing.
' ' ' '
' industrial pursuit ' is '
It includes both, and something more. It has been held that a statute
authorizing corporations for "industrial pursuits" authorizes a cor-
poration for carrying on the express business,^* and a corporation for
carrying on a mercantile business for the sale of goods, mining sup-
plies, etc.^"
§91. — "Business" corporations. A corporation organized for

the purpose of conducting financial dealings, buying and selling, traffic
in general and mercantile transactions is a business corporation.*^

Usually the term applies to any banking, manufacturing and trading
corporation, and insurance companies, whether fire, life or marine,
have been held to be business corporations.'^* Also a railroad corpora-
tion has been held to be a business corporation within the meaning of
the Bankruptcy Act of 1867.** And a corporation formed to "engage
in the business of manufacturing, distilling, buying, selling, importing,
exporting, exchanging and otherwise acquiring, owning, holding, deal-
ing in, or disposing of wines, spirits, liquors, ales, beers at wholesale
or retail or otherwise, " is Also an association
a business corporation.**
engaged in selling burial lots and maintaining a cemetery is conduct-
ing a business.** A
corporation organized to conduct a small loan
17 Mound City Transfer Ey. Co. v. 103, Fed. Cas. No. 7,017; In re Hercules
Wabash E. Co., 154 Mo. App. 156, 133 Mut. Life Assur. Society, 6 Ben. 35,
S. W. 611. 5 Am. Law T. Eep. 400, Fed. Cas. No.
Ottawa v. Ohio Blec.
18 Village of 6,402.
Ey. Ohio Cir. Ct. (N. S.) 561.
Co., 13 23 Winter v. Iowa, M. & N. P. E. Co.,
19 Wells, Fargo & Co. v. Northern 2 Dill. 487, Fed. Cas. No. 17,890; Adams
Pac. Ey. Co., 23 Fed. 469. v. Boston, Hartford & Erie E. Co.,
20 Bashf ord-Burmister Co. v. Agua Holmes 30, Fed. Cas. No. 47.
Fria Copper Co. (Ariz.), 35 Pae. 983. 24Greenough v. Board of Police
See also Carver Mercantile Co. v. Com 'rs Town of Tiverton, 30 E. I. 212,
Hulme, 7 Mont. 566, 19 Pae. 213. 136 Am.
Eep. 953, 74 Atl. 785.
St.
21 Greenough v. Board of Police 25 Bast Hill Cemetery Co. of Eush-
Com'rs Town of Tiverton, 30 E. I. 212, ville v. Thompson, 53 Ind. App. 417, 97
74 Atl. 785.' N- B. 1036.

22 In re Independent Ins. Co., Holmes
131
§ 91] Pbivate Cobpobations [Ch.. 2
business, in such a manner as to reduce to a low degree the possibilities

of harsh treatment of poor persons, has been held to be a "business
corporation." The fact that the statute providing for such company
contains provisions requiring some of its officers to be appointed by
public officers and that the business be under public supervision with
a view to absolutely fair treatment of the customers and with dis-
crimination under proper circumstances in favor of small loans to the

indigent, does not change the concern into a charitable corporation.'^'
Nor does the fact that an educational institution may acquire and
convey property necessary to the accomplishment of its object and
may charge tuition for instruction, render it a "business" or "trad-
ing" corporation for the pecuniary profit of its members.^''
Where a foreign company, which is a literary or charitable institu-
tion, brings suit against the guarantors of a lease of a hotel, it is not
a "business" corporation from the mere fact that it has caused the
hotel property to be repaired, or because it had a representative in the
liquor licenses which were issued for the hotel.*'
§ 92. —
Corporations for "pecuniaxy profit." Under the statutes
of some states, separate provisions are made for the incorporation of
corporations for "pecuniary profit" as distinguished from corpora-
tions "not for pecuniary profit."*' "Within the meaning of such a
provision, a corporation "for pecuniary profit" has been defined to be
a corporation organized for the pecuniary profit of its stockholders or
members.^" Included in this manufacturing and
class are banking,
trading corporations, water and gas companies, and the like which are
expected to pay dividends. It also comprises railroad companies.
And it has been held that a corporation for heating and to operate
street railways could not be organized under the statutes which pro
vide for corporations not for pecuniary profit.'^
86Apsey V. Chattel Loan Co., 216 profit." State v. Standard Life Ass 'n,
Mass. 364, 103 N. B. 899. 38 Ohio St. 281.

27 McLeod V. Lincoln Medical Col- 30 Santa Clara Female Academy v.
lege of Cotner University, 69 Neb. 550, Sullivan, 116 111. 375, 387, 56 Am. Bep.
98 N. "W. 672, 96 N. W. 265. 776, 6 N. E. 183. See also People v.
28 Tulane University of Louisiana v. Mezger, 98 N. Y. App. Div. 237, 90
O'Connor, 192 Mass. 428, 78 N. B. 494. N. Y. Supp. 488; City of San Antonio
89 See J. & A. 111. Stat. c. 32; Iowa v. Salvation Army (Tex.), 127 S. "W.
Code § 3270. 860.
The Ohio statutes provide for cor- 81 People v. Boss, 188 111. 268, 59 N.
porations "for profit" and "not for B. 432.
132
'
A mutual insurance company is not a benevolent association, but a

corporation for pecuniary profit.'^
As instances of corporations not for pecuniary profit may be men-
tioned incorporated hospitals, asylums and other eleemosynary corpora-
tions and incorporated religious societies or congregations.^^ And an
incorporated academy, or other corporation for educational purposes,
which declares no dividends, and pays no money to its members, but is
conducted solely for educational and charitable purposes, is not a
corporation for pecuniary profit, although it may charge fees for
tuition.^* A state agricultural society organized for the purpose of
promoting the public interest in the business of agriculture, and which
has no stockholders, cannot be classified as a corporation for pecuniary
profits.^^ Nor is an association organized for "improving the breed of
horses by promoting the interests of the American trotting turf" and
providing no capital stock, but imposing membership fees and anmiial
dues, organized for pecuniary profit.'* An incorporated board of
trade is not a corporation for pecuniary gain, for the "organization is
not maintained for the transaction of business or for pecuniary gain,
but simply to promulgate and enforce amongst its members correct and
high moral principles in the transaction of business. It is not engaged
in business, but only prescribes rules for the transaction of bus-
§93. — "Moneyed" corporations. The term "moneyed" is ap-
plied to certain corporations in some states. In New York, 'moneyed

'
'
corporations are defined by statute to be corporations formed under or

subject to the banking or insurance law, and they include every cor-
poration having banking powers, or having the power to make loans
upon pledges or deposits, or authorized by law to make contracts of
insurance.
32 Iowa Mut. Tornado Ins. Ass'n v. 776, 6 N. E. 183. See also McLeod v.
Gilbertson, 129 Iowa 658, 106 N. W. Lincoln Medical College of Cotner Uni-
153. versity, 69 Neb. 550, 96 N. W. 265,,
33 See Santa Clara Female Academy rev'd on '..rehearing, 98 N. W. 673^
V Sullivan, 116 111. 375, 56 Am. Eep. People v." Mezger, 98 N. Y. Ap'p:
776, 6 N. E. 183; People v. Board of Div. 237, 90 N. Y. Supp. 488. ,
Trade of Chicago, 80 111. 134; In re 35 Hern v. Iowa State Agr. Society,
Ihmes' Estate, 154 Iowa 20, 134 N. W. 91 Iowa 97, 24 L. E. A. 655, 58 N. W.

429; McDonald v. Massachusetts Gen- 1092.
eral Hospital, 120 Mass. 432, 21 Am. 36 American Matinee Ass 'n v. Seere-
Eep. 529; City of San Antonio v. Salva- tary of State, 140 Mich. 579, 104 N. W.
tion Army (Tex.), 127 S. W. 860. 141.
34 Santa Clara Female Academy v. 37 People v. Board of Trade of Chi-
Sullivan, 116 111. 375, 387, 56 Am. Eep. cago, 80 111. 134, 136.
133
§ 94. — "Banking" corporations—Trust companies. In the broad

sense, a banking corporation is one engaged in the business of banking,
which includes the business of receiving deposits of money, lending

money, dealing in commercial paper, paying checks, and generally,
although not necessarily, issuing notes to circulate as money .^^ In a
commercial sense banks are of three kinds, namely, banks of deposit,
banks of discount and banks of circulation.'® It has been held that an
incorporated savings association, authorized by its charter to receive
deposits, discount notes, and invest the funds in its hands in public
securities, and to declare credits or dividends, must be regarded as
having banking powers although it has no stockholders.*® In some
states the business of banking is restricted to corporations.*^
Such corporations are distinguishable from trust companies in that

the deposits of the latter are strictly loans or trust funds, and not sub-
ject to cheek, that they cannot issue their notes for circulation, that
they do not buy and sell exchange in the ordinary course of their busi-
ness, and that they are authorized to engage in real estate transactions,
trusteeships, and other business not included within the powers of
banking corporations.*^ The fact that a trust company exercises some
of the functions of a bank with or without authority does not make it
a banking corporation.*' Where a trust company has no banking
38 MacLaren v. State, 141 Wis. 577, N. W. 664. See also First State Bank
135 Am. St. Eep. 55, 18 Ann. Cas. 826, of Holstein, Nebraska v. Shallenberger,
124 N. W. 667. See Bank for Savings 172 Fed. 999.
V. The Collector, 3 "Wall. (TJ. S.) 495, 42 Mercantile Nat. Bank v. City of
18 L. Ed. 207; Reed v. People, 125 HI. New York, 121 TJ. S. 138, 80 L. Ed.
592, 1 L. E. A. 324, 18 N. E. 295; Peo- 895; Selden v. Equitable Trust Co., 94
pie V. Doty, 80 N. T. 225; Pratt v. u. S. 419, 24 L. Ed. 249; Wells, Pargo
Short, 79 N. Y. 437, 35 Am. Eep. 531; & Co. v. Northern Pac. E. Co., 23 Fed.
First Nat. Bank of Lyons v. Ocean Nat. 459 state v. Eeid, 125 Mo. 43, 28 S. W.
;
Bank, 60 N. Y. 278, 19 Am. Eep. 181; 172. See also State v. Louisiana Sav.
People V. Manhattan County, 9 Wend. Co., 12 La. Ann. 568; Pratt v. Short, 79
(N. Y.) 351, 383. N. Y. 437, 35 Am. Eep. 631.
39 Reed v. People, 125 111. 592, 1 L. 43 State v. Eeid, 125 Mo. 43, 28 S. W.
E. A. 324, 18 N. E. 295; MacLaren v. 172. In this case it was held that a
State, 141 Wis. 577, 135 Am. St. Eep. trust company, although it exercised
55, 18 Ann. Cas. 826, 124 N. W. 667. gome of the functions of a bank—re-
40Eeed v. People, 125 111. 592, 1 L. ceiving deposits subject to check in —
E. A. 324, 18 N. E. 295. contravention of its charter, was not
41 MacLaren v. State, 141 Wis. 577, within a statute imposing a penalty
135 Am. St. Eep. 55, 18 Ann. Cas. 826, upon the ofScers of banking institu-
124 N. W. 667; Weed v. Bergh, 141 tions for receiving deposits after the
Wis. 569, 25 L. E. A. (N. S.) 1217, 124 company's insolvency.
134
Ch. 2] CLASStFICATION OF CORPORATIONS [§96
powers, a statute as to the liability of stockholders of banks does not

apply."
§95. — "Beneficial" corporations. "Beneficial" associations or

corporations are associations organized for the purpose of the mutual
benefit or protection of their members.*^ They include, for instance,
a society formed for the purpose of rendering assistance to members or
their families in case of sickness, and to insure the payment of a cer-
tain sum to the widow or dependents of a member on his death.*®
§96. — "Insurance" corporations. An insurance company or

corporation a corporation organized for the purpose of making eon-
is
tracts of insurance against loss of property by fire, hail, perils of the

sea, or other causes, or against personal injury, or upon life, etc. But
corporations commonly known »s "beneficial associations," and in-
tended merely for the mutual benefit or protection of their members,
are not insurance companies.*'' Such corporations are more in the
nature of charitable organizations.**
Where the purpose of a corporation is the mutual insurance of its
members, and no moral or social qualifications are required for mem-
sound health and of
bership, but only that the applicant shall be in
age, an insurance company, and it can make no difference that
it is
the amount payable by it on the death of a member is not fixed, but

depends upon the number of members at that time, and is collected by
44 De Haven v. Pratt, 223 Pa. 633, Stephen the Martyr

47 Society of St.
72 Atl. 1068. V. SikoTski, 141App. 1.
111.
45 Brenizer v. Supreme Council Eoyal ,Com. v. Provident Bicycle Ass 'n, 178
Arcanum, 141 N. C. 409, 6 L. B. A. Pa. St. 636, 36 L. E. A. 589, 36 Atl. 197;
(N. S.) 235, 53 S. E. 835; State v. Mu- Com. v. Equitable Ben. Ass'n, 137 Pa.
tual Protection Ass 'n of Ohio, 26 Ohio St. 412, 419, 18 Atl. 1112. See State
St. 19; Com. v. Provident Bicyftle Council of Catholic Knights of Illinois
Ass'n, 178 Pa. St. 636, 36 Atl. 197; v. Board Eeview Eflangham County,
Com. V. Equitable Beneficial Ass'n, 137 198 111. 441, 64 N. E. 1104; Knights of
Pa. St. 412, 419, 18 Atl. 1112. And see Modern Maccabees v. Commissioner of
§ 96, infra. Insurance, 155 Mich. 693, 118 K. "W.
46 State V. Mutual Protection Ass 'n 585; Missey v. Supreme Lodge,
of Ohio, 26 Ohio St. 19. See also Com- Knights & Ladies of Honor, 147 Mo.
m'ercial League Ass'n v. People, 90 App. 137, 126 S. W. 559; Brenizer v.
111. 166; State v. Iowa Mut. Aid Ass'n, Supreme Council Eoyal Arcanum, 141
59 Iowa 125; Supreme Council of Or- N. C. 409, 6 L. E. A. (N. S.) 235, 53
der of Chosen Eriends v. Eairman, 62 S. E. 835.
How. Pr. (N. T.) 386; Com. V. National 48 Evans v. Modern Woodmen of
Mut. Aid Ass 'n, 94 Pa. St. 481. And America, 147 Mo. App. 155, 129 S. W.
see § 96, infra. 485.
135
§ 96] Private Cokpobations [Ch. 2
assessment upon them.*' On the other band, a society formed for the
purpose of rendering assistance to members or their families in case
of sickness, and to insure the payment of a certain sum to the widow or
dependents of a member on his death, is not an insurance company."
The same is true of a corporation for the purpose of mutual protection
of its members against loss by reason of injury to or loss of bicycles *^ ;
and of a corporation for the purpose of paying a sum of money to a

member on his marriage, or to his ivife, out of a fund to be raised by
the payment by members of annual dues, and assess-
initiation fees,
ments.^^ Insurance companies are usually held not to be " trading or
'
'
"mercantile" corporations and are not within the bankruptcy act.*^
§ 97. — Building and loan associations. An incorporated building

and loan association is a corporation for the purpose of raising, by
periodical subscriptions of members, a stock or fund to assist members
by advances or loans, generally on mortgage security, in building or
purchasing homes. Such corporations are different from corpora-
tions formed for pecuniary profit.** They have been spoken of as
"a peculiar kind of corporation. They are usually aggregations of
people who among themselves in accumulating a kind
deal exclusively
of savings fund for investment in homes. They are not commercial
bodies in the large or popular sense of the term. They are, rather,
limited, co-operative, home building co-partnerships. " *® In several
states the term is defined by statute to include all corporations doing
a savings and loan or investment business on the building society plan,
viz., loaning its funds to its members or shareholders, and whether
49Coin. V. Wetherbee, 105 Mass. 149; 52 State v. Towle, 80 Me. 287, 14

State Merchants' Exchange Mut.
V. Atl. 195.
Benev. Society, 72 Mo. 146; State v. 53 in re Moore & Muir Co., 173 Fed.
Brawner, 15 Mo. App. 597. 732.
BO Commercial League Ass 'n v. Peo- 61 They are ranked, however, as
pie, 90 ni. 166; State v. Iowa Mut. Aid moneyed corporations under the law
Ass'n, 59 Iowa 125, 12 N. "W. 782; Su- of New York. In re New York Build-
preme Council of Order of Chosen ing-Loan Banking Co., 127 Ted. 471.
Friends v. Fairman, 62 How. Pr. (N. Homestead loan associations differ
y.) 386; State v. Mutual Protection essentially in character from corpora-
Ass 'n of Ohio, 26 Ohio St. 19; Com. v. tions formed for pecuniary profit un-
National Mut. Aid Ass'n, 94 Pa. St. der the General Incorporation Act of
481. See also Brenizer v. Supreme Illinois. People v. Butler St. Foundry
Council Royal Arcanum, 141 N. C. 409, & Iron Co., 201 111. N. E. 349.
236, 66
6 L. R. A. (N. S.) 235, 53 S. E. 835. B8 Com. v. Home & Savings Fund Co.
Bl Com. V. Provident Bicycle Ass'n, Bldg. Ass'n, 127 Ky. 537, 106 S. W. 221.
178 Pa.- St. 636, 36 L. E. A. 589, 36
Atl. 197.
136
'
Ch. 2] Classification op Cobpoeations [§98
issuing certificates of stock which mature at a time fixed in advance

or not.
The scheme adopted by one of these corporations need not conform
to any other plan already in use, but if such concern has for its objects
the same purposes as ordinary "building and loan associations" it
must be designated as belonging to that class of corporations, and to be
subject to the laws governing such corporations.*''
The term does not generally include corporations unless their pur-
poseis to accumulate funds and lend the same to members to assist
them in purchasing or building homes, to be held by them in sever-

alty.*' It does not include a corporation for "the accumulation of a
fund by the saving of its members to build or purchase for themselves,
; *^
respectively, dwelling houses or real estate or to enter into business "
or a corporation for the purpose of purchasing and improving real
estate and advancing money on mortgages, etc. ;
*" or a corporation
for the purpose of buying land with the funds contributed by its
members, and then dividing it among them ®^ or a corporation merely

;
for the purpose of loaning money.®^

Building and loan associations cannot be classified as corporations
engaged in "trading and mercantile pursuits" and have been held not
within the bankruptcy act.*' But if the capital stock of such a corpora-
tion is divided into shares, it must be classified as a "stock" cor-
poration. Accordingly shareholders have been held liable under
statutes imposing liability on stockholders.**
§98. — "Literary" corporations. The term "literary" means

of or pertaining to letters or learning, and a corporation organized for
the purpose of promoting literature and learning is a literary corpora-
57 See State v. Standard Eeal Estate 60 Williar v. Baltimore Butchers

Loan Co., 80 Kan. 694, 103 Pac. 1006. Loan & Annuity Ass 'n, 45 Md. 546.
68 Williar v. Baltimore Butchers' 61 Grimes v. Harrison, 26 Beav. 435.
Loan & Annuity Ass'n, 45 Md. 546; 62Kupfert v. Guttenberg Bldg.
Jarrett's Ex'r v. Cope, 68 Pa. St. 67; Ass'n, 30 Pa. St. 465, 470. See Bhodes
Kupfert V. Guttenberg Bldg. Ass'n, 30 v. Missouri Savings & Loan Co., 173
Pa. St. 465, 470; Grimes v. Harrison, 111. 621, 42 L. E. A. 93, 50 N. E. 998; As-
26 Beav. 435. sets Eealization Co. v. Heiden, 117 111.

A building and loan association may App. 458, aff 'd 215 111. 9, 74 N. E. 56.
have banking powers, so as to be sub- 63 In re New York Building Loan
jeet to the law governing banking cor- Banking Co., 127 Fed. 471; Kurtz v.
porations. See Henderson Loan & Eeal Bubeck, 39 Pa. Super. Ct. 370.
Estate Ass'n v. People, 163 111. 196, 45 64 See Leighton v. Leighton Lea
N. E. 141. Ass'n, 62 N. Y. Misc. 73, 114 N. Y.
59 Jarrett's Ex'r v. Cope, 68 Pa. St. Supp. 918.
67.
137
§ 98] Phivate Cokpokations [Ch. 2
tion. Any institute or association organized and incorporated for the

purpose of conducting a school or seminary of learning, and having
that character, is a "literary" corporation or association, within the
meaning of a statute.^* On the other hand, a corporation not organized
for the promotion of literature or learning cannot be classed as a liter-
ary association.®® A
corporation for the purpose of disseminating
theosophical ideas, and procuring converts thereto, is not a "literary"
corporation.®''
§99. —
"Scientific" corpora,tioiis. The term "science," it has
been said, in its broadest sense, is "knowledge," or "the knowledge of
many, methodically digested and arranged, so as to be attainable by
one;" a "body of principles and deductions to explain the nature of
some matter;" and is not synonymous with, nor does it include,
68
"art."
The term "scientific" has been held to include a school,®® but not a
university fraternity.'"* And a rifle club is not a corporation for
"scientific purposes;" for rifle shooting, although it may be an art, is
not a science.''^ A corporation having for its object the dissemination
of theosophical ideas, and procuring converts thereto, is not a "scien-
tiflc" institution.''În a Michigan case it was said: "A 'scientific
institution,' under the language of all civilized countries, means an
institution for the advancement or promotion of knowledge, which is
the English rendering of 'science;' " and it was held that an educa-
tional corporation was a "scientific institution," within the meaning
of a statute exempting the property of such institutions from taxa-
tion.''^
65 ChamTDerlain v. Chamberlain, 3 16 L. E. A. 97, 43 N. W. 593; Jackson

Lans. (N. Y.) 348. See also Lawrence v. "Waldron, 13 "Wend. (N. Y.) 178,
University v. Outagamie County, 150 205.
Wis. 244, 136 N. W. 619. Compare, 69 Lawrence University v. Outaga-
however, Reg. v. Pocock, 8 Q. B. 729. mie County, 150 Wis. 244, 136 N. W.
66 See Reg. v. Jones, 8 Q. B. 725. 619.
A fraternity at a university does not 70 Inhabitants of Orono v. Kappa
fall within such a class. Inhabitants Sigma Society, 108 Me. 320, 80 Atl. 831.
of Orono v. Kappa Sigma Society, 108 71 Vredenburg v. Behan, 33 La. Ann.
Me. 320. 627.

67 New England Theosophical Corpo- 72 New England Theosophical Corpo-
ration V. Board of Assessors, 172 Mass. ration v. Board of Assessors, 172 Mass.
60, 42 L. E. A. 281, 51 N. E. 456. 60, 42 L. E. A. 281, 51 N. E. 456.
68Vredenburg v. Behan, 33 La. Ann. Home & Day School v.
73 Detroit
627. And see Detroit Home & Day City of Detroit, 76 Mich. 521, 6 L. E.
School V. City of Detroit, 76 Mich. 521, A. 97, 43 N. W. 593.
138
Ch.2] Classification of Cokporations [§100
§100. — "Charitable" and "benevolent" cairporations. A char-

'
itable corporation is ' one whose principal aim is to give of its material
who are in need of such assistance, or
substance or time to benefit those
by such gift or expenditure in some other way than
will be benefited
simply by an improvement of morals or bringing them under the
influence of the gospel,
'
'
'*
Corporations organized for "charitable or benevolent" purposes,

within the meaning of a statute, include all corporations organized,
not for private gain or profit, but for the administration of charitable
trusts, such as hospitals and asylums for the sick, insane and poor, and
colleges or schools for the promotion of piety or learning.''' A Young
74 In re MeCormick's Estate, 71 N. But in eleemosynary corporations there
Y. Misc. 95, 127 N. Y. Supp. 493. are no stockholders; and regulations
7B Connecticut. Hearns v. Water- that in ordinary corporations aremade
bury Hospital, 66 Conn. 98, 31 L. B. by them and disputes that are sub-
A. 224, 33 Atl. 595; American Asylum mitted to the courts, are made and de-
V. Phoenix Bank, 4 Conn. 172, 10 Am. cided by those intrusted with the visi-
Dee. 112. torial power. The visitor is the judge
Illinois. Fordham v. Thompson, 144 or arbiter to decide all disputed ques-
111. App. 342. tions not involving the integrity of
Massachusetts. McDonald v. Massa the management of the fund or the ob-
chusetts General Hospital,- 120 Mass, servance of the statutes of the founder,
432, 21 Am. Bep. 529. and he alone can make regulations and
Missouri. State v. Adams, 44 Mo. by-laws that shall bind the officers.
570. There being no constituent members,
New Jersey. Paterson Eescue Mis he, in a sense, is the corporation and
sion V. High, 64 N. J. L. 116, 44 Atl controls its operations, subject only to
974. the expressed will of the founder. By
'
There is a great ai£Eerence between
' the common law, the founder and his
the powers of the trustees of an heirs are the visitors. Cujus est dare,
eleemosynary corporation, with visi- ejus est disponere. But the foundation
torial powers, like a college or a hospi- may provide for other visitors; and,
tal, and those of a private moneyed in England, that oflice is generally
corporation, like a bank or railroad. withheld from the trustees who hold
The latter are composed of sharehold- the fund, in order that they may be
ers, each of whom is a member of the also visited. But in this country the
company, who make the by-laws and visitorial power over schools and col-
all lawful regulations, elect directors leges, together with all other powers
for a limited period, and themselves and rights belonging to them, are
compose the corporation. Amend- usually vested in boards of curators, or
ments to the charter, not in violation trustees, established by the charter
of its objects, may be accepted by the creating the corporation, who must be
shareholders, but the trustees have no governed by provisions of the char-
general powers, are simply their ter, as embodying the statutes of the
agents, and are under their control. founder. The power of these boards
The law of visitation, as applied to ia great, but by no means absolute.
eharities, has no application to them. They are the creatures of the charter.
139
100] Peivatb Corpokations [Ch.2
Men's Christian Association belongs to this class of corporations.''^

Such corporations do not, however, include corporations organized, not
for the administration of a charity, but for the gain or benefit, pecu-
niary or otherwise, of its members.'" Thus they do not include a sav-
ings institution, the leading purpose of which is the pecuniary profit of
its stockholders or members
nor a corporation for the promotion of
;
''*
Christian Science, the earnings of which are placed exclusively within

the discretion of its directors, and the residuary fund of which is used
in compensating its directors for their services ;
''^
nor a corporation
having for its primary object the dissemination of theosophical ideas,
and procuring converts thereto '" nor an organization incorporated
;
"for the purpose and object of promoting evangelical religion by

means of the Bible, the printing press, colportage, Sunday schools,
'
and other appropriate ways. *^ Nor do they include a corporation
'
with a large capital stock, organized for the purpose of enabling mem-
bers to accumulate, by small monthly contributions, a fund out of
which they can secure homes *^ nor a corporation for the purpose of
;
providing a "relief fund," and to "aid persons of moderate pecuniary

resources in obtaining from a reputable insurance company insurance
or, rather, of the will of the founder, 23 Minn. 92. Compare Fire Insurance
as embodied in and must walk in
it, Patrol V. Boyd, 120 Pa. St. 624, 1 L. E.
the path marked out by it. ' State v.
'
A. 417, 6 Am. St. Rep. 745, 15 Atl. 553.
Adams, 44 Mo. 570. See § 64, supra, where a number of
A corporation, the object of which cases are collected.
is to provide a general hospital for In West's Appeal, 64 Pa. St. 186, it
sick and insane persons, having no was held that a corporation whose char-
capital stock nor provision for making ter authorized it "to have, purchase,
dividends or profits, deriving its funds receive," etc., "stock, goods," etc.,
mainly from public and private char- "by gift, grant, demise, bargain and
ity, and holding them in trust for the sale, devise, bequest, testament, leg-
object of sustaining the hospital, con- acy, loan," etc., was a business corpo-
ducting its affairs for the purpose of ration, and not a charitable corpora-
administering to the comfort of the tion, within the meaning of a statute
sick,without expectation or right on limiting the amount of property of
the part of those immediately inter- charitable corporations.
ested in the corporation to receive com- 78 Sheren v. Mendenhall, 23 Minn. 92.
pensation for their own benefit, is a 79 In re St. Louis Institute of Chris-
public charitable institution. McDon- tian Science, 27 Mo. App. 633.
ald V. Massachusetts General Hospital, 80 New England Theosophical Cor-
120 Mass. 432, 21 Am. Rep. 529. poration v. Board of Assessors, 172
76 Little v. City of Newburyport, 210 Mass. 60, 42 L. R. A. 281, 51 N. E. 456.
Mass. 414, Ann. Cas. 1912 D 425, 96 81 In re McCormick 'a Estate, 71 N.
N. E. 1032. Y. Misc. 95, 127 N. Y. Supp. 493.

'TNewcomb v. Boston Protective 82 State V. McGrath, 95 Mo. 193, 8
Department, 151 Mass. 215, 6 L. B. A. S. W. 425.

778, 24 N. E. 39; Sheren v. Mendenhall,
140
;
on their lives, and in maintaining the necessary payments on the same

and to secure to families of persons so insured an immediate advance
of funds in case of death ;" ^ nor a medical college.^*
Building and loan associations,'* being corporations for private gain,
are not "benevolent" associations, within the meaning of a statute,
unless the statute expressly includes them.*® An association for the
purpose of endowing the wife of each member with a sum of money
equal to as many dollars as there are members, to be raised by assess-
ment upon the members, is not a benevolent society, for there is no
intent to bestow any benefit or help without an equivalent.*''
§101, —
"Religious" corporations. Any corporation the charter
powers of which are to be used in aid of the propagation and practice
of a religious belief is a "religious" corporation,'* but the fact that a
corporation is under the control of members of a particular church
does not make it a religious corporation. '^ Nor does the fact that a
board of trustees of a corporation college is to be ele«ted by an associa-
tion of churches, constitute it a sectarian or religious corporation.'"
Corporations organized under acts authorizing the incorporation of
religious societies or congregations are not to be classified as ecclesias-
tical corporations,'^ but are civil corporations and subject to the same
principles of law, and the same control by the civil courts, as any other
civil corporation.'^
Where a corporation is organized under a statute providing for the

incorporation of charitable and scientific societies, it is not a religious
corporation so as to be able to consolidate with other religious corpora-
83 People V. Nelson, 46 N. T. 477, 60 tian Science, 27 Mo. App. 633. See

Barb. (N. Y.) 159, 3 Lans. (N. Y.) 394. Cook County v. Chicago Industrial
84 People V. Gunn, 96 N. Y. 317. School, 125 HI. 540, 1 L. R. A. 437,
85 § 97, supra. 8 Am. St. Eep. 386, 18 N. E. 183.
86 State V. McGrath, 95 Mo. 193, 8 89 Baltzell v. Church Home & Infir-
S. W. 425. mary of Baltimore City, 110 Md. 244,

A
building association is not a be- 73 Atl. 151.
nevolent institution, though so declared 90 Tash v. Ludden, 88 Neb. 292, 129
by the -legislature, where the leading N. W. 417.

purpose of such corporation is to bet- 91 See § 63, supra,
ter the pecuniary condition of its mem- 92 Calkins v. Cheney, 92 111. 463;
bers or shareholders alone. State v. Robertson v. Bullions, 11 N. Y. 243.

McGrath, 95 Mo. 193, 8 S. W. 425. See also MacKenzie v. Trustees of
87 State V. Critchett, 37 Minn. 13, Presbytery of Jersey City, 67 N. J. Eq.
32 N. W. 787. And see Foster v. Moul- 652, 3 L. R. A. (N. S.) 227, 61 Atl.
ton, 35 Minn. 458, 29 N. W. 155. 1027.
88 In re St. Louis Institute of Chris-
141
§ 102] Pkivate Coepokations [Ch. 2
tions under a statute providing for the consolidation of such religious

organizations.'*
§102. —
Corporations for "work of internal improvement,"
"public improvement" or "public utility." The words "work of
internal improvement" in a statute authorizing the formation of a
corporation for the purpose of constructing a work of internal im-
provement, and other statutes referring to corporations by such a
description, as statutes giving the power of eminent domain, mean
corporations for the purpose of constructing works of a quasi public
character, as railroads, turnpikes, canals and the like. "It has been
decided time and time again," said the West Virginia court, "and is
therefore settled by the best authority, that the construction of rail-

roads, turnpikes, canals, ferries, telegraphs, wharves, basins, etc.,
creating the necessary facilities for intercommunication, constitutes

what is generally known by the name of internal improvements, and ,
'
'*
gives occasion for the exercise of the right of eminent domain. '
The same is true of the words "public improvement," and the words
"work of public utility," in a statute referring to corporations for
such purposes.'^ In Illinois, the act creating the public utilities com-
mission, defining its powers and giving its general supervision of pub-
lic utilities, provides that the term "public utility" includes every
corporation, company, or association, joint stock company or associa-
tion, firm, partnership, or individual, that may own, control, operate,
or manage directly or indirectly for public use any plant, equipment,
or property used or to be used for or in connection with the trans-
mission of telephone messages between points within this state. The
jurisdiction of the commission is by the terms of the act confined to
control and supervision of owners and operators of property devoted
to a public use in which the public has an interest. The owner of such
property must submit to be controlled by the public to the extent of
93 Selkir v. Klein, 50 N. Y. Misc. 194, , As to canals, see Tide Water Canal

100 N. Y. Supp. 449. Co. v. Archer, 9 Gill & J. (Md.) 479; In
94 "West Virginia Transp. Co. v. Vol- re Townsend, 39 N. Y. 171.
eanic Oil &
Coal Co., 5 W. Va. 382, 387. As to turnpike companies, see Kem-
As to railroad companies, see Stock- per's Lessee v. Cincinnati, C. & W.
ton & Visalia E. Co. v. City of Stock- Turnpike Co., 11 Ohio 392.
ton, 41 Cal.. 147; Swan v. Williams, 2 95 Light & Heat Co. v. Elk County,
Mich. 427; Tinsman v. Belvidere Dela- 191 Pa. St. 465; 43 Atl. 323, and other
ware E. Co., 26 N. J. L. 148, 69 Am. oases cited in the notes following.
Dee. 565; Buffalo & New York City E.
Co. V. Brainard, 9 N. Y. 100.
142
'
Ck2] Classification of Coepoeations [§ 102
its interest aslong as such public use is maintained.®^ Aside from the
statutory definition the term "public utility" implies a public use,
carrying vsdth it the duty to serve the public and treat all persons alike,
without discrimination, and it precludes the idea of service which is
private in its nature, whether for the benefit and advantage of a few
or of many .8''
The words "public use" mean of or belonging to the
people at large, open to all the people to the extent that its capacity
may admit While the use must concern the public
of the public use."
as distinguished from an individual or any particular number of indi-
viduals, the use and enjoyment of the utility need not extend to the
whole public or any political subdivision. It may be confined to a
particular district and still be public.®^ The fact that a corporation is
organized for private gain does not prevent it from being a corpora-
tion for a work of public utility or public improvement,^ but a private
business does not become affected with a public interest merely from
its extent.* Whether or not a work is a work of public .utility neees-
Public Utilities Commission
96 State 1 See the cases cited in the notes
V. Bethany Mut.Tel. Ass'n, 270 111. following.
183, 110 N. E. 334. The doctrine on this subject is
2
97 State Public Utilities Commission^ in Ladd v. Southern Cotton
stated
V. Bethany Mut. Tel. Ass'n, 270 111. Press & Manufacturing Co., 53 Tex.
183, 110 N. E. 334. 172, as follows: "We know of no au-
98 State Public Utilities Commission thority, and none has been shown us,
V. Bethany Mut. Tel. Ass'n, 270 111. for saying that a business strictly jwris
183, 110 N. B. 334; State Public Utili- privati -will become juris publioi,
ties Commission v. Monarch Eefrig- merely by reason of its extent. If the
erating Co., 267 111. 528, 108 N. E. 716. magnitude of a particular business is
To constitute a public use all per- such, and the persons affected by it are
sons must have an equal right to the so numerous, that the interests of so-
use, and it must be in common, upon ciety demand that the rules and princi-
the same terms, however few the num- ples applicable to public employment
ber who avail themselves of it. It is should be applied to it, this would
not essential to a public use that its have to be done by the Legislature (if
benefits should be received by the not restrained from doing so by the
whole public, or even a large part of Constitution), before a demand for
it, but they must not be confined to such use could be enforced by the
'
specified, privileged persons. State courts.
Public Utilities Commission
v. Beth- In Munn v. Illinois, 94 U. S. 113, 24
any Mut. Tel. Ass'n, 270 HI. 183, 110 L. Ed. 77, the question raised and de-
N. E, 334; People v. Eicketts, 248 HI. cided in that ease was as to the con-
428, 94 N. E. 71. stitutionality of the act of that legis-
99 State Public TTtilities Commission lature of this state, declaring certain
V. Bethany Mut. Tel. Ass'n, 270 111. grain elevators to be public ware-
183, 110 N. E. 334; State Public Utili- houses, and prescribing rules for their
ties Commission v. Noble Mut. Tel. management, and fixing maximum
Co., 268 111. 411, Ann. Cas. 1916 D 897, charges for the storage and handling
109 N. E. 298. of grain. There the legislative depart-
143
102] Private Coepobations [Ch.2
sarily depends to a large extent upon the conditions in the particular

locality. "What would be a work of public utility in one state or in one
part of a state might not be so in another.^
The following corporations have expressly or in eifect been held to
fall within these descriptions A corporation created for the purpose
:
of constructing and maintaining a pipe line in an oil district for the

conveyance or transportation of petroleum for the public generally * ;
a corporation for constructing and maintaining jpipes for the convey-

ance of natural gas to consumers ;
* a gaslight or water company
organized for the purpose of constructing and maintaining works, and
supplying a city and its inhabitants with gas or water ;
^ a corporation
for establishingand maintaining a wharf boat and steam elevator for
a general storage and forwarding business;' a corporation for im:-
proving the navigation or the water power, or protection or develop-
ment of fisheries, in the rivers, streams and other waters of the
state ;
' a corporation, in a state in which mining is an important in-
dustry, for the purpose of developing and improving such industry ^ ;
a corporation for constructing irrigating canals, ditches, etc. ^" and a ;
ment had interposed and declared the ware Falls Co., 1 N. J. Eq. 694, 23 Am.
public use, and the court, in holding Dec. 756.
the act constitutional, held merely that 4 West Virginia Transp. Co. v. Vol-
the legislative power had been prop- canic Oil Coal Co., 5 W. Va. 382.
&
erly exercised. The discussion of the 5 Bloomfield & Bochester Natural
evidence showing that the business car- Gas Light Co. v. Eichardson, 63 Barb.
ried on in said grain elevators was (N. Y.) 437; Bidgway Light & Heat
of such character that it had in fact Co. V. Elk County, 191 Pa. St. 465, 43
become impressed with a public use, Atl. 323; St. Mary's Gas Co. v. Elk
was only for the purpose of showing County, 191 Pa. St. 458, 43 Atl. 321.
that a condition of things existed 6 City of Wilmington v. Addicks. 8
which justified the legislature in pass- Del. Ch. 310, 43 Atl. 297.
ing the statute then under considera- 7 Glen v. Breard, 25 La. Ann. 875.
tion. See American Live Stock Com- SCottrill v. Myrick, 12 Me. 222,
mission Co. V. Chicago Live Stock Ex- Hazen v. Essex Co., 12 Cush. (Mass.)
change, 143 HI. 210, 18 L. B. A. 190, 475, 477; Great Falls Mfg. Co. v. Fer-
36 Am. St. E(ip. 385, 32 N. E. 274. nald, 47 N. H. 444; Scudder v. Trenton
3 In this connection, see Butte, A. & Delaware Falls Co., 1 N. J. Eq. 694, 23
P. By. Co. V. Montana U. B. Co., 16 Am. Dee. 756.
Mont. 504, 31 L. E. A. 298, 50 Am. 9 & P. By. Co. v. Mon-
See Butte, A.
St. Bep. 508, 41 Pao. 232; Paxton & tana TJ. By. Co., 16 Mont. 504, 31 L. B.
Hershey Irrigating Canal & Land Co. A. 298, 50 Am. St. Rep. 508, 41 Pao.
V. Farmers & Merchants Irrigation &
' ' 232; Dayton Gold & Silver Min. Co. v.
Land Co., 45 Neb. 884, 29 L. B. A. 853, Seawell, 11 Nev. 394.
50 Am. St. Bep. 585, 64 N. "W. 343; Day- lOOury V. Goodwin (Ariz.), 26 Pac.
ton Gold & Silver Min. Co. v. Seawell, 376; Paxton & Hershey Irrigating
11 Nev. 394; Scudder v. Trenton Dela Canal & Land Co. v. Farmers' & Mer-
144
telephone company.^^ Also, a board of trade may conduct its business

in such a manner that it becomes impressed with a public interest. ^^
The questions regarding public utilities and the regulations thereof
are considered at length in a subsequent chapter.^*
chants ' Irrigation & Land Co., 45 Neb. and selling agricultural products
884, 50 Am. St. Eep. 585, 64 N. W. 343. throughout the entire countiry had been
State Public Utilities Commission
11 brought under the control of the mar-
V. Noble Mut. Tel. Co., 268 111. 411, ket prices fixed and determined on
Ann. Cas. 1916 D 897, 109 N. E. 298. said board. was held that these quo-
It
In Buncombe Metallic Tel. Co. v.

tations were property, and that the
board, by its own act, had so far im-
McGinnis, 268 111. 504, 109 N. E. 257,
pressed upon them a public interest,
the corporation had a control station
that it should be required, so long as it
connecting with various county lines
compiled and furnished them to any-
and with the local village system and
one, to furnish them to all without dis-
long-distance lines, and the object
crimination. This conclusion was
stated in the application for incorpora-
reached upon the theory that the board
tion was for "telephone purposes to
had, for a series of years, voluntarily
legally establish our right on public
and intentionally, devoted its property
and private property with poles, wires
to a use in which the public had an in-
and necessary equipment," which de-
terest, and had, in effect, granted to
noted an unlimited and public use.
the public an interest in that use, and
12 In Stock Exchange v. Board of
that must therefore,
it so far as it dealt
Trade, 127 111. 153, the board of trade in that species of property at all, sub-
had for a series of years voluntarily mit to be controlled by the public for
engaged in the business of compiling the common good, to the extent of the
market quotations, showing the fluctu- had thus created. See also
interest it
ations of the prices of commodities American Live Stock Commission Co.
bought and sold on the board, and of v. Chicago Live Stock Exchange, 143
furnishing the same, for a considera- 111. 210, 18 L. R. A. 190, 36 Am. St.
tion, by telegraph, to all members of Eep. 385, 32 N. E. 274.
the public who desired to obtain them. 13 See chapter on Public Utility
By this means, the business of buying Regulations, infra.
145
I Priv. Corp.— 10
CHAPTBE 3
Who May Be Incorporated
§ 103. In general.
§ 104. Eesidence and citizenship.
§ 105. Infants.
§ 106. Married women.
§ 107. Corporations as corporators.
§ 108. Corporators not having substantial interest in the corporation.
§ 109. Number of incorporators.
§ 110. Effect upon corporate existence of lack of qualification of incorporators.
§ 111. Necessity of articles showing qualifications —Presumptions.
§ 103. In general. Corporations can be formed by those persons
only who are within the terms of the statute creating or authorizing
the creation of the corporation.Â charter granted or offered by the
legislaturemust be accepted, if at all, according to its terms, and it
can be accepted by those persons only to whom it is granted.^ When
a statute, therefore, authorizes certain persons to organize themselves
into a corporation, other persons cannot take their place.'
In all the states, the statutes authorizing the formation of corpora-
tions prescribe the number of persons who may become incorporated,
and in some of the states, the qualifications of the incorporators are
1 Eex V. Amery, 2 T. E. 515; 1 T. R. 3 Eex v. Amery, 2 T. E. 515; 1 T. E.

589. 589.
For the right of copartnerships to be Where a statute declared that cer-
incorporators, see Ogdensburg, E. & C. tain persons, their associates and suc-
E. Co. V. Frost, 21 Barb. (N. Y.) 541; cessors were made a. corporation by
Eehbein v. Eahr, 109 "Wis. 136, 85 N. the name "Athol Eeservoir Com-
^f} 3i5_ pany, " with certain powers, and one
It is held in Pennsylvania that a P"^""^ "^^^^ in the act, apparently

^"^°"* objection by the others, to-
corporation formed under the Act of
with seven persons not named
April 29, 1874, to carry out the terms f^^'f'
'
.,, ^ ,.,
. . in the act, duly met, accepted the act
and provisions of a will, la not invalid , . , .
^ . , , -,
"^ .' , of incorporation, adopted by-laws,
because no women are included among "
,
itja: jj.transacted
elected ofiacers, and , ^-^
other
j.
the incorporators, when there is m such

fc^gjêss, it was held that the persons
will no requirement to that effect. In taking part in the proceedings became
re Garrett-Williamson Lodge, 239 Pa. ^ corporation under the name of
474, 86 Atl. 1072. "Athol Eeservoir Company." McGin-
2 Eex V. Amery, 2 T. E. 515; 1 T. R. ty v. Athol Eeservoir Co., 155 Mass.
589. 183, 29 N. E. 510.
146
Cli.3] Who May Be Incobpokated [§103
prescribed, but in most of the states the right to form a corporation is
given to a certain number of "persons" or "individuals," and the

statute is silent in reference to what shall be their qualifications.*
The act of forming a corporation, as between the parties to the
undertaking, is in its nature contractual.^ Consequently, under
statutes providing that a corporation may be created upon the appli-
cation of not less than a fixed number of "persons," it is clearly
implied that these persons are to be sui juris, and competent to enter
into a valid undertaking in law.^ Legal infirmity in incorporators is
4 While it is not within the purpose corporation. Business Corporation

or scope of this treatise to give the Law, N. Y. § 2. The incorporators
statutory law of each state in respect must be "natural persons, who must
to the number and qualifications of in- be of full age, and at least two-thirds
corporations, a few references given of them must be citizens of the United
below to the statutes of certain states States and one of them a resident of
are merely for the purpose of illus- this state." N. Y. Gen. Corp. L. § 4.
tration. Under the provisions of Act No. 78

Thus in New Jersey, ' ' three or more of the Acts of Louisiana, 1904, any
persons may become a corporation" for three or more persons may form a cor-
any lawful purpose or purposes what- poration to carry on any business
soever, except certain purposes speci- specified in the charter that it would
fied in the act. Each incorporator be lawful for an individual to carry on
must be a subscriber for the capital except the insurance or banking busi-
stock of the proposed corporation, but ness, or any business which would en-
there are no statutory requirements as title the corporation to exercise the
to the residence or citizenship of the power of eminent domain, if there have
incorporators. N. J. Comp. St. Tit. been subscriptions for stock in the
Corp. § 6. corporation to an aggregate amount of
In Delaware and Maine, the incor- three thousand dollars. Leader Eealty
porators may be any number of per- Co. V. Lakeview Land Co., 127 La.
sons, not less than three, and each in- 1059, 54 So. 350.
corporator must be a subscriber to the In Virginia, the number of incor-
capital stock of the proposed corpora-
porators may be any number not less
tion; but there are no requirements as
than three; but there are no require-
to the citizenship or residence of the
ments of residence or citizenship, and
incorporators. Del. Eev. Code, Tit. 9,
incorporators need not be subscribers
§ 1; Maine Eev. St. 1904, c. 47, §§ 6, 7.
to the capital stock. Va. Corp. Act of
In New York, "three or more per-
1903, c. 1, §§ 1, 2.
sons may become a stock corporation
for any lawful business purpose or
6 Good Land Co. v. Cole, 131 Wis.
purposes other than a moneyed corpora- 467; 120 Am. St. Eep. 1056, 11 Ann.
tion, or a corporation provided for by Cas. 806, 110 N. W. 895.
the banking, the insurance, the rail- 6 Witters v. Sowles, 38 Fed. 700;
road, and the transportation corpora- Liberty Tp. Draining Ass 'n v. Watkins,
tion laws. Each incorporator must
'
' 72 Ind. 459; In re Globe Mut. Ben.
be a subscriber for at least one share Ass'n, 63 Hun (N. Y.) 263, 17 N. Y.
of the capital stock of the proposed Supp. 852. aff 'd 135 N. Y. 280, 17 L. B.
147
§1031 Pbivate Cobpobations [Ch.3
as fatal to an attempted corporate organization as legal infirmity of

purpose.' The persons who become incorporated upon the formation
of the corporation are called "corporators" or "incorporators."
These terms are used interchangeably.* In otl er words an incorpora-
tor is one of the persons to whom the charter is granted in case of a
corporation created by special act of the legislature, or one of the
persons who execute the articles of association or certificate of incor-
poration in case of a corporation formed under a general statute pro-
viding for the formation of corporations.* Corporators are mere
instruments of the law for purposes of preliminary organization.
The moment that is accomplished, the amount required as capital paid
in, and the charter granted, they are
the necessary certificate signed,
functi officio}'^ They and do not exist with
exist before stockholders,
them, for it is said that "when stockholders come in, corporators
'
cease to be. ^^ Incorporators are distinguishable from shareholders
'
of the corporation. They may be subscribers to the capital stock of the

corporation, but unless the statute under which the corporation is
formed requires the incorporators to be subscribers to shares of the
capital stock of the corporation, it is not essential that the incorpora-
tors ever become shareholders in the corporation.^^
A. 547, 32 N. E. 122; In re Agudas jointly and severally liable until the

Noshim Charter, 23 Pa. Dist. 633. whole amount of the capital raised
7 American Ball Bearing Co. v. should have been paid in, and a cer-
Adamg, 222 Fed. 967. tificate thereof recorded, it was sought
8 Dickey, C. J., in a dissenting opin- in Chase v. Lord, 77 N. Y. 1, to charge
ion in Gulliver v. Eoelle, 100 111. 141, a stockholder of a corporation formed
164, said: "The word corporators under such act with a debt of the cor-
is, however, often used, and not im- poration, incurred when the whole of
properly, in a more limited sense, mean- that part of the capital required to be
ing only those persons who are the paid in, in cash, or "raised" had not
original organizers or the promoters been paid. The Court of Appeals of
of a new corporation." New York held that the word "cor-
9 v. Lord, 77 N. T. 1. See also
Chase porators" did not signify "stock-
In re Lady Bryan Min. Co., 1 Sawy. holders, '
' and said : "The corporators
(U. S.) 349, Fed. Cas. No. 7,978; In re are the associates who are the getters
Atlantic Mut. Life Ins. Co., 9 Ben. (U. up of the company, and whose func-
S.) 270, Fed. Cas. No. 628; Gulliver v. tions cease with its organization.
Eoelle, 100 111. 141. * * * Corporators exist before stock-
lODensmore Oil Co. Densmore, 64
v. holders, and do not exist with them.
Pa. St. 43. See also Chase v. Lord, When stockholders come in, corpora-
77 N. T. 1. tors cease to be." See, however, Gul-
11 Chase v. Lord, 77 N. Y. 1. liver V. Eoelle, 100 111. 141; Shufeldt
Under a statute providing that the V. Carver, 8 HI. App. 545.
trustees and incorporators of any com- 12 Chase v. Lord, 77 N. Y. 1. See
pany organized thereunder should be § 108, infra.
148
Ch-'S] Who May Be Incokpokated [§104
§ 104. Residence and citizenship. In many states the general laws

authorizing the formation of corporations expressly provide that a
certain number at least of the corporators shall be citizens or residents
of the state, and this provision is mandatory. ^^ In the absence of an
express requirement to this effect none of the incorporfl,tors need be
either citizens or residents of the state under whose laws the forma-
tion of the corporation is sought.^*
Under a statute providing that "the charter of an intended corpora-
tion must be subscribed by five or more persons, three of whom, at
least, must be citizens of the commonwealth," two of the original
corporators may be persons who are neither citizens of the state nor
residents within its jurisdiction.^^ Where residence only is required,
13 People V. McDonough, 28 N. T. 990; In re Charter of Evangelical

Misc. 652, 60 N. Y. Supp. 45; Com. Lutheran St. Paul School Ass'n of
V. Detwiller, 131 Pa. St. 614, 7 Tamaqua, 1 Leg. Eec. 133.
L. E. A. 357, 18 Atl. 990; The Butch- Washington. Hastings v. Anaeortes
ers' Beneficial Ass'n, 35 Pa. St. 151; In Packing Co., 29 Wash. 224, 69 Pac.
re Italian Mut. Ben. Ass 4 Pa. Dist.
'n, 776.
357, 15 Pa. Co. Ct. Eep. 644;In re Chi- "Where citizens of one state desire
nese Club, 1 Pa. Dist. 84; In re Enter- to do business under a charter obtained
prise Mut. Ben. Ass'n, 10 Phila. (Pa.) in another state whose corporation
380; American Salt Co. v. Heiden- laws seem to them more favorable than
heimer, 80 Tex. 344, 26 Am. St. Eep. the laws of the state in which they
743, 15 S. "W. 1038. reside, they have the right to do so
See alô In re Wendover Athletic upon compliance with the laws of such
Ass'n, 70 N. T. Misc. 273, 128 N. Y, other state." Boatmen's Bank v. Gil-
Supp. 561; Halbert v. San Saba lespie, 209 Mo. 217, 108 S. W. 74.
Springs Land & Live-Stock Ass'n IB Com. V. Detwiller, 131 Pa. St. 614,
(Tex. Civ. App.), 34 S. W. 636. 7 L. E. A. 357, 18 Atl. 990.
14United States. Moxie Nerve Food In Pennsylvania, under a statute
Co. V. Baumbaeh, 32 Fed. 205. authorizing the courts of that state
Colorado. Humphreys v. Mooney, to incorporate associations for the pro-
5 Colo. 282. motion of agriculture, "when any num-
Missouri. Boatmen 's Bank v. Gilles-
ber of persons, citizens of this com-
pie, 209 Mo. 217, 108 S. W. 74.
monwealth, are associated, or men to
associate," it was said: "It may be
New Jersey. Central E. Co. v. Penn-
conceded that a petition for incorpora-
sylvania E. Co., 31 N. J. Eq. 475.
tion, purporting to be signed by
New York. Lancaster v. Amsterdam citi-
Imp. Co., 140 N. Y. 576, 24 L. E. A.

zens of New any other
Jersey, or of
state except Pennsylvania, would have
322, 35 N. E. 964; Demarest v. Flack,
been refused by the court. The ad-
128 N. Y. 205, 13 L. E. A. 854; 28 N. E.
vantages of corporate powers provided
645; Cammeyer v. United German for by the general laws * * « were
Lutheran Churches, 2 Sandf. Ch. (N. reserved, in the first instance, for citi-
Y.) 186. zens of the state. ' ' Com. v. Detwiller,
Pennsylvania. Com. v. Detwiller, 131 Pa. St. 614, 7 L. E. A. 357, 18 Atl.
131 Pa. St. 614, 7 L. E. A. 357, 18 Atl. 990.
149
104] Pkivate Cobpobations [Ch.3
citizenship is not necessary.^® Consequently, aliens, other than enemy

aliens, may become incorporators; the corporation is not alien, even if
all the corporators are aliens.^'' It would seem that an alien enemy
cannot become an incorporator of a domestic corporation, for subjects
of one country cannot lawfully contract with subjects of another
country with which the former country is at war, and, as heretofore
stated, corporators must have the capacity to contract.^^
16 Humphreys v. Mooney, 5 Colo. 282. had declared their intention

citizens or
See Moxie Nerve Food Co. v. Baum- of becoming citizens of the United
bach, 32 Fed. 205. States. The court said: "We believe
17 Cammeyer v. United German that the legislature intended that the
Lutheran Churches, 2 Sandf. Ch. (N. special privileges asked for should be
Y.) 186; Com. v. O'Donnell, Brightly conferred upon the consideration or
(Pa.) Ill; Hastings v. Anacortes full citizenship. When foreigners be-
Packing Co., 29 Wash. 224, 69 Pac. come bona fide citizens of the United
776; Continental Tyre & Eubber Co., Slates, they are entitled to all the
Ltd. V. Daimler Co., Ltd., [1915] 1 and benefits, under
rights, privileges,
K. B. 893. the government and laws, that accrue
Unless it is required by the statute to our own citizens, including, where
authorizing the formation of corpora- asked, that of aggregate corporate
tions, it is not necessary that corpora- power. They also become liable to
tors shall be citizens of the United the performance of certain duties,
States. Hastings v. Anacortes Pack- amongst which is that of being
ing Co., 29 Wash. 224, 69 Pac. 776. required to contribute to the na-
Under a Pennsylvania statute au- tional defense in time of war, and
thorizing the formation of a social to obey and support the laws in time
club,and requiring that three at least of peace. Until they have assumed
of the incorporators must be citizens these obligations, it is unwise, if not
of the state, it was held that it was dangerous, to confer upon them, as ex-
"fairly to be implied that all, or a clusive national organizations repre-
majority at least, be citizens of the senting their' native countries, extraor-
United States," and where applica- dinary privileges." See also In re
tion was made for a charter for a so- Eussian-American Guards Charter, 3
cial club and the articles of associa- Pa. Dist. 673; In re Lodge Duch Nove
tion were signed by three citizens of Doby, No. 165, 3 Pa. Dist. 215; In re
the state and twelve Chinamen, the Chinese Club, 1 Pa. Dist. 84.
court refused to grant the charter. In 18 See The William Bagaley, 5 Wall.
re Chinese Club, 1 Pa. Dist. 84. See (U. S.) 377, 18 L. Ed. 583; White v.
also In re Lodge Duch Nove Doby, No. Burnley, 20 How. (U. S.) 235, 15 L.
165, 8 Pa. Dist. 215. Ed. 886; Williams v. Mobile Sav. Bank,
In re Italian Mut. Ben. Ass'n, 4 Pa. 2 Woods (U. S.) 501, Fed Cas. No.
Dist. 357, 15 Pa. Co. Ct. 644, the court 17,729; Planters' Bank v. St. John, 1
refused to grant a charter to a mutual Woods (U. S.) 585, Fed. Cas. No.
benefit associationcomposed of a large 11,208; Mutual Benefit Life Ins. Co.
number of persons, where the names of V. Hillyard, 37 N. J. L. 444, 18 Am.
almost all of such persons indicated Eep. 741 Small 's Adm 'r v. Lumpkin 's
;
that they were foreigners, and it ap- Ex'x, 28 Gratt. (Va.) 832; Booker v.
peared that only a small number were Kir kpa trick, 26 Gratt. (Va.) 145.
150
Ch. 3] Who May Be Incoepobated [§ 105
Under a statute authorizing the formation of corporations and

providing that at least two of the subscribers to the charter of the
intended corporation must be citizens of the state, but which does not
prescribe the officer by whom nor the means by which the fact of
citizenship is to be determined, nor require that the citizenship of the
subscribers to the charter shall appear upon the face of that instru-
ment, held that where a charter alleging that two of the incor-
it is
porators were residents of the state, but not alleging that either of
them was a iitizen thereof, was filed in the oiifice of the secretary of
state,and a certificate that it had been so filed was given by him as
required by law, and it afterwards appeared that none of the persons
who signed the charter were citizens of the state, the corporation was a
corporation de facto, and persons becoming stockholders after the
organization had been effected could not be held liable as partners for
its debts to third persons dealing with it as a corporation.^^
Inasmuch as corporators must have the capacity

§ 105. Infants.
to contract, it necessarily follows that unless expressly permitted by
the statute, an infant cannot become one of the corporators in forming
a corporation, for at common law he is incapable of making a binding
contract.^"
19 American Salt Co. v. Heidenheim- 32 N. E. 122; Hamilton & Flamborough

er, 80 Tex. 344, 26 Am. St. Eep. 743, Road Co. V. Townsend, 13 Ont. App.
15 S. "W. 1038. The court said: "It 534, 16 Am. & Eng. Corp. Gas. 645.
would seem, however, that it is the In England, it has been held that the
duty of the secretary of state to in- incorporation is not rendered invalid
quire into the question, and that, if at least where the question is raised
he finds no two of the subscribers are on collateral attac.k, by the fact that
citizens of the state, he should decline one of the subscribers was an infant.
to file the charter. It would also seem In re Laxon & Co., [1892] 3 Ch. 555;
that if he decides wrongfully, and de- In re Nassau Phosphate Co., 2 Ch. Div.
clines to file a legal charter, he ma,y be 610.
compelled to do so by a writ of In Illinois, under a statute which
mandamus." authorized the incorporation of mutual
As to whether the corporation papers benefit associations and required that
must show residence, and the duty of the certificate of association should
the secretary of state to satisfy him- state, among other things, "the limits
self as to the compliance with the as to the age of the applicants," but
requirement, see § 111, infra. As to was silent as to whether minors could
whether after attempted incorporation become members of the association, it
tlje point can be collaterally raised, see was held that where the certificate of
§ 274, infra. association provided that "no person
In re Globe Mut. Ben. Ass'n, 63
20 shall become a member who is under
Hun (N. Y.) 268, 17 N. Y. Supp. 852, ten or over seventy years of age,"
aff'd 135 N. Y. 280, 17 L. E. A. 547, and there was no statute which either
151
105] Private Cobpokations [Ch.3
Infants need not be expressly excluded by the statute providing for

the formation of corporations, for it will be presumed that the legis-
lature, in authorizing persons to form a corporation, contemplated

only such persons as are sui juris.*^
§ 106. Married women. By the rules of thecommon law a mar-

ried woman has, in general, no power bind herself by contract, and
to
consequently a married woman cannot become one of the corporators
in the formation of a corporation.^^
In most of the states, however, there are statutes removing a mar-
ried woman's common-law disabilities to contract, and where such
statutes obtain, it is held that a married woman, of lawful age, may
be an incorporator, unless she is expressly excluded by the statute
providing for the formation of the corporation.^'
expressly or impliedly permitted or 122, aff'g 63 Hun (N. Y.) 263, 17 N.

forbade their admission to member- Y. Supp. 852, citing Hamilton & Flam-
ship, it was not unlawful for the as- borough Eoad Co. V. Townsend, 13 Ont.
sociation to admit infants to mem- App. 534, 16 Am. & Eng. Corp. Cas.
bership, as the fact that an infant 645.
member might avoid his contracts did For right of infant to acquire and
not constitute an objection to his ad- hold stock in a corporation and his
mission to the association, in which liability a.rising therefrom, see chap-
the payment of assessment dues was ter on Stock and Stockholders, infra.
purely voluntary and not compulsory 22 Bundy v. Cocke, 128 U. S. 185, 32
on any member; and that the fact that L, Ed. 397; Opinion of Attorney Gen-
the infants were incapacitated to act eral of Pennsylvania, 5 Pa. Dist. 742,
as trustees or to perform the duties of 18 Pa. Co. Ct. 492; In re Application
members did not constitute a legal bar for Charter, 27 Wkly. Notes Cas.
to their admission to membership. (Pa.) 399; Opinion of Attorney Gen-
Chicago Mut. Life Indemnity Ass 'n v. eral of Texas, 9 Ey. & Corp. L. J. 196.
Hunt, 127 111. 257, '2 L. K. A. 549, 20 See also Hamilton & Flamborough
N. E. 55. See, however, In re Globe Eoad Townsend, 13 Ont. App.
Co. V.
Mut. Ben. Ass'n, 63 Hun (N. Y.) 263, 534, 16 Am. & Eng. Corp. Cas. 645.
17 N. Y. Supp. 852, afC'd 135 N. Y. 23 Opinion of Attorney General of
280, 17 L. E. A. 547, 32 N. E. 122. Pennsylvania, 5 Pa. Dist. 742, 18 Pa.
21 In re Globe Mut. Ben. Ass'n, 63 Co. Ct. 492; Good Land Co. v. Cole,
Hun (N. Y.) 263, 17 N. Y. Supp. 852, 131 Wis. 467, 120 Am. St. Eep. 1056,
aff'd 135 N. Y. 280, 17 L. E. A. 547; 11 Ann. Cas. 806, 110 N. W. 895.
32 N. E. 122; Hamilton & Plamborough In the opinion of the Attorney Gen-
Eoad Co. v. Townsend, 13 Ont. App. eral of Pennsylvania reported in 5 Pa.
534, 16 Am. & Eng. Corp. Cas. 645. Dist. 742, 18 Pa. Co. Ct. 492, the quali-
"It has frequently been held that, fication of a married woman to become
where a statute authorizes persons to a corporator of a proposed corporation
form a corporation, * * * it is im- under the Pennsylvania statute was
plied that they shall be of full age." presented, and the conclusion reached
In re Globe Mut. Ben. Ass'n, 135 that the married woman's act of that
N. Y. 280, 17 L. E. A. 547, 32 N. E. state, removing the common-law dis-
152
Ch.3] Who May Be Inoobpoeated [§106
Thus under a statute providing that three or more adult persons,

residents of the state, may form a corporation in the manner and for
the purposes provided for in the statute, it was held that the fact that
two of the three adult persons who attempted to incorporate under
the statute were at the time husband and wife did not affect the legal
existence of the corporation, where by the statutes of such state a
married woman had the right to acquire, own and transfer property
and to conduct her separate business as if she were unmarried.** The
disability of married women to become incorporators is essentially
found in their disability to enter into binding contracts, and a re-
moval of that disability qualifies them to act.*^ Accordingly, where
enabling acts have conferred on married women the right to acquire,
own and transfer property and to conduct their separate business as
if unmarried, such a statutory provision empowers them to make
contracts respecting the purchase and ownership of stock in a cor-

poration,** and, as a further consequence of such removal of their dis-
abilitiesby reason of coverture, en- tion upon compliance with and in the
abled her to become a corporator of a manner prescribed by the statute. Ap-
corporation, upon the ground that such pellant suggests that a married wom-
a right grew out of the contractual an's common-law disabilities to con-
capacity bestowed upon her by such tract persist as to the exercise of this
enabling laws. right. The acts involved in forming
24 Good Land Co. v. Cole, 131 Wis. a corporation and in becoming a stock-
467, 120 Am. Eep. 1056, 11 Ann.
St. holder in it are alike in their character
Gas. 806, 110 N. W.895, distinguishing * * * and, if she is empowered to
Fuller & Fuller Co. v. McHenry, 83 make contracts respecting the pur-
Wis. 573, 18 L. E. A. 512, 53 N. W. 896, chase and ownership of stock in a cor-
where it was held that a husband and poration, it seems but a logical infer-
wife could not form a partnership ence that she may be a corporator of
because the legislature did not intend a proposed corporation. The right to
that such relations as flow from a co- acquire, own and transfer property
partnership in trade should exist be- and to conduct her separate business
tween them. as if she were unmarried involve the
25 In re Agudas Noshim Charter, 23 exercise of privileges in their nature,
Pa. Dist. 633; Good Land Co. v. Cole, like those involved in acquiring the
131 Wis. 467, 120 Am. St. Rep. 1056, right to exercise the corporate powers
11 Ann. Cas. 806, 110 N. W. 895. and privileges bestowed by the stat-
In Good Land Co. v. Cole, 131 Wis. ute."
467, 120 Am. St. Eep. 1056, 11 Ann. Cas. 26 United States. Bundy v. Cocke,
806, 110 N. W. 895, the court said: 128 U. S. 185, 32 L. Ed. 397; Witters v.
'
'The act of forming a corporation as Sowles, 38 Fed. 700.
provided by this statute, as between North Carolina. Meares v. Duncan,
the parties to the undertaking, is in 123 N. C. 203, 31 S. E. 476.
its nature contractual. In this view, Pennsylvania. Dilzer v. Beethoven
it seems a natural consequence that Bldg. Ass'n, 103 Pa. St. 86; In re
any three adult persons having the Agudas Noshim Charter, 23 Pa. Dist.
power to contract may form a corpora- 633; First Independent Ladies' Aid
153
§107] Pbivate Cobpobations [Ch.3
abilities at common law, to become incorporators of corporations.^'
§ 107. Corporations as corporators. A corporation aggregate '

' is
an artificial intellectual being, the mere creature of the law, composed

generally of natural persons in their natural capacity ; but may also be
composed of persons in their political capacity of members of other
corporations.
'
'
**
Statutes providing for the formation of corporations are not to be

construed as authorizing other corporations to become corporators,
unless such an intention on the part of the legislature is clear.^'
Society of Bloomfield, 1 Pa. Dist. 754. 1056, 11 Ann. Cas. 806, 110 N. W. 895.
Wisconsin. Good Land Co. v. Cole, 28 University of Maryland v. Wil-
131 Wis. 467, 120 Am. St. Eep. 1056, liams, 9 Gill & J. (Md.) 365, 395, 31
11 Ann. Cas. 806, 110 N. W. 895. Am. Kyd on Corporations,
Dec. 72; 1
England. In re Leeds Banking Co., 32. See §4, supra.
L. E. 3 Eq. 781; Eeuss v. Bos, L. E. In other words, a corporation need
5 H. L. 176; In re London, B. & M. not be composed entirely of natural
Bank, 18 Ch. Div. 581; In re General persons, or entirely of other corpora-
Co. for Promotion of Land Credit, 5 tions. There are a number of ex-
Ch. App. 363; Eeg. v. Carnatic Ey. Co., amples of corporations in England
L. E. 8 Q. B. 299. whose members were other corpora-
Canada. Hamilton & Flamborough tions. The most notable are the great
Eoad Co. V. Townsend, 13 Ont. App. universities of Oxford and Cambridge,
534, 16Am. & Eng. Corp. Cas. 645. which are corporations composed of
See chapter on Stock and Stockhold- • various colleges which are distinct and
ers, infra, as to the competency of a separate corporations. See University
married woman to become a share- of Maryland v. Williams, 9 Gill & J.
holder in a corporation. (Md.) 365, 395, 31 Am. Dec. 72.
In Bundy v. Cocke, 128 U. S. 185, 29 United States. American Ball
32 L. Ed. 397, the competency of a Bearing Co. v. Adams, 222 Fed. 967.
married woman to become a sharehold- Louisiana. Factors' & Traders' Ins.
er in a corporation was involved, and Co. V. New Harbor Protection Co., 37
it was held that the statute of Arkan- La. Ann. 233.
sas removing the common-law disabili- New Jersey. Central E. Co. v. Penn-
ties of a married woman as to con- sylvania R. Co., 31 N. J. Eq. 475.
tracts respecting her separate property Tennessee. State v. Vanderbilt Uni-
and business enabled her to assume versity, 129 Tenu. 279, 164 S. W. 1151.
such obligations. Washington. Denny Hotel Co. of
See also Witters v. Sowles, 38 Fed. Seattle v. Schram, 6 Wash. 134, 36 Am.
700; Good Land Co. v. Cole, 131 Wis. St. Eep. 130, 32 Pac. 1002.
467, 120 Am. St. Eep. 1056, 11 Ann. A statute providing that "any num-
Cas. 806, 110 N. W. 895. ber of persons, not less than five, a
Z7 In re Agudas Noshim Charter, 23 majority of whom are citizens of this
Pa. Dist. 633; In re First Independent state, desiring tobecome incorporated,
Ladies' Aid Soc. of Bloomfield, 1 Pa. shall subscribe and acknowledge ar-
Dist. 754; In re Opinion of Attorney ticles of incorporation," is held to be
General of Pennsylvania, 5 Pa. Dist. obviously a grant of authority to
742, 18 Pa. Co. Ct. 492; Good Land Co. natural persons to organize so as to
V. Cole, 131 Wis. 467, 120 Am. St. Eep. become invested with corporate fran-
154
'
Cli.3] Who May Be Incokpobated [§107
In the absence of express statutory authority, a corporation cannot

become a subscriber to the capital stock of a proposed corporation.^"
"In the absence of express statutory authority" a corporation "can
not become an incorporator by subscribing for shares of a new cor-
poration, and it can not do this indirectly through persons acting as
its agents or tools." *^
chises, and not a grant to corporations The case of University of Maryland

to 80 organize. American Ball Bearing v. Williams, 9 Gill & J. (Md.) 365, 31
Co. V. Adams, 222 Fed. 967. Am. Dec. 72, has been cited in support
Under a statute providing that of the proposition that other corpora-
"two or more persons" might form a tions may be incorporators, as the
corporation in a certain prescribed opinion seems to read to that effect:
manner, it was held that the term per- "So in the cases of the universities of
son does not include a private corpora- Oxford and Cambridge, of which the
tion. The court said: "It is true many colleges (distinct and separate
that section 1709, 2 Hill's Code, pro- corporations) within those corpora-
vides that the term 'person' may be tions,form component parts of those
construed to include the United larger corporations." But this case
States, this state, or any state or ter- either on its facts or in its dicta is not
ritory, or any public or private cor- authority for the proposition that cor-
poration, as well as an individual. But porations may act as incorporators un-
it does not follow, by any means, that less the law expressly allows it and
the term person is always to be con- if there is no private act of the legis-
strued as a private corporation, any lature incorporating them. Clearly
more than it is always to be construed other corporations are not within the
as the United States.Mor. Priv. Corp. meaning of the word "persons," "in-
S433, says: 'A corporation cannot, in and
'
corporators, commissioners.
'
the absence of express statutory au- the like, as used in modern statutes
thority, become an incorporator by within the meaning of this chapter and
subscribing for shares in a new cor- it has been many times so decided.
poration, nor can it do this indirectly 30 Denny Hotel Co. of Seattle v.
by persons acting as its agents or Schram, 6 Wash. 134, 36 Am. St. Rep.
tools; ' citing Central E. Co. v. Penn- 130, 32 Pac. 1002.
sylvania R. Co., 31 N. J. Eq. 475. In Nebraska Shirt Co. v. Horton
The author, continuing, says: 'The (Neb.), 93 N. W. 225, Pound, C, said:
right of forming a corporation is "Corporations have quite enough
conferred by the incorporation laws power without allowing them to in-
only upon persons acting individually, corporate themselves in new compa-
and not upon associations.' This, it nies. Unless authorized by statute, a
seems to us, for manifest and manifold corporation has no power to subscribe
reasons, is in accordance with public to the capital stock of another corpora-
policy; and we therefore decide that, tion, and such a subscription is not
under the existing laws of this state, binding. '
one corporation cannot subscribe to 31 Martin v. Ohio Stove Co., 78 111.
the capital stock of another corpora- App. 105, citing People v. Chicago Gas
tion." Denny Hotel Co. of Seattle v. Trust Co., 130 111. 268, 8 L. R. A. 497,
Schram, 6 Wash. 134, 36 Am. St. Rep. 17 Am. St. Rep. 319, 22 N. E. 798.
130, 32 Pao. 1002. In Converse v. Emerson, Talcott &
155
'
§107] Pkivate Cokpobations [Ch.3
The power of one corporation to own stock in another corporation is

entirely different from its power to create or itself become one of the
incorporators of another corporation.^^ Referring only to the latter
power, seems clear that where a statute provides that a certain
it
number of "persons" may by articles of association form a corpora-

tion, such a statute refers only to natural persons, and not to cor-
porations.^'
Co.,242 nl. 619, 90 N. E. 269, aff 'g 148 invalid and void, where there is no
m. App. 604, it was held that a corpo- law providing for such a corporation
ration organized under the laws of Il- as is proposed, and the case where
linois had no power to become one of there is no law permitting such pro-
the organizersof a corporation or- moters as attempt to organize a cor-
ganized under the laws of Minnesota, poration to do so. * * * Legal in-
and become an original subaeriber for firmity in parties is as fatal as legal
its capital stock, and consequently was infirmity of purpose. Neither can it
not liable, at the suit of the receiver be soundly said that by the granting
of the Minnesota corporation, for an of authority to Ohio corporations,
unpaid balance on such stock. The within prescribed limits, to lawfully
court said: "A corporation is but the become stockholders in other lawfully
creature of the statute, and it can ex- organized corporations, there is implied
ercise no greater powers than those a further grant of power to such Ohio
which are expressly conferred upon it corporations to themselves organize
by its charter or which must be neces- corporations in which they shall own
sarily implied from its charter. The aU the stock. The power to own stock
charter of the appellee company em- in a lawfully organized corporation is
powered it only to engage in the busi- too greatly different from the power
ness of manufacturing and selling cer- to create a corporation, and to control
tain articles. It had no authority, it, for the latter to be raised by im-
either express or implied, to partici- plication from" the former; this with-
pate in the organization of other cor- out regard to the opportunities for mis-
porations,either for speculative or chief which would be afforded to cor-
for manufacturing purposes. • » • porations to divert the corporation
The appellee became one of the or- capitalfrom the purposes to which it
ganizers of the thresher company for has been devoted, if such an implied
the purposes for which that company power were held to exist. In grants
was incorporated and was one of the by the public, the general rule of con-
original subscribers for its stock. Its struction is that nothing passes by
act in so doing was ultra vires ite char- implication merely. '
ter and void, and this suit cannot be See Chap. 30, infra, for power of a
maintained thereon." See also Con- corporation to take and hold stock in
verse V. Gardner Governor Co., 174 another corporation.
Fed. 30; First Nat. Bank v. Converse, 33 United States. American Ball
200 U. S. 425, 50 L. Ed. 537. Bearing Co. v. Adams, 222 Fed. 967.
32 American Ball Bearing Co. v. Louisiana. Factors '& Traders ' Ins.
Adams, 222 Fed. 967. Clarke, D. J., Co. V. New Harbor Protection Co., 37
said: "No valid distinction can be La. Ann. 233.
drawn between the familiar ease in New Jersey. Central B. Co., v. Penn
which an attempted corporation is held sylvania B. Co., 31 N. J. Eq. 475.
156
'
Ch.3] Who May Be Incoepoeated [§108
A corporation, however, may be expressly authorized by its charter

to acquire and hold shares in another corporation, and it may then do
soby subscribing for stock in the organization of another corporation,
and thus become a corporator, if the statute providing for the forma-
tion of the proposed corporation authorizes other corporations to
become corporators.^*
§ 108. Corporators not having substantial interest in the corpora-

tion. In some states, the general laws authorizing the formation of
corporations expressly provide that the corporators shall be sub-
scribers fora certain number of shares of stock in the corporation, but
unless it is by the statute, the incorporators need
expressly so required
not be subscribers for stock in the proposed corporation.*^ Under
some statutes, however, it is required that the incorporators shall be
Tennessee. State v. Vanderbilt tTni- acquire and hold stock therein. Rog-
versity, 129 Tenn. 279, 164 S. W. 1151. ers V. Nashville, C. & St. L. Ry. Co., 91
Vermont. State v. Rutland Railway, Fed. 299.
Light & Power Co., 85 Vt. 91, Ann. Gas. Where a part of the capital stock
1914 A 1305, 81 Atl. 252. of a corporation was subscribed for by
Washington. Denny Hotel Co. of corporations, that fact is of no avail to
Seattle v. Sehram, 6 Wash. 134, 36 Am. defeat an action against an individual
St. Rep. 130, 32 Pac. 1002. subscriber to recover his unpaid sub-
34 Iowa Lumber Go. v. Foster, 49 scription to the capital stock. United
Iowa 25, 31 Am. Rep. 140; In re Asiatic States Vinegar Co. v. Foehrenbach, 148
Banking Corporation, L. R. 4 Ch. App. N. T. 58, 42 N. E. 403.
252. See also Rogers v. NashviUe, G. 35 Densmore Oil Co. v. Densmore, 64
& St. L. Ry. Co., 91 Fed. 299; Calumet Pa. St. 43; Bristol Bank & Trust Co.
Paper Co. v. Stotts Inv. Co., 96 Iowa V. Jonesboro Banking Trust Co., 101
147, 59 Am. St. Rep. 362, 64 N. W. 782. Tenn. 545, 48 S. W. 228; Rehbein v.
See Chap. 30, infra. Rahr, 109 Wis. 136, 85 N. W. 315. See
"A corporation cannot in its own Badger Paper Co. v. Rose, 95 Wis. 145,
name subscribe for stock, or be a cor- 37 L. R. A. 162, 70 N. W. 302; In re
porator under the general railroad law; British Provident L. & G. Ass 'n, 5 Ch.
nor can it do so by a simulated com- Div. 306. See also American Ball
pliance with the provisions of the law Bearing Go. v. Adams, 222 Fed. 967.
through its agents as pretended cor- "Generally, corporate existence is
porators and subscribers of stock." created by the execution and filing of
Central R. Co. v. Pennsylvania R. Co., an instrument by men who may never
31 N. J. Eq. 475. hold stock, and the relationship of
A foreign raUroad corporation may stockholder is created either by the
hold stock in a domestic railroad com- purchase of stock or the subscription
pany when the latter 's charter pro- therefor accepted by the corporation. '
vides that "any state orany citizen, Rehbein v. Rahr, 109 Wis. 136, 85 N.
corporation, or company of this or any W. 315, citing Badger Paper Co. v.
other state or country" may subscribe Rose, 95 Wis. 145, 37 L. B. A. 162, 70
for and hold stock therein, and where N. W. 302.
the former's charter gives it power to
157
'
§108] Private Coeporations [Ch.3
persons having an actual and real interest in the assets and in the
welfare of the corporation.^^ Where the incorporation statute does
not so require, the fact that the original incorporators are not sub-
stantially interested in the corporation is no ground for setting aside
a charter of incorporation which is otherwise valid.*''
§ 109. Number of incorporators. No particular number of incor-

porators is necessary in the formation of a corporation, unless a cer-
tain number
is expressly or impliedly required by the incorporation
statute. In the absence of constitutional prohibitions, there is nothing

to prevent a state from creating or authorizing the formation of a
corporation composed of a single person only.*'
Though the state may create a corporation consisting of a single
member only, it is not considered consistent with public policy to do
so in the case of a private corporation; and for this reason, the
statutes authorizing the formation of corporations almost invariably
require a certa,in number of corporators. When this is the ease, the
provision mandatory, and a corporation cannot be legally formed
is
by less than the prescribed number, for, as we have seen, a charter
S6 American Ball Bearing Co. v. he pretended to represent was a mere

Adams, 022 Fed. 967; Eehbeia V. sham. The court said: "The three
Eahr, 109 Wis. 136, 85 N. W. 315. original incorporators, it appears, were
A statute providing that any num- not the substantial owners. This fact
ber of persons, not leas than five, a is not enough to invalidate the cor-
majority of whom are citizens of this poration. They were merely the em-
state, desiring to become incorporated, ployees about the building wherein
shall subscribe and acknowledge arti- was located the office of the lawyer
cles of incorporation and be subscrib- who prepared the articles of asso-
'
ers to the capital stock of the corpora- ciation.
tion,contemplates that the action pre- 38 Penobscot Boom Corporation v.
scribed shall be taken by five natural Lamson, 16 Me. 224, 33 Am. Dec. 656;
persons having an actual and real in- Com. V. O'Donnell, Brightly (Pa.) 111.
terest, at least to the extent of one See the incorporation statutes of the
share of the capital stock, in the assets respective states.
and in the welfare of the corporation. In Penobscot Boom Corporation v.
American Ball Bearing Co. v. Adams, Lamson, 16 Me. 224, 33 Am. Dec. 656,
222 Fed. 967, citing Hoopes v. Basic it was held that a grant of corporate
Co., 69 N. J. Eq. 679, 61 Atl. 979. powers to one person, and his asso-
37 State V. Miner, 233 Mo. 312, 135 ciates and successors, did not require
S. W. 483. of such person that he should take as-
In State Miner, 233 Mo. 312, 135
v. sociates before the act could take ef-
S. W. 483, the defendant was prose- fect, or corporate powers be exercised,
cuted under the bucket shop laws as a but that it virtually conferred upon
principal and not as an agent, and it him alone the right to exercise all the
was sought to be shown on the part corporate powers thereby granted.
of the state that the corporation which The grant being to one person, with-
158
' '
Ch.3] Who May Be Incokpokated [§109
cannot be accepted by a part only of the persons to whom it is granted

or offered.'*
Where a statute provided that "any number of persons" might
'
' associate themselves together and become incorporated for the trans-
it was held that it did not mean that
'
action of £(ny lawful business, '
out restriction, said the court, "the to a certain number of persons, it can-
inference necessarily is, that it was the not be accepted by a less number.
intention of the legislature to permit Montgomery v. Forbes, 148 Mass.
that one person or his successor to ex- 249, 19 N. E. 342; Broderip v. Salomon,
ercise all the corporate powers, and to [1895] 2 Ch. Div. 323; Rex v. Amery,
make his acts, when acting upon the 2 T. R. 515, 1 T. R. 589.
subject-matter of the corporation and Where a statute authorizing the for-
within its sphere of action and grant mation of a corporation provides that
of power, the acts of the corporation. '
the articles of incorporation must be
'
And seeHughes v. Parker, 20 N. H. subscribed by five or more persons,
'
'
58; Workingmen's Building & Loan and acknowledged by each, it is held

Ass 'u V. Coleman, 89 Pa. St. 428. that articles of incorporation sub-
Where a person takes the entire

scribed and acknowledged by less than
five incorporators are fatally defective.
capital stock of a corporation, but al-
People V. Golden Gate Lodge No. 6,
lots four shares to four employees, the
128 Cal. 257, 60 Pac. 865; People v.
corporation is validly formed if the re-
Montecito Water Co., 97 Cal. 276, 33
quirements of the statute are substan-
Am. St. Rep. 172, 32 Pac. 236. See,
tially complied with. Pott v. Schmuck-
however, Dannebroge Gold Quartz Min.
er, 84 Md. 535, 35 L. R. A. 392, 57 Am.
Co. V. Aliment, 26 Cal. 286. See also
St. Eep. 415, 36 Atl. 592. Dancy v. Clark, 24 App. Cas. (D. C.)
39 Arkansas. Town of Searcy v.
487.
Yarnell, 47 Ark. 269, 1 S. W. 319. See, however, Johnson v. Okerstrom,
California. People v. Montecito 70 Minn. 303, 73 N. W. 147, where it
Water Co., 97 Cal. 276, 33 Am. St. Rep. was held that under the facts of the
172, 32 Pae. 236. case a de facto corporation existed, al-
Massachusetts. Montgomery v. though the articles of incorporation
Porbes, 148 Mass. 249, 19 N. E. 342. were signed by a less number than re-
Miimesota. State v. Critchett, 37 quired by the statute under which the
Minn. 13. corporation was organized.
Pennsylvania. Rhoads v. Hoerners- When an act requires a certain num-
town Bldg. & Sav. Ass'n, 82 Pa. St. ber of persons to organize as a corpo-
180; In re Helping-Hand Marriage ration, but there is no provision requir-
Ass'n, 15 Phila. 644. ing the presence of any particular
England. Broderip v. Salomon, number at the first meeting for the pur-
[1895] 2 Ch. Div. 323; Rex v. Amery, pose of organizing, it is sufficient if
2 T. B. 515, 1 T. R. 589. the required number sign the applica-

Canada. Hamilton & Flamborough tion or articles for the organization of
Road Co. v. Townsend, 13 Ont. App. the corporation, although all are not
534, 16 Am. & Eng. Corp. Cas. 645. present at the first meeting. Packard
See §§ 227, 239, infra. V. Old Colony R. Co., 168 Mass. 92, 46
When a charter is granted or offered N. E. 433.
159
'
§ 109] Private Coepoeations [Ch. 3
a person could form a corporation consisting of himself only, but that

he must have at least one associate.*"
"Where a statute prescribes the number of persons necessary to
form a corporation, the validity of the corporate organization is not
affected by the fact that one of the number necessarily required is
the wife of another incorporator, if she is competent to act as or be an
incorporator by the laws of the state under which the corporation is
formed.*^ Though the statute providing for the formation of cor-

porations requires that there shall be a certain number of incorporators,
in practice this provision is frequently evaded by the person or persons
really interested in the formation of the corporation associating with
himself or themselves persons who have no interest, present or con-
templated, in the proposed corporation, and the validity of a corpora-
tion so formed has been frequently upheld against collateral attack.*^
§ 110. Effect upon corporate existence of lack of qualification of

incorporators. There is a difference of opinion as to the effect upon
corporate existence of the disqualification or lack of qualification of
the incorporators and whether the question of the lack of capacity or
of qualification can be collaterally raised. According to some of the
authorities the lack of the requisite qualifications provided for by the
incorporating statute cannot be collaterally raised, and the corpora-
tion has a de facto existence.*^ There is, however, some authority in
40 Louisville Banking Co. v. Eisen- England. Salomon v. Salomon &

man, 94 Ky. 83, 19 L. E. A. 684, 42 Am. Co., [1897] A. C. 22; Broderip v. Salo-
St. Eep. 335, 21 S. W. 531, 1049. And mon, [1895] 2 Ch. Div. 323; In re Brit-
see to the same Swift v. Smith,
effect ish Provident L. & G. Ass 'n, 5 Ch. Div.
65 Md. 428, 57 Am. Eep. 336. 306.
41 Good Land Co. v. Cole, 131 Wis. . See, however, American Ball Bear-
467, 120 Am. St. Eep. 1056, 11 Ann. ing Co. v. Adams, 222 Fed. 967.
Cas. 806, 110 N. W. 895. 43 Continental Trust Co. v. Toledo,
42 See in this connection: St. L. & K. C. E. Co., 82 Fed. 642; Hum-
Kentucky. Louisville Banking Co. phreys v. Mooney, 5 Colo. 282; Ameri-
V. Eisenman, 94 Ky. 83, 19 L. E. A. can Salt Co. v. Heidenheimer, 80 Tex.
684, 42 Am. St. Eep. 335, 21 S. W. 531, 344, 26 Am. St. Eep. 743, 15 S. W. 1038.
1049. In Continental Trust Co. v. Toledo,
Missouri. State v. Miner, 233 Mo. St. L.& K. C. E. Co., 82 Fed. 642, Taft,
312, 135 S. W. 483. Circuit Judge, said: "It may be safely
Tennessee. Bristol Bank & Trust stated aa the rule that when persons
Co. V. Jonesboro Banking Trust Co., assume to act as a body, and are per-
101 Tenn. 545, 48 S. "W:. 228. mitted by acquiescence of the public
Wisconsin. Eehfeein v. Eahr, 109 and the state to act, as if they were
Wis. 136, 85 N, W. 315, citing Badger legally a particular kind of corpora-
Paper Co. V. Eose, 95 Wis. 145, 37 L. E. tion, for the organization, existence,
A. 162, 70 N. W. 302. and continuance of which there is ex-
160
Ch.3] Who May Be Incoepoeated [§ 111
support of the view that this question of their qualifications may be

thus raised.**
§ 111. Necessity of articles showing qualifications Presumptions, —

The incorporation papers need »ot affirmatively show that the incor-
porators are qualified, unless the statute under which it is sought to
form the corporation so requires.*^ A requirement in the statute au-
press recognition by general law, such applied in a case, in which the corpo-
body of persons a corporation de
is rators have knowingly and intention-
facto, although the particular personp ally violated the law in procuring a
thus exercising the franchise of being charter under a general law we need
a corporation may have been ineligible not decide. But we are clea,rly of the
and incapacitated by the law to do opinion that it is not a proper rule to
30." This is on the same principle on be applied in a case like the present,
which it is held that a person may be in which it appears that stockholders
a de facto officer, although ineligible. who are sought to be held liable as
See Norton v. Shelby County, 118 TJ. S. partners bought their stock after the
i25, 30 L. Ed. 178, cited with approval organization had been effected, and un-
in Continental Trust Co. v. Toledo, St. der the belief that a legal corporation
L. & K. C. E. Co., supra; State v. Car- existed." American Salt Co. v. Heid-
roll, 38 Conn. 449, 9 Am. Eep. 409; enheimer, 80 Tex. 344, 26 Am. St. Eep.
Blackburn v. State, 3 Head (Tenn.) 743, 15 S. W. 1038.
690. Where part of the capital stock of a
Under a statute requiring two of the corporation was subscribed for by cor-
incorporators to be citizens of the porations, that fact is of no avail to
state, but not requiring that the citi- defeat an action against an individual
zenship should appear on the face of subscriber to recover his unpaid sub-
the charter, it was held that where ar- scription to the capital stock. United
ticles of association and incorporation, States Vinegar Co. v. Foehreubach, 148
alleging that two of the incorporators N. Y. 58, 42 N. E. 403.
were residents of the state, were reg- 44 American Ball Bearing Co. v.
ularly filed, and a certificate was is- Adams,, 222 Fed. 967; Central E. Co.
sued by the secretary of state, and V. Pennsylvania E. Co., 31 N. J. Eq.
it afterwards appeared that there were 475. This, however, was a bill in
not two citizens of the state among the equity brought by a public service
incorporators, there was a de facto corporation for the direct purpose of
corporation, and subsequent stockhold- inquiring into the legality 'of the or-
ers could not be held liable as partners. ganization of another railroad com-
The court, however, declined to pass pany.
upon the liability of the incorporators, 45 Baltzell V. Church Home & Infirm-
saying: "It is well settled that per- ary of Baltimore City, 110 Md. 244,
sons who deal with such a corporation 73 Atl. 151; Boatmen's Bank v. Gil-
de facto, and who become indebted to lespie, 209 Mo. 217, 108 S. "W. 74;
it, are estopped from denying its exist- American Salt Co. v. Heidenheimer, 80
ence as a legal corporation; and there Tex. 344, 26 Am. St. Eep. 743, 15 S. W.
is authority for holding that its credi- 1038; Halbert v. San Saba Springs
tors are also estopped from claiming Land & Live-Stock Ass'n (Tex. Civ.
against the stockholders as partners. App.), 34 S. W. 636.
* * * "Whether that rule ought to be Where a statute requires articles of
161
I Priv. Corp.— 11
§111] Pbivate Cobpobations [Ch.3
thorizing the formation of corporations that the incorporators must

be residents or have other qualifications does not in itself mean that
such qualifications shall be set forth in the charter.*® In most juris-
dictions, however, the incorporation acts provide that the articles of
association shall state the names and residences of the incorporators.*'
Even though the statute does not require that the qualifications of
the incorporators be affirmatively set forth in the incorporation papers,
the secretary of state or other officer authorized to pass upon the
sufficiency of the incorporation papers and issue the charter has gen-
erally the right to inquire into the qualifications of the incorporators.**
But such officer is not obliged to make inquiry outside of the articles
of incorporation, although privileged to make such inquiry.**
incorporation to be signed by the pres- said: "It does not appear that of the
ident and directors, the fact that the five persons who have subscribed, three
president and directors signed them is are citizens of this commonwealth.
a compliance with the statute, notwith- The act of assembly * * * ia im-
standing the fact that they did not perative and the fact should appear by
affix their official titles to their sig- petition for the intended charter or by
natures. St. Louis & S. F. R. Co. v. an affidavit added to it. How in the
Southwestern Telephone & Telegraph instance before us can we know that
Co., 121 Fed. 276. See, however. In the persons subscribing are not citizens
re Wendover Athletic Ass'n, 70 N. of another state or foreigners?" Ap-
Y. Misc. 273, 128 N. Y. Supp. 561. plication of Enterprise Mut. Ben.
46 Baltzell V. Church Home & Infirm- Ass'n, 10 Phila. (Pa.) 380. See also
ary of Baltimore City, 110 Md. 244, 73 In re Wendover Athletic Ass'n, 70
Atl. 151; American Salt Co. v. Heiden- N. Y. Misc. 273, 128 N. Y. Supp. 561;
heimer, 80 Tex. 344, 26 Am. St. Rep. Appeal of Chiropractors' Ass'n of
743, 15 S. W. 1038; Halbert v. San Pennsylvania, 243 Pa. 547, 90 Atl. 335;
Saba Springs Land & Live-Stock Ass'n Com. V. Detwiller, 131 Pa. St. 614, 7
(Tex. Civ. App.), 34 S. "W. 636. L. R. A. 357; 18 Atl. 990; Charter of
47 See the incorporation statutes of St. Ladislaus Roman Catholic Sick &
the various states. Benefit Ass 'n of Johnstown, 19 Pa. Co.
Under a statute requiring the appli- Ct. 25.
cation for the charter of a corporation 48 American Salt Co. v. Heiden-
proposed to be organized thereunder to heimer, 80 Tex. 344, 26 Am. St. Rep.
set forth "the names and residences 743, 15 S. "W. 1038. See § 212, infra.
of the incorporators, ' ' the court, in re- 49 Boatmen's Bank v. trillespie, 209
jecting the application as insufficient, Mo. 217, 108 S. "W. 74. R«« § 212, infra.
162
CHAPTER 4
Objects foe Which Corporations May Be Created

g 112. In general.
§ 113. Purposes of corporations created under authority of congress.
§ 114. Unlawful or injurious purposes.
§ 115. Attempt to incorporate under inapplicable statute.
g 116. General words in statutes defining objects.
§ 117. Number of purposes for which corporations may be formed.
§ 118. How character of a corporation is determined.
§ 119. Statement of objects in incorporation paper.
i 120. Corporations for manufacturing or mechanical purposes.
§ 121. Corporations for trade and commerce.
§ 122. Corporations for industrial pursuits.
§ 123. Corporations for agricultural purposes.
§ 124. Corporations for benevolent, charitable, literary or educational purposes.
§ 125. Corporations for scientific purposes.
§ 126. Corporations for purposes of pecuniary profit.
1 127. Corporations for owning or dealing in real estate.
§ 128. Corporations for work of "internal improvement," "public improvement "
or "public utility."
§ 129. Corporations for purpose of acquiring and holding stock in other corporar
tions.
i 130. Corporations for the practice of law or medicine.

{ 131. Miscellaneous illustrations of authorized purposes.
§ 112. In general. As will be seen elsewhere, the legislature of a

state has the inherent power to create a corporation for any purpose
whatsoever, provided it violates no provision of the state or Federal
Constitution.* It may not only create corporations, but, subject to
1 See § 168, infra. See also the f ol- Missouri. State v. Corkins, 123 Mo.
lowing eases: 56, 27 S. W. 363.
Alabama. Cahill v. Citizens' Mut. Nebiaska. York Park Bldg. Ass'n
Bldg. Ass'n, 61 Ala. 232; Paschall v. v. Barnes, 39 Neb. 834, 58 N. W. 440.
Whitsett, 11 Ala. 472. > New York. Bank of Chenango v.
Calif omia. Market St. Ey. Co. v. Brown, 26 N. Y. 467; United States
Hellman, 109 Cal. 571, 42 Pae. 225. Trust Co. v. Brady, 20 Barb. 119.
Indiana. City of Aurora v. West, 9 Ohio. Atkinson v. Marietta & C. R.
Ind. 74. Co., 15 Ohio St. 21.
Maine. Penobscot Boom Corporation Tennessee. Bell v. Bank of Nash-
V. Lamson, 16 Me. 221, 33 Am. Dee. ville, Peek, 269.
656.
Minnesota. Brown v. Corbin, 40
Minn. 508, 42 N. W. 481.
163
;
112] Private Cokpobations [Ch.4
such restrietions, it may confer upon them, whether they are public or
private, any powers it may see iit.^
Such laws, however, are not generally so broad as to authorize incor-

poration for any purpose for which persons may wish to incorporate
but they allow incorporation for specified purposes only, and no cor-
poration can be formed under them for any other purpose.*
2 See New Orleans Gas Co. v. Loui- California. Kaiser Land & Fruit Co.
siana Light Co., 115 U. S. 650, 29 L. V. Curry, 155 Cal. 638, 103 Pac. 341.
Ed. 516; In re Knorr's Appeal, 89 Pa. Michigan. Attorney General v. Lor-
St. 93; In re Philadelphia & T. R. Co., man, 59 Mich. 157, 60 Am. Eep. 287, 26
6 Whart. (Pa.) 36 Am. Dee. 202;
25, N. W. 311; Detroit Schuetzen Bund v.
Halbert v. San Saba Springs Land & Detroit Agitations Verein, 44 Mich.
Live Stock Ass'n (Tex. Civ. App.), 313, 38 Am. Eep. 270, 6 N. W. 675. See
34 S. W. 636, 89 Tex. 230, 49 L. K. A. also lale Eoyale Land Corporation v.
193, 34 S. W. 639. Secretary of State, 76 Mich. 162, 43
"A charter of incorporation may be N. W. 14.
granted to an association of persons to Minnesota. Finnegan v. Noerenberg,
conduct any business that an individ- 52 Minn. 239, 38 Am. St. Eep. 552, 53
ual may lawfully conduct under the N. W. 1150.
laws of the state." Hanger v. Com., Missouri. See Atchison v. Crawford
107 Va. 872, 14 L. E. A. (N. S.) 683 County Farmers' Mut. Fire Ins. Co.,
60 S. E. 67; Ward Lumber Co. v. Hen 192 Mo. App. 362, 180 S. W. 438.
derson-White Mfg. Co., 107 Va. 626, New York. People v. Gunn, 96 N. Y.
17 L. E. A. (N. S.) 324, 59 S. E. 476. 317; Ancient City Sportsman's Club v.
"The legislature may authorize the Miller, 7 Lans. 412.
creation of corporations for many Ohio. Meader Furniture Co. v. Eow-
purposes not contemplated by the com- land, 6 Ohio Dec. 595.
m_on-law. * * * The measure of Oklahoma. See Myatt v.Ponca City
the legislative power iii this regard is Land & Improvement Co., 14 Okla. 189,
limited only by circumstantial provi- 68 L. E. A. 810, 78 Pac. 185.
sions." Killingsworth v. Portland Pennsylvania. In re Homestead
Trust Co., 18 Ore. 351, 7 L. E. A'. 638, Bldg. Co., 10 Phila. 106. See also In re
17 Am; St. Eep. 737, 23 Pae. 66.
'
'
Board of Eeal Estate Brokers, 21 Pa.

"The objects for which a corpora- Dist. 59; In re W. B. Urling Co., 13 Pa.
tion is created are universally such as Dist. 534.
the government wishes to promote." Texas. See Staacke v. Eoutledge, —
Dartmouth College v. Woodward, 4 Tex. Civ. App. —
175 S. W. 444; Hal-
,
Wheat. (TJ. S.) 518, 637, 4 L. Ed. 629. bert V. San Saba Springs Land & Live
In New Jersey corporations may be Stock Ass'n (Tex. Civ. App.), 34 S. W.
organized to engage in almost every 636, 89 Tex. 230, 49 L. E. A. 193, 34
conceivable manufacture or trade. S. W. 639.
Trenton Potteries Co. v. Oliphant, 58 Wisconsin. State v. International
isr. J. Eq. 50, 46 L. E. A. 255, 78 Am. St. Inv. Co., 88 Wis. 512, 43 Am. St. Eep.
Kep. 612, 43 Atl. 723. 920, 60 N. W. 796.
3 See § 115, infra. See also the fol- No charter can be granted to a pro-
lowing cases: posed corporation where there is ij
United States. American Ball Bear- statute permitting incorporation for
ing Co. V. AdAâa, 222 Fed. 967. the purposes proposed. In re Pennayl.
164
Ch.4] Objects fok Which Created [§112
The right of individuals to orgaiiize themselves into a corporation.
vania State Sportsmen's Ass'n, 1 Pa. thorized by a general law. Ex parte

Dist. 763; West Mauayunk Ga^ Light Chadwell, 3 Baxt. (Tenn.) 98.
Co. V. New Gas Light Co., 21 Pa. Co. A
corporation cannot be organized
Ct. 369; In re Eiohmond Retail Coal Co. for carrying on a mercantile business,
of Philadelphia, 9 Pa. Co. Ct. 172. or buying and selling and dealing in
In Pennsylvania, statutes have been commodities as a merchant, where
enacted authorizing the court of com- there is no statute authorizing persons
mon pleas to grant charters under to incorporate for such purpose^. Com.
prescribed conditions. Under such V. J.B. Lippincott Co., 156 Pa. St. 513,
statutes it is held that the court has 27 Atl. lb; Com. V. Thackara Mfg. Co.,
such authority only as has been con- 156 Pa. St. 510, 27 Atl. 13.
ferred upon it by the legislature and A
charter which purports to create
that the court can confer corporate a corporation to carry on a business
powers for no other purposes than for which a corporation cannot be
those mentioned in the statute. See legally created will not be permitted
In re Medical College of Philadel- to be filed. Miller v. Tod, 95 Tex. 404,
phia, 3 Whart. 445; In re Italian
.
67 S. W. 483; Staacke v. Routledge, —
Mut. Beneficial Ass'n, 4 Pa. Dist. Tex. Civ. App. —
175 S, W. 444.
,
357; In re Russian- American Guards Where the articles of association of

Charter, 3 Pa. Dist. 673; In re a proposed corporation set forth two
Lodge Duch Nove Doby, No. 165, 3 Pa. purposes, one of which is authorized
Dist. 215; Lehigh Valley Coal Co. v. and the other not, the secretary of
United States Pipe Line Co., 3 Pa. state cannot be compelled by man-
Dist. 70; In re Pennsylvania State
. damus to file such articles of associa-
Sportsmen 's' Ass 'n, 1 Pa. Dist. 763 In ; tion. Miller v. Tod, 95 Tex. 404, 67
re Chinese Club, 1 Pa^ Dist. 84; In re S. W. 483. See also State v. Nichols,
Stevedores Beneficial
' Ass 'n, 14 40 Waah. 437, 82 Pac. 741; State v.
Phila. 130; In re American Electro- Niehoita, 38 Wash. 309, 80 Pac. 462.
pathie Inst., 14 Phila. 128; In re See §§ 114, 115, 117-119, infra.
Homestead Bldg. Co., 10 Phila. 106; "The articles for incorporation, un-
In re Accountants Ass 'n of Pittsburg,
' der the general law, are required to be
18 Pa. Co. Ct. 159; In re Bohemian passed upon by the attorney general
Slavonian Ben. Society, 12 Pa. Co. Ct. before they can be filed and the in-
552; In re Central Democratic Ass'n corporation be accomplished, but the
of Philadelphia, 8 Pa. Co. Ct. 392; law does not confide to the attorney
In re North Fifth St. Mut. Land general or to the incorporators the
Ass'n, 8 Pa. Co. Ct. 17; In re Sole- power to determine for what purposes
bury Mut. Protective Ass'n, 3 Pa. incorporation may be had, or what'
Co. Ct. 637, 3 Del. Co. 139; In re Land powers the corporation may acquire
In re Union League
Co., 1 Del. Co. 431; by the act of incorporation. That is
of Delaware, 1 Del. Co. 21; In re Char- determined by the law which permits
ter, 5 L. T. N. S. 7; In re Phila- the incorpbration. " Gulf, C. & S. F.
delphia Artisans Institute, 3 Leg. Gaz.
' R. Co. V. Morris, 67 Tex. 692, 4 S..W.
12, 1 Leg. Gaz. 104; Cora. v. Conover, 156.
30 Leg. Int. 200; In re Cressone Sav. Powers obtained by corporations or-
Fund Bldg. Ass'n, 1 Leg. Rec. 177. ganized under general laws are neces-
The chancery court cannot create a sarily restricted to those mentioned in
corporation for any purpose not au- the act providing for the incorpora-
165
§112] Pkivate Cokpoeations [Ch.4
is not an original, but a derivative and expressly conferred right.

Legislative authority is essential to its exercise, and the body having
the authority to bestow such a right or privilege has necessarily the
power and authority to select the object and purposes for which it
can and shall be granted, and to attach such conditions and limita-
tions as it may think proper to the exercise of the right.* Therefore
a corporation claiming the right to exist for a certain purpose must
show that it was organized under a statute authorizing the creation
of a corporation for that particular purpose,* and if there is no such
statute the articles of incorporation are void and the corporation is
without legal existence.''
tion. In re Medical College of Phila- 7 United States. Davis v. Stevens,

delphia, 3 Whart. (Pa.) 444. 104 Fed. 235.
A
corporation can only be formed in Illinois. Aurora Rys. Co.,
Gillette v.
the manner provided by law, and has 228 111. N. B. 1005; American
261, 81
only such powers as the law specifi- Loan & Trust Co. v. Minnesota & N. W.
cally confersupon it. Denny Hotel Co. E. Co., 157 111. 641, 42 N. E. 153.
V. Schram, 6 Wash. 134, 36 Am. St. Indiana. Williams v. Citizens' En-
Rep. 130, 32 Pae. 1002. terprise Co., 25 Ind. App. 351, 57 N. E.
& 581.
5 State V. Debenture Guarantee
I;oan Co., 51 La. Ann. 1874, 26 So. 600. Louisiana. Vredenburg v. Behan,
See also New Orleans Debenture Ee- 33 La. Ann. 627.
demption Co. v. Louisiana, 180 XT. S. Minnesota. State v. Critchett, 37
320, 45 L. Ed. 550. See § 168, infra. Minn. 13, 32 N. W. 787.
See also Chap. 6, infra, in which the
New York. Ancient City Sports-
man's Club v. Miller, 7 Lans. 412.
nature and extent of the power to cre-
ate
Tennessee. Doty v. American Tele-
corporations are discussed at
phone & Telegraph Co., 123 Tenn. 329,
length.
Ann. Caa. 1912 C 167, 130 S. W. 1053.
6 Lincoln Park Chapter No. 177, R.
Texas. Empire Mills v. Alston Gro-
A. M. V. Swatek, 105 111. App. 604,
cery Co., 4 Wilson Civ. Cas. Ct. App.
aff'd 204 111. 228, 68 N. E. 429; Clark
§ 221, 12 L. R. A. 366, 15 S. W. 200,
V. American Cannel Coal Co., 165 Ind.
505.
213, 112 Am. St. Rep. 217, aff'g 35
Wisconsin. State v. International
Ind. App. 65, 73 N. E. 727; Williams
Inv. Co., 88 Wis. 512, 43 Am. St. Rep.
V. Citizens' Enterprise Co., 25 Ind.
920, 60 N. W. 796.
App. 351, 57 N. E. 581; Indiana Bond
See § 279, infra.
Co. V. Ogle, 22 Ind. App. 593, 72 Am. '
' The limitation of the doctrine that
St. Rep. 326, 54 N. E. 407; State v.
the validity of corporate existence can-
International Inv. Co., 88 Wis. 512,
not be litigated collaterally is that,
43 Am. St. Rep. 920, 60 N. W. 796.
where there is no law under which a
The object and purpose for which corporation might exist, then the valid-
the corporation is formed '
' must come ity of corporate existence may be at-
strictly within the plain intent, terms tacked collaterally." Davis v. Ste-
and meaning of the law." Vreden- vens, 104 Fed. 235. See also Gillette
burg V. Beham, 33 La. Ann. 627. V. Aurora Rys. Co., 228 111, 261, 81 N.
166
a
Ch.4] Objects fob Which Cbeated [§112
The question whether a corporation was organized for a proper

purpose must be determined under the law as it existed at the time of
the attempted incorporation,* and a subsequent amendment of the law
cannot be considered where there has beefi no attempt to incorporate
under it.^
"Where it is sought to form a corporation for a purpose not permit-

ted by the statute under which the corporation is attempted to be
formed, there is no corporation de facto, and no estoppel to attack the
legal existence of the corporation arises.^" Where there is no statute
E. 1005; American Loan & Trust Co. 10 People V. Cowan, 247 111. 357, 93
V. Minnesota & N. W. E. Co., 157 111. N. E. 349; People v. Shedd, 241 111.
641, 42 N. E. 153. -gee § 277, infra. 155, 89 N. E. 332, afE'd 217 U. S. 597,
Under statutes authorizing the for- 54 L. Ed. 896 (mem. dec); Imperial
mation of corporations for the purpose Bldg. Co. V. Chicago Open Board of
of engaging in mercantile pursuits and Trade, 238 111. 100, 87 N. E. 167, aff'g
also authorizing the formation of cor- 136 111. App. 606, distinguishing Pat-
porations for carrying on works of terson V. Northern Trust Co., 230 111.
public improvement which shall enjoy 334, 82 N. E. 837, aff'g 132 111. App.
the privilege of appropriating private 208, 231 111. 22, 121 Am. St. Eep. 299,
property for their use, but are for- 82 N. E. 840, and citing with approval
bidden to engarge in mercantile pur- Walker v. Taylor, 252 111. 424, 96 N.
suits, a corporation cannot be formed E. 1055; Snyder v. Studebaker, 19 Ind.
for the purpose of the construction and 462, 81 Am. Dec. 415. See also Clark
operation of a navigation canal — V. American Cannel Coal Co., 35 Ind.
work of public improvement —and also App. 65, 73 N. E. 727; Indiana Bond
for the purpose of carrying on a mer- Co. V. Ogle, 22 Ind. App. 593, 72 Am.
cantile business. In view of the statu- St. Eep. 326, 54 N. E. 407; Vreden-
tory prohibition, it is not possible to burg V. Beham,
"
33 La. Ann. 627. See
form a corporation for both of these § 277, infra.
incompatible purposes, and articles of Where there is no statute authoriz-

incorporation, which attempt to do so ing the formation of a corporation to
are fatally defective, and fail to cre- engage in a particular business, per-
ate a corporation. Bayou Cook Navi- sons attempting to form a corporation
gation & Fisheries Co. v. Doullut, 111 for the purpose of engaging in such
La. 517, 35 So. 729. business do not constitute a de facto
8 Indiana Bond Co. v. Ogle, 22 Ind. corporation, and in a suit by such pre-
App. 593, 72 Am. St. Rep. 326, 54 N. E. tended corporation upon a contract
407; Staacke v. Eoutledge, — Tex. Civ. executed by it, the other party to the
App. —
175 S. W. 444; Halbert v. San
, contract is not estopped to deny
Saba Springs Land & Live Stock Ass 'n the corporate existence at the date
(Tex. Civ. App.), 34 S. W. 636, 89 Tex. of the contract. Indiana Bond Co. v.
230, 49 L. E. A. 193, 34 S. W. 639. Ogle, 22 Ind. App. 593, 72 Am. St.
Indiana Bond Co. v. Ogle, 22 Ind.
9 Eep. 326, 54 N. E. 407.
App. 593, 72 Am. St. Eep. 326, 54 N. E. "A corporation de facto cannot ex-
407; Staacke v. Eoutledge, Tex. Civ. — ist in any case where there is no law
App. , —
175 S. W. 444. See §279, authorizing a de jure corporation."
infra. Doty v. Patterson, 155 Ind. 60, 56 N.
167
§ 112] Peivate Coepobations [Ch.4
authorizing the organization of a corporation for the purposes named

in the articles of association of a corporation attempted to be framed,
the articles of association are void, and no corporation is formed.^^
E. 668; Clark v. American Cannel Co., no power, under its charter, to use, the
35 Ind. App. 65, 73 N. E. 727; In- judgment may be, and generally is,
diana Bond Go. V. Ogle, 22 Ind. App. that be ousted of the particular fran-
it
593, 72 Am. St. Rep. 326, 54 N. E. 407. chise, without affecting the right of
See §§ 279-281, infra. the corporation to retain and enjoy its
11 Clark V. American Cannel Coal proper franchises. * * * But where
Co., 35 Ind. App. 65, 73 N. E. 727; the corporation has been guilty of acts
Williams v. Citizens' Enterprise Co., which, by statute, are made a cause of
*
25 Ind. App. 351, 57 N. E. 581. forfeiture, the rule is different. * *
In Marion Bond Co. v. Mexican Cof- The cases of West
Ditching Co., 32
v.
fee & Eubber Co., 160 Ind. 558, 65 N. E, Ind. 138, and O'Eeiley v. Draining
748, it was contended that a corpora- Company, 32 Ind. 169, were under the
tion plaintiff had no right to maintain drainage acts, which differed mate-
a suit in its corporate capacity for the riallyfrom the statute relating to the
reason that its articles of association organization of voluntary associations,
designated more than one of the pur- and the reasons there given for a strict
poses specified in the statute and other construction of the requirement con-
purposes not authorized at all, and cerning the statement of the objects of
therefore the articles of association the association do not apply here.
were void, and the association never Williams v. Citizens Enterprise Co.,
'
had any corporate existence. It was 25 Ind. App. 351, 57 N. E. 581, was an
held, however, that the corporation action for the collection of a subscrip-
had a de facto existence, and the power tion to the capital stock of a proposed
to sue and enter into certain contracts, corporation, and in such eases it has
and the legality of its organization was been held that a different rule pre-
not open to collateral attack in an ac- vails, and that a perfect organization
tion brought by it to enforce the col- de jure must be shown. In view of the
lection of street improvement bonds proceedings taken by the members to
held by it. Dowling, J., said: "What incorporate the * * * Company
the effect of the supposed irregularity under the voluntary association act, we
in the organization of the appellant think it clear that a corporation de
might be in a direct proceeding by the facto was created, which had the pow-
state in the nature of quo warranto we er to sue, and to enter into certain
need not say. The statute under which contracts. Being such corporation de
the appellant was incorporated did not facto, the legality of its organization
make the irregularity complained of a was not open to collateral attack in an
ground of forfeiture of the corporate action brought by it to enforce the
franchises. It does not appear that the collection of improvement
street
appellant has attempted to exercise bonds held by said association." See
more than one of the particular fran- Consumers' Gas Trust Co. v. Quinby,
chises mentioned in its written arti- 137 Fed. 882, where Marion Bond Co.
cles. * * * In proceedings by the V. Mexican Coffee & Rubber Co., 160
state in the nature of quo warranto, Ind. 558, 65 N. E. 748, and the other
where a corporation assumes to exer- Indiana cases cited therein were con-
cise a particular franchise, which it has sidered.
168
'
Ch.4] Objects fob Which Cheated [§ 112
Generally, where one of several purposes named is within the purview

of the statute, the fact that the articles of incorporation mention other
unauthorized purposes will not vitiate the incorporation.^^ In such
case the unauthorized provisions will simply be inoperative,^* and may
be disregarded as surplusage,^* and acts done in pursuance thereof
will be void.^* "Where the purposes of a corporation are partly within
12 Indiana. Williams v. Citizens E. 748; "Williams v. Citizens' Enter-

Enterprise Co., 25 Ind. App. 351, 57 prise Co., 25 Ind. App. 351, 57 N. E.
N. E. 581; Shick v. Citizens' Enter- 581; In re New Gas Light Co., 7 Pa.
prise Co., 15 Ind. App. 329, 57 Am. St. Dist. 151. See also Grangers' Life &
Eep. 230, 44 N. E. 48. Health Ins. Co. v. Kamper, 73 Ala. 325,
Michigan. See Isle Boyale Land holding that statements in the declara-
Corporation v. Secretary of State, 76 tion required to be filed by the incor-
Mich. 162, 43 N. "W. 14. porators in addition to those provided
New York. Eastern Plank Eoad Co. for by the statute are mere surplusage.
V. Vaughan, 14 N. Y. 546, aff'g 20 Where the charter of a corporation
Barb. 155. organized under a general statute
Pennsylvania. In re New Gas Light authorizing incorporation for manu-
Co., 7 Pa. Dist. 151. See also Albright facturing purposes, stated that the
V. Lafayette Bldg. & Sav. Ass'n, 102 corporation was organized for the
Pa. St. 411; Becket v. Uniontown purpose of carrying on the business of
Building & Loan Ass 'n, 88 Pa. St. 211. publishing books, of dealing in books,
Tennessee. Tennessee Automatic maps, and periodicals, stationery, and
Lighting Co. v. Massey (Tenn.), 56 S. other like articles, and of printing
W. 35. and bookbinding, it was held that
It is at least a de facto corporation as the statute did not authorize
under such circumstances, if not one the incorporation of merchants
and
dfi Marion Bond Co. v. Mexican
jure. dealers, the apparent power of deal-
Coffee & Eubber Co., 160 Ind. 558, 65 ing in books, maps and periodicals,
N. E. 748. See also State v. Minne- stationery and other like articles
sota Thresher Mfg. Co., 40 Minn. 213, 3 was void, and might, therefore, be
L. E. A. 510, 41 N. W. 1020; Shoun v. treated as eliminated, and that having
Armstrong (Tenn.), 59 S. W. 790. been done, the corporation would be
13 Shoun V. Armstrong (Tenn.), 59 considered as organized for exclusively
S. W. 790; Tennessee Automatic Light- manufacturing purposes. Com. v. J. B.
ing Co. V. Massey (Tenn.), 56 S. W. Lippincott Co., 156 Pa. St. 513, 27 Atl.
35; Heck v. McEwen, 12 Lea (Tenn.) 10. See also Com. v. Thackara Mfg.
97. See also Oregon Ey. & Nav. Co. v.
Co., 156 Pa. St. 510, 27 Atl. 13; Com.
Oregonian Ey. Co., 130 TJ. S. 1, 32 L.
V. Wm. Mann Co., 150 Pa. St. 64, 24
Ed. 837; Grangers' Life & Health Ins.
Atl! 601.
Co. V. Kamper, 73 Ala. 325; Fritze v.
IBlUinois. See People v. Chicago
Equitable Building & Loan Society,
Gas Trust Co., 130 111. 268, 8 L. E. A.
186 111. 183, 57 N. E. 873; People v.
Chicago Gas Trust Co., 130 111. 268, 8
497, 17 Am. St. Eep. 319, 22 N. E. 798.
L. E. A. 497, 17 Am. St. Eep. 319, 22 Marion Bond Co. v. Mexi-

Indiana.
N. E. 798. can Coffee & Eubber Co., 160 Ind. 558,

14 Marion Bond Co. v. Mexican Cof- 65 N. E. 748.
fee & Eubber Co., 160 Ind. 558, 65 N. New York. See Eastern Plank Eoad
169
§112] Peivate Coepoeations [Ch.4
and partly without the law, it may have a de facto or de jure existence,
as the case may be, and it will simply be incapable of exercising the
'
unauthorized powers. But there is authority to the effect that
'
^®
if the primary purpose is without statutory authority the- whole
scheme must fail though its incidental or secondary objects are within
the terms of the statute.^'' In some jurisdictions it is held that if
some of the proposed purposes are unauthorized, the secretary of state
may refuse to permit the charter or articles "of incorporation to be
filed."
Statutes providing the purposes for which corporations may be
formed will be liberally construed to sustain the legality of corpora-
tions organized in good faith and for legitimate purposes,^' and espe-
cially is this true in cases where the corporation or incorporators seek
to escape liability for corporate obligations on the ground that the
purpose for which it was formed was not within the statute.*" A cor-
Co. V. Vaughan, 14 N. T. 546, aff'g 20 18 People V. Nelson, 46 N. Y. 477, 60

Barb. 155. Barb. 159, 3 Lans. 394; Miller v. Tod,
Pennsylvania. See Albright v. La- 95 Tex. 404, 67 S. W. 483; Gulf, C. &
fayette Bldg. & Sav. Ass'n, 102 Pa. S. P. Ey. Co. V. Morris, 67 Tex. 692, 4
St. 411; Becket v. TJniontown Building S. W. 156; Staacke v. Eoutledge, —
& Loan Ass 'n, 88 Pa. St. 211. Tex. Civ. App. —
, 175 S. W. 444; City
Tennessee. See Heck v. McEwen, 12 of San Antonio v. Salvation Army
Lea 97. (Tex. Civ. App.), 127 S. W. 860; State
16 In re Trenton St. K. Co. (N. J. V. Nichols, 40 "Wash. 437, 82 Pae. 741;
Ch.), 47 Atl. 819, citing Heck v. Mc- State V. Nichols, 38 "Wash. 309, 80 Pac.
Ewen, 12 Lea (Tenn.) 97. 462.
17 State V. International Inv. Co., 88 See § 212, infra.
"Wis. 512, 43 Am. St. Eep. 920, 60 N. "W. It is held in Illinois that the action
796. of the oflScer in granting the charter
A corporation '
' to encourage frugal- is largely ministerial and not con-
ity and economy in its members; to clusive upon the courts and whether
create, husband,and distribute funds a purpose stated in the charter is
from monthly instalments, dues, or in- authorized by a law is subject to
vestments from its members; to pur- the judicial determination. People
chase, take, hold, sell, convey, lease, V. Chicago Gas Trust Co., 130 111. 268,
rent, and mortgage real estate and per- 8 L. E. A. 497, 17 Am.
Eep. 319, St.
sonal property; to loan surplus accu- 22 N. E. 798. But see Isle Eoyale
mulations;, and to carry on and conduct Land Corporation v. Secretary of
a general investment business," can- State, 76 Mich. 162, 43 N. "W. 14. And
not be upheld under a statute author- see § 212, infra.
izing the formation of corporations for 19 "Watton V. Cruce, 44 Okla. 186, 143
dealing in real and personal property, Pac. 1152. See § 422, infra.
or for loaning money on securities or 20 '
' The rule of restricting language,
otherwise. State v. International Inv. as applied to the exercise of corporate
Co., 88 Wis. 512, 43 Am. St. Rep. 920, powers, is generally found in those
60 N. W. 796. cases where the corporation is seeking
170
Ch. 4] Objects foe Which Created [§ 113
poration having the charter power to enter into contracts for a cer-
tain purpose cannot avoid liability to the other contracting party by
asserting that it entered into the contracts for another and unauthor-
ized purpose, unless it proves —and the burden is on it to prove —that
the other party to the contract had knowledge of such f act.*^ "Where
there no law for the formation of a corporation for the purposes for
is
which is sought to be incorporated, no lapse of time and no

it
acquiescence or waiver can bar a prosecution for the ouster of those

claiming to exercise the franchise.*^
§113. Purposes of corporations created under authority of con- '
gress. As will be seen elsewhere, congress has no inherent power to

create corporations, for its powers of legislation are such only as are
conferred upon it by the Constitution of the United States.^* The
Federal Constitution, in addition to conferring upon congress various
specific powers, provides that it shall have the power "to make all
laws which shall be necessary and proper for carrying into execution
the foregoing powers, and all other powers vested by this Constitu-
tion in the government of the United States or in any department or
'
officer thereof. '
** Under this constitutional provision, congress has
the power to create a corporation whenever the purpose of the cor-
poration is necessary or proper to carry into execution any power
which is conferred by the Constitution upon the government of the
United States, or upon any department or officer thereof, but congress
has no power to create a corporation for any other purpose when it
is acting as the legislature of the United States.^* Under the last
quoted constitutional provision and other provisions of the Constitu-
tion providing that congress shall have the power "to establish post
offices and post-roads," and "to regulate commerce with foreign
to enlarge or extend those powers," v. Central Pae. R. Co., 127 U. S. 1, 32

and isnot so frequently applied where L. Ed. 150; Union Pac. By. Co. v.
the corporation or incorporators are Myers, 115 TJ. S. 1, 29 L. Ed. 319 In re ;
seeking to evade liability for corpo- Legal Tender Cases, 110 V. S. 421, 28
rate obligations. Gaff v. Flesher, 33 L. Ed. 204; Farmers' & Mechanics'
Ohio St. 107. Nat. Bank v. Bearing, 91 TJ. S. 29, 23
21 Colorado Springs Co. v. American L. Ed. 196; Weston v. City Council of
Pub. Co., 97 Fed. 843. Charleston, 2 Pet. (TJ. S.) 449, 7 L. Ed.
22 People V. Shedd, 241 111. 155, 89 481; Brown v. Maryland, 12 Wheat.
N. E. 332, afl'd 217 U. S. 597, 54 L. Ed. (U. S.) 419, 6 L. Ed. 678; Osborn v.
896 (mem. dec). Bank of United States, 9 Wheat. (U.
23 See §§175 and 176, infra. 8.) 738, 6 L. Ed. 204; M'Culloch v.
24 U. S. Const, art. I, § 8. Maryland, 4 Wheat. (U. S.) 316, 4 L.
25 Luxton V. North Eiver Bridge Co., Ed. 579. See § 175, infra.
153 U. S. 525, 38 L. Ed. 808; California
171
nations and among create a corporation

tke several states," it may
to construct and maintain a railroad, for the purpose of facilitating
interstate commerce, or for the purpose of a post-road,*^ or a tele-
graph line.^'' Under the provision of the Constitution, that congress
shall have the power "to regulate commerce with foreign nations,
and among the several states," congress has the power to create a
corporation for the purpose of constructing and maintaining. a bridge
across a river forming the boundary between two states,^* and national
highways from one state into another.^'
The power of congress to create or authorize the formation of
national banks is based upon the fact that such institutions are "nec-
essary and proper for carrying on the fiscal operations of the govern-
ment, "ô
26 Indiana v. TJnited States, 148 TJ. V. Central Pac. E. Co., 127 U. S. 1, 32

S. 148, 37 L. Ed. 401; California v. L. Ed. 150.
Central Pae. Ey. Co., 127 XJ. S. 1, 32 29 In considering the federal legisla-
L. Ed. 150; Union Pac. Ey. Co. v. tion concerning the Pacific railroads
Myera, 115 U. S. 1, 29 L. Ed. 319; Mr. Justice Bradley said: "It cannot
Union Pac. Ey. Co. v. Hall, 91 U. S. at the present day be doubted that
343, 23 L. Ed. 428; Thomson v. Union congress, under the power to regulate
Pae. Ey. Co., 9 Wall. (U. S.) 579, 19 commerce among the several states as
L. Ed. 792; Union Pac. Ey. Co. v. well as to provide for postal accommo-
Lincoln County, 1 Dill. (U. S.) 314, dations and military exigencies, had
Eed. Cas. No. 14,378, aff'd 18 "Wall. authority to pass these laws. The
(U. S.) 5, 21 L. Ed. 787. See § 175, power to construct or to authorize in-
infra. dividuals or corporations to construct
27 Western U. Tel. Co. v. Union Pae. national highways and bridges from
Ey. Co., 3 Fed. 721. state to state ia essential to the com-
See also Western U. Tel. Co. v. Seay, plete controland regulation of inter-
132 U. S. 472, 33 L. Ed. 409; Leloup v. state commerce. '
California v. Cen-
'
Mobile, 127 U. S. 640, 32 L. Ed. 311, tral'Pac. E. Co., 127 U. S. 1, 39, 32

rev 'g 76 Ala. 401 Eatterman v. West-
; L. Ed. 150.
ern U. Tel. Co., 127 U. S. 411, 32 L. 30 California Nat. Bank v. Kennedy,
Ed. 229; Western U. Tel. Co. v. Attor- 167 U. S. 362, 42 L. Ed. 198; Pacific
ney-General of Massachusetts, 125 U. Nat. Bank v. Mixter, 124 U. S.
S. 530, 31 L. Ed. 790; Western U. Tel. 721, 31 L. Ed; 567; Juillard v. Green-
Co. V. Pendleton, 122 U. S. 347, 30 L. man, 110 U. S. 421, 28 L. Ed. 204;
Ed. 1187; Western U. Tel. Co. v. Texas, Casey v. Galli, 94 U. S. 673, 24 L. Ed.
105 U. S. 460, 26 L. Ed. 1067; Pensa- 168; Farmers' & Mechanics Nat. Bank '
cola Tel. Co. V. Western U. Tel. Co., 96 v. Bearing, 91 U. L. Ed. 196;

S. 29, 23
U. S. 1, 24 L. Ed. 708, afE'g 2 Woods Van' Allen v. The Assessors, 3 Wall.
(U. S.) 643; Western U. Tel. Co. v. City (U. S.) 573, 18 L. Ed. 229; Osborn v.
of New York, 38 Fed. 552, 3 L. E. A. Bank of United States, 9 Wheat. (U.
449; Western U. Tel. Co. v. Atlantic & S.) M'Culloch v.
738, 6 L. Ed. 204;
Pacific States Tel. Co., 5 Nev. 102. Maryland, 4 Wheat. (U. S.) 316, 4 L.
28 Luxton V. North Eiver Bridge Co., Ed. 579; Larabee v. Dolley, 175 Fed.
153 U. S. 525, 38 L. Ed. 808; California 365; State v. Curtis, 35 Conn. 374, 95
172
Ch.4] Objects foe Which Ceeated [§113
The Federal Constitution also gives congress general and exclusive

jurisdiction over the territories of the United States, and it has the
power to create a corporation for any purpose therein, subject only
to such restrictions as are to be found in the Federal Constitution.*^
Congress may not only itself create corporations in the territories
of the United States, but it may also authorize the legislature of a
territory to do so. Such power, subject to the restrictions in the
Federal Constitution, and any restrictions in acts of congress, would
be included in a general grant of power to legislate.'^ But the power
has been expressly granted by an act of congress providing that the
legislatures "shall not grant private charters or special privileges;
but they may, by general incorporation acts, permit persons to asso-
ciate themselves together as bodies corporate for mining, manufac-
turing, and other industrial pursuits, or the construction or
operation of railroads, wagon roads, irrigating ditches, , and the colo-
nization and improvement of lands in connection therewith, or for
colleges, seminaries, churches, libraries, or any other benevolent, chari-
'
table, or scientific associations. '
'* After the passage of this statute
Am. Dec. 263; Hansford v. National Pub. Co., 97 Fed. 843; Wells, Fargo &
Bank of Tifton, 10 Ga. App. 270, 73 S. Co. V. Northern Pae. By. Co., 23 Fed.
E. 405. See § 175, infra. 469; Bashford-Burmister Co. v. Agua
31 See § 176, infra. Fria Copper Co., 4 Ariz. 203, 35 Pae.
32 Rogers V. Burlington, 3 Wall. (U. 983. It will be noted that this act, like
S.) 654, 18 L. Ed. 79; Church of Jesus the constitutions of most of the states,
Christ V. United States, 136 U. S. 3, 34 expressly prohibits the creation of cor-
L. Ed. 478, aff'g 5 Utah 361, 15 Pae. porations by special act, and requires
473; Wells, Fargo & Co. v. North- their formation under general laws.
ern Pae. By. Co., 23 Fed. 469; Colo- See § 228, infra.
rado Springs Co. v. American Pub. A doubt having arisen whether some
Co., 97 Fed. 843; Cowell v. Colorado of the then territories of the United
Springs Co., 3 Colo. 82, afe'd 100 U. S. States, including the territory of Colo-
55, 25 L. Ed. 547; Vance v. Farmers' rado, which had passed laws authoriz-
& Mechanics' Bank, 1 Blackf. (Ind.) ing the formation of corporations to
80; Bank of Vincennes v. State, 1 engage in various kinds of business
Blackf. (Ind.) 267; Eiddick v. Amelin, other than mining, manufacturing, and
1 Mo. 5; Douglas v. Bank of Missouri, similar industrial pursuits, had not by
1 Mo. 24; Williams v. Bank of Michi- so doing exceeded the authority con-
gan, 7 Wend. (N. Y.) 539. See § 176, ferred upon them by congress by U. S.
infra. Eev. St. § 1889, 7 Fed. St. Ann., p.
33 U. Eev. St. §1889; 7 Fed. St.
S. 262, allowing the territories to cre-
Ann., p. 262. See Church of Jesus ate, by general laws, corporations
Christ V. United States, 136 U. S. for mining, manufacturing, or other
3, 34 L. Ed. 478, aff'g 5 Utah 361, 15 industrial congress by an
pursuits,
Pae. 473; Vincennes University v. In- act passedon June 10, 1872 (17
diana, 14 How. (U. 8.) 268, 14 L. Ed. Stat. 390), in broad terms ratified and
416; Colorado Springs Co. v. American confirmed all territorial laws thereto-
173
'
§113] Pbivate Cobpoeations [Ch.4
the territorial legislatures of the respective territories enacted gen-
fore enacted which authorized the for- thirds of whom are bona fide residents
mation of corporations for colonization of the territory of Alaska may form a
purposes and the improvement of lands corporation for any lawful business,
in connection therewith, or which au- purpose or purposes, whose chief busi-
thorized the formation of corporations ness shall be in Alaska, except for the
for any rightful purpose connected purpose of banking, insurance, broker-
with the Constitution of the United age, or loan, trust and guaranty
States. It was held in Colorado associations. Section 33 of such act
Springs Co. v. American Pub. Co., 97 provides: "The words 'any lawful
Fed. 843, that, in view of such act of business, purpose or purposes ' shall be
congress, a Colorado statute adopted held and construed to include all the
and in full force prior to June 10, 1870, purposes enumerated in § 9 of the Act
and authorizing the formation of cor- of Congress, entitled 'An act to create
porations "for the purpose of carry- a legislative assembly in the territory
ing on any kind of manufacturing, of Alaska, to confer legislative powers
mining, mechanical or chemical busi- therein, ' approved August 12, 1912, ex-
ness, construct wagon loads, railroads, cept, however, as otherwise provided in
telegraph lines, dig ditches, build this act, and provided further, the au-
flumes, run tunnels, or carry on any thority to form corporations under this
branch of business designed to aid in act, shall not extend to and include
the industrial or productive interests such corporations as may be formed
of the country," or "for the purpose under the provisions of the act of the
of aiding, encouraging and inducing legislature of the territory of Alaska,
immigration to this territory," and entitled 'An act to provide for the
providing that such corporations when incorporation of colleges, seminaries,
organized according to the provisions churches, libraries, or any other be-
of the act "may purchase, acquire, nevolent, fraternal, social, religious,
hold, possess, convey, and dis-
sell, educational, charitable, or scientific as-
pose of lands, town lots and other prop- sociation, whose chief business shall be
erty, whether real, personal or mixed, ' in the territory of Alaska,' approved
could not be successfully challenged on April 21, 1913."
the ground that those acts were in ex- The Organic Act for the territory of
cess of the power conferred on the ter- Hawaii provides that the territorial
government by congress.
ritorial legislature may by general act permit
The Organic Act for the territory persons to associate themselves to-
of Alaska provides that the territorial gether as bodies corporate, for
legislature might, by general act, per- manufacturing, agricultural and other
mit persons to associate themselves to- industrial pursuits. Organic Act, ter-
gether as bodies corporate for certain ritory of Hawaii, approved April 30,
specified purposes, but only permits 1900, 31 U. S. Stat, at L., c. 339, § 55.
organization of corporations whose Rev. Laws of Hawaii, 1905, § 2535, au-
chief business shall be in the territory thorize the formation of corporations
of Alaska. See Compiled Laws of the for the purpose of carrying on any
Territory of Alaska, 1913, § 416. business or undertaking, either mer-
By the Uniform Business Corpora- cantile, agricultural or manufacturing,
tion Act of Alaska, Laws 1913, c. or buying, selling, leasing or otherwise
58, § 1, it is provided that three or dealing in real estate and buildings
more natural persons of full age, two- and other structures, whether used or
174
Ch.4] Objects foe Which Created [§113
eral incorporation acts providing for the formation of corporations for

the purposes authorized by such act of congress.^*
As has been stated elsewhere, since the Constitution of the United
States gives congress general exclusive jurisdiction over the District
of Columbia, it has the power to create a corporation for any purpose
therein whatsoever, provided it violates no provision of the Federal
Constitution.**
intended to be used as shops, stores, Fed. 323; Colorado Springs Co. v.

warehouses, offices, boarding and lodg- American Pub. Fed. 843; Bash-
Co., 97
ing houses, hotels, or otherwise, for ford-Burmister Co. v. Agua Fria
which individuals may lawfully asso- Copper Co., 4 Ariz. 203, 35 Pac. 983;
ciate themselves (excepting banking Carver Mercantile Co. v. Hulme, 7
and professional business). See United Mont. 566, 19 Pac. 213. See also
States V. Haleakala Eanch Co., 3 Wells, Fargo & Co. v. Northern Pac.
Hawaii Fed. Eep. 299. Ey. Co., 23 Fed. 469. See § 177, infra.
The act providing for the formation 36 See § 177, infra.
of corporations in the Philippine Is- United States. See Stoutenburgh v.
lands was enacted by the Philippine Hennick, 129 U. S. 141, 32 L. Ed. 637;
Commission, by authority of the Close v. Glenwood Cemetery, 107 U. 8.
United States, March 1, 1906, in effect 466, 27 L. Ed. 408; Huntington v. Na-
from April 1, 1906, being Act No. 1459. tional Sav. Bank of District of Colum-
Under such act corporations may be bia, 96 U. S. 388, 24 L. Ed. 777.
created for any lawful purpose. See Indiana. See Daly v. National Life
Philippine Corporation Act, 1906, § 6. Ins. Co. of United States, 64 Ind. 1.
The Corporation Act of 1911 of Mississippi. See Williams v. Cres-
Porto Eico, § 2, provides that the well, 51 Miss. 817.
object or objects of corporations or- North Carolina.' See Layden v. En-
ganized under such act may be: 1. The dowment Eank K. P. of the World, 128
establishment of mercantile or indus- N. C. 456, 39 S. E. 47.
trial enterprises, which shall be ope- Tennessee. See Hadley v. Freed-
rated and developed under all forms man 's Savings & Trust Co., 2 Tenu. Ch.
and within all licit combinations which 122.
human intelligenceand activity may Section 605 of the Code of Laws for
suggest or permit, without any other the District of Columbia passed by
limitation than those imposed by the congress, and approved March 3, 1901,
statutes of the United States and the provides that any three or more per-
laws of Porto Eico. 2. The establish- sons may form a corporation for the
ment of building enterprises for the purpose of carrying on any enterprise
construction of public and private or business which may be lawfully
buildings. Section 6 of such act, as conducted by an individual, excepting
amended by Laws Porto Eieo, 1912, banks of circulation or discount, rail-
Act No. 41, provides that three or more roads, and such other enterprise or
persons of full legal capacity may or- business as may be otherwise specially
ganize a corporation for any lawful provided for in such code. Such sec-
purpose or purposes. tion, however, contains the following
34 See Vincennes University v. Indi- proviso: "That nothing herein shall
ana, 14 How. (U. S.) 268, 14 L. Ed. be held to authorize the organization
416; Central Trust Co. v. Warren, 121 of corporations to buy, sell, or deal in
175
§ 114. Unlawful or injurious purposes.In most of the states,

perhaps in all, which
statutes expressly require that the purpose for
corporations are formed shall be lawful, or that they shall not be
"inconsistent with the constitution and laws of the state." Indeed,
this would be implied in the absence of any express provision, and
it may therefore be laid down as the rule in all the states, that a
corporation cannot be organized for a purpose which renders it
contrary to the common or statute law of the state, or contrary to

public policy.'* The words "any lawful purpose" commonly found
in the statutes impose a limitation upon the powers of the corpora-
real estate, except corporations to Debenture Eedemption Co., 51 La.
transact the business ordinarily car- Ann. 1827, 26 So. 586, affirmed on fed-
ried on by real estate agents or eral questions in New Orleans De-
brokers." benture Eedemption, Co. v. Louisiana,
36 United States. See United States 180 U. S. 320, 45 L. Ed. 550.
V. American Tobacco Co., 221 V. S. 106, Maine. Franklin Co. v. Lewiston
55 L. Ed. 663; Standard Oil Co. v. Inst, for Savings, 68 Me. 43, 28 Am.
United States, 221 U. S. 1, 55 L. Ed. Eep. 9.
619, 34 L. E. A. (N. S.) 834, Ann. Gas. Michigan. Eichardson v. Buhl, 77
1912 D 734; Oregon Ey. & Nav. Co. v. Mich. 632, 6 L. E. A. 457, 43 N. W.
Oregonian E. Co., 130 U. S. 1, 32 L. Ed. 1102; Detroit Sehuetzen Bund v. De-
837; United States v. Northern Securi- troit Agitations Verein, 44 Mich. 313,
ties Co., 120 Fed. 721, afC'd 193 U. S. 38 Am. Eep. 270, 6 N. "W. 675.
197, 48 L. Ed. 679. Nebraska. State v. Nebraska Dis-
Alabama. "State v. Citizens' Light tilling Co., 29 Neb. 700, 46 N. W. 155.
& Power Co., 172 Ala. 232, 55.So. 193. New Jersey. Dittman v. Distilling
Illinois. Dunbar v. American Tele- Co. of America, 64 N. J. Eq. 537, 54
phone & Telegraph Co., 224 111. 9, 115 Atl. 570;Ellerman v. Chicago Junction
Am. St. Eep. 132, 8 Ann. Cas. 57, 79 Eys. & Union Stock Yards Co., 49 N. J.
N. E. 423; Harding v. American Glu- Eq. 217.
cose Co., 182 111. 551, 64 L. R. A. 738, New York. See People v. North
74 Am. St. Eep. 189, 55 N. E. 577, writ Eiver Sugar Eefining Co., 121 N. Y.
of error dismissed 187 U. S. 651, 47 582, 9 L. E. A. 33, 18 Am. St. Eep. 843,
L. Ed. 349; Bishop v. American Pre- 24 N. E. 834; In re Agudath Hakehi-
servers' Co., 157 111. 284, 48 Am. St. loth, 18 Misc. 717, 42 N. Y. Supp.
Eep. 317, 41 N. B. 765, rev'g 51 111. 985; Claneey v. Onandaga Fine Salt
App. 417; Distilling & Cattle Feeding Mfg. Co., 62 Barb. 395.
Co. V. People, 156 111. 448, 47 Am. St. Ohio. First Nat. Bank of Chicago
Eep. 200, 41 N. E. 188; People v. Chi- V. Trebein Co., 59 Ohio St. 316, 52 N.
cago Gas Trust Co., 130 111. 268, 8 L. E. 834; State v. Standard Oil Co., 49
E. A. 497, 17 Am. St. Eep. 319, 22 N. E. Ohio St. 137, 15 L. E. A. 145, 34 Am.
798; Lincoln Park Chapter No. 177, St. Eep. 541.
Eoyal Arch Masons v. Swateck, 105 111. Oklahoma. Myatt v. Ponca City
App. 604, aff'd 204 111. 228, 68 N. E. Land & Improvement Co., 14 Okla. 189,
429; Martin v. Ohio Stove Co., 78 111. 68 L. E. A. 810, 78 Pac. 185.

App. 105. Pennsylvania. In re First Church of
Louisiana. State v. Michel, 113 La. Christ, Scientist, 205 Pa. 543, 63 L. E.
4, 36 So. 869; State v. New Orleans A. 411, 97 Am. St. Eep. 753, 55 Atl.
176
Ch.4] Objects for ,
Which Cheated [§114
tion enumerated in its articles of incorporation, however broad such

powers may be, and in effect prohibit their exercise in such a way
as to violate the statutes of the United States or -of any state, in which
536; In re Duquesne College, 2 Pa. or doubtful, or if it may be perverted

Dist. 555, 12 Pa. Co. Ct. 491; In re to improper or unworthy purposes, in-
Helping Hand Marriage Ass'n, 15 jurious to morals or to the public wel-
Pliila. 644; In re Mutual Aid Ass'n, 15 fare. In re First Church of Christ,
Phila. 625; In re Mulholland Ben. So- Scientist, 205 Pa. 543, 63 L. E. A. 411,
ciety, 10 Phila. 19. 97 Am. St. Eep. 753, 55 Atl. 536; In re
South CaroUna. Chicora Exporting Junior Order United American Me-
& Importing Co. of South Carolina v. chanics, 10 Pa. Dist. 5; In re Deutsch-
Crews, 6 S. C. 243. Americanisher Volksfest-Verein, 9 Pa.
Tennessee. McGrew v. City Pro- Dist. 753, rev'd 200 Pa. 143, 49 Atl.
duce Exchange, 85 Tenn. 572, 4 Am. 949; In re Master Granite Blue Stone
St. Eep. 771, 4 S. "W. 38. Cutters' Ass'n, 9 Pa. Dist. 357; In re
Texas. Taylor Feed Pen Co. v. Tay- Lodge Duch Nove Doby, 3 Pa. Dist.
lor Nat. Bank, —
Tex. Civ. App. ,
— 215; Lehigh Valley Coal Co. v. United
177 S. W. 176; Empire Mills v. Alston States Pipe Line Co., 3 Pa. Dist. 70 ; In
Grocery Co., 4 Wilson Civ. Cas. Ct. re Duquesne College, 2 Pa. Dist. 555,
App. § 221, 12 L. E. A. 366, 15 S. W. 12 Pa. Co. Ct. 491; Wagner v. Cocoran,
200, 505. 2 Pa. Dist. 440; In re Germania San-
Utall. American Fork City v. Char- gerbund, 2 Pa. Dist. 73, 12 Pa. Co. Ct.
lier, 43 Utah 231, 134 Pac. 739. 89; In re Chinese Club, 1 Pa. Dist. 84;
Wisconsin. State v. International In re American Electropathie Insti-
Inv. Co., 88 Wis. 512, 43 Am. St. Eep. tute, 14 Phila. (Pa.) 128; In re Enter-
920, 60 N. W. 796. prise Mut. Beneficial Ass'n, 10 Phila.
Where the statute authorizing the (Pa.) 380; In re Burger's Military
formation of corporations provides Band Ass'n, 19 Pa. Co. Ct. 651; In re
that they. may be formed for the trans- Keystone Laundry Co., 18 Pa. Co. Ct.
action of any lawful business, a char- 444; In re Eussian-Amerioau-Guards
ter of incorporationmay be granted to Charter, 13 Pa. Co. Ct. 148; In re
an association of persons to conduct Nether Providence Ass'n, 12 Pa.
any business that an individual may Co. Ct. 666; In re Bohemian-Slavo-
lawfully conduct under the laws of the nian Ben. Society, 12 Pa. Co.
state, but a corporation cannot be Gt. 552; In re Ton-a-lu-ka-Club, 12
formed to conduct a business which an Pa. Co. Ct. 26; In re Seneca Bridge
individual may not lawfully conduct Co., 11 Pa. Co. Ct. 337; In re Jaokso-
under existing laws. Hanger v. Com., nian Club, 11 Pa. Co. Ct. 19; In re New-
107 Va. 872, 14 L. E. A. (N. S.) 683, ton Hamilton Oil & Gas Co., 10 Pa. Co.
60 S. E. 677. Ct. 452; In re Eiohmond Eetail Coal
In Pennsylvania it is expressly Co. of Philadelphia, 9 Pa. Co. Ct. 172;
provided by statute that the pur- In re Mechanical Business Cases, 9
pose for which a corporation is formed Pa. Co. Ct. 1; In re Central Demo-
shall not be unlawful or injuri- cratic Ass 'n of Philadelphia, 8 Pa. Co.
ous to the community, and under this Ct. 392; In re Solebury Mut. Protective
statute it has been held that an appli- Society, 3 Pa. Co. Ct. 637; In re
cation for a charter of incorporation Monroe Eepublican Club, 28 Pittsb.
should be denied, if the purpose of Leg. J. N. S. (Pa.) 52.
the proposed corporation is uncertain
177
I Priv. Corp.— 12
'
the corporation may do business.''' Nor is the term "unlawful,"

in this connection "used exclusively in the sense of malum in se, or
malum prohibitum. powers which cor-
It is also used to designate
porations are not authorized to exercise, or contracts which they are
not authorized to make, or acts which they are not authorized to do;
or, in other words, such acts, powers and contracts as are ultra
vires."'* "A corporation cannot be said to be illegal, unless it is
shown that the end it obviously has in view is illegal or the means
whereby it proposes to attain that end is illegal. * # * jf either
of these conditions is manifest, the corporation is illegal but the ;
fact that such a corporation may be used for illegal purposes, or

could be used for such, is not necessarily any proof of its illegal-
ity."'^ If on its face it is organized for objects which are not

necessarily of an must be presumed "that they
illegal nature, it
were within the legitimate class of objects for which corporations
may be formed."** Whether the business which la corporation
is organized to carry on is a lawful one is a question of local law,
37 TJnited States v. Northern Securi- 'Tou shall not exercise them so as to

ties Co., 120 Fed. 721, aff'd 193 U. S. set at defiance any statute lawfully
197, 48 L. Ed. 679. See also Coler v. enacted by the Congress of the TJnited
Taeoma Bailway & Power Co., 65 N. J. States, or any statute lawfully enacted
Eq. 347, 103 Am. St. Rep. 786, 54 Atl. by any state wherein you see fit to ex-
418, and Dittman v. Distilling Co. of ercise your powers.' "
America, 64 N. J. Eq. 537, 54 Atl. 570. 38 People V. Chicago Gas Trust Co.,
In considering the meaning of the 130 HI. 268, 8 L. R. A. 497, 17 Am. St.
words "for any lawful purpose," in Hep. 319, 22 N. E. 798, citing Oregon
a statute providing that any three or Ry. & Navigation Co. v. Oregonian Ey.
more persons may avail themselves of Co., 130 U. S. 1, 32 L. Ed. 837, and
the provisions of the act and become
'
' Franklin Co. v. Lewiston Inst, for Sav-
a corporation for any lawful purpose, ' ings, 68 Me. 43, 28 Am. Rep. 9. See
Thayer, J., in United States v. North- also State v. Nebraska Distilling Co.,
ern Securities Co., 120 Fed. 721, aff'd 29 Neb. 700, 46 N. W. 155.
193 U. S. 197, 48 L. Ed. 679, said: 39 New York Motion Picture Co. v.
"This language is not merely per- Universal Film Mfg. Co., 77 N. Y. Misc.
functory. It means, obviously, that, 581, 137 N. Y. Supp. 278.
whatever powers the incorporators saw 40 United States Vinegar Co. v. Foeh-
fit to assume, they must hold and ex- renbach, 148 N. Y. 58, 42 N. E. 403,
ercise for the accomplishment of law- aff'g 74 Hun (N. Y.) 435, 26 N. Y.
ful objects. The words in question Supp. 632.
operate, therefore, as a limitation upon Where the purpose as expressed in
all the powers enumerated in the arti- the charter is lawful, it devolves on
cles of association which were filed by the state, in quo warranto proceedings
the promoters of the Securities Com- to forfeit the charter, to show that it
pany, so that, however extensive and was procured with an unlawful intent.
comprehensive these powers may seem State V. Shippers' Compress & Ware-
to be, the state of New Jersey has said, house Co., 95 Tex. 603, 69 S. W. 58.
178
Ch.4] Objects foe Which Cheated [§114
and the decision of a state court that it is not, rendered in quo

warranto proceedings by the state to annul its charter, is not review-
able by the Federal Supreme Court.** In some jurisdictions a,
corporation organized for the purpose of holding stock in other cor-
porations, or organized by existing corporations which are to hold its
stock, is regarded as formed for an unlawful purpose.*^
It has been held in a number of cases that a corporation is con-
trary to public policy, and therefore illegal, where its purpose is to
unduly to prevent competition and create a monopoly.*'
"Whatever tends to prevent competition between those engaged in
41 New Orleans Debenture Redemp- A. 298, 39 N. E. 651, rev'g 46 111. App.

tion Co. V. Louisiana, 180 U. 8. 320, 576.
45 L. Ed. 550, aff'g State v. New Or- Michigan. Richardson v. Buhl, 77
leans Debenture Redemption Co., 51 Mich. 632, 6 L. R. A. 457, 43 N. W.
La. Ann. 1827, 26 So. 587. 1102.
42 See §129, infra. Mississippi. Southern Elee. Securi-
43United States. De La Vergne Re- ties Co. V. State, 91 Miss. 195, 124 Am.
frigerating Mach. Co. V. German Sav. St. Rep. 638, 44 So. 785.
Inst., 175 U. S. 40, 44 L. Ed. 66; Cali- Missouri. State v. Polar Wave Ice
fornia Bank v. Kennedy, 167 tJ. S. 362, & Fuel Co., 259 Mo. 578, 169 S.W. 126;
42 L. Ed. 198; Burrows v. Interborough State V. Standard Oil Co., 218 Mo. 1,
Metropolitan Co., 156 Fed. 389; Bige- 116 S. W. 902; National Lead Co. v.
low V. Calumet & Heola Mining Co., S. E. Grote Paint Store Co., 80 Mo.
155 Fed. 869; Anglo-American Land App. 247. See also State v. Standard
Mortgage & Agency Co. v. Lombard, Oil Co., 194 Mo. 124, 91 S. W. 1062;
132 Fed. 721; Langdon v. Branch, 37 Finck V. Schneider Granite Co., 187
Fed. 449, 2 L. R. A. 120. Mo. 244, 106 Am. St. Rep. 452, 86 S.
Georgia. See Trust Co. of Georgia "W. 213.
V. State, 109 Ga. 736, 48 L. R. A. 520, Montana. See MacGinness v. Boston
35 S. E. 323. & Montana Consol. Copper & Silver
Illinois, Dunbar v. American Tele- Min. Co., 29 Mont. 428, 75 Pae. 89. ,
phone & Telegraph Co., 224 111. 9, 115 Nebraska. State v. Standard Oil
Am. St. Rep. 132, 8 Ann. Cas. 57, 79 Co., 61 Neb. 28, 87 Am. St. Rep. 449,
N. E. 423; Distilling & Cattle Feeding 84 N. W. 413; State v. Nebraska Dis-
Co. V. People, 156 111. 448, 47 Am. St. tilling Co., 29 Neb. 700, 46 N. W. 155.
Rep. 200, 41 N. E. 188; People v. Chi- New Hampshire. Pearson v. Con-
cago Gas Trust Co., 130 111. 268, 8 L. cord Railroad Corporation, 62 N. H.
R. A. 497, 17 Am. St. Rep. 319, 22 N. 537, 13 Am. St. Rep. 590.
E. 798. See also Harding v. American New Jersey. Blkins v. Camden & A.
Glucose Co., 182 111. 551, 64 L. R. A. R. Co., 36 N. J. Eq. 5.
738, 74 Am. St. Rep. 189, 55 N. E. 577, New York. People v. Milk Exchange,
writ of error dismissed 187 IT. S. 651, 145 N. Y. 267, 27 L. R. A. 437, 45 Am.
47 L. Ed. 349; Bishop v. American St. Rep. 609, 39 N. E. 1062; People
Preservers' Co., 157 111. 284, 48 Am. V. North River Sugar Refining Co., 121
St. Rep. 317, 41 N. E. 765, rev'g 51 N. Y. 582, 9 L. R. A. 33, 18 Am. St.

111. App. 417; Ford v. Chicago Milk Rep. 843, 24 N. E. 834; Clancey v.
Shippers' Ass'n, 155 111. 166, 27 L. R. Onondaga Salt Mfg. Co., 62 Barb. 395.
179
'
114] Pkivate Coepobations [Ch.4
a public employment or business impressed with a public cliarac-

teris opposed to public policy and, therefore, unlawful. Whatever
See also New York Motion Picture Co. sometimes permitted to aid the
V. Universal Kim Mfg. Co., 77 Misc. government in carrying on a great
581, 137 N. Y. Supp. 278. public enterprise, or public work under
Ohio. State v. Standard Oil Co., 49 government control, in the interest
Ohio St. 137, 15 L. E. A. 145, 34 Am. of the public. Its tendency is, how-
St. Eep. 541, 30 N. E. 279. ever, destructive of free institutions,
Oklahoma. Anderson v. Shawnee and repugnant to the instincts of a
Compress Co., 17 Okla. 231, 15 L. K. A. free people, and contrary to the whole
(N. S.)' 846, 87 Pac. 315. scope and spirit of the Federal Consti-
Pennsylvania. In re Richmond Re- tution, and is not allowed to exist un-
tail Coal Co. of Philadelphia, 9 Pa. Co. der express provision in several of our
Ct. 172. state constitutions. Indeed, it is
South Carolina. State v. Virginia- doubtful government can long

if free
Carolina Chemical Co., 71 8. C. 544, 51 exist in a country where such enor-
S. E. 455. mous amounts of money are allowed to
England. Great Eastern Ry Co. v. be accumulated in the vaults of cor-
Turner, L. R. 8 Ch. App. 149. porations, to be used at discretion in
See also chapter on Monopolies and controlling the property and business
Trusts, infra. of the country against the interest of
In StateStandard Oil Co., 49 Ohio
v. the public and that of the people,
St. 137, 15 L. R. A. 145, 34 Am. St. for the personal gain and aggrandize-
Rep. 541, 30 N. E. 279, the Supreme ment of a few individuals. It is al-
Court of Ohio, in holding void the ways destructive of individual rights,
charter of a corporation organized to and of that free competition which is
secure a monopoly, said: "Its object the life of business, and it revives
was to establish a virtual monopoly and perpetuates one of the great evils
of the business of prbduciiig petro- v/hich it was the object of the framers
leum, and of manufacturing, refining, ©f our form of government to eradi-
and dealing in it and all its products, cate and prevent. It is alike destruc-
throughout the country, and by which tive to both individual enterprise and
it might not merely control the pro- individual prosperity, whether con-
duction, but the price, at its pleasure. ferred upon corporations or individ-
All such associations are contrary to uals,and therefore public policy is,
the policy of our state, and void." and ought to be, as well as public sen-
In Richardson v. Buhl, 77 Mich. 632, timent, against it. All combinations
6 L. R. A. 457, 43 N. W. 1102, it was among persons or corporations for the
held that a corporation organized for purpose of raising or controlling
the purpose of controlling the manu- the prices of merchandise, or any
facture and trade of friction matches, of the necessaries of life, are monop-
and of obtaining a monopoly in the olies, and are intolerable,and ought
'business of making matches and to receive the condemnation of all
'
stifling competition therein, was courts.
organized for an unlawful purpose. Where the purpose expressed in the
Sherwood, C. J., said: "Monopoly charter a lawful one, the state must
is
in trade or any kind of busi-

in show that it was procured with an in-
ness in this country is odious to tent to violate the antitrust law in
our form of government. It is quo warranto proceedings to forfeit
180
Ch.4] Objects foe Which Cheated [§114
tends to create a monopoly is unlawful as being contrary to public

policy.**
Where a corporation is organized under a general statute author-
izing the 'formation of corporations, a provision in the declaration of
its corporate purposes, the necessary effect of which is the creation
of a monopoly is void.*® It is also well settled that a corporation
tLe charter on that ground. State v. Rep. 319, 22 N. E. 798; Richardson v.

Shippers' Compress & Warehouse Co., Buhl, 77 Mich. 632, 6 L. R. A. 457, 43
95 Tex. 603, 69 S. W. 58. N. W. 1102; State v. Standard Oil Co.,
In United States Vinegar Co. v. 49 Ohio St. 137, 15 L. R. A. 145, 34 Am.
Schlegel, 67 Hun (N. T.) 356, 22 N. St. Eep. 541, 30 N. E. 279. See also
Y. Supp. 407, aff'd 143 N. T. 537, 38 Southern Elec. Securities Co. v. State,
N. B. 729, it was held that an unlaw- 91 Miss. 195, 124 Am. St. Rep. 638, 44
ful purpose did not appear from the So. 785, where it was held that the or-
charter of a corporation authorizing ganization of a corporation for the
it to "buy, sell, deal in and handle purpose of taking over several com-
vinegar," or its prospectus, which peting electric light corporations in a
stated its purpose to be to buy and sell city was for the purpose of stifling
vinegar with a view to regulating the competition and putting the lighting
production, lessening the cost of sell- plants in the hands of an illegal
ing, equalizing the distribution of the monopoly.
surplus in accordance with the de- It is held in Illinois that to create
mands of the various sections of the one corporation for the express pur-
country, and thereby limiting the cost pose of enabling it to control all the
of reaching the consumer, and bene- corporations engaged in a certain kind
fiting both the producer and consum- of business, and particularly a busi-
er. Andsee United States Vinegar ness of a public character, is not only
Co. v. Spamer, 67 Hun (N. Y.) 652, opposed to the public policy of the
22 N. Y. Supp. 410, aff'd 143 N. Y. state, but is in contravention of the
676, 38 N. E. 731; United States Vine- spirit, if not the letter, of the consti-
gar Co. V. Foehrenbach, 148 N. Y. 58, tution. People v. Chicago Gas Trust
42 N. E. 403, afE'g 74 Hun (N. Y.) Co., 130 III. 268, 8 L. R. A. 497, 17 Am.
435, 26 N. Y. Supp. 632. St. Rep. 319, 22 N. E. 798. Magruder,
For a case in which it was held J., said: "To create one corporation
that whether a corporation was or- that it may destroy the energies of all
ganized for an unlawful purpose (re- other corporations of a given kind, and
straint of competition) was a question suck the life blood out of them, is not
for the jury, in an action by the people a 'lawful purpose.' "
to dissolve it, see People v. Milk Ex- It was held in Sayre v. Louisville
change, 77 fiun (N. Y.) 436, 29 N. Y. Union Ben. Ass'n, 1 Duv. (Ky.) 143,
Supp. 259, aff'd 145 N. Y. 267, 27 L. 85 Am. Dec. 613, that common carriers
R. A. 437, 45 Am. St. Eep. 609, 39 N. may form a corporation for the pur-
E. 1062, the court of appeals holding pose of protecting themselves against
that the evidence justified a finding undue competition.
that it was organized for such a pur- 45 People V. Chicago Gas Trust Co.,
pose. 130 111. 268, 8 L. R. A. 497, 17 Am. St.
41 People V. Chicago Gas Trust Co., Rep. 319, 22 N. B. 798. Magruder, J.,
130 ni. 268, 8 L. B. A. 497, 17 Am. St. said: " ' Contracts creating monopolies
181
§114] Pkivatb Coepoeations [Ch.4
cannot lawfully be organized for purposes which will violate the

federal antitrust act.**
A charter granted by a state cannot be used to defeat the will of
the national legislature as expressed in a law relating to interstate
trade and commerce over which congress has absolute control.*'' Stat-
utes providing for the formation of corporations during the civil
war for the purpose of aiding the rebellion have been held to be
are null and void as being contrary to U. 55 L. Ed. 619, 34 L. E. A. (N.

S. 1,
public policy.' (2 Addison on Cont. S.) 834, Ann. Cas. 1912 D 734; Con-
743.) All grants creating monopolies tinental Wall Paper Co. v. Louis
are made void by the common law. Voight & Sons Co., 212 U. S. 227, 53
(7 Bacon's Abridgment, page 22.) In L. Ed. 486, aff'g 148 Fed. 939; North-
The case of the Monopolies (Coke's Ke- ern Securities Co. v. United States,
ports, Vol. 6, part XI, page 84), it was 193 U. S. 197, 48 L. Ed. 679, aff'g
decided as long ago as the fourth United States v. Northern Securities
year of the reign of Queen Elizabeth, Co.,120 Fed. 721; United States v.
that a 'grant to the plaintiff of the United States Steel Corporation, 223
sole making of cards within the realm Fed. 55; United States v. United Shoe
was utterly and that for two
void, Machinery Co., 222 Fed. 349; United
reasons: 1. That it is a monopoly and States V. Keystone Watch Case Co.,
against the common law. 2. That it is 218 Fed. 502; United States v. Inter-
against divers acts of parliament, ' etc. national Harvester Co., 214 Fed. 987;
(Bell V. Leggett, 7 N. Y. 176; Trist Fleitmann v. United Gas Improvement
V. Child, 21 Wall. 441.) If contracts Co., 211 Fed. 103; United States v.
and grants whose tendency is to create Great Lakes Towing Co., 208 Fed. 733,
monopolies are void at common law, aff'd 217 Fed. 656; Buckeye Powder
then where a corporation is organized Co. V. E. I. Du Pont de Nemours Pow-
under a general statute, a provision der Co., 196 Fed. 514, aff'd 223 Fed.
in the declaration of its corporate pur- 881; Bigelow v. Calumet & Hecla Min.
poses, the necessary effect of which is Co., 155 Fed. 869.
the creation of a monopoly, will also 4V United States
v. Northern Secu-
be void." rities Co., 120Fed. 721, aff'd 193 U. S.
46 See D. E. Wilder Mfg. Co. v. Corn 197, 48 L. Ed. 679, Thayer, J., saying:
'
Products Eefining Co., 236 V. S. 165, But aside from this view of the sub-
'
59 L. Ed. 520, Ann. Cas. 1916 A

118, ject, if the state of New Jersey had
aff'g 11 Ga. App. 588, 75 S. E. 918; undertaken to invest the incorpora-
United States v. Winslow, 227 V. S. tors of the Securities Company with
202, 57 L. Ed. 481, aff'g 195 Fed. 578; the power to do acts in the corporate
United States v. Union Pac. E. Co., 226 name which would operate to restrain
U. S. 61, 470, 57 L. Ed. 124, 306; Stand- interstate commerce, and for that rea-
ard Sanitary Mfg. Co. v. United States, son could not be done by them acting
22G U. S. 20, 57 L. Ed. 107, aff 'g United as an association of individuals, then
States V. Standard Sanitary Mfg. Co., we have no doubt that such a grant
191 Fed. 172; United States v. Ter- would have been void under the pro-
minal R. Ass'n, 224 U. S. 383, 56 L. Ed. visions of the anti-trust act, or at
810; United States v. American To- least that the charter could not be per-
bacco Co., 221 U. S. 106, 55 L. Ed. 663; mitted to stand in the way of the en-
Standard Oil Co. v. United States, 221 forcement of that act."
182
Ch. 4] Objects fob Which Created [§114
invalid.*' Thus a corporation created during such period by the

legislature of South Carolina for the purpose of exporting produce,
and importing munitions for such war at a time when a blockade of
the southern ports was in effect, was held to be invalid,** and a
similar conclusion was reached in respect to a corporation created
by the state of North Carolina during such war, to provide charity
for Confederate soldiers.*" But a corporation, though created by a
Southern state during the war, will not be held invalid, if the act of
incorporation had no relation to anything else than the domestic
concerns of the state, and was neither in apparent purpose, nor
its
in its operation, hostile to the Union or in

with the Federal
conflict
Constituti9n, but was mere ordinary legislation, which would have
been valid had there been no attempted secession and war.*^
On grounds
of public policy an application by a benevolent society
was denied where its proposed charter provided that
for a charter
members who should enlist in the army or navy should forfeit their
membership and all claims on the society,** and an application was
also denied for a charter for a marriage association the purpose of
which was to pay a member upon his marriage a specified sum raised
by an assessment made upon the other members.** And a charter
has been denied to a military organization which was not to be con-
nected with the national guard.**
A corporation cannot be organized for the purpose of conducting
a business which is in the nature of a lottery,** nor for the purpose
North Carolina Endowment Fund

48 that a North Carolina corporation
V. 71 N. C. Ill; Chicora
Satchwell, created during the war for purposes
Exporting & Importing Co. of South not violative of the State or Federal
Carolina v. Crews, 6 S. C. 243. Constitution was valid, notwithstand-
49 Chicora Exporting & Importing ing the charter required the board of
Co. of South Carolina v. Crews, 6 S. directors to be "citizens of the Con-
C. 243. See, however, Importing & Ex- federate States."
porting Co. v. Locke, 50 Ala. 322. 62 In re Mulholland Ben. Society, 10
60 North Carolina Endowment Fund Phila. (Pa.) 19.
V. Satchwell, 71 N. C. 111. 63 In re Helping-Hand Marriage
61 United States v. Insurance Com- Ass 'n, 15 Phila. (Pa.) 644.
panies, 22 "Wall. (TJ. S.) 99, 22 L. Ed. 64 In re Company D, Irish Volun-
816. teers, 21 Pa. Dist. 913. In a note to
Such a corporation is not precluded this case it is stated that a charter
from suing in the federal courts, was subsequently granted to a similar
United States v. Insurance Companies, company.
22 Wall. (U. S.) 99, 22 L. Ed. 816. See 66 State v. International Inv. Co., 88
Importing & Exporting Co. v. Locke, Wis. 512, 43 Am. St. Rep. 920, 60 N.
50 Ala. 322. See also Sapona Iron Co. W. 796. See State v. United States
v. Holt, 64 N. C. 335, where it is held Exp. Co., 95 Minn. 442, 104 N. W. 556,
183
§114] Private Cokpoeations [Ch. 4
of speculating by gambling in grain futures.*^ corporation can- A

not lawfully be formed for the purpose of selling liquor without a
license,*'' nor can liquor dealers lawfully organize a corporation for
the purpose of defending prosecutions for violations of the laws

prohibiting and punishing thfe sale of intoxicating liquors, or other-
wise opposing such laws.*^ And the charter of a pretended social
club will be revoked where it is shown that the purpose of its organ-
izationwas to secure the privilege of selling tobacco, cigars, and soft
drinks on Sunday in violation of law.**
In New York approval of a certificate of incorporation was refused
where it provided for the holding of the annual meeting of the cor-
poration on Sunday, on the ground that the holding of such meet-
ings on that day was contrary to public policy.*"
A corporation is unlawful where it is formed for the purpose of
placing the stock of another corporation on the market at a ffcti-
tious increase in price through the medium of exchanging it for the

stock of the new company, and thereby evading a constitutional pro-
vision against fictitious increases of stock.*^ And the same is tme
of a corporation organized for the purpose of giving a deed of trust
to secure the debt of another corporation, in violation of the stat-
ute.62
Under a statute authorizing the formation of corporations for the
prevention and punishment of theft or wilful injuries to property,
and insurance against such risks, a charter was refused to a coi'pora-
tion organized for the purpose of insuring against theft, but with-
out including power to prevent and punish the theft.*^
A statute permitting incorporation for any lawful business has
been held not to permit incorporation for the purpose of carrying
on the business of stock brokerage on the ground that it would be in
56 MeGrew v. City Produce Ex- the state, and a charter of the offend-
change, 85 Tenn. 572, 4 Am. St. Eep. ing so-called social club will be an-
771, 4 S. W. 38. nulled and vacated on quo warranto
57 In re Young Men 's Eepublican proceedings by the state. Hanger v.
Club of 28th Ward, 12 Pa. Dist. 584. Com., 107 Va. 872, 14 L. R. A. (N. S.)
58 Detroit Schuetzen Bund v. Detroit 683, 60 S. E. 67.
Agitations Verein, 44 Mich. 313, 38 60 In re Agudath Hakehiloth, 18 N.
Am. Eep. 270, 6 N. W. 675. Y. Misc. 717, 42 N. Y. Supp. 985.
59 Hanger v. Com., 107 Va. 872, 14 61 State v. Citizens ' Light & Power
L. R. A. (N. S.) 683, 60 S. E. 67. Co., 1-72 Ala. 232, 55 So. 193.
A statute authorizing the incorpora- 62 Taylor Feed Pen Co. v. Taylor
ticn of social clubs does not authorize Nat. Bank, — Tex. Civ. App. —
177 ,
the incorporation of an association for S. W. 176.

the fraudulent purpose of conducting 63 In re Solebury Mut. Protective
a business in violation of the laws of Society, 3 Pa. Co. Ct. 637,
184
Ch.4] Objects for Which Ckeated [§114
conflict with statutes regulating and providing for the licensing of

8uch brokers.**
Where the constitution and a statute prohibit the incorporation of
any church or religious denomination, a charter will not be issued
to of promoting
a missionary society organized for the purpose
religionby aiding in the support of ministers, and in the erpction
of houses of worship, and by collecting and disbursing funds for
these purposes."* But it has been held that such provisions are not
violated or evaded by the incorporation of "The Trustees of the
Presbyterian Committee of Publication," having for its object the
dissemination of religious truth by means of the printing and circu-
lation of books, papers and the like.®®
In Pennsylvania *''
an application for a charter by a Christian Science
64 In re W. B. TJrling Co., 13 Pa. Scientist, 205 Pa. 543, 63 L. K. A. 411,

Dist. 534. 97 Am. St. Kep. 753, 55 Atl. 536, Potter,
65 Powell V. Dawson, 45 W. Va. 780, J., saying: "The common faith of
32 S. E. 214. mankind relies, not only upon prayer,
66 Wilson V. Perry, 29 W. Va. 169, 1 but upon the use of means which
S. E. 302. knowledge and experience have shown
A corporation formed for the pur- to be efficient; and when the results of
pose of establishing, conducting and this knowledge and experience have
controlling a training school for mis- been crystallized into legislative enact-
sionaries and other Christian workers, ments, declarative of what the good
under the auspices of the board of for- of the community requires in the treat-
eign missions of a certain religious de- ment of disease, and of the qualifica-
nomination, is a religious corporation tions of those who publicly deal with
within the meaning of a constitutional disease, anything in opposition there-
provision that no religious corporation to may fairly be taken as injurious to
can be established in the state, except the community. Our laws recognize
such as may be created under a gen- disease as a grim reality, to be met
eral law for the purpose only of hold- and grappled with as such. To se-
ing title to such real estate as may be cure the safety and protect the health
used for church edifices, parsonages of the public from the acts of in-
and cemeteries. Proctor v. Methodist competent persons, the law prescribes
Episcopal Church, South, 225 Mo. 51, the qualifications of those who shall
123 S. W. 862. be allowed to attempt the cure or heal-
Although the maintenance of a coming of disease. * * * It is only de-
munistic, religious organization does signed to secure competent service for
not harmonize with American forms those who desire to obtain medical
of thought, and although property is attendance. In certain diseases the
acquired by the corporation, the main- individual affected may be the only
tenance of the organization will not be one to suffer for lack of proper at-
deemed violative of public policy tention; but in other types, of a con-
whBre the property is properly man- tagious or infectious nature, they may
aged. State V. Amana Society, 132 be such as to endanger the whole com-
Iowa 304, 109 N. W. 894. munity. And here it is the policy of
67 In re First Church of Christ, the law to assume control, and require
185
church was refused on the ground that the Christian Science method
of healing which the church proposed to practice was opposed to the
general policy of the law of the state relative to the existence and treat-
ment of disease.
An application by an institution proposing to give instruction in
respect to electricity and magnetism as curative agents and to confer
degrees in medicine, was refused on the ground that it was opposed to
the standard requirements for the practice of medicine provided by

the statutes on the subject.®*
Of course, a corporation cannot be invalid, as contrary to public
policy, because of its object, if the acts contemplated are authorized
by the laws of the state, although they would be unlawful if not author-
ized. Thus, where the laws of a state permit the consolidation of cor-
porations,it is not contrary to public policj' to organize a corporation
with the ulterior purpose of consolidating with another corporation,

although consolidation would be illegal if not authorized.*^
Where the purposes of a corporation as declared in its certificate
of incorporation do not imply an illegal object, or one necessarily
inconsistent with public policy, as declared by the public law, the
fact that afterwards the corporation departed from the purposes of
its creation, and entered upon projects which were illegal, does not
constitute a defense in an action to recover an unpaid subscription to
the capital stock of the corporation.™ A corporation will not be
the use of the most effective known Supp. 407, an action by a foreign cor-
means overcome and stamp out dis-
to poration to recover an unpaid sub-
ease, which otherwise would become scription to its capital stock, it was
epidemic. In such cases, failure to held to be no defense that the promot-
treat, or an attempt to treat by those ers of the corporation deceived the
not possessing the lawful qualifica- authorities of the stateby which the
tions, are equally violative of the corporation was created as to the real
policy of the law." purpose in forming the corporation,
68 In re American Electropathic In- and in that way procured them to file
stitute, 14 Phila. (Pa.) 128. the necessary papers and take the
68 Hill V. Nisbet, 100 Ind. 341. necessary steps to give the plaintiff a
70 United States Vinegar Co. v. corporate existence, but that the state
Foehrenbach, 148 N. Y. 58, 42 N. E. by which the corporation was created
403; United States Vinegar Co. v. must be left to vindicate its own honor
Schlegel, 143 N. Y. 537, 38 N. E. 729, and dignity. "If it be true that its
aff'g 67 Hun (N. Y.) 356, 22 N. Y. authority has been invoked and its
Supp. 407. See also United States laws abased for the purpose of creat-
Vinegar Co. v. Spamer, 67 Hun (N. ing and fostering a corporation that
Y.) 652, 22 N. Y. Supp. 410, aff'd 143 is detrimental to public interests, it
N. Y. 676, 38 N. E. 731. has ample power at any time to pro-
In United States Vinegar Co. v. ceed against it, and decree its disso-
Schlegel, 143 N. Y. 537, 38 N. E. 729, lution. But so long as the plaintiff
aff'g 67 Hun (N. Y.) 356, 22 N. Y. exists, and is recognized by the courts
186
Ch.4] Objects fob Which Cheated [§114
held to have been organized for an unlawful purpose merely because

the business it proposes to undertake will not be financially suc-
cessful, and it may be unable to repay the money invested in its
bonds.'^ But the charter of a debenture company has been aainulled
in Louisiana on the ground that its plan of operations was not
feasible.'*
and authorities of that state, it is en- might have been organized for and
titled to the same recognition here, devoted to a lawful purpose." An-
unless it appears that it was formed derson V. Chicago Trust & Savings
for purposes' illegal here, or was doing Bank, 195 111. 341, 63 N. E. 203, afE'g
acts prohibited by the laws of this 93 111. App. 347.
state to its own citizens and corpora- 71 Yokes V. Eaton, 119 Ky. 913, 27
tions. Demarest v. Flack, 128 N. Y. Ky. L. Eep. 358, 85 S. W. 174. In this
205, 28 N. E. 645. A foreign cor- case the foundation of the business of
poration, such as the defendant claims the corporation was a scheme which
this to be, may be driven from the would not necessarily enable the cor-
state by public authority; butit does poration to repay all parties the
not follow that for such reason all the amount such parties had invested in
contracts that private individuals have the bonds of the corporation. The
made with it, or the obligations that court said, "To say that this was an
they may have incurred to it or its unlawful business because it was bot-
creditors, are invalidated. The cer- tomed upon a scheme which would not
tificate of incorporation filed by the finance out, would not be to give the
corporators with the secretary of state words of the statute their ordinary
of Illinois, in March, 1887, declares meaning. A majority of the schemes
that the object for which the corpora- for which corporations are formed, it
tion was formed is to buy, sell, deal is said, do not finance out. * * * It
in, and handle vinegar. There was is only charged that the defendants
certainly nothing illegal in such object, represented that the scheme would
and if the corporation afterwards de- finance out, when they ought to have
parted from the purpose of its creation, known it would not do so. This was a
and entered upon projects which were mere matter of opinion, on which the
illegal, its misconduct must be cor- plaintiff could exercise his judgment
rected in some other way than in a as well as they. PufSng by sellers is
suit against the defendant to recover universal, and every one buys knowing
his subscription. That might furnish that he must exercise his own judg-
good grounds for a suit by the people ment on matters of opinion expressed
to vacate the charter, but no defense by the seller."
whatever to a stockholder, when sued 72 State V. Debenture Guarantee &
See also United
for his subscription. ' ' Loan Co., Ann. 1874, 26 So.
51 La.
States "Vinegar Co. v. Poehrenbach, 600; State v. New Orleans Debenture
148 N. Y. 58, 42 N. E. 403. Nor are Eedemption Co., 51 La. Ann. 1827, 26
the certificate of incorporation and So. 586, afiirmed on federal questions
the shares of stock issued void bein New Orleans Debenture Redemp-
cause the corporation was organized tion Co. V. Louisiana, 180 TJ. g. 320,
in furtherance of a scheme to defraud, 45 L. Ed. 550; State v. Louisiana
where "as declared by
its object, its Debenture Co., 51 La. Ann. 1795, 26
charter, was a lawful one, and it So. 592.
187
—
§114] Private Cobpoeations [Ch.4
Where the purpose for which the corporation is formed is not a

lawful purpose, then the attempted act of incorporating is void,'^ and
no corporation will be created.'*
While in contemplation of law, a corporation is a legal entity, an
ideal person, separate from the real persons who compose it, this fiction,
however, is limited to the uses and purposes for which it was adopted,
convenience in the transaction of business and in suing and being
sued in its corporate name, and the continuance of its rights and
liabilities, unaffected by changes in its corporate members. But the
fiction cannot be abused, and a corporation cannot be formed for
the purpose of accomplishing a fraud or other illegal act under the
disguise of the fiction.'* Thus where an incorporation had been
formed for the purpose of giving effect to an illegal agreement
between it and a railroad company for a discrimination in freights
between it and the other shippers, the fiction was disregarded, and
a recovery allowed against the promoters by one who had been thus
discriminated against, in like manner as if the corporation had no
existence."
73 People V. Chicago Gas Trust Co., managers or ofEcera, where it appears

130 111. 268, 8 L. E. A. 497, 17 Am. St. that the incorporation was but a cloak
Eep. 319, 22 N. E. 798. used to cover the illegal acts of gam-
74 In re Agudath Hakehiloth, 18 N. bling and wagering on the rise and fall
Y. Mise. 717, 42 N. Y. Supp. 985; In of prices of the articles pretended to
re Duquesne College, 2 Pa. Dist. 555, be bought and sold, which was con-
12 Pa. Co. Ct. 491. templated in the organization of the
75 First Nat. Bank of Chicago v. corporation, and done as a business
Trebein Co., 59 Ohio St. 316, 52 N. E. after such organization. McGrew v.
834. See also United States v. Mil- City Produce Exchange, 85 Tenn. 572,
waukee Refrigerator Transit Co., 142 4 Am. St. Rep. 771, 4 S. W. 38.
Fed. 247; Donovan v. Purtell, 216 111. 76 First Nat. Bank of Chicago v.
629, 1 L. R. A. (N. S.) 176, 75 N. E. Trebein Co., 59 Ohio St. 816, 52 N. E.
334; People v. North River Sugar Re- 834, quoted with approval in Donovan
fining Co., 121 N. Y. 582, 9 L. R. A. 33, V. Purtell, 216 111. 629, 1 L. E. A. (N.
18 Am. St. Rep. 843, 24 N. E. 834; S.) 176, 75 N. E. 334, aff'g 119 111. App.
State V. Standard Oil Co., 49 Ohio St. 116; Brundred v. Riee, 49 Ohio St. 640,
137, 15 L. R. A. 145, 34Am. St. Rep. 34 Am. St. Rep. 589, 32 N. E. 169. See
541, 30N. E. 279. See §§ 42-46, supra. § 46, supra.
In a suit brought against the in- Where it is made to appear that a
corporators of a corporation chartered corporation is formed for the purpose
ostensibly for the purpose of buying of accomplishing a fraud or other il-
and and other
selling futures in grain legal act, the fiction will be disregarded
commodities, no defense that the
it is by the courts, and the acts of the
corporation, having been chartered for parties dealt with as though no such
an apparently legal purpose, the incorporation had been formed, on the
corporators could not be held individ- ground that fraud vitiates everything
ually liable for illegal acts of its into which it enters, including the most
188
Ch. 4] Objects fob Which Created [§ 115
The organization of a corporation is not in fraud of creditors

where there is no effort or purpose shown by the evidence to simu-
late a compliance with the law or to create a fictitious or deceptive
corporation for any fraudulent or dishonest purpose.'''
Where a statute permits incorporation for any lawful business
or purpose whatsoever, it is held that while the law gives all neces-
sary powers to a corporation organized thereunder, it does not
recognize, as embracing therein, power to do those things which
would deprive the corporation of its ability to carry out the objects
for which it was formed, or discharge any duties which it might under
its charter owe to the public or which are contrary to the policy of
the law.'"
§ 115. Attempt to incorporate under inapplicable statute. Where

corporations for a particular purpose are required to incorporate
under a particular act, such a corporation cannot be formed under a
general statute though the latter is in itself broad enough for that
purpose,'" as, for example, under a general provision authorizing
incorporation for any purpose for which individuals might lawfully
associate themselves.*" It seems that where the legislature has passed
separate acts providing for the organization of certain classes of cor-
porations (especially those owing duties end responsibilities to the
public) under conditions inconsistent vnth or different from those
prescribed by the general corporation act, the effect is to impliedly
prohibit the organization of corporations of these classes under the lat-
solemn acts of men. First Nat. Bank 400, 39 Atl. 705; Domestic Tel. Co. v.
of Chicago v. Trebein Co., 59 Ohio St. City of Newark, 49 N. J. L. 344, 8 Atl.
316, 52 N. E. 834; Brundred v. Eice, 128; State v. Nichols, 40 Wash. 437,
49 Ohio St. 640, 34 Am. St. Eep. 541, 82 Pac. 741.
32 N. E. 169; State v. Standard Oil Co., Where a general act for the inoor-
49 Ohio St. 137, 15 L. B. A. 145, 30 poration of gas companies provides
N. B. 279. that no rival corporation can be organ-
77 Foster v. Staar, 148 III. App. 485, ized unless by special charter, such
afC'd 243 111. 163, 90 N. E. 375. provision cannot be evaded by incor-
78 Ellerman v. Chicago Junct. Eys. porating under the general act con-
Co. & Union Stock Yards Co., 49 N. cerning corporations. Eichards v.
J. Eq. 217, 23 Atl 287, citing Oregon City of Dover, 61 N. J. L. 400, 36 Atl.
Ey. & Nav. Co. v. Oregonian E. Co., 705.
130 U. S. 1, 32 L. Ed. 837. 80 Eichards v. City of Dover, 61 N.
T9 Workingmen 's Accommodation J. L. 400, 39 Atl. 705;
State v. Taylor,
Bank v. Converse, 29 La. Ann. 369; 55 Ohio St. 61, 44 N. E. 513; State v.
Military Academy v. State Board of Pioneer Live Stock Co., 38 Ohio St.
Assessors, 65 N. J. L. 516, 47 Atl. 558; 347.
Eichards v. City of Dover, 61 N. J. L.
189
§115] Peivate Cobpobations [Ch.4
ter act, although there be no express prohibition in terms.^^ Of course

a corporation cannot be formed to engage in a particular business
under a statute which expressly excepts that business from the category
may be granted.** But
of classes of business for which incorporation
such a provision does not imply that corporations for the excepted
purposes may not be formed under other acts.*'
Where the purposes of a corporation set forth in its articles of
association or certificate of incorporation are such as to bring it within
the class of corporations covered by a particular statute, it is within
81 See opinion of Chancellor Pitney under such statute, and the general
in State v. Atlantic City & S. E. Co., incorporation act of the state author-
77 N. J. ti. 465, 72 Atl. Ill, in which izes the formation of corporations for
were cited Domestic Telegraph Co. v. manufacturing, mining, milling, wharf-
Newark, 49 N. J. L. 344, 8 Atl. 128; ing and docking, mechanical, banking,
Eiohards v. Dover, 61 N. J. L. 400, 39 mercantile, improvement and building
Atl. 705; Montclair Military Academy purposes, or for the building and equip-
V. Assessors, 65 N. J. L. 516, 47 Atl. ping and managing water flumes for
558; Fogg v. Ocean City, 74 N. J. L. the transportation of wood or lumber,
362, 65 Atl. 886; Knickerbocker Im- or for the purpose of building, equip-
portation Co. V. Board of Assessors, 74 ping and running railroads, or con-
N. J. L. 583, 9 L. R. A. (N. S.) 885, structing canals or irrigation canals, or
65 Atl. 913. The court added: "So engaging in any other species of trade
far as observed, this doctrine has not or of business, it is held that a corpora-
heretofore been directly in question in tion cannot be organized under the
this court, and we do not at present general incorporation act where the
.
propose to pass upon its soundness, or powers and purposes of the proposed
its precise limitation if sound." And corporation as defined by its articles of
see State v. Taylor, 55 Ohio St. 61, incorporation, are substantially con-
44 N. E. 513; State v. Pioneer Live fined to a trust business, although the
Stock Co., 38 Ohio St. 347. See also language used in the articles does not
Domestic Tel. Co. v. City of Newark, follow the language of and include all
49 N. J. L. 344, 8 Atl. 128, where it the items and powers named in the
was said that the passage of an act pro- trust cojnpany act. State v. Nichols,
viding for the organization of tele- 40 Wash. 437, 82 Pac. 741.
graph and telephone companies, in 88 Dancy v. Clark, 24 App. Cas. (D.
modes and under conditions quite in- C.) 487; People v. Eose, 174 111. 310,
consistent with those prescribed by the 44 L. R. A. 124, 51 N. E. 246; Golden
general incorporation act, seemed to Rule V. People, 118 111. 492, 9 N. E.
be a strong legislative declaration that 342; Stevens v. Pratt, 101 111. 206,
such companies could not be organ- overruling United States Mortgage
ized so as to acquire a corporate exist- Co. v. Gross, 93 111. 483, afE'd 108 U.
ence under the latter act. S. 477, 27 L. Ed. 295. See also § 112,
Where a statute providing for the supra.
incorporation of trust companies de- 83 Stevens v. Pratt, 101 HI. 206, over-
clares that no corporation shall be or- ruling United States Mortgage Co. v.
ganized for the purpose of carrying Gross, 93 111. 483, afC'd 108 U. S. 477,
on a trust company business, except 27 L. Ed. 295.
190
Ch. 4] Objects for Which Cbeated [§115
such class, although the articles or certificate may recite that it was
organized under a statute authorizing the formation of a different
class of corporations.'*
Thus, in a Minnesota case, a corporation which
was formed, on a manu-
as stated in its articles of association, to carry
facturing or mechanical business, and also to purchase the stock and
evidences of indebtedness of an insolvent corporation, was held to
be a valid corporation under a statute authorizing the formation of
corporations for the purpose of carrying on any lawful business,
although the articles of association recited that the corporation was
formed under a different statute, under which no corporation could be
organized except for an exclusively manufacturing or mechanical
business.** And in Louisiana it has been held that where the incorpo-
ration might have been effected under either one of two acts, and all
the conditions prescribed by one of them have been complied with,
it will be deemed to have been effected under it, even though the inten-
tion was to incorporate under the other one.** Of course this can
only apply where all the mandatory provisions of the statute under
which it is sought to sustain the corporation have been complied
with.*'' Nor is the fact that there is a statute under which a corpora-
tion might have been organized for the purposes in question material
where there was no attempt to comply with its provisions or to become
incorporated under it.**
In determining whether a corporation was organized under a title
of the statute authorizing the incorporation of railways, with the
84 Minneapolis & St. P. S. Ey. Co. v. L. E. A. 510, 41 N. W. 1020." Min-

Manitou Forest Syndicate, 101 Minn. neapolis & Suburban Ey. Co. v.
St. P.
132, 112 N. W
13; International Boom Manitou Forest Syndicate, 101 Minn.
Co. V. Eainy Lake Eiver Boom Cor- 132, 112 N. "W. 13. See also Hemmje
poration, 97 Minn. 518, 107 N. W. 735; v. Meinen, 20 N. Y. Supp. 619.
State V. Minnesota Thresher Mfg. Co., 85 State v. Minnesota Thresher Mfg.
40 Minn. 213, 3 L. E. A. 510, 41 N. W. Co., 40 Minn. 213, 3 L. E. A. 510, 41
1020;.McComb v. Belknap, 30 Abb. N. N. W. 1020.
Cas. (N. Y.) 119. 86Dilzell Engineering & Construc-
" In International Boom Co. V. Eainy tion Co. v. Lehmann, 120 La. 273, 45
Lake Eiver Boom Corporation, 97 So. 138.
Minn. 513, 107 N. W. 735, it was held 87 See §§ 290-301, infra.
that a corporation cannot be made 88 Clark v. American Cannel Coal
merely by being labeled as such, if its Co., 35 Ind. App. N. E. 727; In-
65, 73
declared objects show it to be some- diana Bond Co. v. Ogle, 22 Ind. App.
thing else; that the real character of a 593, 72 Am. St. Eep. 326, 54 N. E. 407.
corporation must be determined from See also In re Bank of Commerce, 153
those portions of its articles of associa- Ind. 460, 47 L. E. A. 489, 53 N. E. 950;
tion expressing the nature and scope Snyder v. Studebaker, 19 Ind. 462, 81
of its business. State v. Minnesota Am. Dee. 415; Harriman v. Southam,
Thresher Mfg. Co., 40 Minn. 213, 3 16 Ind. 190.
191
right to exercise the power of eminent domain, or was incorporated

under another title of such statute authorizing the incorporation of
street railways; with no right to exercise such power, it was held that
the fact that the organizers denominated the proposed improvement a
"street railway" was not controlling, where it conclusively appeared
from the articles that it was not the purpose of the corporation to con-
struct and operate street, but interurban railways from place to
place.®^ It is held that where the articles of incorporation disclose
91 Minneapolis & St. P. Suburban purpose, that is whether its corporate

Ey. Co. V. Manitou Forest Syndicate, purposes are those provided for by the
101 Minn. 132, 112 N. W. 14. former chapter or those provided for
Where one statute authorized the by the latter. Etowah Light & Power
formation of corporations "for the Co. V. Taney, 197 Fed. 845.
purpose of constructing, putting in It is held in Illinois that a statute
operation, equipping, and maintaining providing for the incorporation of
a system of waterworks and electric companies "for purposes of construct-
lighting plant and ice plant under one ing and operating any railroad in this
and the same charter," and another state" does not authorize the forma-
statute provided for the incorporation tion of a street railway corporation
of ' ' water and electric light, heat and and a commercial corporation. Schlau-
water power companies, ' ' and provided der V. Chicago & S. Traction Co., 253
for a form of charter setting out in 111.154, 97 N. E. 233; David Bradley
detail the purposes of the corporation, Mfg. Co. v. Chicago & 8. Traction
it was held that a corporation, whose Co., 229 HI. 170, 82 N. E. 210; Gillette
charter did not purport to set out its V. Aurora Eys. Co., 228 111. 261, 81 N.
corporate purposes as provided in the E. 1005; Chicago & S. Traction Co. v.
latter statute and contained no ref- Flaherty, 222 III. 67, 78 N. B. 29. A
erence to heating and water power, corporation organized under such act
but on the contrary stated the purpose will be considered and treated as a
to be to maintain a system of water- commercial railroad corporation, hav-
works and electric lighting and ice ing the right to exercise the power of
plants,and in stating its corporate eminent domain, even though its char-
purposes sets out in substantially the ter states that the object of the cor-
words of the act the corporate pur- poration is to construct and operate
poses provided for by the former act, a street railroad, as the statute under
was organized as a waterworks, elec- which it is organized rather than the
tric lighting and ice company under statements in its articles of incorpora-
the former act, and not as a water, tion as to the objects of its organiza-
electric light, heat and water power tion, will control as to its charter
company under the latter act, and the powers. David Bradley Mfg. Co. v.
fact that there was an attempt to in- Chicago & Traction Co., 229 111.
S.
sert in the charter certain powers 170, 82 N. E. 210. Where the charter
given to water, electric light, heat and of a corporation organized under such
water power companies under the lat- act to operate an interurban road
ter act obviously could not change the states inadvertently that the object of
powers
result, as the test is not the the corporation is to construct and
which the applicants had assumed to operate a street railroad, the charter
take in the charter, but the corporate may be amended, under 111. Laws 1889,
192
that attempted to incorporate the corporation under an inappli-

it is
may refuse to file them when they

cable statute, the secretary of state
are presented to him for that purpose, and mandamus will not lie to
compel him to do so.^^
§ 116. General words in statutes defining objects. In some states,

the statutes, after authorizing corporations to be formed for certain
enumerated purposes, contain the general words, "or for any other
lawful business or purpose," or words to the same effect. In con-
struing such statutes, some courts have applied the familiar rule of
statutory construction that when specific words are followed by gen-
eral words, the latter are to be construed as applying only to things
of the same general kind as those specified, and have held that where
a statute allows corporations to be formed for certain specified pur-
poses, or for any "other" lawful business or purpose, etc., the general
words refer to such purposes only as are of the same general character
as those specified, and authorize the formation of corporations only
for purposes of that character.'*
Other courts, in view of the fact that the ejusdem generis rule of
statutory construction is only an aid in ascertaining the legislative
intent and must yield if a contrary intention otherwise appears', have
held that general words in such statutes were not restricted by specific
words preceding them, and should be given their ordinary meaning.
Under this view where the statute authorizes the formation of corpo-
rations for certain specified puiT)oses and for any "other lawful busi-
ness," or the like, the formation of corporations under the latter
provision is not limited to corporations of a character similar to those
specified.®* It has been held that a statute authorizing corporations
J. & A. H 2495, p. 95, by striking out 93 State v. International Inv. Co.,

the word '
' wherever it occurs
street '
' 88 Wis. 512, 43 Am. St. Eep. 920, 60
therein. David Bradley Mfg. Co. v. N. W. 796. See also Wisconsin Tel.
Chicago & S. Traction Co., 229 Co. v. City of Oshkosh, 62 Wis. 32, 21
HI. 82 N. E. 210.
170, See also N. W. 828; Ashbury Eailway Carriage
Cairo, V. & C. R. Co. v. Wood- & Iron Co. v. Riche, L. E. 7 H. L. 653.
yard, 226 111. 331, 80 N. E. 882. 94 Brown v. Corbin, 40 Minn. 508, 42
A corporation organized under such N. W. 481; State v. Minnesota Thresh-
act is a commercial railroad, notwith- er Mfg. Co., 40 Minn. 213, 3 L. E. A.
standing it uses electricity as a motor 510, 41 N. W. 1020; State v. Corkinsj
power. Schlauder v. Chicago & S. 123 Mo. 56, 27 S. W. 363; York
Traction Co., 253 111. 154, 97 N. E. 233. Park Bldg. Ass 'n v. Barnes, 39 Neb.
92 State v. Nichols, 40 Wash. 437, 82 834, 58 ISf. W. 440. See also Lind-
Pao. 741. See also State v. Nichols, say & Phelps Co. v. Mullen, 176
38 Wash. 309, 80 Pac. 462. See § 212, U. S. 126, 44 L. Ed. 400; Central Trust
infra. Co. v. Warren, 121 Fed. 323; Wells.
193
I Priv. Corp. —13
§116] Peivate Cobpoeations [Ch.4
for "mining, manufacturing, and other industrial pursuits" does not

mean industrial pursuits of the same kind as mining and manufactur-
ing, but extends to and includes the express business.^*
Under a statute which, after enumerating a large number of special
purposes for which corporations may be formed, provides that they
may be formed "for any other purpose intended for mutual profit or
benefit not otherwise specially provided for, and not inconsistent with
the constitution and laws of this state,
'
' a corporation may be formed
for the purpose of "buying, selling, and dealing in real estate, live-
stock, bonds, securities, and other properties of all kinds, on its own
' ' '®
account and for commission, in the United States and elsewhere,
Fargo & Co. v. Northern Pac. Ey. Co., enumerated bear no common analogy
23 Fed. 469; People v. Hagar, 52 Cal. to each other except that they are all
171, writ of error dismissed 154 TJ. S. for pecuniary profit, and of strictly
639, 24 L. Ed. 1044; Dittman v. Dis- private character as distinguished from
tilling Co. of America, 64 N. J. Eq. those to be carried on by quasi public
537, 54 Atl. 570; National Bank of corporations authorized to exercise the
Jefferson v. Texas Inv. Co., 74 Tex. right of eminent domain. Evidently
421, 12 S. W. 101, distinguishing the expression '
or other lawful busi-
Texas & M. E. Canal & Navigation Co. ness' was added as a sort of catch-all
V. Galveston County, 45 Tex. 272. for the purpose of including any kind
In Brown v. Corbin, 40 Minn. 508, of business for pecuniary profit not
42 N. W. 481, a statute authorizing elsewhere provided for, and which
the formation of corporations for va- might have been omitted from the
rious kinds of business specifically previous particular enumeration. ' See '
enumerated, and then adding the gen- also Lindsay & Phelps Co. v. Mullen,
eral words "or other lawful business," 176 U. S. 126, 44 L. Ed. 400, where the
was held to authorize the formation Supreme Court of the United States
of corporations for carrying on any quoted with approval the above state-
kind of lawful business, for pecuniary ment in Brown
v. Corbin, supra, and
profit, not elsewhere specifically pro- held that the words "other lawful
vided for, although not of the same business as found in the statute were
'
'
kind as any of those previously enu- not to be narrowly construed but were
merated. The court said: "Defend- broad enough to include a corporation
ants invoke the rule that when par- organized for the purpose of booming
ticular words are followed by general logs on the waters of streams.
ones, the general words are restricted 95 Wells, Fargo & Co. v. Northern
in meaning to objects of the kind
Pac. By. Co., 23 Fed. 469. See also
particularly enumerated, and there-
Central Trust Co. v. Warren, 121 Fed.
fore that the phrase 'or other lawful
323; Bashford-Burmister Co. v. Agua
business' must be limited to a busi-
Fria Copper Co., 4 Ariz. 203, 35 Pac.
ness of the same kind as those previ-
983; Carver Mercantile Co. v. Hulme,
ously enumerated. We think the rule
invoked is not applicable, at least in 7 Mont. 566, 19 Pac. 213.
the narrow and restricted sense in 96 National Bank of Jefferson v.
which defendants seek to apply it. Texas Inv. Co., 74 Tex. 421, 12 S. W.
The kinds of business specifically 101, distinguishing Texas & M. E.
194
Ch.4] Objects foe Which Ceeated [§116
and also a live-stock association for the purpose of protecting the per-
sonal property of its members against
and other depredations.^'
theft
And where a statute authorized the constitution of corporations for
'
various enumerated purposes of public improvement and utility, and '
generally all works of public utility and advantage, it was held that
'
'
"the enumeration was not intended to be exhaustive, but merely to

indicate, by various examples, what the law maker intended to be
'works of public utility and advantage.' "*'
A statute authorizing the formation of corporations for the insur-
ance of houses, buildings, and all other kinds of property against loss
by fire or other casualty has been held to be broad enough to authorize
a corporation for insuring against loss of property by burglary."
Canal & Navigation Co. v. Galveston clude lightning, tornado, flood, hail, or
County, 45 Tex. 272. other force or violence by which such
In Texas & M. E. Canal & Naviga- property is injured, destroyed, or lost
tion Co. v. Galveston County, 45 Tex. without the agency or design of the
272, which was followed in Jacobs, owner. But counsel say that even if
Bernheim & Co. v. Augusta Co-opera- the word 'casualty' standing alone is
tive Ass 'n, 3 Wilson Civ. Caa. Ct. App. broad enough to include loss by bur-
(Tex.) § 231, it was said that this glary yet under the rule of ejusdem
"general clause is controlled by the generis its scope inust be restricted to
subject to which it relates, and refers casualties of like kind with those spe-
to objects of the character named in cifically mentioned in that connection,
the act, '
' but this holding is criticised and that under this rule the words
and practically overruled in National '
other casualty having been preceded
'
Bank v. Texas Inv. Co., supra. This in the same section by reference to
general provision of Texas Eev. St. loss or damage by fire, they must be
1879, art. 566, § 27, has been repealed. read as meaning other like casualty.
Staacke v. Eoutledge, —
Tex. Civ. App. Of the soundness of the general rule
— 175 S. W. 444; Empire Mills v. Al-
, of construction here appealed to, by
ton Grocery Co., 4 Wilson Civ. Cas. which when specific and general terms
Ct. App. (Tex.) § 221, 12 L. E. A. 366, are both employed in the same connec-
15 S. W. 200. tion the general terms are held to take
Guadalupe & 8. A. Eiver Stock
97 their meaning from the specific, there
A.ss'n V. West, 70 Tex. 391, 7 S. W. can be no doubt; but it is never used
817. to render words meaningless or to de-
98 Glen V. Breard, 35 La. Ann. 875. feat a plainly expressed intent. See
99 Bankers' Mut. Casualty Co. v. State V. Broderick, 7 Mo. App. 19. For
First Nat. Bank of Council Bluffs instance, to interpret the statute as if
(Iowa), 108 N. W. 1046. The court it read 'To insure property against
said: "A casualty by which a loss loss or damage by fire or other loss
of property is occasioned is not neces- or damage by fire would be to
' per-
sarily restricted to a conflagration by petuate an absurdity. Indeed, unless
which the property is consumed, and we treat the general words 'or other
we can see no reason why, in the ab- casualty' as intended to include other
sence of other restrictive provisions risks than those already mentioned in
in the statute, it may not as well in- the specific reference to 'loss or dam-
195
§116] Pbivate Coepoeations [Ch.4
A statute authorizing the formation of corporations for "mining,

manufacturing, mechanical, quarrying, and other industrial pursuits,
and for any other lawful business," does not restrict the formation
of corporations to purposes of the same kind as those specifically
named.^
A
statute authorizing incorporation for the purpose of manufac-
turing electricity for telephoning purposes, "etc.," has been held to
age by fire,' then they mean nothing, the corporation to insurance of struc-
and add nothing whatever to the idea tures similar in character to 'houses
Which would be expressed by the sen- and buildings.' Indeed, if the power
tence with these words entirely omit- thus granted is not broad enough to
ted. * * * Such a, holding would authorize the insurance of household
violate the cardinal rules of construc- goods, stocks of merchandise, grain in
tion and deny to the language em- stack, and generally whatever comes
ployed the meaning and effect which fairly within the term 'property' and
it bears in common and approved is liable to 'loss or damage by fire or
usage. ' Other is also frequently used
' other casualty, then the statute falls
'
in an unrestricted sense not limited far short of the commonly accepted

by the rule of ejusdem generis. * * * meaning as well as the effect which has
The likeness which the general ex- always been given it in actual prac-
pression must bear to the specific words tice."
employed in order to apply the rule 1 Yokes v. Eaton, 119 Ky. 913, 27
of ejusdem generis to the present case Ky. L. Eep. 358, 85 S. W. 174. Hobson,
would seem to be likeness in the loss C. J., said : " It is insisted for appellant
or damage to be insured against rather that the words and for any other law-
'
thari in the causes producing it. The ful business' must be construed as
specific reference to loss or damage by referring to such corporations as have
fire is all inclusive so far as that cause been above named, and that the rule of
ia concerned, and loss or damage by noscitur a sociis should be applied.
other casualty must of necessity refer The difficulty of this is that, after nam-
to injuries which are referable to some ing mining, manufacturing, mechani-
other cause. BrownCorbin (Minn.)
v. cal, and quarrying purposes, these
42 N. W. 481. Property injured by fire words are added: 'and other industrial
becomes a partial or total loss, and a pursuits.' If only things like those
casualty other than fire which pro- which were named were meant, this
duces like loss or injury is, we think, a would have been covered by the words,
like casualty within the meaning of 'and other industrial pursuits,' and
the statute. That the rule relied upon the words 'and for any other lawful
by appellee necessarily permits some business' would have been unneces-
latitude in the interpretation of stat- sary. Taking the statute as a whole, we
utes is well illustrated by reference to are satisfied that the words were used
the first clause of the very provision in their broad and natural sense, other-
we are here considering. The power wise corporations for a great many
there granted is 'to insure houses, purposes for which corporations are
buildings, and all other kinds of prop- formed in nearly all the states could
erty,' etc. We feel very certain that not be formed under the statute, such
couiiselwould not insist that the rule as title companies, mercantile compa-
of ejusdem generis operates to restrict nies, holding companies, and the like.
196
'
authorize the incorporation of a telephone company with power to

construct and operate a telephone line.^
ejusdem generis does not apply where

It has been held that the rule
particular purposes are enumerated in separate and independent num-
bered subdivisions, which are followed by a general provision in a co-
ordinate subdivision permitting for any other purpose not otherwise
specially provided for.' Nor does it apply "where the specific words
exhaust the class of objects referred to, whereby the general words
The statute was evidently intended to A statute providing that corpora-
be broad in its operation from the fact tions may be created for any of the
that so many things are named, and following purposes, First, to carry on
'
'
the words 'and for any other lawful any kind of mining, mechanical, chemi-
business' are added to make it include cal, manufacturing, smelting, print-
things other than those named." ing, coal oil or petroleum business;
2 Doty V. American Telephone & second, to encourage and promote agri-
Telegraph Co., 123 Tenn. 329, Ann. Cas. culture and the improvement of stock,
1912 C 167, 130 S. W. 1053. Green, J., and for these purposes may establish
said: "The words 'et cetera,' meaning fair grounds; third, to construct toll
'
and others, or and other things ' in
'
'
bridges; fourth, to erect hotels, halls,
a connection like this, are frequently market houses, warehouses, exchange
construed by the courts to import other and other buildings, and for the pur-
purposes of like character with those pose of purchasing, owning, and rent-
already named. We think this is the ing buildings already erected; fifth, to
proper construction to be given to build wharves, docks, grain elevators,
—
them here that it was not the legis- levees, and to construct canals and em-
lative intent to confine the powers of bankments for the reclaiming of lands;
telephone companies to the manufac- sixth, to convey and transport persons
ture of electricity, but to confer on and freights on land or water by any
such companies the power to do other mode of conveyance whatever; sev-
things, of like character, incidental to enth, to construct and operate horse
the business. These words, or this railroads; eighth, to purchase and use
abbreviation, 'etc.,' must have been fire engines, hose, hooks and ladders,
used for some purpose. It should not and all other apparatus necessary or
be construed as meaningless and it is useful to prevent and extinguish fires;
our duty to give it its usual and nat- ninth, to suply any town, city, district,
ural significance. Giving to the ab- neighborhood or village with gas or
breviation a natural meaning, the water tenth, to establish steam or
;
conclusion is easy that the intention of other ferries; eleventh, for any other
the act was to give to telephone com- purpose intended for pecuniary profit
panies the right to do other things in or gain not otherwise specially pro-
addition to manufacturing electricity. vided for, and not inconsistent with
It empowered them, not only to manu- the constitution and laws of this
facture electricity for telephoning state," authojrizes the formation of a
purposes, but to do other things for corporation for the purpose of issuit,^
telephoning purposes. '
bonds to be paid for by purchasers
8 State V. Talbot, 123 Mo. 69, 27 S. thereof in monthly instalments, and to
W. 366; State v. Corkins, 123 Mo. 56, be redeemed in such order and at such
27 S. W. 363. time as might be prescribed) and o£
197
§ 116] Private Corporations [Ch. 4
must bear a different meaning or be denied effect " as, for example, ;
where the statute authorizes the formation of corporations "to sup-

'
port and maintain bicycle clubs, and other innocent sports. In such '
ease the words "bicycle clubs" must be deemed to have been "used in
the sense of a distinct and individual innocent sport, complete within
itself and separate in its identity," and the words "and other innocent
sports" must be regarded "as having reference to other particular or
individual innocent sports and as intending a designation by name
of the sport or sports contemplated in the charter of any corporation
formed under their authority"; and therefore such a provision will
not authorize the formation of a corporation to support and maintain
an automobile club, the purpose and object of which is stated to be
to promote innocent sport by means of automobiles.*
A telephone company may be formed under a statute authorizing
the formation of corporations for the purpose of " 'building and oper-
ating telegraph lines, or conducting the business of telegraphing in
any way * * * or for any lawful business or purpose whatever,
;
except' certain classes of business specifically mentioned," although

the telephone was not invented or contemplated when the statute
was enacted.*
In Kansas it has been held that a statute providing that corporations
may be formed for the manufacture and supply of gas, or the supply
'
'
of light or heat to the public by any other means," is broad enough to

may not have
include the supplying of natural gas, although its use
been within the contemplation of the legislature when the act was
passed.® But in Pennsylvania a similar statute was held not to em-
brace electric lighting, where that method of lighting was not known
when the act was passed.'
§ 117. Number of purposes for which corporations may be formed.

It is essential, of course, that a corporation shall be formed for some
selling and disposing of such bonds in Wisconsin Tel. Co. v. City of Osh-
5
the state by which the corporation was kosh, 62 Wis. 32, 21 N. W. 828. See
created. State v. Corkins, 123 Mo. 56, also Pensacola Telegraph Co. v. West-
27 S. W. 363. em TJ. Tel. Co., 96 U. S. 1, 24 L. Ed.
4 Smith V. Wortham, 106 Tex. 106, 708; Attorney-General v. Edison Tel.
157 S. W. 740. Co. of London, L. B. 6 Q. B. Div. 244.
The words "and other innocent 6Compton v. People's Gas Co., 75
sports" do not involve an attempt to Kan. 572, 10 L. R. A. (N. S.) 787, 89
confer legislative authority on the see- Pac. 1039.
retary of state by giving him power to 7 In re Scranton Elec. Light & Heat
determine what are innocent sports. Co.'s Appeal, 122 Pa. St. 154, 1 L. E.
Smith V. Wortham, 106 Tex. 106, 157 A. 285, 9 Am. St. Eep. 79, 15 Atl. 446.
S. W. 740.
198
purpose, and statutes authorizing the formation of corporations gen-

erally provide that corporations may be organized for certain specified
purposes. A question naturally arises as to whether such a statute
restricts the corporations organized thereunder to one purpose or per-
mits it formed for more than one purpose. This depends upon
to be
the verbiage of the statute and the construction to be placed thereon.
A statute stating the purposes for which corporations may be formed
may be so worded that corporations formed thereunder are restricted
to one purpose;' or may be so worded that corporations may assume
8 United States. See Consumers ' Gas Sheet Metal Contractors' Ass'n of
Trust Co. V. Quinby, 137 Fed. 882; Philadelphia, 200 Pa. Ill, 49 Atl. 894;
Colorado Springs Co. v. American In re W. B. XJrling Co., 13 Pa. Dist.
Pub. Co., 97 Fed. 843. 534; In re New Gas Light Co., 7 Pa.
District of Columbia. Danoy v. Dist. 151; In re Pennsylvania Bottling
Clark, 24 App. Cas. 487. & Supply Co., 6 Pa. Dist. 530, 19 Pa.
Co. Ct. 593; In re Application for
Georgia. Van Pelt v. Home Bldg.
Charter for Ins. Co., 5 Pa. Dist. 315;
& Loan Ass'n, 79 Ga. 439, 4 S. E. 501;
In re Application for Charter, 5 Pa.
In re Deveaux, 54 Ga. 673.
Dist. 243; In re MeClurg Gas Const.
Indiana. Burke v. Mead, 159 Ind.
Co., 4 Pa. Dist. 349; In re Sowego
252, 64 N. B. 880; State v. Beck, 81
Water & Power Co., 4 Pa. Dist. 181;
Ind. 500; Newton County Draining Co.
In re Skandinaviska, 3 Pa. Dist. 235;
V. Nof singer, 43 Ind. 566; Skelton
In re Pennsylvania State Sportsmen's
Creek Draining Co. v. Mauck, 43 Ind.
Ass'n, 1 Pa. Dist. 763; In re West
300; Rhodes v. Piper, 40 Ind. 369;
Manayunk Gas Light Co. v. New Gas
O 'Reiley v. Kankakee Valley Draining Light Co., 21 Pa. Co. Ct. 369; In re
Co., 32 Ind. 169; West v. BuUskin
Charter Purposes, 17 Pa. Co. Ct. 577;
Prairie Ditching Co., 32 Ind. 138; Wil-
In re Newton Hamilton Oil & Gas Co.,
liams V. Citizens' Enterprise Co., 25
10 Pa. Co. Ct. 452; In re Washington
Ind. App. 351, 57 N. E. 581, distin-
Min. Co., 9 Pa. Co. Ct. 323; In re Rich-
guishing Shiek V. Citizens' Enterprise
mond Eetail Coal Co. of Philadelphia,
Co., 15 Ind. App. 329, 57 Am. St. Eep.
9 Pa. Co. Ct. 172.
230, 44 N. E. 48. See also Marion
Texas. Johnston v. Townsend, 103
Bond Co. V. Mexican Coffee & Eubber
Tex. 122, 124 S. W. 417; Eamsey v.
Co., 160 Ind. 558, 65 N. E. 748.
Tod, 95 Tex. 614, 93 Am. St. Rep. 875,
Michigan. See Isle Eoyale Land 69 S. W. 133; Staacke v. Routledge,
Corporation v. Secretary of State, 76 — Tex. Civ. App. — 175 S. W. 444;
,
Mich. 162, 43 N. W. 14. City of San Antonio v. Salvation Army

Minnesota. See State v. Minnesota (Tex: Civ. App.), 127 S. W. 860. See
Thresher Mfg. Co., 40 Minn. 213, 3 also Miller v. Tod, 95 Tex. 404, 67 S.
L. E. A. 510, 41 N. W. 1020. W. 483; Halbert v. San Saba Springs
New York. People v. Beach, 19 Hun Land & Live Stock Ass 'n, 89 Tex. 230,
259. 49 L. E. A. 193, 34 S. W. 639, (Tex.
Ohio. State v. Taylor, 55 Ohio St. Civ. App.), 34 S. W. 636; Borden v.
61,44 N. E. 513; State v. Pioneer Live Trespalacios Rice & Irrigation Co.
Stock Co., 38 Ohio St. 347. (Tex. Civ. App.), 82 S. W. 461.
Pennsylvania. In re Eoofing & Wisconsin. State v. International
199
§117] Private Corporations [Cli.4
diversified powers, and may have more than one corporate object, and
may carry on two or more distinct and independent lines of business.'
It is held that a statute authorizing the formation of corporations
"for any lawful purpose excepting banking, insurance, real estate
brokerage, the operation of railroads,and the business of loaning
money," permits the creation of corporations having more than one
object.'" If several purposes are enumerated in separate subdivisions
of the statute a single corporation cannot be organized for purposes
specified in more than one of such subdivisions,^^ unless the statute
luv. Co., 88 Wis. 512, 43Am. St. Eep. said: "The authorities in Indiana are
920, 60 N. W. 796. decisive that the statute under which
England. In re Crown Bank, 44 Ch. this organization was made limits the
Div. 634, 32 Am. & Eng. Corp. Cas. 574. business to be adopted thereunder to a
The use of the word "purpose" in- single class of the several classifica-
stead of "purposes" in a provision tions enumerated in the section, and
that a corporation may be formed for that it was not competent to combine
any purpose for which individuals may two or more of the purposes so classi-
lawfully associate themselves, implies fied in a single incorporation, as pri-
a limitation to a single purpose. State mary business.Burke v. Mead, 159
V. Taylor, 55 Ohio St. 61. The court Ind. 252, 64 N. B. 880, and eases cited;
said " It will be noted that the word
: Williams v. Citizens' Enterprise Co.,
is 'purpose' not 'purposes.' Its use 25 Ind. App. 351, 57 N. E. 581."
implies a limitation. This limitation Under a statute authorizing the
must have been by design. It is a most formation of a corporation for the
wise and reasonable one. We cannot purpose of carrying on any lawful
assume that the general assembly enterprise or business which may be
would intentionally clothe corpora- lawfully conducted by an individual,
tions with a capacity to unite all it is held that a corporation can only
classes of business under one organiza- be formed for the carrying on of one
tion, as this would tend strongly to business or one enterprise. Dancy v.
monopoly." See also State v. Pioneer Clark, 24 App. Cas. (D. C.) 487.
Live Stock Co., 38 Ohio St. 347. 9 State V. Minnesota Thresher Mfg.
Under a statute providing that cor- Co., 40 Minn. 213, 3 L. E. A. 510, 41
porations may be formed for the pur- N. W. 1020; City of San Antonio v.
pose of constructing or owning plank, Salvation Army (Tex. Civ. App.), 127
macadamized, etc., roads, and a provi- S. W. 860; Borden v. Trespalaeios Rice
sion that corporations may be organ- & Irrigation Co. (Tex. Civ. App.), 82
ized under such statute for the purpose S. W. 461. See also Halbert v. San
of purchasing and using a part or sec- Saba Springs Land & Live Stock Ass 'n
tion of such a road already built, & (Tex. Civ. App.), 34 S.W. 636, 89 Tex.
corporation cannot be formed for the 230, 49 L. R. A. 193, 34 S. W. 639; In
purpose of purchasing, operating and re Crown Bank, 44 Ch. Div. 634.
extending several distinct existing 10 In re Humphrey Advertising Co.,
roads owned by different companies. 177 Fed. 187.

State v. Beck, 81 Ind. 500. 11 Dancy v. Clark, 24 App. Cas. (D.
In Consumers' Gas Trust Co. v. C.) 487; Johnston v. Townsend, 103
Quinby, 187 Fed. 882, Seaman, J., Tex. 122, 124 S. W. 417; Kamsej v.
200
expressly so provides.^* And generally if the statute enumerates sev-

eral purposes connected by the disjunctive "or," a single corporation
cannot be organized for more than one of the purposes so enumer-
ated.^8 But there is authority to the effect that the word "or" may
Tod, 95 Tex. 614, 93 Am. St. Rep. Ins. Co., 5 Pa. Dist. 315; In re Sowego
875, 69 S. "W. 133; Staacke v. Eout- Water & Power Co., 4 Pa. Dist. 181.
ledge, — Tex. Civ. App. —
, 175 S. W. In Williams v. Citizens' Enterprise
444; City of San Antonio v. Salvation Co., 25 Ind. App. 351, 57 N. E. 581,
Army (Tex. Civ. App.), 127 S. W. 86Q; the court said: "The use of the dis-
Borden v. Trespalacios Bioe & Irriga- junctive '
or ' makes a complete enact-
tion Co. (Tex. Civ. App.), 82 S. W. 461. ment as each class of business
to
See also In re Hoofing &• Sheet Metal named. Taking the act as the legis-
Contractors ' Ass 'n, 200 Pa. Ill, 49 Atl. lature has written it, and it must mean,
894. 'Whenever three or more persons may
Under a subdivision of the purposes desire to form a company to carry on
for which a corporation ma,y be any kind of manufacturing business,
formed, authorizing the formation of a * * * they shall make, sign, and ac-
corporation for the transaction of any knowledge * * * a certificate in
manufacturing or mining business, and writing, which shall state the corpo-
the purchase and sale of goods, wares rate name adopted by the company,
and merchandise used in such business, the object of its formation,' etc.; or
a corporation may be formed for "a 'Whenever three or more persons may
business consisting of manufacturing
'
' desire to form a company to carry on
and mining, but not for two businesses any kind of mining business, * * *
— one of manufacturing and the other they shall make, sign, and acknowledge
of mining. It was held that where the * * * a certificate,' etc.; and so with
charter tendered stated that "the pur- each class named. The act expressly
pose for which this corporation is requires that the certificate shall state
formed is the transaction of a manu- the corporate name and the 'object'
facturing and mining business and the of its formation. This means that
purchase and sale of goods, wares and the certificate shall state the particular
merchandise used for such business," class of business to be carried on un-
the statement of the purpose was too der one of the designated heads; that
general and indefinite, as, while it the limitation of the business must be
might apply to one business consisting shown by a statement in the articles.
both of manufacturing and mining, it Treating those of the objects named
might also be taken to authorize the in the articles in question which are
transaction of two businesses, one of not within the purview of the statute
manufacturing and another of mining, as surplusage, there is left an at-
with the further power of purchase tempted corporate organization for the
and sale incident to each. Johnston v. purposes of furnishing motive power
Townsend, 103 Tex. 122, 124 S. W. 417. to carry on manufacturing and min-
12 Staacke v. Eoutledge, —
Tex. Civ. ing, to manufacture all kinds of mer-
App. —,175 S.'W. 444. chandise, and to sink and operate gas
13 Williams v. Citizens Enterprise
' wells. We must, then, give to the
Co., 25 Ind. App. 351, 57 N. E. 581; articles the construction that the
In re New Gas Light Co., 7 Pa. Dist. corporators intended to conduct these
151; In re Application for Charter for various enterprises under one organi-
201
be construed to mean '

' and '
' under such circumstances so as to permit
incorporation for more than a single purpose where such was the
zation. There is .no statute in this transfer of certain paid-up capital

state authorizing a single corporate stock in a corporation called the
organization for the purpose of carry- 'Marion Electric Company.' One of
ing on all, or any two, of these busi- the defenses was that the alleged cor-
nesses. The objects of neither are in- poration was not a legal organization,
cidental or secondary to the objects of so that the capital stock was worth-
either of the others, but the objects less. The purposes of incorporation, as
and purposes of each are pri- stated in the articles, were 'of manu-
mary. Each is separate
entirely facturing, storing, selling, delivering,
and distinct from the others. Either and distributing electricity for light,
would properly be the subject of heat, and power, and for all such other
corporate organization; but the in- chemical purposes as electricity can be
tention of the corporators, which applied to, and for the purpose of
must be gathered solely from the arti- manufacturing and selling all kinds of
cles,does not indicate which was to be electrical appliances, apparatus, and
the exclusive purpose. We have no supplies.' The court upheld the con-
authority to select either of the three, tention that it was not competent to
and ignore the others. The corporators combine these purposes in a single in-
must do that for themselves. It is corporation; that while the 'generat-
manifest, from the reading of the stating of electricity is manufacturing,
ute, that it was not the legislative within our manufacturing and mining
intent to authorize a corporate organi- companies act,' the manufacture and
zation for all the purposes named in sale of 'all kinds of electrical appli-
the statute, nor for any two or more ances, apparatus, anff supplies is not
of the purposes named." For further a business incident thereto' citing —
consideration of the Indiana statute, Franklin National Bank v. Whitehead,
see Consumers' Gas Trust Co. v. 149 Ind. 560, 39 L. E. A. 725, 63 Am.
Quinby, 137 Fed. 882, where the court St. Bep. 302, 49 N. E. 592, and Wil-
•
said: "The authorities in Indiana are liams V. Citizens' Enterprise Co., 25
decisive that the statute under which Ind. App. 351, 57 N. E. 581. It was
this organization was made limits the ruled accordingly that the articles
business to be adopted thereunder to a ' disclosed a purpose to engage in lines
single class of the several classifica- of employment and business more di-
tions enumerated in the section, and verse than the statute authorized' and
that it was not competent to combine that the incorporation was invalid.
two or more of the purposes so classi- In Williams Citizens' Enterprise
v.
fied ina single incorporation, as pri- Co., supra, theChief Justice delivered
mary business. Burke v. Mead, 159 the unanimous opinion of the court,
Ind. 252, 64 N. E. 880, and cases cited; denying the right of the corporation to
"Williams v. Citizens' Enterprise Co., recover upon a subscription to its
25 Ind. App. 351, 57 N. B. 581. In capital stock for like defect in the
Burke v. Mead the question arose in diversity of objects stated in the arti-
a suit for specific performance of a cles of association, under the same
contract whereby Mead & Co. agreed statute." See dissenting opinion of
to transfer certain property to Burke Grosscup, J., in Consumers' Gas Trust
and another, in consideration of a Co. V. Quinby, 137 Fed. 882, 900.
202
'
Cli.4] Objects fob Which Cheated [§117
evident intent of the legislature.^* And it has been held that the use
of the word "or" does not prevent an incorporation for the purpose
of carrying on a single business involving two or more elements. Thus
under a subdivision of a statute authori2dng the formation of corpora-
tions for "the transaction of any mining or manufacturing business,"
it has been held that a corporation may be formed for carrying on a
single business consisting partly of mining and partly of manufactur-

ing, though not for the purpose of transacting two distinct businesses,
one of mining and one of manufacturing.^* Of course a corporation
14 Under N. Y. Laws, 1890, e. 566, purposes as its auxiliary or means of

§ 6, providing that a corporation may producing results; nor does section 20,
be formed "for manufacturing and which provides for extending the busi-
supplying gas for lighting, * * * or ness of a company formed or to be
for manufacturing electricity for pro- formed to any 'other' manufacturing,
ducing light, heat, or power, ' a single
' mining, mechanical, or chemical busi-
corporation may be formed for both ness, 'confer the right to combine any
these purposes. People v. Rice, 138 two or more of these general purposes.
N. T. 151, 33 N. E. 846. This section leaves the purpose of the
In Indiana a single corporation may organization still to be limited to one
be orgEinized to construct and operate of the general classes of business
a street and interurban railroad and designated in the act as manufac-
for the purpose of creating and distrib- turing, mining, mechanical, or chemi-
uting light, heat and power. Cook cal."
Inv. Co. V. Evansville Terminal Ey., 15 JohnstonTownsend, 103 Tex.
v.
175 Ind. 3, 93 N. E. 279. But see 122, 124 S. W. The court in this
417.
Bayou Cook Navigation & Fisheries case lays considerable stress upon that
Co. V. Doullut, 111 La. 517, 35 So. 729. fact that the statute uses the term a '
'
In People v. Beach, 19 Hun (N. business" in the singular, and that

Y.) 259, quoted in Williams v. Citi- another section requires the charter
zens ' Enterprise Co., 25 Ind. App. 351, to state "the purpose" of the incor-
57 N. E. 581, it was held that where poration.
the statute provided for the formation While in Ramsey v. Tod, 95 Tex. 614,
of corporations "for the purpose of 93 Am. Rep. 875, 69 S. W. 133, it is
St.
carrying on any ijianufacturing, min- said "that it was the intention of the
ing, mechanical, or chemical busi- legislature to authorize a corporation
ness," a single corporation could not to be formed for any one or more of
be formed for more than one of such the purposes as specified in any one of
purposes. The Supreme Court of New the subdivisions" of the statute, the
York said: "The statute referred to
court in Johnston v. Townsend, 103
provides for the formation of compa-
Tex. 122, 124 S. W. 417, limits the
nies 'for the purpose of carrying on
effect of this language, and says that it
any kind of manufacturing, mining,
merely means that only those purposes
mechanical, or chemical business.'
mentioned in the same subdivision can
(Laws 1848, c. 40.) This language is
in the disjunctive, thus authorizing
be joined in any case, and not that all
an organization for the carrying on of those so mentioned may be united in
business having in view either of these every case, regardless of the way in
203
§117] Peivate Coepokations [Ch.4
may be formed for more than one of such purposes notwithstanding

the use of the word "or" where the statute expressly so provides.^®
Under a statute authorizing the formation of corporations for "the
transaction of any manufacturing, mining, mechanical, chemical, or
mercantile and agricultural implements and produce business, either
separately or all combined," it was held that a corporation might be
formed for "the manufacture of sugar, sirup, starch, grape sugar,

glucose, and other products from sorghum cane, cane seed, corn, and
other saccharine and amylaceous substances for the erection and main-
;
tenance of factories, and the purchase and sale of real estate and plan-
which they are related to or eonneeted it was held that a corporation to

with each other. "promote the welfare and interest of
In Borden v. Trespalaeios Eice & Ir- persons engaged in roofing and sheet-
rigation Co. (Tex. Civ. App.), 82 S. W. metal working, and for the protection
461, it was said: "Corporations cannot and encouragement of such trade and
be formed under our statutes for two commerce, by combining the intelli-
or more distinct purposes when incor- gence and influence of the members
poration for such purposes is only au- against imposition and fraud was '
'
thorized by separate subdivision of the within the scope of such subdivision.

general incorporation statute; but In re Eoofing & Sheet Metal Con-
when several purposes are specified in tractors' Ass'n, 200 Pa. Ill, 49 Atl.
one subdivision of the statute a cor- 894.
poration may be formed for any one or Under a statute authorizing the for-
more of the purposes so specified. mation of a corporation for the pur-
Eamsey v. Tod, 95 Tex. 614, 93 Am. pose of carrying on an enterprise or
St. Eep. 875, 69 8. W. 133." As above btasinesa which may be lawfully con-
seen this view is limited in Johnston v. ducted by an individual and providing
Townsend, 103 Tex. 122. See also that any corporation so formed may
Staacke v. Eoutledge, — Tex. Civ. extend its business to any other busi-
App. —, 175 S. W. 444. ness or change its business to any
It is held in Pennsylvania under a other business authorized by the stat-
statute authorizing corporations to be change of busi-
ute, it is held that the
created for a number of different pur- ness "might be made to a radically
poses set forth in subdivisions of the different class of business, as, for ex-
statute, each of which subdivisions ample, from that of mining to that
describes a particular class of objects, of agriculture, yet the very word
the promotion of which is the object 'change ' implies the abandonment of
of the provision, that each subdivision the one by the adoption of the other,
must, in order to carry out its full in- not the combination of both, ' ' but the
tent, necessarily be held to authorize extension to any other business pro-
a corporation for one or more or all of vided for must be by the taking in of
the special purposes that may come something cognate to the business to
within the general scheme. Thus engage in which the company was
where one of such subdivisions originally incorporated. Dancy v.
piovided for the formation of corpo- Clark, 24 App. Cas. (D. C.) 487.
rations for "the encouragement and 16 Parkinson Sugar Co. v. Bank of
protection of trade and commerce," Ft. Scott, 60 Kan. 474, 57 Pao. 126.
204
'
Ch.4] Objects foe Which Ckeated [§117
tations therefor; for the purchase, location, and laying out of town
sites, and conveyance of the same in town lots and sub-
and the sale
divisions, or otherwise; and for the transaction of manufacturing,
mechanical, and mercantile business."^''
Under a statute permitting incorporation for the purpose of carry-
ing on any kind of mining business, a single corporation may be formed
for the purpose of mining several different kinds of ores.^*
A corporation cannot be organized for two or more incompatible
purposes.^' Thus where corporations organized for works of public
improvement are expressly forbidden to engage in mercantile busi-
ness, a single corporation cannot be formed for both of these pur-
poses.*" Nor in such ease can the incorporation be upheld by treating
17 In Parkinaon Sugar Co. v. Bank In Louisiana a corporation created

jf Ft. Scott, 60 Kan. 474, 57 Pae. 126, under the general laws providing for
Johnston, J., said: "From the declared the organization of corporations for
purposes already quoted from the char- works of public improvement may be
ter, it be seen that the scope of the
will constituted for any number of the con-
purposes and powers of the company junctive purposes permitted to corpo-
ftaa not restricted to one line of busi- rations belonging to that class, and
fless, or the manufacture of a single the same rule applies to other classes
product. It was authorized not only to of corporations. Louisiana Navigation
inanufacture sugar and syrup, but to & Fisheries Co. v. Doullut, 114 La. 906,
jrect and maintain factories, purchase 38 So. 613.
and sell real estate and plantations 19 Louisiana Navigation & Fisheries
therefor, and purchase, locate, and lay Co. V. Doullut, 114 La. 906, 38 So. 613;
out town sites, and to dispose of town Bayou Cook Navigation & Fisheries
(ots. While the latter provisions may Co. v. Doullut, 111 La. 517, 35 So. 729.
be regarded as incidental to the 20 Louisiana Navigation & Fisheries
manufacture of sugar and syrup, the Co. v. Doullut, 114 La. 906, 38 So. 613;
Incorporators expressly added a provi- Bayou Cook Navigation & Fisheries
4on authorizing 'the transaction of Co. V. Doullut, 111 La. 517, 35 So. 729.
manufacturing, mechanical, and mer- Under a statute authorizing the for-
cantile business.'Manifestly, it was mation of corporations for the purpose
Intended to enlarge the scope and ex- of carrying on any enterprise or busi-
tent of the powers of the company by ness which may be lawfully conducted
this declaration,and no reason is seen by an individual, excepting, among
why it cannot be given effect. Nothing other things, '
' railroads, " it is proper
in the statute under which the cor- for the recorder to refuse to file a cer-
poration was formed limits it to the tificate of incorporation stating that
manufacture of a single article or one of the objects of the corporation is
product. On the other hand, our law "to perform contracts for maintain-
is exceedingly liberal in allowing a ing and operating railways," and also
combination of the lines of business stating that the corporation shall not
which may be carried on by a single "operate any railroad, engage in the
corporation. '
business of a railroad, or do anything
18 People V. Beach, 19 Hun (N. Y.) in the premises prohibited to incorpo-
259, 57 How. Pr. (N. Y.) 337. rations of this character," as the two
205
§117] Private Cokpobations [Ch.4
the purpose ofmaking the improvement as the main purpose and that
of merchandising as subsidiary and disregarding it as surplusage,
though the corporation has not in fact engaged in merchandising.*^
It has been said that where the statute authorizes the organization
of a corporation for only one of the purposes specified in the statute,
a corporation cannot be organized for two or more of the purposes
specified, and the articles of association specifying such plurality of
purposes are void.** But generally the fact that one or more of
several purposes mentioned in the articles of incorporation is unauthor-
clauses of the certificate of incorpora- combining these two purposes or
tion are inconsistent,and there is no created none at all; and since the two
distinction between a "railroad" and purposes are, under the prohibition of
a '
railway. ' Dancy v. Clark, 24 App.
' ' the statute, incompatible, the other
Cas. (D. C.) 487. alternative must be adopted that no
21 Bayou Cook Navigation & Fish- corporation at all has been created."
eries Co. V. DouUut, 111 La. 517, 35 See § 112, supra.
So. 729. The court said: "The ease is 22 Consumers ' Gas Trust Co. v.
not one of unauthorized powers being Quinby, 137 Fed. 882; Burke v. Mead,
sought to be conferred in addition to 159 Ind. 252, 64 N. E. 880; Williams v.
the powers that are authorized, nor of Citizens' Enterprise Co., 25 Ind. App.
a corporation undertaking to do acts 351, 57 N. E. 581, distinguishing Shick
ultra vires, but it is the ease of a fa- v. Citizens' Enterprise Co., 15 Ind.
tally defective act of incorporation. App. 329, 57 Am. St. Rep. 230, 44 N.
It is the case of an attempt to create E. 48.
in one act two distinctand different A corporation organized for the pur-
corporations incompatible with each pose of manufacturing and selling elec-
an attempt to fuse into one
other, or of tricity for light, power and heat, and
two distinct and incompatible corpo- also for the manufacture and sale of
rations. If the enabling laws did not all kinds of electrical appliances, ap-
authorize the creation of a mercantile paratus and supplies is unauthorized
corporation, then all the words of the and is not a de jure corporation.
act relating to a mercantile corpora- Burke v. Mead, 159 Ind. 252, 64 N. E.
tion might possibly be treated as 1880.
meaningless and surplusage; but, un- In Marion Bond Co. v. Mexican Cof-
fortunately for plaintiff, the enabling fee & Eubber Co., 160 Ind. 558, 65 N.
laws do authorize the creation of mer- E. 748, it was held that even though
cantile corporations, and those parts the articles of association designated
of the act of incorporation which seek more than one of the purposes speci-
to make plaintiff a mercantile corpo- fied in the statute and other purposes
ration are as pertinent as those which not authorized at all, the corporation
seek to make
a works of public im-
it had a de facto existence and the power
provement corporation. The purpose to sue and enter into certain contracts,
to make plaintiff a mercantile corpo- and the legality of its organization
ration stands out of the act as express- was not open to collateral attack in an
ly as the purpose to make plaintiff a action brought by it to enforce the col-
works of public improvement corpora- lection of street improvement bonds
tion; hence the act must be taken as held by it, The court distinguished
having either created a corporation the cases of O'Eeiley v. Kankakee
206
Ch.4] Objects fok Which Ckeated [§118
ized will not vitiate the incorporation, provided the others are within
the purview of the statute."*
In some jurisdictions it is held that the secretary of state or other
officer inwhose office the charter or articles of associatioa are required
to be filed may refuse to file or accept for record an instrument open
to such objection.^*
The fact that successive secretaries of state have construed a statute
providing for the formation of corporations to authorize an incorpo-
ration for two distinct purposes is not of controlling effect upon the
courts where it is plain that it was the intention of the act that a cor-
poration formed under the act should only be organized for one pur-
pose, 25
§ 118. How character of a corporation is determined. Whether

the purpose of a corporation is within the scope of the statute under
which the corporation is sought to be organized, is to be determined
solely from its charter. The first thing is to ascertain the purposes
for which a corporation may be organized under the statute, and then
determine whether the purposes of the corporation, as shown by its
charter, bring it within the purposes authorized by the statute."®
Valley Draining Co., 32 Ind. 169; West in the office of the recorder of deeds a
V. Bullskin Prairie Ditching Co., 32 certificate of incorporation as required
Ind. 138, and Williams v. Citizens ' En- by the statute authorizing the forma-
terprise Co., 25 Ind. App. 351, 57 N. E. tion of corporations, such officer may
581. See, however. Consumers' Gas refuse to accept the instrument for
Trust Co. V. Quinby, 137 Fed. 882, record where it contains a statement
where the court after citing and quot- of purposes for which a corporation
ing from Burke v. Mead, 152 Ind. 252, may not be organized under such stat-
44 L. R. A. 392, 71 Am. St. Rep. 327, ute. Dancy v. Clark, 24 App. Cas.
64 N. E. 880, and Williams v. Citizens' (D. C.) 487.
Enterprise Co., 25 Ind. App. 351, 57 2B Ramsey
v. Tod, 95 Tex. 614, 93
N. E. 581, said: "The case of Marion Am. Rep. 875, 69 S. W. 133. See
St.
Bond Co., Trustee, v. Mexican Coffee & Bankers' Mut. Casualty Co. v. First
Rubber Co., 160 Ind. 558; 65 N. E. 748, Nat. Bank (Iowa), 108 N. W. 1046;
cited as inconsistent with these rul- People V. Nelson, 46 N. Y. 477, 60 Barb.
ings, impresses us as neither applica- (N. Y.) 159, 3 Lans. (N. Y.) 394. See
ble, nor in any sense modifying the g 118, infra.
construction upheld in the previous 26 Louisiana. Bayou Cook Naviga-
cases. See also West Manayunk Gas
'
' tion & Fisheries Co. v. Doullut, 111 La.
Light Co. V. New Gas Light Co., 21 Pa. 517, 35 So. 729; Succession of Nichol-
Co. Ct. 369. See § 112, supra. son, 87 La. Ann. 346.
23 See § 112, supra. IMicliigan. American Matinee Ass 'n
24 Dancy v. Clark, 24 App. Cas. (D. V. Secretary of State, 140 Mich. 579,
C.) 487. See § 112, supra. 104 N. W. 141; Detroit Driving Club
Where the incorporators seek to file v. Fitzgerald, 109 Mich. 670, 67 N. W.
207
Where the statute authorizing the formation of corporations requires

the articles of association to state distinctly and definitely the purpose
899; Attorney General v. Lorman, 59 that portion of its articles of associa-

Mieh. 157, 60 Am. Eep. 287, 26 N. W. tion expressing the nature and scope
311. of its business. International Boom
Minnesota. International Boom Co. Co. V. Eainy Lake Eiver Boom Corpo-
V. Rainy Lake Eiver Boom Corpora- ration, 97 Minn. 513, 107 N. "W. 735,
tion, 97 Minn. 513, 107 N. W. 735; In Senour Mfg. Co. v. Church Paint
Senour Mfg. Co. v. Church Paint & & Manufacturing Co., 81 Minn. 294,
Mfg. Co., 81 Minn. 294, 84 N. W. 109; 84 N. W. 109, it was held that the fact
State V. Minnesota Thresher Mfg. Co., that the promoters and organizers of
40 Minn. 213, 3 L. E. A. 510, 41 N. W. the corporation intended and contem-
1020. plated that the corporation should car-
Missouri. In re St. Louis Institute ry on and conduct a nonmanuf aeturing
of Christian Science, 27 Mo. App. 633. business when completely organized,
Netoaska. McLeod v. Lincoln Medi- and intentionally withheld a statement
cal College of Cotner University, 69 of such contemplated nonmanufactur-
Neb. 550, 96 N. W. 265, 98 N. W. 672. ing business from its articles of asso-
New Jersey. Colgate v. United ciation, and limited the purposes of the
States Leather Co., 75 N. J. Eq. 229, corporation solely to manufacturing
19 Ann. Cas. 1262, 72 Atl. 126. for the purpose of avoiding the per-
"Thequestion whether a corpora- sonal liability of stockholders, and the
tion has been organized for an illegal further fact that such nonmanufactur-
purpose must be determined by the ing business was, subsequent to the
provisions of its charter, and not by organization of the company, in fact
the declarations of its officers or engaged in, did not change the char-
agents. State v. New Orleans Water
'
' acter of the corporation, nor subject
Supply Co., Ill La. 1049, 36 So. 117. the stockholders to personal liability
'
The purpose for which a company
' for corporate debts. The court said:
is organized is primarily to be sought "If a corporation be organized for a
and found in its charter or certificate particular purpose, and such purpose
of incorporation. '
' Colgate v. United be not truthfully stated in its articles
States Leather Co., 75 N. J. Eq. 229, of association, as required by statute,
19 Ann. Cas. 1262, 72 Atl. 126. and a business foreign to the purpose
It is held in Illinois that in deter- actually stated undertaken and car-
is
mining whether the capital stock of a ried on, the fraud, if it be a fraud,
corporation is exempt from taxation is against the state, and not against
under a statute exempting from taxa- those who subsequently deal with it.
tion the capital stock of corporations It can lawfully engage in no business
organized for purely manufacturing not included in the purpose of. the cor-
purposes, the purpose for which a corporation as disclosed by its articles,
poration is organized must be ascer- which individuals are bound to know,
tained by reference to the charter. and if it does so, as a matter of fact, it
Evanston Elec. Illuminating Co. v. is an exercise of power not possessed,
Koehersperger, 175 111. 26, 51 N. E. of which the state alone can complain.
719; Distilling & Cattle Feeding Co. v. As to all others, the corporation is
People, 161 111. 101, 43 N. E. 779. just what its articles make it, and
In determining the character of a nothing more."
corporation, reference must be had to
208
Ch. 4] Objects for Which Created [§118
for which the corporation is formed, it is held that if such articles do
not state a purpose for which the statute authorizes a corporation to

be formed, the corporation is not legally incorporated, and its articles
will afford no warrant for the exercise of corporate action.*'' If the

articles of association, however, do state such a purpose, and the other
requirements of the law are complied with, it is a legal corporation,
and authorized In either case the articles themselves

to act as such.^*
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 cannot be aided or varied or contradicted by testimony or aver-
ments aliunde the instrument itself.*'
Where the purposes for which a corporation is formed are required
to be set forth in its charter, the charter as well as the general law
under which the corporation was organized determine the nature and
extent of its corporate powers and privileges, and constitute the meas-
ure of its authority, and it can exercise no other powers than those
expressly and impliedly conferred by its charter.'"
The charter of a corporation formed under a general incorporation

law does not consist of the articles of incorporation alone, but of the
articles, taken in connection with the law under which the organization
takes place.'^
87 Attorney-General v. Lorman, 59 Kansas. Parkinson Sugar Co. v.
Mich. 157, 60 Am. Rep. 287, 26 N. W. Bank of Ft. Scott, 60 Kan. 474, 57 Pac.
311. 126.
2*Attorney-General v. Lorman, 59 31 Bixler v. Summerfield, 195 111. 147,
Mieh. 157, 60 Am. Eep. 287, 26 N. W. 62 N. E. 849; Fritze v. Equitable Build-

311. ing & Loan Society, 186 111. 183, 57 N.
29 Attorney-General v. Lorman, 59 E. 873, aff'g 83 111. App. 18; City of
Mieh. 157, 60 Am. Eep. 287, 26 N. W. Danville v. Danville Water Co., 178
311. 111. 299, 69 Am. St. Rep. 304, 53 N. E.
30 United States. Oregon Ry. & Nav. 118; People v. Chicago Gas Trust Co.,
Co. V. Oregonian Ry. Co., 130 II. S. 1, 130 111. 268, 8 L. R. A. 497, 17 Am. St.
32 L. Ed. 837. Eep. 319, 22 N. E. 798; Chicago Open
Alabama. Grangers' Life & Health Board of Trade v. Imperial Bldg. Co.,
Ins. Co. V. Kamper, 73 Ala. 325. 136 111. App. 606, afe'd Imperial Bldg.
lUinols. Fritze v. Equitable Build- Co. V. Chicago Open Board of Trade,
ing & Loan Society, 186 111. 183, 57 238 111. 100, 87 N. E. 167; McLeod v.
N. E. 873; City of Danville v. Danville Lincoln Medical College of Cotner Uni-
Water Co., 178 111. 299, 69 Am. St. versity, 69 Neb. 550, 98 N. W. 672.
Eep. 304, 53 N. E. 118; People v. Chi- The provisions of the law enter into
cago Gas Trust Co., 130 111. 268, 8 L. R. and form part of its charter, and the
A. 497, 17 Am. St. Rep. 319, 22 N. E. charter, thus construed, contains the
798. terms of the agreement of the associa-
Iowa. Traer Lucas Prospecting
v. tion between the shareholders, and in-
Co., 124 Iowa 107, )9 N. W. 290. dicates the character and extent of the
209
I Priv. Corp. — 14
—
§118] Pkivate Coepokations [Ch.4
Where the statute permitting the organization of corporations

requires that the certificate of incorporation shall state "the objects
for which the company is formed," this statement of the objects of
the company is not only a limitation of the franchises that are derived
business in whicli the company shall ute, a provision in the declaration of
engage. Traer v. Lucas Prospecting its corporate purposes, the necessary
Co., 124 Iowa 107, 99 N. W. 290. effect of which is the creation of a
As has been said by the Supreme monopoly, will also be void. Speaking
Court of the United States: "The man- of the articles of association of corpo-
ner in which these powers shall be rations formed under general laws, the
exercised, and their subjection to the Supreme Court of the United States
restraint of the general laws of the says: 'We have to consider, when such
state and its general principles of articles become the subject of con-
public policy, are not in any sense struction, that they are in a sense ex
enlarged by inserting in the articles parte; their formation and execution
of association the authority to depart what be put into them as well as
shall
therefrom." Oregon Ey. & Nav. Co. what —
do not take
shall be left out
V. Oregonian Ey. Co., 130 TJ. S. 1, 32 place under the supervision of any of-
L. Ed. 837, quoted with approval in ficial authority whatever. They are
I'ritze V. Equitable Building & Loan the production of private citizens,
Society, 186 TO. 183, 57 N. E. 873, gotten up in the interest of parties
aff'g 83 App. 18.
111. who propose to become corporators,
"It fundamental that a corpora-
is and stimulated by their zeal for the
tion can be created and can exist by personal advantage of the parties con-
virtue of statutory authority, and by cerned rather than the general good.
that only. If a corporation organizes * * *
These articles, which necessa-
under a general act, and inserts in its rily assume by the sole action of the
articles of association regulations and corporators enormous powers, many of
provisions additional to those required which have been heretofore considered
by the creative statute, such addi- of a public character, sometimes af-
tional regulations and provisions are fecting the interests of the public very
void. Nor is the corporation permitted largely and very seriously, do not
to place any restrictionsupon the man- commend themselves to the judicial
ner of exercising its corporate duties mind as a class of instruments requir-
other than the statute provides. If a ing or justifying any very liberal con-
corporation claims the right to exist struction. Where the question is
for a certain purpose, it must show whether they conform to the authority
that it was organized under a statute given by the statute in regard to cor-
authorizing the creation of a corpo- porate organization, it is always to be
ration for that particular purpose." determined upon just construction of
Indiana Bond Co. v. Ogle, 22 Ind. App. the powers granted therein with a due
593, 72 Am. St. Eep. 326, 54 N. E. 407. regard for all the other laws of the
In People v. Chicago Gas Trust Co., state upon that subject. * * The
130 111. 268, 8 L. R. A. 497, 17 Am. St. manner in which these powers shall
Eep. 319, 22 N. B. 798, the court said: be exercised, and their subjection to
"If contracts and grants, whose tend- the restraint of the general laws of
ency is to create monopolies are void the state and its general principles
at common law, then where a corpora- of public policy, are not in any sense
tion is organized under a general stat- enlarged by inserting in the ^rtieles
210
by the corporators from the state, but is likewise a limitation of the

purposes to which the corporators as between themselves have agreed
that the joint capital shall be devoted.^^ The purposes of a corpora-
tion as set forth in the articles of association are not to be limited by
the words of a single clause, but are to be ascertained by the reading
of the entire declaration. All the clauses are to be considered together
and what the corpora-
in association with one another in determining
tion may The purpose for which a corporation Ls organized must
do.*^
be established by the introduction in evidence of a certified copy of its
articles of incorporation.**
It is held that where the language employed in a statute in respect

to the purposes for which a corporation may be organized is ambiguous
or lacking in clearness and definiteness of expression, the contempo-
raneous construction placed thereon by the executive and administra-
tive authorities of the state who are charged with the duty of enforcing
it, is highly persuasive of the correctness of such interpretation. The
'
court said : ' True, it is not permitted to control a clear and specific
legislative enactment or to defeat a plainly expressed intent but where
the language of the act is open to construction at all it is entitled to
of association the authority to depart violative of the rights of nonassenting

therefrom.' " stockholders.
In New any two or more
Jersey, 32 Colgate V. United States Leather
corporations, organized under the laws Co., 75 N. J. Eq. 229, 19 Ann. Cas.
of the state for the purpose of carry- 1262, 72 Atl. 126.
ing on any kind of business of the 33 Eaton V. Woman 'a Home Mis-
same or similar nature, may merge or sionary Society, 264 HI. 88, 105 N. E.
consolidate such corporations into a 746.
single which may be
corporation, 34 Central Inv. Co. v. Melick, 162
either one of said merging or consoli- HI. App. 474.
dating corporations or a new corpora- "When an application for a char-
tion to be formed by means of such ter is made, the court acts for the com-
merger and consolidation. See N. J. monwealth, and should not permit the
Pub. Laws, 1893, p. 121, and N. J. Pub. applicants, by withholding evidence of
Laws, 1896, p. 309, § 104. In Colgate material facts, to obtain a charter for
V. United States Leather Co., 75 N. J. one purpose in the guise of another.
Eq. 229, 19 Ann. Cas. 1262, 72 Atl. The court should search for and obtain
126, the respective certificates of in- all the information necessary to a
corporation of two corporations were proper knowledge of the purposes of

examined, and it was held that the the intended corporation, in order to
corporations were not organized for enable the court to determine its power
the purpose of carrying on business of and its duty in the case before it.'"'
'
' the same or a similar nature
'
' within See Master's report. In re First
the meaning of such acts, and that the Church of Christ, Scientist, 205 Pa.
proposed consolidation of the two com- 543, 63 L. E. A. 411, 97 Am. St. Rep.
panies was unauthorized by law and 753, 55 Atl. 536.
211
§ 118] Pkivate Cobpobations [Ch. 4
much weight. " ^^ In determining from the articles of incorporation

the purpose for which the corporation is organized, the same rules
will be applied as are applied in the construction and interpretation
of other contracts or writings.^*
Where the purposes of a corporation set forth in its articles of asso-
ciation or certificate of incorporation are such as to bring it within the
filass it is within such
of corporations covered by a particular statute,
class,although the articles or certificate may recite that it was organ-
ized under a statute authorizing the formation of a different class of
corporations.''
§ 119. Statement of objects in incorporation paper. In almost all
of the states the persons forming a corporation under the general laws
are required to prepare and sign a memorandum or articles of associa-
tion. Statutes which require such articles of association generally
prescribe their necessary contents and among other things require that
they shall state the purpose or objects of the proposed corporation, and
a substantial compliance with this requirement is a condition preced-
ent to the existence of the corporation.**
"Where the statute requires that the objects of the corporation should
be stated with reasonable distinctness, such a declaration thereof in
3B Bankers
Mut. Casualty Co. v. tions' act,when the corporation was of
First Nat. Bank of Council Bluffs a character not authorized by that act,
(Iowa), 108 N. W. 1046. See also Peo- did not bring it within the provisions
pie V. Nelson, 46 N. Y. 477, 60 Barb. of the act.
(N. Y.) 159, 3 Lans. (N. Y.) 394; 38 See Chap. 7, infra, for requi-
Eamsey Tod, 95 Tex. 614, 93 Am. St.
v. sites of articles of association. See
Rep. 875, 69 8. W. 133. See § 117, § 193, infra, for what constitutes
supra. charter of corporation. See also in
36 Senour Mfg. Co. v. Church Paint this connection:
& Manufacturing Co., 81 Minn. 294, Georgia. Van Pelt v. Home Build-
84 N. "W. 109. ing & Loan Ass 'n, 79 Ga. 439, 4 S. E.
37 State V. Minnesota Thresher Mfg. 501; In re Deveaux, 54 Ga. 673.
Co., 40 Minn. 213, 3 L. E. A. 510, 41 Indiajia. Crawford v. Prairie Creek
N. W. 1020. See also Minneapolis & Ditching Ass 'n, 44 Ind. 361; Rhodes v.
St. P. S. E. Co. V. Manitou Forest Syn- Piper, 40 Ind. 369; Seyberger v. Calu-
dicate, 101 Minn. 132, 112 N. W. 13; met Draining Co., 33 Ind. 330; O'Eeiley
International Boom Co. v. Rainy Lake v. Kankakee Valley Draining Co., 32
River Boom Corporation, 97 Minn. 513, Ind. 169; "West v. BuUskin Prairie
107 N. W. 135. See § 115, supra. Ditching Co., 32 Ind. 138; Piper v.
In MeComb v. Belknap, 30 Abb. N. Rhodes, 30 Ind. 309; Williams v. Citi-
Cas. (N. Y.) 119, 24 N. Y. Supp. 935, zens Enterprise Co., 25 Ind. App. 351,
'
it was held that the fact that a cer- 57 N. E. 581.

tificate of incorporation recited that it Kansas. Whetstone v. Ottawa Uni-
was under the manufacturing corpora- versity, 13 Kan. 320.
212
'
Ch.4] Objects fok Which Created [§ 119
the articles of association is a condition precedent to the organization,

and without it no such corporation is authorized or can exist.^*
The incorporation of a private corporation to manufacture lumber
and all articles made of wood and, in other words, to run and own a
Louisiana. Bayou Cook Navigation England. In re Crown Bank, 44 Ch.

& Fisheries Co. v. Doullut, 111 La. 517, Div. 634; Ashbury Eailway, Carriage
35 So. 729. & Iron Co. v. Eiehe, L. E. 7 H. L. 653.
Maryland. Bails v. Calvert College See § 195, infra.
Educational Society, 47 Md. 117; 39 West V. Bullskin Prairie Ditching
Hughes V. Antietam Mfg. Co., 34 Md. Co., 32 Ind. 138
; Williams v. Citizens
316. Enterprise Co., 25 Ind. App. 351, 57
Michigan. Attorney-General v. Lor- N. B. 581; Bayou Cook Navigation &
man, 59 Mich. 157, 60 Am. Eep. 287, 26 Fisheries Co. v. Doullut, 111 La. 517,
N. "W. 311. 35 So. 729.
New Jersey. EUerman v. Chicago The Supreme Court of Michigan has
Junct. Eys. & Union Stock Yards Co., laiddown the following rules in refer-
49 N. J. Eq. 217, 23 Atl. 287. ence to compliance with this require-
New York. Eastern Plank Eoad Co. ment: "The law requires the articles
V. Vaughan, 14 N. Y. 546; New York & of association to state distinctly and
L. I. R. Co. V. O'Brien, 121 App. definitely the purpose for which the
Div. 819, 106 N. Y. Supp. 909; People same is formed. If it does not state a
V.Beach, 19 Hun 259. purpose for which the statute author-
Pennsylvania. In re National Liter- izes a corporation to be formed, it
ary Ass'n, 30 Pa. St. 150; In re Medi- would not be legally incorporated, and
cal College of Philadelphia, 3 Whart. its articles would afford no warrant for
444; In re Xantha Beneficial Musical the exercise of corporate action. If it

Ass'n, 8 Pa. Dist. 142; In re Monroe does state such a purpose, and if the
Eepublican Club, 6 Pa. Dist. 515; In re other requirements of the law are com-
McKees Eocks Volunteer Fireman's plied with, a legal corporation,
it is
Belief Ass'n, 6 Pa. Dist. 477; In re and authorized to act as such. In

South Fork Social & Literary Club, 4 either case the articles themselves are
Pa. Dist. 457; In re Italian Mut. Bene- the sole criterion to ascertain the pur-
ficial Ass'n, 4 Pa. Dist. 357; In re pose for which it was formed, and the
Skandinaviska, 3 Pa. Dist. 235; In re intent must be gathered alone from
Lodge Duoh Nove Doby, 3 Pa. Dist. the written instrument, and cannot be
215; In re Pennsylvania State Sports- aided or varied or contradicted by
men's Ass'n, 1 Pa. Dist. 763, 11 Pa. testimony or averments aliunde the in-
Co. Ct. 576; In re LaFayette Club, 21 strument itself. The question, there-
Pa. Co. Ct. 243; In re Ton-a-lu-ka-Club, fore, is, is the purpose set forth in the
12 Pa. Co. Ct. 26; In re Newton Hamil- articles such as the statute authorizes
ton Oil & Gas Co., 10 Pa. Co. Ct. 452; the formation of corporations to carry
In re Eichmond Eetail Coal Co., 9 Pa. on? We think it is. Its expressed pur-
Co. Ct. 172; In re Incorporation of In- pose is to manufacture for market
dependent Order Silver Star, 1 Luz. Detroit river and lake ice. It was not
Leg. Eeg. 768. necessary for the articles to state the
Wisconsin. Milwaukee Light, Heat means methods of manufacture, nor
or
& Traction Co. v. Milwaukee N. B. are presume that the undertak-
we to
Co., 132 Wis. 313, 112 N. W. 663. ing would be impossible of accomplish-
213
'
119] Private Cobpokations tCh. 4
sawmill, not void because the articles of incorporation state that

is
one of the purposes of the corporation is to buy, lease, sell, mortgage,

and otherwise deal in railroads, tramways, and rights of way, on the
ground that the statute authorizing the incorporation of private cor-
porations prohibits the incorporation of railways thereunder for such ;
a provision would not authorize the corporation to buy, sell, lease, or

operate a railway.**
A statement that the object of the corporation is to carry on any
business which it may deem profitable is not sufficient."
ment." Attorney-General v. Lorman, Kees Bock Volunteer Fireman 's Belief

59 Mich. 157, 60 Am. St. Eep. 287, 26 Ass'n, 6 Pa. Dist. 235; In re Account-
N. W. 311. See also Bayou Cook Navi- ants' Ass'n of Pittsburg, 18 Pa. Co.
gation & Fisheries Co. v. Doullut, 111 Ct. 159; In re Journalists' Fund of
La. 517, 35 So. 729 ; In re Aeeountants Philadelphia, 8 Phila. 272.
Aas'n, 18 Pa. Co. Ct. 159; In re Bieh- England. In re Welsbach Incan-
mond Eetail Coal Co., 9 Pa. Co. Ct. 172. descent Light Co., [1904] 1 Ch. 87;
Under a statute authorizing the for- Ashbury Eailway, Carriage & Iron Co.
mation of corporations "for building v. Eiehe, L. E. 7 H. L. 653; In re Cool-
and repairing" steamboats and ves- gardie Gold Mines, 76 L. T. (N. S ) 229.
sels, a statement in a certificate of Where the statute provides that the
incorporation that the purpose of the certificate of incorporation shall state
corporation is that of "building, re- the manner of carrying on the busi-
pairing and maintaining steamboats ness of the association, a certificate
and vessels" is sufficient to create a of incorporation stating that ' the '
de jure corporation. Gaff v. Flesher, manner of carrying on the business

33 Ohio St. 453. shall be such as the association may
40 People V. Mt. Shasta Mfg. Co., from time to time prescribe
'
' was held
107 Cal. 256, 40 Pac. 391. In this case not to be a sufficient compliance vidth
the court said that it appeared that the statute. State v. Central Ohio
such statement referred merely to such Mut. EeUef Ass'n, 29 Ohio St. 399.
railroads and tramv/ays as might be " It is not necessary that the articles
necessary to the company's plant. See of association shall designate * •
Ellerman v. Chicago Junct. Bailways all the powers which it may exercise
& TTnion Stock Yards Co., 49 N. J. Eq. when duly incorporated. It is suf-
217, 23 Atl. 287, where the certificate ficient if they designate in general
of incorporation was construed. terms the purposes for which the
41 In re Crown Bank, 44 Ch. Div. corporation is organized; and when
634. See also in this connection: organized, such corporation may exer-
Georgia. In re Deveaux, 54 6a. 673. cise all thepowers which are conferred
Missouri. Bowman Dairy Co. v. upon such corporations by statute, and
Mooney, 41 Mo. App. 665. probably all such powers as are usually
New Jersey. Ellerman v. Chicago exercised by similar corporations, and
Junct. Bailways & Union Stock Yards which are necessary to accomplish the
Co., 49 N. J. Eq. 217, 23 Atl. 287. purposes of such corporation, not in
Ohio. State v. Central Ohio Mut. conflict with the laws of the state."
Belief Ass'n, 29 Ohio St. 379. Wendell v. State, 62 Wis. 300, 22 N.
Pennsyivania. In re National Lit- W. 435.
erary Ass'n, 30 Pa. St. 150; In re Mc- The articles of incorporation of a
214
Ch. 4] Objects fob Which Cbeated [§ 119
No other powers, privileges, or immunities than those prescribed by

the legislature can be conferred upon a corporation by including them
in the articles of association.**
Where a statute, while permitting the organization of corporations
to carry on many kinds of business, requires that the certificate of
incorporation shall state the object for which the corporation is
formed, this statement of the object of the corporation is not only a
limitation of the franchises that are derived by the corporations from
the state, but is likewise a limitation of the purposes to which the
corporators as between themselves have agreed that the joint capital
shall be devoted.*^ The statutory requirement that the articles of
association shall state the purpose for which the corporation is formed
is not only to inform the sovereign power from which the corporation
derives its right to exist, but also for the purpose of formulating in a
solemn and binding manner the contract of association between the
incorporators.**
Where, in preparing a certificate of incorporation the incorporators
employ only the words used in the statute to describe the general pur-
poses of such incorporation, it will be presumed that they intended
to create a corporation of the same general powers granted by the
statute, rather than that by such words they sought to apply special
limitations upon the powers of the corporation.**
The fact that the articles of association contain unauthorized pro-
visions in addition to those which are authorized, does not render the
organization of the corporation void, for they maj^ be rejected as sur-
plusage.*® The rest of the charter is not impaired, but the unauthor-
manufacturing corporation need not Co., 32 Ind. 169; West v. Bullskin

state the particular kind of manu- Prairie Ditching Co., 32 Ind. 138; In
facturing in which it is proposed to re Incorporation of Independent Order
engage, unless it is required by the Silver Star, 1 Luz. Leg. Eeg. (Pa.)
state authorizing the incorporation. 768.
Hughes v. Antietam Mfg. Co., 34 Md. 45 Whetstone v. Ottawa University,
316. 13 Kan. 320.
42 People V. Bose, 188 m. 268, 59 N. 46 Alabama. Grangers' Life &
E. 432; Eastern Plank Boad Co. v. Health Ins. Co. v. Kamper, 73 Ala.
Vaughan, 14 N. Y. 546; In re Medical 325.
College of Philadelphia, 3 Whart. District of Columbia. Daney v.
(Pa.) 445. See § 195, infra. Clark, 24 App. Cas. 487.

43 Colgate v. United States Leather JUinois. People v. Chicago Gas Trust
Co., 75 N. J. Eq. 229, 19 Ann. Cas. Co., 130 HI. 268, 8 L. B. A. 497, 17 Am.
1262, 72 Atl. 126. St. Bep. 319, 22 N. E. 798.
44Biley v. Callahan Min. Co., 28 Indiana^ See Marion Bond Co. v.
Idaho 525, 155 Pae. 665. See also Mexican CofEee & Bubber Co., 160 Ind.
O'Beiley V.Kankakee Valley Draining 558, 65 N. E. 748; Shiek v. Citizens'
215
ized purpose is ineffective and confers no power upon the corporation.*''

Where the statute authorizing the formation of corporations requires
the articles of association to specify the purpose for which the corpora-
tion is to be created, this should be done with sufficient clearness to
define with some certainty the scope of the business or undertaking
prescribed,and to enable the officer granting the charter to see that
the purpose specified is one provided for by the statute.**
Where a statute authorizing the formation of societies, corporations
and associations not for pecuniary profit, provides that any three or
more persons desiring to associate themselves for any lawful purpose,
other than for pecuniary profit, may make and file in the office of the
secretary of state a certificate stating among other things the particu-
lar businesses and objects for which the proposed corporation is to
be formed, and that upon such certificate being go filed, the
secretary of state shall thereupon issue a certificate of organiza-
tion, it is held that the secretary of state is not required to
issue such a certificate of incorporation when it clearly ap.pears
frota the certificate of intention filed in his office that the cor-
poration is being organized for business purposes only, and with a
view to the pecuniary profit of the incorporators,*® but that while he
Enterprise Co., 15 Ind. App. 329, 57 Trust Co., 130 111. 268, 8 L. E. A. 497,
Am. St. Eep. 230, 44 N. E. 48, dis- 17 Am. St. Eep. 319, 22 N. E. 798;
tinguished in Williams v. Citizens' Heck V. McEwen, 12 Lea (Tenn.)
Enterprise Co., 25 Ind. App. 351, 57 97. See §§ 112, 117, supra.
N. E. 581. 48 Johnston v. Townsend, 103 Tex.
New York. Eastern Plank Eoad Co. 122, 124 S. "W. 417. See also In re Na-
V. Vaughan, 14 N. Y. 546. tional Literary Ass'n, 30 Pa. St. 150;
Tennessee. Shoun v. Armstrong In re Italian Mut. Beneficial Ass'n, 4
(Tenn.), 59 S. W. 790; Heck v. Pa. Dist. 357; In re Lodge Duch Nove
McEwen, 12 Lea 97. Doby, No. 165, 3 Pa. Dist. 215; In re
"The mere fact that the articles of Biohmond Retail Coal Co. of Phila-
association mention some purposes not delphia, 9 Pa. Co. Ct. 172.
within the purview of the statute, does Where the judge granting the appli- ,
not vitiate the organization." Shick cation for a charter required to cer-
is
V. Citizens' Enterprise Co., 15 Ind. tify that the corporation "is lawful
App. 329, 57 Am. St. Eep. 230, 44 N. and not injurious to the community,"
E. 48, distinguished in Williams v. the charter should contain sufficient
Citizens' Enterprise Co., 25 Ind. App. to enablehim to make such certificate,
351, 57 N. E. 581. See §§ 112, 114, 117, and it is not sufficient to state the
supra. purpose of the corporation in the brief
47 Tennessee Automatic Lighting language of the act authorizing the
Co. V. Massey (Tenn.), 56 S. W. 35. formation of the corporation. In re
See also Oregon Ey. & Nav. Co. v. Lodge Duch Nove Doby, No. 165, 3
Oregonian Ey. Co., 130 V. S. 1, 32 L. Pa. Dist. 215.
Ed. 837; Dancy v. Clark, 24 App. Cas. 49 People V. Eose, 188 111. 268, 59
(D. C.) 487; People v. Chicago Gas N. E. 432. See also People V, Whales,
216
CL4] Objects foe Which Cheated [§120
in the first instance may determine whether the corporation is being

organized for pecuniary profit, or for a purpose not for pecuniary
profit, the ultimate decision of the question rests with the courts.*"
§ 120. Corporations for manufacturing or mechanical purposes.

The statutes of many of the states authorize the formation of corpora-
"manufacturing,"
tions for the purpose of carrying on the business of
'
OT the formation of manufacturing corporations. '^
'
' '
"Manufacture" has been defined as "the operation of making goods

or wares of any kind, the production of articles for use from raw or
prepared material by giving to these materials new forms, qualities,
** '
properties, or combinations, whether by hand labor or machinery. '
Manufacturing corporations are defined to be such corporations as

3,re engaged in "the production of some article, thing, or object by
skill or labor out of raw material, or from matter which has already
been subjected to artificial forces. *^

'
'
The mere appropriation of an article which is furnished by nature,
56 N. T. Misc. 278, 106 N. Y. Supp. of state,it was held that the secretary
434, 119 N. r. App. Div. 749, 104 N. of state might look into the object of
Y. Supp. 555; Miller v. Tod, 95 Tex. a proposed corporation and refuse to
404, 67 S. W. 483. the certificate, even though it had
file
Where the articles of association of been so approved by the judge. People

a proposed corporation show that the v.Nelson, 3 Lans. (N. Y.) 394, rev'd
incorporators have failed to comply 11 Abb. Pr. (N. S.) 106, aff'd 46 N.
with the provisions of the statute Y. 477. See also People v. Rice, 68
under which the creation of such a cor- Hun (N. Y.) 24, 22 N. Y. Supp. 631.
poration is organized, the secretary See §§ 112, 114, 117, supra.
of state is under no duty to file the 51 See § 88, supra.
articles,and he will not be compelled B2 Century Diet. & Cye. "Manu-
to do by mandamus. State v.
so facture." See also First Nat. Bank
Nichols, 40 Wash. 437, 82 Pac. 741. of Richmond v. Wm. R. Trigg Co., 106
See also State v. Nichols, 38 Wash. Va. 327, 56 S. E. 158. See § 88, supra.
309, 80 Pac. 462. The mere appropriation of an article
60 People V. Rose, 188 111. 268, 59 which is furnished by nature is not a
N. E. 432; People Chicago Gas Trust
v. manufacture. Com. v. Northern Elee.
Co., 130 111. 268, 8 L. B. A. 497, 17 Am. Light & Power Co., 145 Pa. St. 105,
St. Rep. 319, 22 N. E. 798. See also 14 L. R. A. 107, 22 Atl. 839.
Dancy Clark, 24 App. Cas. (D. C.)
v. "The process of manufacture is sup-
487; Miller v. Tod, 95 Tex. 404, 67 S. posed to produce some new article by
W. 483. And see §§ 112, 114, 115, 116, the application of skill and labor to
supra. raw material." People v. Roberts,
Under a statute requiring that the 145 N. Y. 375, 40 N. E. 7.
certificate of incorporation shall have 63 People V. Knickerbocker Ice Co.,
the written approval of a judge of a 99 N. Y. 181, 1 N. B.^ 669, aff'g 32

certain court of the state and should Hun (N. Y.) 475.
be filed in the office of the secretary
217
or the buying and selling of an article without changing its character

isnot a manufacture, and a corporation engaged therein is not a manu-
facturing corporation. It has been held, therefore, that a statute
authorizing the formation of manufacturing corporations will author-
ize a corporation for any business which properly falls within the
definition of "manufacture," but will not authorize a corporation
whose business consists in the mere appropriation and sale of an
article furnished by nature, without changing its form, qualities,
properties, or combinations by hand labor or machinery. Nor will it
authorize a corporation for the mere purchase and sale of goods,
without changing their form, qualities or properties, etc.**
It has been held, also, expressly, or in effect by the construction of
other statutes referring to "manufacturing" corporations, that a
statute authorizing the formation of such corporations doea not
authorize a corporation for liberating natural gas or from the earth, oil
and transporting it to consumers ** a corporation for mining and

;
selling coal or ore *® a corporation for taking water from a natural

;
source and distributing it through ditches or pipes *'' a corporation ;
54 See § 88, supra. See also in this Steel Co., 157 Pa. St. 500, 22 L. E. A.
connection: 228, 27 Atl. 371; Com. v. Northern
Alabama. Beggs v. Edison Blee. Elec. Light & Power Co., 145 Pa. St.
Illuminating Co., 96 Ala. 295, 38 Am. 105, 117, 14 L. E. A. 107, 22 Atl. 839.
St. Eep. 94, 11 So. 381. Virginia. First Nat. Bank of Rich-
Massachusetts. Byers v. Franklin mond V. William R. Trigg Co., 106
Coal Co., 106 Mass. 131; Dudley v. Va. 327, 56 S. B. 158.
Jamaica Pond Aqueduct Corporation, 65 Com. V. Northern Elec. Light &
100 Mass. 183. Power Co., 145 Pa. St. 105, 117, 14 L.
New Jersey. Press Printing Co. v. E. A. 107, 22 Atl. 839.
Board of Assessors, 51 N. J. L. 75, 16 56 Horn Silver Min. Co. v. New
Atl. 173; Evening Journal Ass'n v. York, 143 XT. S. 305, 36 L. Ed. 164,
State Board of Assessors, 47 N. J. L. aff'g People v. Horn Silver Min. Co.
36, 54 Am. Eep. 114. 105 N. Y. 76, 11 N. E. 155; Byers v.
New York.
People v. Roberts, 155 Franklin Coal Co., 106 Mass. 181 Hoi ;
N. Y. 408, 41 L. E. A. 228, 50 N. E. 53, land v. Duluth Iron Mining & Develop

rev'g 20 App. Div. 521, 47 N. Y. ment Co., 65 Minn. 324, 60 Am. St,
Supp. 123; People v. Roberts, 145 Rep. 480, 68 N. W. 50; Cowling v
N. Y. 375, 40 N. E. 7; People v. Horn Zenith Iron Co., 65 Minn. 263, 33 L
Silver Min. Co., 105 N. Y. 76, 11 N. E. A. 508, 60 Am. St. Rep. 471, 68
E. 155, afE'd Horn Silver Min. Co. v. N. W. 48. See Com. v. Juniata Coke
New York, 143 U. S. 305, 36 L. Ed. Co., 157 Pa. St. 507, 22 L. R. A. 232,
164; People v. New York Floating Dry 27 Atl. 373; Com. v. Pottsville Iron &
Dock Co., 63 How. Pr. 451, aff'd 92 Steel Co., 157 Pa. St. 500, 22 L. E. A.
N. Y. 487. 228, 27 Atl. 371.
Pennsylvania. Com. v. Juniata Coke 67 Dudley v. Jamaica Pond Aqueduct
Co., 157 Pa. St. 507, 22 L. E. A. 232, Corporation, 100 Mass. 183.
27 Atl. 373; Com. v. Pottsville Iron & Within the meaning of the federal
218
Ch.4] Objects for Which Created [§120
for publishing a daily newspaper, although it may incidentally carry

on a jobbing, printing, and publishing business;^* a corporation
formed for the purpose of constructing, using, and providing docks for
building, raising and repairing vessels and steamers ^® a corporation ;
for the purpose of constructing and repairing vessels *" a corporation ;
for purchasing sheep and lambs, slaughtering them, pulling the wool
from the hides, converting the offal ijito fertilizer, reducing the car-
casses to a temperature that, will retard decomposition, and shipping
them to places for deliveiy to consumers ®^ a corporation for the
;
purchase and sale of spices, baking powder, tea, and coffee, not manu-
factured by it, but purchased in bulk, although it may put up the
bankruptcy act providing that eorpora- a corporation organized for the pur-
tioHs engaged principally in manu- pose of constructing, building, and
facturing might be adjudged voluntary equipping ships, boats, and vessels em-
bankrupts, it was held that an irri- ployed in commerce, is a manufactur-
gation corporation formed to supply ing corporation within the meaning of
rice fields with water is not a manu- a statute giving a lien to all persons
facturing corporation. In re Bay City furnishing to a manufacturing or min-
Irrigation Co., 135 Fed. 850. ing company, supplies necessary to the
68 In re Capital Pub. Co., 3 Mao operation of the same. First Nat. Bank
Arthur (D. C.) 405; Oswald v. St. Paul of Richmond v. Wm. E. Trigg Co., 106
Globe Pub. Co., 60 Minn. 82, 61 N. W. Va. 327, 56 S. E. 158, citing Columbia
902; Press Printing Co. v. Board of Ironworks v. National Lead Co., 127
Assessors, 51 N. J. L. 75, 16 Atl. 173; Fed. 99, 64 L. R. A. 645; Hastings
Evening Journal Ass'n v. State Board Malting Co. v. Iron Range Brewing
of Assessors, 47 N. J. L. 36, 54 Am. Co., 65 Minn. 28, 33 L. R. A. 510, 67
Rep. 114. See In re Kenyon, 1 Utah N. W. 652; Nassau Gas Light Co. v.
47. City of Brooklyn, 89 N. Y. 409; People
A corporation which publishes a V. Morgan, 48 N. Y. App. Div. 395,
newspaper, but which does not own or 63 N. Y. Supp. 76; Bngle v. Sohn,
operate any plant for printing it, and 41 Ohio St. 691, 52 Am. Rep. 103;
takes no part in printing it further Norris v. Com., 27 Pa. St. 496; Com.
than to have a foreman, who watches V. Keystone Bridge Co., 156 Pa. St.
the work as it progresses in the hands 500, 27 Atl. 1. See also Columbia
of a contractor, by whom the type is Ironworks v. National Lead Co., 127
set and the paper printed at a price Fed. 99, 64 L. R. A. 645, where it was
agreed upon, is not a manufacturing held that a corporation authorized to
corporation. People v. Eoberts, 19 N. engage in building and repairing and
Y. App. Div. 632, 46 N. Y. Supp. 1099, which was principally engaged in
155 N. Y. 49 N. E. 248.
1, building vessels used in commerce, was
69 People V. New York Floating Dry a manufacturing corporation.
Dock Co., 63 How. Pr. (N. Y.) 451, 61 People V. Roberts, 155 N. Y. 408,
92 N. Y. 487. 50 N. E. 53, rev'g 20 N. Y. App. Div.

60 People V. New York Floating Dry 521, 47 N. Y. Supp. 123.
Dock Co., 63 How. Pr. (N. Y.)_451, 92 It was held, however, in Engle v.
N. Y. 487. Sohn & Co., 41 Ohio St. 691, 52 Am.
It is held in Virginia, however, that —
Rep. 103, that a pork packer a person
219
120] Private Coepokations [Ch.4
spices and baking powder in packages for sale, may mix different kinds
them up in packages, and sell them as combina-
'
of tea together, put '
tion tea, and may purchase the coffee raw, and roast and grind it ^*
'
' ;
a corporation for the purpose of buying, selling, shipping, and storing

of grain, building materials, cattle, and various other articles, although
it may, as an insignificant part of its business, manufacture flour and
feed; ®' nor is a corporation formed to carry on a general business of
engaged in the business of purchasing those organized for the purpose of

and slaughtering hogs, curing the carrying on any kind of manufactur-
meat, packing the same, and selling it ing or mechanical business, shall be
— was a manufacturer. Compare Jack- liable to the extent of the stock owned
son V. State, 15 Ohio 652. or held by him, it was held that a cor-
62 People V. Roberts, 145 N. T. 375, poration was not within the exception
40 N. E. 7. where its articles of incorporation
63 Mohr v. Minnesota Elevator Co., stated that ' ' the general nature of the
40 Minn. 343, 41 N. W. 1074. business shall be the buying of grain,
If the business of a corporation is and the manufacturing and distilling
not manufacturing, the fact that it of the same into liquor, and the manu-
does a trifling or insignificant amount facturing, distilling, buying and sell-
of manufacturing will not make it a ing, and dealing in, liquor, and the
manufacturing corporation, within the conducting of one or more distilleries
meaning of a statute. In Mohr v. for that purpose." St. Paul Barrel
Minnesota Elevator Co., 40 Minn. 343, Co. V. Minneapolis Distilling Co., 62
41 N. W. 1074, it was held on this Minn. 448, 64 N. "W. 1143.
ground that the stockholders of a cor- A corporation organized for the pur-
poration were not exempt from liabil- pose of "buying, manufacturing and
ity for its debts under a statute or dealing in milk, cream, butter, cheese,
constitutional provision exempting the and other dairy products, and pasteur-
stockholders of manufacturing corpora- izing and treating said milk, and pack-
tions, where it was evident, not only ing, storing, handling and selling said
from the articles of association, but products, when so pasteurized and
also from the business actually trans- treated," was held not to be an ex-
acted, that its primary object was to clusively manufacturing corporation
carry on a business wholly foreign to within the meaning of such statute.
—
manufacturing, the buying, selling, Meen v. Pioneer Pasteurizing Co., 90 '
shipping and storing of grain, build- Minn. 501, 97 N. W. 140. A similar

—
ing materials, cattle, etc., although ruling was made where the purposes
an insignificant part of its business was for which the corporation was incor-
the manufacturing of flour and feed. porated were to be the manufacture,
See also Strait v. National Harrow purchase, repair, and sale of plows,
Co., 18 N. Y. Supp. 224, where it was cultivators, and other farming and ag-
questioned but not decided whether a ricultural implements of all kinds.
corporation could be organized under First Nat. Bank of Winona v. Winona
the manufacturing acts where manu- Plow Co., 58 Minn. 167, 59 N. W. 997.
facturing was only incidental to the See also Hastings Malting Co. v. Iron
main purpose of the corporation. Eange Brewing Co., 65 Minn. 28, 67
Under a statute providing that each N. W. 652; Anchor Inv. Co. v. Colum-
stockholder in a corporation, except bia Elee. Co., 61 Minn. 510, 63 N. W.
220
Ch.4] Objects for Which Ckeatbd [§120
and rectifying high wines, alcohol, spirits, gins

distilling, redistilling
and whiskies, and same and own the property necessary
to deal in the
for that purpose, and also to engage in feeding and dealing in cattle
and other live stock ®* nor a telephone nor a telegraph company,
;
though it produces electricity by artificial means, and uses it in its

own business as a carrier of messages for the public.®'*
On the other hand, such a statute will authorize the formation of -a
corporation for the purpose of making and selling lumber, flour, and
meal; ^ a corporation for making illuminating gas or electricity, and
furnishing it to consumers for lighting, heating, or power ^^ a corpo- ;
1109; Oswald v. St. Paul Globe Pub. A. 107, 22 Atl. 839, and Com. v. Edison
Co., 60 Minn. 82, 61 N. W. 902; Dens- Elec. Light Co., 170 Pa. St. 231, 32
more V. Shepard, 54 Minn. 54, 48 N. W. Atl. and held that an electric
419,
528; Arthur v. Willuns, 44 Minn. 409, light, heat and power company was a
46 N. W. 851; Mohr v. Minnesota Ele- manufacturing company within the
vator Co., 40 Minn. 343, 41 N. W. meaning and intent of a statute pro-
1074. It is held, however, that the viding that whenever the property and
creation and production of motive franchise of a manufacturing company
power for transmission and use is a shall be sold at judicial sale, the pur-
manufacturing business within the chasers may reorganize the corpora-
meaning of such a statute. Cuyler v. tion. See also Southern Elec. Light
City Power Co., 74 Minn. 22, 76 N. W. & Power Co. v. City of Philadelphia,
948. 191 Pa.. St. 170, 43 Atl. 123.
It was held in Com. v. Northern In Illinois, it is held that a corpora-
Elec. Light & Power Co., 145 Pa. St. tion formed to furnish light, heat and
105, 14 L. E. A. 107, 22 Atl. 839, and power for public and private uses is
Com. V. Edison Elec. Light & Power not a corporation organized for purely
Co., 170 Pa. St. 231, 32 Atl. 419, that a manufacturing purposes within the
corporation which produces electricity, meaning of a statute, exempting
and sells it to customers for the gen- from taxation the capital stock of.
eration of light, heat or power, is not corporations organized for purely
a manufacturing corporation within manufacturing purposes. Evanston
the meaning of a statute exempting Elec. Illuminating Co. v. Kocher-
the capital stock of manufacturing perger, 175 111. 26.
corporations from taxation. See, how- 64 Distilling & Cattle Feeding Co. v.
ever, Beggs V. Edison Elec. Light & People, 161 111. 101, 43 N. E. 779.
Illuminating Co., 96 Ala. 295, 38 Am. 65 See Com. v. Northern Elec. Light
St. Eep^ 94, 11 So. 381, and People v. & Power Co., 145 Pa. St. 105, 14 L. E.
Wemple, 129 N. Y. 543, 14 L. B. A. A. 107, 22 Atl. 839.
708, 29 N. E. 808, where it was held 66 Cross V. Pickneyville Mill Co., 17
that an electric light company is a III. 54.
manufacturing company. 67 Beggs Edison Elec. Illuminat-

v.
In Com. V. Keystone Elec. Light, ing Co., 96 Ala. 295, 38 Am. St. Eep.
Heat & Power Co., 193 Pa. St. 245, 44 94, 11 So. 381; Burke v. Mead, 159 Ind.
Atl. 326, the court distinguished the 252, 64 N. E. 880; People v. Wemple,
cases of Com. v. Northern Elec. Light 129 N. Y. 543, 14 L. E. A. 708, 29 N. E.
& Power Co., 145 Pa. St. 105, 14 L. E. 808; Nassau Gas Light Co. v. City of
221
—
120] Private Cokpobations [Cli.4
ration "to conduct and prosecute the business of book printing and
job printing, engraving, electrotyping, and lithographing," whose
capital is invested in that business, and which executes only on
orders a corporation organized for the purpose of carrying on the
;
®*
maps and periodicals,

business of publishing books, of dealing in books,
stationery, and other like articles, and of printing and book bind-
ing *9 a corporation for manufacturing all kinds of lumber, and the
;
Brooklyn, 89 N. Y. 409; Com. v. Key- of Assessors, 51 N. J. L. 75, 16 Atl.

stone Elee. Light, Heat & Power Co., 173; Evening Journal Ass'n v. State
193 Pa. St. 245, 44 Atl. 326, distinguish- Board of Assessors, 47 N. J. L. 36, 54
ing Com. V. Northern Elee. Light & Am. Eep. 114. See In. re Kenyon, 1
Power Co., 145 Pa. St. 105, 14 L. E. A. Utah 47.
and Com. v. Edison
107, 22 Atl. 839, 69 Com. V. J. B. Lippincott Co., 156
Eleo. Light & Power Co., 170 Pa. St. Pa. St. 513, 27 Atl. 10; Com. v. Wm.
231, 32 Atl. 419; Southern Elee. Light Mann Co., 150 Pa. St. 64, 24 Atl. 601.
& Power Co. v. City of Philadelphia, It is to be noted, however, that in
191 Pa. St. 170, 43 Atl. 123; Com. v. reaching this conclusion, the court
Allegheny Gas Co., 1 Dauph. Co. Eep. treated the mercantile part of the
(Pa.) 93. charter, embodied in the word deal- '
'
"That the production of electricity ing" as void, and consequently as if it

is a species of manufacturing, and did not exist, following Com. v. Thack-
therefore within the charter power of ara Mfg. Co., 156 Pa. St. 510, 27 Atl.
the prosecutor, seems to be abundantly 13, where the charter of a corporation
supported by judicial decision, where- organized under a general statute au-
in kindred questions have presented thorizing incorporation for manufact-
the inquiry for determination. People uring purposes, stated that the
V. Wemple, 129 N. Y. 543, 14 L. B. A. corporation was organized for "the
708, 29 N. E. 808; Frederick Co. v. purpose of 'manufacturing, buying,
Frederick City, 84 Md. 599, 36 L. R. A. selling, and dealing in lamps, gas,
130, 36 Atl. 362. If there were an and electric fixtures and art metal
• existing doubt as to the interpretation work, ' '
' and it was held that the mer-
to be given this term in its applica- cantile clause in the charter gave it
tion under multiform statutes, in which no lawful authority, and being simply
it is employed in various states, the void, must be treated as if it did not
legislative direction contained in the exist. The court said: "The defend-
thirty-seventh section of the charter ant's charter contains two distinct
of the society that, 'This act shall in powers, namely, to manufacture, and
all things be construed in the most also to buy, sell and deal as a mer-
favorable manner for said respective chant. These are not incident to each
corporations,' would seem in this in- other, or so necessarily connected that
stance to relieve the situation of all the grant of one carries with it a
reasonable doubt." Society for Es- grant of the other. The power to manu-
tablishing Useful Manufactures v. City facture, of course, implies a power to
of Paterson, 88 N. J. L. 123, 96 Atl. sell the article thus produced; but
92. See Frederick Elee. Light & Power the power both to buy and to sell
Co. V. City of Frederick, 84 Md. 599, to buy goods in order to sell them
36 L. K. A. 130, 36 Atl. 362. afterwards, and to do this habitually
68 Press Printing Co. v. State Board and as a business, thus becoming a
222
Ch.4] Objects for Which Cheated [§120
sale of the same, and the purchasing and selling of miUs, lands, stand-
ing timber, logs and lumber, for the purpose of such business "* a ;
corporation for refining and preparing for use oil, coal, and other
''^
minerals ; a corporation to plant, cultivate, harvest, store, purchase,
manufacture, market, sell and deal in chicory ;
'* and a corporation for
the manufacture of any fibrous or other substance into cordage, twine,
rope, and other goods, wares and merchandise, and the sale of such
products.''^
A corporation organized for the manufacture and sale of mineral
and other waters, which pumps mineral water from weUs, and bottles
and sells part of it in its natural state and manufactures a part of it
into ginger ale, root beer and other like products has been held to be a
manufacturing corporation^* A corporation, the business of which ia
merchant or dealer — is not a necessary '1 Hawes v. Anglo-Saxon Petroleum

incident to the business of manufact- Co., 101 Mass. 385.
uring. Manufacturers constitute a A corporation is engaged in manu-
separate class from merchants or deal- facturing where its business is that of
ers * » '^ and, although the two heating and mixing refined asphalt,
characters may be
united in one per- oil sand and limestone in such pro-
son, they not merge. » * *
do portions as to produce a new substance
J'ortunately for the defendant, how- for a purpose for which none of the
ever, the mercantile clause in its raw materials alone would be avail-
charter gives it no lawful authority, able. People V. Morgan, 61 N. Y. App.
and, being simply void, must be treat- Div. 373, 70 N. Y. Supp. 516. See
ed as if it did not exist. No act of also People v. Knight, 99 N. Y. App.
assembly authorizes the incorporation Div. 62, 90 N. Y. Supp. 537.
of merchants and dealers, and there- 72 Bolton V. Nebraska Chicory Co.,
fore the apparent grant of power to 69 Neb. 681, 96 N. W. 148.
carry on the business of dealing or 73 Waterbury v. Atlas Steam Cord-
of buying and selling is apparent only, age Co.,42 La. Ann. 723, 7 So. 783.
and not real. It needs no argument A corporation whose articles of in-
or citation of authority to support the corporation state that its business shall
proposition that a valid corporate powbe the manufacturing of clothing of
er thus to carry on the business can ev^ry description, and the sale of
only be given by virtue of a statute. clothing so manufactured, and the
It follows of necessity that the mer- transaction of all other business
cantile words drop out of the charter, necessary and incidental to such manu-
and the defendant is left with the facture and sale of clothing, is a
single power to manufacture. See '
' manufacturing corporation exclu-
also Com. v. J. B. Lippineott Co., 156 sively. Nicollet Nat. Bank v. Frisk-
Pa. St. 513, 27 Atl. 10; Com. v. West- Turner Co., 71 Minn. 413, 70 Am. St.
inghouse Elec. & Mfg. Co., 151 Pa. Eep. 334, 74 N. W. 160.
St. 265, 24 Atl. 1107, 1111; Com. v. 74 Carlsbad Water Co. v. New, 38
Wm. Mann Co., 150 Pa. St. 64, 24 Atl. Colo. 389, 81 Pac. 34.
601.
70 Wagner v. Corcoran, 2 Pa. Dist.
440.
223
§ 120] Peivate Corpoeations [Ch.4
to buy from others rough and unfinished form, all the necessary
in a
luflttber, and other metals and to finish, shape, frame and
iron, steel,
design and make suitable for use such material at its own shops, and
sell the finished material for such use as may be intended or appro-
and put together and
priate,' erect such material into bridges, roofs
and other structures or machinery, is held to be a manufacturing cor-
poration within the meaning of a statute exempting manufacturing
corporations from taxation on their capital stock.''^ A corporation for
making ice by artificial means is a manufacturing corporation.'''^ There
is, however, a difference of opinion in respect to whether a corporation
for the purpose of collecting, storing and marketing ice formed by
natural causes is a manufacturing corporation. By the weight of
authority it is held that it is not a manufacturing corporation.^''
75 Com. V. Keystone Bridge Co., 156 taxation, said: "Its dealing is with
Pa. St. 500, 27 Atl. 1, quoted with ap- 'ice' as an existing article, not the
proval in First Nat. Bank of Rich- manufacture or production of ice by
mond V. Wm. E. Trigg Co., 106 "Va. 327, combination of materials, or the appli-
56 S. E. 158. cation of forces, or otherwise. It col-
TS' Attorney
General v. Lorman, 59 and preserves that which
lects, stores,
Mich. 157, 60 Am. Bep. 287, 26 N. W. natural causes created, and which
311; People v. Knickerbocker Ice other natural causes would destroy and
Co., 99 N. Y. 181, 1 N. E. 669, aff'g waste. It seeks only to hold these last
32 Hun (N. T.) 475. See also Beggs in check. Similar operations would
V. Edison Elec. Illuminating Co., 96 equally apply to water, fruit, sand,
Ala. 295, 38 Am. St. Eep. 94, 11 So. gravel, coal, and other natural produc-
381; Com. v. Northern Elec. Light & tions. Water might be improved by
Power Co., 145 Pa. St. 105, 117, 14 filtration; fruit by judicious pruning
L. B. A. 107, 22 Atl. 839. of the tree or vine, or protection by
77 Hittinger v. Westf ord, 135 Mass. glass; sand and gravel by screening;
258; People v. Knickerbocker Ice Co., cobble-stones by selection; and coal
99 N. Y. 181, 1 N. E. 669, aff'g 32 Hun by breaking; and each by various proc-
(N. Y.) 475. See also dicta in Beggs esses stored until the season of de-
V. Edison Elec. Illuminating Co., 96 mand, when, having been collected, '
Ala. 295, 38 Am. St. Bep. 94, 11 So. stored, preserved, and prepared for
381, and Com. v. Northern Elec. Light sale,' the natural article, and not other,
& Power Co., 145 Pa. St. 105, 14 L. K. would be put on the market. No
A. 107, 22 Atl. 839, and dissenting doubt ice may be manufactured and
opinion of Champlin, J., in Attorney frigorific effects produced by artificial,
General v. Lorman, 59 Mich. 157, 60 means. Corporations exist for that pur-
Am. Eep. 287, 26 N. W. 311. pose, and come literally within our
In People v. Knickerbocker Ice Co., manufacturing laws. Their methods
99 N. Y. 181, 1 N. E. 669, aff'g 32 in no respect resemble those of the de-
Hun (N. Y.) 475, the court in hold- fendant. Its tools and implements
ing that such a corporation was are for convenience in handling and
not a manufacturing corporation with- marketing a product, and not at all
in the contemplation of an act exempt- for making it. Many cases are cited
ing manufacturing corporations from by the learned counsel for the appel-
224
'
The Supreme Court of Michigan has held, however, that a corpora-

tion organized for the purpose of putting up, packing and manufac-
turing for market, river and lake ice, and distributing and selling. the
same was authorized by a statute authorizing the formation of corpo-
rations for the purpose of carrying on any kind of mining or manu-
facturing business.''*
lant, but we find none so compre- manufacture, or workmanship, by

hensive as to include this ease. They the hand or by machinery; to make by
all, so far as they have any applica- art and labor.' The process described
tion, require the production of some in the replication certainly does show
article, thing, or object by skill or that the ice is reduced into form fit for
labor out of raw material, or from mat- use both by hand and by the use of
ter which has already been subjected machinery, and the answer of the re-
to artificial forces, or to which some- spondents shows that this is done by
thing has been added to change its the outlay of capital, at least of $50,-
natural condition." See also People 000, and the quantity thus manufac-
V. Knickerbocker Ice Co., 32 Hun (N. tured annually is about 30,000 tons. It
Y.) 475, aff'd 99 N. Y. 181, 1 N. E. is very likely that the garnering and
669, and opinion of Champlin, J., in preparation of ice fit for consumers of
Attorney General v. Lorman, 59 Mich. the article falls very near the line.
157, 60 Am. Eep. 287, 26 N. W. 311, True, its natural condition is not
who "Speaking for myself,
said: changed. The article itself is a natu-
however, I must say that if this were ral product, as described in the repli-
a proceeding under sections 8646 and cation. It is ice when it is taken
8647, to test the right of the Belle Isle from the river, and it is ice when de-
lee Company to carry on the business livered to consumers. The form alone
set forth in the replication, I should is changed. It is reduced in size, and
not consider that business a manu- delivered in quantities to suit the con-
facturing business within the meaning venience of the patrons of the
of the law, for reasons which are set company. But it is not necessary, to
forth in the opinion of Mr. Justice constitute commodity a manu-
the
Danforth, in the case of People v. factured that a chemical
article,
Knickerbocker Ice Co., 99 N. Y. 181, change should be wrought in the

1 N. E. 669, and to my mind are very thing manufactured. Iron manufac-
satisfactory. ' tured from iron ore remains iron.
Attorney General v. Lorman, 59
78 Cotton gathered from the boll' and,
Mich. 157, 60 Am. Eep. 287, 26 N. W. by means of complicated machin-
311. Champlin, J., speaking for the ery, manufactured, becomes the cot-
court, said Worcester defines manu-

:
'
'
' ton of commerce. Lumber is manu-
facture' as follows: '(1) The process factured from logs or timber, simplj'
of making anything by art, or of re- by changing its form. And it has been
ducing materials into form fit for use held that grinding bones to produce
by hand or by machinery; as "an es- the bone dust of commerce was manu-
tablishment for the manufacture of facturing, within tlie meaning of the
cloth." (2) Anything made or manu- revenue laws of the United States.
factured by hand or manual dexterity, Schriefer v. Wood, 5 Blatohf. 215. So
or by machinery.' The same word, as it was held by the Supreme Court of
a verb, he defines (1) 'to form by the United States that timber split
225
' '
120] Pbivatb Coepoeations [Ch.4
In determining whether a corporation purporting to be organized

for manufacturing purposes is a manufacturing corporation within
the purview of a statute authorizing the formation of manufacturing

purposes, the question is not to be settled entirely by the construction
given to the phrase "manufacturing corporation" in statutes of other

states dealing with different subjects, but the intention of the legisla-
ture in this particular case is to be sought for, and the policy and
purpose of this particular statute to be considered.''''
in staves, or into long pieces designed served that in some cases the statute
for shovel handles, was
'manu- exempted manufacturing corporations
factured,' and not covered by the from taxation, in which case it was
reciprocity treaty of 1854. U. S. v. important to prevent fraud upon
Hathaway, 4 Wall. 404, 408. The the revenue laws by attaching a
statute, which was designed to foster nominal manufacturing business to
and encourage manufacturers, should a substantial industry of another
receive a liberal 'construction, and one sort. In other cases, manufacturing
in harmony with the public interests; corporations were relieved from the
and while it was not enacted to lend operation of statutory provisions
aid to trivial or unworthy objects, it as to stockholders' liability. Here,
should not be restricted in its opera- again, fraud was
be guarded
to
tion to exclude such purposes as tend against, since creditors might be
to promote the public convenience or prejudiced greatly if one of their
necessities. The use of ice as an statutory protections could be cut off
article of daily use and consumption by a mere addition of some manufac-
in all our larger towns has constituted turing enterprise to an undertaking
the article one of prime necessity in essentially of a different character.
the various uses to which it is applied, The statute here in question was
and whether manufactured chemically, obviously designed to encourage the
or formed by natural processes and re- promotion of manufacturing enter-
duced by manual labor or machinery prises of all kinds, in the widest
to form it for use, the business, as tht sense, by relaxing the rules as to or-
majority of the court hold, is com- ganization. There is every reason for
prehended in the statute authorizing giving it a liberal construction, and
tlie formation of corporations ,for no fraud can result from so doing. '
manufacturing purposes. ' A particular statute may use the

79 Bolton V. Nebraska Chicory Co., term "manufacturing" in reference
69 Neb. 681, 96 N. W. 148. to corporations, in a different sense
Nebraska Chicory Co.,
In Bolton v. from that given by lexicographers,
69 Neb. 681, 96 N.W. 148, the Supreme and of course the intention of the legis-
Court of Nebraska in determining lature must govern. Thus, in Penn-
whether a corporation came within the sylvania it was held that a
purview of a statute authorizing the corporation organized for the purpose
formation of manufacturing corpora- of supplying light, heat and power by
tions, said, in reference to the means of electricity was not a
decisions construing the phrase "manufacturing corporation" within
'
' manufacturing corporations '
' in the meaning of a statute of that
statutes of other states dealing with state exempting such corporations
different subjects: "It will be ob- from taxation, although it was con-
226
Ch.4] Objects foe Which Ckeated [§120
Where a corporation was organized under a statute providing for

the incorporation of manufacturing corporations and the purpose of
its creation was and it is in name, in the
to engage in manufacturing,
nature of its corporate powers and characteristics, and in its actual
business operations, a manufacturing corporation, and nothing else,
the "mere possession of an ancillary power which it has never used or
sought to use, which it had express legislative permission to hold, and
which was evidently intended for use only in aid of its manufacturing
enterprises, does not change the character of the corporation, or
deprive it of its privileges and immunities as a manufacturing cor-
'
*<*
poration. '
A corporation engaged in the manufacture of coke, but which has

the power to mine its own coal and in this way supply itself in part
with the raw material which it uses in such manufacture, is not a
corporation organized "exclusively for manufacturing purposes"
within the meaning of a statute exempting such corporations from tax-
ation on their capital stock.*^
ceded that its operations might be & Steel Co., 157 Pa. St. 500, 22 L. R.
within the definition of "manufac- A. 228, 27 Atl. 371.
ture" given by lexicographers. Com. Under the Federal Bankruptcy Act
V. Northern Elec. Light & Power Co., of 1898 as it existed prior to the
145 Pa. St. 105, 14 L. R. A. 107, amendatory act of 1910, it was pro-
22 Atl. 839. See Com. v. Keystone vided that any corporation engaged
Elec. Light, Heat & Power Co., 193 Pa. principally in "manufacturing, trad-
St. 245, 44 Atl. 326, distinguishing ing, printing, publishing, mining or
Com. V. Northern Elec. Light & Power mercantile pursuits" might be ad-
Co., 145 Pa. 14 L. E. A. 107,
St. 105, judged an "involuntary bankrupt."
22 Atl. 839. See also Com. v. Edison There were numerous decisions as to
Elec. Light & Power Co., 170 Pa. St. what constituted corporations engaged
231, 32 Atl. 419; Com. v. Keystone principally in manufacturing. See In
Elec. Light, Heat & Power Co., 4 Lack. re C. Moench & Sons Co., 130 Fed.
Legit. (Pa.) 353, 2 Dauph. Co. Eep. 685, aff'g 123 Fed. 965; In re Marine
(Pa.) 1. Construction & Dry Dock 130 Co.,
80 Com. V. PottBville Iron & Steel Fed. 446; In re Niagara Contracting
Co., 157 Pa. St. 500, 22 L. B. A. 228, Co., 127 Fed. 782; In re White Moun-
27 Atl. 371, distinguishing Com. v. tain Paper Co., 127 Fed. 180, aff'g
Weatinghouae Elec. & Mfg. Co., 151 White Mountain Paper Co. v. Morse
Pa. St. 265, 24 Atl. 1107, 1111. See, & Co., 120 Fed. 643; Columbia Iron-
however, Com. v. Juniata Coke Co., 157 works V. National Lead Co., 127 Fed.
Pa. St. 507, 22 L. R. A. 232, 27 Atl. 99, 64 L. E. A. 645; In re Teoopa Min-
373, distinguishing Com. v. Pottaville ing & Smelting Co., 110 Fed. 120. See,
Iron & Steel Co., 157 Pa. St. 500, 22 however, Friday v. Hall & Kaul, 216
L. E. A. 228, 27 Atl. 371. IT. S. 449, 54 L. Ed. 562, 26 L. E. A.
81 Com. V. Juniata Cfoke Co., 157 Pa. (N. 8.) 475, rev'g 158 Fed. 593; In re
St. 507, 22 L. E. A. 232, 27 Atl. 373, Coolidge Refrigerator & Car Co., 190
distinguishing Com. v. Pottsville Iron Fed. 908; Bollinger v. Central Nat.
227
§120] Pkivate Cobpoeations [Ch.4
Some of the statutes providing for incorporation authorize the forma

tion of corporations for the purpose of carrying on "mechanical busi-
ness "82
Under a statute exempting stockholders in corporations "organized
for the purpose of carrying on any kind of manufacturing and me-
chanical business" from liability on the capital stock owned by them,
it is held that a "mechanical business" is one closely allied to, or
incidental to, some kind of manufacturing business.*'
Under a statute authorizing the formation of corporations to carry
on "mechanical business," it is held that a corporation may be created
to carry on the laundry business by means of machinery and mechani-
cal appliances instead of by manual labor.**
The manufacture of lumber, flour and meal is within the meaning
Bank, 177 Fed. 609; Walker Eoofing N. W. 50; Anderson v. Anderson Iron
& Heating Co. v. Merchant & Evans Co.,. 65 Minn. 281, 33 L. R. A. 510,
Co., 173 Fed. 771; Cate v. Connell, 68 N. W. 49; Cowling v. Zenith Iron
173 Fed. 445; In re Georgia Manu- Co., 65 Minn. 263, 60 Am. St. Rep. 471,
facturing & Public Service Co., 166 33 L. R. A. 508, 68 N. W. 48.
Fed. 964; In re Alaska American Fish 83 Cowling v. Zenith Iron Co., 65
Co., 162 Fed. 498; In re Kingston Minn. 263, 33 L. R. A. 508, 60 Am. St.
Eealty Co., 160 Fed. 445, rev'g 157 Rep. 471, 68 N. W. 48. See also In re
Fed. 299; In re Church Const. Co., Mechanical Business Cases, 9 Pa. Co.
157 Fed. 298; In re Toledo Portland Ct. 1, where the term "mechanical
Cement Co., 156 Fed. 83; In re First business" was construed by the attor-
Nat! Bank, 152 Fed. 64; In re T. E. ney general of Pennsylvania. The min-
Hill Co., 148 Fed. 832; In re New ing of iron ore is such a mechanical
York & New Jersey Ice Lines, 147 business within the meaning of such
Fed. 214; First Nat. Bank v. Wyoming a statute. Cowling v. Zenith Iron Co.,
lee Co., 136 Fed. 466; In re MacNichol 65 Minn. 263, 33 L. R. A. 508, 60 Am.
Construction Co., 134 Fed. 979, aft'd St. Rep. 471, 68 N. W. 48. But a cor-
Butt y. C. F. MacNichol Construction poration organized for the purpose of
Co., 140 Fed. 840; In re Troy Steam "mining, smelting, reducing, refining,
Laundering Co., 132 Fed. 266; In re and working iron, copper, and other
Lake Jackson Sugar Co., 129 Fed. minerals, working stone quarries, and
640; In re Rollins Gold & Silver Min. marketing the material from all the
Co., 102 Fed. 982. See also same; also buying, selling, leasing,
§ 121, note
88.
and dealing in mijieral lands for the
above purposes" is not a corporation
82 See § 88, supra. See Cross v.
organized for "mechanical business"
Pinckneyville Mill Co., 17 111. 54;
within the meaning of such statute.
People V. Beach, 19 Hun (N. Y.) 259;
Holland v. Duluth Iron Mining & De-
In re Keystone Laundry Co., 5 Pa.
velopment Co., 65 Minn. 324, 60 Am.
Dist. 735, 18 Pa. -Co. Ct. Rep. 444; In
St. Rep. 480, 68 N. W. 50; Andersor,
re Mechanical Business Cases, 9 Pa.
V. Anderson Iron Co., 65 Minn. 281,
COi Ct.1. See also Holland v. Duluth 33 L. R. A. 510, 68 N. W. 49.
Iron Mining & Development Co., 65 84 In r« Keystone Laundry
Co., 5 Pa.
Minn. 324, 60 Am. St. Rep. 480, 68 Dist. 735, 18 Pa. Co Ot, 444.
228
of a statute authorizing the formation of corporations for manufaetur-

'ing, agricultural, mining or mechanical purposes.**
Corporations may be formed for the purpose of erecting buildings
under a statute permitting their incorporation for the purpose of
carrying on any lawful mechanical business.*®
§ 121. Corporations for trade and commerce. Many incorporation

'
statutes provide for the formation of corporations for ' trade and com-
merce," or "trade," or "mercantile business," or "mercantile pur-
'
suits, and the like.*''
'
Under the Federal Bankruptcy Act of 1898, as it existed prior to the

amendatory act of 1910, providing that any corporation engaged
principally in "manufacturing, trading, printing, publishing, mining
or mercantile pursuits" might be adjudged an involuntary bankrupt,
there were numerous rulings as' to what constituted a corporation
engaged principally in trading or mercantile pursuits.'*
85 Cross V. Pinckneyville Mill Co., In re Kenyon, 1 Utah 47. The phrase

17 111. 54. "mercantile business," or "commer-
86 Finnegan v. Noerenberg, 52 Minn. cial business," "refers to the buying
239, 18 L. R. A. 778, 38 Am. St. Eep. and selling of articles of merchandise

552, 53 N. W. 1150. as an employment. It implies opera-
87 See §§ 86, 87, supra. tions conducted with a view of real-
"Trading" corporations, or cor- izing the profits which come from skil-
porations "for trade or commerce" ful purchase, barter, speculation, and
within the meaning of a statute, in- sale," and is therefore practically
clude, unless there is something to syiionymous with trading. ' Graham
'
' '
show a contrary .intent, all corpora- V. Hendricks, 22 La. Ann. 523. In

tions engaged in a 'business, or au- determining whether one is a trader,
thorized to engage in a business, which the amount of the trading and the
properly falls within the definition of amount of the profit is immaterial. If
trade and commerce. Any person who there is a buying and selling for profit,
buys and sells goods, or any other it is sufficient. See Newland v. Bell,
property which is the subject of trade Holt, N. P. 221; Ex parte Moule, 14
and commerce, as a business, for the Ves. 602; Holroyd v. Gwynne, 2 Taunt.
purpose of making a profit is a 176;
"trader," and any corporation en- 88 See In re Imperial Film Exchange,
gaged in such a business is a trading 198 Fed. 80; In re Excelsior Cafe Co.,
corporation, or a corporation engaged 175 Fed. 294; In re Moore & Muir Co.,
in trade. In re Cowles, Fed. Cas. No. 173 Fed. 732; In re Kingston Realty
3,297; In re San Gabriel Sanatorium Co.,160 Fed. 445, rev'g 157 Fed. 299;
Co., 95 Fed. 271. The character of a Gallagher v. De Lancy Stables Co.,'
trader embraces a wide field of opera- 158 Fed. 381; In re Wentworth Lunch
tion. It is of no consequence in what Co., 159 Fed. 413, afe'd tollman &
one may trade, the only question is, Co. V. Wentworth Lunch Co., 217 V. S.
does he buy and sell articles which 591, 54 L. Ed. 895; In re H. R. Leighton
are subject to trade and commerce. Co., 147 Fed. 3ll; Zugalla v. Inte^nfi,-
229
§121] Pbivate Cokpoeations [Ch.4
A statute authorizing corporations for "trade and commerce"

authorizes corporations for the lawful buying and selling of any
articles which are the subject of trade and commerce.*® Such a stat-
ute has been held to authorize the formation of a corporation for buy-
tional Mercantile Agency, 142 Ped. In re Morris, 102 Fed. 1004; In re

927; Nat. Bank v. Wyoming
First Cameron Town Mut. Fire, Lightning
Valley Ice Co., 136 Fed. 466; In re Bay & Windstorm Ins. Co., 96 Fed. 756;
City Irrigation Co., 135 Fed. 850; In In re San Gabriel Sanatorium Co., 95
re United States Hotel Co., 134 Fed. Fed. 271; In re Cowles, Fed. Cas. No.
225, 68 L. E. A. 588; In re Snyder & 3,297; People v. Hagar, 52 Cal. 171,
Johnson Co., 133 Fed. 806; In re Troy writ of error dismissed, 154 U. S. 639,
Steam Laundering Co., 132 Fed. 266; 24 L. Ed. 1044; People v. Blake, 19
In re New York Buildiug-Loan Bank- Cal. 579; Indiana Bond Co. v. Ogle, 22
ing Co., 127 Fed. 471; In re Pacific Ind. App. 593, 72 Am. St.Eep. 326,
Coast Warehouse Co., 123 Fed. 749; 54 N. E. 407; Pocono Spring Water
In re H. J. Quimby Freight & For- lee Co. V. American Ice Co., 214 Pa.
warding Co., 121 Fed. 139; In re Surety 640, 64 Atl. 398; In re Pittsburgh
Guarantee & Trust Co., 121 Fed. 73; Stock Exchange, 26 Pittsb. Leg. J. (O.
In re Parmalee Library, 120 Fed. 235; S.) 308, 26 Pittsb. Leg. J. (N. S.) 308.
In re White Star Laundry Co., 117 As to what are trading or mercantile
Fed. 570; In re Tontine Surety Co. of corporations, see §§ 86, 87, supra.
New Jersey, 116 Fed. 401; In re Phila- It seems that, strictly speaking,
delphia & Lewes Transp. Co., 114 Fed. there must be both a buying and sell-
403; In re Fulton Club, 113 Fed. 997; ing to constitute one a "trader," and
In re Chesapeake Oyster & Fish Co., that a corporation which owns a mine,
112 Fed. 960; In re Keystone Coal Co., or a source of water supply, etc., and
109 Fed. 872; In re Morton Boarding merely sells the product therefrom, is
Stables, 108 Fed. 791, disapproved in not engaged in trade or commerce. In
In re Chesapeake Oyster & Fish Co., re New York & Westchester Water
112 Fed. 960, and In re United States Co., 98 Fed. 711, aff'd 102 Fed. 1004,
Hotel Co., 134 Fed. 225, 68 L. R. A. on the opinion of the court below. See
588; In re Woodside Coal Co., 105 Fed. also In re Kenyon, 1 Utah 47.
56; In re Oriental Society, 104 Fed. It has been held that the term ' ' mer-
975; In re Chicago- Joplin Lead & Zinc —
cantile partnership" and the same
Co., 104 Fed. 67; In re Bollins Gold & would be true of "mercantile corpora-
Silver Min. Co., 102 Fed. 982; In re —
tion" does not properly include an
Elk Park Mining & Milling Co., 101 association which mines and sells ore
Fed. 422; In re New York & West- and coal from its own lands, or which
chester Water Co., 98 Fed. 711, aff'd In sinks oil or gas wells and sells their
re Morris, 102 Fed. 1004; In re San products. Com. v. Natural Gas Co.,
Gabriel Sanatorium Co., 95 Fed. 271; 32 Pittsb. Leg. J. (Pa.) 310. If a
In re Minnesota & Ârizona Const. Co., mining company, however, buys coal
7 Ariz. 137, 60 Pae. 881. See also or ore from other companies or per-
§ 120, 11. 81. sons, and sells it again, it is to that
89 See May v. Sloan, 101 U. S. 231, extent a trading corporation, although
25 L. Ed. 797; In re New York & West- not exclusively engaged in trade.
chester Water Co., 98 Fed. 711, aff'd Turner y. Hardcastle, 11 C. B. (N. S.)
on opinion of court below sub nom. 683.
230
Ch.4] Objects- fob Which Cheated [§121
ing and selling stocks, bonds and public securities. "> But, on the
other hand, there is authority to the effect that a corporation for buy-
ing and selling bonds is not authorized by a statute permitting incor-
poration for the purpose of buying and selling merchandise and
conducting mercantile operations.'^
A statute permitting the formation of corporations for "the encour-
agement and protection of trade and commerce," permits incor-
poration for the encouragement and protection of a particular trade,
and under it a corporation may be formed to foster, protect and pro-
mote the welfare and interest of persons engaged in roofing and sheet
metal working, and for the protection and encouragement of such
trade and commerce.'^
It has been held that ice companies, gas companies and water
companies, intended to supply a city and its inhabitants respectively
with ice, gas and water, are within a statute authorizing corpora-
tions for manufacturing, etc., purposes, "or for the purpose of
engaging in any species of trade or commerce. '* And corpora- '
'
90 In re Pittsburgh Stock Exchange, 54 N. E. 407. See also May v. Sloan,

26 Pittsb. Leg. J. (N. 8.; Pa.) 308. 101 V. S. 231, 25 L. Ed. 797; In re
91 Indiana Bond Co. v. Ogle, 22 Ind. Cameron Town Mut. Fire, Lightning
App. 593, 72 Am. St. Eep. 326, 54 N. & Windstorm Ins. Co., 96 Fed. 756;
E. 407. The court said: "The term Pocono Spring Water Ice Co. v. Ameri-
'merchandise' does not include bonds. can Ice Co., 214 Pa. 640, 64 Atl. 398;
A bond is nothing more than a mere In re Kenyon, 1 Utah 47.
evidence of value. While the terra 92 In re Eoofing & Sheet Metal Con-
'merchandise' does not seem to have tractors ' Ass'n, 200 Pa. Ill, 49 Atl.
any fixed legal signification, yet its 894.
commonly accepted meaning is lim- 93 People v. Blake, 19 Cal. 579. The
ited to things that have an intrinsic was that a water-
decision in this case
value in bulk, weight, or measure, and works corporation, organized for the
which are bought and sold." purpose of supplying the city of San
Where a charter incorporating a Francisco and its inhabitants with
steamboat company granted a right to water, was within a statute providing
run a steamboat "for the transporta- for corporations "for the purpose of
tion of merchandise, ' it was held that
'
engaging in any species of trade or
the term "merchandise" did not ap- commerce. " The court said "It was :
ply to mere evidences of value, such to deal in water as a matter of busi-

as notes, bills, checks, policies of in- ness —to furnish the article to con-
surance, and bills of lading, but only sumers upon considerations to be re-
to articles having an intrinsic value —
ceived that the company was formed.
in bulk, weight, or measure, and which Water, when collected in reservoirs or
are bought and sold. Citizens Bank v. pipes, and thus separated from the
Nantucket Steamboat Co., 2 Story (U. original source of supply, is personal
S.) 16, Fed. Cas. No. 2,730, cited with property, and is as much the subject
approval in Indiana Bond Co. v. Ogle, of sale —an article of commerce —as
22 Ind. App. 593, 72 Am. St. Eep. 326, ordinary goods and merchandise. En-
231
§121] Pbivate Corporations [Ch.4
and for the purchase

tions for the purpose of dealing in real estate,
and reclaiming of swamp lands have been upheld under similar pro-
visions.®*
A statute authorizing corporations for the purpose "of trade, or
of carrying on any lawful mechanical, manufacturing, or agricul-
tural business," authorizes the formation of a corporation for the
purpose of "buying, owning, improving, selling, and leasing of
lands, tenements, and hereditaments, real, personal, and mixed estates
and property, including the constructing and leasing of a build-
ing. "^^
Under some statutes corporations cannot be formed for the pur-
pose of carrying on a mercantile business,®^ but corporations for that
gaging in the business of furnishing trading purposes." Pocono Spring

it to the inhabitants of a city for Wâter Ice Co. v. American Ice Co., 214
equivalent considerations to be re- Pa. 640, 64 Atl. 398.
ceived, is engaging in 'a species of 94 People V. Hager, 52 Cal. 171, writ
trade or commerce' vathin the mean- of error dismissed, 154 IT. S. 639, 24
ing of the act." The dictum also in- L. Ed. 1044. See, however, § 127,
cludes ice companies and gas com- infra.
panies. It is said, however, that they 95 Finnegan v. Noerenberg, 52 Minn.
are not "in the technical acceptation 239, 18 L. R. A. 778, 38 Am. St. Eep.
of the terms ' trading ' or commer-'
552, 53 N. W. 1150.
cial corporations.' " See In re New Com. V. J. B. Lippincott Co., 156
96
York & Westchester Water Co., 98 Pa. St. 513, 27 Atl. 10; Com. v. Thack-
Fed. 711, aff'd 102 Fed. 1004. But the ara Mfg. Co., 156 Pa. 510, 27 Atl. 13;
correctness of this latter view may West Manayunk Gas Light Co. v. New
well be doubted, when it is considered Gas Light. Co., 21 Pa. Co. Ct. Eep. 369.
that one who buys and sells goods, or Where the general statute under
any property which is the subject of which a corporation was organized au-
trade and commerce, is a trader; that thorizes incorporation for manufactur-
water and gas when confined in pipes ing purposes but does not authorize the
are "personal goods," within the incorporation of merchants and deal-
definition of larceny (Ferens v. ers, it is held that where the charter
O'Brien, 11 Q. B. Div. 21, 15 Cox Cr. of the corporation authorizes it to
Cas. 332; Com. v. Shaw, 4 Allen manufacture, and also to buy, sell
(Mass.) 308, 81 Am. Dee. 706; State and deal as a merchant or dealer, the
V. Wellman, 34 Minn. 221, 25 N. W. mercantile clause of
the charter is
395; Hutchinson v. Com., 82 Pa. St. void, and the corporation will be
472), and the subject of trade and treated as organized for manufactur-
commerce. Dudley v. Jamaica Pond ing purposes. Com. v. J. B. Lippincott
Aqueduct Corporation, 100 Mass. 183. Co., 156 Pa. St. 513, 27 Atl. 10; Com.
A corporation formed for the pur- v. Thackara Mfg. Co., 156' Pa. St. 510,
pose of erecting a dam in a creek and 27 Atl. 13; Com. v. Wm. Mann Co., 150
the cutting, storing and selling of ice Pa. St. 64, 24 Atl. 601.
is a trading corporation within the Before its repeal corporations could
meaning of statute respecting corpora- be organized for that purpose under
tions "for mining, manufacturing or the general provision of Texas Rev.
232
Ck4] Objects foe Which Ceeated [§122
purpose have been held to be permissible under a statute permitting

incorporation for the prosecution of industrial pursuits.®^
§122. Corporations for industrial pursuits. The phrase "indus-

trial pursuits," asused in a statute authorizing the formation of
corporations for such purpose, is broader and more comprehensive
than "trading" or "manufacturing." It includes both, and some-
thing more.®*
Under a statute authorizing the formation of corporations for
"mining, manufacturing and other industrial pursuits," it is held
that the express business is an industrial pursuit,'® and so is the
St., 1879, art. 566, § 27, providing that roads, irrigating ditches, and the colo
corporations might be organized "for nization and improvement of lands in
any other purpose intended for mutual connection therewith, or for colleges,
profit or benefit, not otherwise espe- 8eme[i]naries, churches, libraries, or
cially provided for," etc. Jacobs, any other benevolent, charitable, or
Bernheim & Co. v. Augusta Co-opera- scientific association." In construing

such statute and considering the objec-
tive Ass 'n, 3 "Wilson Civ. Cas. Ct. App.
tion that a corporation formed for the
(Tex.) § 231. The repeal of that sub-
purpose of carrying on the express
division by acts, Texas, 1885, p. 59, is
business was not a corporation formed
a denial of the right to do so. Empire
for the purpose of an industrial pur-
Mills v. Alston Grocery Co., 4 Wilson
suit, Deady, J., said: "The objection
Civ. Cas. Ct. App. (Tex.) § 221, 12 L.
hinges about these words What is the
:
B. A. 366, 15 S. W. 200, 505.

character of 'ipining, manufacturing,
97 Agua Fria Copper Co. v. Bash-
and other industrial pursuits'? It is
ford-Burmister Co., 4 Ariz. 203, 85 maintained that this express company
Pac. 983; Carver Mercantile Co. v.
is not engaged in an 'industrial pur-
Hulme, 7 Mont. 566, 19 Pac. 213. suit'; and that if it is engaged in an
98 See § 90, supra. See also Wells, industrial pursuit in the abstract sense
Fargo & Co. v. Northern Pae. Ey. Co., of the words,it is not engaged in such
23 Fed. 469. an industrial pursuit as mining and
99 Wells, Fargo & Co. v. Northern manufacturing; and that the words
Pac. Ry. Co., 23 Fed. 469. 'industrial pursuits,' being coupled
U. S. Eev. St. §1889, 7 Fed. St. with 'mining and manufacturing,' are
Ann., p. 262, which was applicable restricted in their signification to the
to all the territories of the general scope covered by those words,
United States provided: "The legis- '
mining and manufacturing. ' I think,
lative assemblies of the several Terri- myself, that this is entirely too narrow
tories shall not grant private charters a signification to be given to those
or special privileges, but they may, words. 'Industrial' is a very large
by general incorporation acts, permit word, and, although it is associated
persons to themselves to-
associate with the words 'mining and manufac-
gether as bodies corporate for mining, turing,' it would be, it seems to me,
manufacturing, and other industrial contrary to the manifest purpose of
pursuits, * * * or for the construc- congress in this passage, to so restrain
tion or operation of rail-roads, wagon- itas that the pursuit must be literally.
233
'
§122] Peivate Cokpoeations [Cli.4
mercantile business,^ or to own and operate a street railway.* The

formation of a corporation for the purpose of owning and operating
a street railway is also within the authority of a statute providing
for an incorporation to carry on any "branch of business designed
or almost literally, a mining one or a dustrial pursuit,' for which the legis-
manufacturing one. Could not a cor- lature may authorize corporations to
poration in Washington territory be be formed, is a very broad expression.
formed under this law to engage in For instance, itwas decided by Judge
raising wheat ? This is neither mining Deady in Wells, Fargo & Co. v. North-
nor manufacturing in any literal sense ern Pac. R. Co., 23 Fed. 469, that the
of the word; it is producing. Could express business was 'an industrial
not a corporation be formed under this pursuit,' within the meaning of that
law, or under a law passed by Wash- term. Just why the sale of goods,
ington territory, to engage in navi- mining supplies, etc., should be less
gating Puget sound? I do not think 'industrial' than the express business
there is a specific provision for a navi- would, in our opinion, be difficult to
gation company; there are for wagon maintain. Besides, congress, in enact-
roads and railroads, but there is none ing section 1889, was endeavoring to
for steam-boats. But I suppose it is prevent the granting of monopolies
hardly questionable that the legisla- and special privileges, rather than spe-
ture might provide, by a general law, cifying all the purposes for which
for the incorporation in Washington corporations might be formed. And
territory of a company to navigate then, too, the mercantile business is
Puget sound. An 'industrial pursuit,' certainly industrial; it is embraced in
it may be said also, in the case I put the words ' industrial pursuits, ' accord-
of farming, is covered by the words ing to their popular or ordinary
'
'colonization, and improvement of usage.
lands in connection therewith'; but In Carver Mercantile Co. v. Hulme,
these are limited by the words 'rail- 7 Mont. 566, 19 Pac. 213, it was held
roads, wagon roads, irrigating ditches,' that the Montana law of 1872, provid-
and it is doubtful whether the coloni- ing for the formation of corporations
zation of lands, and the improvement for carrying on any branch of business
of lands, standing by itself, includes "designed to aid in the industrial or
farming, raising wheat, flax, hops, and productive interests of the country,
corn. * * * But I think the express and the development thereof," was
not in conflict with the section of the
business is an industrial pursuit, and
U. S. Eev. St. 1889, 7 Fed. St. Ann.,
one which the territorial legislature
p. 262, and that a mercantile corpora-
could provide for the formation of
tion might be incorporated under such
corporations to engage in." Agua
a law.
Fria Copper Co. v. Bashford-Burmister
Co., 4 Ariz. 203, 35 Pac. 983; Carver
2 Central Trust Co. of New York v.
Warren, 121 Fed. 323. The court said:
Mercantile Co. v. Hulme, 7 Mont. 366,
"The formation of a corporation for
19 Pac. 213.
the purpose of owning and operating
1 In Agua Fria Copper Co. v. Bash-
a street railway is certainly as much
ford-Burmister Co., 4 Ariz. 203, 35 Pac. an industrial pursuit as an express
983, the court said: "The term 'in- company or a mercantile business."
234
Ch. 4] Objects fob Which Ceeated [§ 124
to aid in the industrial or productive interests of the country and the

' ^
development thereof. '
§ 123. Corporations for agricultural purposes. statute authoriz- A

ing the formation of corporations for agricultural purposes will
authorize the formation of a corporation for the purpose of hold-
ing and conducting agricultural exhibitions, fairs, cattle shows, and
trials of speed of horses, and owning property and constructing a
race track, buildings, and other improvements for that purpose.*
And a corporation to build and maintain a flouring mill may be
organized under a statute permitting the formation of corporations
for "the conversion and disposal of agricultural products by means
'
of mills, elevators, markets, and stores, or otherwise. * But it has '
been held that a corporation for "the purpose of growing, selling

and purchasing rice and other agricultural products," cannot legally
be formed under a statute authorizing the creation of corporations
for the purpose of "the growing, selling and purchasing of seeds,
plants, trees, etc., for agricultural and ornamental purposes."®
§ 124. Corporations for benevolent, charitable, literary or educa-

tional purposes. In most of the states, statutes provide specifically
for the formation of corporations for benevolent, charitable, literary,
and educational purposes. The nature of such corporations has been
heretofore considered.'' Corporations organized for "charitable or
benevolent" purposes, within the meaning of a statute, include all
corporations organized not for pecuniary gain or profit, but for the
administration of charitable trusts, such as hospitals and asylums for
the sick, insane and poor, and colleges or schools for the promotion
of piety or learning.*
Under a statute authorizing the incorporation of "benevolent,
charitable, scientific and missionary societies," no corporation can
3 Central Trust Co. of New York V. 33 Atl. 595; American Asylum v.
Warren, 121 Fed. 323. Phoenix Bank, 4 Conn. 172, 10 Am.

4Fairview Inv. Co. v. Lamberson, Dee. 112.
25 Idaho 72, 136 Pac. 606. Kentucky. Widows' & Orphans'
B Ginrich v. Patrons Mill Co., 21
' Home of Odd Fellows of Kentucky v.
Bosworth, 112 Ky. 200, 23 Ky. L. Rep.
'
Kan. 61.
6 Miller v. Tod, 95 Tex. 404, 67 S. W. 1505, 65 S. W. 591.
4g3_ Haine. St. Clement v. L'Institut
7 See §§ 100, 101, supra. Jacques Cartier, 95 Me. 493, 50 Atl.
8 See in this connection: 376.
Connecticut. Hearns v. Waterbury Massachusetts. Franklin Square
Hospital, 66 Conn. 98, 31 L. R. A. 224, House v. Boston, 188 Mass. 409, 74 N.
235
§124] Pkivate Coepokations [Ch.4
be formed unless it is for one or more of the purposes mentioned. A

corporation for business purposes, having in view the pecuniaiy
profit of its members, does not come within the statute, although it
may incidentally contemplate the promotion of the interests of others.'
And it has been held, therefore, that such a statute does not authorize
E. 675; New England Theosophical support of public works, or the relief
Corp. V. Board of Assessors, 172 Mass. of public burdens, and cannot be
60, 42 L. E. A. 281, 51 N. E. 456; Mc- deemed "charitable" in the technical
Donald V. Massachusetts General Hos- or legal Chamberlain v.
sense.'
pital, 120 Mass. 432, 21 Am. Eep. 529. Stearns, 111 Mass. 267. See also Mas-
Missouri. State v. Adams, 44 Mo. sachusetts Soc. for Prevention of
570. Cruelty to Animals v. Boston, 142
New Congregation of Mis-
Jersey. Mass. 24, 6 N. E. 840. The word char-
'
sion of St. Vincent De Paul v. Brake- itable' refers to hospitals and other
ley, 67 N. J. L. 176; Paterson Rescue charitable institutions for the relief
Mission v. High, 64 N. J. L. 116, 44 Atl. of the poor or the sick. The reason
974. of this exemption is that they render
New York. People v. Eeilly, 85 a service to the public, and so relieve
N. Y. App. Div. 71, 83 N. Y. Supp. 39; the state or municipality from ex-
Smith V. Havens Eelief Fund Society, pense. See Cooley, Tax'n (2d Ed.)
44 N. Y. Misc. 594, 90 N. Y. Supp. 168. 202."
Rhode Island. Pepin v. Soeiete St. A missionary order formed to in-
Jean Baptiste, 24 E. I. 550, 60 L. E. A. struct the ignorant, tend the sick and
626, 54 Atl. 47. See also Powers v. to afford protection to orphan children,
Massachusetts Homeopathic Hospital, has been held to be covered by a stat-
109 Fed. 294, 65 L. R. A. 372, writ of ute exempting from taxation organi-
certiorari denied 183 XT. S. 695, 46 L. zations formed to improve the mental
Ed. 394. and moral condition of men or women,
A corporation having for its primary or for religious and educational pur-
object the dissemination of theosophi- poses. People V. Eeilly, 85 N. Y. App.
cal and procuring converts
ideas Div. 71, 83 N. Y. Supp. 39.
thereto not a benevolent, charitable,
is 9 People V. Nelson, 46 N. Y. 477, 60
literary, or scientific corporation with- Barb. (N. Y.) 159, 3 Lans. (N. Y.) 394.
in the meaning of a statute exempting See also as to what are not benevolent
corporations organized for such pur- or charitable associations. Iowa Mut.
poses from taxation. New England Tornado Ass'n v. Gilbertson, 129
Ins.
Theosophical Corporation v. Board of Iowa 658, 106 N. W. 153; Chapin v.
Assessors, 172 Mass. 60, 42 L. R. A. Holyoke Y. M. C. A., 165 Mass. 280,
281, 51 N. B. 456. The court said: 42 N. E. 1130; Newcomb v. Boston Pro-
"The word 'benevolent' may include tective Department, 151 Mass. 215, 24
purposes which may be deemed char- N. E. 39; Donnelly v. Boston Catholic
itable by a court of equity, and it may Cemetery Ass'n, 146 Mass. 163, 15 N.
also include '
acts dictated by kind- E. 505; Sheren v. Mendenhall, 23
ness, good will, or a disposition to do Minn. 92; State v. McGrath, 95 Mo.
good, the objects of which have no re- 193, 8 S. W. 425; In re St. Louis Insti-
lation to the promotion of education, tute of Christian Science, 27 Mo. App,
learning, or religion, the relief of the 633; Eire Ins. Patrol v. Boyd, 120 Pa.
needy, the sick, or the afflicted, the St. 624, 1 L. E. A. 417, 6 Am. St. Eep
236
a corporation for the purpose of providing a "relief fund," and

to "aid persons of moderate pecuniary resources in obtaining from
a reputable insurance company insurance on their lives, and in
maintaining the necessary payments on the same; and to secure to
families or persons so insured an immediate advance of funds in case
of death," ^" or a corporation organized for the purpose of conduct-
ing a medical college receiving compensation for the instruction
given,^^ or a corporation for pecuniary profit. ^^
An association whose purpose is to endow the wife of each member
with a sum of money equal to as many dollars as there are members,
745, 15 Atl. 553; Bethlehem v. Perse- ganized for "charitable or benevolent

verance Fire Co., 81 Pa. St. 445. See purposes." Newcomb v. Boston Pro-
§§ 98-100, supra. tective Department, 151 Mass. 215, 6
In forming a charitable corporation, L. E. A. 778, 24 N. E. 39; Sheren v.
it is not necessary to specify with ex- Mendenhall, 23 Minn. 92. Compare
actness who are to be the ultimate Fire Ins. Patrol Co. v. Boyd, 120 Pa.
recipients of the charity. Smith v. St. 624, 1 L. E. A. 417, 6 Am. St. Eep.
Havens Belief Fund Society, 44 N. Y. 745, 15 Atl. 553.
Misc. 594, 90 N. Y. Supp. 168. In In re West's Appeal, 64 Pa. St.
"The purpose of 'forming the nu- 186, it was held that a corporation
cleus of a universal brotherhood of hu- whose charter authorized it "to have,
manity' is too indefinite an expression purchase, receive," etc., "stock,
to enable us to say, on the evidence, goods," etc., "by sale, gift, grant,
that the judge was wrong in holding demise, bargain and sale, devise, be-
that the pietitioner was not a benevo- quest, testament, legacy, loan," etc.,
lent or charitable institution." La- was a business corporation, and not a
throp, J., in New England Theosophical charitable corporation, within the
Corporation v. Board of Assessors, 172 meaning of a statute limiting the
Mass. 60, 42 L. E. A. 281, 51 N. E. 456. amount of property of charitable cor-
10 People V. Nelson, 46 N. Y. 477, 60 porations.
Barb. (N. Y.) 159, 3 Lans. (N. Y.) Corporations organized for "chari-
394. See also Iowa Mut. Tornado Ins. table or benevolent purposes" do not
Ass 'n V. Gilbertson, 129 Iowa 658, 106 include a corporation for the promo-
N. W. 153; St. Clement v. L'Institut tion of Christian Science, the earnings
Jacques Cartier, 95 Me. 493, 50 Atl. of which are placed exclusively within
376. the discretion of its directors, and the
11People V. Gunn, 96 N. Y. 317, afC'g residuary fund of which is used in com-
30 Hun (N. Y.) 322; People v. Goth- pensating its directors for their serv-
ran, 27 Hun (N. Y.) 344. ices; In re Louis Institute of

St.
12 Sheren v. Mendenhall, 23 Minn. Christian Science, 27 Mo. App. 633;
92; People v. Nelson, 46 N. Y. 477, 60 nor a savings institution, the leading

Barb. (N. Y.) 159, 3 Lans. (N. Y.) 394. purpose of which is the pecuniary profit
Corporations organized, not for the of its stockholders or members. Sher-
administration of a charity, but for en V. Mendenhall, 23 Minn. 92.
the gain or benefit, pecuniary or other- Building and loan associations being
wise, of its members, do not come corporations for private gain are not
within the meaning of corporations or- "benevolent" associations, unless the
237
;
§ 124] Peivate Cobpoeations [Ch. 4
the money to be raised by assessment upon the members, is not within

a statute authorizing the incorporation of benevolent societies, for
there is no intention to bestow any benefit or help without what is
thought to be an equivalent.^^
Astatute authorizing the formation of corporations "for the estab-
lishment and maintenance of any benevolent, charitable or medical
institution, hospital orasylum," does not authorize the organization
of a corporation "to encourage frugalityand economy in its members;
to create, husband, and distribute funds from monthly installments,
dues, or investments from its members; to purchase, take, hold, sell,
convey, lease, rent, and mortgage real estate and personal property
to loan surplus accumulations and to carry on and conduct a general
;
investment business. '

'
^*
Statutes often specifically provide for the formation of corpora-

tions for the purpose of carrying out bequests for charitable pur-
poses.^*
A statute authorizing circuit courts of the state to grant charters
"for the conduct of any enterprise or business which might be law-
fully conducted by an individual or by a body politic or corporate,
except to construct a turnpike to be constructed beyond the limits of
the county, or a railroad or canal, or to establish a hank of circula-
tion," authorizes the formation of a corporation for the purpose of
establishing and maintaining in a city of the state, an institution in
which indigent and infirm women may be provided with a comfortable
home gratuitously, or on such charges as may be prescribed, notwith-
Btatute expressly includes them. State be raised, in each case of marriage, by
V. McGrath, 95 Mo. 193, 8 S. W. 425. an assessment of the members, is not
See 100, supra.
§ a beneficial or protective association,
State V. Critchett, 37 Minn. 13,
13 the amounts being payable without re-
32 N. W. 787. See also Foster v. Moul- gard to the wants or necessities of the
ton, 35 Minn. 458, 29 N. W. 155. members. In re Mutual Aid Ass 'n, 15
An institution organized to receive Phila. (Pa.) 625; In re Helping-Hand
payments at regular intervals from its Marriage Ass'n, 15 Phila. (Pa.) 644.
members and to pay its members a 14 State v. International Inv. Co., 88
definite amount at a fixed time for a Wis. 512, 43 Am. St. Rep. 920, 60 N.
specified period, if sick and unable to W. 796. Nor does such a statute in-
work is not a charitable or benevolent elude a corporation with a large capi-
organization. St. Clement v. L 'Insti- tal stock, organized for the purpose of
tut Jacques Cartier, 95 Me. 493, 50 Atl. enabling members to accumulate by
376. small monthly contributions, a fund
A marriage association, the purpose out of which to secure homes. State v.
of which is to issue certificates of McGrath, 95 Mo. 193.
membership in certain amounts, and • IB Grand Prairie Seminary v. Mor-
to pay parties for whose benefit the gan, 171 111. 444, 49 N. E. 516, aff 'g 70
certificates are issued from a fund to 111. App. 575.
238
Ch.4] Objects fob Which Ceeated [§124
standing there is a prohibition in the state constitution against the

incorporation of religious denominations.^*
The term "literary" means of or pertaining to letters or learn-
ing,and a corporation organized for the purpose of promoting lit-
erature or learning is a literary corporation. Any institution or
association organized and incorporated for the purpose of conduct-
ing a school or seminary of learning, and having that character, is a
"literary" corporation or association within the meaning of a statute.*'
On the other hand, a corporation not organized for the promotion of
literature or learning cannot be classed as a literary association.'* A
corporation having for its paramount object the dissemination of theo-
sophical ideas, and procuring converts thereto, is not a literary cor-
poration.'® An historical society may be incorporated under a statute
permitting the incorporation of literary
societies.*" And a corpora-
tion may
be formed for the purpose of building and maintaining an
opera house and lecture hall to aid "in the literary and scientific
education of the people" under a statute permitting the formation of
16 Jordan's Adm'r v. Eiehmond leyan Academy v. Inhabitants of Wil-

Home for Ladies, 106 Va. 710, 56 S. B. braham, 99 Mass. 599, it was said by
730. Chief Justice Chapman, in considering
. 17 Chamberlain v. Chamberlain, 3 the exemption of the academy from
Lans. (N. Y.) 348, modified 43 N. Y. taxation: 'The academy of the plain-
424. Compare, however, Eeg v. Po- tiffs is a literary and scientific insti-
cock, 8 Q. B. 729. tution, duly incorporated, and the only
18 See New England Theosophical questions that are raised in the case
Corporation v. Board of Assessors, 172 relate to the character of the property
Mass. 60, 42 L. E. A. 281, 51 N. E. which the defendants have assessed.'
456; Eeg. v. Jones, 8 Q. B. 725. The institution in this case was incor-
19 New England Theosophical Cor- porated by St. 1824, c. 80, 'for the
poration V. Board of Assessors, 172 purpose of promoting religion and
Mass. 60, 42 L. E. A. 281, 51 N. E. 456. morality, and for the education of
The court said: "The word 'literary' youth, in such of the liberal arts and
has no technical legal meaning, and sciences, as the trustees for the time
there is some difference of opinion as being shall direct.' In Mt. Hermon
to what is meant in statutes exempting Boys' School v. Gill, 145 Mass. 139, 13
literary institutions or societies from N. E. 354, it was conceded that the
taxation. In England it is held that a plaintiff was one of the institutions ex-
school for educating teachers, organ- empt from taxation by Pub. St. c. 11,
ized under 6 & 7 Vict. c. 36, is not a and the court said that it was
5, el. 3,
literary society. Eeg v. Pocoek, 8 Q, 'very properly conceded.' The insti-
B. 729. See also Common Council v, tution in this case was organized, un-
McLean, 8 Ind. 328; Philadelphia v. der Pub. St. 0. 115, for the 'education
Overseers of Public Schools, 170 Pa. of boys.' "
St. 257, 32 Atl. 1033; Kendriek v. Far 20 Carpenter v. Historical Society, 2
quhar, 8 Ohio 189. In Trustees of Wes Dem. Surr. (N. Y.) 574.
239
§ 124] Peivate Oobpobations [Ch. 4
corporations for the purpose of supporting any educational or liter-
ary undertaking or for the promotion of music or other fine arts.*^

A
corporation cannot be formed merely for the purpose of erect-
ing a schoolhouse or academy building under a statute permitting
incorporation for the establishment of high schools and academies, or
to establish and maintain literary or scientific associations.^^ Under
a statute permitting the organization of corporations for educational
purposes, a corporation may be formed for the purpose of collecting
and displaying the resources of the state at an exposition and to build
and maintain a building for that purpose.^' But a corporation for
the purpose of "educating the public by exhibiting artistic, mechani-
cal, agricultural and horticultural products, and providing instruction
in the arts ajad sciences,"" cannot be formed under a statute pro-

viding for the incorporation of companies, not for profit, "for the
encouragement of the arts and sciences, and of agricultural and horti-
culture," and giving corporations formed under it the right of emi-
nent domain.^*
It is held in Texas that a corporation known as "The Daughters
of The Eepublic" may be formed for patriotic purposes connected
with the war for the independence of Texas under that subdivision of
the general incorporation act which provides that corporations may be
formed for '
educational purposes.
'
^^
' '
A corporation organized for the purpose of giving athletic exhi-

bitions for the entertainment of its members is not within a statute
authorizing the formation of corporations for beneficial, educational
or scientific purposes.^® A corporation for educational purposes is
not authorized by a statute providing for the formation of corpora-

tions for pecuniary profit, even though such corporation charges fees
for tuition.^''
21 Seymour Opera House Co. v. Wool- being chartered for religious and char-
dridge (Tex. Civ. App.), 31 S. W. 234. itable purposes." City of San An-
22 Williams v. Franklin Tp. Aea- tonio v. Salvation Army (Tex. Civ.
demical Ass'n, 26 Ind. 310. App.), 127 S. W. 860, where the status
23 Brown v. Cruce, 44 Okla. 192, 143 of Salvation Army was considered.
Pac. 1154; Watton v. Cruce, 44 Okla. 26 State v. Business Men's Athletic
186, 143 Pac. 1152. Club, 178 Mo. App. 548, 163 S. W. 901.
24 In re Warren Academy of Sci- See, however, State v. Lesueur, 99 Mo.
ences, 13 Pa. Dist. 597. 552, 7 L. E. A. 734, 13 S. W. 237.
25 Conley v. Daughters of Republic, 27 Santa Clara Female Academy v.
106 Tex. 80, 157 S. W. 937, 156 S. W. Sullivan, 116 111. 375, 56 Am. Eep. 776,
197, rev'g —
Tex. Civ. App. , 151 — 6 N. E. 183. See also McDonald v.
S. W. 877. Massachusetts General Hospital, 120
"There is no inhibition in the stat- Mass. 432, 21 Am. Eep. 529.
ntes of Texas against a corporation
240
Ch. 4] Objects fob "Which Ckeatbd [§125
Under a statute authorizing the formation of corporations for the

purpose of engaging in any lawful enterprise, business, or pursuit,
and also providing for the incorporation of religious, benevolent,
literary, or charitable societies, or any societies having for their object
the development of the physical or mental capacities of their members,
and when any such society is formed, requiring it to state in its arti-
cles of incorporation the "object," "business," or "pursuit" of the
corporation, it was held that the words "business" and "pursuit," as
used in the statute are not restricted to schemes for making money,
but are used with reference to any object consistent with the inter-
ests of society that may engage the attention of men and invite their
co-operation.*8
A statute permitting the incorporation of societies or clubs for

various purposes has been held not to permit the incorporation of a
mutual benefit of its members
society without capital stock for the
as carpentersand joiners, and their improvement and advancement
in that art and the mutual protection of the members and their
interests.^^
§125. Corporations for scientific purposes. The term "science,"

it h'OS been said, in its broadest sense, is "knowledge" or "the
knowledge of many," methodically digested and arranged, so as to
be attaina'ble by one, or a "body of principles and deductions to
explain the nature of some matter" ; and is not synonymous with, nor
does it include "art." ^^ It has been held, therefore, that a rifle club
cannot be organized under a statute authorizing corporations for
"scientific" purposes; for rifle shooting, though it may be an art,
28 Maxwell v. Akin, 89 Fed. 178. A. 97, 43 N. W. 593; Jackson v. Wald-

Under such a statute a corporation ron, 13 Wend. (N. T.) 178, 205.
may be formed for the purpose of In Detroit Home & Day School v.
guaranteeing and securing the notes, City of Detroit, 76" Mich. 521, 6 L. R.
bonds and other obligations of another A. 97, 43 N. W. 593, it was held
corporation organized for educational that an educational corporation was a
purposes, in order to increase its credit. "scientific institution" within the
Maxwell v. Akin, 89 Fed. 178. meaning of a statute exempting the
In re Carpenters & Joiners ' TJn-
29 ' property of such institutions from tax-
ion, 17 Abb. N. Cas. (N. T.) 109. ation. The court said: "A 'scientific
30Vredenburg v. Behan, 33 La. institution,' under the language of
Ann. 627. And see New England Theo- all civilized countries, means an insti-
sophical Corp. v. Board of Assessors, tution for the advancement or promo-

172 Mass. 60, 42 L. R. A. 281, 51 N. E. tion of knowledge, which is the Eng-
456; Detroit Home & Day School v. lish rendering of science. ' "
'
City of Detroit, 76 Mich. 521, 6 L. E.

241 -
I Priv. Corp.— 16
is not a science.'^ A corporation having for its paramount object

the dissemination of theosophical ideas and procuring converts thereto,
is not a "scientific" institution.^^
§ 126. Corporations for purposes of pecuniary profit. A corpora-

tion "for pecuniary profit" a corporation organized for the pecuni-
is
ary profit of its stockholders or members.^* Under a statute providing

bhat certain corporations shall be chartered by the courts but that
corporations for profit "shall be chartered by the governor," it is
held that a corporation formed for the purpose of recovering prop-
erty stolen fom the members of the corporation, and in the event of
the property not being recovered to reimburse the owner by means of
assessments levied upon the members of the corporation, was a cor-
poration for profit, and hence could not be chartered by a court.'*
A corporation created for the sole purpose of pecuniary gain may
not be organized under a statute providing for the incorporation
of companies for any lawful purpose other than pecuniary gain.'*
Thus a corporation having for its object the construction and oper-
ation of horse, dummy, electric, cable and compressed air street rail-
ways, and the construction and operation of a general heating,
31 Vredenburg v. Beham, 33 La. Ann. 6 N. E. 183; McDonald v. Massachu-
627. setts General Hospital, 120 Mass. 432,
32 New
England Theosophical Corpo- 21 Am. Rep. 529; State v. Talbot, 123
ration Board of Assessors, 172 Mass.
V. Mo. W. 366; State v. Corkins,
69, 27 S.
60, 42 L. R. A. 281, 51 N. E. 456. The 123 Mo. 56, 27 S. W. 363; McLeod v.
court said: "The judge was not bound Lincoln Medical College of Cotner Uni-
to hold that this was a scientific insti- versity, 69 Neb, 550, 96 N. W. 265, 98
tution. While the term 'scientific' N. W. 672. See § 92, supra.
may not be limited to the physical The title of an act entitled "An act
sciences, yet there is nothing in the for the incorporation of associations
evidence to show that there is any not for pecuniary profit," is suffi-
study or application of science, even ciently comprehensive to warrant a pro-

in the broadest sense of the word, in vision in thebody of the act that after
theosophy. But, even if there is any it becomes a law all new corporations
connection between theosophy and any not organized for profit, and having no
kind of science, it is only incidental to capital stock, except religious corpo-
the study and promulgation of a sys- rations, shall be organized under the
tem of speculative philosophy. To provisions of the act. American Mati-
make an institution scientific, it should nee Ass'n v. Secretary of State, HO
be devoted either to the sciences gen- Mich. 579, 104 .N. "W. 141.
erally, or to some department of 34 In re Solebury Mut. Protective
science as a principal object, and not Society, 3 Pa. Co. Ct. 637, 3 Del. Co.
merely as an unimportant incident to (Pa.) 139.
its important objects." 35 People V. Bose, 188 111. 268, 59
33 Santa Clara Female Academy v. N. E. 432.
Sullivan, 116 111. 375, 56 Am. Rep. 776,
242
Ch. 4] Objects fob Which Ceeated [§127
lighting, and power supply business, cannot be formed under such a

statute.'^
A corporation for "educational purposes" is not a corporation
for pecuniary profit merely because fees are charged for tuition."
A corporation organized "for the purpose of improving the breed
of horses by promoting the interests of the American trotting turf,"
and having no capital stock and containing no provision for the
carrying on of any business, nor for the acquiring of any money or
property, except the payment of membership fees and annual dues, is
one not for pecuniary profit.^' A mutual insurance company can-
not be organized under a statute authorizing the formation of cor-
porations not for pecuniary profit.**
Where a corporation was organized to deal in real estate on the
co-operative plan, the court held that it must be deemed a corpora-
tion for profit, although it had no capital stock and claimed to be
organized not for profit but to assist its members in securing homes
by means of amounts contributed by them.*"
§ 127. Corporations for owning or dealing in real estate. Under

the general incorporation laws of some states a corporation cannot be
organized for the purpose of buying and selling real estate,*^ or of
36 People V. Rose, 188 111. 268, 59 tuition for instruction does not change
N. E. 432. The court said: "A corpo- its nature and make it an incorporation
ration for business purposes having in for pecuniary benefit." Santa Clara
view solely the pecuniary gain and Academy 116 111. 375, 56
v. Sullivan,
profit of the incorporators cannot be Am. Eep. N. E. 183; McLeod v.
776, 6
organized under this statute, * * *. Lincoln Medical College of Cotner
It is evident that the corporation University, 69 Neb. 550, 96 N. W. 265,
sought to be organized is a corporation 98 N. W. 672.
solely for business purposes and the 38 American Matinee Ass'n v. See-
pecuniary profit and gain of the inoor- retary of State, 140 Mich. 579, 104 N.
porators, and that it does not fall "W. 141.
within the purview of the statute." 39 Iowa Mut. Tornado Ins. Ass 'n Go.
37 Santa Clara Female Academy v. v. Gilbertson, 129 Iowa 658, 106 N. W.
Sullivan, 116 111. 375, 56 Am. Eep. 776, 153.
6 N. E. 183. 40 State v. Home Co-operative XJn-
" While
incorporated educational in- ion, 63 Ohio N. E. 220. By
St. 547, 59
stitutions may be authorized to hold reason of the holding stated in the
all kinds of property acquired by pur- text, the corporation was required to
chase, donation, devise, or otherwise, organize under a statute framed for
and to convey the same at their pleas- corporations created for the purpose
ure, they may
only do this for the pur- of pecuniary profit,
pose of accomplishing the legitimate 41 Walker v. Taylor, 252 111. 424, 96
ends of the corporation, and the fact N. E. 1055; People v. Cowan, 247 HI.
that such an institution may charge 357, 93 N. E. 349; People v. Shedd, 241
243
§127] Peivate Corporations [Ch.4
acquiring and holding real estate for purposes of investment.*^ And

the purchase or acquisition of a leasehold estate is regarded as an
acquisition of real estate within this rule, since a lease for a term
of years is a chattel real.*^ So it has been held that a, corporation
cannot be formed for the purpose of leasing a particular tract of
land, erecting a building thereon for the accommodation of tenants,
and to make leases, collect rents and and do all things incident to
the management of the said property.** Nor is it material under
such circumstances that the furnishing of power, light, water and
111., 155, 89 N. E. 332; Imperial Bldg. 111.App. 303; First M. E. Church of

Co. V. Chicago Open Board of Trade, Chicago V. Dixon, 178 111. 260, 52 N. E.
238 111. 100, 87 N. E. 167, afE'g Chicago 887, rev'g 77 111. App. 166; People v.
Open Board of Trade v. Imperial Bldg. Pullman's Palace Car Co., 175 111. 125,
Co., 136 111. App. 606; Bixler v. Sum- 64 L. E. A. 366, 51 N. E. 664; Carroll
merfield, 195 111. 147, 62 N. B. 849; V. City of East St. Louis, 67 111. 568,
Carroll v. City of East St. Louis, 67 16 Am. Bep. 632.
111.568, 16 Am. Eep. 632; Myatt v. "The exception of real estate from
Ponca City Land & Improvement Co., the purposes for which corporations
14 Okla. 189, 68 L. B. A. 810, 78 Pac. may be organized embraces all inter-
185. See also Santa Clara Female ests in real estate, including lease-
Academy v. Sullivan, 116 111. 375, 56 holds." People v. Shedd, 241 111. 155,
Am. Eep. 776, 6 N. E. 183; Stark- 89 N. E. 332, aff'd 217 U. S. 597, 54
weather V. American Bible Society, 72 L. Ed. 896 (mem. dec).
111. 50, 22 Am. Bep. 133. 42 People V. Shedd, 241 111. 155, 89
Under a statute authorizing the for- N. E. 332, aff'd 217 U. S. 597, 54 L. Ed.
mation of corporations for any lawful 896 (mem. dec.) Imperial Bldg. Co. «.
;
purpose, except real estate brokerage, Chicago Open Board of Trade, 238 111.
and certain other purposes, it is held 100, 87 N. E. 167, aff'g Chicago Open
that acquiring and holding real estate Board of Trade v. Imperial Bldg. Co.,
are not purposes for which a corpora- 136 111. App. 606.
tion may be organized, but that the 43 People V. Cowan, 247 111. 357, 93
organization of corporations for such N. E. 349; People v. Shedd, 241 111. 155,
purposes is forbidden by the statute. 89 N. E. 332, aff'd 217 XT. S. 597, 54
Walker v. Taylor, 252 111. 424, 96 N. E. L. Ed. 896 (mem. dec.) Imperial Bldg.
;
1055; People v. Cowan, 247 111. 357, 93 Co. v. Chicago Open Board of Trade,
N. E. 349; People v. Shedd, 241 111. 238 111. 100, 87 N. E. 167, aff'g Chicago
155, 89 N. E. 332, aff'd 217 U. S. 597, Open Board of Trade v. Imperial Bldg.
54 L. Ed. 896 (mem. dec.) Imperial ; Co., 136 111. App. 606.
Bldg. Co. V. Chicago Open Board of 44 People V. Cowan, 247 111. 357, 93
Trade, 238 111. 100, 87 N. E. 167, afE'g N. E. 349; People v. Shedd, 241 111. 155,
Chicago Open Board of Trade v. Im- 89 N. E. 332, aff'd 217 II. S. 597, 54 L.
perial Bldg. Co., 136 111. App. 606; Bix- Ed. 896 (mem. dec.) Imperial Bldg.
;
ler V. Summerfield, 195 111. 147, 62 N. Co. V. Chicago Open Board of Trade,
E. 849; National Home Building & 238 111. 100, 87 N. E. 167, aff'g Chicago
Loan Ass'n v. Home Sav. Bank, 181 Open Board of Trade v. Imperial Bldg.
HI. 35, 64 L. R. A. 399, 72 Am. Co., 136 111. App. 606.
St. Eep. 245, 54 N. E. 619, rev'g 79
244
Ch. 4] Objects for Which Ceeated [§127
heat to the tenants of such building is included among the enu-

merated purposes for which the corporation purports to be organ-
ized, and that these are lawful corporate purposes, since the object
is not to furnish power, light, water, and heat in general, but
rather to furnish them to the tenants of a building which the cor-
poration has no right to erect on property which it has no right to
own.**
Irrespective of statutory restrictions, it is regarded as a settled
principle of American jurisprudence that a corporation cannot be
organized for the purpose of acquiring and holding real estate, unless
the statute under which it is sought to be organized expressly author-
izes corporations for such purpose.*® In many states, however, a
corporation may be organized for the specific purpose of purchasing,
holding and selling real estate.*'' Thus it has been held that such a
corporation may be organized under a statute authorizing incorpora-
tion for any lawful and that a corporation for buying,
enterprise,**
selling and dealing may be formed under a statute
in real estate
authorizing corporations for mutual profit and benefit not inconsist-
ent with the constitution and laws of the state,*' or for purposes of
trade.®" And a corporation may be formed for the purpose of pur-
chasing and reclaiming- swamp land under a statute permitting
incorporation for the purpose of engaging in any species of trade,
46 People V. Shedd, 241 111. 155, 89 47 Market St. Ry. Co. v. Hellman,
N. E. 332, aff'd 217 U. S. 597, 54 L. Ed. 109 Cal. 571, 42 Pac. 225.
896 (mem. dec). 48 Cahill v. Citizens' Mut. Bldg.
46 People V. Shedd, 241 111. 155, 89 Ass'n, 61 Ala. 232.
N.E. 332, aff'd 217 XT. S. 597, 54 L.Ed. 49 National Bank of Jefferson y.
896 (mem. dec.). Texas Inv. Co., 74 Tex. 421, 12 S. W.
For a review of the Illiuois cases in 101.
reference to the acquisition and hold- 50 A statute authorizing corporations
ing of real estate by corporations, see for the purpose '
' of trade, or of carry-
People Shedd, 241 111. 155, 89 N. E.
V. ing on any lawful mechanical, manu-
332, aff'd 217 U. S. 597, 54 L. Ed. 896 facturing, or agriculture business,"
(mem. dec.), distinguishing Walker v. authorizes a corporation for the pur-
Taylor, 252 111. 424, 96 N. E. 1055; pose of "buying, owning, improving.
People V. Cowan, 247 111. 357, 93 N. E. selling, and leasing of lands, tene-
349; Merchants' Bldg. Improvement ments, and hereditaments, real, per-
Co. V. Chicago Bxch. Bldg. Co., 210 sonal, and mixed estates and property,
111. 26, 102 Am. St. Eep. 145, 71 N. E. including the constructing and leasing
22, aff'g 106 111. App. 17; Eector v. of a building." Finnegan v. Noeren-
Hartford Deposit Co., 190 111. 380, 60 berg, 52 Minn. 239, 18 L. E. A. 778, 38
N. E. 528, aff'g 92 111. App. 175; Am. St. ftep. 552, 53 N. W. 1150.
Hough V. Cook Co. Land Co., 73 111.
23, 24 Am. Eep. 230.
245
§127] Pbivate Coepoeations [Ch. 4
business, or commerce.*^ But a statute authorizing a corporation

"for the erection" of buildings has been held not to authorize a cor-
poration to improve, extend and manage a building already erected.***
And it has also been held that a statute permitting incorporation
for the improvement of real property does not authorize the organ-
ization of a corporation for the purpose of dealing in real estate and
carrying on any kind of real estate business.'*
Under a statute authorizing the formation of corporations for
pecuniary profit for "any lawful purpose except banking, insurance,
real estate brokerage, the operation of railroads and the business of
loaning money," a corporation may be formed "to encourage social
and fraternal relations among its members, and to promote and incul-
cate the principles of Masonry as sought in the different Masonic
bodies, and to provide suitable and permanent accommodations for
same by the erection of such a building as will provide halls, a
library, reading rooms, and such other conveniences as are requisite
'
therefor. '* Corporations are also often permitted to be formed
'
for the purpose of holding real property in trust.'* Thus a corpora-

tion may be formed for the purpose of holding property conveyed
to it in trust for its stockholders under a statute permitting incor-
poration for any purpose for which individuals may lawfully asso-
ciate themselves.*® And holders of lands devised to them in trust
for certain purposes may organize a corporation for the execution
of the trust, under a statute authorizing tenants in common to incor-
porate for the purpose of managing the property.*'' It has been
held that a statute providing for the formation of corporations for
any lawful purpose authorizes a corporation for the purchase of
land and construction of houses thereon, and the allotment of the
lots and houses among the stockholders in satisfaction of their stock,
although the corporation may not comply with the law governing
building and loan associations.*'
§ 128. Corporations for work of "internal improvement," "public

improvement" or "public utility." Statutes generally permit the
Bl People V. Hagar, 52 Cal. 171, writ 5B Baldwin v. Miller & Lux, 152 Cal.
of error dismissed, 154 V. S. 639, 24 454, 92 Pac. 1030; Howard v. Hayward,
li.Ed. 1044. 10 Mete. (Mass.) 408.
82 People V. Troy House Co., 44 B6 Baldwin v. Miller & Lux, 152 Cal.
Barb. (N. Y.) 625. 454, 92 Pac. 1030.
KSVercoutere v. Golden State Land 67 Howard v. Hayward, 10 Mete.
Co., 116 Cal. 410, 48 Pac. 375. (Mass.) 408.
M
Lincoln Park Chapter No. 177 B. S8 York Park Bldg. Ass'n v. Barnes,
A. M. V. Swatek, 105 III. App. 604, 38 Neb. 834, 58 N. W. 440.
aif'd 204 111. 228, 68 N. E. 429.
246
Ch.4] Objects fob Which Cbeated [§128
formation of corporations for the purpose of carrying on works "of

public improvement," or "public utility" or "internal improve-
ment."*' The words "work of internal improvement" in a statute
authorizing the formation of a corporation for the purpose of con-
structing a work of internal improvement, and other statutes refer-
ring to corporations by such a description, as statutes giving the
power of eminent domain, mean corporations for the purpose of con-
structing works of a quasi public character, as "railroads, turn-
pikes, canals, ferries, telegraphs, wharves, and the like."®" The
same is true of the words "public improvement," and the words
"work of public utility," in a statute referring to corporations for
such purpose.*^ Whether or not a work is a work of public utility
See § 102, supra.

59 Falls Co., 1 N. J. Eq. 694, 23 Am. Dee.
See also in this connection: 756.
Arizona. Oury v. Goodwin (Ariz.), New York. In re Townsend, 39 N.
26 Pae. 376. Y. 171; Buffalo & New York City B.
California. Stockton & Yisalia B. Co. V. Brainard, 9 N. Y. 100; Bloom-
Co. V. City of Stockton, 41 Cal. 147. field & Bochester Nat. Gas Light Co.
Delaware. City of Wilmington v. V. Bichardson, 63 Barb. 437.
Addicks, 8 Del. Ch. 310, 7 Del. Ch. 56, OMo. Kemper's Lessee v. Cincin-
43 Atl. 297. nati, C. & W. Turnpike Co., 11 Ohio
Louisiana. Bayon Cook Navigation 392.
& Fisheries Co. v. DouUut, 111 La. 517, Pennsylvania. Bidgway Light &
35 So. 729; Glen v. Breard, 35 La. Ann. Heat Co. v. Elk County, 191 Pa. St.
875. 465, 43 Atl. 323; St. Mary's Gaa Co. v.
Maine. Cottrill v. Myriek, 12 Me. Elk County, 191 Pa. St. 458, 43 Atl.
222. 321.
Maryland. Tide Water Canal Co. v. West Virginia. West Virginia
Archer, 9 GiU & J. 479. Transp. Co. v. Volcanic Oil & Coal Co.,
Massachusetts. Hazen v. Essex Co., 5 W. Va. 382, 387.
12 Cush. (Mass.) 475, 477. 60 West Virginia Transp. Co. v. Vol-
Micliigan. Swan v. Williams, 2 canic Oil Coal Co., 5 W. Va. 382.
&
Mich. 427. "It has been decided time and time
Montana. Butte, A. & P. By. Co. again, and is therefore settled by the
V. Montana U. By. Co., 16 Mont. 504, best authority, that the construction of
31 L. B. A. 298, 50 Am. St. Eep. 508, railroads, turnpikes, canals, ferries,
41 Pae. 232. telegraphs, wharves, basins, etc., creat-
Nebraska. Paxton & Hershey Irri- ing the necessary facilities for inter-
gating Canal & Land Co. v. Farmers' communication, constitutes what is
& Merchants' Irrigation & Land Co., generally known by the name of in-
45 Neb. 884, 29 L. B. A. 853, 50 Am. ternal improvements, and gives occa-
St. Eep. 585, 64 N. W. 343. sion for the exercise of the right of
New Hampsliire. Great Falls Mfg. eminent domain." West Virginia
Co. V. Femald, 47 N. H. 444. Transp. Co. v. Volcanic Oil Co., 5 W.
New Jersey. Tinsman v. Belvidere Va. 382.
D. B. Co., 26 N. J. L. 148, 69 Am. Dec. 61 Bidgway Light & Heat Co. v. Elk
565; Seudder v. Trenton Delaware County, 191 Pa. St. 465, 43 Ad. 323;
247
'
necessarily depends to a large extent upon the conditions in the par-

ticular locality. What would be a work of public utility in one
state might not be so in another.^* Under a constitutional provision
permitting the incorporation under special act of corporations for
the construction of a "work of internal improvement," a corpora-
tionmay be created by a special act for the purpose of constructing
and maintaining a pipe line in an oil district for the conveyance
or transportation of petroleum for the public generally.^^ corpora- A
tion created for the purpose of constructing and maintaining gas
and waterworks, and supplying a city and its inhabitants with water
is held to be "an incorporation for public improvement" within
the meaning of a constitutional provision limiting the period for the
duration of corporate existence.^*
A statute authorizing the formation of corporations for a "work
of public utility" authorizes the formation of a corporation for the
purpose of establishing and maintaining a wharf boat and steam
elevator, and carrying on a general storage and forwarding busi-
ness.®*
A
corporation formed to conduct a system of hot water heating
through the streets of a city for the purpose of furnishing, selling
and delivering hot water to heat dwellings, storerooms, offices and
buildings in said city is "a public service corporation."*®
A corporation may be organized for the purpose of acquiring and
using a franchise to build a dam across a river under a statute per-
mitting incorporation for any lawful business and purpose, where
St.- Mary's Gas Co. v. Elk County, 191 oanio Oil &
Coal Co., 5 W. Va. 382. See
Pa. St. 458, 43 Atl. 321. also Bloomfield & Eochester Nat. Gas
62 Arizona. Oury v. Goodwin Light Co. v. Richardson, 63 Barb. (N.
(Ariz.), 26 Pac. 376. Y.) 437; Eidgway Light & Heat Co. v.
Montana. & P. Ey. Co. v.
Butte, A. Elk County, 191 Pa. St. 465, 43 Atl.
Montana TJ. Ey. 16 Mont. 504, 31
Co., 323; St. Mary's Gas Co. v. Elk County,
L. E. A. 298, 50 Am. St. Eep. 508, 41 191 Pa. St. 458.
Pac. 232. 64 City of Wilmington v. Addicks, 8
Nebraska. Paxton & Hershey Irri- Del. Ch. 310, 7 Del. Ch. 56, 43 Atl. 297.
gating Canal & Land Co. v. Farmers See also New Orleans Water Works Co.
& Merchants' Irrigation & Land Co., v. Elvers, 115 TJ. S. 674, 29 L. Ed. 525;
45 Neb. 884, 29 L. E. A. 853, 50 Am. St. New Orleans Gas Light Co. v. Louisi-
Eep. 585, 64 N. W. 343. ana Light & Heat Producing & Manu-
Nevada. Dayton Gold & Silver Min. facturing Co., 115 IT. S. 650, 29 L. Ed.
Co. V. Seawell, 11 Nev. 394. 516; State v. Milwaukee Gas Light

New Jersey. Seudder v. Trenton Co., 29 Wis. 454, 9 Am. Eep. 598.
Delaware Falls Co., 1 N. J. Eq. 694, 23 85 Glen Breard, 35 La. Ann. 875.
v.
Am. Dec. 756. 66 State v. Marion Light & Heating
63 West Virginia Transp. Co. v. Vol- Co., 174 Ind. 622, 92 N. E. 731.
248
Ch.4] Objects fob Which Cheated [§129
tiie law authorizes corporations to acquire such francuises bv pur-

chase or assignment.^
§ 129. Corporatioiis for purpose of acqoiring and holding' stock in

otiier corporations. It has been held that a corporation may be
organized for the purpose of holding stock in other corporations
and controlling their operations where the statute i)ermits incor-
poration for any lawful business or purpose whatroeTer, and expressly
permiis corporations to own and control stock of other corpora-
tions.^
In re Southern Wiseonsin Power

87 Tiduals. The only theory upon which
Co, 140 Wis. 245, 1-2-2 X. W. 801. the formation of corporations for the
68 Bobotham t. Findential Ins. Co. purpose of holding stock of other cor-
of America, 6i X. J. Eq. 673, 53 AtL porations can be held not to be a 'law-
s42; Dittman t. TW grilling Co. of ful purpose,' within the meaning of
Ameriea, 64 X. J. Eq. 537, 54 AtL 570. the act, is that an authority to own
See also State v. AUantie City & S. E. the stock and control the management
Co., 77 X. J. L. 465, 72 AtL 111; War- of other corporations must be given
ren v. Pim, 66 X. J. Eq. 353, 59 AtL expressly and in terms in the section
77-5, distinguished in State v. Atlantie authorizing the formation of compa-
City A- S. B. X. J. L. 465, 72
Co., 77 nies, in order to be lawfuL TMs power
AtL 111; Willonghby Chicago Jnnet.
v. to own and control stock of other cor-
Bailways & ITnion Stock Yards Co., 50 porations is expressly given by a sub-
X. J. Eq. 656, 25 AtL 277; EUerman v. sequent section to all corporations,
Chicago Jnnct. Bailways i Union when organized, and same ex-
to the
St.jek Yards Co, 49 X. J. Eq. 217, 23 tent as individuals. Such ownership
AtL 2S7. of stock is therefore a lawful act This
In Dittman v. DistOling Co. of legislative declaration as to the law-
America, 64 X. J. Eq. 537, 54 AtL 570, fulness of the ownership of stock by
it was held that a corporation, ereateci corporations precludes the courts, as
for the purpose of holding stock and it seems to me, from declaring that
controlling the operations of other cor- such ownership cannot be included
porations, was organized for a ' lawful • within the ' lawful purposes ' for which
purpose" within the meaning of the a corporation may be formed, merely
X'ew Jersey Corporation Act authoris- for the reason that it is not expressly
ing incorporation for "any lawful and specially authorized in the section
business or purpose whatever." Vice of the act defining the purposes of in-
Chancellor Emery said: "The owner- corporatiou. What purposes are 'law-
ship of stock, and control of corpora- ful,' within the meaning of this sec-
tion by means of such ownership, by tion, must be ascertained by reference
either an indiTidnal or partnership, is to the scope of the laws in force de-
in general a lawful act and the organi-
: claring the lawful character of acts:
zation of a partnership for the purpose and, taking the whole scope of the act,
of sneh ownership and control, either it would seem that the ownership of
alone or in connection \nth other ob- stock in other corporations, either
jects, is unquestionably a lawful ob- alone or in connection with other ob-
ject or purpose of association of indi- jects, as the purpose of the eorpora-
219
§129] Private Coepoeations [Cli.4
The view has also been taken that a corporation may be organized
under a statute which authorizes the formation of corporations
tion, is a purpose of incorporation au- corporations into a meaningless circle.
thorized by the act." In my opinion, it is the very great en-
In Kobotham v. Prudential Ins. Co. largement of the scope of corporate ob-
of America, 64 N. J. Eq. 673, 53 Atl. jects, the wide extension of the pur-
842, Vice Chancellor Stevenson in an poses for which they may be formed,
. exhaustive opinion stated the history under our general corporation act, and
and development of the power of a not the enabling act now embodied in
corporation organized under the laws section 51, which has extended the
of New Jersey to acquire and hold power of corporations created under
shares of stock and securities of other our general act to acquire and hold
*
corporations, and also set out the dif- stocks of other corporations. * *
ferent views obtaining generally in That section 51 had an important effect
respect to this question. In consider- as an enabling and declaratory statute
ing the effect of section 6 of the Cor- * * * will appear, I think, from an
poration Act of New Jersey providing examination of the authorities in re-

for incorporation for "any lawful lation to the common-law power of
purpose or purposes whatever," and corporations to acquire shares of the
section 51 providing that "any corpo- capital stock of other corporations.
ration may purchase, hold, sell, assign, There is authority for the proposi-
transfer, mortgage, pledge or other- tion that corporations are under no
wise of the shares of the
dispose disability at common law to purchase
capital stock of, or any bonds, securi- and hold the stock of other corpora-
ties or evidences of indebtedness tions. In- re Earned 's Banking Co., 3
created by any other corporation or Ch. App. 105, 113; Eoyal Bank of In-
corporations of this or any other state, dia's Case, 4 Ch. App. 252, 257; Booth
and while owner of such stock may V. Eobinson, 55 Md. 419; Davis v.
exercise all the rights, powers and Light Co., 77 Md. 35, 25 Atl. 982.
privileges of ownership, including the There is also authority for the propo-
right to vote thereon," the Vice sition that corporations cannot acquire
Chancellor said: "As soon ^s our and hold the stock of other corpora-
general corporation act was amended tions without express authorization un-
so as to permit the organization der a statute, the origin of the prohi-
of corporations under it for 'any whether in the doctrine of ultra
bition,
lawful business whatever' (Laws, some positive rule of law
vires, or in
1865, p. 913; Eev. Corp. Act, 1875, based on public policy, being often
§ 10), it seems plain that corpo- left in uncertainty. See Noyes,
rations could be created for the ex- »
Inter. Corp. Eel. §§ 264, 265; * *
press purpose of acquiring, holding, 7 Am. & Eng. Ene. Law, pp. 810-816,
and dealing in stocks to the extent and oases cited. There are also dicta,
that such business may be lawful. To at sustaining the proposition
least,
construe the word 'lawful' in such a that corporations are prohibited by a
statute as this in the sense of author-'
general rule of positive law, based on
ized' (i. e., not ultra vires), in accord- public policy, entirely distinct from
ance with a dictum in the case of Peo- the doctrine of ultra vires, from pur-
ple v. Chicago Gas Trust Co., 130 111. chasing stock in other corporations.
268, 8 L. B. A. 497, 17 Am. St. Eep. Oelbermann v. Eailroad Co., 77 Hun
319, 22 N. E. 798, converts the statu- 332, 335, 29 N. Y. Supp. 545; Franklyn
tory definition of the lawful objects of Bank of Cincinnati v. Commercial
250
Ch. 4] Objects for Which Ceeated [§129
for any purpose for which individuals may lawfully associate them-
Bank of Cincinnati, 36 Ohio St. 350, upon such corporate holding of stock.
38 Am. Eep. 594; Franklyn Co. v. applicable to particular cases, in which
Lewiaton Inst, for Savings, 68 Me. 43, the lawfulness of such holding by a
56, 28 Am. Eep. 9. There is also au- natural person would be conceded."
thority for the proposition that a rule In Coler v. Tacoma Ey. & Power Co.,
of law based on public policy or on the 65 N. J. Bq. 347, 103 Am. St. Eep. 786,
doctrine of ultra vires, or on both, pro- 54 Atl. 413, the Court of Errors and
hibits a corporation from acquiring the Appeals of New Jersey held that under
stock of another corporation, where the constitution and judicial decisions
the business of one or both corpo- of the state of Washington, it was un-
rations has certain characteristics, or lawful for any corporation to hold
where the purchase is made for certain stock and exercise the usual rights of
purposes. Louisville & N. E. stockholders in a corporation of that
Co. V. Kentucky, 161 U. S. 677, 698, 40 state, citing Denny Hotel Co. v.
L. Ed. 849; People v. Chicago Gas Schram, 6 "Wash. 134, 36 Am. St. Eep.
Trust Co., 130 111. 268, 8 L. E. A. 497, 130, 32 Pae. 1002, and Parsons v.
17 Am. St. Eep. 819, 22 N. E. 798. In Tacoma Smelting & Eefining Co., 25
this state of the authorities, there was Wash. 492, 65 Pac. 765, and enjoined a
a wide and useful scope for the opera- corporation organized under the laws
tion of section 51, and the prior laws of New Jersey from consummating an
which it displaced, without constru- arrangement whereby a corporation or-
ing those laws as arbitrarily extending ganized under the laws of Washington
or endeavoring to extend the objects was to issue certain shares of its stock
and powers of corporations organized to the New Jersey corporation in ex-
under special charters, or under the change for all of its property and fran-
general corporation act itself. The chises, except the franchise of being a
legislation of New Jersey which cul- corporation.
minated in the enactment of sections In Dittman v. Distilling Co. of
2 and 51 of the general' corporation act America, 64 N. J. Eq. 537, 54 Atl.
of 1896 certainly swept away all 570; Coler v. Tacoma Ey. & Power
doubts about the capacity of corpora- Co., supra, was adverted to, and dis-
tions, under any general rule of law tinguished from the case under con-
recognized in the state, to purchase sideration.
and hold shares of stock of other cor- "
It is held in New Jersey that the
porations, and established the rule power to purchase, hold, sell, assign,
that all corporations may freely pur- transfer, mortgage, pledge or dispose
chase and hold such shares, so far as of the shares of the corporate stock of
is'necessary and convenient to the at- any other corporation, and as the
tainment' of their corporate objects. owner of such stock, to exercise any
But corporations can be formed under of the rights, powers and privileges of
the act only for ' lawful purposes, ' and, ownership, including the right to vote
whatever may be inserted in their cer- thereon, conferred by section 51 of
tificates, can be allowed to accomplish the General Corporation Act (Pub. L.
only lawful purposes. The question 1896, p. 294), is to be exercised sub-
therefore remains whether, notwith- imposed by sec-
ject to the limitations
standing the capacity of corporations same act (Pub. L. 1896, p.
tion 2 of the
generally to hold stock of other corpo- 278) that is to say, the power exists
;
rations, there still remain prohibitions as a primary purpose only when the
251
selves.*'But it has been held that a corporation cannot be organized

by existing corporations which are to hold all its stock, even where
the law permits corporations to hold stock in other corporations,''*'
much less where it does not.'^ In some jurisdictions a corpora-
tion cannot lawfully be organized for the purpose of holding stock
in other corporations.''^
As be seen elsewhere, even though the statute under which
will
the corporation is organized permits it to be formed for the purpose
of holding stock in other corporations, a corporation cannot be
purpose to exercise it as such is ex- the charter of a corporation organized
pressed in the certificate of incorpora- under the general incorporation act
tion, and otherwise it exists as an in- contained a provision that the business
cidental power only so far as necessary of the corporation should be, among
OT convenient to the attainment of the other things, "to purchase, sell and
objects that are set forth in the char- deal in corporate stocks of other cor-
ter or certificate of incorporation. porations, including railway stocks
State V. Atlantic City & S. B. Co., 77 and bonds," and another provision
N. J. L. 465, 72 Atl. 111. authorizing the corporation to sell all
By Laws New
Jersey 1913, c. 18,
of of its property. It was held that the
§ 51 of the Corporation Act was corporation having the power to sell
amended so as to provide that no cor- all of its property, and the power to
poration organized under such act purchase the stock of another corpora-
should, save in certain specified cases, tion, could exchange all of its property
thereafter purchase, hold, sell, assign, for stock in another corporation.
transfer, mortgage, pledge or dispose 70 American Ball Bearing Co. v.
of the shares of the corporate stock of Adams, 222 Fed. 967.
any other corporation, nor as owner of 71 Martin v. Ohio Stove Co., 78 111.
such stock exercise any of the rights, App. 105.

powers and privileges of ownership, 72 People V. Chicago Gas Trust Co.,
including the right to vote thereon. 130 111. 268, 8 L. E. A. 497, 17 Am. St.
69 Market St.Hellman,
By. Co. v. Rep. 319, 22 N. E. 798; Martin v. Ohio
109 Cal. 571, 42 Pac. 225, holding that Stove Co., 78 111. App. 105; Parsons v.
under such a statute a corporation Tacoma Smelting & Refining Co., 25
may be formed for the purpose of Wash. 492, 65 Pac. 765; Denny Hotel
'
'buying and selling, and dealing in all Co. v. Shram, 6 Wash. 134, 36Am. St.
kinds of public and private stocks," Rep. 130, 32 Pac. 1002. See also Cali-
with the power to purchase stock in fornia Nat. Bank v. Kennedy, 167 TJ.
other corporations. S. 362, 42 L. Ed. 198; First Nat. Bank
In Iowa it is held that a trading of Charlotte v. National Exch. Bank

corporation, unless prohibited by its of Baltimore, 92 U. S. 122, 23 L. Ed.
charter, may buy and sell the stock of 679; Trust Co. of Georgia v. State, 109
another corporation. West v. Averill Ga. 736, 48 L. E. A. 520, 35 S. E. 323.
Grocery Co., 109 Iowa 488, 80 N. W. See Eobotham v. Prudential Ins. Co. of
555; White v. G. W. Marquardt & Sons, America, 64 N. J. Eq. 673, 53 Atl. 842,
105 Iowa 145, 74 N. W. 930; Iowa Lum- where the power of a corporation to
ber Co. V. Foster, 49 Iowa 25, 31 Am. acquire and hold stock in other corpo-
Eep. 140. In Traer v. Lucas Prospect- rations is reviewed and considered.
ing Co., 124 Iowa 107, 9i9 N. W. 290, See also Chap. 30, where the powers of
252
formed for the purpose of creating a monopoly or for an unlawful

purposed' Where the statute under which a corporation is formed
does not authorize it to acquire or own stock in other corporations,
the expression of such power in the articles of incorporation does
not confer such power upon the corporation^*
Where there is no general statute authorizing the formation of a
corporation to operate a railroad, and the anti-trust act of the state
prohibits corporations from purchasing or owning stock in other cor-
porations, a corporation cannot be formed to acquire and hold the
stock of a railroad corporation, though such railroad corporation is
not in competition with it.''*
§ 130. Corporations for the practice of law or medicine. A statute

authorizing the formation of corporations to carry on any lawful
business does not include the work Such
of the learned professions.
an innovation with the might follow, would require
evil results that
the use of specific language clearly indicating the intention.'^ Such
a statute does not authorize the formation of a corporation for the
purpose of practicing law by means of lawyers employed by it,''' nor
a corporation in respect to the acquisi- it inthe gravel business. Incorporated
tion, holding and ownership of stock under chapter 25 of the Code of 1892,
in other corporations is fully consid- which precludes the chartering of rail-
ered. road corporations under it, yet, in
73 See § 114, supra. See also North- direct conflict with § 832, it gives
ern Securities Co. v. United States, power to the Laurel Gravel Company
193 U. S. 197, 48 L. Ed. 679, aff'g to purchase and hold the capital stock
United States Northern Securities of every railroad corporation of North
Co.,120 Fed. 721; Burrows v. Inter- America, because no one nor all of
borough Metropolitan Co., 156 Fed. these transportation companies would
389. be in competition with its gravel busi-
74 People V. Chicago Gas Trust Co., ness. It is a principle of law that a
130 111. 268, 8 L. E. A. 497, 17 Am. St. corporation created under general laws
Eep. 319, 22 N. E. 798; Parsons v. Ta- takes its authority from such general
coma Smelting & Refining Co., 25 laws, and not from the articles of as-
Wash. 492, 65 Pae. 765. sociation. People V. Chicago Gas Trust
76 Woodbury v. McClurg, 78 Miss. Co., 130 111. 268, 8 L. E. A. 497, 22
831, 29 So. 514. The court said: "That N. E. 798." See also Southern Elec.
the powers attempted to be lodged in Securities Co. v. State, 91 Miss. 195,
the » Company would be il-
* * 124 Am. St. Eep. 638, 44 So. 785.
legal, if we cannot doubt.
granted, 76 In re Co-operative Law Co., 198
They would make it a stupendous N. T. 479, 32 L. E. A. (N. S.) 55, 139
monster, capable of swallowing into Am. St. Eep. 839, 19 Ann. Cas. 879, 92
its insatiable maw all the mercantile N. E. 15.
and manufacturing institutions of the 77 In re Co-operative Law Co., 198
entire country, because neither one nor N. Y. 479, 32 L. E. A. (N. S.) 55, 139
all would be in any competition with Am. St. Eep. 839, 19 Ann. Cas. 879,
253
the formation of a corporation for the purpose of the practice of
92 N. E. 15; In re Application of the purpose. The right to practice

Eiehmond Title & Abstr. Co., 2 Va. law is in the nature of a franchise
L. Beg. N. S. 772. from the state conferred only for
Under such a statute a certificate merit. It cannot be assigned or in-
of incorporation will not be granted herited, but must be earned by hard
to a corporation whose objects, as study and good conduct. It is attested
stated in the certificate, are "to fur- by a certificate of the Supreme Court,
nish to ;ts subscribers legal advice and and is protected by registration. No
service; to operate in connection with one can practice law unless he has
the above a department of law and taken an oath of office and has become
collections for the use and benefit of an officer of the court, subject to its
the subscribers of the company only, discipline, liable to punishment for
and to accomplish these objects said contempt in violating his duties as
company proposes to employ and main- such, and to suspension or removal. It
tain a staff of competent attorneys and is not a lawful business except for
counselors at law to give such advice; members of the bar who have com-
and to prosecute or defend, through plied with all the conditions required
such counsel, any claim or suit entrust- by statute and the rules of the courts.
ed to its care by subscribers." In As these conditions cannot be per-
re Co-operative Law Co., 198 N. Y. formed by a corporation, it follows
479, 139 Am. St. Eep. 839, 32 L. E. A. that the practice of law is not a law-
(N. S.) 55, 19 Ann. Cas. 879, 92 N. E. ful business for a corporation to en-
15. See also In re Certain Lands for gage in. As it cannot practice law
Bridge Purposes in City of New York, directly, it cannot indirectly by em-
144 N. Y. App. Div. 107, 128 N. Y. ploying competent lawyers to practice
Supp. 999; In re Associated Lawyers' for it, as that would be an evasion
Co., 134 N. Y. App. Div. 350, 119 N. which the law will not tolerate.
Y. Supp. 77. 'Quando aliquid prohibetur ex directo,
In holding against the contention prohibetur et per obliquium.' Co. Lit.
that a corporation could be lawfully 223. The relation of attorney and
organized to practice law under a client is that of master and servant in
statute' providing that "three or more a limited and dignified sense, and it
persons may becomea stock corpora- involves the highest trust and con-
tion for any lawful business," the fidence. It cannot be delegated with-
Court of Appeals of New York, in In out consent, and it cannot exist be-
re Co-operative Law Co., 198 N. Y. tween an attorney employed by a cor-
479, 32 L. E. A. (N. S.) 55, 139 Am. poration to practice law for it, and a
St. Eep. 839, 19 Ann. Cas. ^9, 92 client of the corporation, for he would
N. E. 15, said: "This means a busi- be subject to the directions of the
ness lawful to all who wish to engage corporation, and not to the directions
in it. The practice of law is not a of the client. There would be neither
business open to all, but a personal contract nor privity between him and
right, limited to a few persons of good the client, and he would not owe even
moral character, with special qualifica- the duty of counsel to the actual liti-
tions ascertained and certified after a gant. The corporation would control
long course of study, both general and the litigation, the money earned
professional, and a thorough examina- would belong to the corporation, and
tion by a state board appointed for the attorney would be responsible to
254
Cli.4] Objects fob Which Cheated [§130
medicine or dentistry/^ and of course a corporation cannot be formed

for such a purpose where the statute expressly prohibits corpora-
tions from engaging in professional business," or from practicing
law.8»
the corporation His master

only. Cooper Co., 167 N. Y. 244, 52 L. R. A.
would not be the but the cor-
client 429, 60 N. E. 597.
poration, conducted it may be wholly Where chiropractors have no legal
by laymen, organized simply to make status as medical practitioners, it
. is
money and not to aid in the adminis- not an abuse of discretion to withhold
tration of justice, which is the high- approval of an application for a
est function of an attorney and coun- charter for a ' ' Chiropractors ' Associa-
selor at law. The corporation might tion" until the incorporators have
not have a lawyer among its stock- obtained such a status. In re Chiro-
holders, directors or officers. Its mem- practors' Ass'n of Pennsylvania, 243
bers might be without character, learn- Pa. 547, 90 Atl. 335.
ing or standing. There would be no 79 In re Co-operative Law Co., 198
remedy by attachment or disbarment N. Y. 479, 32 L. R. A. (N. S.) 55, 139
to protect the public from imposition Am. St. Rep. 839, 19 Ann. Cas. 879,
or fraud, no stimulus to good conduct 92 N. E. 15, aff'g 136 N. Y. App. Div.
from the traditions of an ancient and 918, 120 N. Y. Supp. 1120; State v.
honorable profession, and no guide ex- Laylin, 73 Ohio St. 90, 76 N. E. 567.
cept the sordid purpose to earn money Under such circumstances a foreign
for stockholders. The bar, which is an corporation formed to defend physi-
institution of the highest usefulness cians in malpractice suits, and agree-
and standing, would be degraded if ing to employ attorneys for that pur-
even its humblest member became sub- pose, will not be permitted to do busi-
ject to the orders of a money-making ness in the state. State v. Laylin, 73
corporation engaged not in conducting Ohio St. 90, 76 N. E. 567.
litigation for itself, but in the busi- •OIn re Co-operative Law Co., 198
ness of conducting litigation for N. Y. 479, 32 L. R. A. (N. S.) 55, 139
others. The degradation of the bar is Am. St. Rep. 839, 19 Ann. Cas. 879, 92
an injury to the state." N. E. 15, aff'g 136 -N. Y. App. Div.
In Snow, Church & Co. v. Hall, 19 918, 120 N. Y. Supp. 1120; In re Asso-
N. Y. Misc. 655, 44 N. T. Supp. 427, ciated Lawyers' Co., 134 N. Y. App.
it was held that a corporation formed Div. 350, 119 N. Y. Supp. 77; In re
to carry on the business of a collection Bensel, 68 N. Y. Misc. 70, 124 N. Y.
agency could naintain a suit to recover Supp. 726; State v. Laylin, 73 Ohio
for legal services rendered the defend- St. 90, 76 N. E. 567. See also In
ant by attorneys at law in its employ. re Certain Lands for Bridge Pur-
78 In re Co-operative Law Co., 198 poses in City of New York, 144
N. Y. 479, 32 L. E. A. (N. S.) 55, 139 N. Y. App. Div. 107, 128 N. Y. Supp.
Am. St. Rep. 839, 19 Ann. Cas. 879, 999. This rule does not prohibit
92 N. E. 15, aff'g 136 N. Y. App. Div. incorporation for the purpose of pro-
918, 120 N. Y. Supp. 1120; People v. tecting the members, who are mer-
John H. Woodbury Dermatological In- chants, by preventing and exposing
stitute, 192 N. Y. 454, 85 N. E. 697, fraudulent bankruptcy proceedings on
aff'g 124 N. Y. App. Div. 877, 109 the part of persons with whom they
N. Y. Supp. 578; Hannon v. Siegel- deal. In re Creditors' Audit & Ad-
255
§130] Private Ooepoeations [Ch.4
In some states licensed physicians may form a corporation and

make contracts in; the corporate name with patients for the services
of its members and other licensed physicians.*^ The incorporation
of hospitals, infirmaries, dispensaries and the like is generally speci-
fically provided for, and authority is conferred upon them to prac-
tice medicine by means of physicians and surgeons employed by
them.**
§ 131. Miscellaneous illustrations of authorized purposes. Under

a statute authorizing corporations for "social, gymnastic, aesthetic,
justment Ass'n, 72 N. Y, Misc. 461, Supp. 77; In re Bensel, 68 N. Y. Misc.

131 N. Y. Supp. 263, 70.
Under a statute making it unlaw- A corporation for the purpose of ex-
ful for any corporation to practice amining titles, guarantying the cor-
law, to render or furnish legal service rectness of searches, and insuring
or advice, to furnish attorneys or against loss by reason of defective
counselors for that purpose, or to ad- titles isnot forbidden by such a stat-
vertise for or solicit legal business, but ute, as the searching of titles is open
providing, however, that such pro- to all, and guaranty companies
title
hibition shall not apply to any may employ laymen
either lawyers or
corporation lawfully engaged in a to transact their business. In re Co-
business authorized by the provisions operative Law Co., 198 N. Y. 479, 32
of any existing statute, nor to a cor- L. E. A. (N. S.) 55, 139 Am. St. Eep.
poration lawfully engaged in the 839, 19 Ann. Cas. 879, 92 N. E. 15, aff'g
examination and insuring of titles to 136 N. Y. App. Div. 918, 120 N. Y.
real property, nor to corporations or- Supp. 1120. See also In re Appli-
ganized for benevolent or charitable cation of Richmond Title & Abstr.
purposes, or for the purpose of assist- Co., 2 Va. L. Eeg. N. S. 772.
ing persons without means in the pur- 81 State Electro-Medical Institute v.
suit of any civil remedy, whose ex- State, 74 Neb. 40, 12 Ann. Cas. 673, 103
istence, organization or incorporation N. W. 1078; State Electro-Medical In-
shall be approved by the appellate stitute V. Platner, 74 Neb. 23, 121 Am.
division of the supreme court of the St. Eep. 706, 103 N. W. 1079. But see
department in which the principal In re Co-operative Law Co., 198 N. Y.
office of said corporation shall be 479, 32 L. E. A. (N. S.) 55, 139 Am. St.
located, the appellate division of such Eep. 839, 19 Ann. Cas. 879, 92 N. E. 15,
court has no power to approve a aff'g 136 N. Y. App. Div. 918, 120
corporation organized to practice N. Y. Supp. 1120; People v. John H.
law. In re Co-operative Law Co., 198 Woodbury Dermatological Institute,
N. Y. 479, 32 L. E. A. (N. S.) 55, 139 192 N. Y. 454, 85 N. E. 697, aff'g
Am. St. Sep. 839, 19 Ann. Cas. 879, 124 N. Y. App. Div. 877, 109 N. Y.
92 N. E. 15, aff'g 136 N. Y. App. Supp. 578; Hannon v. Siegel-Cooper,
Div. 918, 120 N. Y. Supp. 1120. See 167 N. Y. 244, 52 L. E. A. 429, 60
also In re Certain Lands for Bridge N. E. 597.
Purposes in City of New York, 144 N. 82 People V. John H. Woodbury
Y. App. Div. 107, 128 N. Y. Supp. Dermatological Institute, 192 N. Y.
999; In re Associated Lawyers' Co., 454, 85 N. E. 697, aff'g 124 N. Y. App.
134 N. Y. App. Div. 350, 119 N. Y. Div. 877, 109 N. Y. Supp. 578.
256
Cli.4] Objects foe Which Cbbated [§131
musical, yachting, hunting, fishing, boating, or lawful sporting' pur-

poses," it has been held that a corporation could not be organized
for the purpose of detecting violations of the game laws, and insti-
tuting actions to recover the penalties therefor.^'
A statute authorizing incorporation for the purpose of building
and repairing steamboats and other water craft justifies an incor-
poration for the purpose of building and repairing wharf boats,^* but
not for the purpose of using and maintaining them and thereby-
engaging in the business of warehousemen.**
A corporation for the purpose of renting automobiles cannot be
formed under provisions authorizing incorporation for the establish-
ment and maintenance of stage lines, or for the transportation of
goods, wares and merchandise, or any valuable thing. **
Statutes sometimes specifically authorize incorporation for the pur-
pose of conducting the livery and transportation business with auto-
mobiles.*''
Corporations for guarantying the bonds of an educational institu-
tion,** for issuing, redeeming and selling bonds, which are to be paid
Statutory prohibitions against the the statute providing authorizing the

practice of medicine without lawful formation of corporations for the
registration in the state, or in viola- transaction of any lawful business.
tion of any of the provisions of th« Hanger v. Com., 107 Va. 872, 14 L. E.
statute, or against advertising by any A. (N. S.) 683, 60 S. E. 67.
person not a registered physician, are 84 A wharf boat will be deemed to
not intended to apply to corporatft be included in the term water craft, at
bodies which by the express provisions least in a case where creditors are seek-
of other statutes are authorized to ing to enforce stock subscriptions.
carry on the practice of medicine upon Gaff V. Flesher, 33 Ohio St. 107, motion
compliance with their provisions and for rehearing overruled 33 Ohio St.
without registration. People v. John 453.
H. Woodbury Dermatological Insti- 85 Gaff V. Flesher, 33 Ohio St. 453;
tute, 192 N. Y. 454, 85 N. E. 697, Ohio V.Southwestern Transportation
afC'g 124 N. Y. App. Div. 877, 109 & Wharf Boat Co., 23 Ohio St, 166.
N. Y. Supp. 578. 86 Staacke v. Routledge, Tex. Civ. —
83 Ancient City Sportsman 'a Club v. App. — 175 S. W. 444.
,
Miller, 7 Lans. (N. Y.) 412. 87 Staacke v. Routledge, Tei. Civ. —

An association organized as shown App. —, 175 S. W. 444.
by its certificate of incorporation for 88 A statute authorizing corporations

the purpose of social fellowship and for "any lawful enterprise, business
companionship among its members, and pursuit, or occupation ' is not restrict-
'
to this end to furnish a place of meet- ed to corporations for making money,

ing and food and refreshments is a but authorizes a corporation for any
social club, within the meaning of a object, consistent with the interests of
statute authorizing the chartering of society, that may engage the atten-
Bpqial clubs, and not a business tion of men and invite co-operation.
corporation within the meaning of It therefore authorizes a corporation
257
I Priv. Corp.— 17
for in instalments by its members,*' for the purpose of protecting

the members thereof from theft and violence,'" for buying, selling
and dealing in properties of all kinds,'^ for loaning money,'^ and
for carrying on the business of plumbing,'^ have been held to be
permissible under various statutes.
for the purpose of guarantying the the localities represented, for the en-
bonds of an educational institution, to couragement of investment by home
strengthen its credit. Maxwell v. Akin, or foreign capital in existing or new
89 Fed. 178. enterprises; and in furtherance of the
89 A statute authorizing a corpora- object to hold or give such free or paid
tion for any lawful purpose intended performances, spectacles, entertain-
for pecuniary profit or gain author- ments, or parades as may to said cor-
izes a corporation for the purpose of poration seem proper and advisable."
issuing bonds to be paid for by pur- City of Richmond v. Smith, 101 Va.
chasers thereofmonthly instal-
in 161, 43 S. E. 345.
ments, and to be redeemed as may be 90 A statute authorizing corporations
prescribed, and of selling and dispos- for mutual profit or benefit, not in-
ing of such bonds in the state. State consistent with the constitution and
V. Talbot, 123 Mo. 69, 27 S. W. 366. laws of the state, authorizes a corpora-
State V. Corkins, 123 Mo. 56, 27 S. W. tion for the purpose of protecting the
363. property of its members from violence
Undera statute authorizing the and theft, to raise money for necessary
circuit court to grant charters to expenses by assessments, and to con-
corporations for the conduct of any en- fer with the state officers, and employ
terprise or business which may be law- counsel, police, and detectives, when
fully conducted by an individual, or necessary for the prosecution of crimi-
by a body politic or corporate, except nals. Guadalupe & San Antonio River
to construct a turnpike to be con- Stock Ass'n v. West, 70 Tex. 3~91, 7
structed beyond the limits of the S. W. 817.
county, or a railroad or canal, or to 91 A statute authorizing corporations
bank of private circulation,
establish a for mutual profit or benefit, not incon-
itwas held that it did not have the sistent with the constitution and laws
power to grant a charter authorizing of the state, authorizes a corporation
the beneficiaries thereunder to ob- for the purpose of "buying, selling,
struct the public highway, but that no and dealing in real estate, live stock,
such authority was found in a charter bonds, securities, and other properties
authorizing a corporation to "create, of all kinds, on its own account and
maintain, and conduct in the city of for commission." National Bank of
Eiohmond and county of Henrico such Jefferson v. Texas Inv. Co., 74 Tex.
exhibitions and displays of the manu- 421, 12 S. W. 101.
factures, resources, and industrial en- 92 Brown v. Scottish- American Mort-
terprises of the city of Richmond, or gage Co., 110 111. 235; Stevens v. Pratt,
such other cities, counties, and states, 101 111. 206, overruling United States
as may tend to advance the welfare Mortgage Co. v. Gross, 93 111. 483, aff 'd
of such cities, counties, or states so 108 U. 8. 477, 27 L. Ed. 295.
by affording a temporary or
exhibiting, 93 William Messer Co. v. Rothstein,
permanent collection and exposition of 129 N. Y. App. Div. 215, 113 N. "?.
the various industries, resources, mer- Supp. 772, aff'd 198 N. Y. 532, 19 Ann.
cantile and business opportunities of Cas. 879, 92 N. E. 1107.
258
A may be such that a building and loan associa-

general statute
tion may
be organized thereunder.^*
The formation of corporations to act as agent or broker in effect-
ing insurance,'^ or as agent or attorney in fact in the management
94MansIiip V. New South Building business or enterprise, not * * * in-

& Loan Asa'n, 110 Fed. 845. consistent with the constitution and
Under a statute providing that laws of this state, ' ' a corporation may
"every association * * * organized be formed to conduct the business of
for the purpose of raising money from acti&g as agents and brokers in effect-
its members or others, by means of ing insurance of all kinds for any and
stated installments or payments, to be all* insurance companies in the trans-
held, invested or disbursed by said action of the insurance business and
association, whether the money so in all of its branches and generally
contributed is paid in for shares in to perform all things connected with
such association, or is held by the the insurance agency business. State
association for investment and accu- V. Michel, 113 La. 4, 36 So. 869.
mulation for the benefit of the con- Breauz, C. J., said: "In order to
tributors, or as an advance on mer- determine whether the act quoted
chandise, or property of any kind, to grants power enough to form com-
be delivered in the future, or is panies to carry on the business
held by the association to be dis- of agents, we propounded the ques-
bursed among the contributors, tion: Can the language of the
or any of them, in accordance with act be so interpreted as to bring an
any agreed plan or scheme, and agency within the definition of the
whether the relation of the contributor word 'business' or 'enterprise'? In
to the association be that of member, answer we must say that we think it
shareholder, vendee, creditor or bene- can be brought within the terms in
ficiary of a trust; * * * shall be question. Factors may organize them-
known for the purposes of this act as selves into companies, limited, al-
an installment investment company," though they are in most respects only
it is held that if the organization of a a particular kind of agency; brokers,
corporation and its plan of doing busi- who do not engage in stockjobbing,
ness involve receiving from each of its might, if they chose, organize them-
members a stated sum at stated selves into companies to transact busi-
intervals until a specified amount is —
ness for others attorneys and others
received from such members, and — whose business is that of agency.
investing this money in property for True, the statute does not in terms au-
the benefit of its members, it is an thorize corporations to be formed to
installment investment company with- act as agents of other persons or other
in the meaning of such statute. State corporations, but it permits (that
v. Northwestern Trust Co., 72 Neb. which is or must be considered its
497, 101 N. W. 14. equivalent under the ordinary rules of
95 State v. Michel, 113 La. 4, 36 interpretation) persons to form cor-
So. 869. porations to carry on business. The
Under a statute providing that it is business of agent is unquestionably
lawful for a designated number of per- lawful, as its legitimacy as an occupa-
sons to form themselves into and
'
' tion presents no sort of ground of ob-
constitute a corporation for the pur- jection which can of itself possibly
pose of carrying on any lawful bring it under the ban of the law."
259
1131] Pbivate Coepobations [Ch.4
or control of real estate, or in its purchase or sale,^^ has been held

to be permissible under statutes authorizing the formation of cor-
porations for the purpose of carrying on any lawful business or
enterprise. But the contrary has been held to be true of a corpora-
tion formed to carry on the business of stock brokerage on the
ground that it would conflict with statutes providing for the regu-
lation and licensing of such brokers.'''
Under a statute which, after enumerating the specific purposes
for which corporations may be formed, provides generally that they
may be organized for any lawful business or purpose, a corporation
may be lawfully formed to build a dam across a certain river in the
state under a franchise to biiild such dam granted to certain indi-
viduals and assigned by them to the corporation, where the law
authorizing the granting of such franchise also permits it to be so
assigned, and the statute under which it is attempted to incorporate
the corporation makes the acquirement and use of such a franchise
a lawful business or purpose.'*
A corporation for installing and operating a trackless trolley sys-
96 A corporation "to act as the gen- volves no delegation of powers. So

eral or special agent, or attorney in that, when a corporation is invested
fact, for any public or private corpora- with a power of attorney to sell and
tion, or person, in the management and convey real property, the person con-
control of real estate or other property, ferring the power knows that the cor-
its purchase, conveyance,
sale, or
poration cannot act personally in the
etc., ' may be formed under a statute
'
matter, but that in performing the en-

authorizing incorporation for any law-
gagement it will act through its agents,
ful business, enterprise, pursuits or
who for that purpose are its faculties,
occupation. Killingsworth v.. Port-
and whose acts in the discharge of that
land Trust Co., 18 Ore. 351, 7 L. E. A.
duty are the acts of the corporation,
638, 17 Am. St. Eep. 737, 23 Pae. 66.
and as such must be considered to be
:There is nothing in the nature of a
included in the artificial person, as in-
corporation to render it incapable of
strumentalities authorized by him to
operating as attorney in fact for an-
do the act conferred upon it by his
other, if the transaction is within the
power of attorney. In this view, the
powers conferred upon it by its char-
argument that the corporation cannot
ter. Killingsworth v. Portland Trust
do such act, under the power of attor-
Co., 18 Ore. 351, 7 L. K. A. 638, 17 Am.
ney, without a delegation of authority
St. Bep. 737, 23 Pae. 66. The court
to its agents, and that the grantor of
said: "When a corporation is made
the power has given no such power of
the agent of another to sell and con-
substitution, cannot be sustained."
vey property, it acts through the
same instrumentalities as when acting 97 In re W. B. Urling Co., 13 Pa.
for itself; and the relation between it Dist. 534.
and its instrumentalities is as one 98 In re Southern Wisconsin Power

being or artificial person in the per- Co., 140 Wis. 245, 265, 133 Am. St.
formance of its engagement, and in- Eep. 1075, 122 N. W. 801.
260
Ch. 4] Objects foe "Which Cbeated [§131
tem has been held not to be authorized by a statute permitting incor-

poration for any lawful business. '^
A statute authorizing the formation of corporations for any law-
ful purpose, except banking, insurance, real estate brokerage, the
operation of railroads, and the business of loaning money, does not
authorize the formation of a corporation for the purpose of guaran-
tying the fidelity of persons holding public or private places of
trust, and the performance by persons, firms and corporations of con-
tracts, bonds, recc^nizancesand undertakings of every kind, and of
becoming surety on bonds required by law, and on every kind of
contract, obligation and undertaking of persons, firms and corpora-
tions, as such purposes constitute "guaranty insurance," and fall
within the prohibition of the statute.^
A statute providing for the formation of "an ordinary business
corporation" authorizes the incorporation of a corporati(m to engage
in the business of manufacturing, distilling, buying, selling, import-
ing, exchanging, and otherwise acquiring, holding, owning, dealing
in, or disposing of wines, spirits, liquors, ales, beers at wholesale or
retail,or otherwise.^ But in at least one state a corporation can-

not legally be organized for the purpose of selling or disposing of
intoxicating liquor at retail, though it may be for the purpose of
manufacturing it or selling it at wholesale.^ And a marriage asso-
99Where that system of transporta- undertakings of every kind is, not —

tionwas not known at the time of the only to enter into contracts of insur-
passage of the act, and there was no ance, within the meaning of the au-
provision for the regulation of such thorities cited, but within the spirit
companies. In re Sayre Trackless and reason of the exception."
Trolley Co., 13 Pa. Dist. 602. 2Greenough v. Board Police Com'rs
1 People V. Bose, 174 HI. 310, 44 L. Town of Tiverton, 30 B. I. 212, 136
B. A. 124, 51 N. E. 246. The court Am. St. Bep. 953, 74 Atl. 785.
said: "The manifest purpose of the "The definition of the noun 'bnsi-
legislature in excepting banking, in- ness,' according to Webster's Interna-
surance, real estate brokerage and tionalDiet. is: '
(3) Financial dealings;
other corporations from the provisions buying and selling; traffic in general;
of the act authorizing incorporation of mercantile transactions. ' ' ' Greenougl^
companies for other lawful purposes, v. Board Police Com'rs Town of
was, that these excepted corporations Tiverton, 30 E. I. 212, 136 Am. St. Bep.
should be restrained by more strict re- 953, 74 Atl. 785.
quirements, securing the safe conduct 8 American Fork (Hty v. Charlier, 43
and correct administration of their tJtah 231, 134 Pac. 739.
affairs. The object stated in the peti- In In re Moose Home Ass 'n Charter,
tioners' application —especially that of 235 Pa. 404, 84 Atl. 402, it was held
guaranteeing the performance by where the court granting the charter
persons, firms and corporations of incorporated in the decree of incor-
contracts, bonds, recognizances and poration, in accordance with the ei-
261
§131] Pbivate Corporations [Ch. 4
ciation having for its object the payment of benefits to its members
on marriage, has been held not to be a beneficial or protective asso-
ciation* And it has been held that a statute authorizing corpora-
tions for any lawful purpose authorizes a corporation for the purchase
of land and construction of houses thereon, and the allotment of
the lots and houses among the stockholders in satisfaction of their
stock, although the corporation may not comply with the law gov-
erning Wilding and loan associations.*
Where by provision of statute railroad lines were authorized to
commence at the limits of a town and extend therein, autho-rity
was held to exist to operate a street car line wholly within the lim-
its of a city.®
Where throughout all the legislation in reference to the creation

of a private corporation, and behind it, there has constantly rested
the principle that corporations should be created for the promotion
of some object of general utility, a corporation cannot be formed for
the purpose of guarantying and loaning money on debentures under
a statute authorizing the formation of corporations for the purpose
of carrying on any lawful business or enterprise, but prohibiting
the formation of any corporation to "engage in stockjobbing busi-
ness of any kind," as debentures of all kinds bear sufSeient resem-
blance or analogy to stock or bonds to make dealing with them by
way of purchase and sale fall under the designation of stock jobbing
within the meaning of such statute.'
pressed desire of the petitioners, a members. In re Mutual Aid Ass'n,

provision that no intoxicating liquors 15 Phila. ('Pa.) 625.
should be dispensed on the premises of 6 York Park Bldg. Ass 'n v. Barnes,
the association, it was no abuse of the 39 Neb. 834, 58 N. W. 440.
discretion of the court subsequently to 8 Wilmington City Ey. Co. v. Peo-
refuse to eliminate such pTOvision from pie's Ry. Co. (Dei.), 47 Atl. 245. See
the decree. State v. Atlantic City & 8. E. Co., 77
4 A marriage association, the purpose N. J. L. 465, 72 Atl. 111.
of which is to issue certificates of 7 State v. Debenture Guarantee &
membership in certain amounts, and Loan Co., 51La. Ann. 1874, 26 So. 600,
to pay parties for whose benefit the NiehoUs, C. J., said: " 'Stockjobbing'
certificates are issued from a fund to is not defined by law, but the Century
be raised, in each case of marriage, by Dictionary defines it as the business
'
an assessment of the members, is not of dealing in stocks or shares; the pur-

a beneficial or protective association, chase and sale of stocks, bonds, etc.,
the amounts being payable without re- as carried on by jobbers who operate
gard to the wants or necessities of the on their own account.' "
262
CHAPTER 5
Promoters
§ 132. Who are promoters.
§ 133. Eights and liabilities of promoters inter se.
§ 134. Eelation of promoters to corporation and stockholders.

§ 135. Secret profits —In general.
§ 136. — Gist of wrong.
§ 137. — Sale by promoter to corporation.
§ 138. — of general
Qualification rules as to sales.
§ 139. — Joint and several liability.
§ 140. — Actions against promoters—Nature and form of remedy.

§ 141. Defenses.
§142. Parties.
§143. Limitations and laches.
§ 144. Pleading.
§ 145. — — Burden of proof.
•
§ 146. Character and measure of relief.
§ 147. — Commission from third person.

§ 148. — Liability of persons conspiring with promoters.
§ 149. — Enforcement of claim.
§ 150. Liability of corporation on promoters' contracts —In general.
§ 151. — imposed by
Liability statute.
§ 152. — Adoption or ratification
of contracts.
V § 153. — Power adoptto or ratify ultra vires contracts.
§ 154. — Mode of adoption or ratification in general.
§ 155. — Persons who may adopt or ratify.
§ 156. — Implied adoption or ratification.
§ 157. Enforcement of promoters ' contracts by corporation.
§ 158. Personal liability of promoters on contracts executed by them — În general.
§ 159. — Effect of adoption or ratification of contracts by corporation.
§ 160. Right of action of promoters on contracts executed by them.
§ 161. Notice to or knowledge by promoters.
§ 162. Admissions and declarations of promoters.
§ 163. Demand upon promoter.
i 164. Liability of corporation for services and expenses of promoters.
§ 165. Liability of promoters on failure to create corporation.
§ 166. Subscriptions to stock procured by promoters ' fraud.
263
§ 132] Private Cobpoeations [Cli.5
§ 132. Who are promoters. The term "promoter" is a term not

of law^ nor of art,* but of business,' and must be understood by
lawyers as it is by layinen.*
The promotion of a joint stock corporation is the act of getting it

up or organizing it, and procuring of subscriptions to its capital stock,*
and any one who actively assists in doing this whether as a business,*
or in a single instance is a promoter.''
Connecticut.
1 Yale Gas-Stove Co. 4 Twycross v. Grant, 2 C. P. D. 469,
V.Wilcox, 64 Conn. 101, 25 L. E. A. 90, 503 (Bramwell, L. J.).
42 Am. St. Eep. 159, 29 Atl. 303. B " If
the corporate organization in-
Iowa. The Telegraph v. Loetseher, tended to be formed is created accord-
127 Iowa 101, 101 N. W. 773. ing to the requirements of the statute,
Missouri. Pitts v. D. M. Steele and the objects contemplated by it are
Mercantile Co., 75 Mo. App. 221, 226. lawful and proper, there is no prin-
NewJersey. Bigelow v. Old Domin- ciple of public policy which forbids
ion Copper Mining & Smelting Co., 74 competent parties from entering into
N. J. Eq. 457, 501, 71 Atl. 153. an agreement to form it, and provide
New York. Armstrong v. Sun Print- for its future management and control,
ing & Publishing Ass'n, 137 App. Div. if conducted according to the rules of
828, 122 N. Y. Supp. 531. law respecting such a subject. King '
'
Ohio. Second Nat. Bank v. Green- V. Barnes, 109 N. Y. 658, 16 N. E. 332.

ville Screw-Point Steel Fence Post Co., See also Biehlands Oil Co. v. Morriss,
23 Ohio Cir. Ct. 274. 108 Va. 288, 61 S. E. 762.
England. Whaley Bridge Calico 6 McEee v. Quitman Oil Co., 16 Ga.
Printing Co. V. Green, 5 Q. B. D. 109, App. 12, 84 S. E. 487.
111, 28 Wkly. Eep. 351 (Bowen, J.). 7 California. California-Calaveras
2 TwycrossGrant, 2 C. P. D. 469,
v. Min. Co. V. WaUs, 170 Cal. 285, 149
503 (Bramwell, L. J.). Pae. 595.
3 Connecticut. Yale Gas-Stove Co. Georgia. MeRee v. Quitman Oil Co.,
V. Wilcox, 64 Conn. 101, 25 L. R. A. 16 Ga. App. 12, 84 S. E. 487.
90, 42 Am. St. Eep. 159, 29 Atl. 303. Illinois. Goodwin v. Wilbur, 104 HI.
Iowa. The Telegraph v. Loetseher, App. 45, 51.
127 Iowa 101, 101 N. W. 773. Maine. Mason v. Carrothers, 105 Me.
. Missouri. Pitts v. D. M. Steele 392, 74 Atl. 1030.
Mercantile Co., 75 Mo. App. 221, 226, Massachusetts. Old Dominion Cop-
New Jersey. Bigelow v. Old Do per Mining &
Smelting Co. v. Bigelow,
minion Copper Mining & Smelting Go. 188 Mass. 315, 108 Am. St. Rep. 479,
74 N. J. Eq. 457, 501, 71 Atl. 153. 74 N. E. 653.
New York. Armstrong v. Sun Print Minnesota. Battelle v. Northwest-
ing & Publishing Ass'n, 137 App, ern Cement & Concrete Pavement Co.,
Div. 828, 122 N. Y. Supp. 531. 37 Minn. 89, 33 N. W. 327.
Ohio. Second Nat. Bank v. Greea Missouri. South Missouri Pine Lum-
ville Screw-Point Steel Fence Post Co, ber Co. V. Crommer, 202 Mo. 504, 101
23 Ohio Cir. Ct. 274, 280. S. W. 22; South Joplin Land Co. v.
England. Whaley Bridge Calico Case, 104 Mo. 572, 16 S. W. 390.
Printing Co. v. Green, 5 Q. B. D. 109, New Jersey. Arnold v. Searing, 78
111, 28 Wkly. Bep. 351 (Bowen, J.). N. J. Eq. 146, 78 Atl. 762.
264
Ch.5] Promoters [§132
In a leading American case it is said that "the word 'promoter' has
no precise and meaning in this country, * but in the same

inflexible
'
'
case it is also said that "in a comprehensive sense 'promoter' includes

those who undertake to form a corporation and to procure for it the
rights, instrumentalities and capital by which it is to carry out the
Wisconsin. First Avenue Land Co. the incorporation was secured by the
V. Hildebrand, 103 Wis. 530, 79 N. W. action of parliament, then another class
753 ; Pittsburg Min. Co. v. Spooner, 74 of questions arose as to what acts of
Wis. 307, 17 Am. St. Eep. 149, 42 N. the promoters could be ratified by, and
W. 259. what acts resulted to the benefit of,
"This word promoter had its origin the incorporation, and many others
in the methods by which joint stock growing out of the condition of affairs.
companies were formed in England, That has no resemblance to our method
where by law they were declared part- of organizing corporations. It is true
nerships. Subsequently, when the era that the word has been found to have
of railroad building began in that its uses in our jurisprudence, but in a
country, the business of promoting the much more restricted sense than that
organization of such companies a.B- used in the English reports." St.
sumed definite form. The ordinary Louis, Ft. S. & W. E. Co. v. Tiernan,
proceeding was this: The promoter 37 Kan. 606, 15 Pac. 544.
introduces the enterprise to the notice One who engages with the owner
of persons of wealth in the locality of a tract of land in organizing a cor-
through which the line of the road is poration to purchase the land, by pro-
proposed to be located, informing them curing subscribers, and who frames
of its nature and prospects, furnish- the prospectus and becomes one of the
ing an estimate of its probable cost. first subscribers, is clearly a promoter
These persons are solicited to aid by of the corporation. Woodbury Heights
their influence or subscriptions, or both. Land Co. v. Loudenslager, 58 N. J. Eq.
Enough persons were secured to con- 556, 43 Atl. 671, 56 N. J. Eq. 411, 41
stitute a provisional committee, and Atl. 1115, 55 N. J. Eq. 78, 88, 35 Atl.
then this committee appoints from 436.
their number a managing committee, 8 Old Dominion Copper Mining &
who issue a prospectus, announcing Smelting Co. v. Bigelow, 203 Mass.

the nature and probable profits of the 159, 177, 40 L. R. A. (N. S.) 314, 89
scheme, the proposed means to carry it N. E. 193. See also EirsJ Avenue
out, the amount of capital required, Laud Co. V. Hildebrand, 103 Wis. 530,
the number and price of shares, and 534, 79 N. W. 753.
' The word
'
' promoter
other details, to which is generally at- ' is ambiguous,
tached the names of the promoters, and it is necessary to ascertain in each

with references to the names of those case what the so-called promoter really
persons constituting the provisional did before his legal liabilities can be
committees. If all this resulted in fair accurately ascertained. In every case
probabilities of success, application it is better to look at the facts and
was then made to parliament for a bill ascertain and describe them as they
of incorporation. If the scheme failed, are. '
' Lydney & Wigpool Iron Ore Co.
the expenses incurred gave rise to liti- V. Bird, 33 Ch. Div. 85, 93 (Lindley,
gation, and many questions as to the L. J.). See also In re Hess Mfg. Co.,
liability of these committees and of 21 Ont. App. 66, 67.
the promoters were determined. If

265
purposes set forth in its charter, and to establish it as fully able to

do its business.
'
'
'
A"promoter" is defined in a leading English case as "one who

undertakes to form a company with reference to a given project and
to set it going, and who takes the necessary steps to accomplish that
purpose, " 10
9 Old Dominion Copper Mining & Missouri. Brooker

v. "Wm. H.
Smelting Co. v. Bigelow, 203 Mass. 159, Thompson Trust 254 Mo. 125, 162
Co.,
177, 40 L. B. A. (N. S.) 314, 89 N. E. S. W. 187; South Missouri Pine Lum-
193. ber Co. V. Crommer, 202 Mo. 504, 101
In Bigelow v. Old Dominion Copper S. W. 22.
Mining & Smelting Co., 74 N. J. Eq. New Jersey. See v. Heppenheimer,
457, 501, 71 Atl. 153, it is said that "a 69 N. J. Eq. 36, 61 Atl. 843.
promoter isone who seeks opportuni- New York. Armstrong v. Sun Print-
ties for making advantageous pur- ing & Publishing Ass'n, 137 App.
chases and profitable investments in Div. 828, 122 N. T. Supp. 531; Hutch-
industrial or other enterprises, who inson v. Simpson, 92 App. Div. 382, 87
interests men of means in such a proj- N.' Y. Supp. 369.
ect when found, organizes them into Eichlands Oil Co. v. Mor-
Virginia.
a corporation for the purpose of 'tak- riss,108 Va. 288, 61 S. E. 762; Bosher
ing over the project, and attends upon
' V. Richmond & H. Land Co., 89 Va.
the newly formed company until it is 455, 37 Am. St. Eep. 879, 16 S. E. 360.
fully launched in business." West Virginia. Cox v. National Coal
A definition which is found in 2 Cook & Oil Inv. Co., 61 W. Va. 291, 56 S. E.
on Corporations (6th Ed.), § 651 and 494.
which has been judicially recognized Still another definition which has
is as follows: "A promoter is a per- been quoted by the courts is the one
son who brings about the incorpora- found in 1 Morawetz Priv. Corp.
tion and organization of a corporation. § 545 which reads as follows: "A per-
He brings together the persons who be- son, who, by his active endeavors,
come interested in the enterprise, aids assists in procuring the formation of a
and sets in
in procuring subscriptions, company and the subscription of its
motion the machinery which leads to shares, is commonly called a promoter.
the formation of the corporation it- The word 'promoter' has no tech-
self." See in this connection: nical legal meaning, and applies to .
United States. Dickerman

North- v. any person who takes an active part
ern Trust Co., 176 U. S. 181, 44 L. Ed. in inducing the formation of a com-
423; De Klotz v. Broussard, 203 Fed. pany, whether he afterwards becomes
942. connected with the company or not."
California. Burbank v. Dennis, 101 See Ex-Mission Land & Water Co. v.
Cal. 90, 35 Pac. 444; Ex-Mission Land Flash, 170 Cal. 285, 32 Pae. 600; Arm-
& "Water Co. v. Flash, 97 Cal. 610, 32 strong V. Sun Printing & Publishing
Pae. 600. Ass'n, 137 N. Y. App. Div. 838, 122
Iowa. Hinkley v. Sac Oil & Pipe N. Y. Supp. 531.
Line Co., 132 Iowa 396, 119 Am. St. 10 Twycross v. Grant, 2 C. P. D. 469,
Eep. 564, 107 N. W. 629; The Tele- 541. Continuing Cockburn, C. J., said:
graph V. Loetscher, 127 Iowa 383, 4 "That the defendants were the pro-
Ann. Cas. 667, 101 N. W. 773. moters of the company from the be-
266
'
"The term 'promoter' involves the idea of exertion for the purpose
of getting up and company (of what is called 'floating' it)
starting a
and some duty towards the company imposed by or
also the idea of
arising from the position which the so-called promoter assumes towards
it." ^^ A person is not in the position of a promoter, however, except
in so far as he is assisting in the formation of the company, is acting,
or assuming to act, in its behalf, and is dealt with on the strength
of his actual or assumed authority.^^ So a person does not become
liable as a promoter by reason of the fact that his agent for a special
purpose promotes a corporation with the idea of obtaining a personal
advantage in executing his agency.^' But it would seem that a very
little will make a person a promoter if it can be seen that he was really
doing something in the way of speculation for his own interest and
was not acting merely as the agent of another.^*
ginning can admit of no doubt. They of the prospectus, or of the portion
framed the scheme; they not only pro- thereof containing the untrue state-
visionally formed the company, but ment, but does not include any person
were, in fact, to the end its creators; by reason of his acting in a profession-
they found the directors, and qualified al capacity for persons engaged in" pro-
them; they prepared the prospectus; curing the formation of the company. '
they paid for printing and advertis- 11 Lindley, J., in Emma Silver Min.
ing, and the expenses incidental to Co. V. Lewis, 4 C. P. D. 407. See also
bringing the undertaking before the Pitts V. D. M. Steele Mercantile Co.,
world. ' See also First Avenue Land
' 75 Mo. App. 221, 227; Armstrong v.
Co. V. Hildebrand, 103 Wis. 530, 534, Sun Printing & Publishing Ass'n, 137
79 N. W. 753. N. Y. App. Div. 828, 122 N. Y. Supp.
7 & 8 Viet. c. 110, § 3 (repealed by 531.
25 & 26 Vict. c. 89) defined a "pro- last. Louis, Ft. S. & W. E. Co. v.
moter" "every person acting by

as Tiernan, 37 Kan. 606, 15 Pac. 544. See
whatever name in the forming and es- also under an English statute, In re
tablishing of a company at any period Great Western Forest of Dean Coal
prior to the company obtaining a cer- Consumers' Co., 31 Ch. Div. 496; In
tificate of complete registration. ' ' See, re Imperial Land Co. of Marseilles,
as noting this definition, Dickerman v. L. R. 10 Eq. 298.
Northern Trust Co., 176 TJ. S. 181, 44 Whatever a person may, at one time
L. Ed. 423; De Klotz v. Broussard, 203 have been, he is not a promoter of the
Fed. 942; Armstrong v. Sun Printing corporation so far as dealing with it
& Publishing Ass'n, 137 N. Y. App. is eoneerned, when it has been organ-
Div. 828, 122 N. Y. Supp. 531. ized and operated by its board of di-
See also 8 Edw. VII, c. 69, which rectors for more than a year. Eussell
repealed 25 & 26 Vict, c 89, supra, V. Eock Eun Fuel Gas Co., 184 Pa.
in section 84 of which it is said St. 102, 39 Atl. 21.
that for the purposes of tliat section 13 Godfrey v. Schne<,k, 105 Wis. 568,
which imposes liability for misrepre- 81 N. W. 656.
sentations in the prospectus "the ex- 14Lydney & Wig]-ool Iron Ore Co.
pression 'promoter' means a promoter V, Bird, 31 Ch. Div, 328, 339.
who was a party to the preparation
267
§ 132] Pbivate Coepokations [Ch. 5
A person does not become liable as a promoter, however, merely by

acting as the solicitor,^^ or the parliamentary agent in the organization
of the corporation.^® So also it has been held that an attorney who
was an abortive corporation as com-
to receive a part of the profits of
pensation for services rendered by him, did not on that account become
liable as a partner of the promoters.^''
While a person cannot be charged with the duties and liabilities of
a promoter merely because he is a subscriber to the corporate stock
and one of the original incorporators of the company,^® a promoter is
none the less such because he is also a subscriber to the stock of the
corporation.^®
The term "promoter" does not carry any implication, however, that
the person which it describes becomes related to the corporation ^^ as
an officer or even a stockholder.^^ In determining the question

whether a person actually was a promoter, due consideration must
be given to the facts of the particular case ^^ and in any event such
question is one of fact for the jury.^*
§ 133. Rights and liabilities of promoters inter se. Although origi-

nally the rule may have been that the mere fact of persons associating
themselves together for the purpose of promoting a corporation created
the relation of partners between them,** it has more recently been held
IB In re Great Wheal Polgooth Co., tion and its stockholders, see § 134,
Ltd., L. J. 53 Oh. 42, 46; In re Ken- infra.
sington Station Act, L. K. 20 Eq. 197, South Missouri Pine Lumber Co.
22
205. See, in this connection, 8 Edw. v. Crommer, 202 Mo. 504, 101 S. W. 22.
Til, e. 69) cited in note 10, supra. 23 South Missouri Pine Lumber Co.
In re Kensington Station Act, L.
16 v. Crommer, 202 Mo. 504, 101 S. W.
E. 20 Eq. 197, 205. 22; Emma Silver Min. Co. v. Lewis,
17 Tuccillo V. Pittelli, 127 N. T. Supp. 4 C. P. T>. 396.
314. The question when a person who was
18 Benton v. Minneapolis Tailoring a promoter ceased to be such is one
& Manufacturing Co., 73 Minn. 498, 76 of fact. Twyeross v. Grant, 2 C. P.
N. W. 265. D. 469, 541.
19 Eichlands Oil Co. v. Morriss, 108 24 Holmes v. Higgins, 1 B. & C. 74.
Va. 288, 61 S. E. 762. In this case, decided in 1822, it ap-
20 Armstrong v. Sun Printing & Pub- peared that notices were given of an
lishing Ass 137 N. Y. App. Div. 828,
'n, intended application to parliament for
122 N. Y. Supp. 531. See also Ex-Mis- leave to bring in a bill for making a
sion Land & Water Co. v. Plash, 97 railway; that these notices were given
Cal. 610, 32 Pac. 600; Bigelow v. Old by the plaintiff who described himself
Dominion Copper Mining & Smelting as agent for the intended bill; that
Co., 74 N. J. Eq. 457, 501, 71 Atl. 153. subsequently a subscription was com-
21 As to the fiduciary relation sus- menced for the purpose of passing the
tained by the promoter to the corpora- bill and making the railway; that
268
Ch. 5] Pkomoteks [§133
that promoters were not, for that reason alone, partners one of the
other.^^ Promoters not being partners and there being no agreement
to the contrary, it is well settled that a promoter, who expends money
in the promotion of the corporation, or who is compelled to pay money
to a third person by reason of his dealings as a promoter, may sue
his copromoters for contribution.^* So also promoters may become
liableunder a contract of one of their number entered into with a
third person at the instance ofall.^'' One promoter may also be the
agent of the others so as to entitle the latter to an accounting for
money which they furnished and which he was to expend for the
common benefit.^'
Thus it seems that where persons holding an option for the pur-
chase of property agree with others to form a corporation for the
purpose of taking over the option and such others pay over the amount
of their subscriptions to the holders of the option who were also sub-
among others, plaintiff and defendant other subscribers. TBe members of
each subscribed to the undertaking; the association were therefore part-
that still later, at a meeting of the ners. Now it is perfectly clear that
subscribers at which the defendant one partner cannot maintain an action
acted as chairman, a solicitor was ap- against his co-partners for work and
pointed and directed to adopt such labour performed, or money expended
measures as were necessary to obtain on account of the partnership. I am
an act of parliament of the character of opinion, therefore, that the plain-
desired; that at the same meeting, tiff cannot support this action either
plaintiff was appointed agent to the against the defendant, who was chair-
company of subscribers, and assistant man of the meeting, or against the
to the solicitor; that a bill was brought body of subscribers at large. " See _
into parliament, but, in having met also Denton v. Macniel, L. E. 2 Eq.

with opposition, was ultimately with- 352; Lucas v. Beach, 1 Man. & Gr. 417.
drawn; that the money which plaintiff aSBatard v. Hawes, 2 E. & B. 287,
• sought to recover was for business 17 Jur. 1154; Lefroy v. Gore, 7 Ir.
done and money paid by plaintiff Eq. 228; Hamilton v. Smith, 28 L. J.
as agent to the subscribers to the Ch. 404. But see Maxwell v. Mc Wil-
undertaking. On making absolute a liams, 145 ni. App. 155.
rule for setting aside anaward made SSBatard v. Hawes, 2 E. & B. 287,
in favor of plaintiffby the barrister 17 Jur. 1154; Boulter v. Peplow, 9 C.
to whom the cause was referred, Ab- B. 493, 14 Jur. 248; Spottiswoode 's
bott, C. J., said: "This is the case of Case, 6De 6. Mi & G. 345; Edgar v.
a number of persons jointly associated Knapp, 5 M. & G. 753, 7 Jur. 583; Le-
together for a common purpose. The froy V. Gore, 7 Ir. Eq. 228; Hamilton
plaintiff and defendant were both v. Smith, L. J. 28 Ch. 404.
members of the association. This ac- 27Ijams V. Andrews, 151 Eed. 725;
tion is brought against the defendant, Cook V. Sterling Elec. Co., 150 Fed.
who acted as chairman at the meeting; 766.
when the work done was probably 28 Bailey v. Burgess, 48 N. J. Eq.
ordered; and he might have pleaded 411, 22 Atl..733.
that he undertook jointly with the
269
§ 133] Pbivate Cobpobations [Ch. 5
scribers in small amounts sufficient to dispose of the remaining stock

of the corporation, and the option holders purchase the property at a
secret profit to themselves and cause the property to be conveyed to
the corporation, their cosubscribers may sue in equity for the propor-
amount of their subscriptions bears
tion of the secret profit which the
to the totalamount of the stock of the corporation on the theory that
the holders of the option were their agents in the original purchase
of the property and as such must account for the secret profit ob-
tained.*® However, the mere fact that one member of a partnership •
proposes to form a corporation to take over the partnership prop-

erties at an agreed price does not make him the agent or trustee of
his partners to the extent of rendering him liable for the compensa-
tion which he receives from the corporation for his services in promot-
ing it.*° And yet where a partnership is one of the parties to a pro-
motion agreement by the terms of which those entering into it are not
to receive any compensation for their services, services performed
by one of the partners will, at least as far as the corporation is con-
cerned, be regarded as having been rendered by the firm and not by
him as an individual.'' In this connection one promoter cannot
recover from the other promoters for his services, in the absence of
an agreement to pay him therefor.** Moreover, where one of the
promoters sues the corporation on an implied contract to pay him for
his services, the corporation may interpose as a defense an agreement
among the promoters that they were to receive no compensation for
their services.*' But a promoter who holds an option on property
29 Maxwell v. McWilliams, 145 111. A promoter agreeing ' ' as agent and
App. 155, distinguished in Mississippi trustee" for the proposed corporation
Lumber Co. v. Joiee, 176 111. App. 110, to pay a sum of money for the use of
119. certain personal property, on a speci-
>0 Carter v. Tucker, 138 Ky. 34, 127 fied date ' ' or earlier upon the organi-
S. W. 498. zatiou of said corporation," the ones
That a firm, rather than an Individ- with whom the agreement was made
ual member thereof, may be entitled subscribing for stock in the corpora-
te the promotion fees paid, see Boice tion in consideration of the agreement,
V. Jones, 106 N. T. App. Div. 547, 94 was held not personally liable on the
N. Y. Supp. 896; Boice v. McCormick, contract on the failure to organize the
106 N. Y. App. Div. 539, 94 N. Y. Supp. corporation, such subscribers having
892. become interested, equally with him,
31 Powell V. Georgia, F. & A. E. Co., in its promotion. Belding v. Vaughan,
121 Ga. 803, 49 S. E. 759. 108 Ark. 69, 157 S. W. 400.
32 Baily v. Burgess, 48 N. J. Eq. 411, 33 Powell v. Georgia, F. & A. B. Co.,
22 Atl. 733; Holmes v. Higgins, 1 B. 121 Ga. 803, 49 S. B. 759.
& C. 74; Parkin v. Fry, 2 C. & P. 311;
"Wilson V. Curzon, 16 M. & W. 532, 11
Jur. 47.
270
Ch. 5 J Peomotees [§ 134
may pay his copromoters for their services in obtaining subscriptions

to the stock of the corporation to which he intends to dispose of the
option.^*
An agreement among the promoters as to the proportions in which
the stock of the corporation shall be divided among them is binding
upon them,^"" although, of course, not upon the corporation as such.*^
"Where a person is induced by fraud to become a member of a syndi-
cate, intended to bring about the organization of a corporation, he
has three lines of relief open to him he may retain that which he has
:
received and bring an action at law against the guilty party to recover
damages sustained as a result of his fraud; he may bring an action
for rescission of the contract, in which it will be sufficient to tender
back apything that he may have received under the contract, or he
may bring an action based on a prior rescission, wherein having
previously tendered back that which he has received, he will recover
that which has been taken from him.'''
§ 134. Relation of promoters to corporation and stockholders. It

is now settled law that persons who promote a corporation are charged
with certain duties and responsibilities even before the corporation
comes into existence,*' but just what the position is that the promoters
34 Eichardson v. Graham, 45 W. Va. down in the English cases, and hold,

134, 30 S. E. 92. with scarcely any variation to the doc-
SB Hunter Smokeless Powder Co. v. trine, that the promoter of a company
Hunter, 100 N. Y. App. Div. 191, 91 stands in the relation of a trustee to
N. Y. Supp. 620. See also Hladovee it and those who become subscribers
V. Paul, 222 111. 254, 78 N. E. 619, 622, to its stock, so long as he retains the
afif'g 124 111. App. 589; Burden V. Bur- power of control over it. There is
den, 8 N. Y. App. Div. 160, 40 N. Y. some difference of opinion, as there is
Supp. 499, aff 'd 159 N. Y. 287, 54 N. E. in the English cases, in regard to the
17; Dickerson v. Appleton, 123 N. Y. time when he becomes such promoter,
App. Div. 903, 108 N. Y. Supp. 293; within the meaning and operation of
Cross V. Farmers' Elevator Co., 31 N. the rule. Some
courts are of opinion
D. 116, 153 N. W. 279. that he ischargeable with the duties
36 See § 150, infra. of a trust when he enters upon the exe-
37 Heckscher v. Edenborn, 203 N. Y. cution of the scheme which is intended
210, 96 N. E. 441. to result in the transfer of the prop-
38 Emma Silver Min. Co. v. Lewis, erty to a company to be organized and
4 C. P. D. 396, 407. See also Calif ornia- controlled by him. however, agree
All,
Calaveras Min. Co. v. Walls, 170 Gal. that he comes within the rule when he
285, 149 Pae. 595. And compare begins to organize the company, and
Stewart v. St. Louis, Ft. S. & W. E. Co., that from that time he is bound to deal
41 Fed. 736. openly and fairly, and in such a way
"In this country the courts have as that those having independent
accepted the essential principle laid charge of the company, as well as those
271
§134] Peivate Coepobations [Ch.5
occupy is often almost wholly insusceptible of satisfactory definition."

"There no magic in the word 'promoter' which solves
is * * *
the relation of one takes upon himself the burden of forming a
who
corporation, either to the associates who may enlist with him in the
prosecution of the work, or to the corporation in which all their inter-
ests will be combined upon its successful completion. This relation
will depend upon the nature of the work and the contractual relations,
either expressed or implied, which he assumes with respect to others
interested in the common object. The corporation has no entity other
than that which results from the legal union in its artificial personality,
of these interests, and we must search among these interests to find
its equitable status as their common repository."** Promoters are
not the corporation, itself," and although they may be regarded, for
certain purposes, as sustaining to the corporation a relation similar
to that of an agent,*^ are subject to the disabilities of an agent,**
who are induced to become subscrib- accurately ascertained. In every case

ers to its stock, may be fully advised it is better to look at the facts and
of the relation he bears to the prop- ascertain and describe them- as they
erty which he proposes to sell, in like are." Lydney & Wigpool Iron Ore
manner as one who assumes to act as Co. V. Bird, 33 Ch. Div. 85, 93 (by
the agent of another in the purchase Lindley, L. J.).
of property. ' ' Yeiser v. United States 41 Battelle v. Northwestern Cement
Board & Paper Co.,^ 107 Fed. 340. See & Concrete Pavement Co., 37 Minn. 89,
also Central Trust Co. v. East Ten- 33 N. "W. 327; Munson v. Syracuse, G.
nessee Land Co., 116 Fed. 743. & G. B. Co., 8 N. Y. 58, 8 N. E. 355;
Sale of the majority stock of a cor- Armstrong v. Sun Printing & Publish-
poration by the president, with whom ing Ass'n, 137 N. Y. App. Div. 828, 122
it had been pooled and who had au- N. Y. Supp. 531.
thority to dispose of and sell it, to a 42 The Telegraph v. Loetseher, 127
promoter whose purpose in buying it Iowa 383, 4 Ann. Cas. 667, 101 N. "W.
was to stop suits brought against him 773; Arnold v. Searing, 78 N. J. Eq.
by the corporation, was held valid as 146, 78 Atl. 762.
against minority stockholders. Hallen- 43 Dickerman v. Northern Trust Co.,
borg V. Cobre Grande Copper Co., 200 176 U. S. 181, 44 L. Ed. 423; De Klotz
V. S. 239, 50 L. Ed. 458. V. Broussard, 203 Fed. 942; The Tele-
39 South Joplin Land Co. v. Case, graph v. Loetseher, 127 Iowa 383, 4
104 Mo. 572, Iff'S. W. 390. See also Ann. Cas. 667, 101 N. W. 773; See v.
Calif ornia-Calaveras Min. Co. v. Walls, Heppenheimer, 69 N. J. Eq. 36, 61 Atl.
170 Cal. 285, 149 Pac. 595. 843; Eiehlauds Oil Co. v. Morriss, 108
lOBrooker v. Wm. H. Thompson Va. 288, 61 S. E. 762; Bosher v. Rich-
Trust Co., 254 Mo. 125, 162 S. W. 187. mond & H. Land Co., 89 Va. 455, 37
'
' The word promoter '
' is ambiguous, Am. St. Eep. 879, 16 S. E. 360. See
and it is necessary to ascertain in each also Jordan & Davis v. Annex Corpora-
case what the so-called promoter really tion, 109 Va. 625, 17 Ann. Cas. 267,
did before his legal liabilities can be 64 S. E. 1050.
272
'
Ch. 5] Peomotbes [§ 134
and even have been stated to be agents of the corporation,** it would

seem that, strictly speaking, they cannot be regarded as such, there
being at the time no existent principal.*^ It seems, however, that a
promoter does sustain a fiduciary relation or a relation of trust and
confidence to the corporation.*^
44 United States. Diekerman v. Ore Co. V. Bird, 33 Ch. Div. 85, 93

Northern Trust Co., 176 U. S. 181, 44 (by Lindley, L. J.).
L. Ed. 423; De Klotz v. Broussard, 203 One of the foremost authorities on
Fed. 942. the law of agency, Mr. Mechem, says
Iowa. Iowa
Caffee v. Berkley, 141 in his work on that subject (§1383):
344, 118 N. W.
The Telegraph v.
267; "The most common case of one as-
Loetscher, 127 Iowa 383, 4 Ann. Cas. suming to act in behalf of a principle
667, 101 N. W. 773. not yet in existence, is that of a per-
Itlichigau. Fred Maeey Co. v. son, often called a 'promoter,' who
Macey, 143 Mieh. 138, 5 L. R. A. (N. undertakes to act in behalf of a cor-

S.) 1036, 106 N. W. 722. poration not yet formed. Such a per-
New Jersey. See v. Heppenheimer, son obviously cannot now be the agent
of a corporation hereafter to be
69 N. J. Eq. 36, 61 Atl. 843.
'
created.
New Hutchinson v. Simpson,
York.
United States.
46 Diekerman v.
92 App. Div. 382, 87 N. T. Supp. 369.
Northern Trust Co., 176 U. S. 181, 44
Virginia. Eichlands Oil Co. v. Mor-
L. Ed. 423; Dunlap v. Twin City Pow-
riss, 108 Va. 288, 61 S. E. 762; "Virginia
er Co., 226 Fed. 161, 162; De Klotz
Land Co. v. Haupt, 90 Va. 533, 44 Am.
V. See also
Broussard, 203 Fed. 942.
St. Bep. 939, 19 S. E. 168; Bosher v.
Walker Pike County Land Co., 139
v.
Eiehmond & H. Land Co., 89 Va. 455,
Fed. 609; Central Trust Co. v. East
37 Am. St. Rep. 879, 16 S. E. 360.
Tennessee Land Co., 116 Fed. 743.
Arkansas. Belding v. Vaughan,
46
Alabama. A. J. Cranor Co. v. Miller,
108 Ark. 69, 157 S. W. 400; Tegarden
147 Ala. 268, 41 So. 678.
Bros. V. Big Star Zinc Co., 71 Ark. Hughes Cadena De
Arizona. v.
277, 72 S. "W. 989.
Cobre Min. Co., 13 Ariz. 52, 108 Pae.
Georgia. Wells v. J. A. Fay & Egan 231.
Co., 143 Ga. 732, 85 S. E. 873. California. California Calaveras
Kentucky. Oldham Mt. Sterling
v. Min. Co. Walls, 170 Cal. 285, 149
V.
Improvement Co., 103 Ky. 529, 45 S. Pac. 595; Western States Life Ins. Co.
W. 779. V. Lookwood, 166 Cal. 185, 135 Pae.
Minnesota. Battelle v. Northwest- 496; Burbank v. Dennis, 101 CaL 90, 35
ern Cement & Concrete Pavement Co., Pac. 444; Ex-Mission Land & Water
37 Minn. 89, 33 N. W. 327. Co. V. Plash, 97 CaL 610, 32 Pac. 600.
Oregon. Schreyer v. Turner Flour- Connecticut. Tale Gas-Stove Co.
ing Mills Co., 29 Ore. 1, 43 Pac. 719. V. Wilcox, 64 Conn. 101, 25 L. R. A. 90,
Texas. Commonwealth Bonding & 42 Am. St. Rep. 159, 29 Atl. 303.
Casualty Ins. Co. v. Thurman, Tex. — Bliuois. Mississippi LVimber Co. v.
Civ. App. —
, 176 S. W. 762; Jones v. Joice, 176 111. App. 110, 120. See also
Smith (Tex. Civ. App.), 87 S. W. 210. Goodwin v. Wilbur, 104 111. App. 45,
Utali. Wall V. Niagara Mining & 52.
Smelting Co., 20 Utah 474, 59 Pac. 399. Indiana. Cushion Heel Shoe Co. v.
England. Lydney & Wigpool Iron Hartt, 181 Ind. 167, 50 L. R. A. (N. S.)
t
!73
I Priv. Corp.— 18
§134] Pbivate Cokpokations [Ch.5
This trust relation includes also, it seems, persons holding stock in the
979, 103 N. E. 1063; Parker v. Boyle, Wisconsiu. First Avenue Land Co.
178 Ind. 560, 99 N. E. 986. V. Hildebrand, 103 Wis. 530, 79 N. W.
Iowa. Caffee v. Berkley, 141 Iowa 753.
344, 118 N. W.
267; Hinkley v. Sac Oil England. Erlanger v. New Som-
& Pipe Line Co., 132 Iowa 396, 119 Am. brero Phosphate Co., 3 App. Cas. 1218;
St. Eep. 564, 107 N. W. 629; The Tele- In re Leeds & Hanley Theatres of Va-
graph V. Loetseher, 127 Iowa 383, 4 rieties, Ltd., [1902] 2 Ch. 809, 823;
Ann. Cas. 667, 101 N. W. 773. Bagnall v. Carlton, 6 Ch. Div. 371, 385.
Kansas. Hayden v. Green, 66 Kan. "It will be observed that a pro-
204, 71 Pac. 236. moter, when he shall have been found
Maine. Mason v. Carrothera, 105 to be such as a matter of fact, is a
Me. 392, 74 Atl. 1030; Camden Land sort of self-constituted agency for
Co. V. Lewis, 101 Me. 78, 63 Atl. 523. bringing a company into existence,
Massachusetts. Keith v. Badway, and this fact alone would go far to-
220 Mass. 532, 108 N. E. 498; Old Do- ward charging him as a fiduciary. He
minion Mining & Smelting Co. v. Bige- has in his hands the creation and mold-
low, 188 Mass. 315, 108 Am. St. Rep. ing of the company; he has the power
479, 74 N. E. 653. of defining how and when and in what
Michigan. Fred Maeey Co. v. Ma- shape and under what supervision it
cey, 143 Mich. 138, 5 L. R. A. (N. S.) shall start into existence and begin to
1036, 106 N. W. 722. See also Cuba act as a trading corporation. It is he
Colony Co. v. Kirby, 149 Mich. 453, who selects the directors, to whom he
112 N. W. 1133. gives such power as he chooses; it is
Missouri. See Brooker v. W. H. he who settles the regulations of the

Thompson Trust Co., 254 Mo. 125, 162 company, regulations under which the
8. W. 187; South Joplin Land Co. v. company as soon as it comes into ex-
Case, 104 Mo. 572, 16 S. W. 390. istence may find itself bound to any-
New York. Hutchinson v. Simpson, thing not in itself illegal, which the
92 App. Div. 382, 87 N. T. Supp. promoter may have
chosen. This con-
369; Midwood Park Co. v. Baker, 128 trol of thepromoter over the company,
N. Y. Supp. 954, aff'd 129 N. Y. Supp. so plenary and absolute, involves a
1135. correlative responsibility, and out of
Ohio. Marblehead Bank Co. v. this responsibility arises the doctrine
Raridon, 4 Ohio App. 468. now well settled of the fiduciary rela-
Oregon. Wills v. Nebalem Coal Co., tion of promoter toward the
the
52 Ore. 70, 96 Pae. 528. See also John- company he This fiduciary
creates.
son V. Sheridan Lumber Co., 51 Ore. relationship of the promoter is an ex-
35, 93 Pae. 470. tension of the doctrine of agency, a
Virginia. Richlands Oil Co. v. Mor- sort of agency by anticipation, for the
risB, 108 Va. 288, 61 S. E. 762; Bosher promoter is not, strictly speaking, an
V. Richmond & H. Land Co., 89 Va. 455, agent of or trustee for the company
37 Am. Rep. 879, 16 8. E. 360. See
St. before incorporation, but it is a salu-
also Jordan &' Davis v. Annex Corpora- tary and necessary fiction of equity
tion, 109 Va. 625, 17 Ann. Cas. 267, 64 for the protection of the company."
S. E. 1050. Arnold v. Searing, 78 N. J. Eq. 146,
Washington. See Mangold v. Adri- 78 Atl. 762.
an Irrigation Co., 60 Wash. 286, 111 "The reasons for the enforcement
Pac. 173. of that [trust] principle in such cases
274
corporation,*'' whether by an original subscription,** or a subsequent

purchase.*' It also applies to creditors with whom the promoter
as this are obvious. Without it there Baker, 128 N. Y. Supp. 954, afE'd 129
isnothing to hinder the concoction of N. Y. Supp. 1135.
schemes which the reports of decisions 48 United States. Yeiser v. United
show are becoming quite too frequent States Board & Paper
Co., 107 Fed.
in recent years, during which corpora- 340, 52 L. R. A. 724. See also Dunlap
tions have so greatly multiplied, V. Twin City Power Co., 226 Fed.
whereby one may take an option or 161, 162; Central Trust Co. v. East
conditional contract for the purchase Tennessee Land Co., 116 Fed. 743.
of property, and then turn it over, at Arkansas. Tegarden Bros. v. Big
a profit to himself, to a corporation to Star ZiQC Co., 71 Ark. 277, 72 S. W.
be organized, and be under his own 989.
control for a sufBcient time to enable California. See Califomia-Calaveras
him to realize the fruits of his enter- Min. Co. V. Walls, 170 Cal. 285, 149
prise. Unless the promoter of the com- Pac. 595; Lomita Land & Water Co. v.
pany is restrained by the obligations Robinson, 154 Cal. 36, 18 L. R. A. (N.
of a duty which prevents him from S.) 1106, 97 Pac. 10.
bringing the consequences which are Iowa. Hinkley v. Sac Oil & Pipe
liable to result to others who may be Line Co., 132 Iowa 396, 119 Am. St.
led into danger, he may practice such Rep. 564, 107 N. W. 629.
schemes with impunity." Yeiser v. Kansas. Hayden v. Green, 66 Kan.
United States Board & Paper Co., 107 204, 71 Pac. 236.
Fed. 340, 52 L. R. A. 724. Maine. Camden Land Co. v. Lewis,
'
' Although not an agent of the com- 101 Me. 78, 63 Atl. 523.
pany nor a trustee for it before its New York. Brewster v. Hatch, 122
formation, the old familiar principles N. Y. 349, 19 Am. St. Rep. 498, 25 N. E.
of the law of agency and of trusteeship 505; Walker v. Anglo-American Mort-
have been extended, and very properly gage & Trust Co., 74 Hun 432, 25
extended, to meet" the case of pro- N. Y. Supp. 432.
moters. Lydney & Wigpool Iron Ore Oregon. See Wills v. Nehalem Coai
Co. V. Bird, 33 Ch. Div. 85, 94. Co., 52 Ore. 70, 96 Pae. 528.
47 Alabama. A. J. Cranor Co. v. Washington. See Mangold v. Adri-
Miller, 147 Ala. 268, 41 So. 678. an Irrigation Co., 60 Wash. 286, 111
Arizona. Hughes v. Cadena De Pac. 173.
Cobre Min. Co., 13 Ariz. 52, 108 Pac. Wisconsin. Zinc Carbonate Co. v.
231. First Nat. Bank, 103 Wis. 125, 74 Am.
California.Western States Life Ins. St. Rep. 845, 79 N. W. 229.
Co. V. Loekwood, 166 Cal. 185, 135 Pae. England. Williams v. Page, 24 Beav.
496. 654.
Indiana.Cushion Heel Shoe Co. v. 49 United States. Yeiser v. United
Hartt, 181 Ind. 167, 50 L. E. A. (N. States Board & Paper Co., 107 Fed.
S.) 979, 103 N. E. 1063. 340, 52 L. R. A. 724. See also Central
Michigan. Torrey v. Toledo Port- Trust Co. V. East Tennessee Land Co.,
land Cement Co., 158 Mich. 348, 122 116 Fed. 743.
N. W. 614; Fred Maeey Co. v. Maeey, California. See Califomia-Calaveras
143 Mich. 138, 5 L. R. A. (N. S.) 1036, Min. Co. v. Walls, 170 Cal. 285, 149
106 N. W. 722. Pac. 595.
New York. Midwood Park Co. v. Indiana. See Cushion Heel Shoe Co.
275
§134] Private Cokpoeations [Ch.5
deals.^" Perfect candor,^^ good f aith,^^ in fact, the utmost good f aith,^*
and the strictest honesty are required of promoters,'* and their deal-
ings must be open '^ and fair.**
V. Hartt, 181 Ind. 167, 50 L. E. A. (N. Arizona. Hughes v. Cadena De Co-

S.) 979, 103 N. E. 1063. bre Miu. Co., 13 Ariz. 52, 108 Pae. 231.
Maine. Mason v. Carrothers, 105 Indiana. Parker v. Boyle, 178 Ind.
Me. 392, 74 Atl. 1030; Camden Land 560, 99 N. E. 986.
Co. V. Lewis, 101 Me. 78, 63 Atl. 523. Iowa. CafEee v. Berkley, 141 Iowa
Massachusetts. Hayward v. Leeson, 344, 118 N. W. 267.
176 Mass. 310, 49 L. B. A. 725, 57 N. E. Maine. Camden Land Co. v. Lewis,
656. 101 Me. 78, 63 Atl. 523.
Oregon. See Wills v. Nehalem Coal New York. Walker v. Anglo-Ameri-
96 Pao. 528.
Co., 52 Ore. 70, can Mortgage & Trust Co., 74 Hun
Washington. See Mangold v. Adri- 432, 25 N. Y. Supp. 432.
an Irrigation Co., 60 Wash. 286, 111 Washington. Mangold v. Adrian Ir-
Pae. 173. rigation Co., 60 Wash. 286, 111 Pae.
England. In re Leeds & Hanley 173.
Theatres of Varieties, Ltd., [1902] 2 Wisconsin. Spaulding v. North Mil-
Ch. 809, 823. waukee Town Site Co., 106 Wis. 481,
BOTorrey v. Toledo Portland Cement 81 N. W. 1064; First Avenue Land Co.
Co., 158 Mieh. 348, 122 N. W. 6i4. V. Hildebrand, 103 Wis. 530, 79 N. W.
51Hiu]jley v. Sac Oil & Pipe Line 753.
Co., 132 Iowa 396, 119 Am. St. Bep.
Torrey v. Toledo Portland Cement
54
564, 107 N. W. 629. Co., 158 Mieh. 348, 122 N. W. 614.
52 Tegarden Bros. v. Big Star Zinc
56 United States. Yeiser v. United
Co., 71 Ark. 277, 72 S. W. 989; Hinkley
States Board & Paper Co., 107 Fed.
V. Sac Oil & Pipe Line Co., 132 Iowa
340, 52 L. E. A. 724. See also Central
396, 119 Am. St. Bep. 564, 107 N. W.
Trust Co. v. East Tennessee Land Co.,
629; Hayden v. Green, 66 Kan. 204,
116 Fed. 743.
71 Pae. 236; Crowe v. Malba Land Co.,
Alabama. A, J. Cranor Co. v. Miller,
76 N. Y. Misc. 676, 135 N. T. Supp.
147 Ala. 268, 41 So. 678.
454.
Arizona. Hughes v. Cadena De Co-
It is a fraud upon the corporation
bre Min. Co., 13 Ariz. 52, 108 Pae. 231.
and its stockholders for a promoter
Connecticut. Yale Gas-Stove Co. v.
to receive stock for property turned in
Wilcox, 64 Conn. 101, 25 L. B. A. 90,
to the corporation atan overvaluation,
42 Am. St. Bep. 159, 29 Atl. 303.
or for services for which there is no
liability on the part of the corporation. Michigan. Torrey v. Toledo Port-
land Cement Co., 158 Mich. 348, 122
Boulton Carbon Co. v. Mills, 78 Iowa
N. W. 614.
460, 52 L. B. A. 649, 43 N. W. 290; Hay-
ward V. Leeson, 176 Mass. 310, 49 L. Oregon. Wills v. Nehalem Coal Co.,
B. A. 725, 57 N. E. 656; In re Eddy- 52 Ore. 70, 96 Pae. 528.
stone Marine Ins. Co., 69 L. T. B. (N. United States. Yeiser v. United
66
S.) 363, 68 L. T. B. (N. S.) 408. States Board & Paper Co., 107 Fed. 340,
63 United States. Dickerman v. 52 L. B. A. 724. See also Central Trust
Northern Trust Co., 176 U. S. 181, 44 Co. v. East Tennessee Land Co., 116
L. Ed. 423; De Klotz v. Broussard, 203 Fed. 743.
Fed. 942. See also Walker v. Pike Alabama. A. J. Cranor Co. v. Miller,
County Land Co., 139 Fed. 609. 147 Ala. 268, 41 So. 678.
276
Ch. 5] Peomoteks [§135
The presumption, however, is that the promoter of a corporation

was connected therewith for the lawful purpose of organization, not
for the unlawful purpose of conspiracy to defraud.*''
§ 135. Secret profits —In general. As a result of the fiduciary rela-

tion or relation of trust and confidence sustained by a promoter,**
he will not ordinarily be permitted to retain a secret profit made out
of his transactions or dealings with, or on behalf of the corporation
or the corporators.*'
Ailzana, Hughes v. Cadena De Co- Fed. 538. See also Walker v. Pike
bre Min. Co., 13 Ariz. 52, 108 Pao. 231. Couiity Land Co., 139 Fed. 609.
Connecticut. Yale Gas-Stove Co. v. Arizona. Hughes v. Cadena Ee Co-
"Wileox, 64 Conn. 101, 25 L. R. A. 90, bre Min. Co., 13 Ariz. 52, 108 Pae. 231.
42 Am. St. Eep. 159, 29 Atl. 803. Arkansas. Tegarden Bros. v. Big
Indiana. Cushion Heel Shoe Co. v. Star Zinc Co., 71 Ark. 277, 72 S. W.
Hartt, 181 Ind. 167, 50 L. B. A. (N. S.) 989.
979, 108 N. B. 1068. California. Western States Life Ins.
IMinnesota. See Battelle v. North- Co. v. Lockwood, 166 Cal. 185, 135 Pae.
western Cement & Concrete Pavement 496; Burbank v. Dennis, 101 Cal. 90,
Co., 37 Minn. 89, 33 N. W. 327. 35 Pae. 444; Ex-Mission Land & Water
Oregon. Wills v. Nehalem Coal Co., Co. V. Plash, 97 Cal. 610, 32 Pae. 600.
52 Ore. 70, 96 Pae. 528. Connecticut. Yale Gas-Stove Co. v.
67 Benton v. Minneapolis Tailoring Wilcox, 64 Conn. 101, 25 L. R. A. 90,
& Manufacturing Co., 78 Minn. 498, 76 42 Am. St. Eep. 159, 29 Atl. 303.
N. W. 265. Illinois. Mississippi Lumber Co. v.
68 See §134, supra. Joiee, 176 HI. App. 110, 120.
It is upon the trust that the pro- Indiana. Parker v. Boyle, 178 Ind.
moters possess integrity and business 560, 99 N. E. 986.
sagacity and will use their knowledge Massachusetts. Keith v. Eadway,
and exercise their control over the en- 220 Mass. 582, 108 N. B. 498; Hayward
terprise for the benefit of the corpora- V. Leeson, 176 Mass. 310, 49 L. E. A.
tion that subscriptions to its stock are 725, 57 N. E. 656; Emery v. Parrott,
made. Hayden v. Green, 66 Kan. 204, 107 Mass. 95.

71 Pae. 236. Michigan. Cuba Colony Co. v.
"In every case the relief granted Kirby, 149 Mich. 453, 112 N. W. 1133;
must depend on the establishment of Fred Macey Co. v. Macey, 143 Mich.
such relations between the promoter 138, 5 L. E. A. (N. S.) 1036, 106 N. W.
and the birth, formation and floating 722.
of the company, as render it contrary Mississippi. Cook v. Southern Col-

to good faith that the promoter should umbian Climber Co., 75 Miss. 121, 21
derive a secret profit from the pro- So. 795.
motion." Whaley Bridge Calico Print- Missouri. South Joplin Land Co. v.
ing Co. V. Green, 5 Q. B. D. 109, 111. Case, 104 Mo. 5Y2, 16 S. W. 390. See
59 United States. Diavis v. Las Ovas also Seehorn v. Hall, 130 Mo. 257, 261,
Co., 227 IT. S. 80, 57 L. Ed. 426, aff'g 51 Am. St. Eep. 562, 32 S. W. 643; Ex-
35 App. Cas. (D. C.) 372; Williamson v. ter V. Sawyer, 146 Mo. 302, 47 S. W.
Krohn, 66 Fed. 655; Krohn v. William- 951.
son, 62 Fed. 869; Chandler v. Bacon, 30 New Jersey. Arnold v. Searing, 78
277.
§135] Private Oobpokations [Cli.5
By a secret profit is meant such a profit as is made without dis-
N. J. Eq. 146, 78 Atl. 762;,Groll v. England. Erlanger v. New Som-

United Elec. Co., 70 N. J. Eq. 616, 61 brero Phosphate Co., 3 App. Oas. 1218,
Atl. 1061; Loudenslager v. Woodbury aff'g 5 Ch. Div. 73; Emma Silver Min.
Heights Land Co., 58 N. J. Eq. 556, 43 Co. V. Grant, 11 Ch. Div. 918; Baguall
Atl. 671, 56 N. J. Eq. 411, 41 Atl. 1115; V. Carlton, 6 Ch. Div. 371; Gover's
Woodbury Heights Land Co. v. Lou- Case, 1 Ch. Div. 182; Emma Silver Min.
denslager, 55 N. J. Eq. 78, 35 Atl. 436; Co. v. Lewis, L. E. 4 C. P. 396. See
Plaquemines Tropical Fruit Co. v. also Salomon v. Salomon & Co., [1897]
Buck, 52 N. J. Eq. 219, 27 Atl. 1094. App. Cas. 22; Lagunas Nitrate Co. v.
New York. Brewster v. Hatch, 122 Lagunas Nitrate Syndicate, [1899] 2
N. Y. 349, 19 Am. St. Eep. 498, 25 N. Ch. 392; Lydney & Wigpool Iron Ore
E. 505; Getty v. Devlin, 70 N. Y. 504, Co. V. Bird, 33 L. E. Ch. Div. 85, 94
54 N. Y. 403; Dillon v. Commercial (by Lindley, L. J.) ; In re Olympia, 67
Cable Co., 87 Hun 444, 34 N. Y. Supp. L. J. Ch. 433, [1898] 2 Ch. 153.
370; Crowe v. Malba Land Co., 76 Canada. In re Hess Mfg. Co., 23
Misc. 676, 135 N. Y. Supp. 454; Col- Can. Sup. 644; Bennett v. Havelock
ton Improvement Co. v. Biohter, 26 Elec. Light & Power Co., 21 Ont. L.
Misc. 26, 55 N, Y. Supp. 486. Eep. 120, 18 Ann. Cas. 354.
Ohio. Marblehead Bank Co. v. The rule that a promoter cannot
Earidon, 4 Ohio App. 468. make a secret profit in selling property
Oregon. Johnson v. Sheridan Luin- to the corporation only applies where
ber Co., 51 Ore. 35, 93 Pac. 470. he acts, or assumes to act,on behalf
Pennsylvania. In re Rice's Appeal, of the corporators or the proposed
79 Pa. St. 168; Densmore Oil Co. v. corporation, or where, for some other
Densmore, 64 P^. St. 43; Short v. Ste- reason, there is a fiduciary relation be-
venson, 63 Pa. St. 95; Simons v. Vulcan tween him and the corporation or the
Oil & Mining Co., 61 Pa. St. 202, 100 members of the corporation. St. Louis,
Am. Deo. 628 ; In re McElhenny 's Ap- Ft. S. & W. E. Co. V. Tiernan, 37 Kan.
peal, 61 Pa. St. 188. 606, 630, 15 Pac. 544; Densmore Oil
South Dakota. Huron Printing & Co. V. Densmore, 64 Pa. St. 43 ; Central
Bindery Co. v. Kittleson, 4 S. D. 520. Land Co. v. Obenchain, 92 Va. 130,
Virginia. Central Land Co. v. Oben- 22 S. E. 876.
chain, 92 Va. 130, 20 S. E. 876; Bosher Stockholders "have the right to
V. Eichmond & H. Land Co., 89 Va. rely on the good faith and fair dealing
455, 37 Am. St. Eep. 879, 16 S. E. 360. of those who have promoted the com-
Washington. Mangold v. Adrian Ir- pany, and to assume that they have
rigation Co., 60 Wash. 286, 111 Pac. not perverted the organization by se-
173. cret means to the accomplishment of
Wisconsin. First Avenue Land Co. selfish purposes and the destruction of
V, Hildebrand, 103 Wis. 530, 79 N. W. that equality of right which, in the
753; Limited Inv. Ass'n v. Glendale absence of some known modification,
Inv. Ass'n, 99 Wis. 54, 74 N. W. 633; all the shareholders are entitled to en-
Hebgen v. Koeffler, 97 Wis. 313, 72 N. joy." Yeiser v. United States Board
W. Franey v. Warner, 96 Wis. 222,
745; & Paper Co., 107 Fed. 340, 52 L. R.
71 N. W. 81; Fountain Spring Park Co. A. 724. See also Central Trust Co. of
V. Eoberts, 92 Wis. 345, 53 Am. St. Eep. New York v. East Tennessee Land Co.,
917, 66 N. W. 399; Pittsburg Min. Co. 116 Fed. 743.
V. Spooner, 74 Wis. 307, 17 Am. St. Where two promoters agree with
Eep. 149, 42 N. W. 259. certain other incorporators that they
278
Ch.5] Pbomotehs [§135
closing the same to the real parties in interest and obtaining their
express or implied consent thereto.^"* And in this connection it would
seem to make no difference what form the profit takes whether that —
of cash, stock in the corporation, or something else.î A secret profit
made indirectly is condemned equally with such a profit made
directly.** The method by which the secret profit is obtained is really
not very material. It is the obtaining of such a profit, by whatever
method, that the courts refuse to sanction.*' The acts of a promoter
will be carefully scrutinized,** and in determining whether he is
liable as for a secret profit, the court will look beyond the form to
the substance of the transaction.**
willpay the expenses of incorporation the fraud cannot be ratified or waived

and will endeavor to secure the sale of by the directors so as to bind the cor-
the treasury stock for the benefit of poration or the stockholders. Burbank
the corporation, in return for certain V. Dennis, 101 Cal. 90, 35 Pac. 444;
considerations, and such promoters Simons v. Vulcan Oil & Mining Co.,
then sell all or a large portion of their 61 Pa. St. 221, 100 Am. Dee. 628.
individual holdings, a slight portion The assignee of a promoter has no
of. the proceeds thereof going into greater right to the secret profit as-
the treasury and the treasury stock signed than had his assignor, Dunlap
remaining unsold, leaving the corpora- V. Twin City Power Co., 226 Fed. 161,
tion without funds wherewith to eon- 163.
duct its business, further sale of the 60 Arnold v. Searing, 78 N. J. Eq.
stock of the promoters may be re- 146, 78 Atl. 762.
strained until the treasury stock is 61 Bonds and mortgage securing
sold in accordance with the agreement. them held invalid as representing a
Brown v. Bracking, 11 Idaho 678, 83 secret profit. Midwood Park Co. v.
Pac. 950. Baker, 128 N. Y. Supp. 954, aff'd 129
A agreement with the di-
secret N. Y. Supp. 1135.
rectors of a corporation whereby a 62Eiehlands Oil Co. v. Morriss, 108
promoter is to receive stock without Va. 288, 61 S. E. 762.
paying what other stockholders pay 63Hinkley v. Sac Oil & Pipe Line
will not be sustained. Chandler v. Ba- Co., 132 Iowa 396, 119 Am. St. Bep.
con, 30 Fed. 538; Emery v. Parrott, 564, 107 N. W. 629.
107 Mass. 95; Brewster v. Hatch, 122 A secret agreement between the di-
N. Y. 349, 19 Am. St. Bep. 498, 25 N. rectors of a corporation and its pro-
E. 505; Emma Silver Min. Co. v. moters, by which the promoters are
Grant, 11 Ch. Div. 918; Emma Silver to receive a share of the profits before
Min. Co. Lewis, 4 C. P. Div. 396.
V. any dividends are paid, is invalid.
When a fraud is practiced upon the Dillon V. Commercial Cable Co., 87
stockholders of a corporation by Hun (N. Y.) 444, 34 N. Y. Supp. 370.
the promoters, it may be waived by 64 Diokerman v. Northern Trust Co.,
the stockholders, but not by the direc- 176 U. S. 181, 44 L. Ed. 423; De Klotz
tors. Knowledge of the fraud on the v.Broussard, 203 Fed. 942.
is not knowledge
part of the directors 6B Calif ornia-Calaveras Min. Co. v.
on the part of the stockholders, and Walls, 170 Cal. 285, 149 Pae. 595. Se*
279
§136] Pbivate Cokpobations [Ch.5
§ 136. -^ Gist of wrong. To render a promoter liable to accouiit for

secret profitsmade by him, it is not necessary to show that there was a
fraudulent intent on his part. It is enough that the profits were
made secretly.^®
also Loudenslager v. Woodbury best bargain for himself. Humanity

Heights Land Co., 58 N. J. Eq. 556, is so constituted that, when these con-
43 Atl. 671; Midwood Park Co. v. flicting interests arise, the temptation
Baker, 128 N. Y. Supp. 954, aff'd 129 is usually too great to be overcome,
N. Y. Supp. 1135; Wills v. Nehalem and duty is In
sacrificed to interest.
Coal Co., 52 Ore. 70, 96 Pac. 528. order that temptation may be
this
66 Chandler v. Bacon, 30 Fed. 538; avoided, or, if indulged in, must be at
lioudenslager v. Woodbury Heights the peril of the trustee, it has been
Land Co., 58 N. J. Eq. 556, 43 Atl. 671, wisely provided that the trustee shall
56 N. J. Eq. 411, 41 Atl. 1115; Wood- not be permitted to make or enforce
bury Heights Land Co. v. Louden- any contract arising between himself
slager, 55 N. J. Eq. 78, 35 Atl. 436; as trustee and individually with refer-
Pittsburg Min. Co. v. Spooner, 74 Wis. ence to any matter of the trust, nor
307, 17 Am. St. Rep. 149, 42 N. W. will the court enter into any examina-
259. See also Lagunas Nitrate Co. v. tion of the honesty of the transaction.
Lagunas Syndicate, [1899] 2 Ch. 392. As said by the Supreme Court of New
Smith v. Pacific Vinegar & Pickle York Munson, et al. v. S. G. & C. E.
in
Works, 145 Cal. 352, 104 Am. St. Rep. Co. et 103 N. T. 74, 8 N. E. 358:
al.,
42, 78 Pac. 550, although it involved a 'The law permits no one to act in
transaction between a corporation and such inconsistent relations. It does
one of its directors who was also its not stop to inquire whether the con-
president, is illustrative of the extent tract or transaction was fair or unfair.
to which transactions between fidu- It stops the inquiry when the rela-
ciaries and their beneficiaries are con- tion is disclosed, and sets aside the
demned. "These authorities lay down transaction, or refuses to enforce it, at
two propositions: First, that an ex- the instance of the party whom the
pressed contract cannot be entered into fiduciary undertook to represent, with-
by a director with himself relative to out undertaking to deal with the
the trust property; and, second, that the question of abstract justice in the par-
court will not permit any inquiry into ticular case. It prevents frauds by
the question of the honesty or fairness making them, as far as may be, impos-
of the transaction. The philosophy of sible,knowing that real motives often
this rule is quite apparent, and its in- elude the most searching inquiry; and
flexibility is the strongest safeguard it leaves neither to judge nor jury the
which the law can offer for the pro- right to determine, upon a considera-
tection of the interests of the bene- tion of its advantages or disadvan-
ficiary. The great purpose of the law tages, whether a contract made under
isto secure fidelity in the agent. When such circumstances shall stand or fall.
one undertakes to deal with himself * * * The value of the rule of ,
in different capacities —individual and equity to which we have adverted lies

representative —there is a manifest to a great extent in its stubbornness
hostility in the position he occupies. and inflexibility. Its rigidity gives it
His duty calls upon him to act for the one of its chief uses as a preventive
best interests of his principal. His or discouraging influence, because it
self-interest prompts him to make the weakens the temptation to dishonesty
280
Ch.5] Pbomotees [§136
While secrecy is the gist of the wrong,*'' a penalty is not visited upon
concealment as such, but that the promoter, sustaining the relation
that he does, will not be permitted to retain a profit inequitably
obtained.** A
secret profit is not consonant with the fiduciary rela-
tion or the relation of trust and confidence sustained by a promoter,
and it is the obligations of that relation which make it impossible for
him to retain such a profit.*'
A rule which emphasizes the fact that it is nondisclosure which
deprives a promoter of his secret profit, is the one that the corporation,
or unfair dealing on the part of trua- while the root of the evil in this ease,
tees, by vitiating, without attempted is not the gist of the offense. The
discrimination, all transactions in real offense is the receiving of this
which they assume the dual character money while occupying a fiduciary po-
of principal and representative.' " sition,and the concealing of the benefit
67 Arnold v. Searing, 78 N. J. Eq. received from those whose interests
146, 78 Atl. 762. See also Lomita Land they were bound to protect. It would
& Water Co. v. Eobinson, 154 Cal. 36, be well for those who accept positions
18 L. R. A. (N. S.) 1106, 97 Pao. 10; of public or quasi-public trust to rea-
Colton Improvement Co. v. Eichter, 26 lize that they cannot, while occupying
N. Y. Misc. 26, 55 N. Y. Supp. 486. such positions, receive any personal
If a promoter ' has a secret contract
'
advantage without the fullest possible
for the purchase of property, the terms disclosure to and assent of all con-
of which are more favorable than those cerned." Bennett v. Havelock Elec.
disclosed by him, or an agreement that Light & Power Co., 21 Ont. L. Rep.
he shall have stock in the corporation 120, 18 Ann. Cas. 354. (In this case
without paying therefor, any advan- the directors and shareholders who had
tage which he thereby obtains is a been the promoters of the corporation
fraud on the other shareholders and purchased property from one of their
upon the corporation, and he will not number and pursuant to an agreement
be permitted to retain it." Wills v. were each paid a certain amount by
Nehalem Coal Co., 52 Ore. 70, 96 Pac. him.) See also Hughes v. Cadena De
528. Compare Spaulding v. North Cobre Min. Co., 13 Ariz. 52, 108 Pac.
Milwaukee Town Site Co., 106 Wis. 231; Western States Life Ins. Co. v.
481, 81 N. W. 1064, explained in Lockwood, 166 Cal. 185, 135 Pac. 496.
Pietsch V. Milbrath, 123 Wis. 647, 68 Stockholders ' ' have the right to rely
L. R. A. 945, 107 Am. St. Eep. 1017, on the good faith and fair dealing of
102 N. W. 342, 101 N. W. 388. those who have promoted the com-
68 Woodbury Heights Land Co. v. pany, and to assume that they have
Loudenslager, 58 N. J. Eq. 556, 43 Atl. not perverted the organization by se-
671. cret means to the accomplishment of
69 "It may be, and probably was, selfish purposes, and the destruction
the fact that the defendants failed to of that equality of right which, in the
realize that their conduct was ob- absence of some known modification,
jectionable. Probably their position all the shareholders are entitled to en-
was well put by one of their counsel: joy. " Yeiser v. United States Board
' They could not be expected to go in & Paper Co., 107 Fed. 340, 52 L. R. A.
unless there was something in it for 724.
them.' The desire to make money,

281
136] Pkivate Cokpokations [Ch.5
in order to hold a promoter accountable for such a profit, need not

have been damaged by the transaction in which it was made,''*' except,
of course, as it is damaged by the loss of the profit to its treasury.
So the fact that tha property on the sale of which to the corporation
the promoters made a secret profit was worth all or more than the
corporation paid for it, is not a defense to the promoters' liability
to the corporation for such profitJ^
§ 137. — Sale by promoter to corporation. One of the commonest

transactions which calls for the application of the rule that a promoter
will not be permitted to retain a secret profit is a sale of property by
the promoter to the corporation. So far from there being no authority
for the proposition that under no circumstances will a promoter be
permitted to sell his property to the corporation,''^ for whose creation
he is responsible, there is abundant authority for maintaining that
under certain restrictions a sale by a promoter to the corporation,''*
70 Western States Life Ins. Co. v. and without whose approval the land
Lockwood, 166 Cal. 185, 135 Pao. 496. could not under the contract be trans-
71 United States. Yeiser v. United ferred. Milwaukee Cold Storage Co.
States Board & Paper Co., 107 Fed. V. Dexter, 99 Wis. 214, 40 L. R. A. 837,
340, 52 L. R. A. 724. 74 N. W. 976. See also § 136, supra.
California. Burbank v. Dennis, 101 73 United States. Stewart v. St.
Cal. 90, 35 Pac. 444. Louis, Ft. S. & W. R. Co., 41 Fed. 736.
Connecticut. Yale Gas-Stove Co. v. Connecticut. Yale Gas-Stove Co. v.
Wilcox, 64 Conn. 101, 25 L. E. A. 90, Wilcox, 64 Conn. 101, 25 L. R. A. 90,
42 Am. St. Rep. 159, 29 Atl. 303. 42 Am. St. Rep. 159, 29 Atl. 303.
Illinois. Mississippi Lumber Co. v. Illinois. Federal Life Ins. Co. v.
Joice, 176 111. App. 110, 119. GrifBn, 173 111. App. 5.
Missouri. See Seehorn v. Hall, 130 Indiana. Parker v. Boyle, 178 Ind.
Mo. 257, 51 Am. St. Rep. 562, 32 S. W. 560, 99 N. E. 986; Bruner v. Brown,
643. 139 Ind. 600, 38 N. E. 318.
New York. Midwood Park Co. v. Iowa. The Telegraph v. Loetscher,
Baker, 128 N. Y. Supp. 954, aff'd 129 127 Iowa 383, 4 Ann. Cas. 667, 101 N.
N. Y. Supp. 1135. W. 773.
72 Bonuses personally paid by a pro- Kansas. St. Louis, Ft. S. & W. R.
moter to certain subscribers are not Co. V. Tiernan, 37 Kan. 606, 15 Pac.
per se grounds for charging him with 544.
fraud in selling to the corporation Maryland. Tompkins v. Sperry,
property, owned by him and purchksed Jones & Co., 96 Md. 560, 54 Atl. 254.
before the idea of a corporation was Llinnesota. Selover v. Isle Harbor
conceived. In this case, a bonus was Land 91 Minn. 451, 98 N. W. 344.
Co.,
paid to one through whom it seemed Oregon. Wills v. Kehalem Coal Co.,
the corporation might obtain valuable 52 Ore. 70, 96 Pae. 528.
patronage, and also to the one who Pennsylvania. Densmore Oil Co. v.
had sold the property to the promoter Densmore, 64 Pa. St. 43, 49.
at a reduced price and on that ac- West Virginia. Richardson v. Gra-
count claimed the right to the bonus ham, 45 W. Va. 134, 30 S. B. 92.
282
Oh. 5] Pbomoters [§137
even at a profit, will be valid.'* It would seem, however, that in

order for such a sale to be valid, the corporation, at the time thereof,
must have been represented by an independent and impartial board
Wisconsin. Pietseh v. Milbrath, 123 Cement & Concrete Pavement Co., 37
Wis. 647, 68 L. E. A. 945, 107 Am. St. Minn. 89, 33 N. W. 327.
Eep. 1017, 102 N. W. 342, 101 N. W. 74 "Itis common practice for per-
388; Spaulding North Milwaukee
v. sons who own property, or who have
Town Site Co., 106 Wis. 481, 81 N. W. acquired the right to purchase prop-
1064; Milwaukee Cold Storage Co. v. and form a corporation,
erty, to project
Dexter, 99 Wis. 214, 40 L. R. A. 837, and induce others to become stockhold-
74 N. W. 976; Pittsburg Min. Co. v. ers for the purpose of selling the prop-
Spooner, 74 Wis. 307, 17 Am. St. Eep. erty to the corporation at a profit.
149, 42 N. W. 259. There is no rule of law which prohibits
England. Erlanger v. New Som- such .a transaction, and there should
brero Phosphate Co., 3 App. Cas. 1218. be none, for the law encourages a free
A
promoter of a corporation who ac- alienation and transfer of property,
quires the title to land, acting for the both real and personal; nor does the
corporation in pursuance of an agree- mere fact that a profit is made in such
ment with the other promoters, and a transaction render the party receiv-
who refuses to turn the land over to ing it liable to account therefor. But
the corporation, may be held liable in the persons who thus project and form
equity as a constructive trustee. Nes- a corporation, by soliciting and procur-
tor V. Gross, 66 Minn. 371, 69 N. W. ing others to subscribe for and take
39. But see Old Dominion Copper Min- shares of stock, for the purpose of sell-
ing & Smelting Co. v. Bigelow, 188 ing or turning over to the company
Mass. 315, 108 Am. St. Eep. 479, 74 property which they own, or have a
N. E. 653. right to acquire by executory contract,
A promoter may pay for stock sub- do occupy a double position. On the
scribed for by him by giving the cor- one hand, they represent their own
poration credit to the amount of his interest in respect of the disposition
subscription on the price which the of the property; on the other, they
corporation agreed to pay him for represent the proposed corporation.
the option which he sold to it, and for And persons who subscribe for stock
the services of his co-promoters by have a right to do so upon the as-
allowing the corporation credit on the sumption that the promoters are using
price of the option to the amount of their knowledge, skill, and ability for
their subscriptions. Eichardson v. the benefit of the company. It is there-
Graham, 45 W. Va. 134, 30 S. E. 92. fore clear on principle that promoters,
Where no complaint can be made of under the circumstances just stated, do
the fairness of a sale of property by a occupy a position of trust and confi-
promoter to the corporation and each dence, and it devolves upon them to
stockholder, director and officer of the make full disclosure." South Joplin
corporation not only had knowledge Land Co. v. Case, 104 Mo. 572, 16 S.
of the agreement but was a party W. 390. See also Tegarden Bros. v.
thereto, and the corporation received Big Star Zinc Co., 71 Ark. 277, 72 S.
the benefit of the sale, and accepted W. 989; Calif ornia-Calaveras Min. Co.
and used the property in its business, V. Walls, 170 Cal. 285, 149 Pac. 595;
it cannot deny its liability to pay Wiano Land & Improvement Co. v.
therefor. Battelle v. Northwestern Webster, 75 Mo. App. 457; Arnold v.
283
§137] Private Cokpoeations [Ch.5
of directors.''^ Furthermore, the rule is that the promoters are charged,
Searing, 78 N. J. Eq. 146, 78 Atl. Copper Min. Co. v. Lewisohn, 136

762. Fed. 915. But compare Wills v. Ne-
A corporation will be entitled to re- halem Coal Co., 52 Ore. 70, 96 Pac.
lief inequity against a promoter who 528.
obtained a portion of the stock issued 7B " In the whole of this proceeding
by its directorate, which was composed up to this time the syndicate, or the
of such promoter, his co-promoter who house of Erlanger as representing
also obtained a portion of the stock, the syndicate, were the promoters of
and certain dummies, in payment of the company, and it is now necessary
property sold at a secret profit, by the that I should state to your Lordships
co-promoter to the corporation, where, in what position I understand the pro-
although all of the stock with which moters to be placed vidth reference to
the corporation was organized was the company which they proposed to
owned by the two promoters, the form. They stand, in my opinion, un-
amount of the stock was increased doubtedly in a fiduciary position.
before the co-promoter's offer was ac- They have in their hands the creation
cepted, and the full disclosure, re- and molding of the company; they have
quired under the circumstances, was the power of defining how, and when,
not made. Old Dominion Copper Min- and in what shape, and under what
ing &Smelting Co. v. Bigelow, 188 supervision, it shall start into exist-
Mass. 315, 108 Am. St. Eep. 479, 74 ence and begin to act as a trading cor-
N. E. 653. See also Hutchinson v. poration. If they are doing all this in
Simpson, 92 N. Y. App. Div. 382, 87 order that the company may, as soon
N. Y. Supp. 369. Contra, Old Domin- as it starts into life, become, through
ion Copper Mining & Smelting Co. v. its managing directors, the purchaser
Lewisohn, 210 U. S. 206, 52 L. Ed. of the property of themselves, the pro-

1025, afE'g 148 Fed. 1020 (distin- moters, it is, in my opinion, incumbent
guished in Davis v. Las Ovas Co., 227 upon the promoters to take care that
V. S. 80, 57 L. Ed. 426), in connection in forming the company they provide
with which, see Lilylands Canal & it with an executive, that is to say,
Eeservoir Co. v. Wood, 56 Colo. 130, with a board of directors, who shall
136 Pae. 1026, and Continental Securi- both be aware that the property which
ties Co. V. Belmont, 168 N. Y. App. they are asked to buy is the 'property
Div. 483, 154 N. Y. Supp. 54. See also of the promoters, and who shall be
In re Wyoming Valley Ice Co., 153 competent and impartial judges as to
Eed. 787, afE'd Wiegand v. Albert whether the purchase ought or ought
Lewis Lumber & Manufacturing Co., not to be made. I do not say that the
158 Fed. 608; Barr v. New York, L. owner of property may not promote
E. & W. E. Co., 125 N. Y. 263, 26 N. and form a joint stock company, and
E. 145; Flanagan v. Lyon, 54 Misc. then sell his property to it, but I do
372, 105 N. Y. Supp. 1049. say that if he does he is bound to take
Whether a contract by the corpo- care that he sells it to the company
ration to purchase property from a through the medium of a board of di-
promoter is voidable so as to give the rectors who can and do exercise an
corporation the right to rescind or to independent and intelligent judgment
demand damages must be determined on the transaction, and who are not
from the conditions which obtained left under the belief that the property
when it was made. Old Dominion belongs, not to the promoter, but to
284
Cli.5] Peomoteks [§137
not alone with the negative duty of not misrepresenting or concealing
some other person. ' Erlanger v. New

'
This requirement, however, would
Sombrero Phosphate Co., 3 App. Cas. seem not to obtain in the ease of a
1218 (Lord Cairns, L. C). close corporation —
at least, not in
See also in this connection: —
favor of creditors when all of the
United States. Dickerman v. North- shareholders had knowledge of the
ern Trust Co., 176 U. S. 181, 44 L. Ed. facts. Salomon v. A. Salomon & Co.,
423; Old Dominion Copper Mining & Ltd., [1897] A. C. 22. See also Tomp-
Smelting Co. v. Lewisohn, 136 Fed. kins V. Sperry, Jones & Co., 96 Md.
915. 560, 54 Atl. 254. And see La-
Parker v. Boyle, 178 Ind.
Indiana. gunas Nitrate Co. v. Lagunas Syndi-
560, 99 N. E. 986. cate, [1899] 2 Ch. 392, 425, in which
Iowa. The Telegraph v. Loetacher, Lindley, M. E., said: "Notwithstand-

127 Iowa 383, 4 Ann. Cas. 667, 101 ing all that has been said in Erlanger
N. "W. 773. V. New Sombrero Phosphate Co. about
Maine. Mason v. Carrothers, 105 the duties of the promoters of a com-
Me. 392, 74 Atl. 1030. pany to furnish it with an independent
board of directors, that decision does
Maiyland. Tompkins v. Sparry,
Jones & Co., 96 Md. 560, 54 Atl. 254. not require or indeed justify the con-
clusion that if a company is avowedly
Massachusetts. Old Dominion Cop-
formed with a board of directors who
per Mining & Smelting Co. v. Bigelow,
are not independent, but who are
188 Mass. 315, 108 Am. St. Eep. 479,
stated to be the intended vendors, of
74 N. E. 653.
property to the company, the company
Miôuii. Wiano Land & Improve-
can set aside an agreement entered
ment Mo. App. 457.
Co. V. Webster, 75
into by them for the purchase of such
New Jersey. Holeombe v. Trenton property simply because they are not
White City Co., 80 N. J. Eq. 122, 82
an independent board. What vitiated
Atl. 618, aff'd 82 N. J. Eq. 364, 91 Atl.
the agreement in Erlanger's Case were
1069; Arnold v. Searing, 78 N. J. Eq.
the concealment of the fact that two
146, 78 Atl. 762; See v. Heppenheimer,
out of the three managing directors
69 N. J. Eq. 36, 61 Atl. 843; Plaque-
were agents of the vendors and pro-
mines Tropical Fruit Co. v. Buck, 52
moters, and the untrue statement that
N. J. Eq. 219, 27 Atl. 1094.
a provisional contract had been en-
New York. Colton Improvement Co. tered into by the directors, whilst, in
V. Eichter, 26 Misc. 26, 55 N. T. Supp. fact, it had only been framed by the
486.
promoters and adopted by three direc-
Pennsylvania. Simons v. Vulcan Oil tors, two of whom were not known to
& Mining Co., 61 Pa. St. 202, 100 Am. be their agents, and the third of whom
Dee. 628. knew nothing about the matter. In
Wisconsin. Pietsch v. Milbrath, 123 the present case there is no secrecy
Wis. 647, 68 L. E. A. 945, 107 Am. St. or concealment of the true posi-
Eep. 1017, 102 N. W. 342, 101 N. W. tion of the first and
directors,
388. no untrue statement as to what they
England. In re Paper Box Co., '.7 did for the company. In the face of
Ch. Div. 471. the memorandum and articles of asso-
Canada. Stratford Fuel, lee, Cart- ciation it is impossible to treat the
age & Construction Co. v. Mooney, 21 nitrate company or the members there-
Ont. L. Eep. 426, 444. of as ignorant of the real truth as to
285
§137] Pbivate Coepoeations [Cli.5
the facts,''* but with, the positive duty of making a full and fair dis-
closure of their ownership or interest in the property/'' of the profit
the position of its directors. After his own property." "Wiano Land &
Salomon's Case [supra] I think it Improvement Co. v. Webster, 75 Mo.
impossible to hold that it is the duty App. 457. See also Dickerman v.
of the promoters of a company to pro- Northern Trust Co., 176 U. S. 181, 44
vide it with an independent board of L. Ed. 423; De Klotz v. Broussard, 203
directors, if the real truth is disclosed Fed. 942; Walker v. Pike County Land
to those who are induced by the pro- Co., 139 Fed. 609; Calif ornia-Galaveras
moters to join the company. Treating Min. Co. v. Walls, 170 Cal. 285, 149
promoters of companies as in a fidu- Pac. 595; Lomita Land & Water Co. v.
ciary relation to them, and as having Robinson, 154 Cal. 36, 18 L. R. A. (N.
a power of appointing trustees (name- S.) 1106, 97 Pac. 10; Burbank v. Den-
ly, directors), I cannot treat compa- nis, 101 Cal. 90, 35 Pac. 444; Ex-Mis-
nies or their shareholders as so many sion Land & Water Co. v. Flash, 97
cestuis que trust under disability, nor Cal. 610, 32 Pac. 600; Wills v. Neha-
even as cestuis que trust for whom lem Coal Co., 52 Ore. 70, 96 Pac. 528.
trustees are appointed without their In order that a corporation may re-
consent. No one need join a company cover from a promoter secret profits
unless he likes, and if a person knows made by him, the fraud must have
that if he becomes a member he will been perpetrated against the corpora-
find as directors persons who, in his tion or against the subscribers to its
opinion, ought not to be directors, he stock as such. Where A
and others,
should not join the company. If he owning land which they had bought
does, he has no right to redress on the for $1,000 per acre, agreed to form a
ground that improper persons were corporation and transfer the land to it
appointed trustees. 'Volenti non fit at $1,500 per acre, taking stock in pay-
injuria' applies in such a case to the ment, and A
afterwards sold an inter-
members of the company, and Salo- est in his land toB at $1,325 per acre,
mon's Case shews that the company representing that it had cost him
in its corporate capacity is in this re- $1,300 per acre, with the understand-
*
spect in no better position. • * ing that when the land should be trans-
The on which Salomon's
principles ferred to the corporation, B, as well as
Case was decided by the House of the others, should be paid for his in-
Lords are quite consistent with those terest in shares at the rate of $1,500
on which Erlanger v. New Sombrero per acre, A
was not liable to the cor-
Phosphate Co. was decided." poration for the profits thus made by
76 "As a general proposition a pro- him, his fraud being personal to B.
moter may deal at arm 's length with a Spaulding v. North Milwaukee Town
corporation and may sell it property at Site Co., 106 Wis. 481, 81 N. W. 1064
a but he cannot do this by con-
profit, 77 California-Calaveras Min. Co. v,
cealing the truth when it is his duty Walls, 170 Cal. 285, 149 Pac. 595
to speak, nor speculate off of by mis-it Lomita Land & Water Co. v. Bobinson
representing his connection with and 154 Cal. 36, 18 L. R. A. (N. S.) 1106,
interest in the thing about which he is 97 Pac. 10; Wiano Land & Improve
proposing to deal with the corporation, ment Co. v. Webster, 75 Mo. App. 457
nor can he act as the agent of the cor- Colton Improvement Co. v. Richter, 26
poration for the purpose of selling it N. Y. Misc. 26, 55 N. T. Supp. 486
286
Ch. 5] Pbomotebs- [§137
which they will make as a result of the transaction,'" and of all material
facts generally.™ This duty of disclosure is not performed by the
"Wills V.Nehalem Coal Co., 52 Ore. 70, Me. 392, 74 Atl. 1030; Camden Land
96 Pac. 528. See also The Telegraph v. Co. V. Lewis, 101 Me. 78, 63 Atl. 523.
Loetscher, 127 Iowa 383, 4 Ann. Cas. Massachusetts. See Old Dominion
667, 101 N. W. 773; Erlanger v. New Copper Mining & Smelting Co. v. Bige-
Sombrero Phosphate Co., 3 App. Cas. low, 188 Mass. 315, 108 Am. St. Bep.
1218. 479, 74 N. E. 653.
78 Old Dominion Copper Mining & Missouri See South Joplin Land
Smelting Co. v. Bigelow, 188 Mass. 315, Co. V. Case, 104 Mo. 572, 16 S. W.
108 Am. St. Rep. 479, 74 N. E. 653; 390.
Arnold v. Searing, 78 N. J. Bq. 146, New York. Midwood Park Co. v.
78 Atl. 762; Colton Improvement Co. Baker, 128 N. Y. Supp. 954, aff'd 129
V. Richter, 26 N. Y. Mise. 26, 55 N. Y. N. Y. Supp. 1135.
Supp. 486. Virginia. See Richlands Oil Co. v.
A purchaser of stock from a broker Morriss, 108 Va. 288, 61 S. E. 762.
who had title thereto and who was Washington. Mangold v. Adrian Ir-
chargeable with knowledge an of rigation Co., 60 Wash. 286, 111 Pac.
agreement whereby the promoters were 173.
to obtain a cerlfein amount of stock aa Wisconsin. First Avenue Land Co.
a bonus cannot maintain an action V. Hildebrand, 103 Wis. 530, 79 N. W.
to secure the restoration to the corpo- 753.
ration for the benefit of its stockhold- England. Lagunas Nitrate Co. v.
ers of a sum equal to the par value of Lagunas Syndicate, [1899] 2 Ch. 392.
the stock distributed under such agree- In Spaulding v. North Milwaukee
ment at a time when the promoters Town Site Co., 106 Wis. 481, 81 N. W.
were nominally the only stockholders, 1064, the court said: "The liability of
the purchaser having no greater rights promoters of corporations is predicated
in the matter than had the broker. on fraud, an essential element of which
Brooker v. Wm. H. Thompson Trust is deceit. Franey v. Warner, 96 Wis.
Co., 254 Mo. 125, 162 S. W. 187. 222, 71 N. W. 81; Cold Storage Co. v.
79 United States. Dickerman v. Dexter, 99 Wis. 214, 74 N. W. 976, 40
Northern Trust Co., 176 U. S. 181, 44 L. R. A. 837. It is not enough that
L. Ed. 423; De Klotz v. Broussard, 203 the corporation receives property at a
Fed. 942. higher price than it cost the promoters,
Arizona. Hughes v. Cadena De Co- or at a price above its fair market
hie Min. Co., 13 Ariz. 52, 108 Pac. 231. value, to give to the corporation a
California. Western States Life right to rescind or to recover back
Ins. Co. v. Loekwood, 166 Cal. 185, 135 profits made. Whitehill v. Jacobs, 75
Pac. 496; Lomita Land & Water Co. v. Wis. 474, 44 N. W. 630; Cold Storage
Robinson, 154 Cal. 36, 18 L. R. A. (N. Co. V. Dexter, supra. It must have
e.) 1106, 97 Pac. 10; Ex-Mission Land been deceived and misled into paying
& Water Co. v. Plash, 97 Cal. 610, 32 such price. But the corporation as an
Pac. 600. entity cannot be deceived, save as some
Indiana. Parker v. Boyle, 178 Ind. of the individuals composing it are.
560, 99 N. E. 986. True, the acts and conduct which may
Iowa. CafCee v. Berkley, 141 Iowa constitute actionable fraud in pro-
344, 118 N. W. 267. moters differ from that [those] which

Maine. Mason v. Carrothers, 105 would be necessary in other relations;
287
§137] Peivate Coeporations [Cli.5
making of. a statement which does not disclose the facts but merely
for they owe uberrima fides to the cor- a mere secret conduit through which
poration they create, and will often be to convert the money paid by future
held bound to speak under circum- subscribers to stock to their own gain
stances whioh would permit another to and then use the corporate organiza-
be silent.There must, however, be tion to aid in luring such subscribers
actual misleading of some of their as- into the trap, the corporation being
sociates, either by their affirmative powerless to prevent it and yet the —
words or acts or by
their silence, and, law furnish it no remedy for the
if the latter, under such circumstances wrong. To establish such a doctrine
that they may reasonably apprehend would be to open a most inviting ave-
that such associates may otherwise act nue for the commission of fraud. Then
upon a wrong assumption or under- the well-settled doctripe that promot-
standing. The rule is stringent that, ers cannot secretly obtain profits from
in dealing with a corporation which the corporation they cause to be or-
they organize, promoters must make ganized and launched into the business
full disclosure, and the transaction world without being responsible to it
must be open and free from mislead- therefor can be easily evaded by their
ing concealments; but mere silence organizing the corporation, taking part
cannot, be misleading to one otherwise of the stock ostensibly at the full par
fully informed." In a later ease value thereof in cash, but really pay-
(Pietsch V. Milbrath, 123 "Wis. 647, 68 ing little or nothing therefor, and then
L. E. A. 945,. 107 Am. St. Eep. 1017, inducing others to take the balance of
102 N. W. 342, 101 N. W. 388), the Wis- the stock in ignorance of the facts,
consin court, after paraphrasing the paying the full par value therefor into
first part of the above quotation, said: the corporate treasury. The law does
"No serious fault can be found with not permit any such transaction as
that. Generally speaking, it is correct. the one above suggested to go neces-
It was used as regards a situation sarily unredressed. Persons who act
where all the stock of a corporation as promoters of a corporation do not
had been taken. Certainly the court necessarily cease to be such when the
did not intend to hold that a corpora- corporation is organized to do busi-
tion has not capacity to acquire a ness. They may retain their fiduciary
cause of action to recover profits made relation thereto till its share capital
by its agents, acting in the double shallhave been taken and the corpora-
role of such agents and at the same tion provided with a board, or some
time for themselves and to their own reasonably efficient means of protect-
advantage, no one standing by to pro- ing its- interests. So long as there are
tect it; that they can perfect the cor- prospective original subscribers £or
porate organization, keep control stock and the promoters and those
thereof for their own gain while os- concerting with them remain in con-
tensibly promoting its interests; that trol of the corporation, it is in a sit-
they can restrict subscriptions to stock uation to be deceived, within the rule
tq a part taken by themselves in order of the Spaulding case. It is deceived
that their ulterior purpose may be in a legal sense when it is rendered
accomplished; that while so in control helpless by its managers as to pro-
for such purpose, ostensibly acting tecting those invited to subscribe for
for the corporation but really for them- its stock, and is then used to aid in
selves, they may make the organization defrauding them. It is deceived
288
Ch.5] Pkomoteks [§ 138
contains something which, if followed up by further investigation, will

enable the inquirer to ascertain the facts.^°
§ 138. —
Qualification of general rules as to sales. The rules
above stated are the general ones applicable to the sale of property
by promoters to the corporation for whose creation and organization!
they are responsible, but in a number of instances one or more of tliese
rules have been qualified and their operation materially limited. The"
rules forbidding misrepresentation and requiring disclosure undoubt-
edly apply where a person purchases property or procures an option
to purchase the same while acting as a promoter of the corporation,
and then sells it to the latter at an advance,'^ and there is authbrity
thereby just as efEectually as regards to the owners thereof, excluding there-
necessity for, and means of, redress as from all profits to promoters received
in a case where promoters by control as commissions from the owners. Cen-
of a corporation cause it to deal with tral Land Co. v. Obenchain, 92 Va.
them to their special advantage over 130, 22 S. E. 876.
then existing and unsuspecting mem- 81 California. Ex-Mission Land &
bers thereof." Water Co. V. Flash, 97 Cal. 610, 32 Pac.
80 Mason v. Carrothers, 105 Me. 392, 600.
74 Atl. 1030; Arnold v. Searing, 78 1^. Iowa. See Hinkiey v. Sac Oil & Pipe
J. Eq. 146, 78 Atl. 762; In re Olympia, Line Co., 132 Iowa 396, 119 Am. St.
[1898] 2 Ch. 153, 67 L. J. Ch. 433. Eep. 564, 107 N. W. 629.
If there has been concealment by Missouri. Exter v. Sawyer, 146 Mo.
the promoters, honesty of purpose on. 362, 42 S. W. 951; South Joplin Land
their part, withan intention to act for Co. V. Case, 104 Mo. 572, 16 S. W. 397.
the benefit of the company, will not New Jersey. Loudenslager v. Wood-
avail them as a defense to an action bury Heights Land Co., 58 N. J. Eq.
for rescission. The mere fact of the 556, 43 Atl. 671, 56 N. J. Eq. 411, 41
disclosure of the fiduciary relation, and Atl. 1115; Woodbury Heights Land Co.
of the double character in which the V. Loudenslager, 55 N. J. Eq. 78, 35
promoters are acting, will not discharge Atl. 436; Plaquemines Tropical Fruit
them from the obligation of making a Co. V. Buck, 52 N. J, Eq. 219, 27 Atl.
complete and candid disclosure of all 1094.
material facts. This obligation will New York. Brewster v. Hatch, 122
exist so long as they retain'^control of N. Y. 349, 19 Am. St. Eep. 49g, 25 N. E.
the affairs of the company, and, if not 505.
they will be treated as wrong-
fulfilled, Fennsylvatila. Densmore Oil Co. v.
doers, whether there was any actual Densmore, 64 Pa. St. 43; Simons v.
fraudulent intent or not. Lagunas Vulcan Oil & Mining Co., 61 Pa. St.
Nitrate Co. v. Lagunas Syndicate, 202, 100 Ain. Dec. 628. '
[1899] 2 Ch. 392. Virginia. Bosher Eichmorid' &

v.
A recital in the prospectus of a com- Harrisonburg Land Co., 89 Va. 455,

pany that, if thecompany takes and 37 Am. St. Eep. 879, 16 S. E. 360.
holds certain lands,it shall pay there- Wisconsin. Pittsburg Min. Co. v.
for "actual cost," means that it shall Spooner, 74 Wis. 307, 17 Am. St.- Bep.
pay for the lands the actual price paid 149, 42 N. W. 259.
289
for .the proposition that they likewise apply where a person who owns
property, or holds an option to purchase it promotes a corporation

for the purpose of selling the property to it.'* Somewhat to the
contrary, however, are the cases which hold that a person who has
acted as one of the promoters of a corporation is not denied the right
to make a secret profit when he deals with it, through its duly author-
ized ofiScers or agents, after its organization, and sells it property
owned by him, but not purchased when acting as promoter, the
reason being that he does not then occupy a fiduciary relation, but
is in the same position as any other person who might sell to the
corporation. Proceeding further, these same cases hold that it can
make no difference that such person was the sole promoter of the
corporation, or that he purchased the property for the purpose of
afterwards selling it to the corporation at a profit, or that he does
not, in selling it, inform the officers of the corporation of the price
which he paid for it.''
A distinction between cases where the property sold to the corpora-
82 CaJlfonila. Burbank v. Dennia, Virginia. Central Land Co. v. Oben-
101 Cal. 90, 35 Pac. 444. chain, 92 Va. 130, 22 S. E. 876.
Missouri. South Joplin Land Co. v. West Virginia. See Biehardaon v.
Case, 104 Mo. 572, 16 S. W. 390. Graham, 45 W. Va. 134, 30 S. E. 92.
New York, Getty v. Devlin, 70 N. Wisconsin. Milwaukee Cold Storage
Y. 504, 54 N. Y. 403. Co. v. Dexter, 99 Wis. 214, 40 L. B. A.
Pennsylvania. In re Bice's Appeal, 837, J4 N. W. 976.
79 Pa. St. 168. England. Ladywell Min. Co. v.
Wisconsin. Pittsburg Min. Co. v. Brookes, 34 Ch. Div. 398; Cover's Case,
Spooner, 74 Wis. 307, 17 Am. St. Eep. 1 Ch. Div. 182.
149, 42 N. W. 259. Two persons who had, for a small
England. Erlanger v. New Sombrero aum, purchaaed a roadbed, the eon-
Phosphate Co., 3 App. Cas. 1218, aff'g atruction of which cost only $2,000,
5 Ch. Div. 73; Lagunas Nitrate Co. v. caused a railroad company to be or-
Lagunas Nitrate Syndicate, [1899] 2 ganized, and, with others, became di-
Ch. 392. rectors thereof, and while in this re-
83 Kansas. St. Louis, Ft. S. & W. B. lation contracted with the directors to
Co. v. Tiernan, 37 Kan. 606, 15 Pac. sell the roadbed to the company for
544. $200,000 cash or bonds, and $3,600,000
New Jersey. Plaquemines Tropical of the capital stock. The sale was
Fruit Co. V. Buck, 52 N. J. Eq. 219, 27 formally ratified at a meeting of the
Atl. 1094. directora, and entered on the records
Pennsylvania. Densmore Oil Co. v. of the company, and afterwards the
Densmore, 64 Pa. St. 43; Simons v. stockholders unanimoualy approved
Vulcan Oil & Mining Co., 61 Pa. St. the purchase. At the time of the
202, 100 Am. Dee. 628; In re McEl- aale there were no atockholders, and
haney's Appeal, 61 Pa. St. 188; Lun- the stock thus issued was all that had
gren v. Pennell, 10 Wkly. Notes Caa. been subscribed. The company had no
297. property except its charter and the
290
:
Ch. 5] Promoters [§ 138
tion was owned at the time the promotion of the corporation was
undertaken, and cases where it was acquired subsequently thereto
has been made in a Pennsylvania decision which has been freely
quoted by foreign courts. In the course of this decision it was said
*' There are two principles applicable to all partnerships or associa-
tions for a common purpose of trade or business, which appear to be

well settled on reason and authority. The first is that any man or
number of men, who are the owners of any kind of property, real
or personal, may form a partnership or association with others, and
sell any price which may be agreed
that property to the association at
upon between them, no matter what it may have originally cost,
provided there be no fraudulent misrepresentation made by the ven-
dors to their associates. They are not bound to disclose the profits
which they may realize by the transaction. They were in no sense
agents or trustees in the original purchase, and it follows that there
is no confidential relation between the parties which affects them
with any trust. It is like any other case of vendor and vendee. They
deal at arm's length. Their partners are in no better position than
strangers. They must exercise their own judgment as to the value
of what they buy. * * * The second principle is, that where
persons form such an association, or begin or start the project of one,
from that time they do stand in a confidential relation to each other,
and to all others who may subsequently become members or subscribers,
and it is not competent for any of them to purchase property for the
purposes of such a company, and then sell it at an advance without a
full disclosure of the facts. They must account to the company for
the profit, because it legitimately is theirs." '* In keeping with what
the Pennsylvania court denominated the first principle, it has been held
that the fact that a promoter paid a less amount for property, owned
by hinl prior to the time when he conceived
the idea of bringing about
the creation of a corporation, than he obtained for it on his sale of it
to the corporation will not alone convict him of fraud in such sale."
roadbed, and the value of the notes Co. v. Walls, 170 Cal. 285, 149 Pac.
and stock issued to these parties had 595; Burbank v. Dennis, 101 Cal. 90,
no market value. Under these cir- 35 Pac. 444; Exter v. Sawyer, 146 Mo.
cumstances, it was held that the sale 302, 47 S. W. 951; South Joplin Land
was not fraudulent. Stewart v. St. Co. v. Case, 104 Mo. 572, 16 S. W. 390;
Louis, Ft. S. & W. B. Co., 41 Fed. 736. Milwaukee Cold Storage Co. v. Dexter,
84Densmore Oil Co. v. Densmore, 64 99 Wis. 214, 40 L. B. A. 837, 74 N. W.
Pa. St. 43, 49, 50, quoted, either in 976. See also Bichlands Oil Co. v.
whole or in part, in Tegarden Bros. Morriss, 108 Va. 288, 61 S. E. 762.
V. Big Star Zinc Co., 71 Ark. 277, 72

86 Milwaukee Cold Storage Co. v.
Min. Dexter, 99 Wis. 214, 40 L. B. A. 837,

S, W. 989; Calif ornia-Calaveras
291
§139] PbIVATE COEPOBATIONS [Ch.5
§ 139. — Joint and several liability. The rule seems to be that the
liability of promoters who have obtained a secret profit is one of a
joint and The word "promoters" as here used
several character.*^*
must, however, be given a strict construction, and its meaning cannot
be extended to include one who was made a participant in the profit
to reimburse him for his services more as the servant of the promoters'
agent than as one engaged equally with the promoters in the bringing
of the corporation into existence.^*
§ 140. — Actions against promoters—Nature and form of remedy.

When the promoter of a corporation fraudulently makes a secret profit
in on behalf of or with the corporation, there are
transactioiis
ordinarily several remedies against him.*'' The corporation may re-
store, or offer to restore, what it has received, and sue to set the
transaction aside and recover what it has parted with; " it may main-
tain a suit in equity to compel an accounting for the secret profits
74 N. W. 976. See also Forest Land to a certain part of the land to the
Co. r. Bjorkquist, 110 "Wis. 547, 86 N. officer inpayment of a bona fide in-
W. 183. debtedness to him, and can only be
8Ba Arnold N. J. Eq.
v. Searing, 78 raised in a proceeding in behalf of
146, 78 Atl. 762. See also Old Domin- creditors generally. El Cajon Port-
ion Copper Mining & Smelting Co. v. land Cement Co. v. Eobert F. Wentz
Bigelow, 188 Mass. 315, 108 Am. St. Engineering Co., 165 Fed. 619.
Eep. 479, 74 N. E. 653; Bigelow v. Old A
compromise between a corporation
Dominion Copper Mining & Smelting and promoters is binding. Coburn
its
Co., 74 N. J. Eq. 457, 71 Atl. 153. V. Cedar Valley Land & Cattle Co.,
88 Arnold v. Searing, 78 N. J. Eq. 138 U. S. 196, 34 L. Ed. 876.
146, 78 Atl. 762. See also Wood- 88Burbank v. Dennis, 101 Cal. 90,
bury Heights Land Co. v. Louden- 35 Pac' 444; Ex-Mission Land &
Blager, 58 N. J. Eq. 556, 43 Atl. 671, Water Co. v. Flash, 97 Cal. 610, 32 Pac.
modifying 55 N. J. Eq. 78, 35 Atl. 436. 600; Munson v. Syracuse, G. & C. E.
87 Zinc Carbonate Co. v. Eirst Natj Co., 103 N. Y. 58, 8 N. E. 355; Marble-
Ba^k, 103 Wis. 125, 74 Am. St. Bep. head Bank Co. v. Baridon, 4 Ohio
845, 79 N. W. 229; Blebgen v. Koeffler, App. 468; Limited In v. Ass'n v. Glen-
97 Wis. 313, 72 N. W. 745. See also dale Inv. Ass'n, 99 Wis. 54, 74 N. W.
Johnson v. Sheridan Lumber Co., 51 633; Hebgen v. Koeffler, 97 Wis. 313,
Ore. 35, 93 Pac. 470. 72 N. W. 745; Erlanger v. New Som-
The question? of the liability of an brero Phosphate Co., 3 App. Cas. 1218,
officer of a corporation to creditors of aff'g 5 Ch. Div. 73; In re Cape Breton
the latter for his conduct as a pro- Co., 29 Ch. Div. 795; In re Ambrose
moter in disposing of land to the cor- I/ake Tin & Copper
Min. Co., 14 Ch.
poration at an exaggerated and unreal Div. 390; Lindsay Petroleum Co. v.
value, and of his liability as the holder Hurd, L. E. 5 P. C. 221. See also
of unpaid shares, are foreign to a pro- Mangold v. Adrian Irrigation Co., 60
ceeding by a creditor to set aside deeds Wash. 286, 111 Pac. 173.
292
'
Ch.5] Peomoters [§140
made,*^ or an action of assumpsit to recover the same,'* or it may

bring an action for damages.®^
"Wtere promoters fail to disclose the whole truth in selling to the
corporation, or where they obtain a secret profit, as a result of the
transaction, either in cash or by way of an allotment of stock, there
being other stockholders or it being expected that there will be other
89 United States. Chandler v. Bacon, Briton Co., 26 Ch. Div. 221; Emma Sil-
30 Fed. 538. ver Min. Go. v. Grant, 11 Ch. I)iv. 918;
California. Burbank v. Dennis, 101 Bagnall v. Carlton, 6 Ch. Div. 371.
Cal. 90, 35 Pae. 444. See also Lagunas Nitrate Co, v. , ,
Connecticut. Yale Gas Stove Co. v. Lagunas Nitrate Syndicate, [1899] 2

Wilcox, 64 Conn. 101, 25 L. E. A. 90, Ch. 392.
42 Am. St. Eep. 159, 29 Atl. 303. Equity alone is capable of granting
Massachusetts. Hayward v. Leeson adequate relief against a third person
176 Mass. 810, 49 L. R. A. 725, 57 N. with notice who contracted with and
E. 656. paid a commission to the promoters.
Missouri. South Joplin Land Co. v, American Shipbuilding Co. V. Com.
Case, 104 Mo. 572, 16 S. "W. 390. Steamship Co., 215 Fed. 296.
New Jersey. Loudenslager v. Wood 90 Simons v. Vulcan Oil & Mining
bury Heights Land Co., 58 N. J. Eq, Co., 61 Pa. St. 202, 100 Am. Dec. 628.
556, 43 Atl. 671, 56 N. J. Eq. 411, 41 Such a suit cannot be maiutained
Atl. 1115; Woodbury Heights Land when the corporation is unable to re-
Co. V. Loudenslager, 55 N, J. Eq. 78, store what it has received, unless, its
35 Atl. 436. inability to do so is due to the fault

New York. Hutchinson v. Simpson, of the promoter. See Western Bank
92 N. Y. App. Div. 382, 87 N. Y. Supp. of Scotland v. Addie, L. E. 1 H. L. Sc.
369; Colton Improvement Co. v. Eich- 145; Phosphate; Sewage Co. v. Hart-
ter, 26 N. Y. Misc. 26, 55 N. Y. Supp. mont, 5 Ch. Div. 394; In re Cape Briton
486. Co., 29 Ch. Div. 795. See, as to the
Marblehead Bank Co. v.
Ohio. qualification, Head v. Tattersall, L. E.
Earidon, 4 Ohio App. 468. 7 Exoh. 7.
Oregon. Johnson v. Sheridan Lum- 91 The remedy of a corporation

ber Co., 51 Ore. 35, 93 Pac. 470. against its promoters when the latter
Pennsylvania. McElhenny 's Appeal, have made a secret profit in a sale to
31 Pa. St. 188. it is in damages. In re Leeds & Han-
Washington. See Mangold v. Adri- ley Theatres of Varieties, Ltd., [1902]
an Irrigation Co., 60 Wash. 286, 111 2 Ch. 809, 825. See also Getty v. Dev-
Pac. 173. lin, N. Y. 504, 54 N. Y. 403,
70
Wisconsin. Zinc Carbonate Co. v. Marblehead Bank Co. v. Earidon, 4
First Nat. Bank, 103 Wis. 125, 74 Am. Ohio App. 468.
St. Eep. 845, 79 N. W. 229; Fountain "If at the time when a fraud is
Spring Park Co. v. Eoberts, 92 Wis. discovered, which was perpetrated by
345, 53 St. Eep. 917, 66 N. W. 399;
Am. promoters in a gale to the corporation
Pittsburg Min. Co. v. Spooner, 74 of property owned by them, the prop-
Wis. 307, 17 Am. St. Eep. 149, 42 N. erty is no longer in the condition in
W. 259. which it was when the company took
England. Lydney & W. Iron Ore it, the company rnay, keeping the prop-
Co. V. Bird, 33 Ch. Div. 85; In re Cape erty, sue the promoters for the secret
293
stockholders, the corporation may elect to avoid the purchase, or, if

the profit was in cash, to hold the promoters accountable therefor,
and, if in stock, require a return thereof, if unsold, or an accounting
But a rescission of the contract
for the profits of its sale, if sold.'^
by the corporation is not necessary to the recovery of a secret profit
from the promoter the rule being that the promoter may be compelled
;
to account without any such rescission.''

A corporation may sue for the cancellation of a note and of the
trust deed securing! it when was a secret profit to its
the basis thereof
promoter in a sale to it.'* So also equity has jurisdiction of a suit
by a corporation for the cancellation of a secret continuing contract by
itspromoters to pay a royalty to one of their number on articles manu-
factured by the corporation, which contract, as alleged, would, unless
profitswhich it was their duty not to 101, 25 L. E. A. 90, 42 Am. St. Rep.
make without notifying the company 159, 29 Atl. 303.
thereof." Hay ward v. Leeson, 176 Where the promoters of a corpora-
Mass. 310, 49 L. R. A. 725, 57 N. E. tion, after its creation, and while they
656. were the sole stockholders, voted to
92 Camden Land Co. v. Lewis, 101 issue its stock to themselves in pay-
Me. 78, 63 Atl. 523. See also Hayward ment for services rendered in securing
V. Leeson, 176 Mass. 310, 49 L. K. A. options on land, which they assigned
725, 57 N. E. 656; Mangold v. Adrian to the corporation, the stock so issued
Irrigation Co., 60 Wash. 286, 111 Pac. being equal to the estimated profits
173. to be derived from such options, and
93 Wills V. Nehalem Coal Co., 52 Ore. afterwards invited the public to sub-
70, 96 Pae. 528. scribe to the stock, without disclosing
such facts, it was held that they were
"The contention that a person who,
guilty of a fraud, and that the company
first as a promoter, then as a director,
could, without returning the lands ac-
induces a corporation to embark its
quired under the options, maintain an
capital in a business, in such a way
action to recover such stock, or dam-
that the rescission of its purchase of
ages for the loss thereof. Hayward v.
property essential to the continued
Leeson, 176 Mass. 310, 49 L. R. A.
life of the company can only be made
725, 57 N. E. 656.
by the sacrifice of such existence, can
retain his secret profits in the trans- Where promoters transfer property
action, unless the contract shall be at an inflated value in exchange for
rescinded and the enterprise aban- stock, the corporation may, however,
doned, contrary to the doctrine of
is tender back the property, its character
numerous cases, and without the in- remaining unchanged, and deem the
tended sanction of any. Such a rule contract terminated. Old Dominion
would permit retention of secret Copper Mining & Smelting Co. v. Bige-
profits, andenforcement would turn
its
low, 188 Mass. 315, 108 Am. St. Rep.
the courts into promoters, not of cor- 479, 74 N. E. 653.
porations, but of frauds upon them." 94 California-Calaveras Min. Co. v.

Tale Gas Stove Co. v. Wilcox, 64 Conn. Walls, 170 Cal. 285, 149 Pac. 595.
294
Ch. 5] Promoters [§ 141
it was declared inoperative, injure the corporation's business and

impair its credit.'^
Where, on aaale of property to a corporation, its promoters obtain

a secret profit in the form of srtock and there can be no rescission
without gross injustice to the parties wronged, and the property can-
not be restored without serious prejudice to the interests of the cor-
poration, and the promoters have no equity to have it restored, a suit
to annul the promoters' title to the stock will be an appropriate
remedy.'^ Again, the circumstances of the case may make proper a
suit for the surrender and cancellation of the certificates of stock
representing the secret profit.^' Where promoters sell property to
the corporation on the one hand and purchase such property for the
corporation on the other, thereby making a profit for themselves, the
corporation may charge such profit with an implied trust for its
benefit and recover the same in an action brought for that purpose.*'
But whatever the form of the action wherein promoters are sought
to be held liable for a profit obtained by them, the rights of the cor-
poration in such action, it being brought in the corporation's name,
are no greater than the rights of the stockholders for whose real
and if the stockholders, by reason of
benefit the action is prosecuted,
knowledge on their part or otherwise, have no rights, as against the
promoters, the corporation has none.*®
§ 141, — Defenses. The illegality of the organization of the cor-

poration is not available to its promoters as a defense to an action
95 Fred Macey Co. v. Macey, 143 knowing them to be such, are liable
Mich. 138, 5 L. K. A. (N. S.) 1036, 106 with the promoter to the corporation.
N. W. 722. • Miasiasippi Lumber Co. v. Joiee, 176
96 Yeiser v. United States Board & 111. App. 110.
Paper Co., 107 Fed. 340, 52 L. E. A. 99Eiehard Hanlon Millinery Co. v.

724. Mississippi Valley Trust Co., 251 Mo.
97 Mason v. Carrothers, 105 Me. 392, 553, 158 S. W. 359.
74 Atl. 1030. See also Bavis v. Las It was held in Erlanger v. New Som-
Ovas Co., 227 U. S. 80, 57 L. Ed. 426, brero Phosphate Co., 5 Ch. Div. 73,
aff 'g35 App. Caa. (D. C.) 372; Hughes 114, aff'd 3 App. Cas. 1218, that a suit
V. Cadena De Cobre Min. Co., 13 Ariz. by the corporation for an accounting
52, 108 Pac. 231; Cuba Colony Co. v. could not be defeated by showing that
Kirby, 149 Mich. 453, 112 N. W. 1133; some of the shareholders were parties
Eichlands Oil Co. v. Morriss, 108 Va; to the fraud, and would be benefited
288 61 S. E. 762. by the decree in favor of the eorpora-
98 Pittsburg Min. Co. v. Spooner, 74 tion. "If the argument were once
Wis. 307, 17 Am. St. Eep. 149, 42 N. allowed to prevail," said Sir George
W 259. Jessel,Master of the Eolls, "it would
Persons who purchase secret profits only be necessary to corrupt one single
from the promoter of a corporation, shareholder to prevent a compwiy from
295
by the corporation for secret profits obtained by them on a sale of

property to the corporation.^ It would likewise seem that the remedy
of a stockholder against the promoters to recover secret profits is not
defeated by his not having paid par value for his stock.^
The fact that the corporation received the money which paid for
the property which the promoters sold at a secret profit to themselves
for stock which was illegally sold at less than its par value is not a
defense to an action against the promoters to compel them to refund
such part of the amount paid as constituted their unlawful profit.'
Nor is the corporation's right of action defeated by the fact that the
recovery will inure to the benefit of the guilty stockholders as well as
to that of the innocent ones.*
It has been held that promoters are not relieved from liability by
reason of the fact that at the time of the issuance of the stock which
represented their secret profit the corporation had no assets to make
such stock valuable, shares of stock representing a right and interest
ever setting the contract aside. It Co. V. Spooner, 74 Wis. 307, 17 Am.
may be said you give to the sharehold- St. Eep. 149, 42 N. W. 259.
er, who was a party to the fraud, a 2 A statutory provision that ' ' no
profit, because he will take it in re- corporation shall issue any stock or
spect of his shares, and since as be- certificate of stock except in consid-
tween co-eonspiratoTB there is no eration of money, or labor or property
contribution, therefore his brother con- estimated at its true money value, ac-
spirators, who are made liable for the tually received by it, equal to the par
fraud, cannot make him repay his pro- value thereof, * * * and all stocks
portion. But the doctrine of this court * * ' issued contrary to the provi-
has never been to hold its hand and sions of this section* * * shall be
avoid doing justice in favor of the void," does not preclude .subscribers
innocent, because it cannot apportion who have paid less than par for their
the punishment fully amongst the stock from bringing a suit in equity
guilty.'
See Exter v. Sawyer, 146 Mo.
' for the benefit of the corporation
302, 47 S. W. 951, in which this deci- against the promoters of the latter who
sion was followed. See also Old Domin- sold property to it at a secret profit
ion Copper Mining & Smelting Go. v. to themselves, the words "issue any
Lewisohn, 210 XJ. S. 212, 52 L. Ed. stock" and "all stocks * * * is-
1025. sued" as used in the statute meaning
1 "These defendants, who wore the the same, in effect, as the words "cer-
active agents in the formation of the tificate of stock," and not having
corporation, who were instrumental in reference to the stock itself. Pietsch
the issue of the alleged illegal stock, V. Krause, 116 Wis. 344, 93 N. W. 9.
and who contracted with the corpora- 3 Pittsburg Min. Co. v. Spooner, 74
tion having full knowledge of all of Wis. 307, 17 Am. St. Eep. 149, 42 N. W.
its transactions, are in no position to 259.
contest the regularity of the formation 4 Davis V. Las Ovas Co., 227 U. S.
of the corporation." Pittsburg Min. 80, 57 L. Ed. 426. See also Old Domin-
296
Ch. 5] •
Promoters [§142
in the management and profits of a corporation as well as in its

assets."
The maxim that "he who comes into equity must come with clean
hands" cannot be invoked to defeat the right of subsequent stock-
holders to have certificates of stock received by the promoters as secret
profits surrendered and canceled where there has been no wilful
misconduct with reference to the matter in litigation and the plaintiffs
do not require the aid of the illegal transaction set up by the defend-
ants to make out their case, and this is true even though such trans-
action may he indirectly connected with the matter at issue.® Nor
will the fact that the corporation has issued statements misrepresent-
ing the value of the property, on selling which to it the promoters
obtained a secret profit in the form of stock, make proper the appli-
cation of this maxim to defeat the corporation's right to have can-
celed such of the stock as remains in the promoters' hands, and to
recover the selling price of such of it as has been sold, where the
promoters themselves have been largely responsible for the issuance
of the statements and a decree against them will terminate their con-
nection with the corporation.'
§ 142. — Parties. Where the obtaining of a secret profit by pro-

moters a wrong done to the corporation as such rather than to the
is
stockholders individually, the right of action arising therefrom is, in

ê first instance, in the corporation, and the action is properly
brought by it in its corporate name,^ against one or all of the pro-
ion Copper Mining & Smelting Co. v. Hughes v. Cadena De Cobra Min. Co.,
Lewisohn, 210 U. S. 206, 52 L. Ed. 13 Ariz. 52, 108 Pac. 231. See also
1025. Tale Gas Stove Co. v. Wileox, 64 Conn.
5 Hughes V. Cadena De Cobre Min. 101, 25 L. B. A. 90, 42 Am. St. Kep. 159,
Co., 13 Ariz. 52, 108 Pae. 231. 29 Atl. 303; Midwood Park Co. v.
6 Mason v. Carrothers, 105 Me. 392, Baker, 128 N. Y. Supp. 954, aff'd 129
74 Atl. 1030. See also Yale Gas Stove N. Y. Supp. 1135; Wills v. Nehalem
Co. V. Wilcoi, 64 Conn. 101, 25 L. E. Coal Co., 52 Ore. 70, 96 Pac. 528;
A. 90, 42 Am. St. Eep. 159, 29 Atl. MeAleer v. MeMurray, 6 Phila. (Pa.)
303. 244.
7 Cuba Colony Co. v. Kirby, 149 If the stockholder could not main-
Mich. 453, 112 N. W. 1133. tain the action for an accounting by
8 The wrong being a wrong done
'
' a promoter for made on a sale
profits
by promoters to the corporation where- to the corporation without a demand

by the promoters have derived in secret on the corporation to bring it, it must
an advantage not disclosed to exist- follow that the action is properly
ing members of the corporation, the brought by the corporation. Colton
corporation was the proper person to Improvement Co. v. Eichter, 26 N. Y.
bring the suit to remedy the wrong." Misc. 26, 55 N. Y. Supp. 486. See also
297
§142] Peivate Coepokations [Ch. 5
meters who shared in the profit.^ But a stockholder, joining the cor-
poration as a defendant,^" may sue in equity in his own name for the
benefit of the corporation if the latter is in the control of the pro-
moters, or if the officers wrongfully refuse to bring the suit.^*
Moreover, under certain circumstances, individual corporators may

maintain actions against a promoter to recover a proportionate share of
the secret profits made by him.^^
"When the corporation has bfecome insolvent and is in the hands of

a receiver, an action to recover secret profits may be brought by the
receiver^' or by the stockholders and the receiver.**
While ordinarily the remedy of a defrauded subscriber is against

the defrauding promoter and not the corporation, where the defraud-
ing promoter and the defrauded subscribers constitute the corporation
and there are therefore no rights of other stockholders intervening,
relief may be had not alone against the promoter but against the
corporation itself.**
Old Dominion Copper Mining & Smelt- necessary steps to secure an account-
ing Co. V. Bigelow, 188 Mass. 315, 108 ing would be ineffectual, the stock-
Am. St. Bep. 479, 74 N. B. 653; Pitts- holders may proceed in their own name.
burg Min. Co. V. Spooner, 74 Wis. 307, Mason v. Carrothers, 105 Me. 392, 74
17 Am. St. Bep. 149, 42 N. W. 259. Atl. 1030.
And compare Old Dominion Copper Before a stockholder can bring an
Mining & Smelting Co. v. Lewisohn, action against a promoter for an ac-
210 V. S. 206, 52 L. Ed. 1025, aff'g 148 counting, he must request the corpora-
Fed. 1020. tion to bring it and meet with a
9 The fact that all of the promoters refusal by it so to do. Colton Improve-
who may have shared in the secret ment Co. V. Bichter, 26 N. Y. Misc.
profit are not sued is not fatal to the 26, 55 N. T. Supp. 486.
action; the corporation may sue one 12 Emery
v. Parrott, 107 Mass. 95;
or all of them and thereno want of
is Brewster v. Hatch, 122 N. Y. 349, 10
necessary parties because all are not Abb. N. Cas. (N. Y.) 400, 19 Am. St.
sued. Davis v. Las Ovas Co., 227 U. Bep. 498, 25 N. E. 505; Getty v. Devlin,
S. 80, 57 L. Ed. 426, afl'g 35 App. 70 N. Y. 504, 54 N. Y. 403; Franey v.
Cas. (D. C.) 372. Warner, 96 Wis. 222, 71 N. W. 81.
10 Groll V. United Elec. Co., of New IS Chandler v. Bacon, 30 Fed. 538.
Jersey, 70 N. J. Eq. 616, 61 Atl. 1061. Compare Hayward v. Leeson, 176 Mass.
llBurbank v. Dennis, 101 Cal. 90, 310, 49 L. B. A. 725, 51 N. E. 656.
35 Pac. 444; Exter v. Savifyer, 146 Mo. 14 Arnold v. Searing, 78 N. J. Eq.
302, 47 S. W. 951. 146, 78 Atl. 762 (in this case the cor-
When promoters of a corpora-
the poration was joined as a party de-
tion have received secret profits for fendant).
which they should account, and it is ISA. J. Cranor Co. v. Miller, 147
apparent that an application to the Ala. 268, 41 So. 678.
officers of the corporation to take the
298
Ch. 5] Pbomotees [§ 144
§ 143. —
Liinitations and laches. The fraudulent concealment by
a promoter, who subsequently became an ofiQcer of the corporation, of
hisemployment by the owner of property which the corporation was
organized to purchase and which it actually did purchase, will post-
pone the running of limitations against its right to recover the amount
received by the promoter from the owner of the property, until its
discovery of the breach of duty on the part of the promoter.^* But
where under the statute the only actions for fraud as against which
limitations will not run until the discovery of the fraud, are those
which, prior to a certain date, were cognizable solely by a court of
chancery, and both prior and subsequently to such date a corporation
had a right of action at law against a promoter who had obtained a
secret profit from a sale of property by him to the corporation, stock-
holders cannot sue for the benefit of the corporation after the expira-
tion of the statutory period on the ground that the action was brought
within the prescribed period after the discovery of the fraud.^'
Laches will bar a suit in equity by a corporation to recover secret
profits made by its promoters; but since constructive knowledge, at
least, of the existence of the cause of action, is an element of laches,
the corporation is not chargeable therewith in the absence of such
knowledge that secret profits were obtained.^'
§ 144. —
Pleading. In order to be entitled to maintain a suit in
equity for the benefit of the corporation against a promoter who has
obtained a secret profit on a sale of property to the corporation, a
stockholder need not allege with particularity that he has demanded
16 The Telegraph v. Loetseher, 127 not accrue until the fraud is discov-
lowa 383, 4 Ann. Caa. 667, 101 N. W. ered.

773 (showing of fraudulent conceal- 18 Bagnall v. Carlton, 6 Ch. Div. 371.
ment held sufficient). See also Caffeo See also Erlanger v. New Sombrero
V. Berkley, 141 Iowa 344, 118 N. W. Phosphate Co., 3 App. Gas. 1218, aff'g
267. 5 Ch. Div. 73.
17 Pietsch V. Milbrath, 123 Wis. 647, A corporation, seeking the cancella-
68 L. B. A. 945, 107 Am. St. Eep. 1017, tion of a secret continuing contract by
102 N. W. 342, 101 N. W. 388. Com- its promoters to pay one of their
pare Caflee v. Berkley, 141 Iowa 344, number a royalty on articles manu-
118 N. W. 267. faetured by the corporation, which
In Marblehead Bank Co. v. Earidon, contract, it was alleged, would, unless
4 Ohio App. 468, it was held that an it was declared inoperative, injure
action to recover secret profits is one the corporation's business and impair
for breach of duty rather than for its credit, held not guilty of laches,
fraud, and, hence, does not come ithaving protested promptly upon dis-
within the saving clause which pro- covering the fraud, although foUow-
vides that the cause of action shall ing its protest it occupied nearly two
299
§ 144] Peivate Coepoeations [Ch. 5
and required of the officers of the corporation that they take steps
to redress the wrong and that they have refused so to do, where he
alleges facts which show that a demand would have been futile and
by reason of which a refusal must be regarded as having existed.^'
A demurrer for misjoinder of causes will lie to a complaint in an
action by subscribers to the corporate stock against promoters who
are alleged to have obtained a secret profit on a sale of property to
the corporation, when such complaint prays judgment on behalf of
the corporation for the amount of moneys which the defendants
severally subscribed and pretended to pay in, but never in fact did
pay in; that the plaintiffs have and recover of the defendants any
damage and losses sustained by them by reason of the defendants'
fraud and deception to be fixed and determined by the court; that
the board of directors and the defendants be restrained and enjoined
from enforcing the collection of an assessment on the plaintiffs' stock
by a sale thereof, and that the defendants be restrained from selling
their own stock or any part thereof.^" There is nothing inconsistent,
however, in a prayer for a rescission of the contract and a prayer
for damages in a bill by a corporation against its promoters who
disposed of property to it at a secret profit to themselves.^^
§ 145. —
Burden of proof. Where a promoter seeks to retain prof-
its made by him on a sale of property to the corporation, he has the
burden of proving that his dealings were open and fair, that they
were conducted in good faith, and that he took no undue advantage
of those to whom he sustained the fiduciary relation.^^
§ 146. — Character and measure of relief. The relief awarded a

corporation suing its promoters who made secret profits on a sale of
years in negotiations and discussions fraud or -wrong committed upon the

whereby it sought to avoid litigation. corporation. Pietseh v. Krause, 112
Fred Macey Co. v. Macey, 143 Mich. Wig. 418, 88 N. W. 223. See also
138, 5 L. R. A. (N. S.) 1036, 106 N. Pietseh v. Krause, 116 Wis. 344, 93
W. 722. N. W. 9.
19 Wills V. Nehalem Coal Co., 52 Ore. 20 Pietseh v. Krause, 116 Wis. 344,
70, 9aPac. 528. 93 N. W. 9.
A complaint, in an action hy stock- 21 Old Dominion Copper Mining &
holders on behalf of the corporation. Smelting Co. v. Bigelow, 188 Mass. 315,
whose oflScers refuged iio sue, against 108 Am. St. Eep. 479, 74 N. E. 653.
promoters to recover profits alleged to 28 Hughes v. Cadena De Cobre Min.
have been made by the promoters, on a Co., 13 Ariz. 52, 108 Pac. 231 Cplton
; .
sale of property to the corporation, in Improvement Co. v. Bichter, 26 N. T.

fraud of the latter, held not to con- Misc. 26, 55 N. Y. Supp. 486; Midwood
nect one of the defendants with any Park Co. v. Baker, 128 N. T. Supp.
300
Ch.5] PeoMotees [§146
property to it^S" must be adapted to the situation as it existed when

the suit was eommenced.^^ As a general proposition, the measure of
damages recoverable is the profit realized.^*
"Where a promoter uses his secret profit to pay for stock in the
corporation and afterwards sells such stock at a profit, the corpora-
tion may recover, at its option, eithei" the amount originally obtained
and that representing the profit made on the sale of the stock, together
with interest on each from the time of the making of the stock profit,
or the amount originally obtained and interest thereon from the date
on which it was received.''^
When the secret profit obtained by the promoters was in the form
of stock, they may be compelled to account to the corporation for the
shares received, with all dividends paid thereon, or, if the stock has
been sold by them, for the proceeds of the sale, with interest from
the date thereof, or for the fair market value of the stock, less the
expenses of the formation of the corporation paid by and not repaid
to them,^ and in this connection the fair market value of the stock
is to be determined as of a data when it actually acquired a recog-
nized market price. From such date the promoters may be charged
with interest upon such value.^''
954, aff'd 129 N. Y. Supp. 1155. See American Shipbuilding Co. v. Com.
also Cushion Heel Shoe Co. v. Hartt, Steamship Co., 215 Fed. 296.
181 Ind. 167, 50 L. R. A. (N. S.) 979, 2B Mississippi Lumber Co. v. Jqice,
103 N. E. 1063. 176 111. App; 110, 122.
22a Generally, as to character and 26 Hayward v. Leeson, 176 Mass. 310,
measure of relief granted, see eases 49 L. E. A. 725, 57 N. E. 656. But see
cited iE §§ 135, 137, supra. Arnold v. Searing, 78 N. J. Eq. 146, 78
23 Yeiser v. United States Board & Atl. 762.
Paper C.., 107 Fed. 340, 52 L. E. A. Where promoters have received a se-
724. cret profit for which they should ac-
Relief when mortgage represents count, it may be proper to appoint a
secret profit to promoter, see Hyde master to hear and determine the pro-
Park Terrace Jackson Bros.
Co. v. moters' claims for services and ex-
Realty Co., 161 N. Y. App. Div. 699, penses and also to determine the value
146 N. Y. Supp. 1037. of the stock representing the profit,
24 In re Leeds & Hanley Theatres at the time it was issued to them.
2 Ch. 809, Miason v. Carrothers, 105 Me. 392, 74
of Varieties, Ltd., [1902]
Atl. 1030.
S33. See also Marblehead Bank Co.
V. Raridon, 4 Ohio App. 468. 87 Hayward V. Leeson, 176 Mass. 310,
Measure of relief to corporation on 49 L. B. A. 725, 57 N. E. 656; East Ten-

rescission by it against seller of prop- nessee Land Co. v. Leeson, 183 Mass.
erty with notice who contracted with, 37, 66 N. E. 427.

and paid commission to promoters, see
301
§147] Peivate Cokporations [Ch.5
§ 147. — Commission from third person. The rule denying the

right of a promoter to retain a secret profit applies where a person
promotes a corporation to purchase a patent or other property from
a third person, and receives a part of the purchase money, or a
commission, under a secret agreement with the vendor.** Moreover,
an action against the promoter directly is not the only remedy of
the corporation when the promoter has received that which con-
stituted his secret from a third person with notice who
profit
through him has dealt with the corporation. In such case, the latter
has a remedy against the third person. Thus a corporation may sue
a company, building and selling to the promoters of the corporation
for the latter, a ship, the complete title to which did not pass until
after the organization of the corporation and which wasi accepted and
used by it and paid for with its funds, to rescind the transaction
and recover the purchase money upon learning that the building
company paid a commission to the promoters, such company having
had full notice from the fact that the promoters were named in the
contract, and signed the same "as trustees" that the subscribers to
the stock of the complaining corporation which it was agreed should
be created were the real purchasers of the ship.*^
28 TTnlted States. Chandler v. Bacon, Where a promoter of a corporation

30 Fed. 538. secretly agreed with a patentee to
Iowa. See The Telegraph v. Loet- form the corporation to buy his pat-
Bch«|-, 127 Iowa 383, 4 Ann. Cas. 667, ents, the patentee to pay him half of
lil N. W. 773. the price received, and induced others
Massachusetts. Emery v. Farrott, to subscribe for stock in the proposed
107 Mass. 95. corporation by representing that he
New Jersey. Loudenslager v. Wood- was subscribing on equal terms with
bury Heights Land Co., 58 N. J. Eq. the rest, and afterwards, as a director
556, 43 Atl. 671, 56 N. J. Bq. 411, 41 of the corporation, voted for a reso-
Atl. 1115; Woodbury Heights Land Co. lution tobuy the patents, it was held
V. Loudenslager, 55 N. J. Eq. 78, 35 that the corporation might recover o*
Atl. 436. him his secret profits, and that it was
Virginia. Central Land Co. v. Oben- not bound to rescind the purchase.
chain, 92 Va. 130. See also Bosher v. Yale Gas Stove Co. v. Wilcox, 64
Richmond & H. Land Co., 89 Va. 455, Conn. 101, 25 L. R. A. 90, 42 Am. St.
37 Am. St. Eep. 879, 16 S. E. 360. Rep. 159, 29 Atl. 303.
England. Emma Silver Min. Co. v. 29 American Shipbuilding Co. v. Com.
Grant, 11 Ch. Div. 918; Bagnall v. Steamship Co., 215 Fed. 296. See also
Carlton, 6 Ch. Div. 371; Emma Silver Limited Inv. Ass'n v. Glendale Inv.
Min. Co. v. Lewis, 4 C. P. D. 396. Ass'n, 95 Wis. 54, 74 N. W. 633.
Canada. Bennett v. Havelock Elec.
Light & Power Co., 21 Ont. L. Rep.
1.20, 18 Ann. Cas. 354.
302
Ch.5] Peomoteks [§148
§ 148. — Liability of persons conspiring witti promoters. Persons

who conspire with promoters to consummate the transaction whereby
a secret profit is obtained by the promoters, are, equally with the
latter, liable for such profit, although they did not occupy the fiduciary
relation of promoters:, had no dealings with the corporation or its
members, and made no false representations to the stockholders, nor
knew that any were made. This rule is based on the well-established
principle that "where several persons combine to carry out a fraudu-
lent conspiracy, to cheat another, each and all of such persons are
liable to the defrauded party, without reference to the amount of
the fruits of the fraudulent transaction he obtains or the degree of
his activity in the scheme."^" Moreover, it is not essential to the
liability of such persons that they should have been originally parties
towthe contrivance of the fraud. If knowing the fraud contrived, they
wilfully aided in its execution, they became parties to the plan and
are chargeable with the consequences. All persons uniting or co-
operating in such a wrong are jointly liable therefor without regard
to their several degrees of culpability. It is not necessary that they
be in pari delicto. It is enough that each vas at some time and
30 Lomita Land & Water Co. v. Bob- accounting of their ill-gotten gains and
inson, 154 Cal. 36, 18 h. R. A. (N. S.) restitution thereof." Zinc Carbonate
1106, 97 Pac. 10; Fountain Spring Co. v. First Nat. Bank, 103 Wis. 125,
Park Co. V. Eoberts, 92 Wis. 345, 53 74 Am. St. Rep. 845, 79 N, W. 229.
Am. St. Rep. 917, 66 N. W. 399. See Aparticipant in the fraud of a pro-
also Phosphate Sewage Co. v. Hart- moter cannot plead a release from li-
mont, 5 Ch. Div. 394, 456. ability on the ground that there has
"If several persons unite to pro- been an accord and satisfaction with
mote the organization of a corporation knowledge between the only stock-
and thereafter defraud it cut of its holder in the corporation, other than
assets for their benefit, part of the the promoter, and the promoter, when
scheme being that some of tho pro- the only basis for such claim of an
moters shall be the active parties and accord and satisfaction was the pay-
take stock in and become ofieers ment by such other stockholder, who
and obtain control of the corporation, desired to rid the corporation of any
and thereafter while ostensibly acting control by tho promoter, of the amount
in its interests carry out the fraud, and owing the promoter for services to
the scheme be fully consummated, one the corporation and the assignment by
of the conspirators being a corporation, the promoter of his stock to a third
all are equally liable to make good to person in trust for the corporation and
the defrauded corporation the loss the promoter's withdrawal from all
caused to it, without reference to how connection with the corporation, there
the fruits of the fraud may have been being no understanding between the
divided, and an action will lie in the two that they were settling the fraud
name of the injured corporation or that their negotiations had any
against the wrongdoers to compel an reference whatever to the fraudulent
303
in some degree a party to and an aider of the improper transaction.*^

It is not even essential to their liability that they share in any measure
in the profit obtained. So where a person who was the owner of
property, disposed of to a corporation, gave the promoter thereof,
with knowledge of the latter 's intentions, a false receipt which per-
mitted a misrepresentation and the obtaining of a profit by such pro-
moter, the corporation and the one to whom the misrepresentation
had been made, who was the only one putting money into the corpo-
ration, were held entitled to have the deed from the owner and the
mortgage running to him set aside, and to recover from him and
the promoter moneys expended in permanent improvements. Said the
court: "Where one deliberately gives another a false stateinent in
writing, knowing the purpose for which it is to be used, which that
other uses to deceive a third party, he is a joint wrong-doer, and must
be held responsible for the consequences which follow * * * [and]
cannot defend upon the ground that he received no benefit from the
fraud."'* But where a special agent to sell land promoted a cor-
poration for the purpc;o of disposing of the land to it, but the owner
of the land had no knowledge of his agent's plans nor shared in any
way in the profits of tho agent's scheme, the agent's acts in assisting
in the formation of the corporation were outside both the real and
the apparent scope of his authority and neither the owner of the land
nor the one to whom the corporation's mortgage ran is liable to the
corporation.'*
transaction. Stoney Creek Woolen Co. enabled to obtain a secret profit in the
V. Smalley, 111 Mich. 321, 69 N. W. form of stock, a certain part of which
722. was to go to the vendor of the land as
81 Lomita Land & Water Co. v. Bob- a part of the purchase price thereof,
inSon, 154 Cal. 36, 18 L. R. A. (N. S.) does not render such vendor liable in
1106, 97 Pae. 10. damages to one induced to subscribe
A corporation cannot escape liability for stock by false representations on
for its participation in a fraudulent the part of the promoter, where the
promotion scheme by a plea of ultra vendor in no way aided or assisted
vires. Zinc Carbonate Co. v. First Nat. the promoter in inducing the subscrip-
Eank, 103 Wis. 125, 74 Am. St. Eep. tion either by false representations or
845, 79 N. W. 229. by concealing from the subscriber the
32 Stoney Creek Woolen Co. v. fact that the promoter was to obtain
Smalley, 111 Mich. 321, 69 N. W. 722. a secret profit. De Klotz v. Broussard,
See also Lomita Land & Water Co. v. 203 Fed. 942.
Robinson, 154 Cal. 36, 18 L. E. A. (N. 33 Forest Land Co. v. Bjorkquiat, 110
S.) .1106, 97 Pae. 10. Wis. 547, 86 N. W. 183. See also God-
The act of naming a fictitious con- frey v. Schneek, 105 Wis. 568, 81 N.
sideration in a contract to sell land to W. 656.
promoters, whereby the latter, on sell- Evidence held not to show that do-
ing the land to the corporation, were feridants aided and abetted promoter
304
Ch. 5] Peomoteks [§ 149
§149. —
Enforcement of claim. The rule that any agreement
which contemplates the commission of a fraud, or the breach of
fiduciary obligations', is contrary to public policy and illegal, applies
to an agreement under which a promoter is to receive a secret profit
from a transaction with the corporation, and hence he cannot sue
thereon, even after he has performed his part thereof. So a secret
agreement between a promoter and the owner of property, by which
the property is to be sold to the corporation, and the owner is to
pay the promoter a certain amount of the price received, since it con-
templates a fraud upon the corporation and the persons afterwards
taking shares thereiuj is contrary to public policy and illegal, and,
although the property is sold to the corporation in pursuance of the
agreement, the promoter cannot maintain an action against the vendor
to recover his share of the proceeds.^*
A promoter cannot recover from the corporation a secret profit
intended to be made in disposing of property to it, which profit was
defeated by the action of its trustees in waiting until the expiration
of his option and then purchasing from the owner at the price origi-
aally asked by him, upon the ground that the trustees perpetrated a
fraud on him in so doing. ^.^ Nor can the beneficiary of an agreement
with a promoter to hold a certain number of shares of stock in trust
for him enforce the trust against the corporation when the stock
issued to the promoter represented a secret profit, and was therefore
issued without any actual consideration.^®
in obtaining secret profit in purchase caused to be circulated a stock sub-

of land by corporation. South Mis- scription contract by which the sign-
souri Pine Lumber Go. v. Crommer, 202 era agreed not to purchase more than
Mo. 504, 101 S. W. 22. a limited number of shares of stock
34Yale Gas Stove Co. v. Wilcox, 64 each, and who himself, before the
Conn. 101, 25 L. E. A. 90, 42 Am. St. stock was subscribed in full, obtained
Eep. 159, 29 Atl. 303. control of the corporation by procur-
A secret agreementbetween the di- ing an issue of stock to dummies,
rectors and promoters of a corpora- which stock he afterwards had assigned
tion, by which the promoters are to to himself, cannot come into a court
receive a share of the profits before of equity and complain because the
any dividends are paid, is a fraud upon directors of the corporation have taken
the, stockholders,and invalid. Dillon such control from him by the sale of
V. Commercial Cable Co., 87 Hun (N. the balance of the stock, even though
T.) 444, 34..N. Y. Supp. 370. See also the principal purpose of such sale was
Tegarden Bros. v. Big Star Zinc Co., to deprive him of that control. Cross
71 Ark. 277 72 S. W. 989. v. Farmers' Elevator Co. of Dawson,
35 Mangold v. Adrian Irrigation Co., 31 N. D. 116, 153 N. "W. 279.
60 "Wash. 286, 111 Pac. 173. 36 Travis v. Travis, 140 N. T. App.
A promoter, who prepared and Div. 191, 124 N. Y.. Supp. 1021,
305
IPriv. Corp.— 20
§150] Pkivate Cokpoeations [Ch.5
§150. Liability of corporation on promoters' contracts In gen- —

eral. It is a fundamental principle of law that at least two com-
petent parties are necessary to the execution of a contract. That
parties are not competent within the meaning of this principle except
they are in heing, is too obvious to require the citation of authority.
Hence it is that until a corporation has come into being, at least to
the extent of having a de facto existence, it cannot contract as a
corporation. Since it cannot contract and, for that reason, cannot
appoint an agent to contract in its behalf, it follows that it will not
be chargeable, in the first instance, with liability upon a contract
made by its promoters, or by agents appointed by them, prior to the
time of its coming into being, even though the contract may have
been made in its name and with the understanding that it would
perform the same.'''
Plaintiff, who was induced to render Arkansas. Little Bock & Ft. S. E.
promotion services by the secret prom- Co. V. Perry, 44 Ark. 383, 37 Ark. 164.
ise of one of the promoters to divide California. Scadden Flat Gold Min.
with him whatever stock could be ob- Co. V. Scadden, 121 Cal. 33, 53 Pac.
tained by the promoter for his (the 440; Blood v. La Serena Land & Water
promoter's) services, held not entitled Co., 113 Cal. 221, 45 Pac. 252, 41 Pac.
to judgment in an action against the 1017; Hawkins v. Mansfield Gold Min.
corporation and the promoter to com- Co., 52 Cal. 513; Morrison v. Gold
pel the former to issue to the latter Mountain Gold Min. Co., 52 Cal. 306.
stock voted to him on the plaintiff's Colorado. Miser Gold Mining & Mill
motion without knowledge by or no- Moody, 37 Colo. 310, 86 Pae. 335;
Co. V.
tice to the other directors, and to com- Hersey v. TuUy, 8 Colo. App. 110, 44
pel the promoter to transfer such stock Pac. 854.
to the plaintiff, the agreement between Connecticut. New York & N. H. R.
the plaintiff and the promoter being Co. V. Ketehum, 27 Conn. 170.
fraudulent and voidable whether ' ' con- Florida. Sumner-May Hardware Co.
sidered in the light of the relations V. Scally, 66 Fla. 93, 62 So. 900.
existing between the promoters of the Georgia. See McRee v. Quitman Oil
corporation, or in the light of the re- Co., 16 Ga. App. 12, 84 S. E. 487; Jos.
lations existing between the same per- Rosenheim Shoe Co. v. Home, 10 Ga.
sons as stockholders, and their rela- App. 582, 73 S. B. 953; Meinhard,
" De La Motte
tion to the corporation. Schaul & Co. V. Bedingfield Mercan-
V. Northwestern Clearance Co., 126 tile Co., 4 Ga. App. 176, 61 S. E. 34.
Minn. 197, 148 N. W. 47. Illinois. Park v. Modern Woodmen

37 United States. In re Ballou, 215 of America, 181 111. 214, 54 N. E. 932;
Fed. 810; Winters v. Hub Min. Co., Sellers v. Greer, 172 111. 549, 40 L. R. A.
57 Fed. 287; Summerlin v. Fronteriza 589, 50 N. E. 246, aff'g 64 111. ApD
Silver Mining & Milling Co., 41 Fed. 505; Gent v. Manufacturers' & Mer-
249. chants' Mut. Ins. Co., 107 111. 652, aff'g
Alabama. Moore & Handley Hard- 13 HI. App. 308; Western Screw &
ware Co. V. Towers Hardware Co., 87 Manufacturing Co. v. Cousley, 72 HI.
Ala. 206, 13 Am. St. Eep. 23, 6 So. 41. 531; Rockford, R. I. & St. L. B. Co. v.
306
Cli.5] Pbomoteks [§ 150
This rule is subject, however, to such qualifications with regard to
Sage, 65 111. 328, 16 Am. Eep. 587; IMississippl. Bank of Forest v. Orgill
Safety Deposit Life Ins. Co. v. Smith, Bros. & Co., 82 Miss. 81, 34 So. 325.
65 111. 309. Missouri. Hill v. Gould, 129 Mo. 106,
Indiana.Cushion Heel Shoe Co. v. 30 S. W. 181; Queen City Furniture &
Hartt, 181 Ind. 167, 50 L. E. A. (N. S.) Carpet Co. v. Crawford, 127 Mo. 356,
979, 103 N. E. 1063; Smith v. Parker, 30 S. W. 163; Van Noy v. Central
148 Ind. 127, 45 N. E. 770; Davis & Union Fire Mo. App. 287,
Ins. Co., 168
Rankin Bldg. & Mfg. Co. v. Hillsboro 153 S. W. 1090; Pitts v. D. M. Steele
Creamery Co., 10 Ind. App. 42, 37 N. Mercantile Co., 75 Mo. App. 221; Joy
E. 549. V. Manion, 28 Mo. App. 55, 30 S. W.
Iowa. First Nat. Bank of Marshall- 163.
town Church Federation of Ameri-
V. Nebraska. Davis v. Ravenna Cream-
ca, 129 Iowa 268, 105 N. W. 578; Carey ery Co., 48 Neb. 471, 67 N. W. 436;
V. Dea Moines Co-op. Coal & Mining York Park Bldg. Ass'n v. Barnes, 39
Co., 81 Iowa 674, 47 N. W. 882; Steven- Neb. 834, 58 N. W. 440; Clarke v. Oma-
son V. Dubuque Level & Lead Min. Co., ha & Southwestern E. Co., 5 Neb. 314.
34 Iowa 577. Nevada. Paxton v. Beacon Mill &
Kansas. Tryber v. Girard Creamery Mining Co., 2 Nev. 257.
& Cold Storage Co., 67 Kan. 489, 73 New Jersey. See Vandyke v. Brown,
Pac. 83. 8 N. J. Eq. 657.
Louisiana. Bradshaw v. Knoll, 132 New York. Oakes v. Cattaraugus
La. 132, 61 So. 829; Marchand v. Loan Water Co., 143 N. Y. 430, 26 L. E. A,
& Pledge Ass 'n, 26 La. Ann. 389. 544, 38 N. E. 461, 66 Hun 634, 21 N. Y.
Maine. Tuttle v. George A. Tuttle Supp. 851; Lorillard v. Clyde, 122 N.
Co., 101 Me. 287, 8 Ann. Cas. 260, 64 Y. 498, 25 N. E. 917; Munson v. Syra-
Atl. 496; Blue Hill Academy v. Wit- cuse, G. & C. E. Co., 103 N. Y. 58, 8
ham, 13 Me. 403. N. E. 855; Wilbur v. New Yori
Maryland. Franklin Fire Ins. Co. Elec. Const. Co., 58 N. Y. Super
V. Hart, 31 Md. 59. Ct. 539, 12 N. Y. Supp. 456; Bond V.
Massachusetts. Abbott v. Hapgood, Atlantic Terra Cotta Co., 137 N Y.
150 Mass. 24H, 5 L. R. A. 586, 15 Am. App. Div. 671, 677, 122 N. Y. Supp.
St. Eep. 193, 22 N. E. 907; Penn Match 425; Martin v. Eemington-Martin Co.,
Co. V. Hapgood, 141 Mass. 145, 7 N. E. 95 N. Y. App. Div. 18, 88 N. Y. Supp.
22; Frost v. Inhabitants of Belmont, 6 573; Quee Drug Co. v. Plant, 55 N. Y.
Allen 152. App. Div. 87, 67 N. Y. Supp. 10; Mes-
Michigan. Wright v. St. Louis Sugar inger v. Mesinger Bicycle Saddle Co.,
Co., 146 Mich. 555, 109 N. W. 1062; 44 N. Y. App. Div. 26, 60 N. Y. Supp.
Sullivan v. Detroit, Y. & A. A. R. Co., 431; Burden v. Burden, 8 N. Y. App.
135 Mich. 661, 64 L. R. A. 673, 106 Div. 160, 40 N. Y. Supp. 499, afE'd 159
Am. St. Eep. 403, 98 N. W. 756; Car- N. Y. 287, 54 N. E. 17; Dillon v. Com-
mody v. Powers, 60 Mich. 26, 26 N. W. mercial Cable Co., 87 Hun 444, 34 N.
801. Y. Supp. 370; Hall v. Herter Bros., 83
Minnesota. Bond v. Pike, 101 Minn. Hun 19, 31 N. Y. Supp. 692; Hecla
127, 111 N. W. 916; Church v. Church Consol. Gold Min. Co. v. O'Neill, 65
Cementico Co., 75 Minn. 85, 77 N. W. Hun 619, 19 N. Y. Supp. 592; Thistle
548; Battelle v. Northwestern C. & C. V. Jones, 45 N; Y. Misc. 215, 92 N. Y.
Pavement Co., 37 Minn. 89, 33 N. W. Supp. 113; Burke v. Lincoln- Valentine

327. Co., 28 N. Y. Misc. 202, 58 N. Y. Supp.
307
the corporation's liability as may be declared by its charter or by
1077, 1124; Schmidt v. Nelke Art Lith- England. In re Skegness & St.
ograph Co., 16 N. Y. Misc. 300, 37 N. Leonard's Tramways Co., 41 Ch. Div.
T. Supp. 1138; Central Park Fire Ins. 215; Gunn v. London & Lancashire Fire
Co. V. Callaghan, 41 Barb. 448; Wm. Ins. Co., 12 C. B. (N. S.) 695; Payne
Allen & Co. v. Somerset Hotel Co., 88 v. New South Wales Coal & I. S. Nav.
N. Y. Supp. 944; Berridge v. Aber- Co., 10 Exch. 283; Caledonian & Junet.
nethy, 24 Wkly. Dig. 513. See also Ey. Co. V. Magistrates of Helensburgh,
Horowitz V. Broads Mfg. Co., 54 N. Y. 2 Macq. H. L. 391.
Misc. 569, 104 N. Y. Supp. 988. A contract by promoters of a bene-
Oregon. See Sehreyer v. Turner ficial association, before incorporation,
Flouring Mills Co., 29 Ore. 1, 43 Pac. to locate the chief office of the asso-
719. ciation in a certain city in considera-
Pennsylvania. Tift v. Quaker City tion of the payment by the citizens
Nat. Bank, 141 Pa. St. 550, 21 Atl. thereof of the of&ce expenses, head
660; 8 Pa. Co. Ct. 606; Bell's Gap E. physician 'a salary, and other expenses,
Co. V. Christy, 79 Pa. St. 54, 21 Am. for one year, is not binding on the
Eep. 39. association after incorporation unless
Bhode Ireland v. Glove Mill-
Island. adopted or ratified. Park v. Modern
ing & Reduction Co., 20 R. I. 190, 38 Woodmen of America, 181 111. 214, 54
L. E. A. 299, 38 Atl. 116. N. E. 932.
Tennessee. Pittsburg & Tennessee When persons contemplate or at-
Copper Min. Co. v. Quintrell, 91 Tenn. tempt the formation of an insurance
693, 20 S. W. 248. company under a general law, they
Texas. Weatherford, M. W. & N. must organize under the law to such
W. Ey. Co. V. Granger, 86 Tex. 350, 40 an extent as to acquire at least a de
Am. St. Eep. 837, 24 S. W. 795; Lan- facto corporate existence, before they
caster Gin & Compress Co. v. Murray can transact business and issue poli-
Ginning System Co., 19 Tex. Civ. App. cies of insurance as a corporation.
110, 47 S. W. 387; Exline-Eeimerg Co. Policies issued by them before they
V. Lone Star Life Ins. Co., —
Tex. Civ. have organized, although In the name
App. ,
—
171 S. W. 1060; American of the prospective corporation, will not
Home Life Ins. Co. v. Jenkins, Tex. — be the contracts of the corporation
Civ. App. —
, 138 S. W. 424; Jones v. when it afterwards comes into exist-
Smith (Tex. Civ. App.), 87 S. W. 210. ence, unless it then assumes or adopts
Utah. Tanner v. Sinaloa Land & them. Gent v. Manufacturers & Mer- '
Fruit Co., 43 Utah 14, Ann. Cas. 1916 chants ' Mut. Ins. Co., 107 HI. 652, afE'g
C 100, 134 Pac. 586; Wall v. Niagara 13 111. App. 308.
Mining & Smelting Co., 20 Utah 474, A corporation is not bound by an
59 Pac. 399; Long v. Citizens' Bank, agreement by its promoters that a per-
8 Utah 104, 29 Pac. 878. son shall be appointed an oflScer of the
Washington. Chilcott v. Washing- corporation at a certain salary, or oth-
ton State Colonization Co., 45 Wash. erwise employed by it, when it shall
148, 88 Pac. 113; Bash v. Culver Gold be organized. Stevenson v. Dubuque
Min. Co., 7 Wash. 122, 34 Pac. 462. Level & Lead Min. Co., 34 Iowa 577;
Wisconsin. Pratt v. Oshkosh Match Oakes v. Cattaraugus Water Co., 66
Co., 89 Wis. 406, 62 N. W. 84; Buflfing- Hun (N. Y.) 634, 66 N. Y. Supp. 634,
ton V. Bardon, 80 Wis. 635, 50 N. W. 143 N. Y. 430, 26 L. E. A. 544, 38 N. E.
776. 461. See also Tuttle v. George A.
308
Ch. 5] Peomoteks [§150
some other statute which regulates its liabilities in such matters.^'

"That a corporation should have a full and complete organization
and existence as an entity before it can enter into any kind of a con-
tract or transact any business, would seem to be self-evident. This is
unconditionally true, unless the act of incorporation authorizes the
corporators to perform acts and enter into contracts to bind the
company when it shall be organized. As well say a child in ventre
m 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 corpora-
tion, nor does it possess franchises or faculties for it or others to exer-
cise, until it acquires a complete existence. By its birth, so to speak,
it for the first time acquires its facultiesand to transact its business
perform its " *®
In other words, the contracts of the pro-
functions.
moters of a corporation are, as far as the latter is concerned, mere
open offers to it which it may either accept or reject.*" In the applica-
tion of this principle, it is immaterial that the promoters who made
the contract are the only stockholders or members of the corporation,
for a corporation, save when the doing of equity requires otherwise,
is deemed a legal entity and an artificial person distinct from its
stockholders or members as individuals."

Tuttle Co., 101 Me. 287, 8 Ann. Cas. 40 Wall v. Niagara Mining & Smelt-
260, 64 Atl. 496. ing Co., 20 Utah 474, 59 Pac. 399;
A promoter of a corporation cannot Pratt v. Oshkosli Match Co., 89 Wis.
bind it by a contract made with a sub- 406, 62 N. W. 84.
scriber to its stock before organization, The terms of a contract of the pro-
in order to induce the subscription, meters with third persons regarding
Joy V. Manion, 28 Mo. App. 55. a certain matter, entered into for the
A corporation is not bound by con- corporation's benefit, do not necessa-
tracts of promoters as to the right to rily define the terms of the contract
stock. Hawkins v. Mansfield Gold Min. of the corporation with such persons
Co., 52 Cal. 513; Morrison v. Gold regarding the same matter. Davis v.
Mountain Gold Min. Co., 52 Cal. 306; Dexter Butter & Cheese Co., 52 Kan.
Carey v. Des Moines Co-op. Coal & 693, 35 Pac. 776.
Mining Co., 81 Iowa 674, 47 N. W. 882; 41 Battelle v. Northwestern C. & C.
Dillon V. Commercial Cable Co., 87 Pavement Co., 37 Minn. 89, 33 N. W.
Hun (N. Y.) 444, 34 N. Y. Supp. 370. 327.
38 See § 151, infra. A
corporation is not liable, in the ab-
Gent V. Manufacturers & Mer-
39 ' sence of ratification or adoption, or of
chants Mut. Ins. Co., 107 111. 652, afE 'g
' a charter or statutory provision im-
13 111. App. 308. See also Montgom- posing liability, for the salary of a
ery v. Whitbeek, 12 N. D. 385, 96 N. superintendent or other person for
y^_ 527. services performed for it before its
,309
§151] Private Coepokations [Ch. 5
§ 151, —
Liability imposed by statute. The act by or under which
a corporation is created may allow the promoters to make certain con-
tracts on its behalf before it is organized, and may expressly or
impliedly make In such a case an action may be
it liable thereon.
maintained against the corporation on the contract, if the charter or
statutory provisions have been complied with,*^ although not other-
wise ** for in accepting a charter, or organizing under a statute, a
;
corporation becomes bound by all of its provisions and subject to all

of the burdens imposed thereby.**
§ 152. —
Adoption or ratification of contracts. The doctrine of
the more recent English eases seems to be that, in the absence of a
charter or statutory provision, a contract made by the promoters of a
corporation on its behalf before incorporation a nullity, and that
is
the corporation cannot adopt or ratify it, and thus become bound by
it, after incorporation," although an action quasi ex contractu may
be maintained against the corporation, if it accepts the benefit of such
organization under a contract made by Gaslight Co., 4 B. & C. 962; In re

its promoters, although the contract Brampton & Longtown By. Co., 10 Ch.
may have been made on its behalf and App. 177.
with the understanding that it should 43 Gunn v. London & Lancashire Fire
be bound, and although the promoters Ins. Co., 12 C. B. (N. S.) 694; Hutchi-
who made it may have become its son V. Surrey Consumers' Gas-Light &
stockholders and officers. Little Bock Coke Ass 'n, 11 C. B. 689.
& Ft. Smith E. Co. v. Perry, 44 Ark. 44 See § 248, infra.
383, 37 Ark. 164; Western Screw & 45 In re Northumberland Ave. Hotel
Manufacturing Co. v. Cousley, 72 HI. Co., 33 Ch. Div. 16; In re Empress En-
531; Carey v. Des Moines Co-op. Coal gineering Co., 16 Ch. Div. 125; Melhado
& Mining Co., 81 Iowa 674, 47 N. W. V. Porto Alegre, N. H. & B. Ry. Co.,
882; Weatherford, M. W. & N. W. Ry. L. R. 9 C. P. 503; Kelner v. Baxter,
Co. V. Granger, 86 Tex. 350, 40 Am. L. B. 2 C. P. 174. See also Tuttle v.
St. Rep. 837, 24 S. W. 795. See also George A. Tuttle Co., 101 Me. 287, 8
Tuttle V. George A. Tuttle Co., 101 Me. Ann. Cas. 260, 64 Atl. 496; Ireland v.
287, 8 Ann. Cas. 260, 64 Atl. 496. Globe Milling & Reduction Co., 20 B.
An incorporated bank is not liable I. 190, 38 L. B. A. 299, 38 Atl. 116.
upon a certificate of deposit issued In Spiller v. Paris Skating Bink Co.,
before its incorporation, although it 7 Ch. Div. 368, ratification of such a
was signed, as cashier, by a person contract by the corporation was held
who has become its cashier since its valid and binding upon it in equity;
organization, where it does not appear but this case is overruled by In re Em-
that it has received the consideration press Engineering Co., 16 Ch. Div. 125,
or otherwise assumed the obligation. and In re Northumberland Ave. Hotel
Long V. Citizens' Bank, 8 Utah 104, Co., 33 Ch. Div. 16. Compare Touche
29 Pac. 878. V. Metropolitan Railway Warehousing
42 Gent V. Manufacturers ' Mut. Ins. Co., 6 Ch. App. 671.
Co., 107 111. 652; Tilson v. Warwick The adoption and confirmation by
310
a contract.*^ This view is also the one taken by the Supreme Court
of Massachusetts."
The courts of other states have repudiated the English doctrine and
hold that a contract made by the promoters of a corporation on its
behalf may be adopted or ratified by the corporation when organized,
and that the corporation is then liable, both at law and in equity,
on the contract itself, and not merely for the benefits which it has
received.*' In accordance with this view, bonds issued by promoters
directors of a contract made before Alabama. Davis v. Montgomery

the formation of a company by persons Furnace & Chemical Co., 8 So. 496.
purporting to act on behalf of the com- Arkansas. Bloom v. Home Ins.
pany and others does not create any Agency, 91 Ark. 367, 121 S. W. 293;
contractual relation between the com- Little Bock & Ft. S. R. Co. v. Perry, 44
pany and the other parties to the con- Ark. 383; 37 Ark. 164.
tract, nor impose any obligation on the California. Chater v. San Fran-
company towards such parties. North cisco Sugar Befining Co., 19 Cal. 220;
Sydney Investment & Tramway Co. v. Bideout v. National Homestead Ass 'n,
Higgins, [1899] App. Cas. 263. And 14 Cal. App. 349, 112 Pae. 192. See
see In re Johannesburg Hotel Co., also Scadden Flat Gold-Min. Co. v.
[1891] 1 Ch. 119. Scadden, 121 Cal. 33, 53 Pac. 440.
48 In re Northumberland Ave. Hotel Colorado. Hersey v. Tully, 110 Colo.
Co., 33 Ch. Div. 16; In re Empress En- App. 110, 44 Pae. 854; Arapahoe Inv.
gineering Co., 16 Ch. Div. 125; In re Co. V. Piatt, 5 Colo. App. 515, 39 Pac.
Dale, 61 L. T. R. (N. S.) 206. See also 584; Colorado Land & Water Co. v.
Tuttle V. George A. Tuttle Co., 101 Adams, 5 Colo. App. 190, 37 Pac. 89.
Me. 287, 8 Ann. Cas. 260, 64 Atl. 496. Connecticut. Stanton v. New York
47Koppel V. Massachusetts Brick & Eastern By. Co., 59 Conn. 272, 21
Co., 192 Mass. 223, 78 N. E. 128; Am. St. Eep. 110, 29 Atl. 300; In re
Holyoke Envelope Co. v. ITnited States Waterman's Appeal, 26 Conn. 96.
Envelope Co., 182 Mass. 171, 65 N. E. Georgia. Chicago Building & Manu-
54; Abbott v. Hapgood, 150 Mass. 248, facturing Co. V. Talbotton Creamery
5 L. B. A. 586, 15 Am. St. Eep. 193, 22 & Manufacturing Co., 106 Ga. 84, 31
N. E. 907. Compare the dictum in S. E. 809. See also Jos. Bosenheim
Penn Match Co. v. Hapgood, 141 Mass. Shoe Co. V. Home, 10 Ga. App. 582, 73
145, 7 N. E. 22. See also Tuttle v. S. E. 953.
George A. Tuttle Co., 101 Me. 287, 8 Idaho.Mantle v. Jack Waite Min.
Ann. Cas. 260, 64 Atl. 496, 498; Queen Co., 24 Idaho 613, 136 Pac. 1130, 135
City Furniture & Carpet Co. v. Craw- Pac. 854. See also Henry Gold Min.
ford, 127 Mo. 356, 30 S. W. 163; Ire- Co. V. Henry, 25 Idaho 333, 137 Pac.
land V. Globe Milling & Beduction Co., 523.
20 B. I. 190, 38 li. E. A. 299, 38 Atl. Illinois. Streator Independent Tel.
116. Co. V. Continental Tel. Const. Co., 217
48 United States. Whitney v. Wy- HI. 577, 75 N. E. 546, afE'g 118 HI. App.
man, 101 U. 25 L. Ed. 1050; In
S. 392, 14; Eeichwald v.Commercial Hotel
re Ballou, 215 Fed. 810; In re Quality Co., 106 HI. 439; Woodv. Whelen, 93
Shoe Shop, 212 Fed. 321; Bridgeport 111. 153; Western Screw & Mfg. Co. v.
Electric & Ice Co. v. Meader, 72 Fed. Cousley, 72 HI. 531.
115. Indiana. Cushion Heel Shoe Co. v.
311
152] Pbivate Cobpokations [Ch.5
in the name of a corporation before its organization, may be adopted
Hartt, 181 Ind. 167, 50 L. R. A. (N. S.) burg Eailroad, Power & Manufacturing
979, 103 N. E. 1063; Bruner v. Brown, Co., 88 Miss. 689, 40 So. 647; Bank of
139 Ind. 600, 38 N. E. 318; Davis & Forest v. Orgill Bros. & Co., 82 Miss.
Eankin Bldg. & Mfg. Co. v. Hillsboro 81, 34 So. 325; Johnston v. Gumbel,
Creamery Co., 9 Ind. App. 553, 37 <N. 19 So. 100.
E. 549. Queen City Furniture &
Missouri.
Iowa. First Nat. B^nk of Marahall- Carpet Co. Crawford, 127 Mo. 356,
V.
town V. Church Federation of America, 30 S. W. 163; Quinn v. American
129 Iowa 268, 105 N. W. 578; Louis Bankers' Assur. Co., 183 Mo. App. 8,
Cook Mfg. Co. V. Bandall, 62 Iowa 244, 165 S. W. 823; Van Noy v. Central
17 N. W. 507; Dubuque Female College Union Fire Ins. Co., 168 Mo. App. 287,
V. Dubuque Dist. Tp., 13 Iowa 555. 153 S. W. Brown & Son
1090; Eichard
Kansas. Tryber v. Girard Creamgry Contracting Co. v. Bambrick Bros.
& Cold Storage Co., 67 Kan. 489, 73 Const. Co., 150 Mo. App. 505, 131 S. W.
Pao. 83; Davis v. Dexter Butter & 134; Pitman v. Chicago- Joplin Lead &
Cheese Co., 52 Kan. 693, 35 Pac. 776. Zinc Co., 113 Mo. App. 513, 87 S. W.
Kentucky. Frankfort & S. Turnpike 10; Pitts V. D. M. Steele Mercantile
Co. V. Churchill, 6 T. B. Mon. 427, 17 Co., 75Mo. App. 221.
Am. Dec. 159.: Nebraska. Paxton Cattle Co. v.
Maine. Tuttle v. George A. Tuttle First Nat. Bank, 21 Neb. 621, 59 Am.
Co., 101 Me. 287, 8 Ann. Cas. 260, 64 Eep. 852, 33 N. W. 271.
Atl. 496; Bobbins v. Bangor E. & Elee. Nevada. Alexander v. Winters, 24
Co., 100 Me. 496, 1 L. K. A. (N. S.) 963, Nev. 143, 50 Pac. 798, 49 Pac. 116;
62 Atl. 136. Paxton V. Bacon Mill & Mining Co.,
Maryland. Grape Sugar & Vinegar 2 Nev. 257.
Mfg. Co. v. Small, 40 Md. 395; Frank- New Jersey. Town of Boonton v.
lin Fire Ins. Co. v. Hart, 31 Md. 59. Boonton Water Co., 69 N. J. Eq. 23, 61
Michigan. Wright v. St. Louis Atl. 390.
Sugar Co., 146 Mich. 555, 109 N. W. New York. Hall v. Herter Bros., 157
1062; Sullivan v. Detroit, T. & A. A. N. T. 694, 51 N. E. 1091, 90 Hun 280,
E. Co., 135 Mich. 661, 64 L. E. A. 673, 35 N. Y. Supp. 769; Seymour v. Spring
106 Am. St. Eep. 403, 98 N. W. 756; Forest Cemetery Ass 'n, 144 N. Y. 333,
Esper v. Miller, 131 Mich. 334, 91 N. 39 N. E. 365; Oakes v. Cattaraugus
W. 613; St. John Mfg. Co. v. Munger, Water Co., 143 N. Y. 430, 26 L. E. A.
106 Mich. 90, 29 L. E. A. 63, 58 Am. 544, 38 N. E. 461; Rogers v. New York
St. Eep. 468, 64 N. W. 3. & T. Land Co., 134 N. Y. 197, 32 N. E.
Minnesota. Bond v. Pike, 101 Minn. 27; Bommer v. American Spiral Spring
127, 111 N. W. 916; Wasser v. Western Butt Hinge Mfg. Co., 81 N. Y. 468;
Land Securities Co., 97 Minn. 460, 107 Grier v. Hazard, Hazard & Co., 39 N.
N. W. 160; Hillside Cemetery Ass'n Y. St. Eep. 74, 13 N. Y. Supp. 583;
V. Holmes, 97 Minn. 261, 105 N. W. Bond V. Atlantic Terra Cotta Co., 137
905; McArthur v. Times Printing Co., N. Y. App. Div. 677, 122 N. Y. Supp.
48 Minn. 319, 31 Am. St. Eep. 653, 51 425; J. H. Lane & Co. v. United Oil
N. W. 216; Battelle v. Northwestern 0. Cloth Co., 103 N. Y. App. Div. 378, 92
& C. Pavement Co., 37 Minn. 89, 33 N. Y. Supp. 1061; Martin v. Eeming-
N. W. 327. See also Roberts Mfg. Co. ton-Martin Co., 95 N. Y. App. Div. 18,
V. Schlick, 62 Minn. 332, 64 N. W. 826. 88 N. Y. Supp. 573; Quee Drug Co. v.
Mississippi. Mulverhill v. Vieks- Plant, 55 N. Y. App. Div. 87, 67 N. Y.
312
,
Cli.5] Peomotees [§152
or ratified by its directors after its organization, and in such a case
Supp. 10; Mesinger v. Mesinger Bi- Compress Co. v. Murray Ginning Sys-
cycle Saddle Co., 44 N. Y. App. Div. tem Co., 19 Tex. Civ. App. 110, 47 S.
26, 60 N. Y. Supp. 431; Burden v. Bur- W. 387; Exline-Eeimers Co. v. Lone
den, 8 N. Y. App. Div. 160, 40 N. Y. —
Star Life Ins. Co., Tex. Civ. App.
Supp. 499, aff'd 159 N. Y. 287, 54 — , 171 S. W. 1060; Bradshaw
Jones, v.
N. E. 17; Van Sehaick v. Third Ave. — — 152 W. 695;
Tex. Civ. App. , S.
R. Co., 49 Barb. 409; Bell v. Shibley, American Home Life Co. Jenk-
Ins. v.
33 Barb. 610; Hall v. Herter Bros., 83 ins,— Tex. Civ. App. — 138 W. , S.
Hun 19, 31 N. Y. Supp. 692; Thistle 424; 'Jones v. Smith (Tex. Civ. App.),
v. Jones, 45 N. Y. Misc. 215, 92 N. Y. 87 S. "W. 210; Ennis Cotton-Oil Co. v.
Supp. 113; Burke v. Lincoln- Valentine Burks (Tex. Civ. App.), 39 S. W. 966.
Co., 28 N. Y. Misc. 202, 58 N. Y. Supp. See also Com. Bonding & Casualty Ins.
1077. See also Wilson v. Kings Co. El. Co. V. Thurman, —
Tex. Civ. App. —
E. Co., 114 N. Y. 487, 21 K. E. 1015; 176 S. W. 762.
Burke v. Lincoln- Valentine Co., 28 N. Utah. Tanner v. Sinaloa Land &
Y. Misc. 202, 58 N. Y. Supp. 1077, Fruit Co., 43 Utah 14, Ann. Cas. 1916 C
1124; Davis v. Valley Elee. Light Co., iOO, 134 Pac. 586.
61 N. Y. Supp. 580. Washington. Chilcott v. Washing-
Ohio. City Bldg. Ass'n, No. 2, v. ton State Colonization Co., 45 Wash.
Zahner, 6 Ohio Dee. 1068. 148, 88 Pac. 113. See also Stilwell v.
Oregon. Sehreyer v. Turner Flour- Spokane Alarm Co., 66 Wash. 703, 120
ing Mills Co., 29 Ore. 1, 43 Pac. 719. Pac. 85.
Pennsylvania. Central Trust Co. of West Virginia. Chesapeake & O.
Pittsburg V. Lappe, 216 Pa. 549, 65 Atl. Ey. Co. V. Deepwater Ey. Co., 57 W.
1111; In re Heckman's Estate, 172 Pa. Va. 641, 50 8. E. 890; Richardson v.
St. 185, 33 Atl. 552; Bell's Gap E. Co. Graham, 45 W. Va. 134, 30 S. E. 92.
v. Christy, 79 Pa. St. 54, 21 Am. Eep. Wisconsin. Buffington v. Bardon,
39; Insurance Bank v. Bank of United 80 Wis. 635, 50 N. W. 776; Pratt v.
States, 7 Leg. Int. 129; Titus v. Cata- Oshkosh; Match Co., 89 Wis. 406, 62
wisse R. Co., 5 Phila. 172. See also N. W. 84.
Snow v. Thompson Oil Co., 59 Pa. St. Wyoming. Grand Rapids Furniture
209. Co. V. Grand Hotel & Opera House Co.,
South Carolina. Bank of South Car- 11 Wyo. 128, 72 Pac. 687, 70 Pac. 838.
See
olina V. Campbell, 2 Eich. Eq. 179. "The most important question pre-
Haslett's Ex'rs v. Wotherspoon, 1 sented is whether 'promoters,' or per-
Strob. Eq. 209. sons who contemplate organizing a
South Dakota. Kaeppler v. Eed- corporation, can make contracts which
field Creamery Co., 12 S. D. 483, 81 N. will bind it after it becomes a legal
W. 907; Huron Printing & Bindery Co. entity. It is contended by counsel for
V. Kittleson, 4 S. D. 520, 57 N. W. 233. the appellant that a contract made for
Tennessee. Pittsburg & Tennessee a corporation before it has an actual
Copper Min. Co. v. Quintrell, 91 Tenn. existence is not enforceable by or
693, 20 S. W. 248. against it. This contention is too
Texas. Weatherf ord, M. W. & N. broad. It indicates that a corporation
W. Ry. Co. V. Granger, 86 Tex. 350, 40 cannot, even in the exercise ol: its
Am. St. Eep. 837, 24 S. W. 795; Mo- powers to make contracts, accept and
Donough v. First Nat. Bank of Hous- adopt a contract made for it by the
ton, 34 Tex. 309; Lancaster Gin & promoters before its existence as an
313
they will become the valid bonds of the corporation.*'

Another application of this doctrine has been made in the case of
promissory notes, and it is held that if the promoters of a corporation
purchase goods for it before its organization, and give a note for the
price,and the corporation afterwards accepts the goods with knowl-

edge of the facts, it thereby adopts or ratifies the note and is liable
thereon.'"
entity. The legitimate sequence of action of the corporation, entered on

this would be that a corporation, upon its minutes, but may be inferred from
full and complete organization under its own acts and acquiescence, or those
the statute, might accept and adopt of its agents, and there need be no
such a contract, receive and retain the express acceptance; or the corpora-
benefits thereof, and at the same time tion may be bound by the contracts of
be absorbed from its burdens. We its promoters, if made so by its char-
have no sympathy with a doctrine that ter, has accepted and to which
which it
would lead to such results; that might it was agreed. Unless, however, there
be employed as an instrument of fraud be an acceptance and adoption thereof
and injustice to the unwary. It may in some such way, the corporation will
be assumed as true that promoters and not, in general, be bound by the con-
incorporators have no standing in any tracts of its promoters and incorpora-
relation of agency, since that which tors, made for it before its complete
has no existence can have no agent, organization. Where a contract is
and, in the absence of any act author- made by and with promoters, which is
izing them so to do, can enter into no intended to inure to the benefit of a
contract, nor transact any business, corporation about to be organized,
which shall bind the proposed corpo- such contract will be regarded as in
ration after it becomes a distinct en- the nature of an open offer, which the
tity; but, notwithstanding this be true, corporation, upon complete organiza-
still such promoters and incorporators tion, may accept and adopt or not, as
may, acting in their individual capaci- it chooses; but, if it does accept and
ties, make contracts in furtherance of adopt and retain the benefits of it,
the incorporation, and for its benefit, it cannot reject any liability under it,
and, after the incorporation comes into but in such case will be bound to per-
being as an artificial person under the form the contract, upon the principle
forms of law, it may, at least under that one who accepts and adopts a
the weight of American authority, ac- contract which another undertook to
cept and adopt such contracts, and perform in his name and on his behalf
thereupon they become its own con- must take the burden with the bene-
tracts, and may be enforced by or Wall V. Niagara Mining & Smelt-
'
fit. '
against it. This the corporation may ing Co., 20 Utah 474, 59 Pac. 399. See
do, not because of an agency, on the also Henry Gold Min. Co. v. Henry, 25
part of the incorporators, before the Idaho 333, 137 Pac. 523.
existence of the entity, for there is 49 Wood V. Whelen, 93 111. 153.
none, but because of its own inherent BOPaxton Cattle Co. v. First Nat.
powers as a body corporate to make Bank, 21 Neb. 621, 59 Am. Eep. 852, 33
contracts. Moreover, the adoption of N. W. 271.
such a contract need not be by express
314
Ch.5] Peomotees [§ 152
The rule is also applied in regard to a lease,^^ and if a lease is

executed to a person in trust for a corporation to be afterwards
formed, and the corporation, after its organization, takes an assign-
ment thereof, with knowledge of the terms on which it was executed
by the lessor, it becomes liable in equity to pay the rent to the lessor,
and it cannot avoid such liability by transferring the lease to
another.^2 So, too, if a corporation with either actual or constructive
notice ^^ takes property purchased for
it by its promoters before its
creation, withknowledge of the terms of the contract of purchase,-
and thereby adopts or ratifies the contract, it takes the property
subject to an equitable lien for the purchase price created by the
dealings of the parties.^*
A corporation may
also ratify a contract for services made by its
promoters on behalf and thus render itself liable for past as well
its
as future services,** and a contract appointing an :agent for a
projected corporation, entered into by the promoters, may be ratified
by the corporation when it is organized, and such ratification will
make the party the agent of the corporation.*^ "Whether the means
Bl In re QTiality Shoe Shop, 212 Fed. on which the building stands is con-
321. veyed to the corporation, such lien
52 Van Schaiek Third Ave. R. Co.,
v. being created by law and not by the
49 Barb. (N. Y.) 409. See also In re promoters' contract. Davis & Rankin
Heckman 's Estate, 172 Pa. St. 185, 33 Bldg. & Hfg. Co. V. Vice, 15 Ind. App.
Atl. 552. 117, 43 N. E. 889. See also Waddy
63 Burt V. Batavia Paper Mfg. Co., Bluegrass Creamery Co. v. Davis-Ean-
86 111. 66. kin Bldg. & Hfg. Co., 103 Ky. 579, 45
B4 Bridgeport Electric & lee Co. v. S. W. 895. And compare Chicago Bldg.
Header, 72 Fed. 115. & Mfg. Co. V. Talbotton Creamery &
Where the contract of a promoter, Manufacturing Co., 106 Ga. 84, 31 S. E.
adopted by the corporation, gave rise 809.
to an equitable mortgage, a statute B5 Where a contract made with the
providing that 30 days' notice must promoters of a corporation was ratified
be given to the stockholders before by the corporation, and a suit was
the corporate property can be mort- afterwards brought by the other party
gaged cannot be invoked to defeat for its breach, it was held that the rati-
such mortgage, where, though all of the fication related back to the date of the
stockholders had ample notice of the execution of the contract, and entitled
contract at the time of its adoption, the plaintiff to have his services ren-
none of them objected thereto, as the dered prior to the ratification consid-
statute was enacted for the benefit of ered in estimating his damages for the
the stockholders and could be waived breach. Stanton v. New York & East-
by them, Bridgeport Electric & lee ern Ry. Co., 59 Conn. 272, 21 Am. St.
Co. v. Header, 72 Fed. 115. Rep. 110, 22 Atl. 300.
A mechanic 's lien on a building 66 In a California case the subscrib-
erected under a contract with promoters of an instrument preliminary to
ers, may be enforced after the land incorporation agreed thereby to take
315
152] Peivate Cobpoeations [Ch.5
by which the corporation makes a contract of its promoters its own

and thus becomes liable thereon is technically an adoption*'' or a
ratification*' is a question upon which the courts differ. While
a certain number of shares in the cor- tract formed by its promoters prior to
poration, and to pay a certain per- the completion of the corporate or-
centage of the par value thereof to one ganization. The so-called 'ratifica-
W. By the same instrument they ap- tion' by the corporation is nothing
pointed the defendants their agents more nor less than the making of an
and the agents of the proposed corpo- original contract. The fact that the
ration with authority to purchase corporation makes the same contract
property for the corporation, and to theretofore made by its promoters does
draw from W. the money paid to him, not constitute a ratification, but it is
and use the same in paying for the an original contract of the corpora-
property. It was held that until the tion. This is plainly so, for the reason
formation of the company the defend- that there was no corporation in exist-
ants were the agents of the subscrib- ence at the time these promoters made
ers, but that their agency for the sub- the contract in question, and the cor-
scribers ceased when the corporation poration, in the so-called '
adoption ' of
was formed, and that afterwards they the contract of its promoters, is sim-
became the agents of the corporation; ply * * * acting in the same way
and it was further held that, since no as it would act in entering into any
interest was coupled with their agency, other engagement." Queen City Fur-
it was competent for the corporation niture & Carpet Co. v. Crawford, 127
to remove them at any time, and ap- Mo. 356, 30 S. W. 163.
point other agents in their place, or See also in this connection:
itself assume the custody and dispo- Minnesota. McArthur v. Times
sition of the money. San Joaquin Printing Co., 48 Minn. 319, 31 Am. St.
Land & Water Co. v. West, 94 Cal. 399, Eep. 658, 51 N. W. 216.
29 Pac. 785. Missouri. Van Noy v. Central Union
57
The better view is that the cor-
'
' Pire Ins. Co., 168 Mo. App. 237, 153 S.
poration does not become liable after W. 1090; Eiehard Brown & Son Con-
its creation by 'ratification,' as the tracting Co. V. Bambrick Bros. Const.
term is ordinarily understood, because Co., 150 505, 131 S. W. 134.
Mo. App.
ratification presumes ability to con- Tennessee.Pittsburg & Tennessee
tract at the time the unauthorized con- Copper Min. Co. v. Quintrell, 91 Tenn.
tract was made. Where there is no 693, 20 S. W. 248.
corporation in fact, there cannot be Texas. Weatherford, M. W. & N.
any agent; hence the liability which W. By. Co. V. Granger, 86 Tex. 350,
the corporation incurs by adopting a 40 Am. St. Eep. 837, 24 S. W. 795; Ex-
contract made for its benefit before it line-Eeimers Co. v. Lone Star Life Ins.
had legal existence does not relate Co., —Tex. Civ. App. , —
171 S. W.
back to the unauthorized act, and 1060; Jones v. Smith (Tex. Civ. App.),
make a contract as of that date, but 87 S. W. 210.
the contract dates from the adoption Wisconsin. Badger Paper Co. v.
of such act." Badger Paper Co. v. Eose, 95 Wis. 145, 37 L. E. A. 162, 70
Eose, 95 Wis. 145, 37 L. B. A. 162, 70 N. W. 302; Pratt v. Oshkosh Match
N. W. 302. Co., 89 Wis. 406, 62 N. W. 84.
"Strictly speaking, there can be no 68 "The directors acted with full
ratification by a corporation of a con- knowledge of all the facts, and with

316
—
Ch.5] Pkomoters [§152
the solution of the question may, in certain cases, be unnecessary in

order to hold the corporation liable, there are other cases, as, for
instance, those in which the corporation invokes the statute of limita-
tions, or the provision of the statute offrauds which requires contracts
not to be performed within one year to be in writing, in which the
question must be decided before a proper judgment can be rendered,
ratification making the corporation 's liability date from the time when
the contract was entered into by the promoters and adoption, from
the date of the acts whereby the corporation made the contract its
own unless it is agreed to the contrary.*" When after the adoption or
such knowledge they • ratified ' the con- tioning of a previous act, or an act
tract. That word itself means the done, in the name or on behalf of the
adoption of a previously form.ed eon- party ratifying, without sufBlcient or
tract. Batification relates back to the legal authority, —that is to say, the
execution of the contract, and renders confirmation of a voidable act. But,
it obligatory from the outset. By the as the terms relate to contracts, some
nature of the act the party ratifying lexicographers treat them as synony-
becomes a party to the contract, and is, mous. Eapalje thus defines adopt '
on the one hand, entitled to all its ben- adoption': 'Of contract. To adopt a
efits, and, on the other, is bound by its contract is to accept it as binding, not-
terms. * * * A corporation has power, withstanding some defect which en-
when fully organized, to ratify a eon- titles the party to repudiate it. Thus,
tract made by its promoters when it when a person afSrms a voidable eon-
it one within the purposes for which tract, or ratifies a contract made by his
the corporation was organized, and ap- agent beyond his authority, he is said
pears to be a reasonable means for the to adopt it. ' See Eap. & L. Law Diet.
carrying out of those purposes. * * * 31. See also And. Diet. Law, 36. Now,
And the ratification makes the con- as regards a contract made or an ob-
tract in all respects what it would have ligation incurred by the promoters of
been the requisite power had ex-
if a corporation in the name of, or for
isted when it was entered into. ' Stan-
'
and in behalf of, a contemplated cor-
ton V. New York & E. Ey. Co., 59 Conn. poration it would seem that an adop-
272, 21Am. St. Eep. 110, 22 Atl. 300. tion or a ratification thereof by the
In one case novation is said to be corporation after had developed into
it
the means by which a corporation a legal entity would mean one and the
makes its promoters' contracts its same thing, and would be accomplished
own. See Oldham v. Mt. Sterling Im- by one and the same process. True,
provement Co., 103 Ky. 529, 45 S. W. the promoters cannot be the agents of
779. an unborn corporation; but, where they
60 " In their primary signification, have assumed to act for it, and to con-
there a manifest distinction between
is tract in its name, the approval and
' adoption ' and ratification. ' The one
' confirmation of such acts by the cor-
signifies to take and receive, as one's poration, when organization has been
own, that with reference to which duly accomplished, are but the ratifica-
there existed no prior relation, either tion of the acts of an unauthorized
colorable or otherwise; while the other agent. And the result is the same,
is a confirmation, approval, or sanc- whether we call it ' adoption ' or ' rati-
317
§152] Pkivate Cobpokations [Ck5
ratification by the corporation by its promoters
of a contract executed
the other party to such contract sues thereon, itwould seem that the
contract is properly pleaded as having been made by the corpora-
tion.*^ So, also, an allegation that a contract was made with a cor-
poration is sustained by proof that it was made with the promoters
and adopted or ratified by the corporation.^^
§153. — Power to adopt or ratify ultra vires contracts. The

statement that a corporation may adopt or ratify the contracts
executed by its promoters presupposes, of course, that such contracts
are ones which the corporation would have the power to make in the
first instance. Manifestly where its charter precludes it from enter-
ing into a certain contract as one of the original parties thereto, the
corporation cannot adopt or ratify a similar contract executed by its
promoters and thus do indirectly what it could not do directly.®^
fication. ' But not very material
it is Although the acts of a corporation
here to determine whether, as relating with reference to the contracts made
to contracts, these terms are synony- by promoters in its behalf before its
mous, or are capable of being thus dis- organization are frequently loosely
tinguished, as they might be were the termed 'ratification,' yet a 'ratiiica-
statutes of frauds or limitations in- tion, ' properly so called, implies an
volved. Suffice it to say, authorities existing person, on whose behalf the
are not wanting which .hold them to contract might have been made at the
mean one and the same thing." time. There cannot, in law, be a rati-
Schreyer v. Turner Flouring Mills Co., fication of a contract which could not
29 Ore. 1, 43 Pac. 719. have been made binding on the ratifier
"Defendant [corporation], however, at the timeit was made, because the
claims that the contract [adopted by ratifier was not then in existence.
it] was void under the statute of [Citing English cases] * * * what
frauds, because, 'by its terms, not to is called '
adoption, ' in such cases, is,
be performed within one year from the in legal effect, the making of a con-
making thereof,' which counsel as- tract of the date of the adoption, and
sumes to be * * * the date of the not as of some former date. The con-
agreement between plaintiff and the tract in this case was, therefore, not
promoter. This proceeds upon the er- within the statute of frauds." Mc-
roneous theory that the act of the Arthur v. Times Printing Co., 48 Minn.
corporation, in such cases, is a ratifi- 319, 31 Am. St. Rep. 653, 51 N. W. 216.
cation, which relates back to the date 61 McArthur v. Times Printing Co.,
of the contract with the promoter, un- 48 Minn. 319, 31 Am. St. Rep. 653, 51
der the familiar maxim that 'a subse- N. W. 216.
quent ratification has a retroactive 62Scadden Flat Gold-Min. Co. v.
effect, and is equivalent to a prior Scadden, 121 Cal. 33, 53 Pac. 440.
command.' But the liability of the 63 "The right of the corporate
corporation, under such circumstances, agents to adopt an agreement origi-
does not rest upon any principal of the nally made by promoters depends upon
law of agency, but upon the immediate the purposes of the corporation and
and voluntary act of the company. the nature of the agreement. Of
318
Cli.5] Pbomotbes [§153
Therefore, if the contract is such that it would have been ultra vires
to enter into it in the first instance, it is ultra vires to adopt oi:
ratify it.8*
course, the agreement must be one contract to pay a sum of money to an

which the corporation itself could individual for not opposing the pas-
make, and one which the usual agents sage of the company's bill in parlia-
of the company have express or implied ment. Preston v. Liverpool, M. & N.
authority to make." McArthur v. J. Ey. Co., 5 H. L. Cas. 605.
Times Printing Co., 48 Minn. 319, 31 In Minneapolis Trust Co. v. Clark,
Am. St. Eep. 653, 51 N. W. 216. See 47 Minn. 108, 49 N. W. 386, the de-
also Stanton v. New Tork & E. Ey. Co., fendant, who had indorsed several
59 Conn. 272, 21 Am.
Eep. 110, 22
St. notes, organized a corporation which
Atl. 300; Cushion Heel Shoe Co. v. succeeded to his business, and of which
Hartt, 181 Ind. 167, 50 L. E. A. (N. S.) he became president and principal
979, 103 N. E. 1063; First Nat. Bank stockholder. The maker failed to pay
of Marshalltown v. Church Federation the notes at maturity, and the defend-
of America, 129 Iowa 268, 105 N. W. ant paid them with the funds of the
578; Schreyer v. Turner Flouring Mills corporation; taking renewal notes from
Co., 29 Ore. 1, 43 Pac. 719. And com- the maker, payable to himself, which
pare Wall V. Niagara Mining & Smelt- he indorsed to the corporation. It was
ing Co., 20 Utah 474, 59 Pac. 399. held that, on the payment of the re-
In Babzin v. Gould Balance Valve newal notes, the defendant became
Co., 140 Iowa 744, 118 N. W. 40, it was liable to the corporation as an in-
held that where the money paid on dorser thereon, since the assumption
stock subscriptions, to which the proof the individual liability of the de-
moters obtaining them had attached a fendant on outstanding notes could not
condition subsequent, which was to be be considered as a part of the business
performed by the corporation, was re- to which the corporation succeeded.
ceived after the corporation came into When a corporation is formed to
existence and retained by it, the cor- carry on a manufacturing business
porate officers being the promoters, which has been carried on by an in-
in a suit by the subscribers against the dividual or a partnership, it is not
corporation, equity would enjoin the ultra vires for it to assume the execu-
breach of such condition even though tion of the manufacturing contracts
it was ultra vires, since "a corpora- made by the individual or partnership
tion may ratify even an ultra vires before incorporation. Louis Cook Mfg.
act so as to bind itself when it has Co. V. Eandall, 62 Iowa 244, 17 N. W.
received and retained benefits on ac- 507.
count thereof." See also Chap. 37, Where subscribers agree to pay a
infra. certainsum for the construction of a
64 Minneapolis Trust Co. v. Clark, 47 creamery, each subscriber being liable
Minn. 108; Preston v. Liverpool, Man- for the amount of his subscription
chester & N. J. Ey. Co., 5 H. L. Cas. only, and also agree to incorporate for
605; Shrewsbury v. North Stafford- the purpose of carrying on the busi-
shire Ey. Co., L. E. 1 Eq. 593. when it is formed
ness, the corporation,
It has been held in England that it and accepts the creamery, may assume
is ultra vires for a corporation estab- a balance due the contractors for its
lished for the purpose of constructing construction. Davis v. Dexter Butte?:
and maintaining a railroad to adopt a & Cheese Co., 52 Kan. 693, 35 Pac. 776..
319
§154] Peivate Cokpokations [Ch.5
§154. — Mode of adoption or ratification in general. As a gen-

eral proposition, a corporation may, in the absence of a statutory
provision to the contrary, make its promoters contracts
' its own in the
same manner that it might itself enter into similar contracts as one
of the original contracting parties. If there would be no particular
formality to be observed in the latter case, no particular formality
is required in the former.®^ If neither seal, writing nor direct action
by the stockholders or by the board of directors would be necessary
were the corporation to enter into similar contracts as an original
party, it may adopt or ratify its promoters' contracts so as to be
liable thereon without iising its seal, reducing the adoption or ratifica-
tion to writing, or causing its stockholders or its board of directors
to act immediately upon the matter.®*
§ 155. — Persons who may adopt or ratify. Speaking generally,

the party or parties who have the power to bind the corporation by
66 '
' The relations between the pro- Printing Co., 48 Minn. 319, 31 Am. St.
moters and the agents and sharehold- Rep. 653, 51 N. W. 216.
ers may be such, or the engagements New York. Burden v. Burden, 159
made in advance by the promoters be N. Y. 287, 54 N. E. 17, 8 N. Y. App.
of such a character, that the matter of Div. 160, 40 N. Y. Supp. 499.
adoption will be scrutinized by the Oregon. Schreyer v. Turner Flour,
'
courts with great strictness. ' Battelle ing Mills Co., 29 Ore. 1, 43 Pac. 719.
V. Northwestern Cement & Concrete South Dakota. Huron Printing &
Pavement Co., 37 Minn. 89, 33 N. W: Bindery Co. v. Kittleson, 4 S. D. 520,
327. 57 N. "W. 233.
66 There can be no difference be-
'
' Wisconsin. Pratt v. Oshkosh Match
tween its [a corporation's] making a Co., 89 Wis. 406, 62 N. W. 84.
contract by adopting an agreement And compare Tuttle v. George A.
originally made in advance for it by Tuttle Co., 101 Me. 287, 8 Ann. Cas.
promoters, and its making an entirely 260, 64 Atl. 496.
new contract. No greater formality A verbal promise by a corporation,
can be required in the one case than in without more, to pay for services ren-
the other; and if it could make an en- dered under a contract with its pro-
tirely new similar contract, without moters, is invalid under the statute of
the use of its seal, or without writing, frauds as being a promise to pay the
or without formal action of its board debt of a third person. Little Rock &
of directors, it may also so adopt an Ft. 8. R. Co. V. Perry, 37 Ark. 164, 194.
agreement, assumed to be made for it Formal ratification by the board of
in advance by promoters." Battelle directors is not essential where a ma-
V. Northwestern Cement & Concrete jority of the directors had knowledge
Pavement Co., 37 Minn. 89, 33 N. W. of all the facts in connection therewith
.327. and with such knowledge received the
See also in this connection: benefits of the contract in behalf of
IMiimesota. Bond v. Pike, 101 Minn. the corporation. Possell v. Smith, 39
127, 111 N. "W. 916;McArthur v. Times Colo. 127, 88 Pac. 1064.
320
an original contract similar to the one executed by the promoters,

also have the power to bind the corporation by an adoption or a
ratification of the promoters' contract,^'' provided, of course, that no
statute declares otherwise. Nor does the fact that such party or
parties were the ones who as promoters executed the contract of itself,
preclude them from adopting or ratifying it.®^ Indeed, it has been
said that less evidence will be required to establish an adoption or a
where the officers of the corporation were also the pro-
ratification
moters than where the officers are different persons from the pro-
moters.^'
§ 156. —
Implied adoption or raiiiication. Unless the contract is
one which could not arise by implication, an express adoption or
ratification is not required in qrder to bind the corporation; on the
other hand, the latter will be bound where the act or conduct of
those who would have authority to bind it in the first instance in
the matter, is such that an adoption or ratification must necessarily
67 In White v. Westport Cotton Mfg. erty and sold it to the corporation, will
Co., 1 Pick. (Masa.) Am. Dee.
215, 11 not relieve the latter from its liability
168, it was held that a corporation was to pay therefor, when all of the other
not bound by a note given by its agent officers, directors and stockholders, not
for a debt contracted by its members only knew of the contract but con-
before they were incorporated, unless sented to it, and the property was kept
he had express authority by vote. See and used by the corporation, no one
also Teeple v. Hawkeye Gold Dredging dissenting. Battelle v. Northwestern
Co., 137 Iowa 206, 114 N. W. 906; Tift Cement & Concrete Pavement Co., 37
v. Quaker City Nat. Bank, 141 Pa. St. Minn. N. W. 327.
89, 33
550, 21 Atl. 600, 8 Pa. Co. Ot. 606. Where the promoters were the incor-
68 ' Eatification may be effected by
'
porators of the corporation and the
the person who entered into the orig- only stockholders and trustees for
inal agreement, if that person, at the more than three years, and the stock
time of the ratification, has become an was issued and distributed, and the
executive officer of the company, en- dividends were paid in accordance
titled in that capacity to bind it by with the provisions of the promoters'
such an agreement." Mesinger v. agreement which was one that might
Mesinger Bicycle Saddle Co., 44 N. Y. lawfully be made, such agreement is
App. Div. 26, 60 N. Y. Supp. 431. See binding on the corporation. Burden v.
also Oakes v. Cattaraugus Water Co., Burden, 8 N. Y. App. Div. 160, 40 N.
143 N. Y. 430, 26 L. E. A. 544, 38 N. E. Y. Supp. 499, aff'd 159 N. Y. 287, 54
461; Pratt v. Oshkosh Match Co., 89 N. E. 17.
Wis. 406, 62 N. W. 84. 69 Hall V. Herter Bros., 83 Hun (N.
The fact that one of the directors Y.) 19, 31 N. Y. Supp. 692. See also
who adopted a contract whereby prop- Eoberts Mfg. Co. v. Schlick, 62 Minn.
erty belonging to a promoter was pur- 332, 335, 64 N. W. 826; Burke v. Lin-
chased by the corporation was the coln-Valentine Co., 28 N. Y. Misc. 202.
promoter himself, who owned the prop- 58 N. Y. Supp. 1077.
321
I Priv. Corp.—21
be implied.™ So if promoters enter into a contract for the benefit of

the corporation with the understanding, express or implied, that the
contract will be adopted and performed by the corporation, and the
latter, with knowledge of the contract, accepts the benefits thereof,
it is bound both in law and in equity to perform the obligations
imposed therebyJ^
70 United States. In re Quality Shoe the company was organized, and when
Shop, 212 Fed. 321. he was he wrote to this
its president,
Colorado. Arapahoe Inv. Oo. v. agent, acknowledging that the con-
Piatt, 5 Colo.App. 515, 39 Pac. 584. tracts made by him before the com-
Indiana. Cushion Heel Shoe Co. v. pany was organize 1 were binding on
Hartt, 181 Ind. 167, 50 L. E. A. (N. S.) the company, but directing him to
979, 103 N. E. 1063. See also Davis & make future contracts on a different
Bankin Bldg. & Mfg. Co. v. Hillsboro basis. It was held that this was an
Creamery Co., 9 Ind. App. 553, 37 N. E. adoption by the company of the con-
549. tracts made before its organization,
Minnesota. Bond v. Pike, 101 Minn. and that it could not afterwards
127, 111 N. W. 916. change their terms. Colorado Land &
Nevada. Alexander v. Winters, 24 Water Co. v. Adams, 5 Colo. App. 190,
Nev. 143, 50 Pac. 798, 49 Pac. 116. 37 Pac. 39.
New York. Wilson v. Kings Co. El. Where a person leased premises for
R. Co., 114 N. Y. 487, 21 N. E. 1015; his business in his own name, but
Mesinger v. Mesinger Bicycle Saddle thereafter incorporated his business,
Co., 44 N. Y. App. Div. 26, 60 N. Y. subscribed for nearly all of the capital
Supp. 431; Burke v. Lincoln-Valentine stock and conducted the business on
Co., 28 N. Y. Misc. 202, 58 N. Y. Supp. the premises as president and general
1077, 1124. See also Hall v. Herter manager and paid the rent with checks
Bros., 83 Hun 19, 31 N. Y. Supp. 692, of the corporation, there was an ac-
90 Hun 280, 35 N. Y. Supp. 769, aff'd ceptance of the lease by the latter and
157 N. Y. 694, 51 N. E. 1091. it became bound by the provisions
Oregon. Sohreyer v. Turner Flour- thereof so that its office furniture
ing Mills Co., 29 Ore. 1, 43 Pac. 719. might be seized under a distress war-
Femisylvanla. See Girard v. Case rant for rent. Saltonstall v. Mead, 191
Bros. Cutlery Co., 225 Pa. 327, 74 Atl. 111. App. 173, 175.
201. 71 United States. In re Ballou, 215

South Dakota. Huron Printing & Fed. 810.
Bindery Co. v. Kittleson, 4 S. D. 520, Alabama. Moore & Handley Hard-
57 N. W. 233.
ware Co. V. Towers Hardware Co., 87
Tennessee. Pittsburg & Tennessee
Ala. 206, 13 Am. St. Eep. 23, 6 So. 41.
Copper Min. Co. v. Quintrell, 91 Tenn.
Arkansas. Little Eock & Ft. S. B.
693, 20 S. W. 248.
Co. V. Perry, 37 Ark. 164, 191.
In an action against an irrigation
company to compel specific perform- CaUfomla. See Eideout v. National
ance of a contract to furnish water, the Homestead Ass 'n, 14 Cal. App. 349, 112
evidence showed that the promoter of Pac. 192.
the company, before its organization, Colorado. Possell v. Smith, 39 Colo,
employed an agent to solicit subscrip- 127, 88 Pac. 1064 ; Grand Eiver Bridge
tions on certain terms, and that after Co. v. Rollins, 13 Colo. 4, 21 Pac. 897.
322
,
Ch. 5] Promoters [§156
In England certain of the decisions which have approved the rule

that in equity a corporation may adopt or ratify a contract made by
Illinois. Streator Independent Tel. Ohio Lumber Co., Tex. —

, 180 S. —
Co. V. Continental Const. Co., 217 111. W. 735, rev'g —
Tex. Civ. App. —
577, 75 N. E. 546, aff'g 118 111. App. 146 S. W. 243; Weatherford, M. W. &
14. N. W. Ry. Co. V. Granger, 86 Tex. 350,
Iowa. Teeple , v. Hawkeye Gold 40 Am. St. Rep. 837, 24 S. W. 795;
Dredging Co., 137 Iowa 206, 114 N. W. Commonwealth Bonding & Casualty
906. Ins. Co. v. Curry, — Tex. Civ. App.
Maine. See Robbing v. Bangor R. & —,183 S. W. 1; Jones v. Smith (Texi
Elec. Co., 100 Me. 496, 1 L. R. A. (N. Civ. App.), 87 S. W. 210. See also
S.) 963, 62 Atl. 136. Exiine-Rfeimers Co. v. Lone Star Life
Maryland. Maryland
Apartment Ins. Co., — Tex. Civ. App. —, 171
House Md. 377, 70
Co. V. Glenn, 108 S. W. 1060; Lancaster Gin & Compress
Atl. 216; Grape Sugar & Vinegar Mfg. Co. V. Murray Ginning System Co., 19
Co. V. Small, 40 Md. 395. Tex. Civ. App. 110, 47 S. W. 387.
Minnesota. Battelle v. Northwest- Washington. See Chilcott v. Wash-
ern Cement & Concrete Pavement Co., ington State Colonization Co., 45
37 Minn. 89, 33 N. W. 327. Wash. 148, 88 Pae. 113.
Mississippi. See Bank of Forest v. England. Edwards v. Grand June.
Orgill Bros. & Co., 82 Miss. 81, 34 So. Ry. Co., 1 Myl. & C. 650; Stanley v.
325. Chester & B. Ry. Co., 9 Sim. 264.
Missouri. Van Noy v. Central Un- If a corporation accepts a convey-
ion Fire Ins. Co., 168 Mo. App. 287, ance of land in pursuance of an agree-
153 S. "W. 1090. See also Pitts v. D. M. ment made by its promoters, it thereby
Steele Mercantile Co., 75 Mo. App. 221. adopts such agreement and is bound
Nebraska. Paxton Cattle Co. v. by its terms. See Rogers v. New York
First Nat. Bank of Arapahoe, 21 Neb. & T. Land Co., 134 N. Y. 197, 32 N. E.
621, 59 Am. Rep. 852, 33 N. W. 271. 27.
New Hampshire. Low v. Connecti- A contract by promoters of a corpo-

cut & P. Rivers R. Co., 46 N. H. 284. ration to pay a certain royalty to a
New York. Hall v. Herter Bros., patentee on articles to be manufac-
157 N. Y. 694, 51 N. B. 1091, 90 Hun tured by the corporation under the
280, 35 N. Y. Supp. 769; Seymour v. patent is adopted by the corporation
Spring Forest Cemetery Ass'n, 144 N. if it manufactures such articles and
Y. 333, 26 L. R. A. 859, 39 N. E. 365; pays such royalty for a while after its
Rogers v. New York & T. Land Co., 134 organization. Bommer v. American
N. Y. 197, 32 N. E. 27; Bell v. Shibley, Spiral Spring Butt Hinge Mfg. Co., 81
33 Barb. 610; Grier v. Hazard, Haz- N. Y. 468.
ard & Co., 13 N. Y. Supp. 583. Where the promoters of a railroad
Ohio. City Bldg. Ass'n, No. 2 v. company entered into an agreement
Zahner, 6 Ohio Dec. 1068. before its incorporation, with the trus-
South Carolina. See Haslett 's Ex 'rs tees of a turnpike, that, if they would
v. "Wotherspoon, 1 Strob. Eq. 209. not oppose the passage of the charter,
South Dakota. Kaeppler v. Redfield a bridge to be built across the turn-
Creamery Co., 12 S. D. 483, 81 N. "W. pike should be wider than was pro-
907. vided in the charter, and after the
Texas. Weathersby v. Texas & charter was obtained the railroad com-
323
§ 156] Private Coepokations [Ch.5
its promoters, have held that the corporation is bound by reason of its
acceptance of the benefits of the contract, even though the contract
pany proceededto build a bridge of the ment as the president, in his capacity
width authorized by the charter, it as such, had authority to make. Mes-
was held in equity that it was bound inger v. Mesinger Bicycle Saddle Co.,
by the agreement, and it was enjoined 44 N. Y. App. Div. 26, 60 N. Y. Supp.
from thus violating it. Edwards v. 431.
Grand June. By. Co., 1 Myl. & C. 650. Where an electric light company re-
A railroad company will be required ceived and used poles purchased before
specifically to perform a contract, its incorporation by one of its promot-
made by promoters on its behalf, to
its ers under representations that he was
pay a certain price for land in consid- acting for it, and not for himself, it
eration of the withdrawal of opposi- was held that the company was liable
tion to the granting of its charter. for the price. Davis v. Valley Blec.
Stanley v. Chester & B. By. Co., 9 Sim. Light Co., 61 N. Y. Supp. 580.
264. Where a corporation accepted the
Where a person rendered profes- benefit ofa promoter's agreement to
sional services in preparing articles of pay the unpaid rent of a
plaintiff
incorporation under a contract in good building due from the corporation's
faith with the promoters of a corpo- predecessors in business, if permitted
ration, and the corporation availed it- to occupy the building, and on the com-
self of the benefits of such services,, it pany's becoming incorporated such
was held liable for the compensation. promoter was elected its president and
Citjr Bid,g, Aas'n, No. 2 v. Zahner, 6 the company took possession of the
Ohio Dec. 1068. But see Wright v. building, it was held that it was
St. Louis Sugar Co., 146 Mich. 555, chargeable with the president 's knowl-
109 N. W. 1062. edge respecting the agreement, and
A
contract made by a promoter of a was bound thereby. Chase v. Bedfield
corporation that a person shall be ap- Creamery Co., 12 S. D. 529, 81 N. W.
pointed its counsel on a certain salary 951.
is adopted or ratified by the cor- Where an agent engaged in organ-
pora,tion, if the directors, after the izing a mutual insurance company took
corporation is organized, and with a note as a premium note, and the cor-
knowledge of the contract, allow such poration, when organized, accepted the
person to perform services as counsel benefit of his act and received the
and receive the salary agreed upon. note, itwas held that it was bound by
Arapahoe Inv. Co. v. Piatt, 5 Colo. all the conditions to which he agreed
App. 515, 39 Pac. 584. in connection with the note, and that
Where a promoter entered into a it could not treat the note as a stock
contract whereby a third person was note. Bell v. Shibley, 33 Barb. (N. Y.)
employed and given the right to a 610.
vacation and such promoter later be- It may be an open question whether
came president of the corporation, his a corporation can be estopped by
failure as president to give notice accepting benefits which, were they
of the disavowal of the contract and rejected, would make for its nonexist-
his acceptance with knowledge of the ence. Cushion Heel Shoe Co. v. Hartt,
services rendered in pursuance of the 181 Ind. 167, 50 L. B. A. (N. S.) 979,
agreement, constituted an implied rati- 103 N. B. 1063.
fication thereof, it being such an agree- Where promoters who were the sub-
324
Cli.5] Pkomoteks [§156
may have been made with the promoters without any iinderstanding
that the corporation should adopt the same ''^ and this doctrine has ;
also been recognized in this country.''' The better opinion, however,

both in England and in the United States, is to the contrary, and
to the effect that the contract must have been made on behalf of the
company, and with the understanding that it would adopt and be
bound by it,''* and that ratification will not be presumed, even when
the corporation has received benefits, unless actual knowledge by the
corporation of the specific contract out of which the benefits arose is
made to appearJ^ Moreover,

has been held, in effect, that the
it
doctrine that a corporation, in accepting the benefit of a contract
made by its promoters, adopts the contract, or takes it cum onere,
asit is said, does not mean that it adopts previous contracts connected
with the contract the benefit of which it accepts, but only that it
adopts the latter contract; and that, in accepting the benefits of a
scribera to the stock entered into a services rendered], in an action at law,

several contract for the erection of a the plaintiff must show either d,n ex-
factory building, the . fact that the press promise of the new company, or,
corporation appoints an executive that the contract was made with per
committee which selects the site and sons then engaged in its formation,
accepts the factory when completed, and taking preliminary steps thereto,
cannot be construed as an adoption of and that the contract was made on
the contract in such a sense as to make behalf of the new company, in the ex-
the corporation liable for the individ- pectation on the part of plaintiff, and
ual promises of the promoters. Davis with the assurance on the part of the
& Bankin Bldg. & Mfg. Co. v. Hills- projectors, that it would become a cor-
boro Creamery Co., 10 Ind. App. 42, 37 porate debt, and that the company
N. B. 549. See also Davis & Eankin afterwards entered upon and enjoyed
Bldg. & Mfg. Co. v. Vise, 15 Ind. App. the benefit of the contract, and by no
117, 43 N. E. 889; Tryber v. Girard other title than that derived through
Creamery & Cold Storage Co., 67 Kan. it. From these circumstances an af-'
489, 73 Pac. 83. firmance would be implied. Whether
72 Gooday v. Colchester & S. By. Co., equities might arise under other
17 Beav. 132; Webb v. Direct Lon- circumstances, is a matter to be con-
don & P. By. Co., 9 Hare 129. sidered when duly presented in ar
73 Low v. Connecticut & P. Bivera E. Chancery "case. No Authorities haye'''

Co., 46 N. H. 284; Hall v. Vermont & gone the length of holdiflg that anj^
M. E. Co., 28 Vt. 401. contract made with individuals, exclu-
74 Little Bock & Ft. Smith K. Co. v. sively upon individual credit, will
Perry, 44 Ark. 383, 37 Ark. 164; Bock- become the contract of any future
ford, B. I. & St. L. B. Co. V. Sage, 65 corporation they may form, for the
111. 328, 16 Am. Eep. 587; Caledonian & more convenient management and use
D. Junct. By. Co. v. Magistrates of of the benefits of it. Little Bock &
'
'
Helensburgh, 2 Macq. H. L. 391. Ft. S. E. Co. V. Perry, 37 Ark. 164, 191.

"From all the authorities it seems 76 Eideout v. National Homestead
clear that, in order to recover [for Ass'n, 14 Cal. App. 349, 112 Pao. 192.
325
'
particular contract, the corporation, while it adopts all the obliga-

tionsimposed by that contract, does not adopt and become liable upon
a promise of its promoters in a previous contract to pay for services
in procuring the contract the benefits of which are accepted.''^ While
78 Weatherford, M. W. & N. W. By. it also appears that one of the pro-
Co. V. Granger, 86 Tex. 350, 40 Am. moters promised the plaintiff, that if he
St. Bep. 837. In this case it appeared would assist in procuring subscribers to
that a railroad company accepted a the bonus, the company would pay him
bonus raised by its promoters from cer- for his services. This was no part of
tain individuals under a contract by the contract the benefits of which were
which it was agreed that the corpo- taken by the defendant. The benefits
ration should build its road between of a contract are the advantages which
certain points, and carry eoal at a cer- result to either party from a perform-
tain rate. It was held that the corpo- ance by the other; and in like manner
ration, in accepting the bonus, adopted its burdens are such as its terms im-
the contract under which it was paid, pose. A more accurate manner of
and became bound to fulfil the stipu- stating the nature of the plaintiff's
lations of that contract, —
to build the demand is to say, that the defendant
road between certain points, and carry has accepted the benefit of the plain-
—
coal at a certain rate, but that it did tiff 's services and should pay for them.
not thereby adopt a previous contract It is true, in one sense, that the com-
by the promoters to pay a person for pany has had the benefit of plaintiff's
his services in procuring the bonus. services, and it is equally true that it
Said the court: "Now, when it is said would have had that benefit if the
that when a corporation accepts the services had been rendered under an
benefit of a contract made by its pro- employment by the subscribers to the
moters, it takes it cum' onere,
im- it is bonus; and yet in the latter ease it
portant to understand distinctly what could not be claimed that the company
is meant. There is, so far as this mat- would be liable for such services, un-
ter is concerned, a radical difference less payment for them by the company
between a promise made on behalf of were made one of the terms of the con-
the future corporation in the contract tract between the company and the
itself, the benefits of which the corpo- subscribers. In Be Botherham, etc., Co.,
ration has accepted, and the promise in 50 Law T. (N. S.) 219, in the opinion
a previous contract to pay for services of one of the justices, this language is
in procuring the latter to be made. used: 'It is said that Mr. Peace has an
This is well illustrated by the facta equity against the company, because
of the present ease. Here a proposi- the company had the benefit of his la-
tion was made on behalf of the com- bor. What does that mean ? If I order
pany, by its promoters, that if a bonas a coat and receive it, I get the benefit
should be subscribed and paid to it, it of the labor of the cloth manufacturer;
would build its road between certain but does aay one dream that I am un-
points, and would carry coal at a cer- der any liability to him ? a mere It is
tain stipulated rate. By accepting the fallacy to say that, because a person
bonus, the company became bound to gets the benefit of work done by some-
fulfill the stipulations of that contract. body else, he is liable to pay the per-
That was the burden which it took son who did the work. ' '
with the benefit of the agreement. But A contract whereby a person sub-
326
" '
it has been said that mere silence or failure to object when a contract
or claim is mentioned, is not such a ratification as will bind the corpo-
there is authority for the proposition that acquiescence may

ration,''''
furnish suiBcient basis for implying an adoption or ratification.'*
§157. Enforcement of promoters' contracts by corporation.

Where there obtains the rule that a corporation cannot adopt or
ratify a contract of its promoters, although such contract was executed
for its benefit and in its name, it, of course, has no right of action
thereon.'" But where, on the other hand, the corporation is regarded
as having the power to adopt or ratify such a contract *" and it exer-
cises this power,'! j^ thereby not only confers upon the other party to
scribes for stock and agrees to pay a V. Pike, 101 Minn. 127, 111 N. W. 916;
certain amount therefor, part of which Queen City Furniture & Carpet Co. v.
is be paid to the corporation after
to Crawford, 127 Mo. 356, 30 S. "W. 163;
itsincorporation and part of which is Van Noy v. Central Union Fire Ins.
paid to the promoters for promotion Co., 168 Mo. App. 287, 153 S. W. 1090;
expenses, is severable, and the corpo- Schreyer v. Turner Flouring Mills Co.,
ration, which receives no benefit from 29 Ore. 1, 43 Pac. 719.
the amount paid to the promoters, is 79 Abbott V. Hapgood, 150 Mass. 248,
not liable therefor when, after adopt- 5 L. E. A. 586, 15 Am. St. Eep. 193, 22
ing the subscription contract, it elects N. E. 907.
not to enforce it on the subscriber's 80 See § 152, supra.
refusal to pay, even though a fraud 81 Where promoters purchase land
was practiced by the promoter in se- intending to turn it over to the corpo-
curing the subscription. American ration at a price in excess of that paid
Home Life Ins. Co. v. Jenkins (Tex. by them, the corporation cannot sue
Civ. App.), 138 S. W. 424. See also the promoters' vendor for money paid
Com. Bonding & Casualty Co. v. Thur- by the promoters on the ground of
man, —
Tex. Civ. App. , 176 S. W.— failure of consideration,when no as-
762. signment or transfer of the promoters
77 Tift V. Quaker City Nat. Bank, rights has been made to it and there
141 Pa. St. 550, 21 Atl. 660, 8 Pa. Co. has been no adoption of the promo-
Ct. 606. See also Cushion Heel Shoe ters' contract. Newberry Land Co. v.
Co. V. Hartt, 181 Ind. 167, 50 L. E. A. Newberry, 95 Va. Ill, -27 S. E. 897.
(N. S.) 979, 103 N. E. 1063. The receiver of a corporation held
78 "Itnot requisite that such
is not entitled to enforce an agreement
adoption or acceptance [of promoters' among the promoters who became the
contracts] be express, but may be first directors, that no salaries should
shown from acts or acquiescence of the be paid except after the payment of a
corporation or its authorized agents as stipulated dividend, where the agree-
any similar contract may be showii. ment was not inserted in the certificate
McArthur v. Times Printing Co., 48 of incorporation nor referred to or
Miiin. 319, 31 Am. St. Eep. 653, 51 N. adopted at the first stockholders ' meet-
W. 216; Battelle v. Northwestern Ca- ing, even though the promoters at their
lient & Concrete Pavement Co., 37 first meeting as directors passed a reso-
Minn. 89, 33 N. W. 327. See also Bond lution that the dividends and salaries
327
the contract the right to hold it liable thereon,*^ but also obtains for
itself the right to enforce the contract,** and in its own name, as
against such other party.**So where the contract of promoters with
the owner of land, under which the latter agrees to sell the land to
the corporation when organized, is adopted by the corporation, it
may sue for specific performance thereof.**
A delivery of a subscription to stock to a promoter is a complete
delivery, the contract becomes eo instanti a binding one as between
the subscribers, and the corporation, as the proper party to enforce the
rights of the body of subscribers, may sue thereon for instalments
due.*®
should be as specified in the agree- 84 Henry Gold Min. Co. v. Henry, 25

ment. Mills V. Hendershot, 70 N. J. Idaho 333, 137 Pac. 523; Anderson v.
Eq. 258, 62 Atl. 542. West Kentucky College, 10 Ky. L. Bep.
82 See § 152, supra. 725; Bedford & C. Ey. Co. v. Stanley,
83 Where a corporation agreed with 2 Johns. & H. 746.
a person that, if he would incorporate T contracted to buy an interest in
another company, it would furnish the two oil wells. Afterwards an oil com-
beat of goods to the company so pany was incorporated, to which T
formed, it was held that it was under transferred his interest, the vendors in
an obligation to furnish such goods to the meantime receiving and selling the
the company, when it was formed and oil. By agreement, the vendors made
adopted the contract. Davis Provision the deed to the corporation, and dated
Co. V. Fowler Bros., 20 N. T. App. it back to the date of the contract,
Div. 626, 47 N. Y. Supp. 205, afdrmed, agreeing to deliver T's share of the
without opinion, in 163 N. T. 580, 57 oil to the company. It was held that
N. E. 1108. assumpsit in the name of the company
In some states, statutes have been for oil received by the vendors be-
enacted rendering valid and binding tween the contract and the incorpora-
obligations executed to a prospective tion could be maintained. Snow v.
corporation in contemplation of its or- Thompson Oil Co., 59 Pa. St. 209.
ganization. See Cumberland Land Co. 85Scadden Plat Gold Min. Co. v.
v. Daniel (Tenn. Ch. App.), 52 S. W. Scadden, 121 Cal. 33, 53 Pac. 440. See
446. also Henry Gold Min. Co. v. Henry, 25
Where a promoter is obligated by Idaho 333, 137 Pac. 523.
his contract with his copromoters to If the owners of land enter into a
assign an invention to the corporation contract with the promoters of a rail-
to be formed, but breaches his con- road company to sell the company a
tract by fraudulently assigning such right of way at a certain price, the
invention to another and independent company may adopt or ratify the con-
corporation which successfully defends tract, and sue for specific performance
its title thereto upon the ground of thereof. Bedford & C. Ey. Co. v.
absence of fraud on its part, he is Stanley, 2 Johns. & H. 746.
liable in an action of deceit to the 86 ' The promoter who solicited and
•
corporation which, under his contract, obtained the subscriptions, occupied

was entitled to such invention. Bates the position of agent for the subscrib-
V. Bates Mach. Co., 120 111. App. 563. ers as a body, to hold the sub-
328
Ch.5] Peomotebs [§158
§158. Personal liability of promoters on contracts executed by

them —
În general. The liability of promoters on a contract entered
into by them will depend upon the terms of the contract and the
intention of the parties. They are not personally liable if it is under-
stood that the other party shall look to the corporation only,*' but
they are liable in the absence of such an understanding.'* So it has
scriptions until the corporation was A claim against an individual for

formed in accordance with the terms goods purchased may be lost by the
and conditions expressed in the agree- vendor 'a looking for payment to a cor-
ment, and then turn it over to the poration formed for the purpose of
company without any further act of taking the goods from such individual.
delivery on part of the subscribers. J. H. Lane & Co. v. United Oil Cloth
The corporation would then become Co., 103 N. Y. App. Div. 378, 92 N. Y.
the party to enforce the rights of the Supp. 1061.
whole body of subscribers. It follows, United States. American Paper
88
then, that, considering the subscrip- Bag Co. V. Van Nortwiek, 52 Fed. 752.
tion as a contract between the sub- Colorado. Hersey v. Tully, 8 Colo.
scribers, a delivery to Janney by a App. 110, 44 Pac. 854.
subscriber, was a complete and valid Georgia. Wells v. J. A. Fay & Egan
delivery, so that his subscriptions be- Co., 143 6a. 732, 85 S. E. 873; Pratt v.
came eo instanti a binding contract. Tinkle, 99 Ga. 616, 25 S. E. 941. See
The case stands precisely as a case also McEee v. Quitman Oil Co., 16 Ga.
where a contract is delivered by the App. 12, 84 S. E. 487; Jos. Rosenheim
obligor to the obligee. cannot
It Shoe Co. V. Home, 10 Ga. App. 582, 73
therefore be treated as a case where a S. E. 953; Meinhard, Schaul & Co. v.
writing has been delivered to a third Bedingfield Mercantile Co., 4 Ga. App.
party in escrow. ' ' Minneapolis Thresh- 176, 61 S. E. 34.
ing Mach. Co. V. Davis, 40 Minn. 110, lUinois. See Eastman v. Blackledge,
3 L. E. A. 796, 12 Am. St. Eep. 701, 171 111. App.. 404.
41 N. W. 1026. See also Clapp v. Gilt Kansas. Whetstone v. Crane Bros.
Edge Consol. Mines Co., 33 S. D. 123, Mfg. Co., 1 Kan. App. 320, 41 Pac. 211.
144 N. W. 721. Michigan. Carmody v. Powers, 60
87 Arkansas. Belding v. Vaughan, Mich. 26, 26 N. W. 801. See also Sul
108 Ark. 69, 157 S. W. 400. livan V. Detroit, Y. & A. A. E. Co., 135
Kansas. Whetstone v. Crane Bros. Mich. 661,, 64 L. R. A. 673, 106 Am. St.
Mfg. Co., 1 Kan. App. 320, 41 Pae. 211. Rep. 403, 98 N. W. 756. And compare
Michigan. Carmody v. Powers, 60 Durgin v. Smith, 133 Mich. 331, 94
Mich. 26. N. W. 1044.
Missouri. Queen City Furniture ft Minnesota. Roberts Mfg. Co. v.
Carpet Co. v. Crawford, 127 Mo. 356, Schlick, 62 Minn. 332, 64 N. W. 826.
30 S. W. 163. Missouri Martin v. Fewell, 79 Mo.
Pennsylvania. See In re Heckman 'a 401; Hurt v. Salisbury, 55 Mo. 310.
Estate, 172 Pa. St. 185, 33 Atl. 552. New York. Munson v. Syracuse, G.
England. Landman v. Entwistle, 7 & C. R. Co., 103 N. Y. 58, 8 N. E. 355;
Exeh. 632; Rennie v. Clarke, 5 Exch. Hub Pub. Co. v. Richardson, 13 N. Y.
292; Higgins v. Hopkins, 3 Exch. 163. Supp. 665.
See also Lake v. Argyll, 6 L. B. Q. B. Texas. Ennis Cotton-Oil Co. v.
477; Wood v. Argyll, 6 M. & G. 928. Burks (Tex. Civ. App.), 39 S. W. 966.
329
.
158] Private Cobpoeations [Ch.5
been held that where an attorney was employed by the promoters

of a corporation to prepare the incorporation papers, and was author-
ized by them to contract for necessary printing, they were personally
liable on a contract therefor when made by him.*^ Applying the
same has also been held that where certain persons associated
rule, it
to establish a bank, and at a meeting of the association an agent was
appointed to attend the legislature for the purpose of procuring a
charter, and he attended accordingly, but failed to obtain a charter,
the associates were jointly liable to him for his services.^"
If the promoter of a corporation purchases land, and gives a mort-
gage in his own name to secure the price of the same, he is personally
liable for any deficiency after foreclosure of the mortgage, although
it may be known by the seller that he intends to convey the land to
a corporation to be formed unless it is understood that he is acting

for the corporation only.'^ Again it has been held that where the
owners of land, before procuring an act of incorporation, agreed
that a contract for a building on the land should be let at fixed sum
to one of their number, who should sublet it for less, and that the
expense of the building and the profits should be divided among them
Euglaud. Atwood v. Small, 7 B. & that the agreement was personal with
C. 390; Collingwood v. Berkeley, 15 C. the defendants, and the plaintiff could
B. (N. S.) 145; Bell v. Francis, 9 C. & recover from them damages for failure
P. 66; Riley v. Paekington, L. E. 2 C. to organize the company.
P. 536; Scott v. Ebury, L. R. 2 C. P. 89 Hersey v. TuUy, 8 Colo. App. 110,
255; Kelner v. Baxter, L. R. 2 C. P. 44 Pae. 854.
174. As to the right of a person to recover
Canada. Sandusky Coal Co. v. compensation from a promoter of the
Walker, 27 Ont. 677. reorganization of a railroad company
"When promoters in contemplation for services performed by him under a
of the formation of a corporation make contract with the promoter, see Bab-
contracts and incur liabilities in be- bitt V. Gibbs, 150 N. T. 281, 44 N. E.
half of the prospective enterprise, they 952.
become responsible unless it is ex- 90 Sproat V. Porter, 9 Mass. 300. See
pressly stipulated and agreed that they alsoKerridge v. Hesse, 9 C. & P. 200;
shall not be so held." Bradshaw v. Bell V. Francis, 9 C. & P. 66.
Jones, —Tex. Civ. App. —
, 152 S. W. 91 Lewis V. Weidenf eld, 114 Mich.
695. 581, 72 N. W. 604.
In Kirschmann v. Lediard, 61 Barb. Where purchasers of the rights and
(N. T.) 573, the plaintiff agreed to sell franchises of a corporation issued
a patent and certain tools and mate- bonds before organizing as a new cor-
rials,and to execute all proper con- poration, they were personally liable
veyances therefor to the defendants, thereon, notwithstanding the fact that
who, on their part, agreed to organize they used the name of the old corpora-
a company to purchase the same, and to tion in issuing them. Chaffe v. Lu-
pay to the plaintiff a certain amount deling, 27 La. Ann. 607.
in stock of the company. It was held
330
Ch. 5] Pbomoters [§ 159
in the ratio of the stock held by each, and this was done, and the
price of the building was paid in shares issued to each, they were
liable as joint contractors toa material man furnishing supplies on
the order of the subcontractor.^^ A
promoter, however, is not liable
on contracts made by other promoters before he became connected
with the enterprise, unless he has done something to make himself a
party thereto.'^ Moreover, where a party holds a lease and later
organizes a corporation for the purpose of accomplishing the ends for
which the lease was taken, he may be deemed released from his obli-
gations thereunder where the lessor, while declining to accept the
corporation as his permanent lessee, makes a temporary lease to it
until able to find a satisfactory permanent lessee.'*
§159. — Effect of adoption or ratification of contracts by cor-

poration. Under the rule that the assumption by a third person of
the obligations of a contract will not relieve the promisor from such
obligations unless the promisee agrees that such result shall follow,
the adoption or ratification by a corporation of a contract by its pro-
moters whereby the latter bound themselves personally will not relieve
the promoters from their liability thereon unless the other party to
the contract consents to the substitution of the corporation. In other
words, the consent of all parties being essential to a novation in any
case, it is essential to a novation whereby promoters seek to be relieved
from personal liability on their contracts.®^
92McFall V. McKeesport & Y. lee v. Wotherspoon, 2 Eich. Eq. (S. C.)
Co., 123 Pa. St. 259, 16 Atl. 478. 395.

Certain persons signed articles of as- 93 Newton v. Belcher, 12 Q. B. 912,
sociation whereby they agreed to unite 13 Jur. 253, where it was held that a
in forming a corporation for the build- member of a provisional committee for
ing of a theater, and to pay for the the formation of a company, who be-
number of shares placed opposite their came a member of the committee after
tê making of a contract for services
names, at a certain rate per share,
ft"" ^^^ company, was not liable for
Trustees were appointed to transact
ûch services, although performed after
the business of the corporation, and
„ ^, ... _ .„ • he became a member. See also Vauehn
S^^.
they, before the assocxation was incor-
,
proceeded to
^ ^ _^^^ ^.^_
porated, purchased a
erect a theater,
site,
and contracted debts

g_ ^ g^^. ^^^^^^^ ^_ Chamberlayne,
g C. & K. 560; Whitehead v. Barron,
over and above the sums subscribed, g M. & Rob. 248; Beale v. Mouls, 10
Afterwards the association was incor- q_ g_ g^g
porated. Under these circumstances, 94 Drew v. Billings^Drew Co., 132
it was held that the associates were Mich. 65, 92 N. W. 774.
jointly and severally liable as partners Queen City Furniture & Carpet Co.
96
for all the debts contracted before the v.Crawford, 127 Mo. 356, 30 S. W. 163;
act of incorporation. Haslett's Ex'rs Chapin. v. Longworth, 31 Ohio St. 421;
331
§159] Private Cokpobations rCh.5
That the corporation is without power to adopt a contract entered

into by its promoter does not release the latter from his personal
liability thereon.^^ If, however, on the adoption by a corporation of a
contract made by its promoters, it is agreed by all of the parties that
the corporation alone shall be liable, and that the promoters shall be
released, there is a novation ; the release of the promoters is supported
by a sufficient consideration, and no action will afterwards lie against
them on the contract.®' The novation need not be made in express
terms but may be implied from the conduct of the parties.®* More-
Bradshaw v. Jones, — Tex. Civ. App. ultimately be the purchaser, furnished
— , 152 S. W. 695; Scott v. Ebury, L. L the money with which the cash pay-
E. 2 C. P. 255; Kelner v. Baxter, L. ment was made, and later agreed to
E. 2 C. P. 174; Humble v. Hunter, 12 form a corporation, which should be-
Q. B. 310. See also Wells v. J. A. Fay come the purchaser. The corporation
& Egan Co., 143 Ga. 732, 85 S. E. 873. was formed, and L assigned his option
96 Lyle V. Addicks, 62 N. J. Eq. 123, to it, and the plaintiff executed to it a
49 Atl. 1121. deed, and took its notes for the bal-
A promoter who contracts that the ance. On default, plaintiff had judg-
corporation will pay for certain work ment to enforce the vendor's lien. It
to be done in its behalf prior to its was held that the incorporators were
coming into being, will be personally not personally liable as partners for
liable on the contract, the work hav- '
the balance due after the proceeds of
ing been done, where the corporation the sale had been applied.
is legally barred from making payment 98 In a New York case it appeared
thereunder. First Nat. Bank of Mar- that the deacons and elders of an un-
shalltown v. Church Federation of incorporated church called the plain-
America, 129 Iowa 268, 105 N. W. 578. tiff as their minister, and entered into
97 Van Vlieden v. Welles, 6 Johns. an agreement with him for a certain
(N. T.) 85. And see Case Mfg. Co. v. yearly salary, which he regularly re-
Soxman, 138 U. S. 431, 34 L.'Ed. 1019; ceived from them for the time being,
Ennjs Cotton-Oil Co. v. Burks (Tex. both before and after the church was
Civ. App.), 39 S. W. 966. incorporated, without ever looking to
If a corporation refuses to adopt a them individually, and when the
lease made by its promoter prior to church was incorporated, he was a
its corporate existence, the promoter party to the act of incorporation, and
becomes bound by the lease personally. afterwards frequently recognized it as
Thistle V. Jones, 45 N. T. Misc. 215, a corporation. On being dismissed, he
92 N. Y. Supp. 113. brought an action against the sur-
In Shields v. Clifton Hill Land Co., viving parties to the original contract
94 Tenn. 123, 26 L. E. A. 509, 45 Am. in their individual capacity. It was
St. Eep. 700, 28 S. W. 668, the plaintiff held that, by the mutual understanding
gave to one L an option to purchase of the parties, the original contract
land, agreeing to convey the same to was waived, and that, after the in-
bim or his assignee on payment, with- corporation of the church, the previous
in a certain time, of an amount in contract became extinguished, as a
cash, and reserving a vendor 's lien for private and simple contract; and the
the balance. Several persons, with corporation, acting by their seal, hav-
no distinct agreement as to who should ing assumed the contract, and become
332
.
Cli.5] Peomoteks [§160
over, coineidenee of consent by each of the parties is not required.

So, when a contract is made with promoters with the understanding
at the time that it is to be assumed by the corporation, and the latter
does actually assume it, the other party cannot hold the promoters
personally liable thereon.^^
§ 160. Right of action of promoters on contracts executed by them.

Although promoters are personally liable on their contracts which do
not provide to the contrary, notwithstanding such contracts are
adopted or ratified by the corporation, the parties with whom the con-
tracts were made not consenting to the substitution of the corporation
for the promoters,^ it would seem that ordinarily the latter have no
right of action on the contracts after their adoption or ratification by

the corporation.^ Of course when there obtains the rule that the
corporation has no power to adopt or ratify its promoters' contracts,'
and hence no right to sue thereon, the actions which it might other-
wise maintain may be brought by the promoters themselves.*
the debtor of the plaintiff with his executed the agreement under its cor-
assent and concurrence, the defendants porate seal. In an action for subse-
were not responsible to him in their quent breaches of the defendant's
individual capacity. Van Vlieden v. covenant, brought by for the useW
Welles, 6 Johns. (N. Y.) 85. of the corporation, it was held that
99 In re Heekman's Estate, 172 Pa. the agreement between the defendant
St. 185,33 Atl. 552, where a lease was and Wwas superseded by the contract
made to a promoter with the under- between the defendant and the cor-
standing that it was to be assumed by poration, and that the right of action
the corporation when organized. See was not in W, but in the corporation.
also Chicago Bldg. & Mfg. Co. v. Tal- Wiley V. Borough of Towanda, 26 Fed.
botton Creamery & Manufacturing Co., 594. See also De Lery v. Eogers, 71
106 Ga. 84, 31 S. E. 809; Smith v. N. Y. App. Div. 99, 75 N. Y. SUpp. 513.
Parker, 148 Ind. 127, 45 N. E. 770. And compare Eogers v. Penobscot Min.
1 See § 158, supra. Co., 154 Fed. 606 (action by assignees
2 Defendant and one W
executed an of stock agreed by defendant-promoter
agreement under seal, providing for to be transferred to assignor-promot-
the erection of waterworks by a pro- er). And compare Drummond V. Crane,
posed corporation, in whose behalf W 159 Mass. 577, 23 L. E. A. 707, 38 Am.

acted/ the defendant covenanting to St. Eep. 460, 35 'N. E. 90 (action by a
pay to such corporation for the use promoter who became the owner of
of water a certain sum yearly, and it substantially all of the stock of the
was stipulated that the agreement corporation)
should inure to the exclusive benefit 3 See § 152, supra.
of the corporation, and should be 4 Abbott V. Hapgood, 150 Mass. 248,

adopted and executed by it within a 5 L. E. A. 586, 15 Am. St. Eep. 193,
certain time after its creation. The 22 N. E. 907. In this case, where a con-
corporation, having been created, with- tract had been made in the name and
in the prescribed time adopted and for the benefit of a projected corpora-
333
§ 161. Notice to or knowledge by promoters. Since the promoters

of a corporation are not its agents and cannot bind it as such, notice
to or knowledge by them is not ordinarily imputable to the corpora-

tion,* especially when such notice or knowledge relates to a matter
in which they have an interest adverse to that of the corporation.*
Thus, where a corporation is organized to purchase a patent right,
it is not affected by its promoter's knowledge of defects in the title to
the right.'' So also a corporation which purchases property is not

chargeable with its promoter's knowledge of an incumbrance thereon.^
Where, however, the promoters become the sole or principal stock-

holders of the corporation and its managing officer and agents the rule
may be different,^ provided they have no interest in the matter to
which the notice or knowledge relates adverse to that of the corpora-
tion."
tion,and the corporation had unsuc- Young Reversible Lock-Nut Co. v.

cessfully sued thereon, it was held Young Loek-Nut Co., 72 Fed. 62.
that the judgment was no bar to an 8 Burt V. Batavia Paper Mfg. Co., 86
action by the individuals who made 111. 66.
the contract. 9 Henry Gold Min. Co. v. Henry, 25
was also held that, where suit is
It Idaho 333, 137 Pac. 523; Huron Print-
brought by the members composing a ing & Bindery Co. v. Kittleaon, 4 S. D.
projected corporation, for breach of 520, 57 N. W. 233; Utah Black Marble
contract made by them in the name of Co. V. American Marble & Onyx Co.,
the corporation before its creation, the 43 Utah 68, 133 Pae. 472. See also In
plaintiffs are not limited to the dam- re V. & M. Lumber Co., 182 Fed. 231;
ages they themselves have suffered, in- National Conduit Mfg. Co. v. Connecti-
dependently of their membership in cut Pipe Mfg. Co., 73 Fed. 491; Carter
the association, but may recover dam- V. Gray, 79 Ark. 273, 96 S. W. 377;
ages suffered by the new organization AVerill v. Barber, 6 N. Y. Supp. 255.
in being unable to carry on a profitable And compare Sullivan v. Detroit, Y.
business 'on account of the defendant 's & A. A. E. Co., 135 Mich. 661, 64 L. E.
failure to perform the contract. A. 673, 106 Am. St. Eep. 403, 98 N.
5 Kief haber Lumber Co. v. Newport W. 756.
Lumber Co., 15 Cal. App. 37, 113 Pac. "Associated together to carry for-
691; Burt v. Batavia Paper Mfg. Co., ward a common enterprise, the knowl-
86 111. 66. edge or actual notice of all these
6Yeiser v. United States Board & corporators and the president was the
Paper Co., 107 Fed. 340, 52 L. R. A. knowledge or notice of the company,
724; Jones v. Smith (Tex. Civ. App.), and if constructive notice bound them,
87 S. W. 210. it bound the company. Simmons
'
'
7 Improved Wrought Iron

Davis Creek Coal Co. v. Doran, 142 U. S. 417,
Wagon Wheel Co. v. Davis Wrought 35 L. Ed. 1063.
Iron Wagon Co., 20 Fed. 699. See also lOEockport Coal Co. v. Garter, 157
Eacine Seeder Co. v. Joliet Wire-Check Ky. 555, 163 S. W. 734. See also Dun-
Bower Co., 27 Fed. 367. And compare lap V. Twin City Power Co., 226 Fed
National Conduit Mfg. Co. v. Con- 161; Caffee v. Berkley, 141 Iowa 344,
necticut Pipe Mfg. Co., 73 Fed. 491; 118 N. W. 267; Fred Macey Co. v.
334
Ch. 5] Phomotees [§ 164
Where incorporators, who subscribed to a large percentage of the

stock of the corporation and became at once its officers and managers,
had knowledge of certain facts and acted in the incorporation under
the influence of that knowledge to effect certain purposes for the
unfair advantage of the corporation, the latter will, in equity, be
charged with such knowledge and held responsible for such purposes."
§ 162. Admissions and declarations of promoters. Admissions

and declarations by a promoter of a corporation are not binding upon
or admissible in evidence against the corporation unless it is, shown
that it has ratified the same, or otherwise assumed responsibility there-
for.i2
§163. Demand upon promoter. A demand made upon the pro-

moter of a corporation is not a demand upon the corporation. Thus,
in an action of trover against a corporation, in which it is necessary
to show a demand upon the corporation for the property in order to
establish a conversion, it is not enough to prove a demand made upon
a promoter of the corporation, although he may have afterwards
become a corporator and ofBcer thereof.^^
§ 164. Liability of corporation for services and expenses of pro-

moters. "While there is authority for the proposition that a promise
on the part of the corporation to compensate its promoters for their
services in taking the steps necessary to its creation and the accom-
plishment of its objects, and to reimburse them for their necessary
expenditures will be implied from its acceptance of the benefits of
such services and expenditures,^* there is also authority to the con-
Macey, 143 Mich. 138, 5 L. R. A. (N. 12United States. First Nat. Bank of
S.) 1036, 106 N. W. 722. Wellston v. Armstrong, 42 Ted. 193.
The fact that a promoter is liable Kentucky. Oldham v. Mt. Sterling

for the secret profits obtained by him Improvement Co., 103 Ky. 529, 45 S.
makes the necessity of this proviso W. 779.
apparent. See §§ 135-149, supra. See New York. McCallum v. Purssell
particularly, in this connection, Old Mfg. N. T. Supp. 428.
Co., 1
Dominion Copper Mining & Smelting Texas. Jones v. Smith (Tex. Civ.
Co. v.Bigelow, 188 Mass. 315, 108 App.), 87 S. "W. 210.
Am. Eep. 479, 74 N. E. 653. And
St. England. Lynde v. Anglo-Italian
compare Old Dominion Copper Mining Hemp Spinning Co., [1896] 1 Ch. 178,
& Smelting Co. v. Lewisohn, 210 TJ. S. 184.
206, 52 L. Ed. 1025. 18 McCallum v. Purssell Mfg. Co., 1
,
11 Great Western Live Stock Com- N. T. Supp. 428.
mission Co. v. Great Western Commia- 14 "A corporation is, by an implied
sion Co., 187 111. App. 196, 209. contract, liable for such or any services
335
trary and to the effect that, in the absence of an express promise by

it to compensate and reimburse them, there is no liability on its part
so to do, unless, as is sometimes the case, such liability is imposed by
rendered for the use of the corporation by not less than a majority of the
as are necessary to its formation, or grantees or members, the case of Low
may he necessary to be done by it, V. Connecticut & P. Eivers E., 45 N.
after- its incorporation, in furtherance H. 370, was apparently the innocent
of its corporate business. * * * It cause of the making of law on the
seems to us that any other rule would subject of compensation and reimburse-
render it to organize any
difficult ment to promoters that will not stand
corporation,however necessary. No the test of reason. In Bell's Gap E.
person would render the services, or Co. V. Christy, 79 Pa. St. 54, 21 Am.
pay another to do so, however essen- Eep. 39, an action by a promoter to
tial itbe to the organization, if there recover for services rendered and
was no obligation to pay by the .cor- moneys expended before the corpora-
poration after it is brought into tion came into existence, the court,
existence." Farmers' Bank of Vine quoting from the syllabus of Low v.
Grove v. Smith, 105 Ky. 816, 88 Am. Connecticut & P. Eivers E., supra,
St. Bep. 341, 49 S. W. 810. said: ' It may very well be that where
'
See also in this connection: a number of persons not incorporated

Axkansas. Little Kock & Ft. S. E. are yet informally associated together
Co. V. Perry, 44 Ark. 383, 37 Ark. 164. in the pursuit of a common object, and
Colorado. Freeman Improvement with the intent to procure a charter
Co. V. Osborn, 14 Colo. App. 488, 60 in the furtherance of their design, they
Pac. 730. may authorize certain acts to be done
Kentucky. Morton v. Hamilton Col- by one or more of their number, with
lege, 100 Ky. 281, 35 L. E. A. 275, 38 an understanding that compensation
S. W. 1. shallbe made therefor by the company
Maine. Mason v. Carrothers, 105 when fully formed. And if such acts
Me. 392, 74 Atl. 1030. are necessary to the organization and
Massachusetts. Hayward v. Leeson, its objects, and are subsequently ac-
176 Mass. 310, 49 L. E. A. 725, 57 N. E. cepted by the company, and the bene-
656. fits thereof enjoyed by them, they must
Missouri. Taussig v. St. Louis & K. take such benefits cum onere, and make
E. Co., 166 Mo. 28, 89 Am. St. Eep. 674, compensation therefor. But the pro-
65 S. W. 969. jectors or promoters of the enterprise
In holding that, in the absence of a within the meaning of the rule referred
ratification of the contract by the to evidently inust be a majority at
corporation, a promoter could not re- leiast of such persons, and not one,
cover as against the corporation on the two, or three, or a small minority there-
promise of certain of the incorporators of. Such minority can have no more
made after the granting of the cor- authority to bind the association or
poration's charter that he should be corporation in its incipient or inchoate
paid for services to be subsequently condition than they would have to bind
rendered by him before the organiza- it if fully organized. In this case the
tion of the corporation, which serv- two or three persons who, it is alleged,
ices he actually performed, unless it promised the plaintiff to see him paid,
appeared that the promise was made bound no one but themselves. They
336
Ch.5] Peomotbks [§164
its charter or by the general law.^^ Especially will this latter view
be adopted when the services were not rendered or the expenditures
had no authority to speak for any one plaintiffbased his right to recover
else. In the absence of any such au- against the corporation for services,
thority and of any satisfactory proof rendered in part before and in part
that the result of the plaintiff's labor after the corporation was chartered,
and expenditures was accepted and en- on the promise of a single promoter
joyed by the corporation, that it used that he would see that the corporation
the plaintiff's survey or located its compensated the plaintiff therefor.
road upon any considerable portion of There was no evidence of a subsequent
the line thereof, the court below should ratification, and the court on the au-
have instructed the jury that the de- thority of Bell 's Gap E. Co. v. Christy,
fendants were not liable." Leaving supra, denied him the recovery sought.
out of consideration for the time be- See also Morton v. Hamilton College,
ing the last three sentences in this 100 Ky. 281, 35 L. K. A. 275, 38 S. W. 1.
quotation, the remaining portion there- IB " A right of recovery against a
of, is, in view of the well settled law corporation for anything done before
on the subject of the liability of a cor- ithad a proper existence, does not ap-
poration on its promoters' contracts pear to rest on any very satisfactory
(see § 150, supra) illogical. If all of the legal principle. It appears more rea-
promoters acting in concert cannot sonable to hold any services performed
without some action on the part of the or expenses incurred prior to the or-
corporation bind it by their express ganization of a corporation, to have
contract, how can it be necessary to an been gratuitous, in view of the general
implied contract on the part of the good or private benefit expected to re-
corporation, .arising out of its accept- sult from the object of the corpora-
ance of benefits, that at least a major- tion. It seems unjust to stockholders,
ity of the promoters authorized the who subscribe and pay for stock in a
services and expenditures? In any view company, that their property should
of the case, it would seem impossible be subject to the incumbrance of such
to reconcile the last sentence in the claims, and which they had no voice in
quotation with the first portion there- creating." Eoekford, R. I. & St. L.
of. Moreover, despite the statements E. Co. V. Sage, 65 111. 328, 16 Am. Eep.
of the court as above given, it subse- 587.
quently recognizes the fact "that in See also in this connection:
all the cases which were brought to the United States. Lindsey v. Pasco
attention of the court, the services Power & Water Co., 203 Fed. 251.
were either performed after the char- Connecticut. New York & N. H. E.
ter had been obtained, and there was Co. v. Ketchum, 27 Conn. 170.
therefore an inchoate corporation, or Ulinois. Western Screw & Manu-
there was an informal organization facturing Co. V. Cousley, 72 111. 531,
* * * preparatory to obtaining a 534.
charter, and the employment was au- Indiana. Cushion Heel Shoe Co. v.
thorized by the organization as such, Hartt, 181 Ind. 167, 50 L. E. A. (N. S.)
and was not the mere employment by 979, 103 N. E. 1063.
individuals having no authority, ex- Louisiana. Marchand v. Loan &
press or implied, to contract for any Pledge Ass'n, 26 La. Ann. 389.
one." In Tift v. Quaker City Nat. Maryland. Franklin Fire Ins. Co.
Bank, 141 Pa. St. 550, 21 Atl. 660, the V. Hart, 31 Md. 59.
337
I Priv. Corp.—22
made with the intention on the promoters' part of exacting compen-

sation for the one or reimbursement for the other.^^ The corporation
may, however, render itself liable to compensate and reimburse its
promoters by expressly promising so to do, its express promis'e to
that effect being based upon a sufficient consideration.^''
Vermont. Security Co. v. Benning- Thurman, — Tex. Civ. App. — , 176

ton Battle Monument Ass'n, 70 Vt. S. W. 762.
201, 40 Atl. 43. ISHinkley v. Sac Oil & Pipe Line
England. Melhado v. Porto Algere, Co., 132 Iowa 396, 119 Am. St. Rep.
N. H. & B. By. Co., L. R. 9 0. P. 503. 564, 107 N. W. 629.
Legal services in organizing the In Hall v. Vermont & M. R. Co., 28
corporation, rendered by an attorney Vt. 401, it was held that the services
under a contract with one of the proof the promoters of a corporation in
moters, are not, merely because of procuring the passage of the act of in-
their character, chargeable against the corporation were voluntarily rendered,
corporation. Jones v. Smith (Tex. Civ. and did not raise ah implied promise on
App.), 87 S. W. 210. But see Taussig the part of the corporation to pay
V. St. Louis & K. R. Co., 166 Mo. 28, therefor.
89 Am. St. Rep. 674, 65 S. W. 969. Where promoters mutually agree to
The mere silence of the board of render personal services in connection
directors of a eoi'poration, or their with the creation of the corporation
failure to object when a promoter's without compensation therefor, no one'
ciaim to compensation is mentioned, is of their number can exact from the
not such an act of ratification as will corporation payment for services ren-
bind the company. Tift v. Quaker dered in pursuance of the agreement.
City Nat. Bank, 141 Pa. St. 550, 21 Such agreement upon a good and
rests
Atl. 660, 8 Pa. Co. Ct. 606. See also valuable consideration and although
Cushion Heel Shoe Co. v. Hartt, 181 the corporation was not a party there-
Ind. 167, 50 L. R. A. (N. S.) 979, 103 to, it may, as matter of defense, nega-
N. E. 1063. tive any implied promise on its part
A corporation not liable for the
is to pay for such services by showing
services of a rendered as
director that they were performed thereunder.
the secretary of the promoters with Moreover, if one of the parties to such
the understanding that the corporation agreement was a partnership, the mem-
would pay him. West Point Telephone bers of which assented to its terms and
& Telegraph Co. v. Rose, 76 Miss. 61, undertook to comply therewith, serv-
23 So. 629. ices performed by one of the partners
Promoters who, for their own in- must be regarded as having been ren-
dered by the partnership and not by
terest, get up a corporation, cannot
him as an individual. Powell v.
procure for themselves a bonus as com-
Georgia, F. & A. R. Co., 121 Ga. 803,
missions and charge it upon the cor-
49 S. E. 759. See also Cuba Colony
porationwhen formed. "This would
Co. V. Kirby, 149 Mich. 453, 112 N. W.
be a breach of faith towards honest Hoylake Ry.
1133; Savin v. Co., L. R.
stockholders who pay the charter price 1 Exch. 9.
for the stock, with the expectation of 17 A note which a corporation gives
getting it clear of incumbrance." for the expenses incurred by its pro-
Com. Bonding & Casualty Ins, Co. v. moter in procuring its eliarter and
338
§165. Liability of promoters on failure to create corporation.

Where promoters receive money from subscribers to the stock of the
proposed corporation as a deposit or preliminary payment on their
subscriptions, they are liable to such subscribers therefor, in an action
on implied assumpsit, if they fail to organize the corporation, unless
it appears that there was an understanding to the contrary and it ;
can make no difference that they have paid out the money for expenses
preliminary to organization.^* The promoters are not liable, however,
in the absence of fraud on their part, if the money was paid with the
securing its organization is not with- pensation for the services, but was ac-
out consideration. Smith v. New Hart- cepted by him as such. Some years
ford "Water Co., 73 Conn. 626, 48 Atl. afterwards, the stockholders rescinded
754. See also Cushion Heel Shoe Co. the vote. It was held, in an action
V. Hartt, 181 Ind. 167, 50 L. E. A. (N. brought by the company for railroad
S.) 979, 103 N. E. 1063; Bruner v. fares accruing after that time, that
Brown, 139 Ind. 600, 38N. B. 318; the services rendered created no
Boice V. Jones, 106 N. T. App. Div. indebtedness on the part of the cor-
547, 94 N. Y. Supp. 896. poration, and could not constitute a
The services of a promoter are neith- consideration for its contract.
er cash nor property within the mean- 18 Nockells V. Crosby, 3 B. & C. 814,
ing of a statute requiring that stock 5 D. & E. 751.See also Manistee
be paid for either in cash or property. Lumber Co. v. Union Nat. Bank of Chi-
Herbert v. Duryea, 34 N. Y. App. Div. cago, 143 111. 490, 32 N. E. 449; Brad-
478, 54 N. Y. Supp. 311, aM'd 164 N. ford V. Harris, 77 Md. 153, 26 Atl. 186;
Y. 596, 58 N. E. 1088. See also Stevens Ward V. Londesborough, 12 C. B. 252;
V. Episcopal Church History Co., 140 Ashpitel V. Sercombe, 5 Exch. 147;
N. Y. App. Div. 570, 125 N. Y. Supp. Chaplin v. Clarke, 4 Exch. 403; Willey
573. V. Parratt, 3 Exch. 211; Vane v. Cob-
The guaranty -'vf the corporation's bold, 1 Exch. 798; Atkinson v. Pocock,
notes by the promoters held not to 1 Exch. 796; Walstab v. Spottiswoode,
justify the otherwise gratuitous issu- 15 M. & W. 501. Compare Williams v.
ance of stock to them by those of Salmond, 2 Kay & J. 463.
their number composing the director- Where a person advances money for
ate. Hinkley v. Sac Oil & Pipe Line stock in a corporation to be formed,
Co., 132 Iowa 396, 119 Am. St. Eep. the money must be refunded unless the
564, 107 N. W. 629. corporation is organized within a rea-
In New York & N. H. B. Co. v. sonable time. And in an action to
Ketchum, 27 Conn. 170, a director of recover the money on failure to organ-
a railroad corporation had before and ize the corporation, it is no defense
during its organization rendered spe- that it has been expended in the de-
cial services in procuring subscriptions velopment of patents for the manu-
to its stock and in its organization, facture of articles under which the
and had done so in the expectation of corporation was to be formed, and for
compensation. The stockholders voted other expenses towards its formation.
to grant him a free pass over the road Hudson V. West, 189 Pa. St. 491, 42
for himself and family during his life, Atl. 190.
which grant was inadequate as a com- In order to hold promoters liable
339
understanding that it should be applied to expenses in procuring

incorporation, and that the subscribers paying the same did so merely
for the purpose of furthering the scheme.^*
Where the statute fixes the measure of damages for breach of con-
tract as suchan amount as would be likely to result from the breach
"in the ordinary course of things," there can be no recovery, in an
action for the breach of a contract to issue a certain number of shares
of stock in a contemplated corporation to plaintiff as fully paid, for
the value of the stock, where the corporation was never organized,
no evidence is given as to what would have been the value of the
stock if issued, and the proposed purpose of the corporation was to
manufacture a an attempt
specific article, to engage in the manufac-
ture of which, the evidence shows, has been futile by reason of lack
of raw material.*"
§166. Subscriptions to stock procured hj promoters' fraud.

Where a promoter has been guilty of fraudulent concealment,** or
has made fraudulent representations in the prospectus ** or otherwise,
after failure to incorporate for money new scheme, without considerable

paid on subscriptions, it must be shown abatement. But although, in its in-
that the person who received the money troduction to the public, some high
was authorized to receive it for them, colouring, and even exaggeration, in
or for the corporation, and that he did the description of the advantages
so receive it. Fitzwilliam v. Travis, which are likely to be enjoyed by the
(55 111. App. 183. subscribers to an undertaking, may be
19 V. Salter, 10 0. B. 477;
"Watts expected, yet no misstatement or con-
Willey v. Parratt, 3 Exch. 211; Jones cealment of any material facts or cir-
r. Harrison, 2 Exch. 52, 12 Jur. 122; cumstances ought tdrbe permitted. In
Clements v. Todd, 1 Exch. 268; Gar- my opinion, the public, who are in-
wood "v. Ede, 1 Exch. 264. See also vited by a prospectus to join in any
Watson V. Charlemont, 12 Q. B. 856. new adventure, ought to have the same
20Eisenmayer v. Leonardt, 148 Cal. opportunity of judging of everything
596, 84 Pac. 43. which has a material bearing on its
21 A stockholder alleging fraudulent true character, as the promoters them-
concealment on the part of a promoter selves possess. It cannot be too fre-
must prove the existence of the fact quently or too strongly impressed upon
alleged to have been concealed. Wil- those who, having projected any un-
lock V. Dilworth, 204 Pa. 492, 54 Atl. dertaking, are desirous of obtaining
278. See Chap. 17, infra. the co-operation of persons who have
22 " In an advertisement of this de- no other information on the subject
scription [prospectus] some allowance than that which they chose to convey,
must always be made for the sanguine that the utmost candor and honesty
expectations of the promoters of the ought to characterize their published
adventure, and no prudent man will '
statements. ' Central E. Co. of Vene-
accept the prospects which are always zuela v. Kisch, L. E. 2 H. L. 99, 113
held out by the originators of every (aff'g order Eisch v. Central E. Co. of
340
a subscriber who has thereby been induced to become such may either
avoid his contract as to such promoter ^^ or affirm the same and main-
tain an action of deceit against the promoter,^* to recover damages
for his fraud.''* When the corporation has been a party to the fraud,
Venezuela, 34 L. J. Ch. 545). See fact that the land has been conveyed
also Denton v. Macniel, L. E. 2 Eq. to the corporation, and thereby placed
352. And compare New Brunswick & beyond his control. Franey v. Warner,
Canada Railroad & Land Co. v. Mug- 96 Wis. 222, 71 N. W. 81.
geridge, 1 Dr. & Sm. 363, 381. As to the right of a party employed
The item in a prospectus, "cost of by promoters to sell bonds to rescind
ground, $40,000, ' ' is manifestly a state- for misrepresentation, and to recover
ment of what the ground will cost the damages, see Church Wilkeson-Tripp
v.
corporation, and not of the amount Co., 58 Wash. Am. St. Rep.
262, 137
paid therefor by the promoter who 1059, 109 Pac. 113, 108 Pac. 596.
owns it or by some prior purchaser, 24 Where partners acting under their
and although the property cost such firm name organize a corporation, each
promoter a sum less than that named, partner will be liable for the misrep-
the representation is not for that rea- resentations made and concealments
son false. Milwaukee Cold Storage effected by the others in the course
Co. V. Dexter, 99 Wis. 214, 40 L. R. A. of the promotion work. Walker v.
837, 74 N. W. 976. Anglo-American Mortgage & Trust Go.,
The concealment by promoters from 74 Hun (N. Y.) 432, 25 N. T. Supp.
a subscriber of the fact that persons 432.
named in the prospectus, prepared by 25 Arkansas. See McClelland v. Lin-
the promoters as subscribers, were not ton, 121 Ark. 79, 180 S. W. 482.
bona fide such, is fraudulent and ren- Illinois. Goodwin v. Wilbur, 104 111.
ders the promoters liable for damages. App. 45, 52.

Goodwin v. Wilbur, 104 111. App. 45, Iowa. See Hinkley v. Sac Oil &
52. Pipe Line Co., 132 Iowa 396, 119 Am.
23Luetzke Roberts, 130 Wis. 97,
v. St. Eep. 564, 107 N. W. 629.
109 N. W. See also Hall v. Gray-

949. Kansas. See Hayden v. Green, 66
son County Nat. Bank, 36 Tex. Civ. Kan. 204, 71 Pac. 236.
App. 317, 81 S. W. 762. Missouri. Hornblower v. Crandall,
Where the promoters of a corpora- 78 Mo. Mo. App. 220; Hess
581, aff 'g 7
tion to buy land as an investment have V. D. T. Draffen & Co., 99 Mo. App.
already acquired the privilege of Buy- 580, 74 S. W. 440.
ing the land at a lower figure than New Brewster v. Hatch, 122
York.
that represented to their associates, N. Y. 349, 19 Am. St. Kep. 498, 25 N.
and after the formation of the corpora- E. 505, 10 Abb. N. Cas. 400; Getty v.
tion procure a conveyance to the cor- Devlin, 70 N. Y. 504, 54 N. Y. 403;
poration, and fraudulently appropriate Walker v. Anglo-American Mortgage
the difference between the actual and & Trust Co., 74 Hun 432, 25 N. Y.
the ostensible prices, an innocent sub-
Supp. 432.
scriber to the stock of the corpora-
North Carolina. Austin v. Murdock,
tion cannot tender his stock to them
127 N. C. 454, 37 S. E. 478.
and recover from them the amount
Oklahoma. Gast v. King, 27 Okla.
paid on it, since he cannot place them
in their former position, because of the 554, 112 Pac. 997.
341
§166] Private Cobpohations [Ch.5
the subscriber may rescind his subscription, and recover what he has
paid thereon.26
Eegardless of whether representations as to the value of property
are ordinarily mere matters of opinion which do not imply knowledge,
false representations by a promoter to a subscriber as to the value of
property which belongs to the promoter and which is to become the
chief asset of the corporation, constitute a breach of the trust relation
between the promoter and the subscriber, and will sustain an action
of deceit.*'' Moreover, the facts that the venture was a failure and
the promoters suffered great loss in time and money will not relieve
them from liability to persons who were induced to subscribe to stock
by fraud on their part.^*
Vermont. Paddock v. Fletcher, 42 A person subscribing for stock on
Vt. 389. the faith of fraudulent representations
Wisconsin. See Pietseh v. Milbrath, must seek redress within a reasonable
123 Wis. 647, 68 L. R. A. 945, 107 Am. time. Denton v. Maeniel, L. R. 2 Eq.
St. Rep. 1017, 102 N. W. 342, 101 N.
352, 356.
W. 388.
The corporation is not a necessary
England. Gerhard v. Bates, 2 E. & party to a suit for fraudulent repre-
B. 476, 22 L. J. Q. B. 364.
sentations by its promoters in procur-
A person who projects a joint stock
ing a subscription to its stock. Austin
company, and causes books to be
opened, and allows an inscription of a
V. Murdock, 127 N. C. 454, 37 S. B.
478.
person as owner of an interest to a
definite amount, which is false within Plaintiff in an action of deceit
his knowledge, and embodies such false against promoters who were alleged
statement in a certificate signed by to have induced him to subscribe to
himself, accompanying such certificate stock by fraudulent representations,
with a written power authorizing a held to have made out a case entitling
transfer by the party to whom it is him to go to the jury. Hess v. D. T.
given, and by such representation in- Draffen & Co., 99 Mo. App. 580, 74 S.
duces innocent parties to advance W. 440.
money thereon, is liable in damages Franey v. Warner, 96 Wis. 222, 71
26
in an action for deceit, brought by an N. W. 81. See also Virginia Land Co.
innocent party who purchased shares V. Haupt, 90 Va. 533, 44 Am. St. Rep.
of stock on the faith of such repre- 939, 19 S. E. 168; In re Metropolitan
sentations. Cross v. Sackett, 6 Abb.
Coal Consumers' Ass'n, [1892] 3 Ch.
Pr. (N. Y.) 247.
1; Kent v. Freehold Land & Brick-
One solicited to buy stock in a cor-
making Co., L. R. 4 Eq. 588. And com-
poration about to engage in a line of
pare Lynde v. Anglo-Italian Hemp
business in which the proposed sub-
Spinning Co., [1896] 1 Ch. 178, 184.
scriber hashad no experience may rely
upon the representations of the pro- Hess v. D. T. Draffen & Co., 99
27
moter in regard thereto and may hold Mo. App. 580, 74 S. W. 440.
the promoter personally where the rep- 28Hinkley v. Sac Oil & Pipe Line
resentations are false. Tinker v. Kier, Co., 132 Iowa 396, 119 Am. St. Rep.
195 Mo. 183, 94 S. W. 501. 564, 107 N. W. 629.
342
,
CHAPTER 6
Power to Ceeate Corporations
§167. Power as attribute of sovereign.

§ 168. of state legislature — In general.
Power
§ 169. — Limitations in the United States Constitution.
§ 170. — Limitations in the state .constitutions generally.
§ 171. — Form of incorporating acts.
§ 172. — Enactment of incorporating acts.
§ 173. — Exclusive franchises and privileges.
§ 174. — Creation by two or more states concurrently.
§ 175. Power of Congress—In general.
§ 176. — In the and District of Columbia.
territories
§ 177. Powers of the territorial legislatures.
§ 178. Delegation of power to incorporate.
§ 179. Purchase of property and franchises of corporation.
§167. Power as attribute of sovereign. The right to be a cor-

poration is not a natural or a civil right of any person,^ but it is the
general rule that the creation of corporations is dependent upon the

consent of the sovereign power.* Thus, in England no corporation
could be created without the consent of the king, either impliedly or
expressly given.'
1 People V. Mackey, 255 111. 144, '

' A corporation is a franchise,
99 N. E. 370. which, in England, is created by royal
2 Kaiser Land &
Fruit Co. v. Curry, charter or by act of parliament. In the
155 Cal. 638, 103 Pae. 341; Boca Mill United States, corporations are gen-
Co. V. Curry, 154 Cal. 326, 97 Pac. 1117; ^^.^jiy created by act of the legislature.
State V. Curtis, 35 Conn. 374, 95 Am. corporate commu-
g^ ^^^ ^jîj j^^^
Dee. 263 ; People v. Butler St Foundry
permanent, could
& Iron Co., 201 111. 236, 66 N. E. 349;
„, , . . „ „ ^ „ , not
'
^
exist
. ,
unless confirmed
-. , J
by .,
the
Washington, A. & G. R. Co. v. Alex-
L. im
Civ. t -.no
.
sovcreign: Brown's 101, 102.

andna & W. E. n
, o if./-i /ir.
• -rrr -r, j-i. \
Co., 19 Gratt. ( va.) , „ „ .
^^® power, therefore, of creating cor-
592 100 Am Dec 710.
porations, resides in the sovereign."
"'to possess or exercise powers or
privileges of corporations requires a Michigan State Bank v. Hastings, 1
sovereign grant." Spotswood v. Mor- Dougl. (Mich.) 225, 41 Am. Dec. 549.
ris, 12 Idaho 360, 6 L. R. A. (N. S.) 8B1. Com. 472; Adam's Case, 4
665, 85 Pac. 1094. Cooke 107(b).
343
§167] Pbivate Corpokations [Ch.6
The express consent Eng-

for the creation of corporations was, in
land, originally given by a royal Afterwards they were
charter.*
also created by act of parliament, of which the royal assent was an
ingredient, and to which it was implied.*
In the United States a prerequisite to the right to become a cor-
poration is the consent of the sovereign power, which is exercised by
the legislative department of the state or territory, or by congress,
as the case may be,® differing, in this respect, as has been noted
heretofore, from ordinary partnerships, unincorporated societies and
clubs and unincorporated joint stock companies, which may be organ-
4B1. Com. 473; 10 Eeports 29. Bank v. Hastings, 1 Dougl. 225, 41

See Durant v. Kennett, L. R. 5 C. P. Am. Dec. 549.
262. Ohio. Atkinson v. Marietta & C. E.
SBl. Com. 473; Conservators of the Co., 15 Ohio St. 21.
Eiver Tone v. Ash, 10 B. & C. 349. Pennsylvania. Pennsylvania E. Co.
6 United States. Central Pae. E. Co. V. Canal Com'rs, 21 Pa. St. 9; Murphy
V. California, 162 TJ. S. 91, 40 L. Ed. v. Schuylkill County Farmers' Bank,
903; Ashley v. Eyan, 153 IT. S. 436, 38 20 Pa. St. 415.
L. Ed. 773; Oregon E. & Nav. Co. v. Tennessee. State v. Armstrong, 3
Oregonian E. Co., 145 U. S. 52, 36 L. Sneed 634.
Ed. 620, 130 V. S. 1, 32 L. Ed. 837; Vermont. State v. Village of Brad-
California v. Central Pac. E. Co., 127 ford, 32 Vt. 50.
TJ. S. 1, 32 L. Ed. 150; American Ball "Corporations are creations of the
Bearing Co. v. Adams, 222 Fed. 967. General Assembly, which grants to
OaUfomla. Kaiser Land & Fruit Co. them such privileges and endows them
V. Curry, 155 Cal. 638, 103 Pae. 341; with such powers as are deemed for
Boca Mill Co. v. Curry, 154 Cal. 326, the public good." Chicago Title &
97 Pac. 1117. Trust Co. V. Doyle, 259 111. 489, 47 L. E.
Georgia. Franklin Bridge Co. v. A. (N. S.) 1066, 102 N. E. 790.
Wood, 14 Ga. 80. "We must bear in mind that a cor-
Idaho. Spotswood v. Morris, 12 poration is purely a creature of the
Idaho 360, 6 L. E. A. (N. S.) 665, 85 law, and can exist only by permission
Pac. 1094. of the state; that in all of the states of
Illinois. People v. Mackey, 255 111. this country the state legislature de-
144, 99.N. E. 370; People v. Butler partment is the only department of
St. Foundry & Iron Co., 201 111. 236, government empowered to form cor-
66 N. E. 349; Stowe v. Plagg, 72 111. porations or authorize their formation,
397. or prescribe or extend their term of
Louisiana. Chaffe v. Ludeling, 27 existence; and that, except in so far
La. Ann. 607. as it is limited by constitutional pro-
Maryland. MeKim v. Odom, 3 vision, the power of the Legislature in
Bland. 407. this regard is absolute." Boca Mill
Massachusetts. Hoadley v. Essex Co. V. Curry, 154 Cal. 326, 97 Pac. 1117.
Co. Com'rs, 105 Mass. 519. "A corporation in this country,
Michigan. Schuetzen Bund v. Agi- whatever it may have been in England
tations Verein, 44 Mich. 313, 38 Am. at a time when the Crown exercised
Eep. 370, 6 N. W. 675; Michigan State the right of creating such bodies, can
344
Cli.6] POWEE TO CbEATE CoEPOKATIONS [§167
ized by the mere voluntary act and association of the individuals

who compose them, under their common-law right to enter into con-
tracts, provided their purpose is not unlawful.''
A city is without power to create a corporation.'
Nor can an incor-
porated college create a department thereof a corporation.'
The consent of the legislature to the formation of a corporation
may be expressed, subject to constitutional limitations, either by a
special act granting a charter to particular individuals,- orby a gen-
eral law authorizing any persons to become a corporation upon com-
pliance with certain prescribed conditions.^'
In England, certain corporations are also deemed to exist by force
of the common law. Among these were the king, who was regarded
by the common law as a corporation sole, for the purpose of preventing
a possible interregnum in case of his death, and for the purpose of
preserving in succession the possessions of the crown.^^ All bishops,
parsons, vicars, church wardens, and the like were also regarded as
corporations at common law, for the purpose of furthering religion,
and of perpetuating the rights of the church.^'' The recognition of
the existence of corporations of this type is harmonized with the rule
requiring the sovereign's consent on the ground that as the common
law is a custom which arises from the agreement of the whole com-
only have the right of existence under 7 See §§ 16-20, supra.

the express law of the state or sover- The city authorities have no legal
8 '
'
eignty by which it is created. ' ' Oregon power to create corporations or to

By. & Nav. Co. v. Oregonian E. Co., grant franchises. That power is lodged
130 U. S. 1, 32 L. Ed. 837. in Shreveport Traction
the state."
"A corporation not being, like a Co. V. Kansas & G. E. Co., 119
City, S.
natural person, one of the elements of Iâ. 759, 44 So. 457 (holding that the
society, of which government is extent of a municipality's power is to

formed, can only be considered as a grant ' ' secondary franchises, ' ' that is,
creature of the law. It is the law instrumentalities by means of which
alone which gives to it a personality the coporate powers granted by the
distinct from that of each of its mem- charter my be exercised). See also
bers, and confers on it the right to State v. Lindell By. Co., 151 Mo. 162,
act by its president, directors, or 52 S. "W. 248.
agents, in a manner analogous to that The city of London had no power to
in which the government itself acts create a corporation. Eobinson v.
by its regularly constituted function- Groscot, Comb. 372.
aries. This individuality of character, 9 Medical Institution of Geneva Col-
and the right so to act is, then^ nothing lege V. Patterson, 5 Den. (N. Y.) 618.
more than a portion of the power of 10 See Chaps. 7 and 8, infra.
the government with which it has been 11 Bl. Com. 472; Co. Litt. 43.
invested." Per Bland, Chancellor, in 12 Bl. Com. 469, 472; § 60, supra.
McKim v. Odom, 3 Bland (Md.) 407,
418.
345
munity, former sovereigns are supposed to have given their consent

to the common law from which such corporations derived their ex-
istence. Of were the king himself, bishops,
this class of corporations
vicars, parsons and the like.^' This theory of implied or presumed
consent has been extended to cover also certain corporations which
were deemed to owe their corporate existence to prescription.^*
A corporation is said to be created by prescription when it has
exercised corporate powers for an indefinite period without inter-
ference on the part of the sovereign power. By a fiction of law, it
is then presumed to have had a charter.*^

In England, the city of
London and other corporations are corporations by prescription, for
they have existed as corporations for a '
' time whereof the memory of
man runneth not to the contrary"; and therefore are looked upon in
law to be well ereated.^^ For though the members thereof can show
no legal charter of incorporation, yet in cases of such high antiquity
the law presumes there once was one; and that, by the variety of
accident which a length of time may produce, the charter is lost or
destroyed.^''
In the United States there are a number of cases in which the
doctrine in relation to corporations by prescription has been recog-
nized and applied both to public and private corporations.^*
At oneperiod, apparently, no special authority from the state was
essential under the Roman law for the creation of a corporation, but
it could be created by the mere act and voluntary association of the
members, subject only to the condition that the corporation should

not be in violation of law.^^ But under the empire and afterwards,
special permission from the state was necessary.*"
13 Bl. Com. 472. Illinois. Jameson v. People, 16 111.

14 See Bl. Com. 473; 2 Inst. 330. 257, 63 Am. Dee. 304.
16 Kyd
on Corporations, 40; Bl. Com. Indiana. White v. State, 69 Ind.
473; Professor T. W. Dwight, John- 273.
son's tiniv. Cyc. "Corporations." Maryland: Hagerstown Turnpike
16 Bl. Com. 473; 2 Inst. 330; King- Eoad Co. v. Creeger, 5 Harr. & J. 122,
ston-upon-HuU v. Horner, 1 Cowp. 9 Am. Dee. 495.
102. Massachusetts. Dillingham v. Snow,
Com. 473. See § 422, infra.
17 Bl. 5 Mass. 547, 3 Mass. 276.
18 United States. Bank of United Michigan. People v. Maynard, 15
States V. Dandridge, 12 Wheat. 64. Mich. 463.
Contra, GrifSn v. Clinton Line Exten- New Hampshire. Bow v. Allens-
sion E. Co., Fed. Cas. No. 5,816. town, 34 N. H. 351, 69 Am. Dec. 489.
Connecticut. Greene v. Dennis, 6 19 Bl. Com. 472. See also § 2, supra.
Conn. 293, 16 Am, Dec. 58. 20 Taylor on Corporations, §4.
346
Ch.6] PowEE TO Create Cobpobations [§169
§ 168. Power of state legislature—In general. As is stated above,

a state legislature has the inherent power to create any corporation
it may see fit to create, subject only to such restrictions as are to be
found in the federal and state constitutions.^^ may not only create
It
corporations, but, subject to such restrictions, may confer upon
it
them, whether they are public or private, any powers it may see fit.''^
It has been held, however, that a state cannot create a corporation
located outside of its own boundaries.^^
§ 169. —
Liinitations in the United States Constitution. Of
course, it is not within the power of the state to create a corporation
for a purpose in violation of the Constitution of the United States.
On this ground, certain corporations created by southern states have
been held invalid because created to aid in the war of the Rebellion.^*
United States.
21 Northern Secu- Atlanta Railway & Power Co., 113 Ga.
rities Go. V.United States, 193 TJ. S. 462, 39 S. E. 71.
197, 48 L. Ed. 679; Covington & C. "It was never the purpose of the
Bridge Co. v. Kentucky, 154 U. S. 204, federal government to interfere with
38 L. Ed. 962; New Orleans Gas Co. v. the policy of the state in reference to
Louisiana Light Co., 115 U. S. 650, the formation and development of such
29 L. Ed. 516; Slaughterhouse Cases, corporations as it should judge expedi-
16 Wall. 36, 21 L. Ed. 394; Briscoe v. ent." In re Jenkins, 47 N. Y. App.
Bank of Commonwealth, 11 Pet. 257, Div. 394, 62 N. Y. Supp. 321, afE'd 163
9 L. Ed. 418; McCuUoch v. Mary- N. Y. 320, 57 N. E. 408, 186 U. S. 230,
land, 4 Wheat. 316, 4 L. Ed. 415. 46 L. Ed. 1140.
Alabama. Paschall v. Whitsett, 11 82 New Orleans Gas Co. v. Louisiana
Ala. 472. Light Co., 115 U. S. 650, 29 L. Ed. 516;
Indiana. City of Aurora v. West, 9 Anglo-American Land, Mortg. &
Ind. 74. Agency Co. v. Lombard, 132 Fed. 721;
Maine. Penobscot Boom Corpora- Schinzel v. Best, 45 N. Y. Misc. 455,
tion V. Lamson, 16 Me. 224, 33 Am. 92 N. Y. Supp. 754.
Dec. 656. In re Knorr's Appeal, 89 Pa. St. 93;
New York. People v. New York, C. In re Philadelphia & T. R. Co., 6
& St. L. R. Co., 129 N. Y. 449, 14 L. B. Whart. (Pa.) 25, 36 Am. Dec. 202; and
A. 643, 29 N. E. 959; Bank of Chenango see cases cited in the note preceding.
V. Brown, 26 N. Y. 467; United States See also § 21, infra.
Trust Co. V. Brady, 20 Barb. 119. 23Wyers v. Manhattan Bank, 20
Ohio. Atkinson v. Marietta & C. B, Ohio 283. See also Chap. 13," infra.
Co., 15 Ohio St. 21. 21 See Chicora Co. v. Crews, 6 Rich.
Tennessee. Bell v. Bank of Nash- (S. C.) 243, where a corporation
ville, Peck, 269. created by the legislature of South
"The power to create corporations Carolina for the purpose of exporting
resides in the state. If there is produce, and importing arms and mu-
nothing in the constitution limiting or nitions of war, was held to be invalid;
restricting the authority of the law- and North Carolina Endowment Fund
making body in this respect, this power V. Satehwell, 71 N. C. Ill, where a
is to be exercised by it." Brown v. North Carolina corporation, created
347
A corporation, however, though created by a southern state during

the war, is not now invalid,not precluded from suing in the
and is
federal courts, if the act of incorporation had no relation to anything

else than the domestic concerns of the state, and was neither in its
apparent purpose, nor in its operation, hostile to the Union or in
conflict with the constitution, hut was mere ordinary legislation, which
would have been valid if there had been no attempted secession and
war.^^
§170. — Limitations in the state constitutions generally. The

limitations imposed by the state constitutions upon the power of the
legislature to create corporations, and to confer special powers and
franchises upon them, vary in the different states.^* While there is
authority to the contrary, it would seem that according to the better
view neither a de facto nor a de jure corporation can be created undei-

a statute which goes beyond the limits imposed by the constitution
upon the powers of the legislature. The various phases of this ques-
tion will be considered, however, in the part of this work treating of
the law of corporations de facto.^'
§ 171. — Form of incorporating acts. Statutes creating or author

izing corporations are subject, of course, to all constitutional pro.
\isions which govern generally the form of statutes. Thus, acta
authorizing the formation of corporations are subject to the provision
during the war, to provide charity for company, the consent not being a con-
Confederate soldiers, was held invalid. dition precedent to the granting of the-
25 United States v. Home & Southern charter, but merely to the exercise at
Ins. Co., 22 Wall. (IT. S.) 99, 22 L. Ed. the power granted by the chartei
836. See also Sapona Iron Co. V. Holt, Brown v. Atlanta Eailway & Power
64 N. C. 335. Co., 113 Ga. 462, 39 S. E. 71.
26 See Chaps. 7 and 8. Where there is a constitutional pro
A constitutional provision that "the vision that the legislature shall grant
general assembly shall not authorize no charter for banking purposes except
the construction of any street pas- upon the condition that the stockhold-
senger-railway within the limits of any ers shall be liable to the amount of
incorporated town or city, without the their respective share or shares of stock
consent of the corporate authorities," in such banking institution for all its
does not prohibit the general assembly debts and liabilities, the legislature
from granting, either by a special law, cannot grant a charter for such pur-
er under the operation of a general poses which contains a provision
law, a charter to a street railway com- exempting the stockholders from the
pany which is to operate in the limits liability imposed by the constitution,
of an incorporated town or city, until Mister v. Thomas, 122 Md. 445, 89 Atl.
the consent of such town or city is 844.
obtained to the incorporation of the 27 gee Chap. 10, infra.
348
Ch.6] PowBE TO Ceeate Coeporations [§171
found almost uniformly in state constitutions that no act shall embrace

more than one subject.** This provision, however, does not prohibit
an act creating or authorizing the formation of a corporation, and
also granting a variety of powers, and prescribing the mode in which
the various powers conferred shall be exercised.'^® As was said in an
28 Ex parte Conner, 51 Ga. 571; of the general object, should be either

People V. Hamill, 134 111. 666, 29 N. E. referred to or necessarily indicated by
280, 17 N. E. 799; Skinner v. "Wilhelm, the title. All that can reasonably be
63 Mich. 568, 30 N. W. 311. required is,, that the title shall not be
The prohibition is violated if an act made to cover legislation incongruous
is amended so as to embrace a purpose in itself,and which by no fair intend-
outside of its title, and inconsistent ment can be considered as having a
with provisions not repealed. Eaton necessary or proper connection."
v. Walker, 76 Mich. 579, 6 L. K. A. Cooley, C. J., in People v. State Ins.
102, 43 N. "W. 638. Co., 19 Mich. 392, 398.
29 United States. Mahomet v. The view expressed by Chief Justice
Quaekenbush, 117 U. S. 508, 29 L. Ed. Cooley was quoted with approval in
982. Detroit v. Detroit Citizens' St. E. Co.,
Alabama. Montgomery Mut. Build- 184 U. S. 368, 392, 46 L. Ed. 592,
ing & Loan Ass 'n v. Eobinson, 69 Ala. in which case it was held that an act
413. entitled '
' An act to provide for the
Illiuols. People v. Ottawa Hydraulic formation of street railways ' ' was not
Co., 115 111. 281, 3 N. B. 413; Blake v. invalidated by a provision in the act
People, 109 111. 504; City of Ottawa v. making it applicable to other com-
People, 48 111. 233; Firemen's Benev. panies. In so holding, the court said:
Ass 'n v. Lounsbury, 21 111. 511, 74 Am. "Narrowly considered, an act to pro-
Dec. 115. vide for the formation of street rail-
Kentucky. Phillips v. Covington & way companies should contain nothing
Cincinnati Bridge Co., 2 Mete. 219. but provisions relating to their forma-
IMichigau. Wardle v. Townsend, 75 tion and organization, but it would be
Mich. 385, 4 L. E. A. 511, 42 N. W. 950. absurd to hold that the constitutional
Minnesota. Minnesota Loan & Trust provision would prevent the introduc-
Co. V. Beebe, 40 Minn. 7, 2 L. E. A. 418, tion. into such an act of various details
41 N. W. '232. in regard to the corporations after

York. Astor v. New York Ar-
New their formation and in regard to their
cade Ey. Co., 113 N. T. 93, 2 L. E. A. government, operation, regulation, and
789, 20 N. E. 594, aff'g 48 Hun 562, other matters which might be fairly
1 N. Y. Supp. 174. considered as germane to the particu-
Wisconsin. Phillips v. Town of Al- lar object named in the title of the
bany, 28 Wis. 340. statute,and hence, we think it would
"The constitution requires no law be a most narrow construction of the
to embrace more than one object, constitutional provision to hold that
which shall be expressed in its title. under such a title it was incompetent
Now, the object may be very compre- for the legislature to provide that the
hensive and still be without objection benefits and obligations conferred and
* * * by no means essential
it is provided for in the act should be made
that every end and means necessary applicable to corporations of a like
or convenient for the accomplishment character already organized and in
349
'
Illinois case: "Tbe fact that many things of a diverse nature are
authorized or required to be done, is unimportant, provided the doing
of them may fairly be regarded as in furtherance of the general sub-
ject of the enactment."*"
operation. It is germane and appro- and regulation,' as used in the title

priate to the subject-matter of the act, of the act, do not express the single
and to enact under such a title that all dominant object of the act, and pro-
companies of the like nature should visions in thebody of the act for 'or-
have the same privileges is fairly ganization,' for 'admission,' and for
within the general object described in 'regulation' are not provisions for
the title." separate purposes, but they are on the
A which reads: "An act to
title contrary provisions incidental to the
revise and consolidate the laws pro- single object of the act. They are
viding for the incorporation of manu- agencies, means and instrumentalities
facturing and mercantile companies, necessary to be incorporated into the
or any union of the two, and for the body of the act in order to effectuate
incorporation of companies for carry- the single object expressed in the title,
ing on any other lawful business, and expressed in the body of the act
except such as are precluded from or- when both the title and the body are
ganization under this act by its ex- correctly read and understood. '
press provisions, and to prescribe the The inclusion in an act bearing the
powers and fix the duties and liabili- '
title ' to provide for the formation of
ties of such corporations," is to be corporations," of a provision requir-
construed as providing a general law ing an annual report by corporations
under which the corporations named and on failure to file it, rendering the
may be organized and as embracing directors jointly and severally liable
one object only. Grimm v. Secretary for debts contracted in the year pre-
of State, 137 Mich. 134, 26 Am. Eep. ceding the time when such report
493, 100 N. W. 269. should have been filed, does not in-
A constitutional prohibition against validate the act, the latter provision
any law embracing "more than one being germane to the subject of the
subject, that subject to be embraced formation of corporations. Heilman v.
in the title, is not violated by an act
'
' Ludington, 26 Colo. 326, 57 Pae. 1075.
the title of which is: "An act to pro- But an act cannot combine the reg-
vide for the organization, admission, ulation of the business of insurance by
and regulation of fraternal benefl- merchants' and manufacturers' insur-
eiary associations transacting the busi- ance companies, existing at the time
ness of life insurance." Hamilton of its passage, with the formation of
Nat. Bank v. Amster, 134 Tenn. 537, merchants' mutual insurance compa-
184 S. W. 5. In so holding, the court nies, these two objects being separate
said: "The subject of this act is sin- and distinct and without necessary
gle. It is expressed in the title and it connection. Skinner v. Wilhelm, 63
is expressed in the body of the act. It Mich. 568, 30 N. W. 311.
is the single subject of the body of 30 Blake v. People, 109 HI. 504.
the act and it is 'to provide for fra- An act creating an educational cor-
ternal beneficiary associations, trans- poration does not embrace more than
acting the business of life insurance.' one subject because it prohibits the
The words, 'organization, admission sale of intoxicating liquors in the
350
Ch.6] PowEE TO Create Corporations [§171
Another usual constitutional provision which is held applicable to

incorporating statutes is that requiring that the subject-matter of an
act be expressed in its title.'^ Under this provision, however, an act
creating a corporation need not express in its title all of the various
powers conferred upon the corporation, or the various provisions as
to the mode in which its business shall be conducted.^* "When one,
neighborhood of the institution. Trust Co. V. Beebe, 40 Minn. 7, 2 L. B.

'Leary v. Cook County, 28 111. 534. A. 418, 41 N. W. 232.
31 Eaton V. Walker, 76 Mich. 579, 6 New York. Astor v. New York Ar-
L. E. A. 102, 43 N. "W. 638; People v. cade By. Co., 113 N. Y. 93, 2 L. B. A.
Mahaney, 13 Mich. 481; Miasisaippi & 789, 20 N. E. 594 att'g 48 Hun 562,
E. Eiver Boom Co. v. Prince, 34 Minn. 1 N. Y. Supp. 174.
79, 24 N. W. 361; Astor v. New York Wisconsin. Phillips v. Town of Al-
Arcade R. Co., 113 N. Y. 93, 2 L. B. bany, 28 Wis. 340.
A. 789, 20 N. E. 594, aff'g 48 Hun 562, The Illinois act authorizing the for-
1 N. Y. Supp. 174. mation of surety companies (J. & A.
An act entitled, ' ' An act for the in- 12543) the title of which reads: "An
corporation of manufacturing compa- act to provide for the organization,
nies," amended so as to authorize management and regulation of surety
the incorporation of manufacturing companies," is not unconstitutional
or mercantile corporations, as is, as containing matters not covered in
amended, a violation of this provision thetitle, because it authorizes the for-
of the constitution. Walker,

Eaton v. mation of corporations for the purpose
76 Mich. 579, 6 L. K. A. 102, 43 N. W. of guaranteeing the fidelity of persons
638. holding public or private places of
32 United States. In re Wyoming trust,and the performance by persons,
Valley Co-op. Ass'n, 198 Fed. 436; firms and corporations of contracts,
Etowah Light & Power Co. v. Yancey, bonds, recognizances and undertakings
197 Eed. 845, appeal dismissed 199 of every kind. People v. Potts, 264 111.
Fed. 988. 522, 106 N. E. 524.

Alabama. Montgomery Mut. Build- A title which reads: "An act for
ing & Loan Aas'n v. Bobinson, 69 Ala. the incorporation of associations not
413. for pecuniary profit," is 8uf&ci6nt to
Jones v. Aspen Hardware
Colorado. cover a provision in the act that all
Co., 21 Colo. 263, 29 L. E. A. 143, 52 new corporations not organized for

Am. St. Eep. 220, 40 Pae. 457. profit and having no capital stock, ex-
Illinois. Johnson v. People, 83 111. cept religious organizations, shall be
431; City of Ottawa v. People, 48 organized thereunder. American Mati-
111. 233; O 'LearyCook County, 28
v. nee Ass'n v. Secretary of State, 140
111. 534; riremen's Bene v. Ass'n v. Mich. 579, 104 N. W. 141.
Lounsbury, 21 111. 511, 74 Am. Dee. An act entitled "An act to provide
115. for the incorporation and regulation
Kentucky. Phillips v. Covington & of motor power companies for operat-
C. Bridge Co., 2 Mete. 219. ing passenger railways by cables,
Michigan. War die v. Tovmsend, 75 electrical or other, means, " is not un-
Mieh. 385, 4 L. E. A. 511. constitutional because containing a
IMlnuesota. Minnesota Loan & provision authorizing motor power com-
351
"
reading a bill with the full scope of the title thereof in mind, comes
upon provisions which he could not reasonably have anticipated
because of. their being in no way suggested by the title in any reason-
able view of they are not constitutionally covered thereby. "^^
it,
•'But in applying that rule, this other rule, which has been universally
adopted, vtmst be kept in mind The statement of a subject includes,
:
by reasonable inference, all those things which will or may facilitate

the accomplishment thereof."^* In other words, the title need not
express "the adjuncts to t;hat subject, or the modus operandi," ^^ but
panies 1:0 lease the property and fran- which the line is to be constructed,
chises of passenger railway companies and that the "use and enjoyment of
which they may desire to operate. so much of the public streets of said
"As the very object of the incorpora- city as has heretofore been granted to
tion of the motor company indicated said corporators by [the municipal au-
* *
by this title is to operate a passenger thorities] is hereby confirmed »
railway, it must have some means of Bonner v. Milledgeville E. Co., 123 Ga.
obtaining such railways to operate. It 115, 50 S. E. 973.
was clearly not intended that they 35 Diana Shooting Club v. Lamo-
should build, nor necessarily buy, for reaux, 114 Wis. 44, 91 Am. St. Eep. 898,
in either case they would beeorne not 89 N. W. 880.
merely operators, but passenger rail- A title "an act to incorporate" a
way companies themselves. The most named railroad company is not suf-
obvious, if not the only other, way in ficient to apprise the legislature and
which they could opera,te, a road was the people that the act includes a
to lease it." Pinkerton v. Pennsyl- grant of land, to be selected from the
vania Traction Co., 193 Pa. St. 229, 44 state at large. "Wade v. Atlantic Lum-
Atl. 284. ber Co., 51 Fla. 628, 638, 41 So. 72.
. The purpose to establish a fish and An act entitled to incorporate ' ' a
'
'
game preserve for the use of the mem- certain railroad is insuflicient to em-
bers of an association is not expressed brace a grant of public lands in and of
by a title which reads: "An act to in- the company incorporated. Peters v.
corporate the Blooming Grove Park Gilchrist, 222 TJ. S. 483, 56 L. Ed. 278.
Association." Com. v. Eazen, 207 34 Diana Shooting Club v. Lamo-
Pa. 52, 56 Atl. 263. reaux, 114 Wis. 44, 91 Am. St. Rep.
An act to incorporate a named rail- 898, 89 N. W. 880.
road company "and to define its The title of an act to incorporate

rights,powers and privileges, and for a railroad company and define its
other purposes," is not invalid as con- powers, covers the power to construct
taining matter different from that ex- and extend branch roads connecting
pressed in its title, or as relating to the main line with parishes adjacent
more than one subject because contain- thereto. Morgan's Louisiana & T. E.
ing in its body a provision authorizing & S. S. Co. V. Barton,51 La. Ann.
the corporation to construct and equip 1138, 26 So. 271.
such lines or routes "as have already 36 City of Ottawa v. People, 48 111.
or may hereafter be. agreed upon and 233.

contracted for by the corporators and
'
' In accordance with the rule that
municipal authorities of the city in when an act expresses in its title the
352
Ck6] Power to Cbeate Coepobations [§172
"any expression in the title which calls attention to the subject of the
'
bill, although in general terms, ' is sufficient.**
§ 172. — Enactment of incorporating acts. Of course, the method

in which incorporating acts are enacted must conform to the consti-
tutional requirement^. In some states the constitution provides that
no bill creating any body politic or corporate shall be passed unless
with the assent of two-thirds of the members ejected to each branch
of the legislature.*'' In New York it was held that the purpose of
object of the act, the title embraces to incorporate the Northwestern Uni-
and expresses any lawful means to versity, ' ' because the act prohibits the
achieve the object, an act "to incor- sale of liquor in the vicinity of the uni-
porate the Charleston Union Station versity. O 'Leary v. Cook County, 28
Co." has been held not objectionable 111. 534.
as relating to more than one subject A provision conferring the, right of
expressed in its title in that the body eminent domain upon public service .
of the act gives to certain railroad corporations is germane to the title

corporations the right to subscribe for "an act to provide for the organiza-
and hold the stock and to guaranty tion of corporations. '
' Tennessee Coal,
and hold the bonds of the union sta- Iron & Eailroad Co. v. Paint Eock
tion company, as among the powers Flume & Transportation Co., 128 Tenn,
granted the latter, was that of selling 277, 160 S. W. 522.
its stocks and bonds to railroad com- The title of an act "to encourage
panies using the station. Eiley v. and authorize the formation of co-oper-
Charleston Union Station Co., 71 S. C. ative associations, productive and
.
457, 100 Am. St. Eep. 579, 51 S. E. 485. distributive, by farmers, mechanics,
The title of an act to incorporate a laborers or other persons, '
' is sufdcient
railroad company and define its powers, to include a provision in the body
including the power of condemnation, of the act that the business of such
will be deemed broad enough to cover associations shall be conducted on a
a provision in the act for the method cash basis, and that a person contract-
by which the power of condemnation ing a credit obligation with such an
is to be exercised. Morgan's Louisi- association shall not be permitted to
ana & T. R. & S. S. Co. V. Barton, 51 enforce it, as the title is sufficient
, to
La. Ann. 1138, 26 So. 271. place any person reading it, upon in-
36 Johnson v. People, 83 111. 431.
quiry as to the act's provisions as to
Thus, an act entitled, "An act to management
the government and of
authorize the organization of annuity,
such associations and as to their neces-
safe deposit, and trust companies,"
sarily implied rights, privileges and
does not violate this constitutional pro-
responsibilities. In re Wyoming Val-
vision because it empowers corpora-
act as ley Co-op. Ass'n, 198 Fed. 436i.'
tions organized under it to
37 Such a provision, if general, ap-
guardians or trustees, etc. Minnesota
Loan & Trust Co. v. Beebe, 40 Minn. plies to all corporations, public and
7, 2 L. E. A. 418, 41 N. W. 232.
private. De Bow v. People, 1 Den.
Nor is the constitutional provision (N. Y.) 9; Purdy v. People, 4 Hill (N.
violated by an act entitled, "An act Y.) 384, rev'g 2 Hill (N. Y.) 31.
353
I Priv. Corp.— 23
§ 172] Pkivate Cobpoeations [Ch. 6
this provision was to prevent the legislature from creating corpora-

tions by special act without the assent of two-thirds of the members,
and that it did not prevent the passage by a majority vote of general
laws authorizing the formation of corporations.*' The contrary, how-
ever, was held by the Supreme Court of Michigan, and by thci Supreme
Court of the United States, construing the constitution of that state.'*
It has been contended that such a provision prevents the legislature
from creating more than one corporation by the same act, even though
the act be passed with the assent of two-thirds of the members, and
that it prevents, therefore, the passage, even with such assent, of a
general law authorizing the formation of corporations. This conten-
tion, however, was not sustained.*"
There is a growing tendency to require that acts affecting the
public welfare shall be submitted to a vote of the people, acts of
this type frequently embracing incorporation acts. It has been held,
however, that such a prohibition does not prevent the legislature from
amending the charter of such a corporation by providing to creditors
a more speedy remedy against stockholders.*^
§ 173. — Exclusive franchises and In most states, the

privileges.
constitution prohibits the legislature from granting exclusive fran-
chises or privileges except in consideration of public services, and
where this is the case, a statute, conferring upon private corporations
any exclusive privilege, not in consideration of public services, is void.*^
38 Palmer v. Lawrence, 5 N. Y. 389; public services," it was held that the

Gifford V. Livingston, 2 Den. (N. Y.) legislature cannot grant special privi-
380. Contra, Thomas v. Dakin, 22 leges to a private corporation, except
Wend. (N. Y.) 9. in consideration of public services^
39 Nesmith v. Sheldon, 7 How. (U. And it was therefore held that a clause
S.) 812; Falconer v. Campbell, 2 Me- in the charter of a building assoeia-
Lean 195, Fed. Cas. No. 4,620 ; Green v. tion, which authorized it to charge a
Graves, 1 Dougl. (Mich.) 351. See also higher rate of interest than was al-
Hurlbut v. Britain, 2 Dougl. (Mich.) lowed by the general laws, was uncon-
191; Farmers' & Mechanics' Bank v. stitutional and void. Gordon v. Win-
Troy City Bank, 1 Dougl. (Mich.) 457. Chester Building & Accumulating Fund
40 Falconer v. Campbell, 2 McLean Ass'n, 12 Bush (Ky.) 110, 23 Am.
195, Fed. No. 4,620. And see
Cas. Eep. 713. See also Norwich Gas Light
Thomas v. Dakin, 22 Wend. (N. Y.) 9. Co. v. Norwich City Gas Co., 25 Conn.
41 Smith V. Bryan, 34 111. 864. 20, 34.
42 In Kentucky, where the Constitu- In considering the question of ex-
tion declares that "no man, or set of must be borne in
elusive privileges, it
men, are entitled to exclusive, separate mind that '
' all corporate franchises
public emoluments or privileges from are special and exclusive privileges
the community, but in consideration of or immunities, discriminative against
354
Ch. 6] PowEK TO Create Corporations [§173
If there were no such express prohibition in the constitution, it would

doubtless be implied from the general declaration of equality of the
people, and it would be held that the legislature has no power to con-
fer upon a corporation, any more than upon an individual, an exclusive
franchise or privilege, except in consideration of a public service.*'
As by which
to the effect of a provision of the state constitution
the legislature was prohibited from "making an irrevocable grant of
special privileges or immunities," Mr. Justice Brewer said: "While
that body may grant special privileges and immunities, grant fran-
chises to build waterworks, construct railways, or other works of
public utility, and by a failure to duplicate a grant make it in effect
for the time being exclusive, yet no one legislature can forestall action
by a succeeding legislature or bind the state by making the grant in
terms exclusive. " ** By the weight of authority, a constitutional
prohibition against granting such exclusive franchises and privileges
does not prevent the legislature from creating water or gas companies,
and conferring upon them the exclusive privilege of constructing
works and laying pipe in the streets of a city or village, for the purpose
of supplying the village or city and its inhabitants with water or
illuminating gas, since this is a public service within the meaning of
the exception in the constitution.*^ And a corporation may have an
individuals. The act of incorporation purposes is not void on the ground that
itself isa discrimination as to privi- it grants privileges to one class of eiti-
leges, powers, and liabilities against zens, which are on the same terms
the natural person." King v. Pony withheld from others, in violation of
Gold Min. Co., 24 Mont. 470, 62 Pae. Indiana Const, art. 1, § 23, because the
783; In re Clark's Estate, 195 Pa. St. act places no limit on the amount of
520, 48 L. E. A. 587, 46 Atl. 127. land which may be appropriated,
A constitutional prohibition against whereas the act of 1867 authorizing
the passage of a private or local bill the incorporation of hydraulic compa-
granting to any private corporation nies limits their power of appropria,-
any exclusive privilege, immunity or tion to a specified number of acres
franchise whatever, is not infringed (Burns 1908, §4595), as the two acta
where the exclusiveness results from are widely different in terms. Miller
the nature of the property or right v. Southern Indiana Power Co., — Ind.
granted, as the constitutional prohibi- — , 111 N. B. 308.
tion applies only to an exclusive right *3 gee cases cited in this section,
which is created by the terms of the See Chap. 31, infra,

grant. Long Sault Development Co. v. 44 Bienville Water Supply Co. v.
Kennedy, 158 N. Y. App. Div. 398, 143 City of Mobile, 186 IT. S. 212, 46 L.
N. Y. Supp. 454. Ed. 1132.
4B Thus, an exclusive franchise or
Indiana Acts 1907, c. 172, p. 277, au-
thorizing the formation of companies privilege of constructing and operating
for the manufacture and sale of elec- a street railroad in the streets of a city
trieity for heating, lighting and powet may be granted to a street railroad
355
§173] Peivate Cokpoeations [Ch.6
exclusive :frajiohise to supply a public utility, such as gas, to a city

and its , inhabitants, which will be deemed violated by a grant of
similar rights to another corporation.*®
§ 174. —
Creation by two or more states concurrently. There is
authority for the statement that several states may unite in creating
the same corporation, or in combining several pre-existing eor-
iporations into one.*' The unsoundness of this view is shown in a
detailed discussion of the question in a subsequent chapter of this
work.** But by proper legislation a corporation existing under the
.eqpipany in consideration of its agreeing violable by the municipality, by

ment to exercise tlie franchise, for tjie the construction of waterworks of its
operation of the road is a public serv- own. Where the supply furnished by
ice. In re Philadelphia & T. E. Co., 6 the water company is insufficient, the
Whart. (Pa.) 25, 3 6- Am. Deo. 202. proper remedy of the municipality is,
Eurnishing water or gas to the in- in such case, by proceedings to compel
habitants of a municipality and to the performance. Troy Water Co. v. Bor-
municipality is a public service, and ough of Troy, 200 Pa. 453, 50 Atl. 259.
if a corporation undertakes on its part To same effect. Farmers Loan & Trust '
to perform such service, the legislature Co. V. Meridian Waterworks Co., 139
may, in consideration thereof, grant it Fed. 661.
the exclusive franchise or privilege of 47 Copeland v. Memphis & C. R. Co.,
constructing and operating works for 3 Woods 651, Fed. Cas. No. 3,209.
such a purpose. New Orleans Gas Co. 48 See Chap. 13, infra.
V. Louisiana Light Co., 115 IT. S. 650, "It is familiar law that each corpo-
29 L. Ed. 516; New Orleans Water ration has its existence and domicile,
Works, Co. V. Rivers, 115 TJ. S. 674, 29 so far as the term can be applicable to
L. Ed. 525; Louisiana Gas Co. v. Citi- the artificial person, within the terri-
zenp' Gas Light Co., 115 V. S. 683, 29 tory of the sovereignty creating it.
L. Ed. 510. * * * comes into existence there
it
Such a grant cannot be sustained, by an exercise of sovereign will; and
however, where the corporation does though it may be allowed to exercise
not assume any obligation to perform corporate functions within another
the service for the public generally, sovereignty, it is impossible to con-
.b,ut has the right under the grant to ceive of one joint act, performed
conduct the enterprise as it may see simultaneously by two sovereign states
fit, and to furnish water or gas to which shall bring a single corporation
whom it may choose. Norwich Gas into being, except it be by compact or
Light Co. V. Norwich City Gas Co., 25 treaty. There may be separate consent
Conn. 20, 34. given for the consolidation of corpora-
Kentucky Heating Co. v. Louis-
46 tions separately created; but when the
ville Gas Co., 23 Ky. L. Eep. 730, 63 two unite, they severally bring to the
S. W. 751. new entity the powers and privileges
A contract may be made between a already possessed, and the consolidated
water company and a municipality for company simply exercises in each ju-
fiuppjying water to the municipality risdiction the powers the corporation
;and its members, the contract not be- there chartered had possessed, and sue-
356
Ch. 6] PowBE TO Ceeate Coepoeations [§ i75
laws of one state may be made a corporation existing under the laws
of another state so far as pertains to corporate property and acts
coming within the jurisdictioii of the latter state.' lii'orderi howeVer,
that it may be deemed that the corporation has become such under*
the laws of the second state, it is essential that the legislation' bfe such-
as implies the creation or adoption of the corporation in a mode which
will give the state power over it, such as is possessed over corpora-
tions originally created by it, and that there be on the part of the
adopted corporation such allegiance to the state as is owed by cor-
porations originally created under its laws.*^ It is also true that the
legislature of one state may create a corporation, like a railroad
company, and that another state may make the same collection of indi
viduals a corporation within its limits; or where there ai'e two cor-
porations, each created by a different state, they may be consolidated
(in a sense) by concurrent legislation in each state, and in such a
case, separate organization is not necessary.^" It is well settled, how-
ever, that in law there are two separate and distinct corporations,
one in each laws of a state can have no extraterritorial
state, for the
operation. Two states cannot fuse themselves into a single sovereignty,
and, as such, create a corporation of the two states, which is not a
corporation of each state, or either .^^
§175. Power of Congress —In general. The power of creating

corporations which is inherent in tlfc state legislatures has not a
counterpart in the powers of Congress, since the latter's powers of

legislation are such only as are conferred upon it by the Constitution
of the United States. The various specific powers conferred by that

instrument upon Congress are augmented, however, by' the further
provision that Congress shall have power "to malie all laws which
shall be necessary and proper for carrying into execution the fore- ,
going powers., and all other powers vested by this constitution in the
ceeds to its privileges. * * * It has Co. v. Auditor General, 53 Mich. 79, 18

been said that the consolidated com- N. 'W. 586. '
pany exists in each state under the 49 Seattle Gas & Electric Co. v. Citi-
laws of that state alone * * * and zens' Light & Power Co., 123 Fed. 588.
this is the effect of the decision in See also Alabama & 6. Mfg. Co. v.
Delaware Eailroad Tax, 18 Wall. (U. Eiverdale Cotton Mills, 127 Fed. 49t.
S.) 206, 21 L. Ed. 888. * * * It also ' BO See Blackburn V'. Selma:, M. & M.
follows necessarily from the doctrine R. Co., 2 Flip. 525, Fed. Cas. No. 1,467.
maintained by the Federal Supreme 51 Quincy Eailroad BriiJge Co. '
v.
Court in respect to the citizenship of Adams County, 88 111. 615. See Chap,
corporations." Chicago & N. W. Ey, 13, infra.
357
§ 175] Pbivate Coepoeations [Cli.6
government of the United States, or in any department or officer

thereof.""
'
At the threshold of the government the question was raised as to
whether or not the latter provision could be construed as conferring
upon Congress the power to create corporations, and it was then
settled that such power was vested in Congress whenever the cor-
poration is a necessary or proper means for carrying into execution
any power which is conferred by the Constitution upon the govern-
ment of the United States, or upon any department or officer.^^ Thus it
is held that Congress has power to create a bank for the purpose of
carrying on the fiscal operations of the federal government.^* Further
52 TJ. S. Const, art. I, § 8. sociation of individuals, sanctioned by

Osborn v. Bank of United States,
63 Congress; that Congress may
give to
9 Wheat. (U. S.) 738, 6 L. Ed. 204; such agencies, so organized, corporate
M'Culloch V. Maryland, 4 Wheat. (U. unity, permanence and efficiency * * •
S.) 316, 411, 4 L. Ed. 579; Layden v. have ever been regarded, since those
Endowment Rank K. P. of World, 128 decisions, as settled doctrines of this
N. C. 546, 39 S. E. 47, quoting M'Cul- court." See also Layden v. Endow-
loch V. Maryland. ment Eank K. P. of World, 128 N. C.
In addition to basing the power of 546, 39 S. E. 47.
Congress on this provision of the Con- eiJuilliard v. Gre^nman, 110 XT. S.
stitution, it was saidby Marshall, C. 421, 28 L. Ed. 204; Casey v. Galli, 94
J., in M 'CuUoch v. Maryland, 4 Wheat. TJ. S. 673, 24 L. Ed. 168; Osborn v.
(U. S.) 316, 411, 4 L. Ed. 579, "The Bank of United States, 9 Wheat. (U.
power of creating a corporation, though S.) 738, 6 L. Ed. 204; M'Culloch v.
appertaining to sovereignty, is not, Maryland, 4 Wheat. (U. S.) 316, 416,
like thepower of making war, or levy- 4 L. Ed. 579; State v. Curtis, 35 Conn.
ing taxes, or of regulating commerce, 374, 95 Am. Dec. 263; Pirst Nat. Bank
a great substantive and independent of Columbus V. Garlinghouse, 22 Ohio
power which cannot be implied as in- St. 492, 10 Am. Rep. 751.
cidental to other powers, or used as a Another illustration of the manner
means of executing them. It is never in which Congress has exercised the
the end for which other powers are ex- power of creating corporations is found
ercised, but a means by which other in the Act of March 3, 1865, constitu-
objects are accomplished." Quoted in ting a body corporate styled The
Luzton V. North Biver Bridge Co., 153 Freedman's Savings and Trust Com-
TJ. S. 525, 529, 38 L. Ed. 808. pany, to receive on deposit such money
As to the scope and effect of these as might be offered by or on account
decisions, it was said by Chase, C. J., of persons who had, before the pas-
in his dissenting opinion in Van Allen sage of the act, been held in slavery in
V. Assessors, 3 Wall. (U. S.) 573, 591, the United States, or their descend-
18 L. Ed. 229, 237, "That Congress ants and to invest such moneys. This
may constitutionally organize or con-t act was subsequently amended by 18
Btitute agencies for carrying into ef- U. 8. Stat. L. c. 349, and 21 U. S.
fect the national powers granted by Stat. L. c. 64. See Spratt v. Living-
the Constitution; that these agencies ston, 32 Fla. 507, 22 L. R. A. 453, 14
may be organized by the voluntary as- So. 160.
358
Ch.6] Power to Ceeate Corporations [§175
illustration of the exercise of power in this direction is found on the

passage of the national bank acts.^^
The power conferred by the Constitution "to regulate commerce

with foreign nations and among the several states, "^^ has also been
held to warrant the formation of railroad corporations for the pur-
pose of pitomoting commerce among the states.^' And under this power
and the power conferred by the Constitution to establish post roads, it
may create a corporation to construct and maintain a railroad or a
telegraph line for the purpose of facilitating interstate commerce, or
for the purpose of a post road.*' It has also been held that even
though Congress, under the power given it to regulate commerce
between the states, may recognize and approve bridges erected over
navigable waters between two states under authority conferred by
them, and though it has approved bridges so erected, it may also, at
tBEaston v. Iowa, 188 U. S. 220, 47 See also Bankers' Trust Oo. v. Texas
L. Ed. 452. & P. E. Co., 241 U. S. 295, 60 L. Ed.
In rarmers' & Mechanics' Nat. 1010; In re Dunn, 212 U. S. 374, 53 L.
Bank v. Dearing, 91 TJ. S. (1 Otto) 29, Ed. 558.
33, 23 L. Ed. 196, in construing the Na- The Santa F€ Pacific Bailroad Com-
tional Bank Act of 1864 (13 U. S. Stat. pany was chartered by the Act of Con-
L. 99), it was said: "The constitu- gress approved March 3, 1897 (29 U.
tionality of the Act of 1864 is not ques- S. Stat. 622, c. 374). Territory v.
tioned. It rests on the same principle Baker, 12 N. M. 456, 78 Pac. 624.

as the act creating the second Bank The Union Pacific Bailroad Company
of the United States. The reasoning was incorporated by the act of Con-
of * * * this court in M'CuUoeh gress of July 1, 1862 (12 Stat. 489, c.
V. Maryland, 4 Wheat. 316, and in Os- 120). Mason City & F. D. E. Co. v.
born V. Bank, 9 Wheat. 738, therefore, Union Pac. E. Co., 124 Fed. 409.
applies. The national banks organ- Judicial notice taken that Texas &
ized under the act are instruments Pacific Eailway Company was incor-
designed to be used to aid the govern- porated under the acts of Congress.
ment in the administration of an im- Texas & P. E. Co. v. Weatherby, 41
portant branch of the public service. Tex. Civ. App. 409, 92 S. W. 58.
They are means appropriate to that 68 Indiana v. United States, 148 U.
end. Of the degree of the necessity S. 148, 37 L. Ed. 401; Cherokee Nation
which existed for creating them. Con- V. Southern Kansas E. Co., 135 U. S.
gress is the sole judge."
641, 34 L. Ed. 295; California v. Cen-
66 U. 8. Const, art. I, § 8.
tral Pac. E. Co., 127 U. S. 1, 32 L. Ed.
67Luxton V. North -Elver Bridge Co.,
150; Thomson v. Union Pac. Ey. Co., 9
153 U. S. 525, 533, 39 L. Ed. 808; Cher-
Wall. (U. S.) 579, 19 L. Ed. 792; Union
okee Nation v. Southern Kansas B.
Tel. Co. V. Union Pac. Ey. Co., 3 Fed.
Co., 135 U. S. 641, 34 L. Ed. 295;
721; Union Pac. Ey. Co. v. Lincoln
California v. Central Pac. B. Co., 127
County, 1 Dill. 314, Fed. Cas. No.
U. S. 1, 32 L. Ed. 150; Union Pac. By.
Co. v. Myers, 115 U. S. 1, 29 L. Ed. 319. 14,378.
359
§ 175] Private Coepobations [Ch.6
its discretion, use its sovereign powers, through a corporation created

for that purpose, to construct bridges for the accommodation of inter-
state commerce.*' Questions concerning the citizenship of corpora-
tions so created and the extent
to which they are subject to other
than congressional control are discussed in subsequent chapters.*"
§176. — In the territories and District of Coluimbia. Congress

also has, under its general constitutional power to legislate for the
Territories of the United States, the same power to create corpora-
tions therein as a state legislature has to create corporations in the
state, subject only to such restrictions as are to be found in the
Federal Constitution.^^
By the Constitution of the United States, Congress is given power
to "exercise exclusive legislation in all cases whatsoever" over the
District of Columbia.*^ Congress, acting in its capacity as a local
legislature for the District, has the same power to create corporations
therein as a state has to create corporations in the state.*'
58 Luxton V. North Eiver Bridge Co., mac river within their limits, whatso-
153 U. S. -525, 38 L.Ed. 808. See also ever the legislatures of Virginia and
Cherokee Nation v. Southern Kansas Maryland could have done by their
E. Co., 135 U. S. 641, 34 L. Ed. 295. joint will, after that cession could be
The power to grant a charter to con- done by Congress; subject only to the
struct a viaduct over navigable water limitations imposed by the acts of ces-
has also been upheld. Georgetown v. sion. We are satisfied, then, that the
Alexandria Canal Co., 12 Pet. (U. S.) act of Congress which granted the
91, 9 L. Ed. 1012. charter to the Alexandria Canal Com-
60 See Chap. 13 and the chapter on pany, is in no degree a violation of the
Governmental Regulation, infra. compact between the states of Vir-

filLayden v. Endowment Eank K. P. ginia and Maryland, or of any rights
of World, 128 N. C. 546, 39 S. E. 47. that the citizens of either or both
See also Biddick v. Amelin, 1 Mo. 5; states claimed as being derived from
"Williams v. Bank of Michigan, 7 Wend. it." Georgetown v. Alexandria Canal
(N. Y.) 539. Co., 12 Pet. (U. S.) 91, 96, 9 L. Ed.
'
' The authority of Congress over the 1012.
territories of the United States, and 63 Stoutenburg v. Henniek, 129 U. S.
its power to grant franchises exer- 141, 32 L. Ed. 637; Close v. Glenwood
cisable therein, are, and ever have Cemetery, 107 TJ. S. 466, 27 L. Ed. 408;
been, undoubted." Cherokee Nation Huntington v. National Sav. Bank, 96
V. Southern Kansas E. Co., 135 U. S. U. S. 388, 24 L. Ed. 777; Williams v.
641, 34 L. Ed. 295. Creswell, 51 Miss. 817; Lay den v. En-
62 Art. I, § 8. dowment Eank K. P. of World, 128 N.
"When they [Virginia and Mary- Hadley v. Ereed-
C. 546, 39 S. E. 47;
land] ceded to Congress the portions man's Savings & Trust Co., 2 Tenn.
of their territory embracing the Poto- Ch. 122.
360
Oh. 6] PowEB TO Create Coeporations [§ 178
§ 177. Powers of the territorial legislatures.- The power given

Congress to dispose of and make all needful rules and regulations
respecting the territory or other property belonging to the United
States ^* may be directly exercised, or the power of such legislation
may be transferred to a le^slature elected by the citizens of the
territory.*^ Accordingly, Congress may not only itself create cor-
porations in the territories of the United States, but it may also
authorize the legislature of a territory to do Such power, subject so.
to the restrictions in the Constitution of the United States, and any

restrictions in acts of congress, would be included in a general grant
of power to legislate ®^ but the power has been expressly granted.
;
An act of congress provides that the legislatures of the territories

"shall not grant private charters or especial privileges, but they may,
by general incorporation 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 therewith, or for colleges, seminaries, churches,
' *''
libraries, or any benevolent, charitable or scientific association. '
Upon the admission of a territory into the Union as a state, cor-

porations theretofore created by the territory must thereafter be con-
sidered as corporations of the state to the same extent as if they had
derived their corporate existence directly from the state.®*
§178. Delegation of power to incorporate. It has been stated

that according to the English rule the sovereign may "permit the sub-
64 IT. S. Const, art. IV, § 3. An act of a territorial legislature

65 Binns United States, 194 tJ. S.
v. providing for the organization of cor-
486, 48 L. Ed. 1087. porations cannot be attacked as beyond
66 Rogers V. Burlington, 3 Wall. (TJ. the power of the legislature, where it
S.) 654, 662, 18 L. Ed. 79; Vincennes has been ratified and confirmed by act
University v. Indiana, 14 How. (U. S.) of congress since its passage. Colo-
268, 14 L. Ed. 416; Cowell v. Colorado rado Springs Co. v. American Pub. Co.,
Springs Co., 3 Colo. 82; Douglas v. 97 Fed. 843.

Bankof Missouri, 1 Mo. 24; Eiddickv. 68 Shulthis v. McDougal, 225 U. S.
Amelin, 1 Mo. 5; Williams v. Bank of 561, 56 L. Ed. 1205; Kansas Pae. E.
Michigan, 7 Wend. (N. Y.) 539. See Co. v. Atchison, T. & S. F. E. Co., 112
also Colorado Springs Co. v. American U. S. 414, 28 L. Ed. 794; Vincennes
Publishing Co., 97 Fed. 843. University v. Indiana, 14 How. (U. S.)
67 U. S. Eev. St. § 1889, 7 Fed. St. 268, 14 L. Ed. 416; Bank of Vincennes
Ann. p. See also Wells, Fargo
262. v. State, 1 Blackf. (Ind.) 267, 12 Am.
& Co. v. Northern Pac. Ey. Co., 23 Dec. 234; Vance v. Farmers' & Me-
Fed. 469; Agua Fria Copper Co. v. chanics' Bank, 1 Blackf. (Ind.) 80,.
Bashford-Burmister Co., 4 Ariz. 203,
35 Pae. 983.
361
;
§ 178] Peivate Corpoeations [Ch. 6
ject 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 instru-
ment: for though none but the king can make a corporation, yet qui
facitper alivmv, 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 stu-
dents." «»
The absence of any constitutional limitation restraining it in this

respect would seem also to leave it in the power of Parliament to
delegate to individuals the power of granting charters of incorpora-
tion.'"
In the United States, pursuant to the rule prohibiting legislatures
from delegating powers vested in them exclusively, they cannot dele-
gate either to a private individual, or to an officer or court, the power
to create or authorize corporations.''^
While a corporation cannot be created by a court,''^ in some juris-
dictions certain courts have been constituted the agency through which
and the delegation to particular
the state confers corporate powers,''*
persons, courts or boards of the power to do such ministerial acts as
may be necessary to bring into existence corporations, the formation
69 Bl. Com, 474. incorporation as they should deem ex-

70 See 1 Morawetz, Priv. Corp. § 15. pedient, it was held that the legisla-
71 United. States. Doboy & TJ. Is- ture could not confer upon the courts
land Tel. Co. v. De Magathias, 25 Fed. power to grant charters. State v.
697. Armstrong, 3 Sneed (Tenn.) 634.
California. People v. Town of Ne- 78 Doboy & TJ. Island Tel. Co. v.
6 Cal. 143. De Magathias, 25 Fed. 697.
Georgia. Franklin Bridge Co. v. The Tennessee Act of June 30, 1871,
Wood, 14 Ga. 80. which authorized the organization of
Michigan. People v. Bennett, 29 corporations by the chancery courts of
Mich. 451, 18 Am. Rep. 107. the state was held valid so far as it
Minnesota. See State v. Simons, 32 specifically provided what kind of cor-
Minn. 540, 21 N. W. 750. porations might be organized by the
New York. Medical Institution of chancery court and defined their
Geneva College v. Patterson, 5 Den. powers, but invalid so far as it under-
618, aff'g 1 Den. 61. took to authorize the creation of oor-
Tennessee. Ex parte Burns, 1 Tenn. porations with powers subject to the
Ch. 83; State v. Armstrong, 3 Sneed discretion of the court. Deitch v.
634. Staub, 115 Fed. 309.
Washington. Territory v. Stewart, See McCandless v. Inland Acid
73
1 Wash. 98, 8 L. R. A. 106, 23 Pae. 405. Co.,115 Ga. 968, 42 8. E. 449; City
Under the provision of the Consti- of Richmond v. Smith, 101 Va. 161, 43
tution of Tennessee giving the legis- S. E. 345.
lature power to grant such charters of
362
Cli.6] PowEE TO Cbeate Cokpoeatioks [§178
of which the legislature has authorized, is not a violation of this con-

stitutional principle.''* Thus the legislature may,, in creating a
corporation by special charter, appoint commissioners to carry out par-
ticular provisions of the charter, and to see that the organization of
the corporation is in accordance with the conditions of the charter,
and issue a certificate of incorporation upon compliance with condi-
tions.''* Furthermore within the legislature's constitutional
it is
powers to enact a general law authorizing any persons to organize a

corporation by complying with certain conditions, and to leave it for
some officer or court to determine whether such conditions have been
complied with, and, if so, to give a certificate of incorporation.''®
74 Georgia. Franklin Bridge Co. v. Michigan. Ames v. Port Huron Log

Wood, 14 Ga. 80. Driving & Booming Co., 6 Mich. 266.
lUiuois. People v. Chicago Gas Missouri. Granby Mining & Smelt-
Trust Co., 130 111. 268, 8 L. E. A. 497, ing Co. V. Eichards, 95 Mo. 106, 8 S.
17 Am. St. Eep. 319, 22 N. E. 798. W. 246; Kayser v. Bremen Trustees, 16
Michigan. People v. Bennett, 29 Mo. 88.
Mich. 451, 18 Am. Eep. 107; Ames v. Tennessee, Greeneville & Paint
Port Huron Log Driving & Booming Eock Narrow Gauge E. Co. v. Johnson,
Co., 6 Mich. 266. 8 Baxt. 332.
New York. In re New York El. E. "The Constitution declares that
Co., 70 N. Y. 327. 'the general assembly shall not au-
Tennessee. Ex parte Burns, 1 Tenn. thorize the construction of any street
Ch. 83;Ex parte Chadwell, 3 Baxt. 98; passenger-railway within the limits of
Heck V. McEwen, 12 Lea 97. any incorporated town or city, without
In entering a decree under Tennessee the consent of the corporate authori-
Acts 1870-71, e. 54, conferring corpo- ties.' Civ. Code, §5782. It is eon-
rate rights, powers and duties on pe- tended that one effect of this provision
titioners therefor, the chancery court of the Constitution is to prohibit the
acts ministerially and not judicially. general assembly from delegating to
The decree or charter cannot depart in any public officer the authority to
substance from the petition, but the grant a charter to a street-railway

petition is the basis and measure of company, but that this authority must
the powers to be granted. State v. be exercised directly by the general
Vanderbilt University, 129 Tenn. 279, assembly. If it is meant by this con-
164 S. W. 1151. tention that the general assembly

75 Litchfield Bank v. Church, 29 cannot constitutionally vest in any
Conn. 137; Napier v. Poe, 12 Ga. 170; public officer a discretion with refer-
Granby Mining & Smelting Co. v. Eich- ence to what corporate powers shall be
ards, 95 Mo. 106, 8 S. W. 246; Crocker given to street-railway companies, the
V. Crane, 21 Wend. (N. Y.) 211, 34
contention is probably well founded.
Am. Deo. 228. But if it goes to the extent of assert-
76 United States. Falconer v. Camp- ing that it is beyond the constitutional
bell, 2 McLean 195, Fed. Cas. No. power of the general assembly, after
4,620.
providing what powers shall be
Georgia. Franklin Bridge Co. v. granted to street-railway companies,
Wood, 14 Ga. 80. and what shall be done by them in or-
363
§ 179. Purchase of property and franchises of corporation. Sub-

ject to such constitutional limitations as may be applicable, the legis-
lature may permit a transfer of the right to be a corporation. Thus,
where a statute authorizing the sale of the state canals provided that
the grantees should hold and enjoy the same, together with "all the
rights, privileges and franchises" of the corporate grantor and under
such corporate name as the grantees might adopt, the association of
individuals purchasing the property was held to have become a cor-
poration by virtue of the statute.''''
The legal effect of the transfer, under legislative authority, of the
property and franchises of a corporation, including its right to be a
corporation, is a surrender or abandonment of its charter by the
grantor and a grant by the legislature of a similar charter to the
transferees, as of the time of the transfer.''* But the mere purchase
of the property and franchises of a corporation, although there may
be legislative authority for their sale by the corporation, or under
foreclosure of a mortgage given by it, does not make the purchasers
a corporation or authorize them to transact business as a corporation.
der to acquire such powers, to vest in underground railroad corporations was

Bome public officer of the state simply attacked as unconstitutional because it
the duty of granting a charter au- gave commissioners the power to de-
thorizing corporations to exercise the termine, before the creation of such a
powers set forth in the legislative act corporation, the necessity for the pro-
upon conforming to certain regula- posed railroad, and the power to fix
tions, then the contention would not its route and prescribe the plans for
be well founded; and there seems to its construction. The act, however,
be no good reason why an act provid- was upheld. "The act," it was said
ing for the incorporation of street- by Judge Earl, "rests upon the legis-
railway companies, and authorizing the lative will, and in no way depends for
secretary . of state to grant them a its vitality upon the action of the com-
charter, could not have been consti- missioners. Corporations organized
tutionally passed in 1891, though it under the act derive their franchises
was within the power of the general from the legislature, and in no proper
—
assembly at that time certainly prior sense from the commissioners. The
to the passage of the Act of August commissioners perform no legislative
31st of that year, providing a general acts; they enact no laws; they simply
law for the incorporation of street- perform administrative acts in carry-
—
railway companies to grant by legis- ing the law into efEect and applying
lative enactment a special charter to a it." In re New York El. E. Co., 70
street-railway company." Brown v. N. Y. 327.
Atlanta Railway & Power Co., 113 Ga. 77 Delaware Division Canal Co. v.
462, 39 S. E. 71. Com., 50 Pa. St. 399.

In a New York case a statute au- 78 State V. Sherman, 22 Ohio St. 411.
thorizing the creation of elevated and

364
Ch. 6] Power to Cbeate Coepoeations I§179
They must be incorporated by or under the authority of an act of the

legislature,''' as the franchise to be a corporation is not of such a
79 state V. Morgan, 28 La. Ann. 482; under it is pointed out, either in the
Chaffe V. Ludeling, 27 La. Ann. 607. act itself or in any other statute prior
And see Welsh v. Old Dominion Min. to that of December 9, 1874. The
& Ey. Co., 56 Hun (N. Y.) 650, 10 N. Y. franchise of being a corporation need
Supp. 174. not be implied as necessary to secure
In Memphis & Little Rock R. Co. v. to the mortgage bondholders, or the
Berry, 112 U. S. 609. 28 L. Ed. 837, purchasers at a foreclosure sale, the
the property and franchises of a rail- substantial rights intended to be se-
road corporation chartered by the state cured. They acquire the ownership
of Arkansas were sold on foreclosure of the railroad and the property inci-
of a mortgage which covered its prop- dent to it, and the franchise of main-
erty and franchises ' ' together with the taining and operating it as such; and
charter by which said company was the corporate existence is not essential
incorporated and under which it is to its use and enjoyment. All the
organized, and all the rights and privi- franchises necessary or important to
leges and franchises thereof," this the beneficial use of the railroad could
mortgage having been given under a as well be exercised by natural per-
statutory provision authorizing the sons. The essential properties of cor-
company to borrow money on its credit porate existence are quite distinct
and on a mortgage of its charter and from the franchises of the corporation.
works. It was contended that the as- The franchise of being a corporation
signment of the charter by way of belongs to the corporators; while the
mortgage and subsequent judicial sale powers and privileges, vested in and
constituted the purchasers a corpora- to be exercised by the corporate body
tion, entitled to all the provisions of as such, are the franchises of the cor-
the charter as though originally orporation. The latter has no power to
ganized under it. dispose of the franchise of its mem-
In denying this contention, the court bers, which may survive in the mere
said: " 'The franchise to be a corpo- fact of corporate existence, after the
ration, ' said Hoar, J., in Commonw. v. corporation has parted with all its
Smith, 10 Allen 448-455, 'clearly can- property and all its franchises. If, in
not be transferred by any corporate the present instance, we suppose that
body of its own will. Such a franchise a mortgage and sale of the charter of
is not, in its own liature, transmissi- the Railroad Company created a new
ble.' In Hall v. Sullivan E. R. Co., 21 corporation, what becomes of the old
Law Eep. 138, 2 Redf. Rail. Cas. 621; one? If it abides for the purpose of
1 Brunner, Collected Cases, 613, Mr. responding to obligations not satis-
Justice Curtis said: 'The franchise to fied by the sale, or of owning property
be a corporation is, therefore, not a not covered by the mortgage nor em-
subject of sale and transfer, unless the braced in the sale, as it may well do
law, by some positive provision, has and as it must if such debts or prop-
made it so, and pointed out the modes erty exist, then there will be two cor-
in which such sale and transfer may be porations co-existing under the same
effected.' No
such positive provision charter. For, 'After an Act of dispo-
is contained in the act under consid- sitionwhich separates the franchise

eration, and no mode for effecting the and make profit
to maintain a railroad
organization of a series of corporations from its use, from the franchise of
365
§179] Pkivate Cobpoeations [Ch.6
character that it can be transmitted by sale or transfer, in the absence
being a corporation, though a judg- which the plaintiff in error organized

ment of dissolution may be authorized, as successor to both. In the meantime,
yet, until there be such judgment, the the original corporation has never been
rights of the corporators and of third dissolved, and, for all purposes not
persons may require that the corpora- covered by the mortgage, still main-
tion be considered as still existing.' tains an existence as a corporate body,
Coe V. Columbus Piqua & Ind. E. E. capable of contracting and of suing
Co., 10 Ohio St. 372-386, 75 Am.
Dee. and being sued. A conception which
518, per Gholson, J. If, as required by leads to such incongruities must be es-
the argument for the plaintiff in error, sentially erroneous. If we concede,
we regard and treat the franchise of to the argument for the plaintiff in
being a corporation as an incorporeal error, the position that the language
hereditament, and an estate, capable used, which authorizes the mortgage
of passing between parties by deed or of the charter, may be taken in a lit-
of being charged by way of mortgage eral sense, still the assignment would
and of being sold under a power or by transfer it, in the very state in
virtue of judicial process, the logical which it might be at the date of the
consequences will be found to involve transfer. But at that date the only
Insuperable dif&eulties and contradic- corporation which the charter provided
tions. In the present case, for exam- for had already been organized. The
ple, after the execution of the first only powers conferred upon corporators
mortgage, we should have the Eail- to that end had already been exercised
road Company continuing as a corpo- and exhausted. The bondholders un-
ration in esse, and the trustees for the der the mortgage and their assignees,
bondholders or their beneficiaries or as- the purchasers at the sale, therefore,
signs,a corporation in posse; and, after took and could take, nothing else than
condition broken, the Company would the charter, so far as it remained un-
hold the title to its own existence as a executed, with such franchises and
mere equity of redemption. That equity powers as were capable of future en-
it makes the subject of a second mort- joyment and activity, and not such as,
gage and, in default, the beneficiaries having already spent their force by
under the power of sale became pur- having been fully exerted, could not be
chasers of the franchise, and organize revived by a conveyance. This would
by
themselves, virtue of it, into the include,by the necessity of the case,
Memphis and Little Eock Eailway the franchise to organize a corpora-
Company. The latter can hardly claim tion, which can only be exerted, once
the status of a corporation at law, as for all; for the simple act of organi-
the legal title to the franchise of be- zation exhausts the authority, and
ing a corporation had never passed to having once been effected, is legally in-
it, on the supposition that it might capable of repetition. * * * It is
pass by a private grant; and, if a cor- immaterial that the form of the trans-
poration at all, it could only be re- action is that of a mortgage, sale or
garded as the creature of equity, other transfer inter partes of the fran-
according to the analogy of equitable chise to be a corporation. 'The real
estates, a nondescript class hitherto transaction, in all such cases of trans-
unknown in any system of law relat- fer, sale or conveyance' as was said
ing to the subject. It finally was dis- by the Supreme Court of Ohio in the
placed by the judicial sale, under case of State v. Sherman, 22 Ohio St.
366
'
Ch. 6] Power to Cbeate Coepoeations [§179
of legislative authority, as is shown in a subsequent chapter.*"
411-428, in legal effect is nothing more

' regarded as mere evidence of the sur-
or less and nothing other than a surrender or abandonment.' It is, of
render or abandonment of the old course, the law in force at the time the
charter by the corporators, and a grant transaction is consummated and made

effectual, thatmust be looked to as de-
de novo of a similar charter to the so-
termining its validity and effect. This
called transferees or purchasers. To
is the principle on which this court
look upon it in any other light and to
proceeded in deciding the ease of B. B.
regard the transaction as a literal
Co. V. Ga., 98 U. S. 359, 25 L. Ed. 185.
transfer or sale of the charter, is to be The franchise to be a corporation re-
deceived, we think, by a mere figure or mained in and was exercised by the
form of speech. The vital part of the old corporation, notwithstanding the
transaction and that without which it mortgage of its charter, until the new
would be a nullity, is the law under corporation was formed and organized;
which the transfer is made. The stat- itwas then surrendered to the state,
ute authorizing the transfer and de- and by a new grant then made passed
claring its effect, is the grant of a new to the corporators of the new corpora-
charter couched in few words, and to tion and was held and exercised by
take effect upon condition of the sur- them under the constitutional restric-
render or abandonment of the old char- tions then existing. '
ter, and the deed of transfer is to be 80 See Chap. 31.
s67
CHAPTER 7
Creation Under General Laws

I. MATTERS TO BE CONSIDERED BEFORE INCOBPOEATINS
§ 180. In general.
II. STATUTORY REQUIREMENTS IN GENERAL
§ 181. Preliminary considerations.

§ 182. Conditions precedent —In general.
§ 183. — Creation as distinguished from organization.
§ 184. — Corporate existence as distinguished from power to commence business.
§ 185. — Subscription stock and payment
to therefor.
§ 186. Conditions subsequent.
§ 187. Directory provisions.
§ 188. Substantial compliance.
§ 189. Surplusage.
§ 190. Waiver and cure of defects.
§ 191. What law governs.
III. INCORPORATION PAPERS
§ 192. In general.
§ —
193. Contents In general.
§ 194. — Name of proposed corporation.
§ 195. — Purpose of creation and nature of business.
§ 196. — Place of business.
§ 197. — Amount of capital stock.
§ 198. — Limitations on amount of indebtedness.
§ 199. — Duration of corporate existence.
§ 200. — Name, residence and of incorporators.
eligibility
§ 201. — Statements membership.

as to
§ 202. — Statements as to and agents.
officers
§ 203. — Subscriptions to stock and payment therefor.

§ 204. — Manner of carrying on business.
§ 205. — Description of seal.
§ 206. — Eoute and termini of railroad company.

§ 207. — Additional provisions not required by statute,
§ 208. Signatures.
§ 209. Seals.
§ 210. Acknowledgment and verification.
§ 211. Publication.
§ 212. Powers and duties of officer or court.
§ 213. Issuance of certificate by officer or court.
§ 214. Revocation of certificate.
368
Ch, 7] Cbeation Undeb General Laws [§180
§ 215. —General
Filing and recording rules.
§ 216.— With county officer.
§217. — With state officer.

§218. — Subsequent papers.
§219. — What constitutes filing.
§220. — Distinction between and recording.

filing
§221. — Recording copy or original.
§222. — "Duplicate" as distinguished from "copy."
§223. — Time and of record.
sufficiency
§ 224.— Filing as relating back.
IV. PEES
§ 225. Necessity for payment and amount.
V. CEAKTEE
§ 226. What constitutes.
§ 227. Acceptance.
I. MATTERS TO BE CONSIDERED BEFORE INCORPORATING

§ 180. In general.Having decided to incorporate, the first thing
to be considered is whether it is advisable to incorporate under the
laws of the state where the incorporators reside or where the. business
is to be conducted wholly or in part, or whether it will be advan-
tageous to incorporate in some other state whose incorporation laws

are deemed more favorable. As to the power to incorporate in what-
ever state it is deemed advisable there is no question. Thus it has
been said to be "the universal doctrine that, where citizens of one
state desire to do business under a charter obtained in another state
whose corporation laws seem to them more favorable than the laws
of the state in which they reside, they have the right to do so upon
compliance with the laws of such other state." ^
Among the matters often (deemed important to be considered in
deciding this question are (1) the amount of fees required on filing
the incorporation papers, the amount of the annual franchise tax, and
vvhether there a collateral inheritance tax on stock; ^ (2) the right
is
to issue stock for property or services, and whether the valuation

thereof by the directors is conclusive in the absence, of fraud; (3) the
extent of the powers which may be acquired and exercised and the
length of time for which they are granted; (4) the power to hold
stock in other corporations; (5) the power to hold stockholders' and
directors' meetings outside the state; (6) the necessity that part of
1 Boatmen's Bank v. Gillespie, 209 see §225, infra; taxes, see chapter on
Mo. 217, 108 S. W. 74. Taxation, infra.
2 Construction of statutes as to fees,
369
I Priv. Corp. —24
§ 180] PeivaTe Cokpokations [Ch. 7
the incorporators and directors be residents; (7) the amount of

capital, if any, which must be paid in before commencing business;
(8) the necessity for, and particularity required in, annual reports;
(9) the necessity for keeping of books in the state; (10) the right
to cumulative voting; (11) the power of a majority of the stock-
holders or directors to act without calling a regular meeting; (12)
and the extent of personal liability of the stockholders and directors.
It is also necessary to determine the particular statute under which
an incorporation of the company is allowable, as dependent on the
purpose of the corporation.' For instance, if the association is formed
for purposes other than pecuniary profit, different statutory provisions
as to creation ordinarily apply than in case of an association formed
for purposes of engaging in business for profit.* Likewise, special
statutes differing to some extent from the general statute often govern
the creation of particular kinds of corporations, such as banking,
railroad, insurance, cemetery, benevolent, educational or other cor-
porations.
If an attempt is made to incorporate a corporation of one kind
under a statute which relates only to other kinds of corporations, the
judge or other officer to whom the incorporation papers are pre-
sented may refuse to act," and even if the incorporation takes place,
so far as the observance of forms is concerned, it is sometimes held
that the association does not even become a de facto corporation.^
Statutes relating to the articles of incorporation of "railroad"
companies are often held not applicable to street railway companies.''
II. STATUTORy REQUIEEMENTS IN GENERAL

§181. Preliminary considerations. The statutory requirements,
in order to incorporate under a general law, may be roughly classified
as (1) those preliminary to the drafting and filing of incorporation
papers; (2) the drafting and filing of incorporation papers; and (3)
acts subsequent to the filing of the incorporation papers. Ordinarily,
however, there are no statutory requirements prior to the application
for the charter. The procedure to incorporate is regulated by statute
in the several states.' These statutes, while greatly resembling each
3 For what purposes a corporation 8 See Chap. 10, infra.
may be formed, and whether particu- 7 Huntington v. Curry, 14 Cal. App.
lar corporation is within terms of par- 468, 112 Pac. 583.
ticular statute, see Chap. 4, supra. 8 State v. Burgess, 101 Tex. 524, 109
4 See People v. Golden Gate Lodge S. W. 922, rev'g (Tex. Civ. App.), 107
No. 6, 128 Cal. 257, 60 Pac. 865. S. W. 366 (construing statutes relating
8 People V. Bose, 188 111. 268, 59 N. to insurance companies).
E. 432.
370
Ch. 7] Cbeation Under General Laws [§ 181
other in most of the states, are not uniform. In some states, the
application is to a ministerial officer, generally the secretary of state,
while in other states the application is to the court. Furthermore, in
some states, organization of the corporation precedes its actual crea-
tion,although in most states organization follows the creation of the
corporation. As illustrating the former, the statutes of Illinois re-
quire a statement, which corresponds in part to the articles of incor-
poration in other states, to be filed with the secretary of state who
thereupon issues to the incorporators a license as commissioners to
open books for subscriptions to the capital stock of the corporation.
As soon as possible after the capital stock is fully subscribed, the com-
missioners are required to call a meeting of the subscribers to elect
directors or managers and the transaction of such other business as
shall come before them. Thereafter the commissioners are required to
make a full report of their proceedings, including a copy of the sub-
scription list; a statement of the amount of the capital, not less than
one-half actually paid in, the amount of such stock not paid in, what
disposition has been made of stock subscribed and not paid, and if any
proportion of the capital has been paid in property, it is to be ap-
praised by the commissioners and the fair cash value reported and the ;
names of the directors or managers elected and their respective terms

of office. The report must be sworn to by at least a majority of the
commissioners, and must be filed in the office of the secretary of state
who shall thereupon issue a certificate of the complete organization
of the corporation, making a part thereof a copy of all papers filed,
and it shall be recorded in the office of the recorder of deeds of the
county where the principal office of such company is located. It is
then provided that "upon the recording of the said copy, the cor-
poration shall be deemed fully organized' and may proceed to busi-
ness." If the company is not organized within two years, the license
is deemed revoked. These provisions do not apply, however, at least
in their entirety, where the association attempted to be incorporated
is a banking company, a co-operative association, a cemetery associa-
tion, a free public library association, a loan business association, or

a railroad, insurance or real estate brokerage company. In Alabama,
the procedure seems to be very much like that in Illinois except that
the application is made to a judga of a court who issues the com-
mission.'
Briefly stated, there can be no de jure corporation unless (1) statu-
9 First Nat. Bank of Decatur v. boro Wagon Co. v. Bliss, 132 Ala. 253,
Henry, 159 Ala. 367, 49 So. 97; Owena- 31 So. 81.
371
§ 181] Private Cokporations [Ch. 7
tory requirements which are conditions precedent are complied

with;^° (2) provided they are mandatory rather than directory ;^^
and (3) provided they are actually conditions precedent rather than
conditions subsequent ^^ but (4) substantial compliance with the
;
statutes is all that is required. ^^ Viewed from another angle, the time
when a corporation acquires a legal existence depends upon the same
considerations. In this connection, the general rules will be stated,
with a few illustrations, but leaving the question of the effect of
particular omissions or variances to be considered together with the
law relating to the matters claimed to have been omitted or varied.^*
—
§ 182. Conditions precedent In general. If the statute authoriz-
ing the formation of a corporation requires it to be created in a
certain way, or with certain formalities, compliance with such require-
ments is ordinarily a condition precedent to the existence of a de jure
corporation, or corporation that will be valid as against an attack in
quo warranto proceedings by the state, since the legislature has the •
right to prescribe the conditions upon which it will grant a charter,

and the charter, if accepted at all, must be accepted in accordance
with its terms.^*
"While a corporation de facto, or corporation which is valid as

against every person but the state, and even as against the state in a
collateral attack, may sometimes exist without creation in compliance
with all the mandatory provisions of the statute,^® creation by a sub-
stantial compliance with such requirements is always essential to the
existence of a de jure corporation,^'' and if there is a failure sub-
stantially to comply therewith, the state may institute quo warranto
10 See § 182, infra. Ill, 38 Am. St. Eep. 151, 12 So. 377;
H See § 187, infra. Selma & T. E. Co. v. Tipton, 5 Ala. 787,
12 See § 182, infra. 39 Am. Dec. 344.
13 See § 188, infra. Arkansas. Bank of Midland v. Har-
14 See § 290, infra. ris, 114 Ark. 344, Ann. Gas. 1916 B
See Chap. 8, infra.

15 1255, 170 S. "W. 67; Memphis & St. P.
See Chap. 10, infra.
16 Plank Eoad Co. v. Eives, 21 Ark. 302;
17 United States. Wells Co. v. Gas- Hammett v. Little Eock & N. E. Co.,
tonia Cotton Mfg. Co., 198 U. S. 177, 20 Ark. 204.
49 L. Ed. 1003, reversing 128 Fed. 369, California. People v. Golden Gate
which reverses 118 Fed. 190; American Lodge No. 6, 128 Cal. 257, 60 Pae. 865;
Ball Bearing Co. v. Adams, 222 Fed. Martin v. Deetz, 102 Cal. 55, 41 Am. St.
967; In re Jackson Brick & Tile Co., Eep. 151, 36 Pac. 368; People v. Monte-
189 Fed. 636. cito Water Co., 97 Cal. 276, 33 Am. St.
Alabama. Floyd v. State, 177 Ala. Eep. 172, 32 Pac. 236; People v. Sel-
169, 59 So. 280; State v. Webb, 97 Ala. fridge, 52 Cal. 331; People v. Stockton
372
Ch. 7] Ckeation Undek Genekal Laws [§182
proceedings and oust the association from the exercise of corporate
& V. E. Co., 45 Cal. 306, 13 Am. Eep. Am. St. Eep. 552, 53 N. W. 1150; State
178; People v. Chambers, 42 Cal. 201; V. Critchett, 37 Minn. 13, 32 N. W. 787.
Harris v. McGregor, 29 Cal. 124; Missouri.Boatmen's Bank v. Gil-
Spring Valley Water Works v. San lespie, 209Mo. 217, 108 S. W. 74- First
Francisco, 22 Cal. 434; Mokelumne Nat. Bank of Deadwood, South Dakota
Hill Canal & Mining Co. v. Woodbury, V. Eockefeller, 195 Mo. 15, 93 8. W.
14 Cal. 424, 73 Am. Dec. 658. 761; St. Joseph & I. E. Co. v. Sham-
Colorado. People v. Cheeseman, 7 baugh, 106 Mo. 557, 17 S. W. 581; Mar-
Colo. 376, 3 Pac. 716. tin v. Fewell, 79 Mo. 401.
lUiuois. People v. Mackey, 255 111. Montana. Merges v. Altenbrand, 45
144, 99 N. E. 370; Butler Paper Co. v. Mont. 355, 123 Pac. 21.
Cleveland, 220 111. 128, 110 Am. St. Nebraska. Kleckner v. Turk, 45
Eep. 230, 77 N. E. 99; Ferraria v. Vas- Neb. 176, 63 N. W. 469; Capps v. Hast-
concelleSj 23 111. 456; Cresswell v. ings Prospecting Co., 40 Neb. 470, 24
Oberly, 17 111. App. 281. L. E. A. 259, 42 Am. St. Eep. 677, 58
Indiana. Eeed v. Eichmond St. E. N. W. 956.
Co., 50 Ind. 342; Williams v. Franklin New York. New York Cable CO. v.
Tp. Academical Ass'n, 26 Ind. 310. New York, 104 N. Y. 1, 10 N. E. 332;
Iowa. Brinkley Car Works & Manu- Card V. Moore, 68 App. Div. 327,
facturing Co. V. Curfman, 136 Iowa 74 N. Y. Supp. 18, aff 'd 173 N. Y. 598,
476, 114 N. W. 12. 66 N. E. 1105; Burt v. Farrar, 24 Barb.
Kansas. Murdock v. Lamb, 92 Kan. 518; People v. Kingston & M. Turn-
857, 142 Pac. 961. pike Eoad Co., 23 Wend. 193, 35 Am.
Louislaua. State v. New Orleans Dee. 551.
Debenture Eedemption Co., 51 La. Oregon. Goodale Lumber Co. v.
Ann. 1827, 26 So. 586; Williams v. Shaw, 41 Ore. 544, 69 Pac. 546; Mc-
Hewitt, 47 La. Ann. 1076, 49 Am. St. Vicker v. Cone, 21 Ore. 353, 28 Pac.
Eep. 394, 17 So. 496; Workingmen's 76; HoUaday v. Elliott, 8 Ore. 84.
Accommodation Bank v. Converse, 29 Pennsylvania. Guckert v. Hacke,
La. Ann. 369. 159 Pa. St. 303, 28 Atl. 249; Com. v.
Maine. McKenney v. Bowie, 94 Me. Central Passenger Ey., 52 Pa. St. 506.
397, 47 Atl. 918. South Carolina. Cheraw & C. E. Co.
Maryland. Bonaparte v. Baltimore, V. Garland, 14 S. C. 63; Cheraw & C. E.
H. & L. E. E. Co., 75 Md. 340, 23 Atl. Co. V. White, 14 S. C. 51.
784; Lord v. Essex Bldg. Ass'n No. 4, Texas. Bank v. Eeed, 50 Tex. Civ.
37 Md. 320; Hughes v. Antietam Mfg. App. 102, 109 S. W. 256.
Co., 34 Md. 316; Lyons v. Orange, A. & Vermont. Lawrie v. Silsby, 76 Vt.
M. E. Co., 32 Md. 18. 240, 104 Am. St. Eep. 927, 56 Atl. 1106;
Massachusetts. TJtley v. Union Tool Corey & Co. v. Morrill, 61 Vt. 598, 17
Co., 11 Gray 139. Atl. 840.
Michigan. Attorney General v. Lor- West Virginia. Greenbrier Indus-
man, 59 Mich. 157, 60 Am. Eep. 287, trial Exposition v. Eodes, 37 W. Va.
26 N. W. 311; Attorney General v. 738, 17 S. B. 305.
Hanchett, 42 Mich. 436, 4 N. W. 182; Wisconsin. Slocum v. Head, 105
Doyle v. Mizner, 42 Mich. 332, 3 N. Wis. 431, 50 L. E. A. 324, 81 N. W.
W. 968. 673.
Minnesota. Finnegan v. Noeren- There is no corporation where there

berg, 52 Minn. 239, 18 L. E. A. 778, 38 is no attempt to organize one. Forbes
373
powers.^' For instance, in Michigan, a statute provided that it should

be lawful for any number of persons, not less than five, to organize
a waterworks company "whenever" the common council of any city
or incorporated village, or the municipal authority of any town in
the state, should, by resolution, declare it to be expedient to have
works constructed for the purpose of supplying such city, village, or
town, and the inhabitants thereof, with water, but to be inexpedient
for such city, town, or village to build such works under the power
granted in its charter. It was held that such a resolution was a con-
dition precedent to the right to organize a waterworks company under
the statute, and in quo warranto proceedings by the state, an asso-
ciation attempted to be organized as a corporation under it, without
such a resolution, was ousted from the exercise of corporate powers.^^
So a corporation is not lawfully created if the corporators fail to pre-
pare, subscribe and acknowledge articles of association, or a certifi-
cate of association, substantially as required by the statute,^" or if
the certificate or articles are not substantially in the form prescribed
by the statute,^^ or if they are not properly published or filed.^^ In a
like manner, the organization of a proposed corporation by a less
number of corporators than is required by the statute does not give
them a lawful corporate existence.*^ And if the statute requires that
all orpart of the capital stock of the corporation shall be subscribed,
or subscribed and paid in, before organization, the requirement must
be complied with to give the corporation legal existence.** The fact

that in the judgment of the court certain requirements of the statute
are neither convenient nor beneficial does not authorize it to hold valid
an attempted incorporation which has failed to comply therewith.**
The time when a corporation comes into existence depends on the
V. Whittemore, 62 Ark. 229, 35 S. W. Ohio St. 428, 57 N. E. 60 (holding a
223. tontine surety company within the
"The failure to comply with the statute),
mandatory requirements of the statute See Chap. 10, infra,
18
in organizing a corporation will pre- Attorney General v. Hanchett, 42

19
vent the formation of a corporation Mich. 436, 4 N. W. 182.
de jure. This, however, does not nee- 20 See §§192-224, infra,
essarily prevent the formation of a de 21 See §§ 193-210, infra,
facto corporation." Brown v. Webb, 22 See §§211, 215, infra.

60 Ore. 526, Ann. Gas. 1914 A 148, 120 23 Montgomery v. Forbes, 148 Mass.
Pac. 387. 249, 19 N. E. 342; State v. Critchett,
By statute in some jurisdictions, 37 Minn. 13. See also Chap. 3,
certain corporations, such as bond and supra,
investment companies, are required to 24 See § 185, infra,
make certain deposits of money or 25 Collier v. Union K. Co., 113 Tenn.
bonds. State v. Tontine Ins. Co., 62 96, 83 S. W. 155.
374
Ch. 7] Creation Under General Laws [§ 182
terms of the particular statute which governs, in connection with

the provisions of the articles or charter, where the latter are not in
violation of the statute.^s Oftentimes the filing of the articles of
incorporation is of itself sufficient to create a corporation,^'' although
in many states the payment of incorporation fees^' or the issuance
by the officer of a certificate of incorporation,^' or other acts'" are
additional conditions to corporate existence. If all the requirements
of the statute are complied with, the fact that they are not complied
with in the order prescribed by the statute is not necessarily fatal.'^
Ordinarily, the adoption of by-laws is not necessary in order to
create a corporation,'^ nor need certificates of stock be issued.''
A
liberal construction will be adopted with regards to the acts
required to create a corporation, and every presumption is to be
indulged in favor of its legal existence after it has gone into opera-
tion.'*
If the articles of an association are signed upon the understand-
ing that they shall not take eifect until the happening of a certain
contingency, they do not become effective and no corporation exists
until such contingency happens.'*
Certification by the secretary of the corporation of the copy of
the articles filed for record is sometimes required.'*
Under some statutes examination and certification of the certificate
or articles by the attorney general is a condition precedent to incor-
poration."
"Whether a corporation is legally constituted involves questions of
fact and law. The things done under the statute in and about the
organization of the corporation, are, of course, facts susceptible of
direct proof, but whether the things, when done, constitute a legal
26 Blinn v. Riggs, 110 111. App. 37 32 Powell Bros. v. McMullan Lumber

(life insurance company). Co., 153 N. ,C. 52, 68 S. E. 926.
27 Bank of De Soto v. Eeed, 50 Tei. 33 Powell Bros. v. McMullan Lumber
Civ. App. 102, 109 S. W. 256 (where Co., 153 N. C. 52, 68 S. E. 926.
statute so expressly provided) ; Sen- 34 Memphis & St. F. Plank-Road Co.
tinel Co. v. A. D. Meiselbach Motor v. Rives, 21 Ark. 302; Spring Valley
Wagon Co., 144 Wis. 224, 32 L. E. A. Water Works v. San Francisco, 22 Cal.
(N. S.) 436, 140 Am. St. Rep. 1007, 128 434.
N. W. 861. 36 Corey v. Morrill, 61 Vt. 598, 17
28 See § 225, infra. Atl. 840.
29 See § 213, infra. 36 Lord v. Essex Bldg. Ass 'n No. 4,
30 See §§ 188 et seq., infra. 37 Md. 320.
31 Eakright V. Logansport & N. L R. 37Eichmond Factory Ass'n v.
Co., 13 Ind. 404; Covington, C. C. & J. Clarke, 61 Me. 351.

Plank-Road Co. v. Moore, 3 Ind. 510. Articles must be examined and
375
§ 182] Private Cokpokations [Ch. 7
a question of law. '* Noncompliance with conditions

'
corporation, is '
precedent will not necessarily prevent the creation of a corporation de

facto, or a corporation which is valid as against every person but the
state, but an organization in substantial compliance with all manda-
tory provisions is essential to the creation of a corporation de jure.
What omissions or neglect to comply with statutory requirements as

to the creation of the corporation will or will not prevent an associa-
tion from becoming even a de facto, as distinguished from a de jure
corporation is considered in another chapter.^®
Some of the courts hold that de jure incorporation must be shown
— ^that is, incorporation which is legal as against a direct attack by
the state — în certain proceedings against private individuals, so that
failure tocomply with a condition precedent may be set up collaterally
by them to defeat such proceedings. Thus it is held by some courts,
though not by all, that this is the case where an alleged corporation
seeks to condemn land under the power of eminent domain, or to
assess and collect money under a statute for the benefits conferred
upon individuals by the construction of its works, etc.*" Generally,
however, as against a collateral attack upon the corporate existence
of an association, it is only necessary to show that it is a corporation
de facto, and, by the weight of authority, to show the existence of a
corporation de facto, it is only necessary to show a bona fide attempt
to organize as a corporation, under a law authorizing such a corpora-
tion, and a colorable or apparent compliance with the provisions oi
the law, followed by the exercise or user of corporate powers under
the law.*^ If the failure to comply with conditions precedent is not
such as to prevent the existence of a corporation de facto, such failure,
as a general rule, cannot be set up collaterally either by the corpora-
tion itself, or by its members, or by third persons but if the failure ;
is such as to prevent the association from becoming a corporation de

facto, its corporate existence may be collaterally attacked, either in
an action by it, or in an action against its members or officers to charge
them as individuals,*^ unless there is an estoppel in accordance with
passed on by him before they can be 38 Seanlan v. Keith, 102 HI. 63 1, 40

filed and incorporation be aeeom- Am. Eep. 624.
plished. Gulf, C. & S. F. Ey. Co. v. 39 See Chap. 10, infra.
Morris, 67 Tex. 692, 4 S. W. 156. 40 See Chap. 10, infra.
But he has no power to determine 41 See Chap. 10, infra,
the purpose for which incorporation 42 California. Martin v. Deetz, 102
may be had, or what powers the cor- Cal. 55. 41 Am. St. Eep. 151, 36 Pac.
poration may acquire by the act of in- 368; McCallion v. Hibernia Savings &
corporation. Gulf, C. & S. F. Ey. Co. Loan Society, 70 Cal. 163, 12 Pac. 114.
V. Morris, 67 Tex. 692, 4 S. W. 156. District of Columbia. Fifth Bapt.
376
Ch.71 Cbeation Under Geneeal Laws [§184
principles to be explained in subsequent sections.*^

Fraud in procuring a certificate of incorporation, practiced on state
makes the corporation a nullity.** So a mere evasive or pre-
officers,
tended compliance is a fraud upon the law, and is insufficient, no mat-

ter what the papers may say upon their face.** But in determining
whether a corporation was actually created, it is immaterial that it
was a fraudulent scheme for the purpose of cheating the public.**
§ 183. —
Creation as distinguished from orgfanization. The term
"organization of the corporation" is often used in the sense of crea-
tion of the corporation, although strictly speaking the "creation"
usually precedes and is independent of the actual organization of
the newly-born corporation.*'
A may have a legal existence although not fully organ-
corporation
ized.*' Thus, where a statute provides that no corporation shall have
legal existence until its articles of incorporation are duly recorded,
a corporation comes into existence when its articles are filed for record
although the subscribers do not meet to organize it until afterwards.*®
§184. — Corporate existence as distingiushed from power to

commence business. It must be kept in mind that a statutory pro-
Chureh v. Baltimore & P. E. Co., 4 44 Todd V. Ferguson, 161 Mo. App.
Maekey 43. 624, 144 S. W. 518.
Loverin v. McLaughlin, 161
Illinois. 45 PloyedBaker, 177 Ala. 169, 59
v.
111. 417, 44 N. E. 99, afE'g 46 HI. App. So. 280; State v. Webb, 97 Ala. Ill, 38
373; Gent v. Manufacturers' & Mer- Am. St. Rep. 151, 12 So. 377.
chants' Mut. Ins. Co., 107 Bl. 652, afE'g 46 Boatmen's Bank v. Gillespie, 209
13 m. App. 308; Bigelow v. Gregory, Mo. 217, 108 S. W. 74.
73 HI. 197. 47 See Chap. 9, infra.
Indiana. State v. Bethlehem & Z. 48 Walton v. Oliver, 49 Kan. 107, 33

Gravel Road Co., 32 Ind. 357. Am. St. Eep. 355, 30 Pae. 172. See also
Iowa. Kaiser v. liawrence Sav. Chap. 9, infra.
Bank, 56 Iowa 104, 41 Am. Eep. 85, 8 Where a statute provided that no
N. "W. 772. act of incorporation should take effect
Kansas. Walton v. Oliver, 49 Kan. until the persons therein incorporated
107, 33 Am. St. Rep. 355. should pay a certain sum to the state
Richmond Factory Ass'n
Maine. v. treasurer, it was held that such pay-
Clarke, 61 Me. 351. ment was a condition precedent; but
Massachusetts. Montgomery v. that it was otherwise under a statute
Forbes, 148 Mass. 249, 19 N. E. 342; providing that no corporation should
XJtley V. Union Tool Co., 11 Gray 139. be organized under a charter until such
Michigan. Doyle v. Mizner, 48 a payment. Hughesdale Mfg. Co. v.
Mich. 332, 3 N. W. 968. Vanner, 12 R. I. 491.
North Carolina. Wilmington & M. 49 Badger Paper Co. v. Rose, 95 Wis.
IJ. Co. V. Wright, 5 Jones 304. 145, 37 L. R. A. 162, 70 N. W. 302.
43 See Chap. 11, infra.
377
vision making certain things a condition precedent to the legal ex-

istence of a corporationis construed differently from a provision
making certain things a condition precedent to the right to com-

mence business. In the former case there is no de jure corporation
until compliance with such conditions precedent, while in the latter
case compliance is not a condition to corporate existence but only to
the right to do business.** Thus if a statute provides that subscribers
of the articles shall "become a corporation" on the performance of
certain acts, and other statutes provide that no corporation shall
exercise corporate powers or carry on business until certain other acts
are performed, the performance of the latter acts is not a condition
to the existence of the corporation.*^
Statutes forbidding a corporation to "commence business" before
its organization certificate has been filed for record, do not preclude
corporate existence from the time the certificate of corporation is
approved by the secretary of state.'^ And where a general law pro-

vided that before any corporation organized thereunder should "com-
mence business," the president and directors should cause the articles
of association to be published in the papers, make a certificate of
the purposes of the corporation, the amount of the capital stock, the
amount actually paid in, and the names of the stockholders and the
number of shares held by each, and deposit the same with the secre-
tary of state, and a duplicate with the clerk of the county in which
the business was to be carried on, and imposed a penalty on the
president and directors for failure to comply therewith, it was held
that the making and filing of the certificate, etc., was not a condition
precedent to the existence of a corporation organized thereunder, but
merely a condition precedent to the right to commence business, and
that no one but the state could object to a failure to comply there-
with.*' So where the statute provides that if certain ofScers of "any
such corporation" neglect or refuse to perfomf certain acts, they
shall be individually liable for all debts "of such corporation," it is
BOJhons v. People, 25 Mich. 499; an existence as will entitle it to do

Harrod v. Hamer, 32 Wis. 162. business." Nemaha Coal & Mining
Bl Muehlenbeck v. Babylon, N. S. R. Co. v. Settle, 54 Kan. 424, 38 Pae. 483.
Co., 26 N. Y. Misc. 136, 55 N. Y. Supp. B2 Chieppo v. Chieppo, 88 Conn. 233,
1023. 90 Atl. 940; Scholfield Gear & Pulley-
Though under the statute the exist- Co. v. Scholfield, 71 Conn. 1, 40 Atl.
ence of the corporation dates from the 1046. To same effect, W. L. Wells Co.
filing of the charter, "there must be v. Gastonia Cotton Mfg. Co., 198 U. S.
a substantial compliance with all the 177, 49 L. Ed. 1003.

provisions of law governing corpora- B3 Harrod v. Hamer, 3^ Wis. 162.
tions before it can be said to have such
378
Ch. 7] Ckeation Under Genebal Laws [§ 185
clear that the performance of such acts are not conditions precedent
to corporate existence.** Similarly, where a statute provides that
"the existence of a private corporation shall hegin" on the day the
charter is filed with the secretary of state, but that no corporation
shall "commence business" until an affidavit shall be filed, made by
its president or secretary, setting forth that not less than a certain
per cent, of its authorized capital has been paid in, the filing of the
affidavit is not a condition precedent to corporate existence.**
In another case, a charter submitted to the governor and approved
by him, provided that certain persons "are hereby created a body
'
politic and corporate, with certain powers, and then provided that the
'
capital stock should be a certain sum and that as soon as a certain

amount of said stock was subscribed and paid for, "said corporation
shall have power to commence business." It was urged that the
requirement as to subscription and payment for a certain amount of
stock was a condition precedent to the company's becoming a; cor-
poration. was held that the clause as to subscribing and payment
It
for stock "did not require the payment of a given amount of stock
subscriptions before the company should be considered in esse as a
corporation" but "did nothing more than confer the privilege or
power of commencing business when a specified amount, less than
the whole, of its authorized capital stock was subscribed and paid
for." It was further said that "if the commencing of the business
for which it was incorporated before a certain amount of capital
stock was subscribed and paid for was in violation of the company's
charter, that was a matter for which it could be called to account by
the state, and did not affect the existence in law of the company as a
corporation. Of course, if the charter of the company had made it
a condition precedent to its becoming a corporation that a certain
amount of capital stock should be subscribed and paid for, a com-
pliance with that condition would have been necessary before the com-
pany would have become a corporation entitled to sue and be sued in
the courts of the United States." ** Further illustrations of this rule
are noted in other sections in this chapter.*''
§ 185. —
Subscription to stock and payment therefor. Unless re-
quired by statute, subscriptions to stock or payment therefor are not
64Harrod v. Hamer, 32 Wis. 162, ton Mfg. Co., 198 V. S. 177, 185, 49 L.
167. Ed. 1003, reversing on this ground Gas-
65 Murdock v. Lamb, 92 Kan. 857, tonia Cotton Mfg. Co. v. W. L. Wells
142 Pac. 961. Co., 128 Fed. 369.
56 W. L. •Wells Co. V. Gastonia Cot- 67 See § 185, infra.
379
§186] Pkivate Cobpobations [Ch. 7
a condition precedent to corporate existence as will be seen in a subse-

quent cliapter.*^
§186. Conditions subsequent. There is a clear distinction, with

respect to the creation of corporations, between such requirements of
the statute as are intended as conditions precedent to the creation of
a corporation, and such as are intended as conditions subsequent
merely. Failure to comply substantially with the former will prevent
.
legal incorporation. Compliance with the latter, however, is not

required in order to give the association corporate existence, but is
required, after corporate existence has been acquired, to entitle it to

legally continue and act as a corporation. If a corporation fails to
comply with a condition subsequent, the state may institute proceed-
ings to oust it from the right to exercise the powers and privileges
conferred upon it,™ but until such proceedings are instituted, and a
judgment of forfeiture rendered, the existence of the association, as
a corporation is not in any way affected.®"
Whether a particular act required by the statute is a condition
58 See Chap. 14, infra. Wisconsin. Harrod v. Hamer, 32
68 See Chap. 10, infra. Wis. 162.
60 United States. Southern Pac. B. "There a broad and obvious dis-
is
Co. V. Orton, 32 Fed. 457; Stokes v. tinction," was said by Judge Cope
it
Findlay, 4 MoCrary 205, Fed. Cas. No. in a California ease, "between such
13,478. acts as are declared to be necessary
Illinois. Cross v. Pinckneyville Mill steps in the process of incorporation,
Co., 17 111. 54. and such as are required of the individ-
Maryland. Musgrave v. Morrison, uals seeking to become incorporated,
54 Md. 161; Hammond v. Straus, 53 but which are not made prerequisites
Md. 1. to the assumption of corporate powers.
Massachusetts. Merrick v. Beynolds In respect to the former, any material
Engine & Governor Co., 101 Mass. 381; omission will be fatal to the existence
Proprietors of Charles Elver Bridge v. of the corporation, and may be taken
Proprietors of Warren Bridge, 7 Pick. advantage of, collaterally, in any form
344, 371. in which the fact of incorporation can
properly be called in question. In re-
Missouri.Boatmen's Bank v. Gil-
spect to the latter, the corporation is
lespie, 209 Mo. 217, 108 S. W. 74; St.
responsible only to the government,
Joseph & I. R. Co. v. Shambaugh, 106
and in a direct proceeding to forfeit
Mo. 557, 567, 17 S. "W. 487.
its charter. The right of the plaintiff
New Jersey. Elizabethtown Gas
to be considered a corporation, and to
Light Co. V. Green, 46 N. J. Eq. 118,
exercise corporate powers, depends
18 Atl. 844.
upon the fact of the performance of
South Carolina. Cheraw & C. B. Co. the particular acts named in the stat-
V. White, 14 S. C. 51. ute as essential to its corporate exist-
Vermont. Connecticut & P. Rivers ence. " Mokelumne Hill & Mining Co.
R. Co. v. Bailey, 24 Vt. 465, 58 Am. V. Woodbury, 14 Cal. 424, 73 Am. Dee.
Dee. 181. 658.
380
CL7] Ceeation Under Genebal Laws [§186
precedent or merely a condition subsequent depends entirely upon the

intention of the legislature as shown Toy the language of the act and
the purpose of the requirement.*^ Thus, where a general law author-
izing the formation of business corporations prescribed the mode in
which such a corporation should be organized, and then declared that,
"upon the completion of the organization of the company," the pro-
bate judge should issue a certificate of organization, it was held that
the issuance of the certificate was not a condition precedent to incor-
61 See cases cited infra, this note. scriptions to the capital stock, and re-
A requirement that the amount of quiring road to be commenced
the
the capital stock of a corporation shall within three years from the passage of
be fixed at the first meeting held under the act, and completed within ten
the charter does not impose a condi- years, it was held that the company
tion precedent. Proprietors of City had no legal existence, where the com-
Hotel in Worcester v. Dickinson, 6 missioners delayed taking subscrip-
Gray (Mass.) 586. tions to. the stock until nearly ten
Where a statute provided that when years after expiration of the ten-year
twenty-five per cent, of the minimum limit. Bonaparte v. Baltimore, H. &
capital stock should be paid in, and so L. B. E. Co., 75 Md. 340, 23 Atl. 784.
certified by a majority of the corpo- The election of directors or other
rators to the state treasurer and required by the statute un-
officers, as
comptroller, and a certificate of their der which a corporation is organized,
organization transmitted to the clerk isnot ordinarily a condition precedent
of the court of appeals to be recorded, to acquiring corporate existence. See
and not before, they should be entitled Ashtabula & New Lisbon R. Co. v.
to all benefits conferred by the act, it Smith, 15 Ohio St. 328; Childs v. Smith,
was held that such acts were not con- 55 Barb. (N. Y.) 45. But it is some-
ditions precedent, as they could only times made so by the statute. See
be done by the corporators after or- Teitig V. Boesman, 12 Mont. 404, 31
ganization. Hammond v. Straus, 53 Pae. 371; People v. Bowen, 30 Barb.
Md. 1. (N. Y.) 24; University E. Co. v. Hold-
Though statutes creating the Catho- en, 63 N. C. 410.
lic bishop of Chicago a corporation Where a statute authorizing the for-
sole, and providing that all convey- mation of corporations declared that
ances made to any bishop should vest an association should be a corporation
the title in him as such bishop, and in after performing certain acts, and then
his successors, required him to file a provided that any corporation formed
verified statement of his appointment thereunder should have the powe;' to
within a certain time, it was held that declare in the articles of association
failure to file the statement did not the number of shares, not to exceed
affect his corporate existence, or his 1,000, of which the capital stock should
title to real estate conveyed to him. consist, and the value of each share,
Chiniquy v. Catholic Bishop of Chi- etc., it was held that such a declara-
cago, 41 111. 148. tion was not a condition precedent.

Under a statute providing for the Lord V. Essex Bldg. Ass'n No. 4, 37
incorporation of a railroad company, Md. 320.
naming commissioners to take sub-
381
§ 186] Private Cokpokations [Ch. 7
poration, but a condition subsequent merely, since by the terms of

the statute it was not to be issued until after complete organization.*^
50, where a special act created a railroad corporation in terms import-

ing a present grant, and then provided that the directors named in
the act should meet and organize, and open subscription books, and
that the company should commence and complete the construction
of its road within a certain time, it was held that these requirements
were not conditions precedent to the creation of the corporation, and
that corporate existence was acquired as soon as the act was ac-
cepted.®'
The giving of a bond is ordinarily not a condition precedent
but is a condition subsequent.®* Other illustrations are noted
elsewhere,®* including the construction of the clause fixing the time of
'
commencing business.
' ®®
' '
§ 187. Directory provisions. The validity of incorporation is not

affected, even when attacked in a direct proceeding by the state, by
failure to comply with provisions of the statute which are merely
directory.®''
A directory provision in a statute
is a provision, the co^mpliance
with which not intended by the legislature as essential, and the

is
failure to comply with which, therefore, constitutes a mere irregu-

larity, and is not fatal to acts done or proceedings had thereunder;
while a mandatory provision is a provision, the failure to comply with
which renders an act done under the statute absolutely void. Failure
to comply with a directory provision in a statute authorizing the
formation of corporations does not render the organization of a cor-
poration invalid.®®
68 Sparks v. Woodstock Iron & Where a statute declared certain
Steel Co., 87 Ala. 294, 6 So. 195. persons to be a corporation, and then
63 St. Joseph & I. E. Co. v. Sham- required them to give a bond within
baugh, 106 Mo. 557, 17 S. W. 581. a certain time, the giving of the bond
Where the charter of a railroad com- was not a condition precedent. Boise
pany conferred corporate powers in City Canal Co. v. Pinkham, 1 Idaho
terms -importing an immediate grant, 790.
with a proviso that operations on its 65See §§ 193-207, infra,
road should be commenced within a 66See § 184, supra,
certain time, it was held that the re- 67 J. W. Butler Paper Co. v. Cleve-
quirements of the proviso were not land, 220 111. 128, 110 Am. St. Eep.
conditions precedent to incorporation. 230, 77 N. E. 99; Rose Hill & E. R. Co.
Cheraw & C. R. Co. v. White, 14 S. 0. v. People, 115 111. 133, 3 N. B. 725.
51. See also Toledo & A. A. R. Co. v. 68 J. W. Butler Paper Co. v. Cleve-
Johnson, 49 Mich. 148, 13 N. W. 492. land, 220 111. 128, 110 Am. St. Rep.
64 Boston Acid Mfg. Co. v. Moring, 230, 77 N. E. 99; Cross v. Pinckney-
15 Gray (Mass.) 211. ville Mill Co., 17 111. 54; Eakright v,
382
Whether a particular provision is directory or not is determined

by "the intention and true meaning of the legislature, deduced from
the act, and sometimes aided by other acts in pari materia, and ex-
traneous circumstances. '
'
®'
The mere word "shall" is iised in the statute does not

fact that the
render the provision mandatory rather than directory.'"'
The question whether certain statutory provisions are mandatory
or directory generally arises only in connection with such provisions
relating to the organization as distinguished from the creation of the
company.'^ Thus, in a Massachusetts case, the existence of a cor-
poration under a special act was attacked on the ground that, in
the organization of the corporation, the call for the first meeting was
signed by only one of the persons named in the act of incorporation,
and not by a majority of them, as required by the statute. It was
held, however, that this provision was merely directory, and as it did
not appear that all persons interested were not actually notified of
the meeting for organization, and it did appear that all the persons
named had accepted the act, organ-
in the act, with their associates,
ized under it, issued stock, elected officers and carried on business,
it was held that the corporation had a legal existence.''^ A like con-
struction has been placed upon a provision that the amount of capital
stock should be fixed and limited at the first meeting held under the
charter,''^ and upon a provision that notice of the first meeting should
be served on each corporator.''*

.Provisions requiring the filing of a copy of the by-laws, signed by
the president and secretary of the company, and a list of stockhold-
ers, and the amount of stock signed, have been held to be directory.'"
Provisions in a statute authorizing the formation of a corporation,
particularly in the case of general laws, which require certain acts to
be done in the organization of the corporation, are not to be con-
strued as directory only, unless it clearly appears that the legislature
did not intend to make a substantial compliance therewith a condition
Logansport & N. I. E. Co., 13 Ind. 404; land, 220 111. 128, 110 Am. St. Eep.
Braintree Water-Supply Co. v. Brain- 230, 77 N. E. 99.
tree, 146 Mass. 482, 16 N. E. 420; 71 See Chap. 9, infra.
Walworth v. Brackett, 98 Mass. 98; 72Neweomb v. Reed, 12 Allen

Newcomb v. Reed, 12 Allen (Mass.) (Mass.) 362.
362; Proprietors of City Hotel in 73 Proprietors of City Hotel in
Worcester v. Dickinson, 6 Gray Worcester v. Dickinson, 6 Gray
(Mass.) 586. (Mass.) 586.
69 Cross V. Pinekneyville Mill Co., McClineh v. Sturgis, 72 Me. 288.
74
17 111. 54, 56. Rose Hill & B. E. Co. v. People,

75
70 J. W. Butler Paper Co. v. Cleve- 115 111. 133, 3 N. E. 725.
383
precedent to acquiring legal corporate existence. No positive re.

quirement of the statute should be held directory merely on the
ground that it is unimportant, since its importance is a question for
the legislature, and not for the courts. Such provisions are manda-
tory,and a substantial compliance therewith is a condition precedent
to the right to be a corporation. In a leading Massachusetts case,
persons undertook to organize a corporation under a general law with-
out complying with the provisions of the statute requiring written
articles of agreement fixing the amount of the capital stock, and sat-
ting forth distinctly the purpose for which and the place in which the
corporation was established. It was held that these provisions were
mandatory, and that no existence as a corporation was acquired. The
'
court said 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 subsequent proceed-
and is designed to take the place of a charter or act of
ings are to rest,
incorporation,by which corporate rights and privileges are usually
granted." And it was further said: "It is not a case of a defective
organization under a charter or act of incorporation, nor of er-
roneous 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 persons liable therefor as
' ''^
stockholders. '
§ 188. Substantial compliance. It is a general principle, affecting

the construction of statutes, that when a statute confers rights and
privileges, but imposes conditions precedent to be performed, a sub-
stantial, as distinguished from a literal, compliance with the require-
ments of the statute is all that is necessary; and this principle has
repeatedly been applied in construing statutes authorizing the forma-
tion of corporations, and requiring certain acts to be performed as a
condition precedent. All that is necessary to legal incorporation
under such a statute, and to the existence of a corporation, not merely
de facto, but de jure, is that the provisions of the statue shall be
substantially complied with.''' Illustrations of this rule are stated in
76 Utley V. Union Tool Co., 11 Gray California. Martin v. Deetz, 102

(Mass.) See also Montgomery
139. Cal. 55, 41 Am. Rep. 151, 36 Pae.
St.
V. Forbes, 148 Mass. 249, 19 N. E. 342. 368; People v. Montecito Water Co.,
77 Alabama. Floyd v. State, 177 Ala. 97 Cal. 276, 33 Am. St. Eep. 172, 32
169, 59 So. 280. Pae. 236; People v. Stockton & V. E.
Arkansas. Memphis & St. F. Plank Co., 45 Cal. 306, 13 Am. Eep. 178;
Eoad Co. V. Eives, 21 Ark. 302. Spring Valley Water Works v. San
384
Ch. 7] Ceeation Under General Laws [§189
connection with the particular statutory requirements claimed to

have been not complied withJ'
From the fact that a substantial compliance with the statute in
the organization of a corporation is sufficient, "it does not follow
that any positive statutory requirement can be omitted on the ground
that it is unimportant. They are conditions precedent to acquiring
a statutory right, and none can be dispensed with by the court, '*
'
'
§189. Surplusage. The legal existence of a corporation is not

affected by the fact that the application, articles of association, or
certificate state matters not required by the statute, if they contain
all the statements which are required, since the unnecessary state-
ments may be rejected as surplusage.^" Thus, where the articles or
Francisco, 22 Cal. 434; In re Spring 79 People V. Monteeito Water Co.,

Valley Water Works, 17 Cal. 132; 97 Cal. 276, 33 Am. St. Eep. 172, 32
Mokelumne Hill Canal & Mining Co. v. Pac. 236.' See also in this connection:
Woodbury, 14 Cal. 424, 73 Am. Dee. California. Martin v. Deetz, 102
658. Cal. 55, 41 Am. St. Bep. 151, 36 Pac.
Colorado. People v. Cheeseinan, 7 368; People v. Self ridge, 52 Cal. 331.
Colo. 376, 3 Pae. 716. Illinois. Gent v. Manufacturers' &
Indiana. Eakright v. Logansport & Merchants' Mut. Ins. Co., 107 111. 652,
N. I. E. Co., 13 Ind. 404. afe'g 13 111. App. 308; Bigelow v. Greg-
Iowa. Smith v. Sherman, 113 Iowa ory, 73 111. 197.
601, 85 N. W. 747; Seaton v. Grimm, Iowa. Clegg V. Hamilton & W. C.
110 Iowa 145, 81 N. W. 225; Thornton Grange Co., 61 Iowa 121, 15 N. W.
V. Balcom, 85 Iowa 198, 52 N. W. 190. 865; Eisfeld v. Kenworth, 50 Iowa
Maryland. Lord v. Essex Bldg. 389.
Ass'n No. 4, 37 Md. 320; Hughes v. Massachusetts. Montgomery v.
Antietam Mfg. Co., 34 Md. 316. Forbes, 148 Mass. 249, 19 N. E. 342;
Michigan. Ames v. Port Huron Log Utley V. Union Tool Co., 11 Gray 139.
Driving & Booming Co., 6 Mich. 266. Ohio. State v. Central Ohio Mut.
Missouri. State v. Wood, 13 Mo. Belief Ass'n, 29 Ohio St. 399.
App. 139. Wisconsin. Slocwm v. Head, 105
Nebraska. Porter v. Sherman Wis. 431, 50 L. B. A. 324, 81 N. W. 673;
County Banking Co., 36 Neb. 271, 54 Bergeron v. Hobbs, 96 Wis. 641, 65
N. W. 424. Am. St. Eep. 85, 71 >T. W. 1056.
New York. Buffalo & P. B. Co. v. 80 Marion Bond Co. v. Mexican Cof-
Hatch, 20 N. Y. 157; People v. Kings- fee & Bubber Co., 160 Ind. 558, 65 N.
ton & M. Turnpike Eoad Co.,' 23 E. 748; Pittsburg, S. & N. E. Co. v.
Wend. 193, 35 Am. Dee. 551. Keating & S. E. Co., 23? Pa. 71, 81 Atl.
Tennessee. Carpenter v. Frazier, 935; Thomas v. Wilcox 18 S. D. 625,
102 Tenn. 462, 52 S. W. 858. 101 N. W. 1072; Staackp ^. Boutledge,
Vermont. Eogers v. Danby TJniver- — Tex. Civ. App. — 175 S. W. 444.
,
salist Society, 19 Vt. 187. Where a provides that a

statute
Washington. Kwapil v. Bell Tower corporation shall not exist for more
Co., 55 Wash. 583, 104 Pac. 824. than twenty years, its inenrporatiou
78 See § 192, infra. is not invalid because its articles of
385
I Priv. Corp. —25
§ 189] Peivate Cokpobations [Ch. 7
certificate claim powers and privileges which are not authorized by

the statute, they are void as to such claims only, and the validity of
the organization is not otherwise affected. If the corporation exer-
cises such unauthorized powers and privileges, the state may insti-
tute proceedings against it, but no one else can attack the validity of
its organization. In other words, if unauthorized provisions are
added to the articles of incorporation, all acts done pursuant to such
provisions will be void; but until the company is proceeded against
by the state for an abuse of its franchises, its rights as a corporation
will not be affected by such provisions.*^ However, the statement of
unnecessary or improper matters may be ground for the court's or
^^
officer's refusal to grant an order or certificate of incorporation.
§ 190. Waiver and cure of defects. Irregularities and defects in

the creation of a corporation may be waived or cured by the state,
either expressly or impliedly by recognition of the corporation as
legally existing.''
Since it is within the legislative power to prescribe the essentials
to incorporation,**and since the conditions imposed by the legislature
upon persons forming a corporation under a statute are imposed by
the state merely on grounds of public policy, they may be waived by
the state in the case of any particular corporation by a statute ex-
pressly or impliedly approving and ratifying its creation or organ-
ization without a compliance therewith.*^ For example, the state may
association provide for an existence of 85 United States.

Comanclie County
fifty years, but it is a valid corporation v. Lewis, 133 U. Ed. 604;
S. 198, 33 L.
for the period of twenty years. People Western TJ. Tel. Co. v. Union Pae. Ey.
V. Cheeseman, 7 Colo. 376, 3 Pac. 716. Co., 3 Fed. 721, 729; Kanawha Coal
81 Grangers ' Life & Health Ins. Co. Co. v. Kanawha & O. Coal Co., 7
V. Kamper, 73 Ala. 325, 341; Shick v. Blatehf. 391, Fed. Cas. No. 7,606.
Citizens' Enterprise Co., 15 Ind. App. Alabama. State v. Webb, 110 Ala.
329, 57 Am. St. Eep. 230, 44 N. B. 214, 20 So. 462; Boykin v. State, 96
48; Eastern Plank Road Go. v. Ala. 16, 11 So. 66; Central Agricultural
Vaughan, 14 N. Y. 546; Heck v. Mc- & Mechanical Ass'n v. Alabama Gold
Ewen, 12 Lea (Teiin.) 97; Tennessee Life Ins. Co., 70 Ala. 120.
Automatic Lighting Co. v. Massey California. People v. Perrin, 56 Cal.
(Tenn. Ch.), 56 S. W. 35. 345.
82 In re Stevedores ' Beneficial Ass 'n, Georgia. McDougald v. Bellamy, IS
14 Phila. (Pa.) 130. Ga. 411.
83 See cases cited in following notes: Illinois. Snell v. City of Chicago,
84 Brown v. Atlanta Eailway & 133 111. 413, 8 L. E. A. 858, 24
N. E.
Power Co., 113 Ga. 462, 39 S. E. 71; 532; Mitchell v. Deeds, 49 111. 416, 95
Smith V. Havens Eelief Fund Society, Am. Dec. 621; People v. Farnham, 35
44 N. Y. Misc. 594, 90 N. Y. Supp. 168. 111. 562; Goodrich v. Reynolds, 31 111.
386
Ch.7] Creation Under General Laws [§190
thus waive and cure the failure of the corporators to properly sign
and acknowledge the them
articles of association, or the failure to file
for record in the ofSce of the secretary of state.'^However, such a
validating statute does not per se change the powers the corporation
previously had as a de facto corporation nor change the rights of
stockholders.^''
Recognition of a corporation by the legislature as legally existing
is sufficient to cure defects in its organization.'^ Thus, defects in the
490, 83 Am. Dee. 240; Illinois Grand 86 Central Agricultural & Mechanical
Trunk E. Co. v. Cook, 29 111. 237; Biee Ass'n V. Alabama Gold Life Ins. Co.,
V. Rock Island & A. E. Co., 21 111. 93; 70 Ala. 120; Bicker v. Cornwell, 113
Jameson v. People, 16 111. 257, 63 Am. N. Y. 115, 20 N. E. 602.
Dec. 304. 87 Healey v. Steele Center Creamery
Indiana. MeCulloch v. State, 11 Ind. Ass'n, 115 Minn. 451, 133 N. W. 69.
424. 88 United States. Town of Andes v.
Loulsdana. Shreveport Traction Co. Ely, 158 tr. S. 312, 39 L. Ed. 996; Co-
V. Kansas City, S.& G. R. Co., 119 manche County V.Lewis, 133 TJ. S. 198,
La. 759, 44 So. 457. 33 L. Ed. 604; Kanawha Coal Co. v.
Maxylaud. Basshor v. Dressel, 34 Kanawha & Ohio Coal Co., 7 Blatehf.
Md. 503. 391, Fed. Cas. No. 7,606.
Micbigau. Attorney General v. Joy, Alabama. State v. Webb, 110 Ala.
55 Mich. 94. 214, 20 So. 462.
Minnesota. Healey v. Steele Center Colorado. Cowell v. Colorado
Creamery Ass'n, 115 Minn. 451, 133 Springs Co., 3 Colo. 82.
N. W. 69. Illinois. Snell v. City of Chicago,
Missouri.State v. Lincoln Trust 133 111. 413, 8 L. E. A. 858, 24 N. E.
Co., 144 Mo. 562, 46 S. W. 593; At- 253; MeAuley v. Columbus, C. & I. C.
lantic & P. E. Co. V. City of St. Louis, B. Co., 83 Dl. 348; People v. Farnham,
66 Mo. 228; St. Louis R. Co. v. North- 35 111. 562; Jameson v. People, 16 111.
western St. Louis E. Co., 2 Mo. App. 257, 63 Am. Dec. 304.
69. Maryland. Koch v. North Avenue
New York. Biker v. Cornwell, 113 By. Co., 75 Md. 222, 15 L. E. A. 377;
N. Y. 115; Cayuga Lake R. Co. v. Kyle, Basshor v. Dressel, 34 Md. 503.
64 N. Y. 185; Black River & U. B. Co. Massachusetts. Proprietors of
V. Barnard, 31 Barb. 258; Syracuse Charles Eiver Bridge v. Proprietors of
City Bank v. Davis, 16 Barb. 188; Warren Bridge, 7 Pick. 344, 371.
Smith v. Havens Belief Fund Society,
Michigan. Attorney General v. Joy,
44 Misc. 594, 90 N. Y. Supp. 168. 55 Mich. 94, 20 N. W. 806.
Ohio. Spinning v. Home Bldg. & Sav, Missouri. Atlantic & Pacific E. Co.
Ass'n, 26 Ohio St. 483; Melntire Poor
V. City of St. Louis, 66 Mo. 228; St.
School V. Zanesville Canal & Manu-
Louis E. Co. V. Northwestern St. Louis
facturing Co., 9 Ohio 203, 34 Am. Dee.
E. Co., 2 Mo. App. 69.
436.
Pennsylvania. Workingmen 's Build-
New Jersey. Morris & E. E. Co. v.
ing & Loan Ass'n v. Coleman, 89 Pa.

Hudson Tunnel E. Co., 38 N. J. L. 548.
St. 428.
New York. Cayuga Lake E. Co. v.
Tennessee. Williams v. Union Bank, Kyle, 64 N. Y. 185; Black Eiver & U.
2 Humph. 339. E. Co. V. Barnard, 31 Barb. 258.
387
§190] Private Cokpokations [Cli.7
organization of a corporation are cured by an act recognizing its
business and changing its name,'^ or authorizing it to issue negotiable

obligations,'" or granting additional time for the construction of its
works,'^ or reducing the amount of its capital stock, though the stat-
ute does not in any way refer to such defects,'* or by a statute author-
izing a municipality to sell the stock of the corporation owned by it,"
or by an act increasing the amount of property which a charitable
corporation may hold, and expressly reciting the purposes and objects
for which such corporation was organized in the words used in its
certificate of incorporation.'*
and defects may be thus waived or cured by the
Irregularities
legislature by a special act, as well as by a general law, unless there
is some constitutional prohibition in the way, and it has been held
that a special act for this purpose is not within a constitutional pro-
hibition against the creation of corporations by special aet.'^
In order that irregularities in the organization of a corporation
may be cured by an act of the legislature, on the ground that it is a
legislative recognition of the corporation, the act must be such as to
amount to a recognition of the corporation as a legally existing body.
Thus, it has been held that a provision in a statute that nothiiig in the
OMo. Mclntire Poor School v. 98 State V. Webb, 110 Ala. 214, 20

Zanesville Canal & Manufacturing Co., So. 462 (holding that the fact that the
9 .Ohio 203, 34 Am. Dee. 436. authorized stock is fraudulently issued
Tennessee, Tennessee Automatic for property worth only half its par
Lighting Co. v. Masaey (Tenn. Ch.), value is cured by an act reducing the
56 S. W. 35; Williama v. Union Bank, stock one-half).
2 Humph. 339. 93 Town of Andes v. Ely, 158 U. S.
Compare Thornton v. Marginal 312, 39 L. Ed. 996.
Freight Ey. Co., 123 Mass. 32. 94 Smith V. Havens Relief Fund So-
It has been held in Louisiana that ciety, 118N. Y. App. Div. 678, 103 N.
ratification or recognition by the leg- Y. Supp. 770, affirming 44 N. Y. Misc.
islature takes effect only from
the 594, 90 N. Y. Supp. 168, which is af-
time thereof, and does not relate back firmed by 190 N. Y. 557, 83 N. E. 1132.
so as to affect previous contracts and 95 State V. Webb, 110 Ala. 214, 20
other transactions. Chaffe v. Ludeling, So. 462; Boykin v. State, 96 Ala. 16,
27 La. Ann. 607, 611. See, however, 11 So. 66; Central Agricultural & Me-
Spinning v. Home Bldg. & Sav. Ass'n, chanical Ass'n V. Alabama Gold Life
26 Ohio St. 483, and other eases cited Ins. Co., 70 Ala. 120; Koch v. North
above. Avenue Ry. Co., 75 Md. 222, 15 L. E.
89 White V. Ross, 15 Abb. Pr. (N. Y.) A. 377; Basshor v. Dressel, 34 Md.
66. 503; Syracuse City Bank v. Davis, 16
90 Jameson
v. People, 16 111. 257, 63 Barb. (N. Y.) 188. Contra, Oroville
Am. Dec. 904. & V. R. Co. v. Plumas Co. Sup'rs, 37
91 Morris & E. R. Co. v. Hudson Tun- Cal. 354.
nel R. Co., 38 N. J. L. 548. See Chap. 8, infra.
388
,
act contained should be construed as affecting the legal rights of

a certain corporation could not be construed as a legislative recog-
nition that such corporationhad a legal existence.'^ And it has also
been held thatt an act of the legislature supplementary to an act of
incorporation not conclusive of the existence of the corporation at
is
the time of its passage, merely because the corporate name is used
throughout the act, if the act is consistent with a belief upon the part
of the legislature that the corporation was not then organized.^'
General laws sometimes provide that an accidental or inadvertent
failure to comply with the statutory requirements governing creation
may be cured by filing and recording with the officer or court which
issued the certificate of incorporation, a statement under oath setting
forth the omission and supplying the same."
Noncompliance with a provision requiring the name of the cor-
poration to include some word designating the business to be carried
on,®' or with a provision requiring the certificate of incorporation to
be signed by the subscribers to the capital stock named therein,^ may
be cured under such a statute so as to defeat quo warranto proceed-
ings by the state, even though the omission is supplied after the pro-
ceedings are instituted.'' Moreover, the fact that a statute provides
that the organization of a corporation shall be "void" in case of
certain omissions does not preclude such a curative statement from
being effective even as to such omissions, since the word "void" may
be construed as meaning "voidable." ^ In some states, by statute, the
96 Thornton v. Marginal Ey. Co., 123 elusive as to the legal existence of the
Mass. 32. corporation.
97 Attorney General v. Chicago & In People v. Eensselaer Ins. Coj, 38
Northwestern Ey. Co., 35 Wig. 425. Barb. (N. Y.) 323, it was held that a
It was held in this case that the rule legislative amendment authorizing a
that legislative recognition of a cor- fire insurance company to take marine
poration de facto will cure irregulari- risks on complying with a certain
ties in its organization, does not apply statute did not amount to a recogni-
where there was no organization at the ^^°^ »* *'^^ valid incorporation of the
It was also held

company.
time of the statute. ?.
98Gelders v. State, 164 Ala., 592, 51.

^, ,
that an amendment ;i 4. „*
of 4.i,„ charter „f
the „T,„,+a^ oi ' ' ^.
., , i iv • So. 232; State v. Colias, 150 Ala. 515,
a railroad company so as to authorize .„ „ -Inn
„ . , :, i 43 So. 190.
an extension of its road, and to pro-
gg g^^^^ ^ ^^j.^^^ ^^^ ^j^ 5^^^ ^3
vide that whenever it should decide o_ iqq
to so extend its road it might increase i Gelders v. State, 164 Ala. 592, 51
its capital stock, etc., created, in the gg 232.
absence of proof to the contrary, a pre- 2 Gelders v. State, 164 Ala. 592, 51
sumption that the corporation was in go. 232.
existence at the time the amendment 3 State v. Colias, 150 Ala. 515, 43 So.
was passed, but that it was not con- 190.
389
failure to make affidavit as to the payments for stock may be cured

by the subsequent filing of an affidavit in regard thereto ; * and this
has been held to warrant such an affidavit even after the company had
gone into the hands of a receiver.* However, a statute providing that
no certificate of incorporation shall be declared void for formal de-
fects merely, and that where an effort has been made, in good faith,
to form a corporation, neither party to any transaction with it shall
deny the legality of ite incorporation, does not apply where, through
indifference or neglect, there has been no attempt at all to comply
with important requirements of the statute which are expressly made
conditions precedent to the possession or use of any corporate fran-
chises.^
Failure to perform conditions pj:ecedent, prescribed by the legis-
lature, in an attempt to organize a corporation, cannot be waived by
a municipal corporation which is interested in the formation of the
corporation. Thus, where a statute authorized the organization of

a corporation to construct waterworks and supply a municipal cor-
poration and its inhabitants with water "whenever" the common
council of the municipality should, by resolution, declare it expedient
to have works constructed, and inexpedient for the municipality itself
to construct them, it was held that failure to procure such a resolu-
tion before organizing a waterworks company could not be waived by
the municipality, so as to render the company a corporation as against
a direct attack by the state in quo warranto proceedings.'
§ 191. What law governs. "Whether a company has been created

a corporation de jure is to be determined by the law of the state
where it was attempted to incorporate it.'
ni. INCORPORATION PAPERS
§ 192. In general. The papers drawn up by or on behalf of the

incorporators of a proposed corporation, to be presented for filing or
approval to some officer or court, are variously denominated by the
statutes in the different states as "articles of incorporation," "articles
of association," "certificate of incorporation," "application for
4 People V. Board of Com 'rs, 81 N. 7 Attoraey General v. Hanchett, 42

Y. App. Div. 242, 81 N. Y. Supp. 20. Mieh. 436, 4 N. "W. 182.
B In re New York, W. & B. B. Co., 8 Secombe v. Railroad Co., 23 Wall.
193 N. Y. 72, 85 N. E. 1014. (TJ. S.) 108, 23 L. Ed. 67; American

6 National Shutter Bar Co. v. G. E. Ball Bearing Co. v. Adams, 222 Fed.
S. Zimmerman & Co., 110 Md. 313, 73 967; Wechselberg v. Flour City Nat.
Atl. 19. Bank, 64 Fed. 90, 26 L. E. A. 470.
390
'
Cli. 7] Ceeation" Undeb Genekal. Laws [§192
charter," "statement of incorporation," "agreement of association,"

etc. However, the name is immaterial and it is deemed sufficient
herein to refer to such papers merely as incorporation papers, since
the statutes are much alike as to what such papers must contain, the
and recording, etc. The method of proceeding is
necessity for filing
either (1)by drawing up articles of incorporation and then filing or
recording them with some ministerial officer, generally the secretary
of state, who thereupon, if the papers are in proper form, generally
grants a certificate of incorporation, or (2) by application to a court.
This latter method is in force in only a very few states, and in some
of them it applies only to certain classes of corporations.
Inasmuch as the rules governing incorporation papers presented
to the secretary of state for filing or recording are substantially the
same as the rules an application or petition to a
as to sufficiency of
court for incorporation, they will not be considered separately. In
some states, the first step towards incol:ôration is to apply to the
governor for a charter, whereupon he takes the advice of the attorney
general as to the constitutionality and legality of the provisions of
the proposed charter. If the governor approves the charter, and
causes the seal of the state to be affixed thereto by the secretary of
state, the corporation comes into existence.^ In order to create a cor-
poration under general laws, the governing statute must of course be
complied with in drawing up and presenting the incorporation papers.
In most states, the persons forming a corporation under the general
laws are required to prepare and sign a memorandum or articles of
association.^' The form of the application or petition, and its con-
tents, as well as the person to whom it is to be addressed, are generally
9 "W. L. Wells Co. V. Gastonia Cotton Missouri. Martin v. Pewell, 79 Mo.

Mfg. Co., 198 U. S. 177, 49 L. Ed. 1003 401.
(rule in Mississippi). New Hampshire. Unity Ins. Co. v.
10 California. People v. Monteeito Cram, 43 N. H. 636.
Water Co., 97 Cal. 276, 33 Am. St. Eep. Vermont. Corey v. Morrill, 61 Vt.
172, 32 Pac. 236. 598, 17 Atl. 840.
Iowa. Kaiser v. Lawrence Sav. Wisconsin. Behbein v. Eahr, 109
Bank, 56 Iowa 104, 4i Am. Eep. 85, Wis. 136, 85 N. W. 315.
8 N. W. 772. This is true even in the ease of
Maine. Eichmond Factory Ass'n v. benevolent or charitable corporations
Clarke, 61 Me. 351. not for pecuniary profit. People v.
Massachusetts. TJtley v. Union Tool Golden Gate Lodge No. 6, 128 Cal. 257,
Co., 11 Gray 139. 60 Pac. 865.
Michigan. Carmody v. Powers, 60 Where there is an entire failure to
Mich. 26, 26 N. W. 801. prepare and execute the certificate or
Minnesota.' State v. Critchett, 37 articles of incorporation required by
Minn. 13, 38 N. W. 787. law, and an entire failure to file a cer-
391
prescribed and fixed by the statutes, wMeli, of course, vary in the

different states ; and the
must be substantially complied with,
statutes
or a charter or certificate will not be granted.^^ In some states, at
least a certain number of persons must join in the application,^* but
in others, no particular number is required. The application must be
addressed, according to the requirement of the particular statute, to
the state, or to some officer of the state, generally the secretary of
state, or to some court or judge. The application need not be made
by an existing association,^* unless it is so required by the statute.^*
The articles need not be executed within the state where it is sought
to incorporate.^* While not to be commended as a matter of form, it
has been held that it is sufficienf that the articles of incorporation
consist of several separate instruments which are exact copies of each
other, except that they are signed by different persons.^^
Articles of corporation prepared by a committee need not be
accepted by the other subscribers to the stock but may be rejected
by the majority, who may then adopt new articles.^''
The articles of incorporation constitute the contract between the
stockholders of the corporation ^' and are binding both on the stock-
tifieate of any kind whatever, there quires. Packard v. Old Colony B. Co.,
is not even a de facto corporation. 168 Mass. 92, 46 N. E. 433.
McLennan Anspaugh, 2 Kan. App.
v. 14 It has been held that this is im-
269, 41 Pac. 1063;McLennan v. Hop- pliedly required in Pennsylvania, be-
kins, 2 Kan. App. 260, 41 Pac. 1061; cause the statute requires that the
Utley V. Union Tool Co., 11 Gray certificate of incorporation shall give
(Mass.) 139. the names and residences of the di-
11 Central Agricultural & Mechani- See
rectors chosen for the first year.
cal Ass'n V. Alabama Gold Life Ins. In re Eedmen's Mut. Relief Ass'n, 10
Co., 70 Ala. 120; Van Pelt v. Home Phil^. (Pa.) 546.
Bldg. & Loan
Ass'n, 79 Ga. 439, 4 S. IB Humphreys v. Mooney, 5 Colo.
E. 501; In re Deveaux, 54 Ga. 637; In 282.
re National Literary Ass 'n, 30 Pa. St. 16 Lake Ontario, A. & N. Y. E. Co. v.
150. Mason, 16 N. T. 451. See also Sodus
12 Workingmen 's Building & Loan Bay & G. E. Co. v. Hamlin, 34 Hun
Ass'n V. Coleman, 89 Pa. St. 428; (N. T.) 390, holding that a subscriber
In re People's Gas Light & Fuel Co. is not relieved from liability because
of Bucks County, 12 Pa. Dist. 184. his name is cut from one of such
13 Eoman Catholic Orphan Asylum sheets and pasted on another.
V. Abrams, 49 Cal. 455. 17 Mt. Carmel Tel. Co. v. Mt. Carmel
If the number of person required & P. Tel. Co., 119 Ky. 461, 84 S. W.
by a statute for the organization of a 515.
corporation sign the application or 18 Croninger v. Bethel Grove Camp
articles, they need not all attend the Ground Ass'n, 156 Ky. 356, 161 S. W.
first meeting, unless the statute so re- 230.
392
Ch. 7] Ckeation Undee Genbeal Laws [§ ^93
holders and officers of the corporation ;

^' and hence both the
stockholders and officers are chargeable with knowledge of all the pro-
visions of the articles of incorporation.^"
§193. Contents —In general. The statutes which require articles

of association generally prescribe their necessary contents, and a sub-
stantial compliance with the requirements of the statute in this respect
is essential to a valid incorporation.*^
If the statute specifically enumerates the various matters or facts
which the articles must contain, and there is no other statute requir-
ing other facts to be stated, only those matters specifically named
need be contained in the articles.**
Where, instead of presenting incorporation papers to a ministerial
such as the secretary of state, it is necessary to petition a court,
officer
the contents of the petition are usually practically the same as the
articles of incorporation except as to mere matters of form.**
The incorporation papers must be so definite that those becoming
members may know their rights, and the extent to which their in-
terests are involved.** The fact that the incorporation papers are
entitled "articles of association" instead of "charter," which is the
term used in the statute, is immaterial.** And a mere clerical error
ISCroninger v. Bethel Grove Camp quiring the articles to state "the

Ground Ass'n, 156 Ky. 356, 161 S.W. methods and conditions upon which
230. members shall be accepted, discharged
20 Croninger v. Bethel Grove Camp or expelled,
'
' had no application to
Ground Ass'n, 156 Ky. 356, 161 S. W. stock corporations).
230. England. In re Crown Bank, 44
21 California. People v. Golden Gate Ch. Div. 634.
Lodge No. 6, 128 Cal. 257, 60 Pac. 865; Tor forms of articles or certificate of
McCallion v. Hibernia Savings & Loan incorporation in every state, see
Society, 70 Cal. 163, 12 Pac. 114. Pletcher on Corporation Forms,
pp.
Colorado. People v. Cheeseman, 7 1-364. Forms of articles in Missouri
Colo. 376, 3 Pac. 716. are set out in Boatmen's Bank v.
Georgia. Van Pelt v. Home Build- Gillespie, 209 Mo. 217, 108 8. W. 74.
ing & Loan Ass'n, 79 Ga. 439, 4 S. E. 22 California Telephone & Light Co.
501. _ V. Jordan, 19 Cal. App. 536, 126 Pac.
Indiana. Wert v. Crawfordsville & 598.
A. Turnpike Co., 19 Ind. 242. ^g ^^^ instance, form of petition
Michigan.
^" Attorney General v. Lor- , \
r^ -nn i. •
<.
,^„ ' -n OCT

. for charter in Georgia in Fletcher on
,
man, 59 Mich. 157, 60 Am. Eep. 287,
.
_ *
Corporation Forms, p. 80.
26 N W 311
2* I" ^^ National Literary Ass'n, 30
New York.' New York Cable Co. v.
Pa. St. 150.
New York, 104 N. Y. 1, 10 N. E. 332.
Edgerton Tobacco Mfg. ** Kaiser v. Lawrence Savings Bank,
Wisconsin.
56 Iowa 104, 41 Am. Eep. 85, 8 N. W.
Co. V. Croft, 69 Wis. 256, 34 N. W. 143
(holding, however, that a provision re- 772.
393
§194] Private Corpoeations [Ch.7
in naming an instrument filed declarative of incorporation will noi

defeat such incorporation.^^
§ 194. — Name of proposed corporation. The statutes invariably

require that the articles state the name of the proposed corporation.
A failure to set forth the name invalidates the corporation,*'' and it
is not sufficient to merely put the name at the head of the articles.**
What name may be adopted is treated of in another chapter.*'

The fact that the name of the proposed corporation is in a foreign
tongue does not justify the refusal to grant a charter.*"
§195. — Purpose of creation and nature of business. The pur-

poses for which corporations may be created under particular general
statutes have already been treated of in a preceding chapter.'^ It is
universally required that the articles or certificate state the purpose
or objects of the proposed corporation, or the nature of the business
sought to be transacted** and a substantial compliance with this
requirement is a condition precedent to the existence of the corpora-
tion.** This is the most important clause of the incorporation papers,**
since the purpose for which a corporation is created must be ascer-
tained by referring to the terms of its charter.*^ It is usually a very
26 Owensboro "Wagon Co. v. Bliss, ing Co., 32 Ind. 169; West v. Bullskin
132 Ala. 253, 31 So. 81. Prairie Ditching Co., 32 I,nd. 138;
27 Rhodes V. Piper, 40 Ind. 369. Piper V. Ehodes, 30 Ind. 309.
28 Piper V. Ehodes, 30 Ind. 309. Kentucky. Brown v. Threlkeld's
The fact that the articles are headed Guardian, 154 Ky. 833, 159 S. W. 595.
"Fairview Turnpike" is not a suf- Maryland. Bane v. Calvert College
ficient compliance with the statute, Educational Society, 47 Md. 117.
where that does not profess to be the Pennsylvania. In re McKees Bocks
name of the company. Ehodes v. Volunteer Firemen's Belief Ass'n, 6
Piper, 40 Ind. 369; Piper v. Ehodes, Pa. Dist. 477.
30 Ind. 309. Texas. Johnston v. Townsend, 103
29 See Chap. 18. Tex. 122, 124 S. "W. 417; Lyons-
30 In re Deutsch-Amerikanischer Thomas Hardware Co. v. Perry Stove
Volksfest-Verein, 200 Pa. 143, 49 Atl. Mfg. Co., 86 Tex. 143, 22 L. E. A. 802,
949. 24 S. "W. 16; Gulf, C. & S. F. Ey Co.
31
See Chap. 4, supra. V. Morris, 67 Tex. 692, 4 S. W. 156.
32 State V. Vanderbilt University, England. In re Crown Bank, 44 Ch.
129 Tenn. 279, 164 S. "W. 1151. Div. 634.
33 Georgia. Van Pelt v. Home 34 For forms of clauses as to pur-
Building & Loan Ass'n, 79 Ga. 439, pose or object of corporation, see
4 S. E. 501. Fletcher on Corporation Forms, pp.
Indiana. Crawford v. Prairie Creek 396-546.
Ditching Ass'n, 44 Ind. 361; Ehodes v. Evanston Elec. Illuminating Co.
35
Piper, 40 Ind. 369; Seyberger v. Calu- V. Kochersperger, 175 111. 26, 51 N. E.
met Draining Co., 33 Ind. 330; 719; Distilling & Cattle Feeding Co. v.
O 'Eeiley v. Kankakee Valley Drain- People, 161 111. 101, 43 N. E. 779.
394
Ch. 7] Creation Under Geneeal Laws [§195
broad statement, so as to include every possible purpose or object

which the company may desire to pursue. However, it is necessary
to keep in mind that the objects stated must not be broader than the
statute authorizing the formation of the particular corporation.'^ The
statement must be sufficiently definite to enable the court or officer
to be satisfied that the purpose is one authorized by the corporation
law.*'' "This should be done with sufficient clearness to enable the
secretary of state to see that the purpose specified is one provided for
by the and to define with some certainty the scope of the
statute,
business or undertaking to be pursued. " '* If the purpose stated is
too indefinite, the application may be rejected.^' The articles need
not designate with particularity all the powers which the corporation
36 See Chap. 4, supra. promote the business of such retail

37
In re National Literary Ass 'n, 30 coal dealers as become members therd'-
Pa. St. 150; In re Ton-a-lu-ka-Club, of, and to protect them from unwar-
12 Pa. Co. Ct. 26 (holding that appli- ranted increase in sales and prices, and
cation for charter should state the in general to provide such lawful ways
means proposed be employed to
to and means as may be necessary to aid
carry out the purposes of the associa- and assist them in promoting and
tion) . benefitting the business of retail coal
It must be stated so clearly as to dealers. " In re Richmond Ketail Coal
afSrmatively bring within one of the
it Co., 9 Pa. Co. Ct. 172. A statement
classes permitted by the statute to be that the purpose is "to facilitate ne-
incorporated. In re Board of Eeal gotiations in real estate, to take united
Estate Brokers, 21 Pa. Dist. 59. action upon legislative and municipal
Illustrations of sufficient statements. matters relating to the interests of
"Mining of gold, silver and lead in real estate,and to promote friendship
the territory of Utah." People v. among members," is too indefinite.
its
Beach, 19 Hun (N. Y.) 259. "Build- In re Board of Real Estate Brokers, 21
ing, repairing and maintaining ' ' water Pa. Dist. 59. Benefit and protection
craft. Gafe v. Flesher, 33 Ohio St. of members in case of death or sick-
453. "Putting up, packing, and ness, as well as mutual assistance in all
manufacturing for market, Detroit relations of life. In re Skandinaviska,

river and lake ice, and distributing 3 Pa. Dist. 235.
and selling the same." It is not nec- 38 Johnston v. Townsend, 103 Tex.
essary to state the means or method 122, 124 S. W. 417.
of manufacture. Attorney General v. 39 In re Accountant's Ass'n, 18 Pa.
Lorman, 59 Mich. 157, 60 Am. Eep. Co. Ct. 159.

287, 26 N. W. 311. A charter, after naming certain dis-
Illustrations of too indefinite pur- tinct purposes, will be rejected where

poses. "Benefitting and protecting it adds, and "for such other purposes
its members from funds collected there- as maybe agreed upon by the associa-
in, " where there is nothing to show tion in the future." In re Charter of
how the objects of the corporation Journalists Pund of Philadelphia, 8
are to be accomplished. In re Italian Phila. (Pa.) 272.
Mut. Ben. Ass 'n, 4 Pa. Dist. 857. '
' To
395
may exercise when duly incorporated, but it is sufficient to designate

in general terms the purposes for which it is organized.*"
The requirement, that the articles shall state the nature of the busi-
ness to be carried on, complied with by stating it to be
is sufficiently
a general banking and trust business, as provided for by " a specified

'
'
statute, where such statute fully sets forth the nature of the business
that may be carried on by a combined bank and trust company.*^
It has been held sufficient where the name of the proposed corpora-
tion shows the nature of the business.*^ It is not sufficient to state that
the purpose is to carry on any business which may be deemed profit-
able.** However, the articles of incorporation of a manufactiiring

corporation need not state the particular kind of manufacturing in
which it is proposed to engage, unless it is required by statute.** And
in forming a charitable corporation, it is not necessary to specify
with exactness who are to be the ultimate recipients of the charity.*'
On the other hand, it has been held thai; the charter of a corporation
formed under a provision permitting corporations to support and
maintain bicycle clubs "and other innocent sports" must designate
by name the sport or sports contemplated.*^
Where, in preparing a certificate of incorporation, the corporators
employ only the words used in the statute to describe the general pur-
poses of such incorporation, it will be presumed that they intended to
create a corporation of the same general powers granted by the statute,
rather than that by such words they sought to apply special limita-
tions upon the powers of the corporation.*''
It is not always sufficient to state the purpose in the language of
the statute.*'
not solely that evidence may be thus furnished
'
' This requirement is
that the company

one intending to pursue a business for which
is
the statute permits incorporation, but is also intended for the pro-
tection of those who may become stockholders or creditors, who are
WWendel v. State, 62 Wis. 300, 22 44 Hughes v. Antietam Mfg. Co., 34

N. W. 435. Md. 316.
The articles of a medical college need 46 Smith v. Havens Belief Fund So-
not state that it shall have power to oiety, 44 N. Y. Misc. 594, 90 N. Y.
issue diplomas to students. Wendel Supp. 168.
V, State, 62 Wis. 300, 22 N. W. 435. 46 Smith v. Wortham, 106 Tex. 106,
41 Brown v. Threlkeld's Guardian, 157 S. W. 740.
154 Ky. 833, 159 S. W. 895. 47 Whetstone v. Ottawa University,
42 Van Pelt v. Home Bldg. & Loan 13 Kan. 320.
Ass'n, 79 Ga. 439, 4 S. E. 501. *» In re Lodge Duch Nove Doby No.
48 In re Crown Bank, 44 Ch. Div. 165, 3 Pa. Dist. 215.
396
Cli. 7] Ckeation Under Genebal Laws [§ 196
entitled toknow in what business the corporation may engage, for

without this they can not know the extent of its powers, nor the
hazards to which they may be legally exposed."*' It has been held
that no other powers, privileges, or immunities than those prescribed
by the legislature can be conferred upon a corporation by including
them in the articles of association.*" But the statement of unauthor-
ized purposes in addition to authorized purposes does not affect cor-
porate existence but merely requires the rejection of the unauthorized
parts as surplusage.*^ Thus, the incorporation of a lumber and saw-
mill company
not void, as attempting to create a railroad company,
is
because that it is formed in part to deal in railroads
its articles state
and tramways, where it appears that such statement refers merely to

such railroads and tramways as may be necessary to its plant.*^
If the purpose is one for which the statute does not permit incor-
poration, the court or secretary of state or other like officer may
refuse to file the papers and even if they are
;
*' filed, no corporation
is created,** — not even a de facto corporation.**
§196. — Place of business. Generally the statutes require that

the articles or certificate of incorporation shall state the principal
oiBce or place of business of the proposed corporation. Some statutes
go even further, and in addition require a statement of the place where
the operations of the company are to be carried on, while other stat-
utes also provide that the company may designate an additional place
of business outside the state.*®
It is necessary that there shall be at least a substantial compliance
with such mandatory provisions.*'' In this connection, however, it
49 Lyons-Thomas Hardware Co. v. removal of principal office to another

Perry Stove Mfg. Co., 86 Tex. 143, 22 state).
L. E. A. 802, 24 S. W. 16. 67 Califomia, Martin v. Deetz, 102
60 See § 207, infra. Cal. 55, 41 Am. St. Rep. 151, 36 Pac.
61 See § 207 infra. 368 Harris v. McGregor, 29 Cal. 124.
;
62 People V.' Mt. Shasta Mfg. Co., Kentucky. Johnson v. Mason Lodge,
l^^ Ky. 838, 51 S. W. 620 (holding
107 Cal. 256, 40 Pac. 391.
statute applies to charitable eorp'ora-
63 See S 212 infra
tions).
64 Attorney General v. Lorman, 59
,,. , „„ . „ „„„ „„ ^- -rrr Massachusetts. Montgomery v.
Mich. 157, 60 Am. Eep. 287, 26 N. W.
q-l
^ ^^g ^^^^^
' '
^9 ^_ ^_ ^^^
1 •
Minnesota. See Pinnegan v. Noeren-
66 See Chap. 10, infra.
^^^^^ 52 Minn. 239, 18 L. E. A. 778,
66 McConnell v. Combination Mining 33 ji^^^ gt_ jjep. 552, 53 N. W. 1150.
& Milling Co., 30 Mont. 239, 104 Am. Montana. McConnell v. Combina-
St.Eep. 703, 76 Pac. 194 (holding that tion Mining & Milling Co., 30 Mont
such a provision does not authorize 239, 104 Am. St. Eep. 703, 76 Pac. 194.
397
§1196] Pbivate Cokpoeations [Ch. 7
is necessary to keep in mind that the principal office may be in one

place and the place of operation in another place.^*
If the statute requires "the place or places where its business is
to be transacted" to be stated, itnot sufficient to merely state

is
"the place where its office is to be located." *' statement that theA
"office" of the company shall be in a certain place,*' or that the
"operations of to be carried on" in a certain
the company are
been held to be insufficient. But a statement that a cer-
place,*^ has
tain city was the place of business instead of the principal place of
business has been held to be a mere technical error which will not
invalidate the incorporation,*'' under the rule that "substantial"
compliance with the statutes is sufficient.*'
If the statute requires the city or town to be stated, it is not suffi-
cient to merely state the county ;

**and some statutes specifically pro-
vide that the name of the county and town must be given.** On the
New York. People v. Beach, 57 Fed. Kennett v. Woodworth-

688;
How. Pr. 337, 19 Hun 259. Mason N. H. 432, 39 Atl. 585.
Co., 68
OMo. Snow Fork & Cleveland Coal Under a statute which requires the
Co. V. Hocking Coal & Bailroad Co., 7 articles of association to state the
Ohio N. P. 191; State of Ohio v. Coal place in which the business of the cor-
Co., 4 Ohio N. P. 115. poration is to be carried on, it is not
Pennsylvania. See Enterprise Mut. sufficient to state the city where stock-
Beneficial Ass'n, 10 Phila. 380. holders meetings are held and the
'
Virginia. Loyd's Executorial Trus- clerk of the corporation has an office,

tees V. City of Lynchburg, 113 Va. 627, where the business is carried on else-
75 S. E. 233. where. Kennett v. Woodworth-Mason
Washington. Casey-Hedges Co. v. Co., 68 N. H. 432, 39 Atl. 585.
Wilcox, 72 Wash. 605, 131 Pac. 205; 69 In re Enterprise Mut. Beneficial
First Nat. Bank of Everett v. Wilcox, Ass'n, 32 Leg. Int. (Pa.) 82, 10 Phila.
72 Wash. 473, 130 Pac. 756; Hastings (Pa.) 380.
V. Anacortes Packing Co., 29 Wash. The reason for the rule is that a
776, 69 Pae. 776. corporation may have its office in one
Wisconsin. Milwaukee Steamship place, and its place of business in an-
Co. v. Milwaukee, 83 Wis. 590, 18 L. other. In re Enterprise Mut. Bene-
E. A. 353, 53 N. W. 839. ficial Ass'n, 32 Leg. Int. (Pa.) 82, 10
By the mere fact that in compliance Phila. (Pa.) 380.
with the exigencies of its work a cor- 60 Kennett v. Woodworth-Mason Co.,
poration has its real place of business 64 N. H. 432, 39 Atl. 585.
outside of the state during certain sea- 61 Harris v. McGregor, 29 Cal. 124.
sons of the year, it is not rendered 62 In re Spring Valley Water Works.,

guilty of a violation of a statutory 17 Cal. 132.
provision requiring its articles to state 63 See § 188, supra.
the location of its principal place of 64 Harris v. McGregor, 29 Cal. 124.
business. Hastings v. Anacortes Pack- 65 People v. Beach, 19 Hun (N. Y.)
ing Co., 29 Wash. 224, 69 Pae. 776. 259.
68 In re Federal Contracting Co., 212 The Washington statute requires
398
Ch. 7] Ceeation Under General. Laws [§ 198
other hand, under some statutes only the county is to be stated.®®

seems that a statutory requirement that the articles of incor-
It
poration shall specify the place in the state where the principal office
or place of business of the corporation is to be located, means a des-
ignation of the city or town where such office or place of business is to
be located.®'
If the corporation is formed for the purpose of carrying on any
part of its business outside of the state, that fact is sometimes required
to be stated.®^
§197. —
Amount of capital stock. The amount of capital stock
is almost universally required to be set out in the articles of incor-
poration, as well as the number of shares into which it is divided.
This statement required independent of any statement o£ the
is
amount of stock taken by each subscriber.®'

Noncompliance with a statutory requirement that the articles shall
fix and limit the amount of the capital stock, while preventing the
association becoming a corporation de jure, does not prevent its
existence as a de facto corporation.'''' Moreover, a statement of the
capital stock of a railroad company has been held to be a sufficient
compliance with a statute requiring the incorporation papers to state
the amount of capital necessary to construct the road.'^
§ 198. — Limitations on amount of indebtedness. In some states,

the statute requires the application, articles of association, or certifi-
cate to state themaximum amount of indebtedness which may be in-
curred by the proposed corporation, and it is expressly provided that
the amount shall not exceed a certain proportion of its capital stock.''*
A substantial compliance with such a provision is all that is re-
that the incorporation papers shall Utah," is sufficient. People v. Beach,
state the name
of the city, town, or 19 Hun (N. Y.) 259.
locality and county in which the prin- 69 State v. Shelbyville & C. Turnpike
eipal place of business is to be located. Co., 41 Ind. 151.
First Nat. Bank of Everett v. Wilcox, 70 Healey v. Steele Center Creamery
72 Wash. 473, 130 Pac. 756. Ass'n, 115 Minn. 451, 133 N. W. 69.
66 Georgia Fire Ins. Co. v. Cedar- 71 Hyattsville v. Washington, W. &
town, 134 Ga. 87, 19 Ann. Cas. 954, G. K. Co., 120 Md. 128, 87 Atl. 828.
67 S. B. 410. 78 Park v. Zwart, 92 Iowa 37, 60 N.
67Miniken v. Southern Nat. Life W. 220; Thornton v. Balcom, 85 Iowa
Ins. Co., 155 Ky. 529, 159 S. W. 1141. 198, 52 N. W. 190; Sweney v. Taloott,
68 A
statement that "the said com- 85 Iowa 103, 52 N. W. 106; Heuer v.
pany formed for the purpose of
is Carmichael, 82 Iowa 288, 47 N. W.
carrying on some part of its business 1034.
outside of the state of New York, The omission is "a failure to eom-
namely, in Big Cottonwood County, ply substantially" with the statute
399
§ 198] Private Coepoeations '
[Ch. 7
quired,''' and it has been held in a number of cases that it is sufficient

if the amount of indebtedness is ascertainable from the statements
madeJ* Thus, it is sufficient to state that the limit of the corpora-
tion 's indebtedness shall be a certain percentage of the amount of the
capital stock subscribed,''* or that it shall not at any one time exceed
a specified amount, except by a majority vote of the stockholders
present at a called or annual meeting ''^ and fixing the amount at a
;
specific sum, "except for insurance liability," where the amount of

such insurance risks may be easily ascertained, is sufficient in the case
of a mutual fire insurance company.''''
§ 199. —
Duration of corporate existence. Statutes generally re-
quire the articles of incorporation to state the period of existence and
in some states they require in addition that the time when the cor-
poration shall come into existence must be stated.'" If the articles
are required to state the time when the corporation "is to commence
and the period it is to continue," a definite time must be and
fixed;
it is not sufficient to state that the corporation shall begin business
"as soon as authority for that purpose can be obtained from the
secretary of state" and shall continue "until dissolved by the written
'
then outstanding stock. '"

'
consent of the holders of a majority of its
Of course, if the time of duration expressed is in excess of the maxi-

mum period fixed by statute, the corporation terminates according to
the terms of the statute.^" The construction of particular charter
provisions is hereinafter noticed.*^
§200. — Naane, residence and eligibility of incorporators. The

question of who may become incorporators has already been consid-
as to creation of corporations, within any time ascertainable. Park v. Zwart,

the provisions of a statute rendering. 92 Iowa 37, 60 N. W. 220.
the individual property of the stock- 76 Thornton v. Baleom, 85 Iowa 198,
holders liable for the corporate debts 52 N. W. 190.
on such a failure. Heuer v. Carmi- 77 Smith v. Sherman, 113 Iowa 601,
chael, 82 Iowa 228, 47 N. W. 1034. 85 N. W. 747.
73 Smith v. Sherman, 113 Iowa 601, 78 On application to the court, the
85 N. W. 747; Park v. Zwart, 92 Iowa lifeof the proposed corporation should
37, 60 N. W. 220. be stated. In re Incorporation of In-
74Smith v. Sherman, 113 Iowa 601, dependent Order of Silver Star, 1 Luz.
85 N. W. 747; Park v. Zwart, 92 Iowa Leg. Reg. (Pa.) 768.
37, 60 N. W. 220. 79 Cheaney v. Bruner, 141 Ky. 32,
75 Park v. Zwart, 92 Iowa 37, 60 N. 132 S. W. 167.
W. 220. 80 People v. Cheeseman, 7 Colo. 376,
The reason for the rule is that the 3 Pae. 716.
amount of the stock subscribed is at 81 See Chap. 20, infra.
400
Ch. 7] Ceeation Under General Laws [§ 202
ered.** The citizenship *' or residence ^* of the incorporators need

not be stated unless the statute so provides. In some states the names
of the incorporators and their respective places of residence is re-
quired to be stated,^* while in still other states it must be stated that
the incorporators are of full age. "Where the certificate must be exe-
cuted by persons of full age, at least two-thirds of whom are citizens
of the United States, and one of whom must be a resident of the state,
and the statute requires the written approval of the certificate by a
judge in case of membership corporations, it is held that in such case
an affidavit should be presented containing averments by all the
incorporators as to full age, by each of them who is a citizen in regard
to his citizenship, and by the one who is a resident in regard to his
residence.'® However, the failure of the certificate of incorporation
to show that .the incorporators are persons qualified by the statute to
form a corporation, does not make the charter invalid, especially
where the statute does not in terms require such a statement.*'
§201. — Statements as to membership.

'
A provision that the
articles of incorporation shall state ' the methods and conditions upon
which members shall be accepted, discharged or expelled," does not
apply to stock corporations.'*
§ 202. —
Statements as to officers and agents. requirement that A
the articles state by what officers or persons the affairs of the corpora-
tion are to be conducted, "merely means that, if the corporation shall
have a president, vice president, treasurer, or board of directors, or
other officers, for the conduct of its business, the articles shall so
state.
"89
A statutory requirement that the articles show the place at which
the officers of the corporation are to be elected is substantially com-
88 See Chap. 3, supra. an affidavit added thereto, that three

83 American Salt Co.Heidenheim-v. of the subscribers are citizens of Penn-
er, 80 Tex. 344, 26 Am. St. Eep. 743, sylvania. In re Enterprise Mut. Bene-
15 S. W. 1038. ficial Ass'n, 32 Leg. Int. (Pa.) 82, 10
84 Halbert v. San Saba Springs Land Phila, (Pa.) 380.
& Live Stock Ass'n (Tex. Civ. App.), 86 In re Wendover Athletic Ass'n, 70
34 S. W. 636. See also Eogers v. Dan- N. Y. Misc. 273, 128 N. T. Supp. 561.
by Universalist Society, 19 Vt. 187. 87 Baltzell v. Church Home & In-
86 Busenback v. Attica & B. Gravel fi'rmary of Baltimore City, 110 Md. 244,
Eoad Co., 43 Ind. 265 (holding state- 73 Atl. 151.

raent of residence essential to legal 88Edgerton Tobacco Mfg. Co. v.
existence of corporation). Croft, 69 Wis. 256, 34 N. W. 143.
In Pennsylvania, must appear,

it 89 Williamsburg Canning Co. v. De
either by the to have the

petition Laney, 158 Ky. 649^ 166 S. W. 192.
articles of corporation approved, or by
401
I Priv. Corp.—26
202] Peivate Coepoeations [Ch.7
plied with by stating the principal place for transacting the business
of the corporation, since the election of officers is a part of such busi-
ness 90
In many states, the statute requires the articles to state the num-
ber of directors and the names and residences of the directors cho*n
for the first year; and it is held that the omission of this clause pre-
cludes a de jure corporate existence.'^ However, it has also been held
that a provision that the directors be named in the articles is merely
directory.'^ It is not sufficient to merely state that the affairs and

management of the corporation are to be under the control of certain
named persons as president, vice president and secretary.** The
directors need not be shareholders or subscribers to the sjtock of the
corporation, unless this is expressly required by the statute.'*
A provision that certain persons shall be directors perpetually is
void where it contravenes a statute giving stockholders the right to

elect directors annually.'* Likewise a requirement that the incor-
poration papers state
'
' the number of directors and their names who
90McChesney v. Batman, 121 Ky. Eakright v. Logansport & N. I. E. Co.,

303, 28 Ky. L. Eep. 281, 89 S. W. 198. 13 Ind. 404.
91 California. People v. Selfridge, 93 Bates V. Wilson, 14 Colo. 140, 24
52 Cal. 331. Pac. 99.
Colorado. Bates v. Wilson, 14 Colo. "These officers can in no sense be
140, 24 Pao. 99. regarded as a board of directors. In
Indiana. Miller v. Wild Cat Gravel all regularly constituted corporations,
Eoad Co., 52 Ind. 51; Eeed v. Eich- they are elected by and are executive
mond St. E. Co., 50 Ind. 342. officers of the > board of directors or
New York. People v. McDonough, trustees. The corporation consists of
28 Mise. 652, 60 N. Y. Supp. 45. its shareholders. The control of its
Pennsylvania. In re St. Ladislaus affairs is vested in a board of directors.
S. & B. Ass'n, 19 Pa. Co. Ct. 25. The shareholders elect this board, ex-
Under N. Y. Laws 1892, e. 687, as cept for the first year. The number of
amended by Laws 1895, o. 672, the directors and their names for the first
certificate need not show that more year must be inserted in the certifi-
than one of the directors named there- cate. The body corporate can be reg-
in for the first year is a resident of ularly organized only by and through
the state. People v. McDonough, 28 its directors or trustees. It is their
N. Y. Misc. 652, 60 N. Y. Supp. 45.

duty to select the officers, who in this
92Bakright v. Logansport & N.

instance are named in the certificate.
I.
This corporation was not regularly or-
R. Co., 13 Ind. 404; Mead v. Keeler',
ganized.''' Bates V. Wilson, 14 Colo.
24 Barb. (N. Y.) 20.
140, 24 Pac. 99.
Where the articles are adopted at the
94Densmore Oil Co. v. Densmore, 64
same meeting at which the directors Pa. St. 43; In re British Provident L.
are elected there is a sufficient compli- & G. Ass 'n, 5 Ch. Div. 306.
ance with such a provision, though the 95 State V. Anderson, 31 Ind. App.
directors are not named in the articles. 34, 67 N. E. 207.
402
Ch. 7] Cbeation Under Gteneeal, Laws [§203
shall manage the affairs of such company for the first year" does not
authorize the fixing of the number of directors for more than the one
year.'®
If a statute requires the incorporation papers to state the number
of its managers, it is sufficient to state the names of all the persons
who shall manage the affairs of the corporation.'"
Where the statute requires the articles to set forth that a majority
of the members of the association were present and voted at the elec-
tion of directors, such a statement is a condition precedent to the
existence of a de jure corporation.'*
§203. —
Subscriptions to stock and payment therefor. Under
some general incorporation statutes, it is required that the full
amount of the capital stock, or a certain percentage thereof, shall be
subscribed as a condition precedent to incorporation, in which case
legal existence as a corporation cannot be acquired until the condition
is performed; but subscription to stock is not a condition precedent
unless it is made so by the statute." Likewise, statutes sometimes
require subscribers for stock to pay all or a certain per cent, of their
subscriptions as a condition precedent to acquiring a legal corporate
existence.^ Where the statute provides for subscription to stock or
payment in of all or part of the subscription, as a condition, it also
generally requires that the articles of incorporation or an affidavit
attached thereto shall show compliance with the statute.^
Under a statute which required the affidavit attached to the cer-
tificate of incorporation to state that a certain percentage of the
amount of the stock subscribed had been actually paid in "in good
faith, where the affidavit omitted the words quoted, but such a state-
'
'
ment was contained in the certificate to which the affidavit was at-
tached, it was held that the statute was substantially complied with,
and that the incorporation was legal, even as against a direct attack
by the state.'
96 Renn v. United States Cement 2 Hendrix v. Academy of Music, 73

Co., 36 Ind. App. 149, 73 N. E. 269. Ga. 437; Miller v. Wild Cat Gravel
97Betts V. Betts, 4 Abb. N. Gas. (N. Eoad Co., 52 Ind. 51; Biasenback v. At-
Y.) 317. tica & B. Gravel Eoad Co., 43 Ind. 265;
98 People v. Selfridge, 52 Cal. 331. State v. Bethlehem & Z. Gravel Road
99 See Chap. 9, infra. Co., 32 Ind. 357; Williams v. Hewitt,
Forma of provisions relating to 47 La. Ann. 1076, 49 Am. St. Rep. 394,
capital stock and dividends, see 17 So. 496.
Fletcher on Corporation Forms, pp. 3 People v. Stockton & V. R. Co., 45
571-599. Cal. 306, 13 Am. Rep. 178. See also
1 See Chap. 14, infra. Buffalo & P. R. Co. v. Hatch, 20 N. Y,
403
§ 203] Pbivate Cobpokations [Ch. 7
Where the statute does not require any part of tlie capital stock
to be paid before the charter is granted, a statement in the applica-
tion for a charter of the amount of the capital stock, without stating
the amount actually paid in, is sufficient, notwithstanding the statute
requires the application to state "the amount of capital stock to be
employed by them actually paid in. "*
A
requirement that the articles of incorporation shall show the num-
ber of shares subscribed by each stockholder, and his name and place
of residence, is sufficiently complied with where the articles are fol-
lowed by the words "Names," "Residence," "Shares," under which
the subscribers write their names and residence, and the number of
shares subscribed;^ and the use of ditto marks (") following the
name of a subscriber, under the name of a specified place, is sufficient
to designate his residence.*

A
statutory requirement that the articles or certificate of incor-
poration shall state the time when, and the manner in which, payment
on stock subscribed shall be made, is substantially complied with by
a statement that the stock shall be paid in cash at such times, in such
amounts, and with such notice to subscribers, as the managers and
directors shall deem best for all the parties in interest ' or by a state- ;
ment that the stock shall be paid for in cash, and that no certificate
shall be issued until such payment is made.*
In Alabama, the articles need not provide that the unpaid portion
of the capital be secured to be paid in fixed instalments, where an
amended statute, if construed as providing therefor, would be uncon-
stitutional, because not referred to in the title of the amendment.®
It is sufficient to recite that the stock subscribed was to be paid for
by the transfer of the stock of an old company, and that a contract had
been executed for a transfer of the old stock, without also reciting
that the old stock had been previously transferred.''''
A
certificate which is false as to the amount of stock paid in and
157, where it was held that a state- 6Steinmetz v. Versailles & O. Turn-
ment in an aflSdavit of the directors of pike Co., 57 Ind. 457.
a railroad company that ' ten per cent.
'
7 Baltimore & Ohio Tel. Co. v. Mor-
has been paid-in cash" on subsorip- gan's Louisiana & T. B. & S. S. Co., 37
tions is a substantial compliance with La. Ann. 883.
a requirement that the affidavit shall 8 New Orleans & G. E. Co. v. Frank,
show that such amount has been paid 39 La. Ann. 707, 2 So. 310.
"in good faith" in cash. 9 Boiling v. Le Grand, 87 Ala. 482, 6
4 Bing V. Bank of Kinggton, 5 Ga. So. 332.
App. 578, 63 S. E. 652. 10 State v. Citizens' Light & Power

6 Vawter v. Franklin College, 53 Ind. Co., 172 Ala. 232, 55 So. 193.
88.
404
.
Ch. 7] Cbeation Under General Laws [§ 206
the number of shares subscribed for is a nullity.^' False statements

as to the amount of the capital stock paid for is ground for annulling
the charter ^^ and where the statute requires that a statement must
;
be made showing the amount of capital stock paid in, and there is a
false statement that it has all been paid in when in fact only a fifth
was paid in, there is no de jure corporation.^'
§204. —
Manner of carrying on business. Where a statute re-
quired the certificate of incorporation to show "the manner of carry-
ing on the business" of the corporation, a certificate setting forth
that the "manner of carrying on the business shall be such as the
association may from time to time prescribe by rules, regulations, and
by-laws not inconsistent with the laws of the state, '
' was held insuffi-
cient.^*
§ 205, —
Description of seal. When it is required by the statute,
the articles of incorporation must contain £in impression or descrip-
tion of the corporate seal. A statement in the articles that the cor-
porate seal shall be a circle formed by the letters of the name of
the corporation and the name of the state was held a sufficient com-
pliance with such a requirement.^^
§ 206. —
Route and termini of railroad company. Statutes some-
•
times require articles of incorporation of a railroad company to specify

the names of the termini, in which case they must specify termini in
the state and not outside, although it is sufficient to designate with
reasonable certainty the point where the road crosses the state line.^^
However, a statute requiring the articles of incorporation to state the
through which the railroad shall pass does not necessi-
city or cities
tate the naming of every town or village through or by which the
road shall be eventually laid out.^'
11 'Neil V. Eagle Generator Co., 92 14 State v. Central Ohio Mut. Belief

Ark. 416, 123 S. W. 373 (where tho Ass 'n, 29 Ohio St. 399.
court said: "The certificate required The present statute of Ohio does not
by section 845 to be filed must be true require such a statement. 4 Page &
and correct. It is required to be filed Adams Ann. Gen. Code, § 8625.
for the protection of creditors; and it IBVawter v. Franklin College, 53
cannot subserve that purpose unless it Ind. 88.
be true and correct ' ') 16 Hyattsville v. Washington, W. &
12 Floyd v. State, 177 Ala. 169, 59 G. E. Co., 120 Md. 128, 87 Atl. 828.
So. 280. 17 Hyattsville v. Washington, W. &
13 Floyd V. State, 177 Ala. 169, 59 G. R. Co., 120 Md. 128, 87 Atl. 828.
So. 280.
•405
§ 206] Pkivatb Cobpoeations [Ch. 7
The requirement that the charter set forth the termini of the rail-
road to be built is complied with by specifying only one terminus,
where it provides for a circular route beginning at and returning to
the same point.^*
The articles of a railroad company sufficiently state the "places"
from which and to which the road is to be operated, where they state
the towns, cities or villages from and to which the road is to be
operated.^^
The route of a commercial railroad may be generally, and need not
be definitely, stated in its charter; 2° and in this respect it differs from
a street railway.^'
§ 207. —
Additional provisions not required by statute. "Whether
particular clauses in incorporation papers, not required by statute,
are binding on stockholders and third persons will be briefly noticed
in this connection but the effect of soich clauses as to the powers and
;
liabilities of the corporation will be considered in detail in connection

with particular chapters or sections relating to the particular power
or liability in question.*^
Independently of statute, the general rule in this country is that
matters in the incorporation papers which are not required by the
statute are of no effect and will be treated as surplusage,^* and
18 State V. Martin, 51 Kan. 462, 33 New York. Eastern Plank Eoad Co.
Pac. 9; Collier v. Union E. Co., 113 v. Vaughan, 14 N. Y. 546.
Tenn. 96, 83 S. W. 155. Pennsylvania. In re Medical Col-
19 New York & L. I. E. Co. v. lege of Philadelphia, 3 Whart. 445.
O 'Brien, 121 N. Y. App. Div. 819, 106 Washington. Parsons v. Taeoma
N. Y. Supp. 909. Smelting & Refining Co., 25 Wash. 492,
20 Collier v. Union E. Co., 113 Tenn. 65 Pac. 765; City of Spokane v. Ams-
96, 83 S. W. 155. terdamsch Trustees Kantoor, 22 Wash.
21 Citizens' St. By. Co. v. Africa, 100 172, 60 Pac. 141.
Tenn. 26, 42 S. W. 485. "In O'Brien v. Cumniings, 13 Mo.
22 Forms of regulating clauses, see App. 197, * * * it was said: 'The
Fletcher on Corporation Forms, pp. general statute, when aroused into
547-570. specific operation by a compliance with
23 United States. Oregon Ey. Co. v. its terms on the part of an association
Oregonian Ey. Co., 136 U. S. 1, 34 L. of persons and capital, unites itself
Ed. 478. with the terms and details of such a
Alabama. Grangers' Life & Health compliance. The law and the articles
Ins. Co. V. Kamper, 73 Ala. 325. of association become, as it were, a
minois. People v. Chicago Gas compact between the state and the as-
Trust Co., 130 111. 268, 6 L. E. A. 497, sociation, and this constitutes a char-
17 Am. St. Eep. 319, 22 N. E. 798. ' ter of the body politic. * * * But
Kansas, Sherman Center Town Co. no provision in the articles which is
V. Morris, 43 Kan. 282, 19 Am. St. Eep. not responsive to some specification
134, 23 Pac. 569. in the law can have any such force
406
"
do not affect the power to enact by-laws in conflict therewith.^*

Thus, it is held that the articles cannot create any privilege un-
known to the law of the state, unless the power is expressly given
in the general incorporation statute.** In like manner it has been
held that provisions for the internal management of the corporation
should not be contained, but are properly the subject of- by-laws.*^
However, there some authority to the contrary which holds that
is
additional matter may

be added so as to be binding,'^'' provided, of
course, such additional provisions do not conflict with statutory pro-
visions.*'
It has also been held that a provision in the articles forbidding
a transfer of shares by shareholders indebted to the corporation, until
the debt is paid, is valid, where not against public policy nor pro-
hibited by statute *' and that a lien on its shares for debts due
;
from the stockholders may be given a corporation by a provision in

the articles of association, where such a provision is not contrary to
the statute.'"
In New York the statutes provide that the articles may contain,
in addition to the statements required, "any other provision for the
regulation of the business and the conduct of the affairs of the cor-
poration and any limitation upon its powers and upon the powers
of its and stockholders which does not exempt them from

directors
any obligation or from the performance of any duty imposed by
law. " '^ It has been held thereunder that a provision that the num-
and Such a provision, not called

effect. State v. Anderson, 31 Ind. App. 34, 67
for will be a mere volun-
by the law, N. E. 207.
tary proposal from the association. It 24 Renn v. United States Cement
will be lacking in the essential ale- Co., 36 Ind. App. 149, 73 N. B. 269
ments of a compact, will derive no (fixing number of directors),
operative energy from the statute, and 26 New Orleans Nat. Banking Ass 'n
can have no claim to the dignity and v. P. S. Wiltz & Co., 10 Fed. 330.
effectiveness of a charter regulation.' 26 In re Stevedores ' Beneficial Ass 'n,
In that case there were in the articles 14 Phila. (Pa.) 130.
a limitation as to the number of shares 27 Bell & Coggeshall Co. v. Kentucky
which a stockholder might own, and a Glass-Works Co., 106 Ky. 7, 50 S. W.
limitation on the right of transfer of 2; Nelson v. Keith-O'Brien Co., 32
stock, but the statute contained no pro- Utah 396, 91 Pae. 30.
visions for the statement of such mat- See infra, this section,
28
ters in the articles. It was held that 29 Gibbs v. Long Island Bank, 83
such provisions of the articles (which Hun (N. Y.) 92, 31 N. T. Supp. 406.
were not repugnant to a statute, but 30 See chapter on Stock and Stock-
were not responsive to any specifica- holders, infra.
tion of the statute) had no greater 31 N. Y. Consol. Laws, 1909, c. 23,
force than that of corporate by-laws. § 10.
407
ber of directors shall not be changed, except by unanimous consent

of the stockholders, is valid '* but that this provision does not author-
;
ize a clause giving the directors power, with the consent of two-thirds
of the capital stock, to sell or dispose of the corporate property.^'
In New Jersey the incorporators may add a,ny provision "for the
regulation of the business, and for the conduct of the affairs of the
corporation, and any provision creating, defining, limiting and regu-
lating the powers of the corporation, the directors and the stock-
holdera, or any class or classes of stockholders; provided such pro-
vision be not inconsistent with this act." It has been held thereunder
that a provision in incorporation papers that any resolution in writing
signed by all the directors shall constitute action by the board, the
same as if duly passed at a regular meeting of the board, was un-
authorized and void.^*
32Eipin V. Jacobs, 130 N. Y. Supp. ized by the legislative act. No such

20. express authority is conferred by this
33 People V. Whalen, 119 N. Y. App. act,and ought not to be inferred from
Div. 749, 106 N. Y. Supp. 434, 104 N. ambiguous expressions. To hold that
Y. Supp. 555. the legislature of our state, by the
34Audenried v. Bast Coast Milling adoption of our general corporation
Co., 68 N. J. Eq. 450, 59 Atl. 577. act, intended to confer upon individ-
"If the power to legislate as these uals an indefinite power of legislation,
incorporators have legislated exists, it would require the adoption of a liber-
must be found in the expression 'any ality of construction which the act
provision creating, defining, limiting does not warrant, and which, upon
and regulating the powers' of direct- every known principle, is contrary to
ors. Under this clause, it is insisted, public policy.' The act is, by its terms,
the legislature has granted the right sufficiently broad, elastic, and liberal,
not only of creating, defining, limiting, and I am unwilling to read into it any
and regulating the powers of the cor- such power as this complainant insists
poration, but also the right to author- upon; for, in my judgment, it is only
ize the directors to exercise the powers a board duly convened, and acting as
thus according to any
established a unit, that is made the representative
method the incorporators may see fit of the company. Nowhere in this act
to adopt, although the power to do this is itintimated that a board of direct-
is not granted in express terms. I do ors may act independently, or other-
not so interpret these words. The wise than as a united body counseling
right 'to create' is limited to the es- with each other with regard to every
tablishing of or regulating a power to determination that may affect the cor-
be exercised by the corporation poration. On the contrary, it requires
through its directors, which power that the business of every corporation
shall not be inconsistent with the shall be managed by its directors, and
terms of the general act. The method that all votes of the corporation and
ol exercising the power created must directors shall be recorded by the sec-
conform to settled legal principles, un- retary in a book to be kept for that
be otherwise distinctly author-
less it purpose, which we must assume means
408
Ch.7] Ceeation XJndeb Genebal, Laws [§207
Under other statutes, it has been held that statutory authority to

insert in the articles provisions which the association may see fit to
adopt "for the regulation of its business and the 'conduct of its
affairs," does not authorize a provision giving the corporation a lien
upon its stock, since such provision is neither a regulation of the
business nor of the conduct of affairs.^* But such a statutory pro-
vision has received a very liberal construction in a comparatively
recent federal decision where a provision that the stockholders should
not be permitted to vote or participate in any way in the control and
management of the corporation, until a certain date some six years
in the future, but that the entire control and management should be
until that date vested in the directors, was upheld, notwithstanding
the existence of a statute providing for annual meetings of the stock-
that this secretary, who is required to ative meetings of directors as a safe-

be a sworn- officer, shall be present and guard to the public interest, which
record the' votes of the directors. The presumption ought not to be over-
proposition that the stockholders, in thrown by forced construction of the
assenting to this provision in the act. The fundamental idea of a busi-
articles of association, waived the ness corporation involves an advantage
advantage and protection they would coming from the aggregation of wis-
enjoy under the common law and dom, knowledge, and business fore-
our corporation act, does not meet sight which results from bringing a
the case. Stockholders may waive large number of stockholders and di-
an advantage, but they cannot rectors into a common enterprise. It
by waiver ordain a method of is their knowledge and wisdom com-
corporate action which the law bined, acting as a unit, that gives ef-
does not recognize, nor dispense with ficiencyand safety to. the corporate
the aid of a board of directors as management. I am satisfied that the
a means of corporate action. Such a section of this charter now under con-
course isnot sanctioned by our law, sideration iscontrary to the provi-
and is inconsistent with the twelfth sions of our corporation act, and that
section of our act, which requires that there is no express or implied author-
'the business of every corporation ity conferred thereby which will allow
be managed by its directors.'
shall a corporation to determine, in its ar-
But we ought not to confine the ticlesof association, that its board of
consideration of this question to directors may avoid the performance
the relationship existing between of their duties in the manner required
the stockholders and the directors. by the word and Spirit of our act and
The business of the state is to a the well-settled law on that subject. To
large extent carried on by cor- permit it would ingraft upon the law a
porations, and their transactions vicious and dangerous power, and in
directly and vitally affect the the absence of express legislative au-
interests of all the people. In thority I am unwilling to sanction it. ' *
committing the transaction of busi- Audenried v. East Coast Milling Co.,

ness so generally to corporations, the 68 N. J. Eq. 450, 59 Atl. 577.
legislature may be presumed to have 35Bullard v. National Eagle Bank,
provided for, and recognized deliber- 18. Wall. (U. S.) 589, 21 L. Ed. 923.
409
holders, etc.'^However, there is authority to the contrary in Indiana

where a provision that certain members should act as directors until
their death or they became incapacitated wa^ held unauthorized.*''
Charter provisions as to the time of payment of dividends, where
such provisions are expressly authorized by statute, are controlling.'*
A provision in violation of the constitution of the state is, of course,
void,** and the same is true of a provision in conflict with a statute.**
Moreover, it has been held that a corporation organized under the gen-
eral incorporation law cannot be clothed with the power to purchase
and hold stock in other companies, by merely naming such power in
the incorporation papers, where the statute expressly restricts powers
of a corporation organized under it to such powers as are necessary
and requisite to carry into effect the object for which it was formed.*^
If the incorporation papers contain provisions not authorized by, or
which are in conflict with, the law, the court or officer to whom the
papers are presented may refuse to allow them to be filed,** but if
they are filed, the fact that the papers contain unauthorized pro-
visions, in additidn to those that are authorized, does not render the
creation of the corporation void, since such unauthorized provisions
may be rejected as surplusage,*^ and will beno authority for doing
the illegal acts nor in any way effective.** In other words, the fact
that the articles contain provisions not authorized by the act will
not affect the validity of the incorporation, though acts done pur-
suant thereto will be void and may be ground for forfeiting the cor-
porate franchise.**
36 Union Trust Co. of Maryland v. 230, 44 N. E. 48; Eastern Plank Koad

Carter, 139 Fed. 717 (construing Vir- Co. v. Vaughan, 14 N. Y. 546; Shoun
ginia statute). v. Armstrong (Tenn.), 59 S. W. 790. *
37 State V. Anderson, 31 Ind. App. The organization becomes at least a
34, 67 N. E. 207. corporation de facto. Marion Bond
38 Marquand v. Federal Steel Co., 95 Co. v. Mexican Coffee & Bubber Co.,
Fed. 725. 160 Ind. 558, 65 N. E. 748.
Van
39 Pelt v. Gardner, 54 Neb. 701, 44 Van Pelt v. Gardner, 54 Neb. 701,
75 N. W. 874. 75 N. W. 874; Eastern Plank Eoad Co.
40 Eastern Plank' Boad Co. v. v. Vaughan, 14 N. Y. 546 (provision
Vaughan, 14 N. Y. 546. that directors may increase the stock
41 People Chicago Gas Trust Co.,
V. without the consent of the majority of
130 111. 268, 8 L. E. A. 497, 17 Am. St. the stockholders).
Eep. 319, 22 N. E. 798. 45 Eastern Plank Boad Co. v.
42 See §212, infra. Vaughan, 14 N. Y. 546; Albright v.
43 Marion Bond Co. v. Mexican Cof- Lafayette Bldg. & Sav. Ass 'n, 102 Pa.
fee & Bubber Co., 160 Ind. 558, 65 N. St. 411; Beckett v. Uniontown Build-
E. 748; Shick v. Citizens' Enterprise ing & Loan Ass 'n, 88 Pa. St. 211.
Co., 15 Ind. App. 329, 57 Am. St. Beip.
410
Such special provisions, where lawful and binding, are binding on

all who deal with the corporation or its stock, without regard to actual
knowledge thereof.*® In this respect they differ from by-laws which

are not binding on third persons who are ignorant of their existence.*''
It should be kept in mind, however, that when the incorporation
papers enumerate certain powers as thereby conferred upon the cor-
poration, it is to be construed as excluding or withholding all other
powers than those enumerated, and such incidental powers as are
reasonably necessary to the proper exercise thereof.** However, it
is submitted that this effect can be overcome by a provision in the
incorporation papers that no statement of objects or powers therein

e'numerated shall be deemed to be exclusive, and it is deemed advisable,
whenever the purposes or objects are set forth in detail, in addition
to the requirements of the statute, to add this provision.*^
§208. Signatures. The articles, certificate or application, what-

ever termed, must be signed by the incorporators ^° and by the number
required by the statute.*^ Under some statutes all the original sub-
scribers must sign.*2 It is not sufficient to subscribe a part of the
articles.^' Initials may be used for the Christian name,** and if an
incorporator cannot write, a signature by mark is sufficient.**
Failure of the incorporators to sign the certificate at the end, while

perhaps fatal to the existence of a de jure corporation, does not pre-
46 Dempster Mfg. Co. v. Downs, 126 men's Building & Loan Ass'n v.
Iowa 80, 106 Am. St. Eep. 340, 3 Ann. Coleman, 89 Pa. St. 428.
Cas. 187, 101 N. W. 735. 62 Gelders v. State, 164 Ala. 592, 51
47 See Chap. 16, infra. So. 282; In re Echo Park Protective
48 See Chap. 21, infra. Ass 'n, 5 Pa. Co. Ct. 383.
49 See form 965, Fletcher on COr- The object "is to provide against
poration Forms, p. 546. bogus organizations by showing, over
60 Indianapolis Furnace & Mining their own signa;tures, who are the
Co. V. Herkimer, 46 Ind. 142; Unity original stockholders." Gelders v.
Ins. Co. V. Cram, 43 N. H. 636; Lawrie State, 164 Ala. 592, 51 So. 232.
V. Silsby, 76 Vt. 240, 104 Am. St. Bep. Apparently it is not necessary under
927, 56 Atl. 1106. the California statutes that all of the
61 People V. Golden Gate Lodge No. subscribers to the capital stock sign.
6, 128 Cal. 257, 60 Pac. 865 (holding . San Joaquin Land & Water Co. v.
that the general statute requiring five Beecher, 101 Cal. 70, 35 Pac. 865.
or more persons to subscribe the 63 Kaiser v: Lawrence Sav. Bank,
articles applied to an Elks' lodge 56 Iowa 104, 41 Am. Eep. 85, 8 N. W.
organized for benevolent and social 772.
purposes, although the statute govern- 64 State v. Beck, 81 Ind. 500.
ing such corporations was silent in 66 Board Trustees Seventh St. Col-
regard thereto) ; State v. Critehett, ored M. B. Church v. Campbell, 48 La,
37 Minn. 13, 32 N. W. 787; Working- Ann. 1543, 21 So. 184.
411
elude the existence of a de facto corporation where the certificate

was signed by the incorporators above the attestation clause and they
acknowledged the execution thereof.*^
Under a statute requiring the president and directors to sign the
articles of incorporation, it is immaterial, if they do in fact sign, that
they fail to write their official titles after their names.*'' A person
may, without doubt, sign the articles as trustee for another.**
A statute dispensing with the signing and acknowledging of articles
of incorporation in case of religious societies and mutual benefit asso-
ciations does not apply to social organizations such as the Elks.*'
In Pennsylvania, the courts have refused an application for a
charter which stated the number of subscribers to be fifteen, where
only ten subscribed.^**
Under a statute providing that where a corporation fails to comply
with statutory requirements in its creation, its president may supply
the defect by filing a verified statement setting forth the error and
correcting it, the failure of part of the subscribers to sign the articles
of incorporation may be remedied, even after the commencement of
quo warranto proceedings, by filing a statement of the president that
the error was accidental, and an instrument correcting the omission.^^
If the articles are signed upon the understanding and agreement that
they are not to take effect until the happening of some event or con-
tingency, they do not take effect, and hence there is no corporation,
until it happens.^^
§209. Seals. Seals must follow the names of the corporators,

when required by the statute.^^ The want of a seal may be remedied,
however, by curative legislation.^*
56 Lyell Ave. Lumber Co. v. Light- 59 People v. Golden Gate Lodge No.
house, 137 N. Y. App. Div. 422, 121 6, 128 Cal. 257, 60 Pae. 865.
N. Y. Supp. 802. 60 In re Nether Providence Ass'n,
57 St. Louis & S. P. E. Co. V. South- 12 Pa. Co. Ct. 666.
western Telephone & Telegraph Co., 61 Gelders v. State, 164 Ala. 592, 51
121 Ped. 876. So. 232.
"It was the fact of the signature 62 Corey v. Morrill, 61 Vt. 598, 17
of the articles by the president and Atl. 840.
the directors, '
said the court,
' and '
' 63 Griffin v. Clinton Line Extension
not the appearance of that fact that E. Co., Fed. Cas. No. 5j816 (holding
conditioned the validity of the incor- certificate without seals a nullity),
poration." St. Louis & S. F. E. Co. See generally Chap. 19, infra.
V. Southwestern Telephone & Tele- 64 Warner v. Callender, 20 Ohio St.
graph Co., 121 Ped. 276. 190.
68 Boatmen's Bank v. Gillespie, 209
Mo. 217, 108 S. W. 74.
412
eh.?] Ckeation Undeb Genebal Laws [§210
§210. Acknowledgment and verification. Incorporation papers

need not be executed under oath, unless the statute so provides, ^^ but
verification is sometimes required,*^ and a verified copy is sometimes
required to be filed.^''
In order to become a corporation de jure, statutes requiring the

incorperation papers to be acknowledged as well as signed must be
compliad with.®* Likewise, where a statute requires the articles of
incorporation to contain a verified statement as to election of officers,
the requirement as to verification is not merely directory but is a
66 If so executed, the oath can be West Virginia. Greenbrier Indus-

given no effect. Eoy v. Bor'das, 150 trial Exposition v. Eodes, 37 W. Va.
Mich. 242, 114 N. W. 81. 738, 17 S. E. 305.
66 Certificate of incorporation of a The articles must be acknowledged
religious society, prepared by the even in the case of benevolent or
trustees, must be verified by one of charitable corporations not for pecu-
their number. Fifth Bapt. Church niary profit. Civ. Code, §§ 292, 593,
V. Baltimore & P. B. Co., 4 Mackey 594. People v. Golden Gate Lodge
(D. C.) 43. No. 6, 128 Cal. 257, 60 Pac. 865.
67 See § 221, infra. "The requirement that articles of
68 Calif ornla. People v. Montecito incorporation shall be subscribed and
"Water Co., 97 Cal. 276, 33 Am. St. Eep. acknowledged by certain persons is
172, 32 Pac. 236. contained in section 292 of the Civil
Indiana. Doty v. Patterson, 155 Ind. Code. It is therein provided that the'
60, 56 N. B. 668; Indianapolis Furnace articles of incorporation must be sub-

& Mining Co. v. Herkimer, 46 Ind. 142. scribed by three or more persons, a
Iowa. Kaiser v. Lawrence Sav. majority of whom must be residents
Bank, 56 Iowa 104, 41 Am. Eep. 85, 8 of this state, and acknowledged by
N. W. 772. each before some officer authorized to
Maryland. Boyce Towsontown
v. take and certify acknowledgments or
Station of M. E. Church, 46 Md. 359; conveyances of real property.' The
Hughes V. Antietam Mfg. Co., 34 Md. meaning of the language of that sec-
316. tion and the purpose of the section is
Michigan. Carmody v. Powers, 60 merely this: That when the articles
Mich. 26, 26 N. W. 801; Doyle v. Miz- of incorporation themselves have been
ner, 42 Mich. 332, 3 N. W. 968. prepared in accordance with other re-
Missouri. First Nat. Bank of Dead- quirements of the Code, the requisite
wood, South Dakota v. Eockefeller, number of the parties intending to
195 Mo. 15, 93 S. W. 761. form or associate themselves together
New York. People v. Board of as a corporation must acknowledge the
E. Com'rs, 105 N. Y. App. Div. 273, due execution of the articles, and thus
93 N. Y. Supp. 584; People v. Board furnish proof that such articles have
of E. Com'rs, 75 N. Y. App. Div. 106, been properly executed. In other
77 N. Y. Supp. 380; First Baptist words, the primary purpose of the
Society v. Eapalee, 16 Wend. 605. certificates is to secure 'the state and
Ohio. Spinning v. Home Bldg. & all concerned against the possibility
Sav. Ass'n of Dayton, 26 Ohio St. 483; of any fictitious names being sub-
State V. Lee, 21 Ohio St. 662. scribed to the articles, and to furnish
413
210] PeIVATE CoEtOEATIONS [Cli.7
prerequisite to existence as a de jure corporation.®' However, unless

otherwise provided by the statute, the acknowledgment of the signa-
tures of the subscribers, required by statute, is not a part of the articles
of incorporation.'"
The purpose of requiring the acknowledgment "is to secure the
state and all concerned against the possibility of any fictitious names
being subscribed to the articles, and to furnish proof of the genuine-
ness of the signaitures. " '^
One who signs but does not acknowledge the agreement for the
formation of a corporation does not become a stockholder.''® Each
of the signers must acknowledge his signature to the articles,'' and
there is no de jure corporation unless acknowledged by the number
required by the statute.'* The signature and acknowledgment, when
required, must generally be made by at least the minimum number of
persons required to join in the formation of the corporation,'^ and
proof of the genuineness of the signa- N. Y. App. Div. 106, 77 N. Y. Supp.

tures.' People V. Golden Gate Lodge 380. But see Hughes v. Antietam Mfg.
No. 6, 128 Gal. 257, 60 Pao. 865." Cali- Co., 34 Md. 316 (holding that statute
fornia Telephone & Light Co. v. Jor- providing that five or more may incor-
dan, 19 Cal. App. 536, 126 Pac. 598. porate by signing and acknowledging
69 Wall V. Mines, 130 Cal. 27, 62 Pac. articles, did not require the articles to
386. be acknowledged by more than five of
Telephone & Light Co.
70 California the subscribers).
V. Jordan, 19 Cal. App. 536, 126 Pae. 74 People V. Monteoito Water Co.,
598 (where the court said: "We have 97 Cal. 276, 33 Am. St. Eep. 172, 32
not succeeded in finding in any of the Pao. 236.
sections of the Code relating to corpo- Where a statute required articles of
rations and their formation any lan- incorporation to be subscribed and ac-
guage indicating that the Legislature knowledged by five or more persons,
intended to include such certificates and such articles, though subscribed by
as a part of the articles themselves, five persons, were acknowledged by
any more than the acknowledgment four only, it was held that this was
—
of a deed a prerequisite to the right not a sufficient compliance with the
—
to record it is made by the statute a statute, and that there was no legal
part of the deed proper"). incorporation as against a direct at-
People V. Golden Gate Lodge No.
71 tack by the state. People v. Monteoito
6, 128 Cal. 257, 60 Pac. 865; People v. Water Co., 97 Cal. 276, 33 Am. St. Rep.
Monteoito Water Co., 97 Cal. 276, 33 172, 32 Pac. 236.
Am. St. Kep. 172, 32 Pac. 236; Califor- 76 California. People v. Golden Gate
nia Telephone & Light Co. v. Jordan, Lodge, 128 Cal. 257, 60 Pae. 865.
19 Cal. App. 536, 126 Pac. 598; Green- IMinnesota. Johnson v. Okerstrom,
brier Industrial Exposition v. Bodes, 70 Minn. 303, 73 N. W. 147; State v.
37 W. Va. 738, 17 S. E. 305. Critchett, 37 Minn. 13, 32 N. W. 787.
72 Greenbrier Industrial Exposition New York. People v. Board of R.
V. Eodes, 37 W. Va. 738, 17 S. E. 305. Com'rs, 105 App. Div. 273, 93 N. Y.
78 People v. Board of R. Oom'rs, 75 Supp. 584; People v. Board of R.
414
Ch. 7] Cebation Under Geneeal Laws [§210
signature and acknowledgment by that number is generally sufii-
cient.'®
Acknowledgment by the officers is not necessary unless the statute
so provides.''''' If the papers are required to be acknowledged before a
certain officer or officers, acknowledgment before another officer is
invalid.'" Thus, if the statute requires acknowledgment before a
justice of the peace, acknowledgment before a notary public is not
sufficient.''^ Moreover, one of the signers cannot take the acknowledg-
ments of other signers."*
The certificate of acknowledgment need not necessarily be in the
same form as that required in the acknowledgment of deeds,'^ and
it seems that the same particularity is not required in acknowledg-
ments of this kind as is required in the acknowledgment of deeds."

For instance, it is sufficient that the certificate of acknowledgment is
preceded by the name of the state and county, and the signature of
the officer is followed by the words "Notary Public," although neither
the title of the officer nor the name of the county in which he is
authorized to act is recited in the body of the certificate.*' Moreover,
a requirement that the acknowledgment shall be before some officer
authorized to take the acknowledgment of deeds does not necessarily
imply that the officer taking it must certify to precisely the same
matters in both instances.** Likewise, where the notary's certificate
stated that the persons who signed the certificate of incorporation
appeared before him and acknowledged it, but did not state that they
were personally known to him, it was held a substantial and sufficient
Com'rs, 75 App. Div. 106, 77 N. Y. 16 "Wend. (N. Y.) 505; State v. Lee, 21
Supp. 380. Ohio St. 662.
Pennsylvania. Workingmen 's Build- 79 State v. Lee, 21 Ohio St. 662. See
ing & Loan Ass'n v. Coleman, 89 Pa. also Spinning v. Home Bldg. & Sav.
St. 428. Aas'n of Dayton, 26 Ohio St. 483.
Utah. Mitchell v. Jensen, 29 Utah 80 People v. Board of E. Com'rs, 105
346, 81 Pac. 165. N. Y. App. Div. 273, 93 N. Y. Supp.
The articles must be signed and ae- 584.
knowledged by at least five persons, 81 Johnston v. Ewing Female TJni-
and this is equally true in the case of versity, 35 111. 518. For forms of ac-
benevolent and social corporations not knowledgment in particular states,
for pecuniary profit. Civ. Code, §§ 292, see Fletcher on Corporation Forms, pp.
593, 594. People v. Golden Gate Lodge 366-394.
No. 6, 128 Cal. 257, 60 Pac. 865. 82 Smith v. Sherman, 113 Iowa 601,
76 AH the subscribers need not ao- 85 N. W. 747.
knowledge it. Hughes v. Antietam 83 Smith v. Sherman, 113 Iowa 601,
Mfg. Co., 34 Md. 316. 85 N. W. 747.
77 Hughes V. Antietam Mfg. Co., 34 84 People v. Cheeseman, 7 Colo. 376,
Md. 316. 3 Pac. 716.

78 First Baptist Society v. Eapalee,
^
415
compliance with a requirement that the certificate should be acknowl-

edged.**
§ 2H. Publication. Generally the statutes require that notice of

the application for incorporation shall be given, either by publishing
for a certain length of time the proposed charter, or a memorandum
stating the objects of the proposed corporation, or in some other way
prescribed by the statute, and such requirement must be at least sub-
stantially complied with,*® generally a condition precedent
and is
to corporate existence,*'' although the terms of the statute may pro-

vide otherwise.** For instance, where a statute provided that "before
any corporation, formed and by virtue of the provisions
established
of this law, shall commence and directors
business, the president
thereof" shall cause the articles of association to be published and
shall make a certificate, etc., the court said: "It would not be
easy by any words to recognize the existence of the corporation, with-
out the publication and without the certificate, or before they are
made, more clearly than has been done here. The corporate existence
is clearly acknowledged, and intended so to be, and the prohibition is
only against its commencing business until the requirements of the

section are complied with. It is spoken of as a corporation formed
and established by virtue of the provisions of the law, and having
officers such as the law prescribes, namely, a president and board of
directors, capable of acting for the corporation, and upon whom, in
their official capacity, certain duties are therein specifically imposed,
commanded. '
*'
and their performance '
Publication for a shorter time than that required by statute is a

nullity.*" In some states posting as well as publication is required,
and in such case publication without posting is insufficient.®^
86 People V. Cheeseman, 7 Colo. 376, when certain provisions should be com-

3 Pae. 716; Johnston v. Ewing Female plied with, an association organized
TJniversity, 35 111. 518. thereunder should be a corporation,
86Bigelow V. Gregory, 73 HI. 197; and then provided that, before any cor-
Thornton v. Baleom, 85 Iowa 198, 52 poration so formed should commence
N. W. 190; Clegg v. Hamilton & business, the of&eers should cause the
Wright Co. Grange Co., 61 Iowa 121, articles of association to be published,
15 N. W. 865; Eisfeld v. Kenworth, it was held that such publication was
50 Iowa 389; Unity Ins. Co. v. Cram, not a condition precedent. Holmes v.
43 N. H.' 636; In re Church of Holy Gilliland, 41 Barb. (N. T.) 568.
Communion, 14 Phila. (Pa.) 121, 8 89 Harrod v. Hamer, 32 Wis. 162.
Wkly. Notes Cas. (Pa.) 357. 90 Bamberger v. White, 6 Ky. L.
87 Heinig v. Adams & Westlake Mfg. Eep. 292.
Co., 81 Ky. 300, 5 Ky. L. Eep. 281, 317. 91 Unity Ins. Co. v. Cram, 43 N. H.
88 Where a statute declared that, 636.
416
Ch. 7] Creation Undee Geneeal Laws [§211
In Iowa, where the statute requires the publication of a notice of

incorporation for four weeks, which must contain, among other things,
a statement as to "whether private property is to be exempt from
corporate debts," a notice which by mistake uses the word "suits"
instead of "debts" is not fatally defective.'* Likewise, the require-
ment that affidavit of publication be filed with the secretary of state
is not mandatory, but is merely directory.'* But the requirement
that the notice be published in some newspaper as convenient as
practicable to the principal place of business of the corporation has
been held to mean that it shall be published in the "nearest or most
handy paper suitable therefor"; '* and it is not sufficient, where the
principal place of business is in a good sized city, to publish it in a
weekly paper in a small town more than sixty miles away.'* It is
sufficient to publish the notice at any time before the incurring of
debts.96
In Pennsylvania, the published notice must clearly specify the tinie
and place of the intended application for a charter,''' although defects
in regard thereto are not ground for refusing the charter where the
persons objecting have received actual notice.'* It must be published
in newspapers of the class required by statute," although a general
92 Commercial Nat. Bank of Council ness as soon as its articles are filed;
Bluffs V. Gilinsky, 142 Iowa 178, 134 that its acts shall be valid if the pub-
Am. St. Eep. 406, 120 N. W. 476. lication is made and the articles filed
93 Commercial Nat. Bank of Council with the secretary of state within
Bluffs V. Gilinsky, 142 Iowa 178, 134 three months of filing in the recorder 'a
Am. St. Eep. 406, 120 N. W. 476. office, and that failure to comply sub-
stantially with such provisions shaU
Novelty Iron Works v.
94 Clinton
Neiting, 134 Iowa 311, 111 N. W. 974;
""^^^ ^^^ stockholders individually
^'^^^^ ^""^ corporate debts,-since the
Berkson v. Anderson, 115 Iowa 674, 87
isr W 402
object of the statute is merely to in-
form persons dealing with the corpo-
95 Berkson
jjcmouu v.
V. =« , 115 Iowa
Anderson,
ja...iis. . . it, it j i- -j..
...
j.
ratiou that they are dealing with a
674 ' 87 N W 402
corporation, and not with a natural
96 Publication of notice of incorpo-
pgj,go„_ gg^ton v. Grimm, 110 Iowa
ration at any time before the incur- j^g 81 N W 225
ring of debts by the corporation was ,; ^^ ^J Enterprise Mut. Benefidal
held a substantial compliance (so as to
^ ^^ ^^^ ^^ p^^.^^
prevent individual liability) with the
' 380
Iowa statute, which provides that no- '
, . . , „ „
.. vT i,„a . , 98 In re Charter,t ILegiRee.
o (Pa.)
tice of incorporation must be published \ /
for four successive weeks, and must

state whether private property is to be "In re Enterprise Mut. Beneficial
exempt from corporate debts; that Ass'n, 32 Leg. Int. (Pa.) 82, 10 Phila.
the corporation may commence busi- (Pa.^ 380.
417
I Priv. Corp.—27
'
§ 212] Pbivate Corpobations [Ch. 7
statute requiring additional publication of notices in a paper pub-

lished in the German language has been held not applicable.^
§ 212. Powers and duties of officer or court. In most states, the

incorporation papers are presented to the secretary of state for filing
or recording. In a few states it is provided that persons who desire
to form a corporation shall apply to some particular court which
determines whether the application substantially complies with the
statutes. Whether the application be made to an executive officer or
to a court or judge, the rules as to his powers and duties are prac-
tically the same, in that they are ministerial rather than judicial, and
since an officer or court charged with the duty to determine whether
the general incorporation law has been complied with in the organ-
ization of a corporation, and, if so, to issue an order or certificate of
incorporation, or to permit a certificate to be filed, acts in a ministerial
capacity only, mandamus compel them to act, and, in a
will lie to
proper case, to issue or file such order or certificate.* Thus, the duty
of the secretary of state is purely ministerial and may be controlled
by mandamus.'
The duty of the secretary of state, on presentation of articles of
incorporation and tender of proper fees, to file the articles, and in
some states to issue a duly certified copy thereof, is controlled by the
statutes of the state and not by the discretion of the officer.* If
1 In re Church Club of Philadelphia, Tennessee. Ex parte Burns, 1 Tenn.

37 Wkly. Notes Cas. (Pa.) 47. '
Ch. 83.
2 Alabama. Sparks v. "Woodstock Where an officer wrongly refuses to
Iron & Steel Co., 87 Ala. 294, 6 So. 195. file the declaration and statement on
California. In re Spring Valley reincorporation on the ground that the
Water Works, 17 Cal. 132; California name adopted is similar to that of an-
Telephone & Light Co. v. Jordan, 19 other corporation, mandamus will lie
Cal. App. 536, 126 Pac. 598. to compel him to do so. People v.
Georgia. Franklin Bridge Co. v. Payn, 161 N. Y. 229, 55 N. E. 849, aff 'g
Wood, 14 Ga. 80. 43 N. Y. App. Div. 621, 60 N. Y. Supp.
Illinois. People v. Chicago Gas 1146, which affirmed 28 N. Y. Misc.
Trust Co., 130 111. 268, 8 L. B. A. 497, 275, 59 N. Y. Supp. 851.
17 Am. St. Bep. 319, 22 N. E. 798. 8 State v. Cook, 174 Mo. 100, 73 8.
Missouri. State v. Lesueur, 99 Mo. W. 489.
552, 7 L. R. A. 734, 13 S. W. 237; State "The action of the Secretary of
V. McGrath, 92 Mo. 355, 5 S. W. 29. State in issuing the license and cer-
Nebraska. State v. Searle, 86 Neb. tificate of organization is necessarily,
257, 125 N. W. 590. to a large extent, merely ministerial. '
New York. People v. McDonough, People v. Chicago Gas Trust Co., 130
28 Misc. 652, 60 N. Y. Supp. 45. 111. 268, 8 L. E. A. 497, 17 Am. St. Rep.
Ohio. State v. Taylor, 55 Ohio St. 319, 22 N. E. 798.
61,44 N. E. 513; State v. Lemert, 10 4 State v. Taylor, 55 Ohio St. 61, 44
Ohio N. P. (N. S.) 133. N. E. 513.
418
Ch. 7] Creation Under Gbnekal. Laws [§ 212
the articles of Incorporation substantially comply with the statute, the

secretary of state has no discretion, but may be compelled by man-
damus to file them.^ The discretion to be exercised by the secretary
of state does not extend to the merits of an application for incorpora-
tion, although it may be exercised as to matters of form.^ On the
other hand, he under no duty to file articles of incorporation not
is
entitled to be filed for any reason, and hence he will not be compelled
by mandamus to act in such a case.' Stated in another way, the duty
of the secretary of state to file and record incorporation papers exists
only when they are in form in compliance with the statutes.* Further-
more, the secretary of state should refuse to file record incorporation
papers not complying with the statutes.^ Generally, the officer has no
discretionary power to look beyond the face of the incorporation
papers, anc^ to determine from matters outside of such papers whether
or not tofile the papers.^* He cannot consider extraneous matters.^^
Thus, the secretary of state is not required to make inquiry outside
the articles of incorporation filed with him, to determine whether the
matters stated therein are in fact true, or whether all conditions
precedent have in fact been performed.^^
If the incorporation papers are not in compliance with the require-
ments of the statute, the fact that they are filed or recorded by the
secretary of state or other officer does not have the effect of creating
a corporation where otherwise the insufficiency of the papers would
preclude the existence of a legal corporation ^' and the action of ;
6 McChesney v. Batman, 121 Ky. state to inquire into the question, and
303, 28 Ky. L. Rep. 281, 89 S. W. 198; that, if he findsno two of the subserib-
State V. Taylor, 55 Ohio St. 61, 44 N. ers are citizens of the state, he should
E. 513. decline to file the charter").
6 State V. Taylor, 55 Ohio St. 61, 44 11 In re Seneca Bridge Co., 11 Pa.

N. E. 513. Co. Ct. 337 (holding that governor ean-
7 Preferred Tontine Mercantile Co. not refuse a bridge company a charter
V. Secretary of State, 133 Mich. 395, on ground that it would be injurious
95 N. W. 417; State v. Nichols, 40 to an existing company).
Wash. 437, 82 Pae. 741, 38 Wash. 309, 12 Boatmen's Bank v. Gillespie, 209
80 Pac. 462. Mo. 217, 108 8. W. 74.
8 Kinston & C. K. Co. v. Stroud, 132 13 Kinston & C. R. Co. v. Stroud, 132
N. C. 413, 43 S. E. 918. N. C. 413, 43 S. E. 913.
9 Kinston & C. R. Co. v. Stroud, 132 "The 'filing and recording' by the
N. C. 413, 43 S. E. 913. Secretary of State of articles of asso-
10 State V. Rotwitt, 17 Mont. 537, 43 elation, if not such as required by law,
Pac. 922. But see American Salt Co. has no more effect than registration
V. Heidenheimer, 80 Tex. 344, 26 Am. of a deed not duly authorized (Todd v.
St. Rep. 743, 15 b. W. 1038 (where the Outlaw, 79 N. C. 235), or than docket-
court said: "It would seem, however, ing a judgment confessed without legal
that it is the duty of the secretary of requirements (Uzzle v. Vinson, 111 N.
419
the secretary of state in filing incorporation papers or issuing a cer-

tificateor license is not conclusive that the powers stated in the in-
corporation papers may be lawfully exercised, but is subject to review
by the courts."
If application is made to a court, it acts ministerially rather than
judicially,^ând cannot create a corporation for any purpose not
authorized by a general law '^ nor can the decree or charter depart
;
in substance from, or grant more than is sought by, the petition to

the court.^''
is made to a court for a charter, a third person

"Where application
cannot make himself a party to the proceeding for the purpose of
resisting the granting of the application ^' but another association
;
or corporation which has acquired a proprietary right in the name

sought to be used may bring an injunction suit to prevent the prose-
cution of the application for a charter.^^
In New York, the approval of a justice of the supreme court,
required as to certain corporations, is not conclusive on the secretary
of state.*" In that state, where the approval of the certificate of

incorporation by a justice of the supreme court is a statutory requisite
to the creation of a "membership" corporation, a certificate will not
be approved where it fixes the annual meetings on Sunday, this being
contrary to public policy.*^
In Pennsylvania, application to the court is required only as to cer-
tain classes of corporations ; aad the power of the courts to refuse an
C. 138, 16 S. E. 6), or recording a la- lent societies)appear to contemplate

borer's lien without complying with an ex parte proceeding, instead of one
the requirements of the statute (Cook to which persons or corporations can
V. Cobb, 101 N. C. 68, 7 S. E. 700)." be made parties on their application
Kingston & C. E. Co. v. Stroud, 132 because they hold rights which may be
N. C. 413, 43 S. E. 913. infringed by granting the petition."
14 People V. Chicago Gas Trust Co., Young Women's Christian Ass'n v.
130 111. 268, 8L. R. A. 497, 17 Am. St. St. Louis Women's Ass'n, 115 Mo. App.
Eep. 319, 22 N. E. 798. 228, 91 S. W. 171.
15 State V. Vanderbilt iJniversity, 19 Creswill v. Grand Lodge K. P. of
129 Tenn. 279, 164 S. W. 1151; Ex parte Georgia, 133 Ga. 837, 134 Am. St. Bep.
Chadwell, 3 Baxt. (Tenn.) 98,108. 231, 18 Ann. Cas. 453, 67 S. E. 188;
16 Ex parte Chadwell, 3 Baxt. Lane v. Brothers & Sisters Evening
(Tenn.) 98. Star Society, 120 Ga. 355, 47 S. E. 951.
17 State Vanderbilt University,
v. 20 People v. Nelson, 46 N. Y. 477;
129 Tenn. 279, 164 S. W. 1151. People v. Rice, 68 Hun (N. Y.) 24, 22
18 Creswill v. Grand Lodge K. P. of N. Y. Supp. 631.
Georgia, 133 Ga. 837, 134 Am. St. Rep. 21 In re Agudath Hakehiloth, 18 N.
231, 18 Ann. Cas. 453, 67 S. E. 188. Y. Misc. 717, 42 N. Y. Supp. 985.

'
"The statutes (relating to benevo-
420
Ch. 7] Creation Under General Laws [§212
application for a charter seems to be broader than in other states.

In that state it is held that the court is not authorized 'to grant or
refuse incorporation except upon kgal grounds ^^ that it cannot ;
confer corporate powers for any other purpose than is specified in

the statute ^^ that the requirements fixed by law can neither be dis-
;
pensed with nor added to ^* and that a charter cannot be refused

;
merely because there is no necessity for incorporating,*^ nor because

the name of the corporation is in a foreign language.*® On the other
hand, in Pennsylvania, a charter of a beneficial association will not
be approved by the court where there is membership
a provision that
is upon enlistment in the army or navy,*'' nor, where
to be forfeited
there is no indication as to who may become members or on what
terms or conditions,*^ nor where there is no express provision for
trial before expulsion from membership,*' nor where the grounds
stated for expulsion of members are too indefinite ^^ and it has been
;
held not an abuse of discretion for the court to refuse an application

for a charter by the "Chiropractors' Association of Pennsylvania,"
at least until they have attained a legal status as medical practi-
tioners under the laws governing such practitioners.'^ In Pennsyl-
vania, the judge may defer final action on the application, for a
reasonable time, although there are no objections interposed and no
doubt as to the propriety of granting the charter.®* '
The secretary of state is justified in declining to issue a certificate

of incorporation where the incorporation papers show that the pro-
posed corporation is one not within the statute under which it is
22 In re Deutsch - Amerikanischer Volksf est-Verein, 200 Pa. 143, 49 Atl.

Volksfest-Verein, 200 Pa. 143, 49 Atl. 949.
949. 27 In re Charter of David MulhoUand
23 In re Solebury Mut. Protective So- Benev. Soc. of Manayunk, 30 Leg. Int.
ciety, 2 Del. Co. (Pa.) 189, 3 Pa. Co. (Pa.) 85, 10 Phila. (Pa.) 19.
Ct. 637; In re Land Co., 1 Del. Co. 28 In re Accountant's Ass'n, 18 Pa.
(Pa.) 431; Com. v. Conover, 30 Leg. Co. Ct. 159; In re Italian Mut. Ben.
Int. (Pa.) 200; In re Cressona Bldg. Ass'n, 4 Pa. Dist. 357; In re Skandi-
Ass'n, 1 Leg. Eee. (Pa.) 177; In re naviska, 3 Pa. Dist. 235.
Medical College of Philadelphia, 3 29 In re Charter of Journalists Fund
Whart. (Pa.) 444. of Philadelphia, 8 Phila.' (Pa.) 272.
24 In re Deutsch - Amerikanischer 30 In re Beneficial Ass 'n of Broth-
Volksf est-Verein, 200 Pa. 148, 49 Atl. erly Unity, 38 Pa. St. 299; In re Butch-
949. ers ' Beneficial Ass 'n, 38 Pa. St. 298.
25 In re Deutsch - Amerikanischer 31 In re Chiropractors ' Ass 'n
'
' -
of
Volksfest-Verein, 200 Pa. 143, 49 Atl. Pennsylvania, 243 Pa. 547, 90 Atl. 835.
949. 32 In re Central Democratie Ass'n,
26 In re Deutsch - Amerikanischer 8 Pa. Co. Ct. 892.
421
212] Pbivate Cobpoeations [Ch.7
sought to be incorporated and it is the duty of a court to whom

;
*'
application made, in such a case, to refuse a charter 8* a fortiori,

is ;
this is true where the corporation is created for an illegal purpose.

The officer may reject the articles if they confer authority not per-
mitted nor authorized by law.'* The same rule applies to an appli-
cation to a court.'®
Ordinarily if the association has complied with all the prerequisite
statutory requirements, and its purpose is a lawful and authorized
one, conditions cannot be imposed on granting the certificate.''
§213. Issuance of certificate by officer or court. The statutes

generally provide for the issuance of a certificate of incorporation by
some officer or court on the creation of a corporation, and the certifi-
cate is sometimes, though not always, made a condition precedent to

corporate existence. The certificate must be obtained when required
by the statute, and must be substantially in the form prescribed by
the statute."
Where a statute provides that after articles of corporation are filed,
83 People V. Bose, 188 111. 268, 59 Illinois. Stowe v, Flagg, 72 111. 397.
N. E. 432; People v. Nelson, 46 N. Y. Louisiana. Field v. Cooks, 16 La.
477; People v. Eice, 68 Hun (N. T.) Ann. 153.
24, 22 N. T. Supp. 631. Maine. Richmond Factory Ass'n v.
84 In re Pennsylvania State Sports- Clarke, 61 Me. 351.
men's Ass'n, 11 Pa. Co. Ct. 576, 1 Pa. Minnesota. Beeht v. Harris, 4 Minn.
Dist. 763. 504.
35 Dancy v. Clark, 24 App. Cas. (D. Missouri. Boatmen's Bank v. Gil-
C.) 487; People v. Whalen, 119 N. T. lespie,209 Mo. 217, 108 S. W. 74; First
App. Div. 749, 106 N. T. Supp. 434, 104 Nat. Bank of Deadwood, South Dakota
N. T. Supp. 555. V. Eockefeller, 195 Mo. 15, 93 S. W.
38 In re North rifth St. Mut. Land 761; Elliot v. Sullivan, 156 Mo. App.
Ass 'n, 8 Pa. Co. Ct. 17. 496, 137 S. W. 287.
37 Bankers' Deposit Guaranty & Montana. Merges v. Altenbrand, 45
Surety Co. v. Barnes, 81 Kan. 430, 432, Mont. 355, 123 Pac. 21; State v. Rot-
28 L. B. A. (N. S.) 1082, 105 Pae. 697 witt, 18 Mont. 87, 44 Pac. 409.
(holding that superintendent of insur- Ohio. Callendar v. Painesville &
ance cannot impose requirements as H. B. Co., 11 Ohio St. 516.
condition precedent to issuance of cer- Utah. Mitchell v. Jensen, 29 Utah
tificate to do business). 346, 81 Pae. 165; Jackson v. Grown
38 United States. Byland v. Hol- Point Min. Co., 21 Utah 1, 81 Am. St.
linger, 117 Fed. 216; Dundee Mortgage Rep. 651, 59 Pac. 238.
& Trust Inv. Co., Ltd. v. Cooper, 26 Issuance by the secretary of state
Fed. 665. of the certificate required by Civ.
California. Boman Catholic Orphan Code, § 296, is a condition precedent.
Asylum v. Abrams, 49 Cal. 455. Wall V. Mines, 130 Cal. 27, 62 Pac. 386.
Colorado. Humphreys v. Mooney, 5
Colo. 282.
422
Ch. 7] Ceeation Under Geneeal Laws [§ 213
the secretary of state must issue his certificate to the corporation that
the articles have been filed, and "thereupon" the persons signing the
articles shall be a body corporate, the corporation has no legal ex-
istence until the issuance of such certificate.'^ So under statutes
fixing the procedure to incorporate, ending with the issuance by the
secretary of state of a certified copy of the articles of incorporation,
and .which provide that "thereupon" the petitioners "shall be created
and be a corporate body," the certified copy from the secretary of
state is the necessary and final act creating the corporation.*"
In some jurisdictions, statutes have been enacted authorizing par-
ticular courts to make an order conferring corporate powers under
prescribed conditions, or to issue a certificate of incorporation.*^ Such
statutes are not unconstitutional as a delegation of legislative power
to the court, since the court merely acts in a ministerial capacity
under the statute, and the corporations, when organized thereunder,
are created, not by the court, but by the legislature.*^ Under such a
statute, the court has such authority only as has been conferred upon
it by the legislature. It can confer corporate powers for no other
purpose than is specified in the statute.**
In Louisiana the incorporators are required to obtain en authoriza-
tion or certificate from the district attorney or a judge as a condition
precedent to a valid incorporation.** But in Alabama, where the pro-
cedure is like that of Illinois, and the statute provides that the probate
judge shall issue a certificate "upon the completion of the organiza-
tion of the company," it is held that the actual issuance of the cer-
tificate is not a condition precedent to corporate existence, but the
certificate is merely evidence that the corporation has been formed..*®
39 Merges v. Altenbrand, 45 Mont. Baxt. (Tenn.) 98; Coalter v. Bargamin,

355, 123 Pac. 21. 99 Va. 65, 37 S. E. 779.
"The term 'thereupon,' * * * 42 See Chap. 6, supra,
whether taken to signify 'in eonse- 43 See § 178.
quenee of which' or 'immediately 44 Spencer, Field & Co. v. Cooks, 16

after,' or 'in sequence,' clearly im- La. Ann. 153.
ports into it [the statute] the meaning 45 Sparks v. Woodstock Iron & Steel
that all these steps, taken together, Co., 87 Ala. 294, 6 So. 195.
are the causa sine qua non." Merges In Alabama under the law as it ex-
V. Altenbrand, 45 Mont. 355, 123 Pac. isted prior to the adoption of the
21. Code of 1907, it was held that the is-
40 Sloan V. Loyal Fraternal Home suanee of the certificate by the judge
Ass'n, 139 Mo. App. 443, 123 S. W. 57. of probate is "not a condition pre-
41 Sparks v. Woodstock Iron & Steel cedent to the company 's incorporation
Co., 87 Ala. 294, 6 So. 195; State v. becoming complete under the statute,
Vanderbilt University, 129 Tenn. 279, but it is the mere evidence of the fact
164 S. W. 1151; Ex parte Chadwell, 3 that it had already become so," and
423
§ 214] Pkivate Cokpoeations [Ch. 7
§ 214. Bevocation of certificate. In Illinois it has been held that

after the secretary of state has issued a license or certificate for the
organization of a corporation he has no power to revoke the same,
except where the corporators fail to complete their organization as a
corporation and proceed to business within the time allowed by
statute.** In that sfate the failure of the company to complete its
organization and to proceed to business within the time prescribed
ipso facto works a revocation and ends the corporate existence,*''
and the fact that the organization is completed after that time can
have no effect on the legal status of the corporation.**
In Pennsylvania, where the court, under authority of a statute,
granted a certificate of incorporation to a company claiming to be a
beneficial association, and within a statute authorizing incorporation
of such associations, and afterwards learned that the certificate should
not have been granted, and revoked the same, it was held that the
revocation was proper, as the certificate was improvidently granted,

without authority, and was therefore void.*'
§215. Filing' and recording —General rules. The necessity for

either filing or recording, or both filing and recording, the incorpora-
tion papers prepared by or on behalf of the incorporators, or the
certificate issued by the state or other ofiicer, depends on the wording
of the particular statute, as does the effect of failure to file or record.
that proof that it has not been issued fact of incorporation in the office of
will not sustain a plea of nul tiel cor- the secretary of state. Code 1907,
poration. Sparks v. Woodstock Iron §§ 3448, 3454, 3455.
& But
Steel Co., 87 Ala. 294, 6 So. 195. 46 Illinois Watch Case Co. v. Pear-
see Owensboro Wagon Co. v. Bliss, 132 son, 140 111. 423, 16 L. E. A. 429, 31 N.
Ala. 253, 31 So. 81, where the failure E. 400.
to issue the certificate is referred to as 47 People v. Maekey, 255 111. 144,
a missing link for the perfection of a 99 N. E. 370.
corporation de jure. See also State v. 48 Where the certificate of incorpora-
Webb, 110 Ala. 214, 20 So. 462. Under tion is not filed for record in the re-
the Alabama Code of 1907 a certificate corder's office within two years, the
of incorporation, signed by the stock- company does not become a corpora-
holders, is required to be filed and re- tion de jure by filing it after that
corded in the office of the probate time. People v. Maekey, 225 111. 144,
judge, and the latter is required to in- 99 N. E. 370 (explaining and modify-
_dorse thereon a certificate of registra- ing the apparent contrary holding in
tion. The incorporators become a body Marshall v. Keach, 227 111. 35, 118
corporate when the certificate is made, Am. St. Eep. 247, 10 Ann. Cas. 164,
recorded and filed, and apparently no 81 N. E. 29).
certificate of incorporation is required 49 In re National Indemnity & En-
to be issued by the judge, though he is dowment Co., 142 Pa. St. 450, 21 Atl.
required to file a statement of the 879.
424
;
Ch.7] Ckeation Under General Laws [§215
It is necessary, however, to distinguish between decisions where there

has been no recording of the incorporation papers with eny
filing or
and those decisions where there has been a filing with one of
officer,
two or more officers but not with all the officers aS required by
statute.^" Furthermore, it is necessary to distinguish between the
initial filing of the articles of incorporation and the filing of papers
subsequent thereto, such as additional affidavits or the certificate or
charter issued by the secretary of state.
In some jurisdiction^ the filing or recording is a condition preced-
ent to the de jure existence of the corporation. ^^ Thus, where a
50 See §§216, 217, infra. Kansas. Nemaha Coal & Mining

81United States. Elgin Nat. Watch Co. V. Settle, 54 Kan. 4^4, 38 Pac. 483;
Co. V. Loveland, 132 Fed. 41 (Illinois WaltonV. Oliver, 49 Kan. 107, 33 Am.
law). Eep. 355, 30 Pac. 172; Massey v.
St.
Arkansas. Garnett v. Bichardson, 35 Citizens' Bldg. & Sav. Ass'n, 22 Kan.
Ark. 144. 624; Hunt v. Kansas & Missouri
Oalifoinla. California Telephone & Bridge Co., 11 Kan. 439.
Light Co. V. Jordan, 19 Cal. App. 536, Kentucky. Portland & G. Turnpike
126 Pao. 598. Co. V. Bobb, 88 Ky. 226, 10 S. W. 794;
Colorado. Aspen Water
Light Co. & Walton V. Biley, 85 Ky. 413, W.
3 S.
V. City of Aspen, 5 Colo. App. 12, 37 605, overruling Heinig v. Adams &
Pae. 728. Westlake Mfg. Co., 81 Ky. 300, 5 Ky.
Illinois. People v. Maekey, 255 El. L. Eep. 281; Sims v. Com., 24 Ky. L.
144, 99 N. E. 370; Edwards v. Armour Eep. 1591, 71 W. 929. S.
Packing Go., 190 111. 467, 60 N. E. 807, Louisiana. Workingmen 's Accom-
afiE'g 90 111- App. 333; Loverin v. Mc- modation Bank v. Converse, 29 La.
Laughlin, 161 111. 417, 44 N. E. 99, Ann. 369; Spencer, Field & Co. v.
aff'g 46 111. App. 373; Bushnell v. Con- Cooks, 16 La. Ann. 153.
solidated Ice Mach. Co., 138 111. 67, 27 Massachusetts. Montgomery v.
N. E. 596; Bigelow v. Gregory, 73 111. Forbes, 148 Mass. 249, 19 N. E, 342
197 (decided under Wisconsin law) (rule in New Hampshire).
Stowe V. riagg, 72 111. 397; Hamill Minnesota. Becht v. Harris, 4 Minn.
V. Watts, 180 111. App. 279; Bicker 504.
V. Larkin, 27 III. App. 625; Cress- Missouri. Bichardson v. Pitts, 71
well V. Oberly, 17 III. App. 281. Mo. 128.
Indiana. Doty v. F'atterson, 155 Nefbraska. Meyer Cord Co. v. Hill,
Ind. 60, 56 N. E. 668; Miller v. Wild 84 Neb. 89, 120 N. W. 951 (holding,
Cat Gravel Eoad Co., 52 Ind. 51; Nel- however, that manufacturing corpo-
son Blakey, 47 Ind. 38; Indianapolis
V. rations need not file their articles in
Turnaee & Mining Co. v. Herkimer, the county where their headquarters
46 Ind. 142; New Eel Biver Draining are located) ; Lusk v. Biggs, 70 Neb.
Ass'n V. Carriger, 30 Ind. 213; Wil- 713, 97 N. W. 1033; Kleekner v. Turk,
liams V. Franklin Tp. Academical 45 Neb. 176, 63 N. W. 469; Capps v.
Ass'n, 26 lud. 310. Hastings Prospecting Co., 40 Neb. 470,
Iowa. Kaiser v. Lawrence Sav. 24 L. E. A. 259, 42 Am. St. Eep. 677, 58
Bank, 56 Iowa 104, 41 Am. Eep. 85. N. W. 956: Trester v. Missouri Pao. B.
425
§ 215] PeIVATE CbEPOKATIONS [Ch.7
statute requires certificates of incorporation to-be recorded in a certain

amd provides that "from thenceforth the subscribers and asso-
office,
ciatesand successors shall be a corporation for the purposes and upon

the terms named in the said charter," the existence of a company-
organized thereunder dates from the recording of its certificate and
not from the issue of letters patent, although another clause of the
'
statute provides that companies organized thereunder shall ' from the
Co., 33 Neb. 171, 49 N. W. 1110 (arti- Bash V. Culver Gold Min. Co., 7 Wash.
cles of eousolidation of railroad com- 122, 34 Pac. 462.
panies need not be recorded in the West Virginia, Childs v. Hurd, 32
county clerk's ofSce); Paxton Cattle W. Va. 66, 9 S. E. 362.
Co. V. First Nat. Bank, 21 Neb. 621, Wisconsin. Sentinel Co. v. A. D.
33 N. W. 271; Abbott v. Omaha Meiselbach Motor Wagon Co., 144 Wis.
Smelting & Eefining Co., 4 Neb. 416. 224, 32 L. E. A. (N. S.) 436, 140 Am.
See also Haas v. Bank of Commerce, St. Eep. 1007, 128 N. W. 861; Spiritual
41 Neb. 754, 60 N. W. 85. And see & Philosophical Temple v. Vincent, 127
State V. Searle, 86 Neb. 259, 125 N. Wis. 93, 105 N. W. 1026 (construing
W. 590; Equitable Building & Loan statutes relating to incorporation of
Ass'n V, Bidwell, 60 Neb. 169, 82 N. religious societies);Eehbein v. Eahr,
W. 38"4 (former rules as to building 109 Wis. 136, 85 N. W. 315; Slocum v.
and loan associations). Head, 105 Wis. 431, 50 L. E. A. 324, 81
New York. De Witt v. Hastings, N. W. 673; Bergeron v. Hobbs, 96 Wis.
69 N. Y. 518; Childs v. Smith, 46 N. Y. 641, 65 Am. St. Eep. 85, 71 N. W. 1056;
34, rev'g 55 Barb. 45; Stevens v. Epis- Badger Paper Co. v. Eose, 95 Wis. 145,
copal Church History Co., 140 N. Y. 37 L. B. A. 162, 70 N. W. 302; Wood
App. Div. 570, 125 N. Y. Supp. 573; v. Union Gospel Church Bldg. Ass'n,
Childs V. Smith, 55 Barb. 45; Burt v. 63 Wis. 9, 22 N. W. 756.
Farrar, 24 Barb. 518. Wyoming. Edelhoff '
v. State, 5 Wyo.
North Carolina. Kinston & 0. B. 19, 36 Pac. 627.
Co. V. Stroud, 132 N. C. 413, 43 S. E. In Washington, the articles are re-
913. quired to be executed in triplicate,
Oregon. Goodale Lumber Co. v. one to be filed in the oflSce of the
Shaw, 41 Ore. 544, 69 Pac. 546. secretary of state, one in the county
Pennsylvaiiia. Tonge^ v. Item Pub. designated as the principal place of
Co., 244 Pa. 417, 91 Atl. 229; Borough business, and one kept by the cor-
of Braddook v. Penn Water Co., 189 poration. First Nat. Bank of Everett
Pa. St. 379-, 42 Atl. 15; New York Nat. V. Wilcox, 72 Wash. 473, 130 Pac. 756.
Exoh. Bank v. Crowell, 177 Pa. St 313, In Kwapil v. Bell Tower Co., 55
35 Atl. 613; Guekert v. Hacke, 159 Pa. Wash. where the
583, 104 Pac. 824,
St. 303, 28 Atl. 249. articles were the ofSces of the
filed in
Texas. Bank of De Soto v. Eeeid, 50 secretary of state and the county audi-
Tex. Civ. App. 102, 109 S. W. 256. tor, the court expressed the opinion
Utah. Mitchell v. Jensen, 29 Utah that there was a substantial compli-
846, 81 Pac. 165; Jackson v. Crown ance with the law and the company
Point Min. Co., 21 Utah 1, 81 Am. St. was a corporation de jure although
Bep. 651, 59 Pac. 238. they were not executed in triplicate
Washington. Spokane & I. Lumber and one copy retained in the ofSce of
Co. V. Loy, 21 Wash. 501, 58 Pac. 672; the company as required by the stat-
426
Ch. 7] Creation Undeb Genekal, Laws [§215
date of letters patent creating the same have the powers conferred by
'
'
the statutes.** So where a statute required incorporators to obtain

a certificate from the attorney general and declared ' that they should '
be a corporation" from the time of filing such certificate, the ob-

taining and filing such certificate is a condition precedent to corporate
existence.*'
In Illinois, the procedure as to corporations for pecuniary profit
differs somewhat from that adopted in other states. There the steps
are as follows: (1) The filing with the secretary of state of incor-
poration papers called a "statement"; (2) issuance by secretary of
state to incorporators, as "commissioners," of a license to open
books for subscription to the capital stock; (3) calling of meeting
by commissioners, as soon as stock is fully subscribed, to elect di-
rectors and transact other business; (4) filing with secretary of
state of report of commissioners as to amount of stock subscribed
and paid in, the names of the subscribers, and the result of the
election; (5) issuance by secretary of state of certificate "of complete
organization" of the corporation; (6) recording of said certificate in
oflSce of recorder of deeds of the county where the principal ofiice of
the company is located. The statute then provides that on the

recording of the certificate "the corporation shall be deemed fully
organized and may proceed to business"; but that "unless such com-
pany shall be organized and shall proceed to business * * *
within two years after the date of such license, then such license shall
be deemed revoked, and all proceedings thereunder void." It has
been held thereunder that the failure to record the final certificate
does not prevent the creation of a de facto corporation,** but does
preclude the existence of a de jure corporation ;
** and that the re-
cording of the certificate after the two years is of no effect.**
ute,but further held that in any event 165- 111. 367, 46 N. E. 286, aff 'g 55 ni.
there was a corporation de faeto, App. 181.
which was sufficient for the case in 82 Borough of Braddock v. Penn
hand. ' "Water Co., 189 Pa. St. 379, 42 Atl. 15.
An averment that a majority of the 63 Richmond Factory Ass 'n v.
stockholders "caused said articles to Clarke, 61 Me. 351.
be put on record in the recorder's of- 64 Marshall v. Keaeh, 227 111. 35, 118
fice," etc., shows a suflaeient filing. Am. St. Eep. 247, 10 Ann. Cas. 164, 81
Vawter v. Franklin College, 53 Ind. 88. N. B. 29.
After the certificate has been issued, 66 People v. Mackey, 255 111. 144, 99
but before it has been filed, the cor- N. E. 370; Loverin v. McLaughlin, 161
poration has such an existence as will 111. 417, 44 N. E. 99, aff'g 46 III. App.
enable its officers and stockholders to 373.

reduce the amount of capital stock. 66 People v. Mackey, 255 111. 144, 99
Gade v. Forest Glen Brick & Tile Co., N. E. 370, explaining and qualifying
427
§215] Pkivate Cokpoeations [Cli.7
On the other hand, the statute may he so worded as not to make

the filing or recording a condition precedent. Thus, where a statute
provides that "upon making said certificate, and causing the same to
be recorded and filed as aforesaid," the incorporators shall be, "from
'
the time of commencement fixed in said certificate, incorporated, the '
recording and filing are not a condition precedent to corporate ex-

istence.*'' So the filing is not a condition precedent where the
statute merely provides that when the company is "created and
organized, a certificate shall * * * be filed."** Oftentimes the
filing or recording is merely a condition precedent to the right of
the corporation to engage in business.*'
If the statute merely prohibits the doing of business until the
articles or certificate is filed, the filing is not a condition precedent
to the existence of the corporation, although it is a condition to the
doing of business.^" Thus, where the statute merely makes the filing
'
or recording of the certificate a condition precedent to the commence- '
ment of business," and_ the certificate is to be made by the president

and secretary, the filing is not a condition precedent to corporate
'
existence.*^ So where a statute provides that before any. corporation. '
the apparently contrary holding in ent to the existence of a corporation

Marshall v. Keach, 227 111. 35, 118 Am. de jure. Chieppo v. Chieppo, 88 Conn.
St. Eep. 247, 10 Ann. Cas. 164, 81 N. E. 233, 90 Atl. 940.
29. 60 Card
V. Moore, 74 N. Y. Supp. 18,
BTVanneman v. Young, 52 N. J. L. aff 'd173 N. Y. 598, 66 N. E. 1105, dis-
403, 20 Atl. 53. tinguishing Augur Steel Axle & Gear-
68 Granby Mining & Smelting Co, v. ing Co. V. Whittier, 117 Mass. 451; as
Eichards, 95 Mo. 106, 8 S. W. 246. a case decided under such a statute..
59 United States. "Whitney v. Wy- 61 Kaiser v. Lawrence Savings Bank,
man, 101 V. 8. 392, 25 L. Ed. 1050. 56 Iowa 104, 41 Am. Rep. 85, 8 N. W.
Iowa. Johnson v. Kessler, 76 Iowa 772.
411, 41 N. W. 57. "The be made by
certificate is to
Massachusetts. Augur Steel Axle. & the president and secretary. Before it
Gearing Co. v. Whittier, 117 Mass. can be made, then, there must be a
451; Merrick v. Reynolds Engine & president and secretary; but there can-
Governor Co., 101 Mass. 381. not be a president and secretary until
Michigan. Galvin v. Detroit Steer- such officers have been duly chosen by
ing Wheel & Windshield Co., 176 Mich. a body of persons who have heaame
569, 142 N. W. 742; Newcomb-Endi- associated under an agreement to
cott Co. V. Fee, 167 Mich. 574, 133 N. become incorporated under a law
W. 540; Johns v. People, 25 Mich. 499. authorizing them to become incorpo-
Missouri. Granby Mining & Smelt- rated. Now this agreement, which
ing Co. V. Eichards, 95 Mo. 160, 8 S. must not only precede the making of
W. 246. the certificate, but the choice of the
Under Conn. Laws, 1903, c. 194, presidentand secretary who are to
§ 69, the filing of a certificate of make the certificate, it appears to us,
organization is not a condition preced- would more naturally be deemed the
428
. :
Ch.7] Ckeation Undee Geneeal Laws [§ 215
formed and established by virtue of the provisions of this act, shall

commence business, the president and directors thereof shall" file
a certificate, the filing is not a condition precedent, to corporate ex-
istence.^* At any
event this objection cannot be urged collaterally
but only by a direct action by the people.*' Moreover, it has been
said that failure to file does not debar a corporation "from access to
the courts in protecting its previously vested estate."®* Of course,
statutes requiring a filing of the articles of particular classes of
corporations do not apply to other classes of corporations.**
To sum up, the rules which govern may be stated as follows
1. If there is no filing of the original incorporation papers, or a
copy of them, in any office, there is no corporation de jure ** nor even

de facto, where there is not even an attempt in good faith to file.*''
2. If the papers are required to be filed or recorded with two or
more officers, as for instance with the secretary of state and the
county clerk of the county where the affice or principal place of
business is located, the question whether a filing or recording in one
but not in both offices is sufficient to create a de jure corporation
depends on the wording of the particular statute.**
3. Although the filing of original incorporation papers may be a
condition precedent, the statute may be so worded that the filing of

additional affidavits or certificates (including the filing of the certifi-
cate issued by the secretary of state or other officer) is not a condition

precedent.*^
act of incorporation, and we see noth- 6B Hervey v. Buchanan, 47 Iowa 588

ing in the incorporation laws of Kan- (educational corporation)
sas inconsistent with this view. Again, 66 Middle Branch Mut. Tel. Co. v.
the must state the time
certificate Jones, 137 Iowa 396, 115 N. W. 3.
when the corporation was organized. 67 McLennan Hopkins, 2 Kan.

v.
This, to our mind, implies quite clearly App. 260, 41 Pac. 1061. See also Chap.
that before the certificate is made or- 10, infra.
ganization must have taken place." 68 See §§216, 217, infra.
Kaiser v. Lawrence Sav. Bank, 56 Iowa 89 Where a special act of incorpora-
104, 41 Am. Rep. N. W. 772.
85, 8 tion provided that, when the corpora-
62 In re Shakopee Mfg. Co., 37 Minn. tion should be created and organized
91, 33 N. W. 219. under the act, a certificate of incorpo-
63 Baker v. Backus' Adm'r, 32 HI ration should be filed with the clerk
79; Tarbell v. Page, 24 111. 46; Ameri' of the circuit court of the county in
can Live Stock Commission Co. v. Chi- which the corporation was to do busi-
cago Live Stock Exchange, 41 111. App ness, and a duplicate with the secre-
149, aff'd 143 111. 210, 18 L. R. A tary of state,it was held that filing a
190, 36 Am. Rep. 385, 32 N. E. 274.

St. with the clerk was not a
certificate
64 Probst V. Trustees of Board Do condition precedent to incorporation.
mestic Missions, 3 N. M. 237, 5, Pac Granby Mining & Smelting Co. v. Rich-
702. ards, 95 Mo. 106, 8 S. W. 246.
429
§215] Pbivate Coepokations [Gh.7
If the papers have been fraudulently and surreptitiously recorded,

contrary to the agreement of the incorporators, such record is of no
effect.™
'
If the petition is required by statute to be filed in a court ' of the
county in which they [the corporation] desire to transact business,"
it may and should be filed in the county where the principal office is
to be located, rather than in the county where the actual opera-

tions are to be conducted.''^
§ 216. — With county officer. Filing of the incorporation papers

in the county where the principal place of business or the work is
situated, is often made by statute a condition precedent to corporate

existence.'^ In such a ease, until this requirement as to recording
70 Bicker v. Larkin, 27 111. App. 625. cordingly prescribed. Failure to re-

71 McCandless v. Inland Acid Co., cord was failure to comply with one
115 Ga. 968, 42 S. E. 449. of the express conditions of incorpora-
72 Elgin Nat. Watch Co. v. Loveland, tion, and consequently of exemption
132 Fed. 41 (construing Illinois stat- from liability." Guckert v. Haeke,
ute); Marshall v. Keach, 227 HI. 35, 159 Pa. St. 303, 28 Atl. 249, quoted in
118 Am. St. Eep. 247, 10 Ann. Cas. 164, Tonge V. Item Pub. Co., 244 Pa. 417, 91
81 N. E. 29; Miller v. Wild Cat Gravel- Atl. 229.
Boad Co., 52 Ind. 51; Mclntire v. Me- In Alabama the certificate (corre-
Lain Ditching Ass'n, 40 Ind. 104. sponding to the articles) is required to
"It is plain, even from a cursory be filed and recorded in the office of
reading of the act of April 29, 1874 the probate judge of the county in
(P. L. 76), that recording of the cer- which the principal business of the
tificate 'in the office for the recording corporation is established. Code 1907,
of deeds, in and for the county where § 3448. Floyd v. State, 177 Ala. 169,
the chief operations are to be carried 59 So. 280. See also Magnolia Shingle
on,' was intended to be made one of Co. V. J. Zimmern's Co., 3 Ala. App.
the conditions precedent to corporate 578, 58 So. 90.
existence. That was the last of suc- The articles of a draining company
cessive steps required to be taken, and must be recorded in the county where
the right to begin the transaction of the work is contemplated. Mclntire
corporate business was made to depend V. McLaiu Ditching Ass 'n, 40 Ind. 104;
upon the taking of that step. 'From New Eel Eiver Draining Ass 'n v. Dur-
thenceforth,' the act expressly de- bin, 30 Ind. 173.
clares, the subscribers and their Under the law of Indian Territory
associates and successors 'shall be a the articles were required to be filed
corporation for the purposes and with the clerk of the judicial district
upon the terms named in the in which the place of business was lo-
said charter.' One of the pur- cated, as well as with the clerk of tlie
jjoses of the act being exemption court of appeals, in order to constitute

from personal liability in the trans- a corporation de jure. Harrill v. Davis,
action of business, it is obviously 168 Fed. 187, 22 L. E. A. (N. S.) 1153.
material that the public should have Under a statute requiring the cer-
notice, and notice by record was ac- tificate of registration of a corporation
430
Ch.7] Cbeation Under Genebal. Laws [§216
is complied with, there is no de jure corporation,''^ although there

may be a de facto corporation.''* Thus, in Illinois, a corporation has
no right to transact business where the certificate of incorporation
haa not been recorded in the proper office of the county where the
principal office of the company is located, as required by statute.''^
But the better rule seems to be that where the statute requires the
president or other designated officer of the corporation to record the
articles of incorporation, there is corporate existence even before
such act, since the statute apparently contemplates the complete
given by the secretary of state to be office addresses, and the names and ad-
registered in the register 'a office of the dresses of its officers and directors, so
county in which the principal place of that all persons having occasion to
business of the corporation is situated, transact business with such corpora-
with the facsimile of the great seal of tion may go to the recorder 's office and
the state, the existence of a corpora- obtain all necessary information.
tion cannot be attacked, where the Undoubtedly, the legislature had the
certificate has been registered, because right to impose this condition upon
the facsimile of the seal is not accu- corporations, and to provide that such
rately drawn. Carpenter v. Frazier, corporations should not be fully or-
102 Tenn. 462, 52 S. W. 858. ganized or proceed to business until
73 Martin v. Deetz, 102 Cal. 55, 41 such condition was complied with, and,
(Am. St. Eep. 151, 36 Pac. 368; Clinton by way of penalty to secure a compli-
Co. V. Schwarz, 175 App. 577;
111. ance with this requirement, to provide
Cresswell v. Oberly, 17 App. 281.
111. that, unless the company 'shall be or-
74 Humphreys v. Mooney, 5 Colo. ganized and shall proceed to business
282; Curtis v. Meeker, 62 111. App. 49; as provided in this act within two
Forest Glen Brick & Tile Co. v. Gade, years after the date of such license,
55 111. App. 181; SwofCord Bros. Dry then such license shall be deemed re-
Goods Co. V. Owen, 37 Okla. 616, 133 voked, and all proceedings thereunder
Pao. 193. See also Chap. 10, infra. void.' This language does not leave
75 Loverin v. McLaughlin, 161 111. any room for construction. The result
417, 44 N. E. 99, followed in Hamill of a failure to comply with the stat-
V. Watts, 180 111. App. 279. ute is a revocation of the license and
"The requirement in section 4 of the nullification of all subsequent pro-
our statute that the charter of the com- ceedings. The courts have no power
pany shall be recorded in the office of to say that a corporation still survives,
the recorder of deeds of the county or that it may
be resurrected after a
within which the corporation has its sentence of death has been passed upon
principal ofS.ceis manifestly for the it by the legislature. We see no es-
purpose of giving publicity to the fact cape from the conclusion that the fail-
that a corporation has been organized, ure to record the certificate of the sec-
its name, the purposes for which or- retary of state, and the copies of the
ganized, the amount of the capital papers attached thereto, within two
stock, and whether the same has been years is fatal to the legal existence of
paid in cash or in property, and what this corporation." People v. Mackey,
proportion in each, together with the 255 111. 144, 99 N. E. 370.
list of the stockholders, with their post
431
§ 216] Private Cobpokatioxs [Cb. 7
organization of the association and the election of officers before the

recording of the artielesJ® However, filing in the county where the
office of the company is located is generally sufficient without also
filing in the county which is its principal place of business." Nor is
it necessary to file a copy in each county where the corporation does
business '* nor that duplicates of the articles of incorporation be

;
filed in any county except the one in which the statute requires a
copy to be filed.'* Filing the articles in the wrong county is ineffec-
tive to create a de jure corporation.^"
In some the statutes require a filing not only with the county
states,
clerk and secretary of state, but also in every coimty in the state
in which the corporation holds any property.*^ This requirement as
to filing a copy of the articles in the county where the business is
located as well as with the secretary of state is applicable, in some
states, only to certain kiuds of corporations.^
Sometimes the question arises whether the filing with the state
officer, such as the secretary of state, is not of itself sufficient, and
this depends largely on the wording of the particular statute. In

some jurisdictions there is no corporate existence where the articles
are not filed in both the places required by the statute :
^ but there
may be a corporation de facto where a certificate is filed with the
secretary of state, although there was not a preliminary fJing with
the county clerk as required by statute.**
76 Xe^^ comb-Endieott Co. v. Fee, 167 82 Meyer-Cord Co. v. Hill, S4 Xeb.

Mich. 574, 133 N. TV. 540 (holding that S9, 120 N. W.
951 (holding that statu-
only the state can question the failure tory provision does not apply to manu-
to record the articles with the county factoring corporations),
clerk). 83 Harrill v. Davis, 168 Fed. 1S7, 22
IT Young Keversible Lock-Nut Co. v. L. E. A. (N. S.) 1153, rev "g Western
Young Lock-Nut Co., 72 Fed. 62. Inv. Co. v. Davis, 7 Indian T. 152, 104
78 St. Louis & S. F. E. Co. v. South- S. W. 573 (decided under law of In-
western Telephone & Telegraph Co., dian Territory, the statute of which
121 Fed. 276. was taken from Arkansas} 'VVeehsel-
:
79 St. Louis & S. F. E. Co. v. South- berg v. Flour City Xat. Bank, 64 Fed.
western Telephone & Telegraph Co., 90, 26 L. E. A. 470; Garnett v. Eiehard-
121 Fed. 276. son, 35 Ark. 144; Doyle v. Mizner, 42
80 Martin v. Deetz, 102 Cal. 55, 41 Mich. 332, 3 N. W. 968; Capps v. Hast-
Am. Eep. 151, 36 Pae. 368.
St. ings Prospecting Co., 40 Xeb. 470, 24
81 California Savings i- Loan Society L. E. A. 259, 42 Am. St. Eep. 677, 5S
V. Harris, 111 Cal. 113, 43 Pae. 525 N. W. 956; Abbott v. Smelting & Ee-
(construiug statute as requiring cer- fining Co., 4 Xeb. 416.
tifiedcopy of copy on file with secre- 84 De "SVitt v. Hastings, 40 X. Y.
tary of state to be filed). .
Super. Ct. 463.
432
Oh. 7] Cbeation Undeb General. Laws [§ 217
§ 217. —
With state officer. In many states the filing of the in-
corporation papers with the secretary of state, or other state officer,
is a condition precedent to corporate existence. ^^ This is often so
although the statutory requirement as to recording a duplicate in the
town or county clerk's office has beeii complied with.'^
In some states the incorporation papers must first be filed with
a county officer and then a duplicate or copy filed with the secretary
of state ; and in such a case it has been held that there is no corporate
existence until both acts are performed, it not being sufficient to
merely file with the county clerk."

In New York, on the other hand, it has been held that the pro-
vision as to filing a duplicate with the secretary of state is merely
directory, and that a compliance is not essential to incorporation.^*
Nor is the filing of a duplicate with the secretary of state a condition
precedent to corporate existence under a statute which provides that
"the corporation may commence business as soon as the articles are,
filed for record in the office of the county court clerk. ^^ And in '
'
Illinois, under the Act of 1849, it was held that the omission to file
a duplicate certificate of organization in the oflSee of the secretary of

statewas not fatal to corporate existence, where the statute provided
that when "the certificate shall have been filed as aforesaid" the in-
corporators shall be a body corporate.®" This construction was also
placed upon a like provision in the California statute.'^
85 V. Moore, 68 N. Y. App. Div.

Card should date from such filing, the filing
327, 74 N. Y. Supp. 18, aft 'd 173 N. Y. of a copy of the articles themselves
598, 66 N. B. 1105 (construing Con- with the secretary of state, as well as
necticut statutes) ; Perrine v. Levin, the filing of the articles in the reeord-
123 N. Y. Supp. 1007. But see State er's oface, was held a condition pre-
V. Searles,86 Neb. 259, 125 N. W. 590 cedent to incorporation. Hurt v. Salis-
(holding statutory requirement not ap- bury, 55 Mo. 310.
plicable to building and loan corpo: 88 Rassbeck v. Desterreicher, 55
rations). How. Pr. (N. Y.) 516.
86 Card V. Moore, 68 N. Y. App. Div. 89 Walton v. Eiley, 85 Ky. 413, 3
327, 74 N. Y. Supp. 18. S. W. 605, overruling Heinig v. Adams
87 Garnett v. Richardson, 35 Ark. & Westlake Mfg. Ky. 300, fol-
Co., 81
144; Indianapolis Furnace & Mining lowed in Portland & G. Turnpike Co.
Co. V.Herkimer, 46 Ind. 142; Sims v. v. Bobb, 88 Ky. 226, 10 S. "W. 794.
Com., 114 Ky. 827, 71 S. W. 929; Hurt 90 Cross v. Pinckneyville Mill Co.,
V. Salisbury, 55Mo. 310. 17 111. 54.
Where a general law authorizing the 91 And it was held that a provision
formation of corporations required which required a certificate of incor-
that the articles of association should poration to be filed in the office of the
be filed in the recorder's office, and a clerk of the county in which the pro-
copy with the secretary of state, and posed corporation was to do business,
declared that corporate existence and a duplicate in the office of the sec-
433
I Priv. Corp.— 28
§ 217] Private Coepokations [Ch. 7
"Where the statute requires the secretary of state to issue a certifi-
cate of the filing of the articles of incorporation, and that "there-

upon" the signers shall be a body corporate, the issuance of the
certificate is a necessary prerequisite to corporate existence.'*
§ 218. — Subsequent papers. The filing of the original articles of

incorporation may be a condition precedent to corporate existence
while the filing of subsequent papers may not be a condition preced-
ent.*' For where articles called a charter are required by
instance,
statute to be filed with the secretary of state, and then the charter
is to be passed on by the attorney general, and, if approved, he is to
certify such approval to the secretary of state, who then appoints

three persons to certify as to the payment of stock or the possession
of capital and assets required by law, and the statute then provides
that copies of the certificate shall be filed with the secretary of state
who must then furnish the corporation with a certified copy of the
eharter and certificates which,upon being filed with the county clerk,
shall be authority to commence business; the filing in the clerk's office
of the copy of certificates and charter furnished by the secretary of
state is not a condition precedent to corporate existence.'* In any
event, the failure to file a subsequent certificate does not, it would
seem, prevent the existence of a de facto corporation.'* So it has
been held that the filing of the certificate of organization made by
the president and directors is not a condition precedent to the legal
existence of the corporation.'®
§ 219. —
What constitutes filing. In order to constitute a filing,
it is necessary not only that the papers should be left with the officer
retary of state, and that, "when the The failure of the officers of a manu-
certifieate" should be "filed as afore- facturing corporation to file the veri-
said, " the persons executing the same fied certificate formerly required by
and their successors should be a cor- Minn. Gen. §137, did
St. 1878, c. 34,
poration, made filing the certificate in "»* ^fEeet the existence of the eorpora-
the county clerk's office a condition
*i°°- ^^ ""^ Shakopee Mfg. Co., 37
,.,..,,„,. J 1-
precedent, but that filing a duplicate
4. Minn. 91, 33 N. W. 219.
..,, _ , ,,. ,
^ .^^ „ ^ : 94 Johns V. People, 25 Mich. 499.
with ^^ ^
the secretary of state
•'
,
was merely ». t> i -o i a a on t„
96 Baker v. Backus' Adm'r, 32 111.
i ,
,,, ,
a condition subsequent. Mokelumne .„
Hill Canal & Mining Co. v. Woodbury, jg j^^^^ g^g^j ^^j^ ^ ^.^^^j^g ^^ ^
14 Cal. 424, 73 Am. Dec. 658. Whittier, 117 Mass. 451; Hawes v. An-
92 Wall V. Mines, 130 Cal. 27, 62 Pae. glo-Saxon Petroleum Co., 101 Mass.
386. Merrick v. Reynolds Engine
385j &
93 Ryland v. Hollinger, 117 Fed. 216. Governor Co., 101 Mass. 381.
434
Ch.7] Creation Undeb Genebal. Laws [§220
at his office, but also that they be received and retained by the
officer as papers on file.*'
There is no filing where a person goes to the officer to file papers,

but on refusal to pay the filing fees he leaves the office, taking the
papers with him with the consent of the officer."
The
fact that the indorsement of filing of the articles is not signed
is immaterial where they were actually delivered to and received by
the proper officer."
§ 220. —
Distinction between filing and recording. Statutes some-
times require "filing" in one office and "recording" in another.
Incorporation papers may be "iiled" without being "recorded,"^
and the leaving of the papers temporarily to be recorded and thpn
withdrawn is not a substantial compliance with a statute requiring
the papers to be filed.^
There is no de jure corporation where the articles of incorporation,
97 state V. Chicago & E. I. R. Co., 145 able to clearly define the respect where-
Ind. 229, 43 N. E. 226. in the mere recording and removal of
Chicago & E.
98 State V. I. R. Co., 145 the papers from the office fails to
Ind. 229, 43 N. E. 226. serve the full purpose which the leg-
99 Owensboro Wagon Co. v. Bliss, islature intended to accomplish by the
132 Ala. 253, 31 So. 81. filing of them. The legislature, no
Under a statute requiring a declara- doubt, had good and sufficient reasons
tion for incorporation to be filed in the for its choice of means to promote its
office of the probate judge, it was held purpose. For the court it is not a
that, in the absence of a statute pre- question of equivalents. A
literal fil-
scribing what constitutes filing, it was ing of the papers is necessary because
to be regarded as filed when it was it is so written in the law. The term
delivered to and received by the judge, 'filing' and the verb 'to file,' as re-
and that his failure to sign a certifi- lated to this subject, include the idea
cate of filing indorsed thereon was im- that the paper is to remain in its
material. It was also held that the proper order on file in the office. A pa-
fact that such certificate referred to per is said to be filed when it is deliv-
the declaration as a "conveyance," ered to the proper officer, and by him
was a mere self-corrective clerical er- received, to be kept on file. Bouv. Law
ror. Owensboro Wagon Co. v. Bliss, Diet. The statute is plain and easy
132 Ala. 253, 31 So. 81. of observance. Valuable rights and
1 Bushnell v. Consolidated Ice Mach. exemption from personal liability are
Co., 138 111. 67, 27 N. E. 596. to be secured by its observance. It is
8 Bergeron v. Hobbs, 96 Wis. 641, 65 no undue severity to require its strict
Am. Rep. 85, 71 N. W. 1056.
St. observance. The defendants had not
"It cannot be doubted that the fil- observed it, and had not secured cor-
ing of the proper papers in the proper porate powers." Bergeron v. Hobbs,
office is made, by the statute, a condi- 96 Wis. 641, 643, 65 Am. St. Rep. 85,
tion precedent to the vesting of cor- 71 N. W. 1056.
porate powers. The court may not be
435
'
§ 221] Peivate Coepoeations [Ch.7
although filed for record, are not recorded, where the statute requires
the articles to be recorded.^
§ 221. —
Recording copy or original. An extreme illustration of
requiring strict compliance with the statutes is shown by a decision
' '
that where a statute requires ' a copy of the articles of association,
verified under oath, to be recorded in the o£&ce of the register of
deeds, the recording of the original instead of a verified copy is
insufficient.*
§ 222.
— '
' Duplicate
'
' as distinguished from '
' copy.
'
' It has been
held that if the statute requires a "duplicate" to be filed with the
secretary of state, it is not sufficient to file a certified copy of the
articles as recorded in the county clerk's office.* On the other hand,
it has been held that if a duplicate is required to be filed with the
secretary of state, the original need not be filed, but a copy is suffi-
cient.^ However, where a certified copy is filed, there is a de facto
3 Byronville Creamery Ass 'n v. over another, the question was

Ivers, 93 Minn. 8, 100 N. W. 387; John- one for resolution by the legislature
son V. Okerstrom, 70 Minn. 303, 73 N. and not by the courts. They having
W. 147. prescribed the copy, with the inci-
4Slocum Head, 105 Wis. 431, 50
V. dental authentication resulting from
L. E. A. 324, 81 N. W. 673. the affidavit thereto, it is not for the
"The before us failed to
parties courts to declare something else suf-
comply with the requirement that they ficient, although it may seem to them
should record a copy of their articles, equally efficient. The statute was
verified by two of the signers as being plain, and the defendants, to secure
a true copy. Instead they recorded the its benefits,should have complied ex-
original. Whether the record of actly with this requirement. Slocum '
'
the original might have accomplished V. Head, 105 Wis. 431, 433, 50 L. E. A.
the same purposes of publicity as 324, 81 N. W. 673.
would such verified copy is a question 5 Nelson v. Blakey, 54 Ind. 29.
upon which opinions may differ. It "A duplicate is an original instru-
may well be thought that the record ment, just as much so as the original
of a paper bearing no evidence of au- article of which it is a duplicate. It
thentication by any official lacks ele- must be executed by the same parties,
ments of ostensible authenticity which in the same manner, with the same for-
were deemed by the legislature neces- malities, and must contain the same
sary, and which would be supplied by matter, as an original instrument; else,
the presence of an affidavit, verified it is not a duplicate of such original
before a competent officer, that the instrument. A

certified copy of a
paper so recorded was a copy of an record of articles of association is not
existing original, impliedly thereby a duplicate of such articles." Nelson
authenticating, iby oath, the exist- v. Blakey, 54 Ind. 29.
ence of such original. If two BLogansport Gaslight & Coke Co. v.
opinions may be held as to the Knowles, Fed. Cas. No. 8,466 (con-
superior advantage of one method struing Indiana statute).
436
Ch. 7] Cbeation Under Geneeal, Laws [§ 225
;
corporation ''
and error in filing a certified copy of the articles of
association, instead of a duplicate, with one of the two depositaries
designated by statute, does not preclude the existence of a de facto
corporation.*
§223. — Time and sufficiency of record. The time for filing a

certificate as to stock being paid up is sometimes held merely di-
rectory.^
In Illinois, the recording of the certificate after the expiration of
the two years from the date of the license is of no effect.^"
Mistakes of the recording ofiicer do not affect the question of cor-
porate existence.^^
The failure to make an exact facsimile of the great seal of the state
in registering the certificate of registration given by the secretary of
state is immaterial where the seal was spread upon the record.^^
§ 224. —
Filing as relating back. Upon the filing of the articles,
itseems that the existence of the corporation does not relate back to
the adoption of the articles of incorporation and the election of
officers.^'
IV. FEES
§ 225. Necessity for payment and amount. fee for the filing of A
the articles or certificate is generally required to be paid to the secre-
tary of state or other officer in whose office they are filed:^* By many of
7 Williamson v. Kokomo Building & Walton v. Eiley, 85 Ky. 413, 3 S. W.

Loan Fund Ass 'n, 89 Ind. 389. 605.
8 Hudson V. Green Hill Seminary, 12 Carpenter v. Frazier, 102 Tenn.
113 111. 618. 462, 52 S. W. 858.
9 Veeder v. Mudgett, 95 N. Y. 295, Middle Branch Mut. Tel. Co. v.
13
315. Jones, 137Iowa 396, 115 N. W. 3 State ;
10 People V. Maekey, 255 111. 144, v. American Medical College, 59 Mo.

99 N. E. 370. App. 264.
11 Walton V. Riley, 85 Ky. 413, 3 11 Edwards v. Denver & E. G. R. Co.,
S. W. 605; Veeder v. Mudgett, 95 N. 13 Colo. 59, 21 Pac. 1011; In re Union
Y. 295, 315. American Church, 1 Chest. Co. Kep.
Where the clerk of the county court (Pa.) 459. See also Combined Saw &
certifies that they are lodged for rec- Planer Co. v. Flournoy, 88 Va. 1029,
ord and duly recorded, it will be pre- 14 S. E. 976.
sumed that they were recorded in tho Such a provision applies to a rail-
proper book. The acts of the corpora- road corporation formed by purchase
tion are not rendered invalid because of franchises and other property of
they are recorded in a "deed book" several insolvent companies. People
instead of"a book kept for that pur- v. Cook, 47 Hun (N. Y.) 467.
pose," as required by the statute. A statute requiring the payment of
437
.
the statutes, thepayment of such incorporation fee is a condition pre-

cedent to corporate existence.^* However, failure to comply with a pro-
vision requiring a fee to be paid the state before the corporation
"shall be organized" does not prevent corporate existence.^^ But
thereis some authority, principally dicta, for the view that a statutory
provision that no company shall "have or exercise any corporate

powers" payment of a bonus on the amount of the capital
until
stock, precludes corporate existence before the payment of such fees.^'
Under some statutes, the ofiScer cannot be required to file the articles
of incorporation before the fee is paid,^* and, furthermore, has no
authority to file the papers before payment of such fee.^^ But under
some statutes the failure to pay the fee does not preclude the associa-
tion from becoming a de facto corporation.*"
Certain kinds of corporations, such as those formed for benevolent,
religious, scientific or educational purposes, are sometimes expressly
exempted from liability for such fees.*^ Moreover, statutes requiring
a specified fee to be paid for the first fifty thousand, or any part
thereof, of the capital stock, do not apply to corporations organized
without capital stock and not for pecuniary profit.** Thus, payment
of fees required as dependent oh the amount of the capital stock is
not necessary in case of an educational institution in which no stock
has been issued and which is not intended for profit.*' These statutes
a certain per cent, of gross earnings, Atl. 19; Cleaveland v. MuUin, 96 Md.
made applicable to old as well as new 598, 54 Atl. 665.
corporations, is a tax and not a fee for 18 Scheidel Coil Co. v. Rose, 242
incorporation. Attorney General v. HI. 484, 90 N. E. 221; People v. Cook,
Winnebago Lake & F. E. Plank-Eoad 10 N. T. St. 650, aff'd 110 N. Y. 443,
Co., 11 Wis. 35. 18 N. E. 113.
In Illinois, a railroad corporation 19 State v. Chicago & E. I. K. Co.,
must pay the same fees as other cor- 145 Ind. 229, 43 N. E. 226.
porations. People v. Eose, 210 111. 20Owensboro Wagon Co. v. Bliss,
582, 71 N. E. 580. 132 Ala. 253, 31 So. 81. See also Chap.
Union Horse-Shoe Works v. Lewis,
IS ^^> i"fra.
t'ed. Cas. No. 14,365; National Shutter " ^tate v. Lesueur, 99 Mo. 552, 7
Bar Co. v. G. F. S. Zimmerman & Co., ^- « ^- ^34, 13 S. W. 237 (holding club

'"^ debating, reading, social amuse-
no Md. 313, 73 Atl. 19; Cleaveland v.
games as ten-
Mullin, 96 Md. 598, 54 Atl. 665 (where "l^"*^' f^y^^Sî^^'^^
' '
, , pins, chess, checkers, etc., was for
nonpayment held to preclude recovery , ,
eaêational ' ' purposes)
of stock subscription). 22 State v. Sehmahl, 118 Minn. 319,
18 Hughesdale Mfg. Co. v. Vanner, 135 jj_ -yy gyg,
12 E. I. 491. 23 Michigan Female Seminary v. Seo-
17 National Shutter Bar Co. v. C. F. retary of State, 115 Mich. 118, 73 N.
S. Zimmerman & Co., 110 Md. 313, 73 W. 131.
438
.
do not ordinarily apply to foreign corporations on filing their

charters.'^*
Fees are also often provided for on increasing the capital stock.*'
But if an amendment to the charter is filed and it does not increase
the capital stock, an additional fee dependent on the amount of the

stock is Thus, if the fee is made payable "upon the
not necessary.**
incorporation of the company and on the increase of the capital stock
thereof," no new fee is necessary when a corporation proceeds to
extend its corporate existence by amendment.*'' So if a corporation
has once paid the fee, which is based on the amount of the capital
on a reduction of the capital stock,
stock, n'o additional fee is necessary
where the statute merely provides for another fee on an increase
of thfe amount of the capital stock ** and where the old corporation
;
is continued" under a slightly changed name, with no change in its
scope and powers, no new fee is necessary.*' On the other hand, if

a corporation already existing, seeks the benefits arising from the
general corporation laws, by organizing or amending under them,
and it has not previously paid the incorporation fee or tax, it must
pay such fee as a condition.^'
Wherfe a fee payable on an increase of the capital stock, the
is
amount is by the statute in force at the time of the

to be determined
actual increase, rather than by the statute in force at the time of
thV legislative authorization to increase the capital stock.^^
If the fee is paid on the amount of capital stock for which the
company was originally incorporated, and thereafter the amount of
stock is decreased, but subsequently is increased in excess of the
original amount, the fee on the increase is to be based on the excess
over and above the original amount of capital stock, rather than on
the excess over the decreased amount.'*
24 State V. Eotwitt, 18 Mont. 87, 44 27 Ohio Valley Tie Co. v. Bruner,

Pac. 409. 148 Ky. 358, 146 S. W. 749.
2B People V. Hinrichsen, 161 111. 223, 28 Bruner v. Louisville Packing Co.,
43 N. E. 973 (holding statute requir-^ 144 Ky. 471, 139 S. "W. 764.
ing such fee in case of all companies 29 Bruner v. Louisville Packing Co.,
"at present organized" applies to cor- 144 Ky. 471, 139 S. W. 764.
porations subsequently organized) SO Ohio M alley Tie Co. v. Bruner, 148
26 St. Louis Southwestern E. Co. of Ky. 358, 146 S. W. 749, following Com.
Texas v. Tod, 94 Tex. 632, 64 S. W. 778 v. Licking Valley Bldg. Ass 'n, 118 Ky.
(where statute provided for fee of 791, 82 S. W. 435.
$100 for the every charter,
filing of '
' 31 Com. v. Independence Trust Co.,
amendment or supplement thereto," 233 Pa. 92, 81 Atl. 928.
with an additional fee for every 32 Com. v. Independence Trust Co.,
$100,000 of stock after the first). 233 Pa. 92, 81 Atl. 928.
439
§ 225] , Private Coepoeations [Ch. 7
Wtere the statute fixes a fee for incorporating in proportion to the

amount of the capital stock, and then provides for a fee of five dollars
for filing a certificate of increase of capital stock, the secretary of
state cannot refuse to file a certificate of increase of stock from five
thousand dollars to one million dollars, although the purpose to avoid

the payment of larger fees is clearly evident.*'
Where sought to organize a new corporation, there is no exemp-
it is
tion from the payment of fees, unless otherwise provided hy statute,

because the corporation is to be organized by the consolidation of
two corporations which have paid fees on their capital stock.**
Statutes requiring the payment of a fee on filing articles of con-
solidation have been held applicable to articles of consolidation be-
tween a domestic company and a foreign company, as well as to
articles of consolidation between domestic companies only.'*
Fees paid without duress cannot be recovered back although col-
lected under an erroneous construction of the law under which they
were claimed.*^
V. CHARTER
§226. What constitutes. What constitutes the charter of a cor-

poration, as affecting construction of the charter, is considered in a
su^jsequent chapter."' Strictly speaking there is no charter where a
corporation is created under a general law. However, the incorpora-
tion papers, whether called articles of incorporation, application for
incorporation, certificate of incorporation, or any other term, together
with the signature, seal or decree of approval, are often referred to as
the charter, although as a matter of law, the so-caUed charter consists
of such papers and the statutes under which the corporation is
created." In other words, the provisions of the statute or general
33 state V. Eotwitt, 17 Mont. 537, 43 Lucas Prospecting Co., 124 Iowa 107,
Pac. 922. 99 N. W. 290; Attorney General v.
34 Scheidel Coil Co. v. Eose, 242 111. Perkins, 73 Mich. 303, 41 N. W. 426.
484, 90 N. E. 221; People v. Kiee, 68 The charter of a fraternal benefit
Hun (N. Y.) 24, 22 N. T. Supp. 631. organization, created a corporation, is
35 Ashley v. Eyan, 49 Ohio St. 504, the certificate of organization granted
31 N. E. 721. to it by the state and the statutes or
36 Alton Light & Traction Co. v. the state which provide for the organi-
"Eose, 117 111. App. 83. zation of such associations and define
37 See Chap. 20, infra. their powers. Wood v. Supreme Eul-
38 Ozan Lumber Co. v. Biddie, 87 ing Fraternal Mystic Circle, 212 111.
Ark. 587, 113 S. W. 796; McCallister v. 532, 72 N. E. 783; Sherry v. Women's
Shannondale Co-operative Tel. Co., 47 Cath. Order of Foresters, 166 111.
Ind. App. 517, 94 N. E. 910; Traer v. App. 254.
440
Cli. 7] Ckeatiox Under General Laws [§227
incorporation act enter into and form a part of the charter,^' and
the incorporation papers and statute are to be construed together,
the latter controlling in case of a conflict.*'*
It is not necessary that the general law should be copied in the
charter, but it forms an essential part of it, and all parties are bound
by its terms, whether copied in the charter or found only on the
statute book.*^ Moreover, constitutional provisions automatically be-
come a part of the charter.*^
§227. Ac'ceptance. It has been held that the rule requiring an

acceptance of a charter** "has no application whatever to corpora-
tions formed under general laws * * * where the corporators
are the acting party in creating the corporation. '
'
**
The signature of the articles of incorporation is in effect an accept-

ance.*^ At any event, seems that stronger proof of acceptance is
it
necessary when the corporation is created by a special act of the

legislature,** and that the charter need not be accepted by any par-
ticular form of action on the part of the incorporators, but the
acceptance may be inferred from the conduct of the incorporators in
acting as a corporation.*''
39 Bixler v. Summerfield, 195 111. 147, the name stated in the articles. It
62 N. E. 849. would be idle, under such circum-
40 See Chap. 20, infra. stances, to require further proof that
41 Supreme Lodge, Knights of Pyth- the corporators had accepted that
Va. 605, 25 S. E. 891.
ias V. "Weller, 93 which they had in express terms ap-
42 Arkansas Stave Co. v. State, 94 plied for, and to obtain which they
Ark. 27, 27 L. E. A. (N. S.) 255, 140 had complied with all the requirements
Am. St. Eep. 103, 125 S. W. 1001; Pio- of the law." Glymont Improvement
neer Telephone & Telegraph Co. v. & Excursion Co. v. Toler, 80 Md. 2T8,
State, 38 Okla. 554, 134 Pae. 398. 30 Atl. 651.
43 See Chap. 8, infra. 4B Benbow
v. Cook, 115 N. C. 324, 44
44 Spring Valley Water Works v. Am. Eep. 454, 20 S. E. 453.
St.
San Francisco, 22 Cal. 434. 46 Boatmen's Bank v. Gillespie, 209
"Upon compliance with th'ese pro- Mo. 217, 108 S. W. 74.
visions [filing, recording, etc.], the 47 Glymont Improvement & Excur-
persons who have
signed and acknowl- sion Co. V. Toler, 80 Md. 278, 30 Atl.
edged the articles of incorporation 651; Boatmen's Bank v. Gillespie, 209
thereby become a corporate body, by Mo. 217, 108 S. W. 74.
441
—
CHAPTER 8
Creation Under Special Acts
§ 228. Constitutional prohibitions against special acts.

§ 229. Exceptions.
i 230. General rules of construction.
§ 231. Corporations within prohibition.
§ 232. What is special act.
§ 233. What constitutes creation of corporation —In general.
§ 234. — Amendment of charter.
§ 235. — Ratification of charter or cure of defects.
§ 236. What constitutes granting or conferring of corporate powers or privileges
In general.
§ 238. Eetroactive operation of prohibition.
§ 239. Acceptance of charter—Necessity.
§ 240. — Conditions precedent.
§ 241. — Conditional or partial acceptance.
§ 242. — Persons accepting.
§ 243. — Time.
§ 244.— Place.
§ 245. — Formal acceptance.
§ 246. — Presumption of acceptance.
§ 247. — Question for jury.
§ 248. — Effect.
§ 249. — Proof of nonacceptance.
§ 228. Constitutional prohibitions against special acts. Formerly,
corporations were created exclusively by special acts that is', by —
acts creating a particular corporation, as distinguishedfrom a general
law allowing any persons to organize themselves into and be a cor-
poration by complying with prescribed conditions; and corporations
may still be created by special act, in the absence of a constitutional
prohibition,' or when such mode of creation is expressly permitted by
1 Oregon Ry. & Nav. Co. v. Ore- A constitutional provision that the
gonian R. Co., 130 U. S. 1, 32 L. Ed. legislature shall have "no power to
837; Downing v. Indiana State Board grant corporate powers and privileges
of Agriculture, 129 Ind. 443, 12 L. R. to private companies," except rail-
A. 664, 28 N. E. 123. road companies, etc., authorizes the
442
Ch.8] Creation Under Special Acts [§228
the constitution.^ When special acts of incorporation are permitted

and such a one is passed, it constitutes the charter of the corporation
created,' and of such charter the court is required to take judicial
notice.*
Provisions have been embodied, however, in the constitutions in this
regard. These provisions are of two general types those prohibiting —
the creation or formation of corporations by special d,cts, and those
prohibiting the granting or conferring of corporate powers by such
acts. Thus in many of the states, in order, among other things,
to remove the danger of favoritism and corruption in the creation
of corporations, there have been adopted constitutional provi-
sions declaring that, with certain exceptions, the legislature shall not
pass any special act creating a corporation, but that corporations shall
be formed under general laws only ; and where there is such a prohibi-
tion, a special act creating a corporation is absolutely void.* The
object of the prohibition is not to prevent the legislature from legis-
lating on a special subject,* nor to prevent corporations from obtaining
exclusive powers, privileges and franchises, but to prevent the legisla-
ture from granting corporate powers, privileges and franchises to one
set of applicants and refusing exactly the same corporate powers, priv-
ileges and franchises to another set of applicants.''
"Everybody who is familiar at all with the history of the growth
legislature to grant a special charter cept as to judgment entered) 48 Atl.

to a railroad company, although by 557; Eoach v. Farmers' Mut. Ins.
another article it is provided that Ass'n, 102 S. C. 478, 86 S. E. 950.
"laws of a general nature shall have 6 School Dist. No. 56 v. St. Joseph
uniform operation throughout the Fire & Marine Ins. Co., 103 U. S. 707,
state, and no special law shall be en- 26 L. Ed. 601; San Luis Water Co. v.
acted in any case for which provision Estrada, 117 Cal.' 168, 48 Pac. 1075;
has been made by an existing gen- City & County of San Francisco v.
eral law," and although the legisla- Spring Valley Water Works, 48 Cal.
ture had adopted a general railroad 493; Oroville & V. E. Co. v. Plumas
incorporation law before the granting County Com'rs, 37 Cal. 354; Low v.
of the special charter. Hawkinsville City of Marysville, 5 Cal. 214; Gilmore

& F. S. Ey. Co. V. Waycross Air Line V. Norton, 10 Kan. 491; Clegg v.
E. Co., 114 Ga. 239, 39 S. E. 844. School Dist. No. 56, 8 Neb. 178 and
ZMeMeekin v. Central Carolina cases cited in the notes following.
Power Co., 80 S. C. 512, 128 Am. St 6 Kentucky Live Stock Breeders'
Eep. 885, 61 S. E. 1020. Ass'n v. Hager, 120 Ky. 125, 9 Ann.
3 LordEquitable Life Assur. So
V. Cas. 50, 85 S. W. 738.
ciety, 47 N. Y. Misc. 187, 94 N. Y, 7 Jersey City v. North Jersey St. E.
Supp. 65, aff'd 109 N. Y. App. Div Co., 73 N. J. L. 175, 63 Atl. 906. See
252, 96 N.Y. Supp. 10. also Gas Light Co. City of New
4 Grey v. Newark Plank Eoad Co. Brunswick v. Borough of South Eiver,
65 N. J. L. 51, 46 Atl. 606, aff'd (ex 77 N. J. Eq. 487, 77 Atl. 473.
443
;
§ 22§] Peivate Coepoeations [Ch. 8
and organization of corporations in the United States knows that this

rule, requiring corporations to be organized under a general law, is
the growth of some years, and has grown out of the confusion, cor-
ruption, 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 ; members of the legislature was unduly exposed
the integrity of the
or, 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 legisla-
ture, giving powers and granting privileges which were unjust, in-
equitable, and which would never have been done with the knowledge
'
of the legislature. * But provisions in an act which, by reason of
'
this prohibition, might invalidate it, were they necessary to the eifec-
tuating ofits purpose, will not thus operate when as a matter of fact
they are superfluous.'

Even though the creation of a corporation by a local or fecial act
is prohibited, the corporate existence of a body thus created a corpora-
tion cannot be attacked collaterally.^"
§229. Exceptions. In some states, the constitutional prohibition

against incorporation by special act contains an exception allowing
such acts, when no general laws exist providing for the creation of
corporations of the same general character as the corporation pro-
8 Wells, Fargo & Co. v. Northern it came at last to be perceived that

Pac. Ey. Co., 23 Fed. 469. See also they were attended by many' evils in
City & County of San Francisco v. their operation as well as much good,
Spring Talley Water Works, 48 Cal. and that the hasty manner in which
493, 511. they were created by the legislatures,
"The rapid growth of corporations, sometimes with exclusive privileges,
which have come to take a part in often without due consideration and
all or nearlyall of the business opera- under the influence of improper mo-
tions of the country, and especially tives, frequently led to bad results."
in enterprises requiring large aggrega- Oregon Ey. & Nav. Co. v. Oregoniau
tions of capital and individual energy, E. Co., 130 U. S. 32 L. Ed. 837.
1, 20,
as well as their success in meeting 9 Vought v. Columbus, H. V. & A.
the needs of a vast number of most E. Co., 58 Ohio St. 123, 50 N. B. 442,
important commercial relations, have aff'd 176 481, 44 L. Ed. 554.
TJ. S.
demanded the serious attention and 10 Com.

Philadelphia County, 193
v.
consideration of law makers. And while Pa. St. 236, 44 Atl. 336.
valuable services have been rendered The subjects of corporate existence,
to the public by this class of organ- de facto corporations and corporations
izatious,which have stimulated their by estoppel are treated in detail else-
formation by numerous special acts, where. See Chaps. 10 and 11, infra,
444
Ch.8] Ceeation Under Special Acts [§229
posed to be created, or where, in the judgment of the legislature, the

objects of the proposed corporation cannot be attained under general
laws. It has been held that a provision of the latter character is
permissive and not mandatory,!^ and that the matter rests wholly in
the discretion of the legislature.^^
The passage of a special act creates the conclusive presumption that
in the judgment of the legislature the objects of the corporation were
not attainable under general laws and that it was for this reason that
the special act was passed.^^ That the legislature passes a special or
local act is considered per se a legislative declaration that a general
law cannot be made applicable;^*
11 Smith V. Havens Belief Fund So- possessing banking powers or privi-

ciety, 44 N. Y. Misc. 594, 90 N. Y. leges, may
be formed under general
Supp. 168. laws, but shall not be created by
"St. Louis, I. M. & T. B. Co. v. special acts, except for municipal pur-
Board Directors Levee Dist. No. 2, poses, and in cases where, in the judg-
Jackson Co., 103 Ark. 127, 145 S. W. ment of the general assembly, the
892; Oneonta Light & Power Co. v. objects of the corporation cannot be
Schwarzenbach, 164 N. Y. App. Div. attained under general laws," said:
548, 150 N. Y. Supp. 76. "It is too late now to make this ob-
13 Economic Power & Construction jection, since, by the action of the
Co.v. City of Buffalo, 59 N. Y. Misc. general assembly under this clause,
571, 111 N. Y. Supp. 443, aff'd 128 special acts have been so long the
N. Y. App. Div. 883, 112 N. Y. Supp. order of the day, and the ruling pas-
1127. sion with every legislature which has
14 Smith V. Indianapolis St. E. Co., convened under the Constitution, until
158 Ind. 425, 63 N. E. 849. See also their acts of this description fill a huge
Jordan v. City of Logansport, 178 Ind. and misshapen volume, and important
629, 99 N. E. 1061; School City of and valuable rights [are] claimed
Marion v. Forrest, 168 Ind. 94, 78 N. under them. The clause has been
E. 187;Thomas v. Spartanburg Bail- wholly disregarded, and it would now
way, Gas & Electric Co., 100 S. C. produce far-spread ruin, to declare
478, 85 S. B. 50; State v. Hammond, such acts unconstitutional and void.
66 S. C. 219, 44 S. E. 797. It is now safer, and more just to all
This doctrine, which also obtains in parties, to declare, must be
that it
Illinois (Herschbach v. Kaskaskia understood that in the opinion of the
Island Sanitary & Levee Dist., 265 general assembly, at the time of pass-
111. 388, 106 N. E. 942), seems to have ing the special act, its objects could
originally been based, in that state not be attained under the general law;
at least, on the ground of expediency. and this, without any recital by way
In Johnson v. Joliet & 0. B. Co., 23 of preamble, as in the act to incor-
111.202, decided in 1859, the Supreme porate the Central Bailroad Company.
Court, considering the contention that That preamble was placed there by
the railroad company's special char- the writer of this opinion, and a strict
ter granted in 1855 was invalid under compliance with this clause of the
the provision in the Illinois Constitu- Constitution would have rendered it
tion of 1848, that "corporations not necessary in every subsequent act.
445
§229] Peivate Cobpobations [Ch.8
There are divergent views as to the effect of the legislature 's deter-
mination of this matter. According to one view, such determination
is not subject to judicial review.**
Onthe other hand, in decisions in which the same principle was
involved, though the acts under consideration did not relate to private
corporations, the view has been taken that the question whether a
general law can be made applicable is ultimately a judicial one.*®
But the legislature in theii wisdom, But see article V, section 30 of the
have thought differently, and have Michigan Constitution, which pro-
acted differently, until now our special vides that "the legislature shall pass
legislation and its mischiefs are beno local or special act in any case
yond recovery or remedy. ' ' This case, where a general act can be made ap-
in Indianapolis & St. L. B. Co. v. plicable, and whether a general act
Vance, 96 U. S. 450, 24 L. Ed. 752, was can be made applicable shall be a
held to dispose of an objection that judicial question."
the special act, passed by the Illinois 18 '
' Whether a given enactment is
legislature, which was then before constitutional, involves interpretation
the court and which contained nothing and construction —
the exercise of
to show that the corporation named purely judicial functions. Policy is
therein might not have been organ- as clearly a question for the legisla-
ized under the general laws of Illinois, ture. The duty of the several branches
could not be construed as creating a of our state government is well de-
new corporation without bringing it fined. No legislative power is con-
into with the constitutional
conflict ferred upon the judiciary; no judicial
provision above quoted. power upon the legislature. It would
IB Smith v. Indianapolis St. E. Co., require very clear language to justify
158 Ind. 425, 63 N. E. 849; Oneonta the assertion that in these amendments
Light & Power Co. v. Schwarzenbach, the people intended to vest judicial
164 N. y. App. Div. 548, 150 N. Y. power in the law-maker. Such a rule
Supp. 76. See also Carpenter v. Peo- would subvert the theory upon which
ple, 8 Colo. 116, 5 Pac. 828; Hersch- our system is framed, and disturb the
baeh v. Kaskaskia Island Sanitary & checks and balances by which it is
Levee Dist., 265 111. 388, 106 N. E. guarded. Whether the legislature has
942; Johnson v. Joliet & C. E. transcended its power, and passed an
Co., 23 111. 202; Jordan v. City of Lo- act in conflict with the Constitution, is
gansport, 178 Ind. 629^ 99 N. E. 1061; essentiallya question of law, and must
School City of Marion v. Forrest, 168 necessarily be passed upon by the
Ind. 94, 78 N. E. 187; Knowles v. courts. These provisions being in-
Board of Education, 33 Kan. 692, 699, corporated into the fundamental law,
7 Pac. 561; State v. Hitchcock, 1 Kan. were designed to establish a fixed and
178, 81 Am. Dec. 503; Eeed v. Balti- permanent rule, but it is manifest that
more Trust & Guarantee Co., 72 Md. nothing could be more flexible, if it
531, 20 Atl. 194; State v. Boone Coun- rests solely in the judgment and dis-
ty Court, 50 Mo. 317, 11 Am. Eep. 415; cretion of the body upon which it is
Evans v. Job, 8 Nev. 322. intended to operate. No standard
Of course these holdings were made couldbe established by which the
under constitutions which contained law-maker could be guided, and what
no express provisions on the subject. might be rejected at one session aa
446
Ch.8] Cbeation Under Special Acts [§230
§230. General rules of construction. The constitutional prohibi-

tion against the creation of corporations by special act is not subject
improper, might become a law at the imbedded in their organic law an

next, and thus the rule would fluc- amendment to prohibit special legis-
tuate with the ever-changing member- lation where general laws might be
ship in that body, and the validity of passed, and, at the same time, should
an act would depend, not so much upon have intended to put legislative action
the fixed rule of the Constitution as beyond review, where there was a, clear
upon the liberality or strictness with infraction of the prohibition, is a
which successive legislatures, under proposition to which it seems impos-
the pressure of local influences, might sible to assent. The mere form in
determine to interpret the restraint which a law is enacted cannot be con-
upon their own action. From one of clusive of the question." Pell v.
the widest fields for the enactment Newark, 40 N. 40 N. J.
J. L. 71, aff'd
of laws, in which the constitutional L. 550, 29 Am. Bep. 266 (involving
restraint was expressly designed to amendment of municipal charter).
operate, not upon the courts, but upon "In determining whether a general
the legislative department, in control- law can be made applicable, the ju-
ling its methods, judicial investiga- diciary should indulge every presump-
tionwould be absolutely excluded. The tion in favor of the legislative act;
judiciary might declare that a law was and 80 it should be presumed that the
unconstitutional because its title em- legislature,by the special or local en-
braced more than one object, or in actment, thereby declared its view
that it had the effect to take private that the general law could not be made
property for public use, without just applicable. This conclusion, however,
compensation, or in any other of the being to some extent at least a ques-
many respects in which the exercise tion of law, would no more bind the
of the legislative function has been judicial department in enforcing a
hitherto challenged; but in this par- constitutional limitation than the leg-
ticular, in which an amendment has islative determination that a statute
been introduced for the express pur- is constitutional, which is presump-
pose of trammeling the law-making tively involved in the passage of

power, its action would be unassail- every statute. * * * It is not in-
able. That such an interpretation tended to recede at all from the rule
would render the amendment futile in stated, that whenever the legislature
its practical operation, must be appar- has power to determine the existence
ent to any one who will examine the of certain facts essential to the per-
course of legislation during the last formance of some duty imposed by the
two years. It cannot be adopted by Constitution, courts will not permit
the courts without abandoning one of evidence aliunde assailing such con-
the most important branches of juris- clusions of fact, with a view to over-
diction committed to them by the throw the legislation based thereon.
constitution. That the legislature But the applicability of a general law
would act in good faith, must be pre- is not simply a question of fact, it in-
sumed; purity of motive and a desire volves matter of law; and it is not
to keep within the prescribed limita- intended by this court now to assert
tions must be conceded to its mem- that, when the legislature has said
bers at all times: but that the people that a general law cannot be made
should have deliberately framed and applicable, such conclusion may be
447
230] Pbivate Cobpobations [Ch.8
to-exact definition,!'' and in determining the applicability of the

prohibition against special or private acts granting corporate powers
or privileges except to cities, it would seem that the spirit of the
prohibition rather than its letter is to control.^'
In determining the construction to be placed on the constitutional
prohibition, the absence of a constitutional requirement that legislation
be uniform,!' legislative exposition of the prohibitory provision,*" the
situation of the state's corporation law as regards the existence of
bad and vicious special charters,*^ and expediency, would seem to be
factors to be considered.** Moreover, it is undoubtedly true that the
usual presumption of validity should be given its proper weight in
determining whether an act is violative of the prohibition,*^ and that

an act which can reasonably be construed in such a manner as will
prevent its violating the constitution will not be given a construction
which will bring it into conflict therewith.**
controverted by any evidence outside cept as a precedent, on the question

of what appears upon the face of the of the character of a New Jersey act
statute, and upon such matters as to authorizing the extension of corpo-
which a court must take judicial cog- rate charters the case of State v.
nizance." State V. Hammond, 66 S. Lawrence Bridge Co., 22 Kan. 438,
C. 219, 44 S. B. 797 (involving crimi- in which a Kansas act similar to the
nal statute). See also Thomas v. New Jersey one was held to be spe-
Spartanburg Railway, Gas & Electric cial in character, stating that an ex-
Co., 100 S. C. 478, 85 S. E. 50 (involv- amination of the opinion in that case
ing penal statute). disclosed "that the situation of the
17 Marion Trust Co. v. Bennett, 169 corporation law of that state [Kan-
Ind. 346, 124 Am. St. Eep. 228, 82 N. sas], at the time of the decision, was
E. 782. very different from the body of the
18 Globe Elevator Co. v. Andrew, corporation law of New Jersey.")
144 Fed. 871, aflf'd 156 Fed. 664. 22 Black River Improvement Co. v.
18 City of Lansing v. Michigan Holway, 87 Wis. 584, 59 N. W. 126
Power Co., 183 Mich. 400, 150 N. W. (numerous investments upon, and
250. growth of large interests as result of,
20 Smith V. Indianapolis St. R. Co., assumption that legislation of char-
158 Ind. 425, 63 N. E. 849; In re Bank acter attached was valid).
of Commerce, 153 Ind. 460, 47 L. R. A. Duffy v. City of New Orleans, 49
23
489, 53 N. E. 950, 55 N. E. 224; City La. Ann. 114, 21 So. 179; St. Joseph
of Indianapolis v. Navin, 151 Ind. 139, & I. R. Co. V. Shambaugh, 106 Mo. 557,
41 L. R. A. 337, 51 N. E. 80, 47 N. 17 S. W. 581.
E. 525; Duflfy v. City of New Orleans, 24 Central Wisconsin Trust Co. v.
49 La. Ann. 114, 21 So. 179; Black Barter, 194 Fed. 835, aflf'g 185 Fed.
River Improvement Co. v. Holway, 192; Smith v. Indianapolis St. R. Co.,
87 Wis. 584, 59 N. W. 126. 158 Ind. 425, 63 N. E. 849. See also
il Jersey City v. North Jersey St. Gas Light Co. of City of New Bruns-
"8. Co., 73 N. J. L. 175, 63 Atl. 906. wick V. Borough of South River, 77
(In this case the court declined to ac- N. J. Eq. 487, 77 Atl. 473; Jersey City
448
Ch. 8] Creation Undee Special Acts [§ 231
The federal courts will accept the judgment of the highest court o-f
a state that the act creating a corporation is not invalid as a special
act within the prohibition of the state constitution, unless a contrary-
view demanded by most cogent reasons involving or affecting the
is
constitutional and statutory jurisdiction of the federal courts.''* With

the policy, justice or wisdom of an act, the courts are not concerned
so long as it cannot he said that the act contravenes the constitutional
provision.**
The court cannot set up its judgment whether an act which was
within the legislative power was a wise exercise thereof, its duty where
a valid act is involved being to enforce rather than to obstruct the
legislative will.*^
§231. Corporations within prohibition. The fact that a body is
declared to be a corporation,** or a body politic or corporate,*® or is

'
denominated a corporation,*" or is given all the rights, powers and '
immunities incident to corporations,"'^ by the act which creates it

does not definitely determine that it is a corporation as that ward is
used in the constitution. The court will "look behind the name to the
thing named. and its functions determine
Its character, its relations,
its position, and not the mere under which it passes."'*
title
Some of the state constitutions prohibiting incorporation by special
V. North Jersey St. R. Co., 73 N. J. L. 31 Duflfy v. City of New Orleans, 49
175, 63 Atl. 906. La. Ann. 114, 21 So. 179 (commission

26 Thomas v. Board Trustees Ohio for part of New Orleans).
State University, 195 U. S. 207, 49 32 Beach v. Leahy, 11 Kan. 23, ward
L. Ed. 160. school board held to be a corporation
Cincinnati St. E. Co. v. Horstman,
26 within the meaning of the prohibi-
72 Ohio. St. 93, 73 N. E. 1075. tion. Board School Directors Madi-
27 Smith V. Indianapolis St. E. Co., son Parish v. Coltharp, 127 La. 956,
158 Ind. 425, 63 N. E. 849. 54 So. 299. Sanitary district would
28 Napa State Hospital v. Dasso, seem to be a corporation within the
153 Cal. 698, 18 L. E. A. (N. S.) 643, meaning of the prohibition. Whedon
15 Ann. Cas. 910, 96 Pae. 355 (state v. Wells, 95 Neb. 517, 145 N. W. 1007.
hospital for insane). Municipal as well as private eor-
29 Com. V. Philadelphia County, 193 porations are within a provision that
Pa. St. 236, 44 Atl. 336 (trustees of "corporations, other than banking,
state hospital for insane). shall not be created by special act."
30 Middleton v. Texas Power & Light Town of Longview v. City of Craw-
Co., — Tex. — , 185 S. W. 556 (in- fordsville, 164 Ind. 117, 68 L. E. A.
Burance association created by the 622, 3 Ann. Cas. 496, 73 N. E. 78,

Texas Workmen 's Compensation Act A city would seem to be a corporation
and therein denominated "a corpora- within the meaning of a prohibition
tion"). against local or special acts granting
449
I Priv. Corp.— 29
;
231] Pkivate Cokpobations [Ch.8
act expressly except corporations of a certain kind, as, for example, —

municipal corporations, or corporations having in view the issuing of
bills to circulate as money, or the construction of some work of internal
improvement, etc.''
§232. What is special act. A special, as distinguished from a

general, law is one relating to particular persons or things of a class.
charters to or amending charters of corporate powers. Van Cleve v.

corporations. Bryan v. Voss, 143 Ky. Passaic Valley Sewerage Com'rs, 71
422, 136 S. W. 884. N. J. L. 183, 58 Atl. 571, rev'd on an-
The following have been held not other point, 71 N. J. L. 574, 108 Am.
to be corporations within the mean- St. Eep. 754, 60 Atl. 214.
ing of the prohibition: levee district An act granting to certain persons
(St. Louis, I. M. & T. E. Co. v. Board "and their assigns" the exclusive
Directors Levee Dist. No. 2, Jackson right to supply a town with water,
Co., 103 Ark. 127, 145 S. W. 892; prescribing certain duties, and author-
People V. Levee Dist. No. 6, Sutter izing the town '
to purchase the works
'
Co., 131 Cal. 30, 63 Pac. 676; Fenner and franchises" after a certain time,
V. Board Com'rs Bed Eiver, A. & B. was also held not to create a corpora-
B. Levee Dist., 137 La. 557, 68 So. tion, and not within such a prohibi-
953; Beelfoot Lake Levee Dist. v. tion. San Luis Water Co. v. Estrada,
Dawson, 97 Tenn. 151, 34 L. E. A. 725, 117 Cal. 168, 48 Pac. 1075.
36 S. W. 1041) ; library board (School But the board of trustees of teach-
City of Marion v. Forrest, 168 Ind. ers ' retirement fund was held a corpo-
94, 78 N. E. 187) ; normal college cre- ration of a political character if a
ated for purpose of enabling state to corporation at all, and hence not
discharge its duty of providing a within prohibition. Allen v. Board
complete system of schools and col- Education City of Passaic, 81 N. J. L.
leges (Turner v. City of Hattiesburg, 135, 79 Atl. 101, afE'd 86 Atl. 1102.
98 Miss. 337, 53 So. 681; Turner v. School district is municipal cor-
33
County of Forrest [Miss.], 53 So. 684) poration within provision excepting
reclamation district (Eeclamation corporations for municipal purposes.
Dist. No. 70 V. Sherman, 11 Cal. App. Board Education Union Free School
399, 105 Pac. 277); school district Dist. No. 6 v. Board Education Union
(State V. State Board of Canvassers, Free School Dist. No. 7, 76 N. Y. App.
78 S. C. 461, 14 L. E. A. (N. S.) 850, Div. 355, 78 N. Y. Supp. 522, aff'd
13 Ann. Cas. 1133, 58 S. F. 145) state ; 179 N. Y. 556, 71 N. E. 1128. See also
board of control of certain public in- cases cited in preceding note. A cor-
stitutions (State V. Bryan, 50 Fla. poration created for the purpose oi
293, 39 So. 929); state hospital for constructing and maintaining a pipe
insane (Napa State Hospital v. Dasso, line in an oil district for the convey-
153 Cal. 698, 18 L. E. A. (N. S.) 643, ance or transportation of petroleum
15 Ann. Cas. 910, 96 Pac. 355, 357); for the public generally has been held
township trustees (Brattleboro Sav. to be a corporation for constructing a
Bank v. Board of Trustees, 98 Fed. 524, work of internal improvement, within
afT'd Fed. 986).
106 Political cor- the meaning of such an exception.
poration (sewerage district) held not West Virginia Transp. Co. v. Volcanic
within prohibition against conferring Oil & Coal Co., 5 W. Va. 382.
450
A law becomes special within the meaning of the constitution when by

force of an inherent limitation it arbitrarily separates or segregates
some person or thing upon which, but for such limitation, it would
operate.^*
34 state Columbia, G. & S. F.

V. take notice, unless they be formally
Turnpike 133 Tenn. 446, 181 S.
Co., shewn and pleaded. Thus, to show
W. 682. See also In re Wyoming Val- the distinction, the statute 13 Eliz.
ley Co-op. Ass'n, 198 Ted. 436; Frye c. 10, to prevent spiritual persons from
V. Partridge, 82 111. 267; Weinman v. making leases for longer terms than
Wilkinsburg & E. L. P. Ey. Co., 118 twenty-one years, or three lives, is a
Pa. St. 192, 12 Atl. 288. public act; it being a rule prescribed
'
' It seems impossible to fix any defi- to the whole body of spiritual persons
nite rule by which to solve the ques- in the nation; but an act to enable the
tion whether a law is local or general, bishop of Chester to make a lease to
and has been found expedient to
it A. B. for sixty years is an exception
leave the matter, to a considerable ex- to this rule; it concerns only the
tent, open, to be determined upon the parties and the bishop's successors;
special circumstances of each case." and is therefore a private act." See
Ferguson v. Ross, 126 N. Y. 459, 27 also Town of Unity v. Burrage, 103
N. E. 954. See also St. John v. An- U. S. 447, 26 h. Ed. 405; State v. In-
drews Institute for Girls, 191 N. Y. dian Territory Illuminating Oil Co.,
254, 14 Ann. Cas. 708, 83 N. E. 981; 32 Okla. 607, 123 Pac. 166. A later
Farrell v. Port of Columbia, 50 Ore. authority (Lewis' Sutherland on
169, 93 Pac. 254, 91 Pac. 546. Statutory Construction, §§ 194, 199,
On the question as to what consti- 327), considering the same question,
tutes general, special, public and says: "The descriptive term 'genefal
private laws, Blackstone (Cooley's laws' has been in use for a long time.
Edition p. 86*) says: general or "A In the common-law classification of
public act is an universal rule, that re- statutes it applies to and includes all
gards the whole community; and of public acts; those of which the courts
this the courts of law are bound to take judicial notice; all except pri-
take notice judicially and ex officio vate acts. This classification will be
(in the course of duty; by virtue of more particularly discussed in another
office) without the statute being par-
; place. It is obvious that this term
ticularly pleaded, or formally set forth is not used in these constitutional pro-
by the party who claims an advantage visions in this sense. Some eases,
under it. Special or private acts are however, seem to have proceeded on
rather exceptions than rules, being the contrary assumption, but I think
those which only operate upon particu- erroneously. Public statutes may be
lar persons, and private concerns; local or special,and incapable of uni-
such as the Eomans entitled senatus form operation throughout the state,
decreta (decrees of the senate), in and therefore within the purpose of
contradistinction to the senatus con- these provisions. The frequency and
suUa (acts of the senate), which re- inconvenience of such local and spe-
garded the whole community; and cial legislation in public acts led to
of these (which are not promulgated the adoption of these provisions. The
with the same notoriety as the for- enumeration of subjects as to which
mer), the judges are not bound to local or special legislation is forbid-
451
232] Peivate Cokpokations [Ch.8
"Whether a law is general or special is to be determined from the
law and not from the designation which may be given it by the
itself,
legislature,^" and the fact that an act which is special in its provisions
den is chiefly an enumeration of poration of supreme, grand and sub-

subjects upon which the prior legisla- ordinate lodges of a co-operativo
tion was of that character public — fraternal building and loan society or
laws — of
which courts would take ju- order, held not invalid. People v.
dicial notice.
,
Under these require- Wilson, 157 Mich. 650, 122 N. "W. 297.
ments it must not be by special or Act (April 21, 1876; P. L. 1876, p.
local but by general laws; and where 235) authorizing extension of cor-
the requirement of uniform operation porate existence, held general as ap-
is in force these must so operate. An plying to every corporation either
act to establish a municipal court in a then, or which should thereafter be
particular city or a particular munici- organized. Jersey City v. North Jer-
pal government would not be a gen- sey St. R. Co., 73 N. J. L. 175, 63
eral law, but it would be a public Atl. 906. See also Gas Light Co.
law. That which concerns the admin- City of New Brunswick v. Borough
istration of public justice, like legisla- of South Eiver, 77 N. J. Eq. 487, 77
tion relating to a court, though it be Atl. 473. Act (April 9, 1889) pro-
of limited jurisdiction and its sittings viding for extension of corporate ex-
confined to a specified locality, is a istence, held special as providing for
public: law, but local;:it is a law which case of particular corporation. Grey
affgcts the public generally. It is not V. Newark Plank Eoad Co., 65 N. J.
necessary, in order to give a statute L. 51, 46 Atl. 606, aff'd (except as to
the' attributes of a public law that it judgment entered) 48 Atl. 557. Act
shall be equally applicable to all to enable any railroad company incor-
parts of the state, nor that it extends porated under general laws to change
in its operation to all of the inhabi- either of its termini at any time prior
tants. 'Astatute may be general and to the final location of the road, held
yet be operative only in a particular not special. Memphis & S. L. R. Co.
locality.' " Act relating to public V. Union R. Co., 116 Tenn. 500, 95
institutions held not special. State S. W. 1019. Law authorizing organ-
V. Bryan, 50 Fla. 293, 39 So. 929. Act ization of trust companies, held gen-
unddr which consolidation of traction eral and not special. Roane Iron Co.
companies was efEected, held general V. "Wisconsin Trust Co., 99 Wis. 273,
and applicable to all street railroads. 67 Am. St. Rep. 856, 74 N. W. 818.
Thomson v. Indiana Union Traction Statutes authorizing the incorporation
Co., — Ind.
, —
110 N. E. 121. Act of religious bodies, held not invalid.
authorizing formation of companies St. Hyacinth Congregation v. Borucki,
for manufacture and, sale of electricity 141 Wis. 205, 124 N. W. 284.
for heating, lighting and power pur- 36 City & County of San Francisco
poses for towns and cities, and the V.Spring Valley Water Works, 48 Cal.
general public, held not special. Mil- 493. See also Belleville & I. R. Co. v.
ler V.Southern Indiana Power Co., — Gregory, 15 111. 20, 58 Am. Dec. 589.
Ind. —
, 111 N. E. 308. Act creating An act authorizing the purchasers
board of waterworks for cities of cer- of the property of a railroad company
tain class, held not invalid. Kirch at a foreclosure sale to organize and
V. City of Louisville, 125 Ky. 391, 101 form a corporation with the same
8. W. 373. Act providing for incor- rights and franchises as are possessed
452
Ch.8] Ceeation Under Special Acts [§ 232
has a title which would indicate that it was general, will not save it
from invalidity.38 Nor can a special act be changed into a general one
by the mere declaration in another act that such special act should be
considered general.'''
The fact that the occasion and the request for the enactment of the
law were special does not necessarily determine that the act is a special
one.** It is the substance of the act which determines its character.
Even though its provisions be general in form, it cannot be regarded as
a general act if such provisions be special in essence.^'
Moreover,would seem that an act ileed not designate or identify
it
a particular corporation by name in order for it to be special in dhar-

'
acter. ' Identification in instances may be as practically effectual by
the use of the population standard as by name and ; identification, in
such mode, is not necessarily classification, but may be the isolation
against which the constitutional provision is directed."** But the
by the company whose property is thus particular person for the time being
acquired a special act, within the
is does not make the act a special, as
meaning of the prohibition. Atkinson distinguished from a general, one.
V. Marietta & C. E. Co., 15 Ohio St. Whether an act, general in form, is a
21. mere device to evade a wholesome con-
36 Grey r. Newark Plank Road Co., stitutional provision is largely de-
65 N. J. L. 51, 46 Atl. 606, aff'd (ex- pendent upon the special circumstances
cept as to judgment entered) 48 Atl. of each case. If the act relates to
557. persons, places, and things as a class,
& County of San Francisco
37 City and is neither local nor temporary,
V. Spring Valley Water Works, 48 the mere fact that its practical effect
Cal. 493 (act granting to specified in- is special and private does not neces-
dividuals and their assigns certain sarily prove that it violates con-
powers and privileges, to take effect stitutional provisions against special
if they should, within a certain time, legislation." St. John v. Andrews
organize themselves into a corpora- Institute for Girls, 191 N. Y. 254, 14
tion under existing laws). Ann. Cas. 708, 83 N. E. 981.
SSClendaniel v. Conrad, 3 Del. 549, 39 Jersey City v. North Jersey St.
83 Atl. 1036. E. Co., 73 N; J. L. 175, 63 Atl. 906;
"If we assume that such act was See also Gas Light Co. City of New
passed to aid in the incorporation of BrunswiclE v. Borough of South Bivei^
the Andrews Institute for Girls, it is 77 N. J. Eq. 487, 77 Atl. 473i' ' •
not necessarily unconstitutional for 40 State V. Columbia, G. & S. F. Turn-

that reason. It is not an uncommon pike Co., 133 Tenn. 446, 181 S. W. 682
thing in any state for questions to (holding special an act affecting turn-
arise making it desirable or perhaps pike companies which applied only to
necessary for further general legisla- counties having a population of not
tion to enable persons interested to more than 42,750 nor less than 42,700):
carry out desired and desirable meas- See also Etowah Light & Power Coi vi
ures. The fact that such further gen- Yancey, 197 Fed. 845, writ of error
eral statute is passed to aid a dismissed 199 Fed. 988.
453
§ 232] Pbivatb Coepoeations [Ch. 8
an act authorizing the formation of corporations or conferring

f act'that
powers or privileges upon corporations does not apply to every person
or corporation in the state does not render it special, if it has a uniform
operation as to all persons similarly situated." In other words, the
fact that an act classifies persons who may form a corporation, or the
purposes for which corporations may be formed, or the corporations
which shall enjoy powers or privileges granted, does not render it a
special act, if the classification is reasonable, and if the act applies to
all persons or corporations falling within the particular classes.*^
The special laws prohibited are those which do not embrace all of
the class to which they are naturally related but create preferences or
establish inequalities of burden. "The true principle requires some-
thing more than a mere designation by such characteristics as will
serve to classify, for the characteristics which thus serve as a basis for
classification must be of such a nature as to mark the objects so
, designated as peculiarly requiring exclusive legislation. There must
be a substantial distinction, having a reference to the subject-matter
of the proposed legislation, between the objects or places embraced
in such legislation and the objects or places excluded. ** '
'
The determination whether or not a given law is general involves

the consideration both of the purpose of the act and the objects on
which it is intended to operate. Provided these objects are dis-
tinguished from others by characteristics evincing a peculiar relation
to the legislative purpose, and showing the legislation to be reasonably
appropriate to the former and inappropriate to the latter, the objects
will be considered, as respects such legislation, to be a class by them-
selves, and the legislation to be general. But if the characteristics
41 Clendaniel v. Conrad, 3 Del. 549, none of which was organized for pe-
83 Atl. 1036; Hazelett v. Butler Uni- cuniary profit or had any stock, but
versity, 84 Ind. 230; Attorney General each and all of which were organized
V. MeArthur, 38 Mich. 204; In re New for a public purpose, namely, in the
York El. B. Co., 70 N. Y. 327. interest of education, and were of a
The prohibition against special laws public character, the court said: "The
ip not violated by an act limiting the fact that no other like corporations
fares to be charged by street railroads may be formed does not destroy the
in citieshaving a certain population or general and public character of the
more. City of Indianapolis v. Navin, [creating] acts, because they are open
151 Ind. 139, 41 L. E. A. 337, 51 N. B. to all citizens to become members at
80, 47 N. E. 525. any time." Bullock v. Billheimer,
48 Clendaniel v. Conrad, 3 Del. 549, 175 Ind. 428, 94 N. E. 763.
83 Atl. 1036; Atlantic City Water • 43 State v. Columbia, G. & S. F.
Works Co. v. Consumers Water Co., Turnpike Co., 133 Teun. 446, 181 S. W.
44 N. J. Eq. 427, 15 Atl. 581. 682.
In a case involving corporations,
454
Ch. 8] Cbeation Undeb Special Acts [§ 232
used to distinguish the objects to which the legislation applies from

others are not germane to the legislative purpose, or do not indicate a
reasonable appropriateness in its application, or if objects with similar
characteristics and like relation to the legislative purpose have been
excluded from the operation of the law, then the classification must
be regarded as incomplete. and faulty, and the legislation not general,
but local or special.**
The constitutional prohibition against special laws was not designed
to hinder the legislature from confining the specified work or business
of a corporation, by the terms of the law, within a given section of
the state in any case when, in consequence of natural conditions, such
work or business cannot be carried on elsewhere ; and therefore it does
not prohibit acts authorizing the formation of corporations for the
purpose of operating in certain localities only, where the operations
are such that they cannot be carried on elsewhere.*^
That an act confers corporate powers upon the specially chartered
corporations which take advantage of its provisions does not prevent
its being a general law, where every corporation formed under the gen-
eral law which accepts the powers and franchises granted to it by that
law becomes as completely vested with the exclusive right to exercise
those powers upon its property and to enjoy those franchises as if they
had been conferred upon it by special' charter.**
Since a special act may be perpetual in its operation and a general
act may be temporary, an act is not special merely because it is tem-
porary.*'' Moreover it would seem that a general act cannot be made
special by a subsequent independent incorporation act.*'
44 Long Branch v. Sloane, 49 N. J. tute for Girls, 191 N. Y. 254, 14 Ann.

L. 356, 8 Atl. 101. See also State ex Cas. 708, 83 N. E. 981, the following
rel. Van Eiper v. Parsons, 40 N. J. L. sentence from the opinion in which
123, 29 Am. Rep. 210; Van Riper v. would seem to carry the intimation
Parsons, 40 N. J. L. 1; Edmonds v. that the court would regard a tem-
Herbrandson, 2 N. D. 270, 14 L; R. porary act as special in character:
A. 725, 50 N. W. 970; Cincinnati St. "If the act relates to persons, places,
R. Co. V. Horstman, 72 Ohio St. 93, and things as a class, and ia neither
73 N. E. 1075. local nor temporary, the mere fact
45 Attorney General v. McArthur, that its practical effect is special and
38 Mich. 204. . private does not necessarily prove that
46 Jersey City v. North Jersey St. it violates constitutional provisions
R. Co., 73 N. J. L. 175, 63 Atl. 906. against special legislation."
47 Cincinnati St. E. Co. v. Horst- 48 Millville Improvement Co. v. Pit-
man, 72 Ohio St. 93, 73 N. E. 1075. man, Glassboro & Clayton Gas Co., 75
But see St. John v. Andrews Insti- N. J. L. 410, 67 Atl. 1005.
455
§233] Peivate Cokporations [Ch.8
§233. What constitutes creation of corporation—In general.

There has been some judicial discussion as to what constitutes the
"creation" of a corporation within the meaning of those constitutional
provisions which prohibit the creation or formation of corporations by
special acts, the definition in question being mainly important in ascer-
taining whether a particular act is one of creation, or merely one other-
wise involving corporate powers.*®
49 See §§408-415, infra. ferred upon a corporation, must be

"The word 'create,' has a clear, given simultaneously with the cre-
well-settled, and well-understood sig- ative act of incorporation. On the
nification. . It means to bring into be- contrary, I suppose the artificial being
ing; to cause to exist; to produce; to must be created with a capacity to
make, etc. To my apprehension, it receive before anything can be re-
appears to be one thing to create, or ceived. The right to be a corporation
bring into being, a corporation, and is itself a separate, distinct, and in-
quite another to deal with it as an dependent franchise, complete within
existing entity, a person, after it is itself. And a corporation having been
created by regulating its intercourse, created, enjoying this franchise, may
relations, and acts as to other exist- receive a grant and enjoy other distinct
ing persons, naturaland artificial. and independent franchises, such as
* * * The creative act necessarily may be granted to and enjoyed by
extends only to the bringing into be- natural persons; but because it enjoys
ing of an artificial person, with the the latter franchises, they do not,
capacities stated, among which is 'a therefore, constitute a part of the
capacity to receive and enjoy in copi- distinct and independent essential
mon grants and privileges and im- —
franchise, the right to be a corpora-
munities'; that is to say, a capacity tion. They are additional franchises
to receive and enjoy such grants, privi- given to the corporation, and not parts
leges, and immunities as may be made of the corporation itself, —
not of the
either at the time of the creation or essence of the corporation. * * »
any other time. The creation of the But, being created, theiy [corpora-
being with the capacity to receive tions] may
be prohibited from doing
grants is one thing; the granting of one thing and permitted to do another,
other privileges and immunities, which like natural persons; but this permis-
it has the capacity to receive when sion or prohibition is not a creative
created, is another. When such a be- act, but an act regulating the conduct
ing is brought into existence, a cor- of the corporation, and determining
poration has been created. A legal its rights and relations to the public,
entity, a person, has been created, and to other existing persons, natural
with a capacity to do by its corporate and artificial. * * * The power to
name such things as the legislative create a corporation * * * extends,
power may permit, and receive such therefore, to the bringing into being of
grants of such rights and privileges, a legal .entity, having powers and
and of such property, as the legisla- privileges not possessed by individu-
ture itself or private persons with the als; that is to say,possessing the pow-
legislative permission may give. But ers, which, as before stated, constitute
I do not understand that every right, the essence of a corporation, or corpo-

privilege, or grant that can be con- rate powers, strictly speaking, and has
456
—
.Ch; 8] Cbeation Under Special Acts [§233
The fact that an act which neither creates a corporation nor author-
izes the incorporation of one is entitled "An act to incorporate" a
no reference to thp legislative dealings applies to no other of the numerous

with that artificial person after its franchises which are subjects of leg-
creation. I suppose the Constitution islative grant." Southern Pac. E.
might have devolved the power of cre- Co. V. Orton, 32 Ped. 457.
ating a corporation on some other "The legislature cannot produce a
body, as the supreme court, and the corporation out of nothingness; in the
power to deal with it after its cre- Genesitic sense of creating the heav-
—
ation to regulate its conduct and ens and the earth; nor bring a cor-
relations to the public, and to pre- poration into being in the generative
scribe its rights, powers, and duties, sense; nor give life to a corporation
other than those strictly corporate, to in the sense in which life is contra-
the legislature. Had it been so pro- distinguished from matter; nor make,
vided, there can be no doubt that such produce, be the cause or occasion of,
powers would have been wholly dis- in short, 'create,* strictly within the
tinct and independent. I do not per- lexicographical definitions, —any pri-
ceive that they are any the less so, vate corporation for gain. For, al-
because exercised by the same body. though Webster gives 'renew' as one
The act of creating a corporation by of the secondary significations of
conferring upon an association of in- 'create,' the active agencies in the
dividuals certain strictly corporate formation or renewal of the private
powers embracing only powers and corporation for business purposes are
privileges not possessed by individu- the persons who desire to conduct their
als and partnerships, and then grant- gainful enterprises through the cor-
ing to it other privileges, enlarging porate form; and the legislature can
or restricting its right to the enjoy- do nothing towards the creation or
ment of other franchises that may be extension of the corporation beyond
possessed in common with natural per- granting the state's permission to the
sons, and regulating its external rela- interested persons to carry on their
tions, are, tomy mind, distinct and proposed business through the agency
independent, and I find nothing in the of a corporation. The granting of
Constitution prohibiting the latter leave to do business as a corporation
power to the legislature. There are is the essential thing; the nature of
numerous distinct, independent fran- the business and the mode of doing
chises, any one or more of which may it are incidental. As long as the li-
be granted indifferently either to nat- cense lasts, the interested persons do
ural persons or existing corporations, not need another. When the license
and, in my judgment, the Constitu- ends, the special privilege ends." In
tion no more prohibits the granting re Bank of Commerce, 153 Ind. 460,
of any one of those franchises, except 47 L. R. A. 489, 53 N. E. 950. See-

such as are expressly prohibited to also Clark v. American Cannel Coal
corporations by special act, than to Co., 165 Ind. 213, 112 Am. St. Eep.
individuals. It only prohibits the 217, 73 N. E. 1083.
creation of a corporation by special An act does not create a railroad by
act; that is to say, that the creating merely authorizing the consolidation of
or granting of the particular franchise two or more railroads. Bohmer v.
constituting a corporation shall not Haffen, 22 N. Y. Misc, 565, 50 N. T.

be by special act. The prohibition Supp. 857. A
statute permitting the
457
—
233] Pbivate Coepokations [Oil. 8
certain company does not add anything to it."" Nor does the consti-
tutional provision prohibit the enactment of special laws which do not
attempt the creation of new corporate powers or franchises but which
merely regulate existing corporations in the exercise of powers which
have been conferred upon them."^ The granting to cities of power to
contract with corporations of a certain class and the regulating of such
power is not a violation of the constitutional prohibition."^ The legis-
lature, however, does not create a corporation by providing for the
creation of corporations of a certain character by action of the voters
of the districts which are to constitute the same."' Moreover, where
an act imposing a burden on a corporation was not violative of the
constitutional provision but was valid under the legislature's reserved
power of amendment, a subsequent act repealing the same cannot be
obnoxious to such provision,"* nor does such prohibition preclude the
consolidation of gas companies incor- rights and powers of a company,

porated under general laws, but not chartered for the purpose of manu-
conferring any enlarged powers or facturing and furnishing gas for light-
privileges, held not invalid under a ing purposes with and into those of
constitutional provision prohibiting another company chartered for the
the creation of a corporation or the purpose of collecting and supplying
extension of, change in or amendment electricity for like purposes, does not
of its charter by a special law. Peo- constitute the creating, renewing or
ple V. People's Gas Light & Coke Co., extending of a charter. Com. v. Hunt-
205 111. 482, 98 Am. St. Eep. 244, 68 ingdon Gas Co., 11 Pa. Dist. 546, 547.
N. E. 950. Act providing for state In the prohibition against the re-
fair and making live stock breeders' viving of charters by special act, there
association agency to carry out leg- exists the implication that the charter
islative purposes, held not obnoxious to be revived is lifeless. St. Joseph
to constitution. Kentucky Live Stock & I. E. Co. v. Shambaugh, 106 Mo.
Breeders' Ass'n v. Hager, 120 Ky. 557, 17 S. "W. 581.
125, 9 Ann. Cas. 50, 85 S. W. 738. Act BO People V. Wayman, 256 Bl. 151,
placing title to a sewer or drain, con- 99 N. E. 941.
structed in any city of a certain class, Bl Town of Longview v. City of
in the unpaid contractor, and giving Crawfordsville, 164 Ind. 117, 68 L.
the city power to grant a franchise E. A. 622, 3 Ann. Cas. 496, 73 N. E.
to such contractor to operate the same 78; City of Indianapolis v. Navin, 151
and power to provide for its use of Ind. 139, 41 L. E. A. 337, 51 N. E.
the same, held not to purport to create 80, 47 N. E. 525.
a corporation. Jordan v. City of B2 Smith v. Indianapolis St. E. Co.,
Logansport, 178 Ind. 629, 99 N. E. 158 Ind. 425, 63 N. E. 849. See also
1061. School City of Marion v. Forrest, 168
Under the provision of the Penn- Ind. 94, 78 N. E. 187.
sylvania Constitution that '
' No law BSWhedon v. Wells, 95 Neb. 517,
hereafter enacted shall create, re- 145 N. W. 1007 (sanitary district).
new or extend the charter of more B4 Smith v. Indianapolis St. E. Co.,
than one corporation," it has been 158 Ind. 425, 63 N. E. 849.
held that a merger of the corporate
458
Ch.8l Cbeation Under Special Acts [§233
grant of privileges to a corporation by special act in any case in which

the grant if made to an individual would not be invalid.^*
A legislative grant to an existing corporation of a franchise which
could not be acquired by its specification in the articles of incorpora-
tion does not constitute the creation of a corporation.*^
"It is clear that the constitution prohibits the legislature from
'creating' corporations by special act, except for municipal purposes;
and it is equally clear that this prohibition extends only to their
'creation.' There is nothing in the language used which either
directly or impliedly prohibits the legislature from directly granting
to a corporation, already in existence, and created under the general
laws, special privileges in the nature of a franchise, by a special act,
or prohibiting a corporation from purchasing or holding such fran-
"''
chises, which may have been granted to others.
' '
M Detroit Citizens St. R. Co. v. De- purposes the use of the public streets,
troit,125 Mich. 673, 84 Am. St. Rep. highways, and alleys of the state, ex-
589, 85 N. W. 96, rehearing denied 86 cept in a certain county, provided that
N. W. 809. the same should not injuriously inter-
That a special act which, without fere with other public uses of such
essentially changing the character of highways or alleys, etc., held
streets,
the corporation, confers upon it addi- not an attempt to create a corpora-
tional powers or privileges is not in- tion. City of Lansing v. Michigan
valid, see Wallace v. Loomis, 97 U. S. Power Co., 183 Mich. 400, 150 N. W.
146, 24 If. Ed. 895; Southern Fac. R. 250.
Co. v. Orton, 6 Sawy. 157, Ted. Cas. »7 California State Tel. Co. v. Alta
No. 13,188a, 32 Fed. 457; Attorney Tel. Co., 22 Cal. 398. While the hold-
General v. Joy, 55 Mich. 94, 20 N. W. ing of this case on this point is de-
806; Attorney General v. North clared erroneous in City & County
America Life Ins. Co., 82 N. Y. 172. of San Francisco v. Spring Valley
The prohibition does not include Water Works, 48 Cal. 493, and that
an act which meraly changes the name case is followed in the original opin-
of an existing corporation. State v. ion. in People V. Stanford, 77 Cal. 360,
Butler, 86 Tenn. 614, 630, 8 S. W. 2 L. R. A. 92, 19 Pac. 693, 18 Pac. 85,
586. the court on a rehearing in the latter
66 State v. Portland General Elec. case said: "We adhere to that [origi-
Co., 52 Ore. 502, 98 Pac. 160, 95 Fac. nal] opinion so far as it relates to
722, denying petition for rehearing, these except so far as
questions,
95 Pac. 722 (franchise to construct it holds that a duly organized
and operate locks on navigable stream corporation cannot t»ke an assign-
and to collect tolls). ment from its lawful owners of a
Act undertaking to confer upon and franchise to lay down and maintain a
grant to persons, firms, and corpora- street-railroad. This is based upon
tions engaged, or that might there- the constitutional provision that 'cor-
after engage, in the manufacture, porations may be formed under gen-
transmission, and distribution of elec- eral laws, but shall not be created by
tricity for lighting, heating and power special act' (Art. 4, §31.) This
459
§ 233] Pkivate Corporations .[Ch. 8
But the evasion of the constitution by the creation of a corporation

by general act and the subsequent grant to such corpora,tion of ex-
traordinary powers by special act will not be sustained.*' In keeping
with this rule it has been said that were a close or literal interpretation
to be given the word "create," it would thereby become possible, after
a corporation had been brought into existence under a valid law, to so
fashion the organization as practically to open the way for the evil
which it was the design of the constitution to prevent, namely, that of
special privilege.*®
§ 234. —
Amendment of charter. Whether or not a constitutional
prohibition against the creation or formation of corporations by spe-
cial act prevents the legislature from passing a special act modifying,
enlarging, or otherwiseamending the charter of an existing corpora-
upon which the courts have differed in opinion. Some
tion is a question
courts have held that such a provision prevents any amendment by
special act, unless the case is within some exception in the constitu-
tion.®" Other courts have taken a different view of such a constitu-
tional provision, and have held that the intention is merely to prevent
the creation of corporations by special act, and that it does not prevent
a special act modifying, enlarging, or otherwise amending the charter
of an existing corporation, unless the amendment is such as essentially
to change the character of the corporation.®^ In accordance with this
provision applies to the formation or v. City of Cincinnati, 20 Ohio St. 18;

creation of corporations, and to the Atkinson v. Marietta & C. E. Co., 15
powers directly conferred upon them Ohio St. 21. See generally the cases
by legislative enactment, and can- cited in the preceding section and
not, in our judgment, be construed as §§ 408-415, infra.
prohibiting the assignment of a United States. Wallace v. Loomis,
61
franchise to a legally organized cor- 97 146, 24 L. Ed. 895; Southern
IT. S.
poration, by persons having the law- Pac. E. Co. v. Orton, 6 Sawy. 157, Fed.
ful right to exercise and transfer the Cas. No. 13,188a, 32 Fed. 457.
same. See also Santa Ana Water Co.
'
' Indiana. Wiley v. Bluffton Corpo-
V. Town of San Buenaventura, 56 Fed. ration, 111 Ind. 152, 12 N. B. 165;
339; City of Lansing v. Michigan Gentile v. State, 29 Ind. 409.
Power Co., 183 Mich. 400, 150 N. W. Maine. Farnsworth v. Lime Eock
250. E. Co., 83 Me. 440, 23 Atl. 373.
58 Smith V. Indianapolis St. B. Co., Michigan. Attorney General v. Joy,
158 Ind. 425, 63 N. E. 849. 55 Mich. 04, 20 N. W. 806.
89 Marion Trust Co. v. Bennett, 169 Minnesota. Green v. Knife Falls
Ind. 346, 124 Am. St. Eep. 228, 82 Boom Corporation, 35 Minn. 155, 27
N. E. 782. See the following section. N. W. 924; St. Paul Fire & Marine
60 Town of McGregor v. Baylies, 19 Ins. Co. v. Allis, 24 Minn. 75; Cotton
Iowa 43; Davis v. Woolnough, 9 Iowa v. Mississippi & E. Eiver Boom Co.,
104; Ex Parte Pritz, 9 Iowa 30; State 22 Minn. 372.
460
view, it has been held that the constitutional prohibition does not pre-
vent the legislature from passing a. special act which merely changes
the name of the corporation, or authorizes the corporation to change
itf®* nor does it prohibit a special act which merely extends the period
of existence of a corporation whose charter is about to expire, or has
expired.^'
It has even been held that a change may be made in the character of
a corporation by a special act, if the change is not so fundamental as
to essentially change its nature and make it a different kind of a
corporation.** But the prohibition should be interpreted in such a
manner as to render it impossible for the legislature by special law to
so alter a charter as in effect to make a new corporation.**
An objection that an act is a local or special law amending or extend-
ing the charter of a corporation and is therefore repugnant to the
constitution cannot be sustained, however, when it appears that such
act is a supplement to one which subsequently became an amendment
to the constitution.**
Missouil. Eoos V. St. Joseph & I. 63 Cotton V. Mississippi & E. Eiver

E. Co., 114 Mo. 508, 21 S. W. 1124; Boom Co., 22 Minn. Black Eiver
372;,
St. Joseph & I. E. Go. v. Shambaugh, Improvement Co. v. Holway, 87 Wis.
106 Mo. 557, 17 S. W. 581; State v. 584, 59 N. W. 126. Contra, Clark v.
Cape Girardeau & S. L. E. Co., 48 Mo. American Cannel Coal Co., 165 Ind.
468. 213, 112 Am. St. Eep. 217, 73 N. E.
New York. Attorney General v. 1083; In re Bank of Commerce, 153
North America Life Ins. Co., 82 N. Y. Ind. 460, 47 L. E. A. 489, 53 N. E.
172. See generally cases cited in pre- 950, 55 N. E. 224.
ceding section. 64 Thus it has been held that the
See also News-Eegister Co. v. Eock- constitutional prohibition did not pre-
ingham Pub. Co., 118 Va. 140, 86 S. E. vent the passage of a special act
874. changing the character of an insur-
62 " To name a corporation is not ance company from a mutual benefit
to create it any more than a person. company to a company having a capi-
Nor does it confer on it a special tal stock divided into shares. St.
privilege. The privilege of having Paul Fire & Marine Ins. Co. v. Allis,
a name not thereby monopolized
is 24 Minn. 75.
or exhausted, but may be en- 65 Ma-rion Trust Go. v. Bennett, 169
joyed by every corporation that has Ind. 346, 124 Am: St. Eep. 228, 82 N.
wit ^nough to devise one, upon E..782 (holding that an act -which
the same terms." Wells v. Oregon attempted to change a corporation of.
By. & Nav. Co., 8 Sawy; 608, 15 Fed. limited capital stock to one, the
561. See also Wallace v.- Loomis, 97 amount of whose stock was to be de-
TJ. S. 146, 24 L. Ed. 895; Hazelett v. termined by the stockholders, was an
Butler University, 84 Ind. 230; Attor- attempt to "create" a corporation).
ney General v. Joy, 55 Mieh. 94. See 66 State V. Board of Adm'rs Tulane
also People v. Detroit, G. H. & M. E. Education Fund, 125 La. 432, 51 So.
Co., 157 Mich. 144, 121 N. W. 814. 483.
461
'§235. — Ratification of charter or cure ofdefects. The prohibi-

tion against creation of corporations by special act renders void and of
no effect a special act undertaking, by ratification or recognition, to
give corporate existence to a body which has assumed to act as a cor-
poration without any color of authority ^'' but it has been held that
;
it does not prevent the legislature from waiving and curing by special
act mere irregularities and noncompliance with conditions in forming

corporations under general laws.®'
Where the constitution prohibits the legislature from passing special
acts creating corporations, but contains an exception of eases in which
the objects of the corporation cannot be attained under general laws,
the legislature may by special act cure defects and irregularities in
the organization of a corporation under the general laws, and thus
render it legal,®' and if the curative act be otherwise valid, it seems
that it cannot be attacked on the ground that it constitutes an impair-
ment of the obligation of contracts.'"*
§236. What constitutes granting or conferring of corporate

powers or privileges — În general. In some states the constitution,
instead of in terms prohibiting the creation or formation of corpora-
tions by special act, prohibits special acts granting or conferring
"corporate powers and privileges."''^
67 Oroville & V. E. Co. v. County Johnson v. Board Com'rs Wells Co.,

Com'rs, 37 Cal. 354. 107 Ind. 15, 8 N. E. 1.
68 State V. Webb, 110 Ala. 214, 20 69 Central Agricultural & Mechani-
So. 462; Central Agricultural & Me- cal Ass'n v. Alabama Gold Life Ins.
chanieal Ass'n v. Alabama Gold Life Co., 70 Ala. 120; State v. Squires, 26
Ins. Co., 70 Ala. 120; McAuley v. Co- Iowa 340; Smith v. Havens Belief
lumbus, C. & I. C. E. Co., 83 111. 348; Fund Society, 44 N. Y. Misc. 594, 90
Syracuse City Bank v. Davis, 16 Barb. N. Y. Supp. 168.
(N. Y.) 188. 70Deitch v. Staub, 115 Fed. 309.
"For the same reason that in some 71 An act which granted to individu-
cases special statutes may be enacted als and their assigns certain powers
in the first instance, special retrospec- and privileges, and then provided that
tive statutes may be enacted. And it should not take effect unless the
as in some cases the legislature is the persons to whom the grant was made
sole judge as to whether or not a should, vvrithin a certain time, organ-
general law can be made applicable ize themselves into a corporation un-
in the first instance, so, in such cases, der existing general laws, was held
the sole judge as to whether or
it is a grant, not to such persons as in-
not a general retrospective statute dividuals, but to the corporation when
can be made applicable; and hence formed, and was therefore held to be
special curative or retrospective legis- within a constitutional prohibition
lation has been upheld. * * *" against conferring powers and privi-
462
Ch.8] Ckeation Under Special Acts [§236
The fact, however, that powers' are conferred on a body declared by

statute to be a body corporate,''^ a body politic and corporate ''^ or a
is not conclusive on the question whether there has been
''*
corporation
a conferring of corporate powers within the meaning of the constitu-
tional provision. "While the conferring of certain powers upon an
existing corporation may
bring them within the designation "cor-
porate powers," their character as "corporate" powers does not
necessarilyaccompany them when they are conferred upon individuals
or unincorporated associations.'^
It has been said that an act confers corporate powers whenever it
either creates a corporation or adds to the powers of an existing cor-
poration.'* But it has also been said in effect that the phrase "grant-
ing corporate powers or privileges" means m
principio donationis and
is equivalent to the phrase "granting corporate charters," this being
implied not only by the word "granting" but also by the word
"corporate," and that, since each and every franchise obtainable is
not corporate in character, it is not the granting of each and every
franchise that is prohibited.''"' However this may be, the legislature
leges upon a corporation by special also Brattleboro Sav. Bank v. Board

act. City & County of San Fran- Trustees Hardy Tp., 98 Fed. 524, afE 'd
cisco V. Spring Valley Water Works, 106 Fed. 986 (township trustees).
48 Cal. 493. 73 Keel v. Board Directors St. Fran-
Semble, that the power to issue cis Levee Dist., 59 Ark. 513, 535, 27
bonds and secure them by mortgage S. W. 590 (levee directors).
is not essentially a corporate power. 74 Glove
Elevator Co. v. Andrew,
Brattleboro Sav. Bank v. Board Trus- 144 Fed. 871, aff 'd 156 Fed. 664 (grain
tees Hardy Tp., 98 Fed. 524, afE'd 106 and warehouse commission).
Fed. 986. In some states the consti- 76 State v. Pugh, 43 Ohio St. 98, 1
tution expressly prohibits any special N. E. 439.
act, with certain restrictions, extend- "Corporate powers, strictly speak-
ing, altering oramending an existing ing, I suppose, are those peculiar and
charter, and under such a prohibition, essential to a corporation, —not those
of course, an amendatory special act which are or may be possessed in
would be void. common with natural persons; and
72 St. Louis, I. M. & S. E. Co. v. they are very few in number, em-
Board Directors Levee Dist. No. 2, bracing those which pertain to the es-
Jackson Co., 103 Ark. 127, 145 S. W. sence of the corporation." Southern
892 (levee district); Beaph v. Leahy, Pac. E. Co. v. Orton, 32 Fed. 457.
11 Kan. 23 (school district which un- 76 Brattleboro Sav. Bank v. Board
der Gen. St. was "a body corporate" Trustees Hardy Tp., 98 Fed. 524, aff 'd
and possessed of "the usual powers 106 Fed. 986. See also Rees v. Olm-
of a corporation for public purposes." sted, 135 Fed. 296.
But compare Board School Directors 77 Attorney General v. Chicago &

Madison Parish v. Coltharp, 127 La. N. W. By. Co., 35 Wis. 425.
956, 54 So. 299) ; Bees v. Olmsted, 135 "The words 'corporate powers and
See privileges' * * * signify the cor-
Fed. 296 (road commissioners).
463
§236] Private Cobpobations [Ch.8
may, without running counter to the constitutional prohibition, make

a lease to an existing corporation by special act when the subject-
matter is granted, not as a franchise but as property owned by the
s^tate.''* Again, it would seem that the giving to a state board the
power to supervise the exercise of certain authority vested in corpora-
tions is not the conferring of a corporate power upon such board.''*

Some courts have construed such
a prohibition and have held that it not only prohibits the
literally,
creation of a corporation by special act, but also prevents the legisla-

ture from passing a special act amending the charter of an existing
corporation by conferring upon it additional powers or privileges.*"
Others, however, are opposed to this construction, and hold to the
effect that such a prohibition is aimed at the creation of corporations
by special act, and does not prevent a special act amending an existing
charter by granting additional privileges. The United States Supreme
porate franchise, the aggregate pow- Public Utility Com'rs, 87 N. J. L. 170,

ers and privileges which constitute a 94 Atl. 57 (provision that no public
corporation, not every separate power utility shall, without the approval of
and privilege which may be conferred the board of public utility commis-
upon a corporate body. The object sioners lease its property, etc.).
is * * * not to prevent the legis- 80 School Dist. No. 56 Joseph
v. St.
lature from amending the charters of Eire & Marine U. S. 707,
Ins. Co., 103
corporations already existing, and 26 L. Ed. 601; Atkinson v. Marietta
modifying or enlarging their powers,, & C. E. Co., 15 Ohio St. 21; Clegg v.
either by repealing former restric- School Dist. No. 56, 8 Neb. 178. And
tions or otherwise." Haber-
Jones v. see Gilmore v. Norton, 10 Kan. 491;
sham, 107 U. S. (17 Otto) 174, 27 L. Green v. Knife Falls Boom Corpora-
Ed. 401. See also In re Southern tion, 35 Minn. 155, 27 N. W. 924.
Wisconsin Power Co., 140 Wis. 265, Provision prohibits the grant of any
133 Am. St. Bep. 1075, 122 N. W. 809, new privilege by special act, but does
140 Wis. 245, 122 N. W. 801. not prohibit a special act regulating
A franchise granted a corporation the exercise of existing powers, fran-
by a city is not a corporate power or chises and privileges. In re New
privilege within the meaning of the York Elevated E. Co., 70 N. Y. 327.
constitution. Linden Land Go. y. Mil- See also Astor v. New York Arcade
waukee Railway & Lighting COip
Elee. E. Co., 48 Hun (N. Y.) 562, 1 N. Y.
1G7 Wis. 493, 83 N. W. 851. Supp. 174, 113 N. Y. 93, 2 L. R. A. 789,
78Vought V. Columbus, H. V. & A. 20 N. E. 594. Prohibition is violated,
E. Co., 58 Ohio St. 123, 50 N. E. 442, by a special act authorizing an incor-
aff'd 176 U. S. 481, 44 L, Ed. 554, dis- porated school district to issue bonds.
tinguishing City & County of San School Dist. No. 56 v. St. Joseph Fire
Francisco v. Spring Valley Water & Marine Ins. Co., 103 IT. S. 707, 26
Works Co., 48 Cal. 493. L. Ed. 601; Clegg v. School Dist. No.
79 West Jersey & S. E. Co. v. Board 56, 8 Neb. 178.
464
;
Ch.8] Ceeation Undee Special Acts [§237
Court, speaking of such a prohibition in the Constitution of Georgia,

'
has said The words corporate powers and privileges, as here used,
: '
'
'
signify the corporate franchise, the aggregate powers and privileges

which constitute a corporation, not every separate power and privilege
which may be conferred upon a corporate body. The object is to take
away from the legislature, and to vest in the courts, under its direc-
tion,*^ for the future, the creation of private corporations for literary,
religious, charitable, or other purposes, except those specially excepted
but not to prevent the legislature from amending the charters of cor-
porations already existing; and modifying or enlarging their powers,
eitherby repealing former restrictions or otherwise." **
In accordance with this view, it has been held that such a prohibition
does not prevent a special act changing the name of an existing cor-
poration,83 or conferring power to purchase additional property,'*
or to condemn property under the power of eminent domain.**
On the question as to whether an act which extends the life of a
corporation constitutes a grant of corporate power, there exists a
81 The Constitution
Georgia de- of right to become incorporated under
clared that assembly
the general another act, held a special one con-
should have no power "to grant cor- ferring corporate powers. Perrine v.
porate powers and privileges to Jersey Cent. Traction Co.j 70 N. J. L.
private companies," with certain 168, 56 Atl. 374. Special act author-
exceptions, but should prescribe the izing county commissioners to issue
manner in which such power should be and sell bonds for specified purpose,
exercised by the courts. Const. Ga. held invalid. Terry v. King County,
.
1868, art. 3, § 6. 43 Wash. 61, 9 Ann. Cas. 1170, 86 Pae.

82 Jones V. Habersham, 107 U. S. 210. Act relating to Society of Arizona
174, 188, 27 L. Ed. 401. In "Wisconsin Pioneers, held invalid under pro-
it was held that the constitutional visions of Harrison Act (Act of Con-
amendment prohibiting special laws gress of July 30, 1886; 7 Fed. St. Ann.
granting corporate powers or privi- p. 264),which prohibits the enactment
leges relates only to acts of incorpora- of local or special laws in the terri-
tion thereafter granted, and that it tories of theUnited States in certain
does not prevent such laws in the ex- cases in so far as
it attempts to confer
ercise of the power to alter or repeal additional powers on, and to change
charters granted before adoption of the name of the society. Leatherwood
the amendment, reserved by the Con- V. Hill, 10 Ariz. 16, 89 Pae. 521, 85
stitution to the legislature. Attorney Pac. 405.
General v. Chicago & N. W. Ey. Co., 83 Wallace v. Loomis, 97 IT. S. 146,
35 Wis. 425. 24 L. Ed. 895.
Special act authorizing an incorpo- 84 Wallace v. Loomis, 97 IT. S. 146,
rated village to issue bonds for water- 24 L. Ed. 895.
works, held not invalid. Brady v. 86 North Eiver Boom Co. v. Smith,
Moulton, 61 Minn. 185, 63 N. W. 489. 15 Wash. 138, 45 Pac. 750.
Act giving certain street railways the
465
I Priv. Corp.— 30
§238] Pkivate Corpobations [Ch. 8
difference of opinion, it having been held both that it does *' and that
it does not constitute such grant.*''
§ 238. Betroactive operation of prohibition. A constitutional pro-

hibition against the creation of corporations by special act is not
retroactive, and therefore it does not affect the existence or validity of
corporations fully created by special act prior to its adoption," nor
prevent the amendment of an existing special charter by special act,"
provided the amendment is germane to the original charter.'"
A special act, passed after the adoption of the prohibition, which
amends and re-enacts certain sections of a special charter granted
prior thereto, is, however, beyond the power of the legislature.'^
§239. Aoceptajice of charter —Necessitj. The relation between

the state and a private corporation is contractual.'^ This being so,
88 Jersey City v. North Jersey St. elected to each house; nor shall any
E. Co., 73 N. J. L. 175, 63 Atl. 906; such act be renewed" recognizes the
'
Grey V. Newark Plank Eoad Co., 65 existence and validity of corporations
N. J. L. 51, 46 Atl. 606, aff'd (except existing by special charter. People
as to judgment entered) 65 N. J. L. v. Detroit, G. H. & M. E. Co., 157
603, 48 Atl. 557. Mich. 144, 121 N. W. 814.
87 Black River Improvement Co. v. Eight of bank to exemption from
Holway, 87 Wis. 584, 59 N. W. 126. taxation, conferred by private charter,
See also Bullock v. Billheimer, 175 regardless of provisions of constitu-
Ind. 428, 94 N. E. 763. tions subsequently adopted, held res
In the absence of constitutional re- judicata. Citizens ' Bank of Louisiana
strictions, there is nothing to prevent Barker, 192 U. S. 73, 48 L. Ed. 346,
v.
the legislature from passing a special rev'g 52 La. Ann. 1086, 27 So. 709.
act modifying, enlarging, or otherwise See also City of New Orleans v. Citi-
amending the charter of an existing zens' Bank of Louisiana, 167 U. S.
corporation. Wallace v. Loomis, 97 371, 42 L. Ed. 202.
U. S. 146, 24 L. Ed. 895; Hazelett v. 89 St. Joseph & I. R. Co v. Sham-
Butler University, 84 Ind. 230; St. baugh, 106 Mo. 557, 17 S. W. 581.
Paul Fire & Marine Ins. Co. v. Allis, But see State v. Northern Pac. E. Co.,
24 Minn. 75. 157 Wis. 73, 147 N. W. 219; Attorney
88 State V. Illinois Cent. E. Co., 33 General v. Chicago & N. W. E. Co.,
Fed. 730. See City of Atlanta v. 35 Wis. 425.
Gate City Gas Light Co., 71 Ga. 106; aOEarnsworth v. Lime Eock E. Co.,
Gaslight Co. of City of New Bruns- 83 Me. 440, 22 Atl. 373. See also
wick v. Borough of South Eiver, 77 State V. City of Bangor, 98 Me. 134.
N. J. Eq. 487, 77 Atl. 473. 56 Atl. 589.
A constitutional provision that ' ' the 91 Com. V. Manchester & E. Free
legislature shall pass no law altering Bridge Co., 109 Va. 499, 63 S. E. 1083.
or amending any act of incorporation 92 Dartmouth College v. Woodward,
heretofore granted, without the as- 4 Wheat. (U. S.) 518, 4 L. Ed. 629.
sent of two-thirds of the members
466
Ch.8] Cbeation Undeb Special Acts [§240
the state cannot, in the first instance, eompel persons to form such a
corporation or any person to become a member thereof,and hence,
even when it is possible to create a corporation by special oharter, it
is optional with the individuals in whose behalf the act of incorpora-

tion is passed to reject or accept it.'' In other words, a private
charter upon its issuance, a mere offer, which is revocable by the
is,
state, either by a legislative enactment or by the adoption of a con-

stitutional amendment,'* and which must be accepted by the grantee
before it will acquire any vitality, or become of any binding force
or effect.'*
§ 240. — Conditions precedent. The acceptance of a charter by the

corporators, to be effective, must be in accordance with its terms, for
the legislature has a right to impose any conditions it may see fit. As
93 Eiddle v. Proprietors of Locks & Massacbusetts. Ellis v. Marshall, 2

Canals on Merrimack Eiver, 7 Mass. Mass. 269, 3 Am. Dec. 49.
169, 184, 5 Am. Dec. 35. Michigan. Mason v. Eineh, 28
91 State V. Dawson, 16 Ind. 40; Mich. 282; Cahill v. Kalamazoo Mut.
Chesapeake & O. Canal Co. v. Balti- Ins. Co., 2 Doug. 124, 43 Am. Deo.
more & O. R. Co., 4 Gill & J. (Md.) 457.
1; Mississippi Society of Arts & Sci- New York. Troy & E. E. Co. v.
ences V. Musgrove, 44 Miss. 820, 7 Kerr, 17 Barb. 581, 604; Green v. Sey-
Am. Sep. 723; Williams v. State, 23 mour, 35 Sandf. Ch. 285; Thomas v.
Tex. 264. Dakin, 22 Wend. 9, 78.
95 United States. Bank of United Pennsylvania. Com. v. Cullen, 13
States V. Dandridge, 12 "Wheat. 64, Pa. St. 133, 53 Am. Dee. 450; Com.
6 L. Ed. 552. V. Conover, 30 Leg. Int. 200; Brown
Connecticut. Board Water Com'rs V. Pairmount Gold & Silver Min. Co.,
City of Hartford v. Manchester, 89 10 Phila. 32; Mutual Fire Ins. Go. v.

Conn. 671, 96 Atl. 182; State v. Bull, Stokes, 9 Phila. 80.
16 Conn. 192, 41 Am. Dec. 136. . South Carolina. Haslett's Ex'r v.
Indiana. State v. Dawson, 16 Ind. Wotherspoon, 1 Strob. Eq. 209.
40» Texas. Quinlan v. Houston & T. C.
Kentucky. Atkinson v. Tennill, 14 Ey. Co., 89 Tex. 356, 34 S. W. 738.
Ky. L. Eep. 922. Virginia. Yeaton v. Bank of Old
Maine. Hudson v. Carman, 41 Me. Dominion, 21 Gratt. 593.
84; Lincoln & Kennebec Bank v. Eich- See also Philadelphia, W. & B. E.
ardson, 1 Me. 79, 10 Am. Dec. 34. Co. v. Kent County E. Co., 5 Houst.
Maryland. Glymont Improvement (Del.) 127.
& Excursion Co. v. Toler, 80 Md. 278, Where the members of a joint-stock
30 Atl. 651; Smith v. Silver Valley association procured the passage by
Min. Co., 64 Md. 85, 54 Am. Eep. 760, the legislature of an act of incorpora-
20 Atl. 1032. See also State v. Balti- tion, under a name similar to that
more & O. E. Co., 12 Gill & J. (Md.) of the association, and voted to ac-
399, 38 Am. Dec. 317, 321, aff'd 44 cept the act, but no stock was issued
U. S. (3 How.) 534, 11 L. Ed. 714. as a corporation, no property trans-
467
"
§240] Peivate Cobpokations [Ch.8
a general rule, unless these conditions are complied with, an associa-

tion does not become a corporation de jure,'^ though it may become a
corporation de facto, or a valid corporation as against every person
but the state.*''
'
' The organic life of the corporation depends upon
a strict compliance with the conditions imposed, and until this is done
'
there can be no such thing as an acceptance of the charter. '
§ 241. — Conditional or partial acceptance. It follows from this

that a charter must be accepted unconditionally and entirely as it is
offered. It cannot be accepted on conditions not expressed in it nor
implied by law; nor can it be accepted in part only, for, if this were
possible, a corporation might reject the obligations imposed and ac-
cept the benefits conferred,'' and this latter it will not be permitted
to do; if it accepts the benefits o£ a charter it must bear such
charter's burdens.^
§ 242. —
Persons accepting. Ordinarily, a charter can be accepted
only by those persons to whom it is granted,® by the corporators —
named in it, acting as such.' It has been said, however, that an
acceptance by the directors acquiesced in by the company will be
ferred, nor any meeting held for the 1 Monroe County Sav. Bank v. City
election of officers, the association con- of Eochester, 37 N. Y. 365, 370.
tinuing to do business as before the 2 Eex V. Amery, 2 T. E. 515, 1 T. E.
passage of the act, it was held that 575.
the association did not become a cor- When a statute declared that cer-
poration. Willis V. Chapman, 68 Vt. tain persons, their associates and their
459, 35 Atl. 459. successors, were made a corporation
Lyons
96 v. Orange, A. & M. E. Co., by the name of the "Athol Eeservoir
32 Md. 18; Mississippi Society of Arts Company," with certain powers, and
6 Sciences v. Musgrove,' 44 Miss. 820, one person named in the act, appar-
7 Am. Eep. 723; Eex v. Westwood, 4 ently without objection by the others,
Barn. & C. 781, 7 Bing>. 1. See Chap. together with seven persons not nam"ed
10, infra. in the act, duly met, accepted the act
97 See Chap. 10, infra. of incorporation, adopted by-laws,
Lyons
98 v. Orange, A. & M. E. Co., elected officers, and transacted other
32 Md. 18. business, itwas held that the persons
Per Chief Justice Tenterden, in
99 taking part in the proceedings be-
Eex V. Westwood, 4 Barn. & C. 781, came a corporation under the name
7 Bing. 1. See also Lyons v. Orange, of the "Athol Eeservoir Company."
A. & M. E. Co., 32 Md. 18; Baldwin McGinty v. Athol Eeservoir Co., 155
V. Hillsborough & C. E. Co., 1 Ohio Mass. 183, 29 N. E. 510.
Dee. 532, 10 West. L. J. 337, 345; Mul- S Board Water Com 'rs City of Hart-
loy V. Nashville & D. E. Co., 8 Lea ford v. Manchester, 89 Conn. 671,

(Teun.) 427; Eex v. Amery, 2 T. E. 96 Atl. 182.
515, 1 T. E. 589.
468
Ch. 8] Cbeation Undeb Special Acts [§243
and it has been held that where persons named in the

sufficient *
charter and constituting a majority of those intended to be incor-
porated are made competent to organize the corporation, they, have
the power to accept the charter.^
While it has been intimated that the acceptance of the charter by a
majority of the corporators is, in any event, sufficient to bring the
corporation into existence,^ it would seem that in this matter of
acceptance, a minority of the corporators have no power to bind the
majority. ''
The naming of a person in the charter does not necessarily prove

his assent to or acceptance of the powers conferred,' but a person
who was one of those applying for a charter, who was named in the
charter granted as one of the corporators and first directors, and who,
although absent from the meeting at which the company organized
under such charter, expressed no dissent to its acceptance, will be
considered as having acquiesced therein.^
§ 243. —
Time. If the charter fixes a time for its acceptance, such
acceptance, to be effectual, must be within the time prescribed.^"
Even if there is no time prescribed, the charter must be accepted
within what may be regarded as a reasonable time under the circum-
stances, or it will lapse, and no longer be open for acceptance.^^
While it has been held that a special act of incorporation, passed
before the adoption of a constitutional provision that the legislature
shall pass no special act conferring corporate powers, may be ac-
cepted by the corporation after its adoption,^^ j^ j^^s also been held
that the acceptance must precede the adoption of a constitutional
provision declaring that corporations should not be created by special
act. The constitutional restraint, it was said, "is plainly imposed
4 Mutual Fire Ins. Co. v. Stokes, 9 Co. McAllister, 12 Bush (Ky.)

v.
Phila. (Pa.) 80. 312; Cypress Pond Draining Co. v.
B Cleaves v. Brick Church Turnpike Hooper, 2 Mete. (Ky.) 350; Eichmond
Co., 1 Sneed (Tenn.) 491, 495. Factory Ass'n v. Clarke, 61 Me. 351,
6 Smith V. Silver Valley Min. Co., 358; Ellis v. Marshall, 2 Mass. 269, 3
64 Md. 85, 54 Am. Eep. 760, 20 Atl. Am. Dec. 49; Shortz v. Unangst, 3
1032. See also Low v. Connecticut & Watts & S. (Pa.) 45.
P. Elvers E. Co., 45 N. H. 370, 379. 9 Ferris v. Strong, 3 Edw. Ch. (N.
And compare Eex v. Amery, 2 T. E. Y.) 127, 128.
515, 1 T. E. 575 (public corporation). 10 State v. Bull, 16 Conn. 179; Bona-
7 Mutual Fire Ins. Co. v. Stokes, 9 parte v. Baltimore, H. & L. E. E. Co.,
Phila. (Pa.) 80. 75 Md. 340, 23 Atl. 784.
8 Coffin V. Collins, 17 Me. 440, U
State v. Bull, 16 Conn. 179.
443. See also ScuflBetown Fence 12 State v. Eoosa,: 11 Ohio St. 16.
469
§ 243] Private Cokporations [Ch. 8
upon the creation, the organization, of the corporation itself," and

the creation of a corporation includes both the offer or grant of a
charter by the legislature and its acceptance by the corporators.^*
§ 244. — Place.
It has been held that since a corporation has no
legal existence beyond the jurisdiction of the state by which it was
created, and can do no acts outside of the state except such as it
may do through its agents, as distinguished from those which are
strictly corporate in character, its charter must be accepted within
the limits of the state by which it is granted, and if the corporators
meet and accept it in another state, the acceptance will have no
effect.^* But if the corporate powers whose exercise under the charter
creates a presumption of its acceptance ^* were exercised within the

state which granted the charter, it would seem that this would be
sufficient regardless of whether a foKtnal acceptance without the state
could be sustained.^*
§ 245. —
Formal acceptance. Of course, if the charter requires that
the corporators shall signify their acceptance in a particular way,
as by a formal vote at a meeting duly called, such acceptance is
necessary.^'' Otherwise, the acceptance need not ordinarily be made
i*
in writing or by a formal vote.^'
13 Jennings v. Dark, 175 Ind. 332, 14 Smith v. Silver Valley Min. Co.,
92 N.'E. 778; Snyder v. Studebaker, 64 Md. 85, 54 Am. Eep. 760, 20 Atl.
19 Ind. 462, 81 Am. Dee. 415; Gilles- 1032. Compare Heath v. Silverthorn
pie V. Ft. Wayne & S. E. Co., 17 Ind. Lead Mining & Smelting Co., 39 Wis.
243; State v. Dawson, 16 Ind. 40. 146.
Contra, State v. Hancock, 2 Pennew. 16 See § 246, infra.
(Del.) 231, 45 Atl. 851. 16 See Glymont Improvement & Ex-
Tor acts and proceedings held to cursion Co. v. Toler, 80 Md. 278, 30
constitute an organization, and com- Atl. 651 (incorporation under general
mencement .of business in good faith law).
within the meaning of a constitutional "Hudson v. Carman, 41 Me. 84;

ôm. v. CuUen, 13 Pa. St. 133, 53 Am.
provision that "all existing charters
or grants of special or exclusive privi- ^«^- ^- ^^^ê^^> 3 Watts
& f^^\^^°'^'
S. (Pa.) 45.
leges, under which a bona fide organ-
18 Com. v. Cullen, 13 Pa. St. 133,
ization shall not have taken place and
^^^^ gg ^^_ j^^^ ^^^_
^^^^^^ ^.^^ ^^^^
business teen commenced in good faith
^^ ^ g^^j^^^^ g pj^.j^ ^^^^ ^^^ ^^_
at the time of the adoption of this eieaves v. Brick Church Turnpike Co.,
Constitution, shall thereafter have no j Sneed (Tenn.) 491 496
validity," see Com. v. Continental 19 Board Water Com 'rs City of Hart-
Trust & Finance Co. of Philadelphia, ford v. Manchester, 89 Conn. 671, 96
10 Pa. Dist. 451, 4 Dauph. Co. Bep. Atl. 182; CoflSn v. Collins, 17 Me. 440,
(Pa.) 254. See also Chap. 9, infra. 443; Com. v. Cullen, 13 Pa. St. (1 Har-
470
Ch.8] Cbeation Undee Special Acts [§246
§246. —
Presumption of acceptance. As a logical result of the
above rule, an acceptance may be presumed from the acts of persons
interested *^ in applying for the charter,** in openly and plainly rec-
ognizing the grant,*^ in organizing the corporation under the terms
—
of the charter ** by electing officers, holding meetings and adopting
—
by-laws** or in exercising the powers granted and the privileges
conferred.*®
ris) 133, 140, 53Am. Dec. 450; Mutual who were absent,
or implied, of those
Fire Ins. Co. v. Stokes, 9 Phila. (Pa.) met together and consulted upon the
80, 82; Gleaves v. Brick Church Turn- amendment, and agreed to accept the
pike Co., 1 Sneed (Tenn.) 491, 496. charter in that form. If the evidence
See also Trustees of School Dist. No. stopped here, would be clearly suf-
it
3 in Blandford v. Gibbs, 2 Cush. (56 ficient to show an acceptance. State '

'
Mass.) 39, 43. V. Dawson, 22 Ind. 272, 273.

An express acceptance is not essen- 23 Brown v. Fairmount Gold & Sil-
tial. Farnsworth v. Lime Eock B. Co., ver Min. Co., 10 Phila. (Pa.) 32, 34.
83 Me. 440, 22 Atl. 373. See also 24 Delaware. Logan v. McAllister,
§ 246, infra. 2 Del. Ch. 176.
21 Mutual Fire Ins. Co. v. Stokes, Maryland. Glymont Improvement
a Phila. (Pa.) 80, 82. An application & Excursion Md. 278,
Co. v. Toler, 80
for the amendment of a charter is very 30 Atl. 651.
strong evidence of its acceptance. North Carolina. Benbow v. Cook,
Farnsworth v. Lime Eock E. Co., 83 115 N. C. 324, 44 Am. Eep. 454, 20 S.
M.e. 440, 22 Atl. 373. E. 453.
22 City of Atlanta v. Gate City Gas Texas. Quinlan v. Houston & T.
Light Co., 71 Ga. 106; Society of Mid- C. Ey. Co., 89 Tex. 356, 34 S. "W. 738.
dlesex Husbandmen & Manufacturers Wiscon^n. Heath v. Silverthorn
V. Davis, 3 Mete. (Mass.) 133; Per- Lead Mining & Smelting Co., 39 Wis.
kins V. Sanders, 56 Miss. 733; St. Jo- 146.
seph & L. E. Co. V. Shambaugh, 106 A call for a meeting for thei pur-
Mo. 557, 17 S. W. 581. pose of organizing the corporation un-
"It was not only proven that the der the charter has been held to be
corporators applied to the legislature sufficient evidence of an acceptance
for the passage of the act in question, thereof, there being deducible no other
already drawn up as passed, excepting conclusion than that such call was
the clause authorizing a repeal; that preceded by a determination to accept
one of the corporators appeared be- the same. Gleaves v. Brick Church
fore a legislative committee, to whom Turnpike Co., 1 Sneed (Tenn.) 491.
the bill was referred, and on behalf 25 Mutual Fire Ins. Co. v. Stokes,
of himself and the other corporators, 9 Phila. (Pa.) 80, 82.

explained to the committee the ob- 26 United States.
Louisville, N. A.
jects of the proposed organization; but & Ey. Co. V. Louisville Trust Co,,
C.
it was also proven that, after the leg- 174 U. S. 552, 577, 43 L. Ed. 1081;
islature appended the clause authoriz- Bank of United States v. Dandridge,
ing a repeal in certain cases, such of 12 Wheat. 64, 6 L. Ed. 552; Louis-
the corporators as were present, one ville Trust Co. V. Louisville, N. A.

of whom, at least, appears to have & C. E. Co., 75 Fed. 433; Dorsey
been acting by the authority, express Harvester Eevolving Eake Co. v.
471
246] Peivate Cobporations [Ch.8
While this Bresumption of acceptance arising from the fact that

powers have been exercised under the charter is generally regarded as
a conclusive one, at least to the extent that it will create an estoppel,
there is authority for the proposition that it is a presumption of fact
Marsh, 6 J'ish. Pat. Cas. 387, Fed. Caa. Minnesota.St. Paul Division No.
No. 4,014. 1, Sons of Temperance v. Brown, 11
Alabama. Talladega Ins. Oo. v. Minn. 356. See also St. Paul Division
Landers, 43 Ala. 115. See also Eppea No. 1, Sons of Temperance v. Brown,
V. Mississippi, G. Sa T. B. Co., 35 Ala. 9 Minn. 157, 165.
33. Mississippi. Perkins v. Sanders, 56
Connecticut. Board Water Com'rs Miss. 733.
City of Hartford v. Manchester, 89 Missouri. Boatmen's Bank v. Gil-
Conn. 671, 96 Atl. 182. See also Dan- lespie, 209 Mo. 217, 108 S. W. 74;
bury & N. R. Co. V. Wilson, 22 Conn. St. Joseph & I. B. Co. v. Shambaugh,
435, 448. ,
106 Mo. 557, 17 S. W. 581 (construction
Delaware. Logan v. McAllister, 2 and operation of part of road, held
Del. Ch. 176. See also Philadelphia, sufficient evidence of railroad's ac-
W. & B. R. Co. V. Kent County E. Co., ceptance of special charter); Sum-
5 Houst. 127, 132. rail V. Sun Mut. Ins. Co., 40 Mo. 27.
Georgia.City of Atlanta v. Gate New
Hampshire. Woods v. Banks,
City Gas Light Co., 71 Ga. 106. 14 N. H. 101; Ameriscoggin Bridge v.
Kentucky. See Kenton County Bragg, 11 N. H. 102.
Court V. Bank Lick Turnpike Co., 73 New York. Demarest v. Flaek, 128
Ky. 529, 535. N. T. 205, 13 L. E. A. 854, 28 N. E.
Maine. Famsworth v. Lime Bock 645. See also Williams v. Bank of
B. Co., 83 Me. 440, 22 Atl. 373 (the Michigan, 7 Wend. 539; Utica Ins. Co.
expenditure of a large sum of money V. Tilman, 1 Wend. 555.
in constructing its road, held confirma- North Carolina. Taylor v. New-
tory evidence of the acceptance by a berne Com'rs, 2 Jpnes Eq. 141.
railroad eompapy of the charter Pennsylvania. Com. v. Cullen, 13
granted it); South Bay Meadow Dam Pa. St. 133, 140, 53 Am. Dec. 450. See
Co. V. Gray, 30 Me. 547; Penobscot also Brown v. Fairmount Gold & Sil-
Boom Corporation v. Lamson, 16 Me. ver Min. Co., 10 Phila. 32, 34; Mutual
224, 33 Am. Dec. 656; Trott v. Warren, Fire Ins. Co. v. Stokes, 9 Phila. 80,
11 Me. 227; Lincoln & Kennebec Bank 83.
V. Bichardson, 1 Me. 79, 10 Am. Dee. South Carolina. McKay v. Beard,
34. 20 S. C. 156.
Maryland. Glymont Improvement Tennessee. Gleaves v. Brick Church
6 Excursion Co. v. Toler, 80 Md. 278, Turnpike Co., 1 Sneed 491; Augusta
30 Atl. 651; Hammond v. Straus, 53 Mfg. Co. V. Vertrees, 4 Lea, 75.
Md. 1. Vermont. Bank of Manchester v,
Massachusetts. Society of Middle- Allen, 11 Vt. 302.
sex Husbandmen & Manufacturers v. Wisconsin. See Heath v. Silver
Davis, 3 Mete. 133; Bussell v. Me- thorn Lead Mining & Smelting Co,
Lellan, 14 Pick. 63. 39 Wis. 146, 155.
MicUgau. Cahill v. Kalamazoo England. Bex v. Amery, 2 T. B,
Mut. Ins. Co., 2 Doug. 124, 43 Am. 515, 1 T. E. 575.
Dec. 457. Acceptance of a charter will be pre^
472
Ch.8] Cbeation Under Special Acts [§248
and not of law, and may therefore be rebutted by showing that there
has actually been no acceptance.^* Moreover, it has been said that
this presumption does not obtain in eases where the charter does not
name the corporators, and prescribes conditions and formalities by
which indeterminate persons may become incorporated.^^
§247. — Question for jury. Whether acts performed are suffi-

cient to constitute the acceptance of a charter by user has been held
to be a question for the jury.^"
§ 248. — Effect. Upon the acceptance of the charter, there exists

an express contract between the corporation and the state,*^ and the
acceptance is not subject to revocation or withdrawal except upon the
state's consent.*''
When an act of incorporation is accepted, and the corporation
sumed from acceptance of a lease re- of the charter. These rules have no
citing corporate existence, and from application to charters not naming the
condemnation of land under a petition corporators,and prescribing conditions
reciting power to do so under the and formalities by which indetermi-
charter. Louisville Trust Co. v. Louis- nate persons may become incorpo-
rated." Attorney General v. Chicago
ville, N. A. & C. E. Co., 75 Fed. 433.
See Louisville, N. A. & C. E. Co. v.
& N. W. E. Co., 35 "Wis. 425, 601.
When the charter does not directly
Louisville Trust Co., 174 U. S. 552,
incorporate persons named but ap-
577.
points commissioners to open books
The books of the corporation are
for the subscription of stock and in-
the best evidence of the corporate
corporates the subscribers, acceptance
acts relied on. Coffin v. Collins,, 17 Au-
of the charter must be shown.
Me. 440, 443. gusta Mfg. Co. V. Vertrees, 4 Lea
28 Newton v. Carbery, 5 Cranch C. (Tenn.) 75, 78. "If the charter de-
C. 632, Ted. Cas. No. 10,190. See also pends upon any precedent conditions
Philadelphia, W. & B. E. Co. v. Kent an acceptance made in strict compli-
County E. Co., 5 Houst. (Del.) 127; ance therewith is necessary to ren-

Hammond v. Straus, 53 Md. 1. der it operative, either as a grant to
29 '
' We have been referred by th& or an obligation upon the corpora-
defendant's counsel to some authori- tion." Atkinson v. Tennill, 14 Ky.
ties holding that acceptance of a char- L. Eep. 922.
ter applied for, or beneficial to the 30 Augusta Mfg. Co. V. Vertrees, 4
corporators, may be presumed; and Lea (Tenn.) 75, 78.
that, in similar cases, slight acts of 31 People V. Michigan Cent. E. Co.,
the corporators looking towards ac- 145 Mich. 140, 108 N. W. 772.
ceptance are sufficient to establish it. 32 Eiddle v. Proprietors of Locks
But these authorities relate to char- & Canals on Merrimack Eiver, 7 Mass.
ters naming the corporators and de- 169, 5 Am. Dec. 35. See also Goshen
claring them incorporated, without & S. Turnpike Co. v. Sears, 7 Conn.
preliminary steps, ipso facto, by force 86.
472
organized provisionally under it, no subsequent withdrawal of any of

the corporators can aifect its validity.^^
By accepting the charter, the corporation becomes bound by its

terms,'* and charged with the performance of the duties and obliga-
tions imposed.*'
§249. — Proof of nonacceptance. Quo warranto proceedings

against persons in whose behalf an act of incorporation had been
passed, in which the defendants alleged that they had never used the
franchise of a corporation, and in which the People had judgment of
preclusion, have been held decisive of the question of the nonaccept-
ance of the charter.'®
It has also been held that nonaction under a charter negatives any
implied acceptance of it.*''
33Buse7 ^- Hooper, 35 Md. 15, 6 36 Riddle V. Proprietors of Locks &

Am. Bep. 350. Canals on Merrimack River, 7 Mass.
34Bushwiek & N. Bridge & Turn- 169, 184, 5 Am. Dec. 35. See also
pike Road Co. V. Ebbets, 3 Edw. Ch. Goshen & 8. Turnpike Co. v. Sears,
(N. Y.) 353, 355; City of New York 7 Conn. 86.
V. Broadway & Seventh Ave. E. Co., 36 Thompson v. New York & H. E.
17 Hun (N. Y.) 242, 245. Co., 3 Sandf. Ch. (N. Y.) 625, 651.
The acceptance of the charter cre- 37 Philadelphia, W. & B. R. Co. v.
ates the presumption of assent to its Kent County E. Co., 5 Houst. (Del.;
terras. People v. Michigan Cent. E. 127, 132.
Co., 145 Mich. 140, 108 N. W. 772.
474
CHAPTER 9
Oeganization
§ 250. Terminology.
§ 251. Elements.
§ 252. Necessity of organization.
I 253. Time for organization —In the absence of statute.
§ 254. — Under and statutory provisions.
constitutional
{ 255. Time for election of directors and officers.
§ 256. Place of organization.
§ 257. Procedure generally to effect organization.
S 258. Commissioners — ^^Qualifications.
{ 259. — Powers.
I 2C0. — Duties.
i 261. — Termination revocation of authority.
or
i 262. Notice of meeting—Provision
first for.
} 263. — Purpose of provision for notice.
I 264. — By whom given.
5 265. — Time for giving.
I 266. — Form and contents.
8 267. — Service.
I 268. — Effect of noncompliance with provisions as to notice.
I 269. Postponement of meeting.
§ 270. Conduct of meeting and persons who may participate.
§ 271. Beport of commissioners, corporators or oflScers.
f 272. Certificate of organization; issuing and recording.
The words "organize" and "organization"

§250. Termiaology.
are often used both in statutes and by the courts as synonymous
with "incorporate" and "incorporation," and in this sense include
all the steps necessary to perfect the incorporation of an association.*
1 Com. V. Wm. Mann Co., 150 Pa. Such organization has no reference to
St. 64,24 Atl. 601. the internal proceedings of the cor-
Corporations formed under authority poration, such as a meeting of
of the general laws "are organized stockholders and the like; means the
it
by a compliance with the provisions formation or birth of the body corpo-

of general laws permitting corpora- rate." Morrison v, Clark, 24 Mont,
tions to be formed. A compliance 515, 63 Pae. 98.
with these laws results, of itself, in The word "organized" as used in
the organization of tlie corporations. Const, art. XV, §1, providing that
475
So the word "organized" has been held to be used in this sense in a

statute conferring powers on corporations "organized" for the pur-
poses named and under which the appointment of officers
therein,
becomes with the incorporation and neither can
effective eo instanti
take place without the other,^ and also in a statute exempting from
taxation corporations "organized" for certain purposes.^ And it
is frequently used in this sense in contracts of subscription to stock
where the subscriber agrees to pay the whole or a part of his subscrip-
tion on the "organization" of the corporation, or within a specified
time thereafter,* or where one contracts to pay a certain sum when
a corporation is "organized." * But these terms are also often given
all existing charters under which the eral Corporation Tax Law. And see
corporations shall not have organized the following eases where the terms
at the time of the adoption of the are used in this sense. Drake v. Hern-
Constitution, shall thereafter have ne don, 122 Ky. 206, 91 S. W. 674; Em-
validity, is not appropriate '
' to de- pire Mfg. Co. v. Stuart, 46 Mich. 482,
scribe what corporations formed un- 9 N. W. 527; Johnson v. Okerstrom, 70
der general laws must do before the Minn. 303, 73 N. W. 147; Finnegan v.
adoption of the Constitution in order Noerenberg, 52 Minn. 239, 18 L. E.
to preserve their franchises, for such A. 778, 38 Am. St. Eep. 552, 53 N.
corporations had already been organ- W. 1150, East Norway Lake Church v.
ized, by virtue of the filing in the Froislie, 37 Minn. 447, 35 N. W. 260;
proper offices of the certificates re- MacGinniss v. Boston & M. Consol.
quired." That section was not de- Copper & Silver Min. Co., 29 Mont.
signed, therefore, to invalidate the 428, 75 Pae. 89.
cliarters of corporations so formed for 2 Com. V. Wm. Mann Co., 150 Pa.
failure organize in the sense of
to St. 64, 24 Atl. 601.
electing directors, and the like. Mor- 3Com. V. Wm. Mann Co., 150 Pa.
rison V. Clark, 24 Mont. 515, 63 Pae. St. 64, 24 Atl. 601.
98. 4 Under such circumstances it means
In Capps V. Hastings Prospecting when everything necessary to the for-
Co., 40 Neb. 470, 24 L. E. A. 259, 42 mation of a corporation de jure has
Am. St. Eep. 677, 58 N. VSr. 956, it was been done. Capps v. Hastings Pros-
held that, "To organize a corporation pecting Co., 40 Neb. 470, 24 L. E. A.
there must be subscribers to the stock; 259, 42 Am. St. Eep. 677, 58 N. W.
a meeting of said subscribers, or some 956. See Chap. 17, infra.
of them; the adoption of articles of Bin Childs v. Smith, 46 N. Y. 34,
association for the government of the rev'g 55 Barb. (N. Y.) 45, it was
proposed corporation, and such arti- held that a corporation was organized
clesmust be filed in the office of the within the meaning of such a con-
county clerk of the county in which tract when there had been "such acts
is fixed the corporation's principal and doings among the associates, as
place of business." See also Eliot v. should form and set on foot, in prac-
Freeman, 220 U. S. 178, 55 L. Ed. 424, tical existence, a body in which they
construing the words "organized un- should have rights, and to which they
der the laws of the United States or would owe obligation, and through
of any state or territory" in the Fed- which they should possess rights
476
Ch. 9] Obganization [§250
a more restricted meaning as including only those things that are

necessary to be done after incorporation in order to give the corpora-
tion power to act and to carry out the objects and purposes for which
it was formed,* and it is in this sense that they are used in this
chapter.
against, and incur obligations to, each Massachusetts. See Hawes v. An-
other," and hence, that it was suffi- glo-Saxon Petroleum Co., 101 Mass.
cient where a certificate of incorpo- 385;Merrick v. Eeynolda Engine &
ration had been signed, by-laws Governor Co., 101 Mass. 381.
adopted, and officers elected, and they Mississippi. Ellison v. Mobile & O.
had a place of business as a corpora- E. Co., 36 Miss. 572. See also Eag-
tion, though there was not a corpora- land V. Doolittle, 100 Miss. 498, 59 So.
tion de jure because the certificate 445.
had not been filed. Missouri. McDermott v. Donegan,
6 United States, See Planters' F. 44 Mo. 85; Foster v. White Cloud City
& M. Ins. Co. V. Tennessee, 161 U. S. Co., 32 Mo. 505.
193, 40 L. Ed. 667; Falconer v. Camp- New See Booth v. Won-
Jersey.
bell, Fed. Cas. No. 4,620, 2 McLean derly, 36N. J. L. 250.
195. New York. See Hone v. Allen, 1
Alabama. White v. Kahn, 103 Ala. Sandf. 171 note; Brouwer v. Appleby,
308, 15 So. 595; Sparks v. Woodstock 1 Sandf. 158.
Iron & Steel Co., 87 Ala. 294, 6 So. North CaroUna. See Fayetteville
195. See also First Nat. Bank of De- St.Ey. v. Aberdeen & E. E. Co., 142
catur V. Henry, 159 Ala. 367, 49 So. N. C. 423, 9 Ann. Cas. 683, 55 S. E.
97. 345.
Connecticut.Pub. Acts 1903, c. 194, Ohio.Powers v. Hazelton & L. Ey.
§69; Gen. St. 1902, §3365. Canfield Co., 33 Ohio St. 429; Toledo Consol.
V. Gregory, 66 Conn. 9, 33 Atl. 536. St. Ey. Co. V. Toledo Elec. St. Ey.
Delaware. Lippman v. Kehoe Steno- Co., 6 Ohio N. P. 537, aff'd 6 Ohio
graph Co., —Del. Ch. —
, 95 Atl. 895. Cir. Ct. 362, aff'd 50 Ohio St. 603, 36
Georgia. Brooke v. Day, 129 Ga. N. E. 312. See also Second Nat. Bank
694, 59 S. E. 769; Bau v. Union Paper V. Hall, 35 Ohio St. 158; James v. Cin-
Mill Co., 95 Ga. 208, 22 S. E. 146; cinnati, H. & D. E. Co., 2 Disney 261.
Michael Bros. Co. v. Davidson & Cole- Oregon. See McVicker v. Cone, 21
man, 3 Ga. App. 752, 60 S. B. 362. See Ore. 353, 28 Pac. 76.
also Ward-Truitt Co. v. Bryan & Pennsylvania. Com. v. Wm. Mann
Lamb, 144 Ga. 769, 87 S. E. 1037. Co., 150 Pa. St. 64, 24 Atl. 601. See
Kansas. Murdook v. Lamb, 92 also Com. v. Continental Trust & Fi-
Kan. 857, 142 Pac. 961; Nemaha Coal nance Co., 10 Pa. Dist. 451.
& Mining Co. v. Settle, 54 Kan. 424, South Carolina. See Spartanburg
38 Pac. 483; Walton v. Oliver, 49 Kan. & A. E. Co. V. Ezell, 14 S. C. 281.
107, 33 Am. St. Eep. 355, 30 Pac. 172; Tennessee. v. Brick Church
Gleaves
Hunt V. Kansas & Missouri Bridge Turnpike Co., 1 Sneed 491. See also
Co., 11 Kan. 412. State V. Butler, 86 Tenn. 614, 8 S. W.
IVIaryland. See Taggart v. Western 586.
Maryland E. Co., 24 Md. 563, 89 Am. Texas. Quinlan v. Houston & T. C.
Dec. 760; Wellersburg & W. N. Plank Ey. Co., 89 Tex. 356, 34 8. W. 738;
Eoad Co. V. Hoffman, 9 Md. 559. Williams v. State, 23 Tex. 264. See
477
§250] Private Coeporations [Ch.9
Obtaining authority to do business is not the equivalent of organiza-
also Patty v. Hillsboro Boiler Mill Co., not necessarily organize it in order —
4 Tex. Civ. App. 224, 23 S. W. 336. that the corporation be organized,
Vermont. See Lawrie v. Silsby, 76 there must be an acceptance of the
Vt. 240, 104 Am. St. Eep. 927, 56 Atl. charter, and a compliance with what-
1106; Vermont Mining & Quarrying ever the special law may require."
Co. V. Windham County Bank, 44 Vt. Morrison v. Clark, 24 Mont. 515, 63
489; Vermont Cent. E. Co. v. Clayes, Pae. 98.
21 Vt. 30. In Watson v. Albany & N. By. Co.,
Virginia, See Grays v. Lynchburg Ill Ga. 10, 36 S. E. 324, it is said
& S.Turnpike Co., 4 Band. 578. '
that the purchasers of a i'ailroad at
West Virginia. Bee Greenbrier In- a judicial sale did not formally or-
dustrial Exposition v. Squires, 40 W. ganize until a certain date, when
Va. 307, 52 Am. St. Eep. 884, 21 S. "they met, adopted a common seal,
E. 1015. issued stock, made by-laws, and
Wyoming. See Grand Eapids Fur- elected a board of directors."
niture Co. V. Grand Hotel & Opera In Wechselberg v. Elour City Nat.
House Co., 11 Wyo. 128, 72 Pae. 687, Bank, 64 Ped. 90, 26 L. B. A. 470,
70 Pae. 838. it is said that the inhibition of a
If the charter is accepted at the statute was "against any transac-

first meeting, "an organization takes tions except such as tend to organiza-
place by the election of permanent tion,
# » #
— i. e. perfecting incorporation
J,
officers, and other acts important to
carry into effect the objects of the In McGinty v. Athol Beservoir Co.,
company, and a record thereof made." 155 Mass. 183, 29 N. E. 510, it was
Hudson V. Carman, 41 Me. 84. held that where at least one of the
The only business which a national persons named in the act of incorpora-
bank is permitted to carry on prior tion,without objection from the oth-
to the time when it is authorized by ers,with seven others not so named,
the comptroller of the currency to met and accepted the act, adopted
commence the business of banking is by-laws, chose officers, and transacted
"such as is incidental and necessarily other business, the persons taking part
preliminary to its organization," that in such proceedings became a corpo-
'
is to say, such as is necessary to com- ' ration.
plete its organization as a corpora- In Abbott V. Omaha Smelting &
tion, which might doubtless include Eefining Co., 4 Neb. 414, 421, the court
electing directors and officers, receiv- says that the word "organization,"
ing subscriptions and payments for as used in a statute providing that a
shares, procuring a corporate seal, and corporation, "previous to the com-
a book for recording its proceedings, mencement of any business, except its
temporarily hiring a room, and con- own organization," must adopt arti-
tracting any small debts incidental to cles of incorporation and have the
the completion of its organization." same recorded, "means simply
the
McCormiek v. Market Nat. Bank, 165 process of forming and arranging into
V. S. 538, 41 L. Ed. 817, aff'g 162 111. suitable disposition the parts which
100, 44 N. E. 381, which affirms 61 are to act together in, and in defin-
111. App. 33. ing the objects of the compact body,
"Aspecial or private charter pur- and that this process, even when com-
porting to create a corporation does pleted in all its parts, does not confer
478
Ch.9] Obganization L§251
'
tion, "organized" not synonymous with "licensed to do business."
is
And the use of the word organize is incompatible with the idea of
'
'
'
'
adopting or domesticating a foreign corporation by legislative fiat,

since in that event the corporation is already organized and therefore
no organization is necessary.'
§ 251. Slements. When given the restricted construction defined

above, these terms have been variously stated to include the choice
the franchise, either valid or de- from the date of its incorporation, its
fective, but on the contrary, it is only corporate powers shall cease. Daily
the act of the individuals, and there- V. Marshall, 47 Mont. 377, 133 Pac.
fore something else must be done to 681. And in the provision of the
secure the franchise." Pennsylvania Constitution for the for-
In Capps V. Hastings Prospecting feiture of charters under which a bona
Co.,40 Neb. 470, 24 L. E. A. 259, 43 fide organization has not taken place
Am. St. Eep. 677, 58 N. W. 956, it is at the time of its adoption. Chincle-
said: "To organize a corporation there clamouche Lumber & Boom Co. v. Com.
must be subscribers to the stock; a 100 Pa. St. 438.
meeting of said subscribers, or some "The word 'formed' is used in the
of them; the adoption of articles of Ohio statutes as a synonym for 'or-
association for the government of the ganized.' " Cincinnati v. Queen City
proposed corporation, and such articles Tel. Co., 2 Ohio N. P. (N. S.) 349,
must be filed in the office of the county aff'd 5 Ohio Cir. Ct. (N. S.) 411,.
clerk of the county in which" is fixed which is affirmed by 73 Ohio St. 64,
the corporation's principal place of 76 N. B. 392.
business." In Nebraska, corporations 7 An insurance company incorpo-
are formed under general laws, and rated under the laws of Great Britain
the organization, using the word as and licensed to do business in New
above defined, takes place before the York is not organized in New York.
articles of incorporation are adopted Employers' Liability Assur. Co. v.
and filed. Commissioner of Insurance, 64 Mich.
The corporation must be regarded 614, 31 N. W. 542.
as organized, so as to permit a trans- 8 For this reason a statute provid-
fer of the franchise, and within the ing for the domesticating of foreign
meaning of a provision that the corporations oe petition of the cor-
franchise shall remain in the incorporation, to violate a con-
was held
porators until the corporation is or- stitutional provision that no law should
ganized, "when the first meeting has be passed for the benefit of a foreign
been called, the act of incorporation corporation and no grant of any right
accepted, the officers elected and by- or privilege, or exemption from any
laws providing for future meetings '
burden, should be made to it, ' except
adopted, at least where there are any
upon the condition that the owners
stockholders." Roosevelt v. Ham-
or stockholders thereof shall first or-
blin, 199 Mass. 127, 18 L. E. A. (N.
ganize a corporation in this state
S.) 748, 85 N. E. 98. The word is
* * *." Carolina, C. & O. Ey. v. Mc-
used in this sense in Eev. Codes 1907,
Cown, 84 8. C. 318, 66 S. E. 418, con-
if a corporation
§ 3892, providing that
curring opinion.
does not "organize" within one year
479
§ 251] Pbivate Cokpoeations [Ch. 9
and qualification of directors and officers,' the adoption of corporate
s United States. McCormick v. Euble, 8 Ore. 284; HoUaday v. Elliott,

Market Nat. Bank, 165 U. S. 538, 41 8 Ore. 84; Willamette Freighting Co.
li. 111. 100, 44 N. E.
Ed. 817, aff'g 162 V. Stannus, 4 Ore. 261.
381, which affirms 61 111. App. 33. South Carolina. Carolina, C. & O.
Alabama. First Nat. Bank of De- Ey. V. McCown, 84 S. C. 318, 66 S. E.
catur V. Henry, 159 Ala. 367, 49 So. 418, concurring opinion; McKay v.
97; White v. Kahn, 103 Ala. 308, 15 Beard, 20 S. C. 156.
So. 595. Tennessee. See Woodward v. Beas-
Connecticut. Pub. Acts 1903, c. 194, ley, 2 Tenn. Ch. App. 339.
§ 67; Gen. St. 1902, § 3365. Canfield Wyoming. See Grand Eapids Fur-
V. Gregory, 66 Conn. 9, 33 Atl. 536. niture Co. v. Grand Hotel & Opera
Delaware. See Lippman v. Kehoe House Co., 11 Wyo. 128, 72 Pac. 687,
Stenograph Co., — Del. Ch. — , 95 Atl. 70 Pac. 838.
895. "To organize is to furnish with or-
Qeorgia. Watson v. Albany & N. gans. An organ is defined to be an
Ey. Co., Ill Ga. 10, 36 S. E. 324. instrument or medium by which an
See Atherton v. Sugar
Indiana. action is performed or an object ac-
Creek & P. Turnpike Co., 67 Ind. 334. complished. The inedium by or
Kansas. Murdock v. Lamb, 92 Kan. through which a corporation can alone
857, 142 Pae. 961; Nemaha Coal & act or accomplish the object for which
Mining Co. v. Settle, 54 Kan. 424, 38 it was created is the officers provided
Pac. 483; Walton v. Oliver, 49 Kan. for in the law of its being. Hence it
107, 33 Am. St. Eep. 355, 30 Pae. 172. is organized when these officers have
Maine. Hudson v. Carman, 41 Me. been appointed and taken upon them-
84. selves the burden of their offices; it
Maryland. See Taggart v. Western is then furnished with organs; 'en-
Maryland K. Co.,24 Md. 563, 89 Am. dowed with capacity for the functions
Dec. 760. of life' (Webst.); 'qualified for the
See Ragland v. Doolit-
Mississippi. exercise of its appropriate func-
tle, 100 Miss. 498, 59 So. 445; Perkins
tions.' " Com. V. Wm. Mann Co.,
V. Sanders, 56 Miss. 733; Ellison v.

150 Pa. St. 64, 24 Atl. 601.
Mobile & O. E. Co., 36 Miss. 572. "A corporation cannot act without
Montana. Daily v. Marshall, 47 officers and agents, and it is powerless
Mont. 377, 133 Pae. 681; Morrison v. to do anything until its incorporators
Clark, 24 Mont. 515, 63 Pac. 98. or promoters give it the means

Ohio. Second Nat. Bank v. Hall, 35
whereby it can act." Walton v. Oli-
ver, 49 Kan. 107, 33 Am. St. Eep. 355,
Ohio St. 158; Milford & Chillicothe
Turnpike Co. v. Brush, 10 Ohio 111, 30 Pac. 172, quoted with approval in
36 Am.
Dec. 78; Toledo Consol. St. Murdock v. Lamb, 92 Kan. 857, 142
Pac. 961.
Ey. Co. V. Toledo Elec. St. Ey. Co., 6
Ohio N. P. 537, aff'd 6 Ohio Cir. Ct. Before a railroad company can ex-
362, aff'd 50 Ohio St. 603, 36 N. E.
ercise the power of eminent domain
312. it must show, "in addition to the fact
Oregon. Pairview E. Co. v. Spill- of its incorporation, that it had
man, 23 Ore. 587, 32 Pae. 688; Mc- brought itself into a condition to ex-
Vicker v. Cone, 21 Ore. 353, 28 Pac. ercise its powers for the construction
76; Coyote Gold & Silver Min. Co. v. of the road, by a full organization in
480
Ch.9] Okganization [§ 251
by-laws,^" and the other steps

necessary to endow the legal entity with
'
'
capacity to transact the legitimate business for which it was cre-

ated. "^^ So a corporation is not organized in this sense though a
charter has been obtained, and a certificate that a certain percentage
the election of directors." Powers v. proper officers" as provided by the

Hazelton & L. Ey. Co., 33 Ohio St. statute. Hunt v. Kansas & M. Bridge
429. Co., 11 Kan. 412.
In Cincinnati v. Queen City Tel. "The organization is completed
Co., 2 Ohio N. P.(N. S.) 349, 361, only when directors have been elected,
aff'd 5 Ohio Cir. Ct. (N. S.) 411, which and they have elected a president and
is affirmed by 73 Ohio N.
St. 64, 76 secretary, which it is contemplated
B. 392, it is said that the language they shall do at their first meeting."
of Judge Day in Powers v. Hazelton Nicknm v. Burckhardt, 30 Ore. 464,
& L. Ey. Co., 33 Ohio St. 429, 432, '"a 60 Am. St. Eep. 822, 48 Pac. 474, 47
full organization in the election of Pac. 788.
directors,' ought to set at rest the "The neglect to show that one-half
question as to what our supreme court of the capital stock had been taken,
means when it speaks of the organi- or a board of directors elected, was
zation of a corporation." a failure to prove that plaintiff had
"By the organization of a com- ever been organized as a de jure cor-
pany, we understand the meeting of poration. " Goodale Lumber Co. v.
individuals claiming to be corpora- Shaw, 41 Ore. 544, 69 Pac. 546.
tors and their action in choosing 10 Watson V. Albany & N. Ey. Co.,
officers and servants." Duke v. Ca- Ill Ga. 10, 36 S. E. 324; Murdock v.
hawba Nav. Co., 10 Ala. 82, 44 Am. Lamb, 92 Kan. 857, 142 Pac. 961;
Dec. 472. Nemaha Coal & Mining Co. v. Settle,
"The 'organization' of a corpora- 54 Kan. 424, 38 Pac. 483; Walton v.
tion is the election of officers by the Oliver, 49 Kan. 107, 33 Am. St. Eep.
stockholders." Cincinnati v. Queen 355, 30 Pac. 172; Daily v. Marshall,
City Tel. Co., 2 Ohio N. P. (N. S.) 47 Mont. 377, 133 Pac. 681; Carolina,
349, aff'd 5 OLio Cir. Ct. (N. S.) 411, C. & O. Ey. V. McCown, 84 S. C. 318,
which is affirmed by 73 Ohio St. 64, 66 S. E. 418, concurring opinion.
76 N. E. 392. 11 Murdock v. Lamb, 92 Kan. 857,
Organization includes the election 142 Pac. 961; Nemaha Coal & Min-
of directors. Cincinnati v. Queen City ing Co. v. Settle, 54 Kan. 424, 38 Pac.
Tel. Co., 2 Ohio N. P. (N. S.) 349, aff'd
483; Walton v. Oliver, 49 Kan. 107,
5 Ohio Cir. Ct. (N. S.) 411, which is
33 Am. St. Eep. 355, 30 Pac. 172,
affirmed by 73 Ohio St. 64, 76 N. E.
quoted in Carolina, C. & O. Ey. v.
392.
McCown, 84 S. C. 318, 66 S. E. 418,
The word organize "ordinarily sig- concurring opinion.
nifies the choice and qualification of
This expression refers solely to such
all necessary the transac-
officers for
steps as are necessary to complete or-
tion of the business of the corpora-
ganization to the point that genuine
'
tion." New Haven & D. E. Co. v.

and not merely formal or paper ex-
Chapman, 38 Conn. 56.
istence is created. Murdock v. Lamb,
Organization for the transaction of
business "is effected by the election 92 Kan. 857, 142 Pac. 961. See also
of a board of directors, and other Hudson V. Carman, 41 Me. 84.

481
I Priv. Corp.— 3-1
§251] Private Corporations [Ch.9
of the capital stock has been subscribed as required by the statute,^''

or though the charter has been accepted, the enrollment tax paid,
and books opened and subscriptions received for half of the capital
nothing further has been done. The same result follows
stock,^' if
where nothing is done to perfect the organization after the charter or
articles,or certificate of incorporation is filed, in states where such
filingtakes place before the stock is subscribed for and the officers
chosen,^* even though the statute provides that the corporate existence
shall date from the time of such filing.^*
While organization is sometimes said to include providing for the
subscription and payment of the capital stoek,^^ it does not neces-
12 These "are only the first A corporation comes into existence

toward forming a corporation. At when its articles are filed, but must
such a stage of its existence a corpo- then proceed in its organization and
ration cannot be said to be organized, the carrying on of the business for
and the term is not so used in the re- which it is incorporated, or it is liable
ports. ' Cincinnati v. Queen City Tel.
'
to ouster. State v. Bobinson, 9 Ohio
Co., 2 Ohio N. P. (N. S.) 349, aff'd Dec. 383.
5 Ohio Cir. Ct. (N. S.) 411, which is IB See Chap. 14, infra.
affirmed by 73 Ohio St. 64, 76 N. E. 16 McCormick v. Market Nat. Bank,

392. 165 U. 41 L. Ed. 817, aff'g 162
S. 538,
Chincleclamouche
13 Lumber & 111. 100, 44 N. E. 381, which affirms
Boom Co. V. Com., 100 Pa. St. 438. 61 111. App. 33; Brooke v. Day, 129
14 Murdock v. Lamb, 92 Kan. 857, Ga. 694, 59 S. E. 769; Murdock v.
142 Pac. 961; Walton v. Oliver, 49 Lamb, 92 Kan. 857, 142 Pac. 961; Ne-
Kan. 107, 33 Am. St. Eep. 355, 30 Pac. maha Coal & Mining Co. v. Settle, 54
172; McVicker v. Cone, 21 Ore. 353, Kan. 424, 38 Pac. 483; Walton v. Oli-
28 Pac. 76. And see Eutherford v. ver, 49 Kan. 107, 33 Am. St. Eep. 355,
Hill, 22 Ore. 218, 17 L. E. A. 549, 29 30 Pac. 172; Carolina, C. & O. Ey. v.
Am. St. Eep. 596, 29 Pac. 546. MeCown, 84 S. C. 318, 66 S. B. 418,
The making, filing and recording concurring opinion. See also Wechsel-
of of incorporation do not
articles berg V. Flour City Nat. Bank, 64 Fed
make an incorporated company, but 90, 26 L. E. A. 470; Goodale Lumber

the articles are merely authority to Co. V. Shaw, 41 Ore. 544, 69 Pac. 546;
do so. No corporation exists under Nickum v. Burckhardt, 30 Ore, 464,
such circumstances, where it does not 60 Am. St. Eep. 822, 48 Pac. 474, 47
appear that any officers or directors Pac. 788; Fairview E. Co. v. Spill-
have been chosen, or that any of the man, 23 Ore. 587, 32 Pac. 688; Mo-
stock has been subscribed, or that any Vicker v. Cone, 21 Ore. 353, 28 Pac.
organization whatever has been ef- 76; HoUaday v. Elliott, 8 Ore. 84;
fected. State V. Insurance Co., 49 Willamette Freighting Co. v. Stan-
Ohio St. 440, 16 L. E. A. 611, 34 Am. nus, 4 Ore. 261.
St. Eep. 573, 31 N. E. 658; Cincinnati The organization is not complete
V. Queen City Tel. Co., 2 Ohio N. P. where no stock has been subscribed,
(N. S.) 349, aff'd 5 Ohio Cir. Ct. (N. although the charter has been filed.
S.) 411, which is affirmed by 73 Ohio Nemaha Coal & Mining Co. v. Settle,
8t. 64, 76 N. E. 392. 54 Kan. 424, 38 Pac. 483; Whetstone
482
'
Ch.9] Obganization [§252
sarily include the procuring of subscriptions, and there are many-

cases in which manifestly it is sense,^'' and in
not used in any such
which organization may be perfected and the company may proceed
to business before the full amount of the capital has been subscribed,^*
the matter being one that is governed entirely by the charter or gen-
'
eral law under which the corporation is formed.^'
§252. Necessitj of organizatioii. Since a corporation is power-

less todo anything until its incorporators, or promoters, give it the
means whereby it can act,*" an organization in accordance with the
provision of the statute to which it owes its existence is ordinarily
necessary before it can assume its franchise, or enter into any kind
of contract, or transact any business.*^ And this is often held to be
equally true though the statute provides for the filing of the charter.
V. Crane Bros. Mfg. Co., 1 Kan. App. Oregon. McVicker v. Cone, 21 Ore.
320, 41 Pae. 2ll. 353, 28 Pae. 76; Coyote Gold & Silver
17 New Haven & D. E. Co. v. Chap- Min. Co. Euble, 8 Ore. 284.
V.
man, 38 Conn., 56. Wisconsin. See Attorney General v.
18 New Haven & D. E. Co. v. Chap- Chicago & N. W. Ey. Co., 35 Wis. 425.
man, 38 Conn. 56. See Chap. 10 and Wyoming. See Grand Eapids Fur-
Chap. 17, infra. niture Co. V. Grand Hotel & Opera
19 ' This ia usually done after all
'
House Co., 11 Wyo. 128, 72 Pao. 687,
the capital stock has been subscribed. ' 70 Pao. 838.
New Haven & D. E. Co. v. Chapman, Organization under the charter is
38 Conn. 56. See Chap. 10 and Chap. essential to give the corporation an
17, infra. actual entity and to enable it to trans-
ZOMurdock v.Lamb, 92 Kan. 857, act business. Ward-Truitt Co. v. Bryan
142 Pae. 961; Walton v. Oliver, 49 & Lamb, 144 6a. 769, 87 S. E. 1037;
Kan. 107, 33 Am. St. Eep. 355, 30 Pae. Eau V. Union Paper Mill Co., 95 Ga.
172. 208, 22 S. E. 146; Michael Bros. Co. v.
21 Elgin Nat. Watch
United States. Davidson & Coleman, 3 Ga. App. 752,
Co. v. Loveland, 132 Fed. 41. 60 S. E. 362.
Delaware. City of Wilmington v. "A corporation, until organized,
Addicks, 7 Del. Ch. 56, 43 Atl. 297. has no being, franchises, or faculties.
Illinois. Gent v. Manufacturers' & • * * Until organized as authorized
Merchants' Mut. Ins. Co., 107 111. 652, by the charter there is not a corpora-
aff'g 13 111. App. 308; Western Screw tion, nor does it possess franchises or
& Manufacturing Co. v. Cousley, 72 faculties for it or others to exercise,

III. 531; Merrick v. Consumers Heat & until it acquires a complete exist-
Electric Co., Ill 111. App. 153; Cres- ence." Gent V. Manufacturers' &
well v. Oberly, 17 111. App. 281. See Merchants' Mut. Ins. Co., 107 HI. 652,
also Stowe v. Flagg, 72 111. 397. 658, aff'g 13 111. App. 308. Quoted
Kansas. Murdock v. Lamb, 92 Kan. with approval in Owen v. Shepard, 59
857, 142 Pae. 961; Walton v. Oliver, Fed. 746.
49 Kan. 107, 33 Am. St. Eep. 355, 30 "Unless something is done towards
Pae. 172. organization, so as to show an inten-
483
or the articles or certificate of incorporation before the organization

is completed and that the corporate existence shall date from the
time of such filing.**
tion to conduct the business as a cor- that each shall hold certain offices,
poration, it will be presumed to be an but there is no stock subscription or
individual enterprise." Brooke v. list of stockholders, no minutes are
Day, 129 Ga. 694, 59 S. E. 769. kept, and nothing further is done
There must be an organization of a towards organization. Under such cir-
corporation with the amount of cap- cumstances, such persons are liable as
ital specified in the act of incorpora- partners on notes signed with the
tion before the capital is increased. firm name. Ward-Truitt Co. v. Bryan
So was held that where twice the
it & Lamb, 144 Ga. 769, 87 S. E. 1037.
requisite amount was subscribed, and 22 Coyote Gold & Silver Min. Co.
the organization meeting was held by V. Ruble, 8 Ore. 284.
all the subscribers, including those Under such circumstances the asso-
subscribing for the excess, and the ciates are a corporation in name
capital stock was there increased on merely. Cincinnati v. Queen City Tel.
motion of one of the latter, and direc- Co., 2 Ohio N. P. (N. S.) 349, afC'd 5
tors were then chosen, there was not Ohio Cir. Ct. (N. S.) 411, which is af-
a valid and that the

organization firmedby 73 Ohio St. 64, 76 N. E. 392.
stock subscriptions were not enforce- Though a certificate of incorpora-
able. Katama Land Co. v. HoUey, tion has been executed and filed, the
129 Mass. 540. corporation is not sufficiently in esse
The issuance by the secretary of to accept a grant of a franchise where
state of a certificate of incorporation nothing further has been done towards
to the purchasers of a railroad at a organization. Aspen Water & Light
judicial sale does not ipso facto cre- Co. v. City of Aspen, 5 Colo. App. 12,
ate a corporation authorized to operate 37 Pac. 728.
the road and exercise the franchises Where the statute provides that the
of the old company, but such a cor- corporate powers shall be exercised
poration does not come into complete by a board of directors or trustees
existence until after organization who must be stockholders, and from
under the certificate in the manner which body a president may be elected,
prescribed by law, and until such or- there can be no legal officers capable
ganization it is not liable as such for of making a contract in behalf of the
injuries received by an employee in corporation where no stock has ever
the operation of the road. Watson v. been subscribed for or issued, and no
Albany & N. Ey. Co., Ill Ga. 10, 36 8. agreement is shown obligating the
B. 324. promoters to take stock. Aspen Water
Subscription to the minimum amount & Light Co. V. City of Aspen, 5 Colo.
of stock and a meeting of stockholders App. 12, 37 Pac. 728.
are necessary to corporate exist- Though the charter naming the di-
ence under legislative charters. Coal- rectors for the first year is duly ac-
ter V. Bargamin, 99 Va. 65, 37 S. E. knowledged and filed in the office of
779; Martin v. South Salem Land Co., the secretary of state, the corporation
94 Va. 28, 26 S. E. 591. has no power to proceed to the trans-
A partnership is not changed into action of business where no other of-
a corporation, where a charter is ob- ficershave been chosen, no portion of
tained and the two partners agree the capital stock has been subscribed
484
The exercise of a corporate right presupposes a previous corporate

organization,^'and without such organization the association can do
no corporate can receive no corporate property, and can incur
act,
no corporate liability, nor can any corporate judgment be rendered

against it.''*
"Without organization and members, without officers and stock-

holders, a corporation is but a naked body. " ^^ "It may be author-
ized to exercise corporate franchises, but is without means or instru-
mentalities for such exercise. "28 So it has been held that while it
and no books opened for subscriptions, tion, the existence of the body
and notMng has been done to complete corporate does not depend upon the
the preliminary business of organiz- election of, or the right to elect direc-
ing the corporation, and if, under such tors, though
it cannot locate or con-
circumstances, the directors incur struct road until after their
its
a liability or indebtedness in the name election. Ashtabula & N. L. E. Co. v.
of the corporation, they are person- Smith, 15 Ohio St. 328.
ally liable therefor. Murdoek v. By statute a consolidated corpora-
Lamb, 92 Kan. 857, 142 Pac. 961; Wal- tion does not succeed to the rights
ton V. Oliver, 49 Kan. 107, 33 Am. St. and franchises of the consolidating
Rep. 355, 30 Pac. 172. See also Nema- companies until the election of its first
ha Coal & Mining Co. v. Settle, 54 board of directors, though it comes
Kan. 424, 38 Pac. 483. into existence when the statutory cer-
The incorporators are individually tificate is filed. Mansfield, C. & L. M.
liable for debts incurred in the cor- E. Co. v. Brown, 26 Ohio St. 223.
porate name, where, though a charter A failure to organize under a spe-
was obtained under the laws of Ari- cial charter amounts to a refusal to
zona, no books were ever opened for accept it and the corporation never
the purpose of receiving stock sub- comes into existence. State v. Simon-
scriptions,no subscriptions were ever ton, 78 N. C. 57.
made, no stock was issued, no by-laws See also Chap. 8, supra and Chapi
were adopted, no meetings were called 14, infra,
or held for the election of directors 23Lechmere Bank v. Boynton, 11
or officers, and no other steps were Cush. (Mass.) 369.
taken to complete the organization. 24Eau V. Union Paper Mill Co., 95
Central Nat. Bank v. Sheldon, 86 Kan. 6a. 208, 22 S. E. 146; Michael Bros.
460, 121 Pac. 340. Co. V. Davidson & Coleman, 3 Ga. App.
Under the Wisconsin statutes the 752, 60 S. E. 362.
signers of the articles are personally, 25 Arkansas Eiver Land, Town &
liable upon obligations incurred in the Canal Co. v. Farmers' Loan & Trust
corporate name after the articles are Co., 13 Colo. 587, 22 Pac. 954. Quoted
filed and recorded, but before any with approval in Aspen Water & Light
stock has been subscribed for or issued Co. V. City of Aspen, 5 Colo. App. 12,
or any further proceedings taken to 37 Pac. 728.
organize. Wechselberg v. Flour City 26 Arkansas Eiver Land, Town &
Nat. Bank, 64 Fed. 90, 26 L. E. A. 470. Canal Co. v. Farmers' Loan & Trust
In the case of a railroad corpora- Co., 13 Colo. o87, 22 Pac. 954.
485
may do sucli acts as are necessary to perfect its organization,*'' it
cannot exercise the power of eminent domain,*' nor locate and con-
struct a railroad,*^ nor accept a franchise,^" and there is authority to
the effect that it cannot take title to real property before its organ-
ization,*^ though the contrary has been held to be true where under
its charter or the general law it is deemed to exist as an entity
before that time.*^ And a deed to a corporation dated after the
date of its charter but before its organization and recorded after its
organization is valid, since its acceptance will be presumed as soon

as the corporation was competent to take.'^ The same is true of a
deed which is placed in escrow to be delivered to the corporation
ST Such as receiving subscriptions Co.,95 Ga. 208, 22 S. E. 146. See also

to its capital stock and electing direc- Chap. 11, infra.
tors. Powers V. Hazelton & L. Ey. 32 "A corporation may have such an
Co., 33 Ohio St. 429, 432; Ashtabula existence by
force of the act of the
& N. L. B. Co. V. Smith, 15 Ohio St. legislature creating it as to- give it a
328. capacity to take a grant, before it
2S Powers V. Hazelton & L. Ey. Co., has such an organization and appoint-
33 Ohio St. 429; Cincinnati v. Queen ment of officers as to enable it to enter
City Tel. Co., 2 Ohio N. P. (N. S.) upon the transaction of its general
349, aflf'd 5 Ohio Cir. Ct. (N. 8.) 411, business;" as, for example, where the
which is aSarmed by 73 Ohio St. 64, act ipso facto creates certain named
76 N. E. 392; Toledo Consol. St. By. persons a corporation. Vermont Min-
Co. V. Toledo Blee. St. Ey. Co., 6 Ohio ing & Quarrying Co. v. Windham
N. P. 537, aff'd 6 Ohio Cir. Ct. 362, County Bank, 44 Vt. 489.
which is affirmed by 50 Ohio St. 603, Where the statute provides that
36 N. E. 312. See also Chap. 36, infra. upon filing the certificate of incor-
29 A railroad corporation cannot lo- poration the associates and their suc-
cate and construct its road before the cessors a body politic and
shall be
election of directors. Powers v. Hazel- corporate, a conveyance to it after
ton & L. By. Co., 33 Ohio St. 429; the certificate is filed, but before any
Ashtabula & N. L. E. Co. v. Smith, 15 meeting of the stockholders or direc-
Ohio St. 328. tors has been held, or any business has
30 Aspen Water & Light Co. v. City been transacted, is valid. Morrison v.
of Aspen, 5 Colo. App. 12, 37 Pac. 728. Clark, 24 Mont. 515, 63 Pac. 98.
31 Before organization it cannot It may hold property necessary for
take title to real property, though the its contemplated purposes before its
corporators may be estopped as against organization is completed and pre-
bona fide creditors of the corporation serve such property for its future use
to set up title in themselves to prop- where it is deemed to exist as an en-
erty which they have treated as as- tity from the time when its articles
sets of the corporation in their petition are filed. Coyote Gold & Silver Min.
for a charter, and of which the cor- Co. V. Buble, 8 Ore. 284.
poration when organized has taken 38 Botch's Wharf Co. v. Judd, 108
possession. Bau v. Union Paper Mill Mass. 224.
486
after its organization.'* But while organization is ordinarily essen-

tial to the exercise of corporate powers, unless restricted by the
constitution, the legislature may create or provide for the creation
of corporations without requiring a conformity to the usual modes of
organization known to the law,** and may make a corporation liable
on contracts made before its organization is completed.'^ So a
special charter, may create a corporation ipso facto upon the taking
effect of the act, or as soon as the required amount of stock has been
subscribed, without the election of directors or ofSeers and without
formal organization.*' And requirements in special charters or gen-
84 A deed made to a corporation be- before half of its stock has been sub-
fore its charter had been obtained is scribed, and its stockholders are also
valid where it is delivered to a third personally liable on such a contract.
person to be delivered to the corpora- Badger Paper Co. v. Eose, 95 Wis. 145,
tion after it has obtained its charter 37 L. E. A. 162, 70 N. W. 302.
and organized. Spring Garden Bank 87 Frost's Lessee v. Frostburg Coal
V. Hulings Lumber Co., 32 W. Va. 357, Co., 24 How. (U. S.) 278, 16 L. Ed.
3 L. K. A. 583, 9 S. E. 243. 637; Judah American Live Stock
v.
36 Penobscok Boom Corporation v. Ins. Co.,4 Ind. 333; Brouwer v. Ap-
Lamson, 16 Me. 224, 33 Am. Dee. 656. pleby, 1 Sandf. (N. Y.) 158.
The legislature may grant a char- It "may constitute the persons
ter to a single individual, giving him named a corporation at once, with-
liberty to take associates, or to have out further action on their part, either
succession without it, and without any in the admission of associates, the
provision for the division of the prop- choice of officers, or the division of the
erty allowed to be held into shares, Hawes v. Anglo-Saxon
capital stock. ' '
or for the call of any meetings, or the Petroleum Co., 101 Mass. 385.
choice of any officers, or the keeping In St. Joseph & I. E. Co. v. Sham-
of any records, or any mode of organ- baugh, 106 Mo. 557, 17 S. W. 581,
ization, and when it does so, no or- it was held that where a special act
ganization whatever is necessary. provided that "A company is hereby

Penobscot Boom Corporation v. Lam- incorporated" under a certain name
son, 16 Me. 224, 33 Am. Dee. 656. and with a specified amount of stock,
Formerly the Montana statute pro- and designated the persons who were
vided that the due incorporation of a to compose the first board of direc-
company should, without further proof tors, further provisions that the di-
or acts, operate as its organization. rectors should meet and organize, and
Washington & L E.. Co. v. Coeur open books for stock subscriptions do
D'Alene Ey. & Nav. Co., 52 Fed. 765. not prescribe conditions precedent to
36 Under the Wisconsin statute the corporate life, but merely confer pow-
corporation exists from the time when: ers to be exercised by the corporation.
its articles have been filed for record See also Stoops v. Greensburgh & B.
in the office of the register of deeds, Plank-Eoad Co., 10 Ind. 47, where it
and it may then contract in its cor- was held that inasmuch a^ the charter
porate capacity though not yet organ- declared the directors named therein
ized, and is liable on such a contract. a corporation ab initio, a provision
But it cannot enforce a contract made requiring them to meet and elect offi-
487
§252] Private Cohpoeations [Ch.9
eral incorporation laws relative to organization are often construed

to be merely directory,'* or to be conditions subsequent rather than
conditions precedent,'* so that, while the failure to observe them
will expose the corporation to the peril of dissolution upon inquiry
by the state, it will not ipso facto result in forfeiture, and the cor-
porate existence will continue until the forfeiture has been judicially
decreed at the instance of the state.*** Accordingly, under such cir-
cumstances, "when the corporation has been regularly brought into

existence, it is not deprived of the right to exercise corporate func-
tions by the failure of the directors designated by the statute to
perfect the organization,"*^ or because of a failure to fix and limit
the amount of the capital stock of the company at the first meeting,**
cers was directory merely, and that come a corporation. Morrison v.

a stock subscription made before they Clark, 24 Mont. 515, 63 Pac. 98.
had done so was valid. See also Chap. 89 Southern Bank v. Williams, 25
17, infra. Ga. 534; City Hotel in Worcester v.
88 City Hotel in Worcester v. Dick- Dickinson, 6 Gray (Mass.) 586; Daily
inson, 6 Gfray (Mass.) 586; Narra- V. Marshall, 47 Mont. S77, 133 Pac.
gansett Bank v. Atlantic Silk Co., 3 681. See also Narragansett Bank v.
Mete. (Mass.) 282; Hughes v. Parker, Atlantic Silk Mete. (Mass.)
Co., 3
20 N. H. 58. 282; Union Water Co. v. Kean, 52 N.
The requirements of the general J. Eq. Ill, 27 Atl. 1015, reversed 52
corporation law "to be observed for N. J. Eq. 813, 46 Am. St. Eep. 588, 31
the perfection of the organization, the Atl. 282, on the ground that a court
election of officers, and the like per- of equity had no jurisdiction to de-
tain exclusively to its private affairs, termine the questions involved.
of which the public can have no in- The legislature may make the tak-
formation, and in the absence of statu- ing of associates by the grantee of a
tory provisions to the contrary, or special charter and the calling of a
of inquisition at the instance of the meeting of them conditions subse-
state, are to be deemed directory quent, in which case a failure to
only." Daily v. Marshall, 47 Mont. observe such conditions will not pre-
377, 133 Pac. 681. vent the act from taking effect, or the
Where the statute provides that upon exercise of the powers granted by it,
filing the certificate of incorporation and cannot be taken advantage of in
the associates and their successors a collateral action by individuals
shall be a body politic and corporate, whose rights have not been violated.
and such provision is complied with, Day V. Stetson, 8 Me. 365. See also
failure to hold any meeting of the Penobscot Boom Corporation v. Lam-
stockholders or directors, or to com- son, 16 Me. 224, 33 Am. Dee. 656.
mence business, will not prevent the 40 See Chap. 10, infra.
associates from becoming a corpora- 41 Daily v. Marshall, 47 Mont. 377,
tion, or dissolve the corporation, or 133 Pac. 681.
invalidate the acts or proceedings al- 42 City Hotel in Worcester v. Dick-
ready taken, under which it has be- inson, 6 Gray (Mass.) 586.
488
Ch. 9] Obganizatiok [§ 252
or a failure to issue stock,** or to obtain subscriptions for stock,** or by

a failure on the part of the corporators to elect directors,*^ even
though the taking of these various steps is necessary to the proper use
of the franchise.*® For "it would be a gross injustice to those who
propose to deal with an ostensible corporation to make it incumbent
upon them first to ascertain whether in the conduct of its private
affairs its directors have proceeded in strict conformity with all the
statutory requirements as to the organization of the board of directors,
the election of officers," and the like, "at the peril of being cast in
actions subsequently brought by them to enforce their rights against
it, upon a plea by it that it has no capacity to be sued. *'' '
'
Persons who subscribe to the stock of a corporation having a legal

existence,** and others who deal with it as a corporation *8 and the
corporation itself,^" may be estopped to set up want of formal organ-
ization as a defense to an action on the contract. So one who has
incurred liability to a company as a corporation cannot set up as a
defense that the forms of law have not been complied with in per-
fecting its organization,^^ nor, for the same reason, can a company
which has incurred obligations as a corporation escape liability

thereon on this ground.*^ And while there must be a bona fide
attempt to comply with the statute in order to create even a de facto
corporation,^' if there has been such an attempt, a failure to comply
« Daily v. Marshall, 47 Mont. 377, 52 Daily v. Marshall, 47 Mont. 377,

133 Pac. 681. 133 Pac. 681; State v. Simonton, 78
See Chap. 10, infra. N. C. 57.
41 See Chap. 10, infra. 83 "Where the directors named in ar-
45 Daily v. Marshall, 47 Mont. 377, tides of incorporation for the first
133 Pac.' 681. year never met or acted, but delib-
Such failure does not render the in- erately refused to do so; no stock was
corporators liable as partners. Drake ever no by-laws were ever
issued;
V. Herndon, 122 Ky. 206, 91 S. W. 674. passed; no seal was adopted; no per-
46 Daily v. Marshall, 47 Mont. 377, sons ever met, or pretended to meet,
133 Pac. 681. in corporate body assembled; no o&-
47 Daily v. Marshall, 47 Mont. 377, cers were ever elected; no person was
133 Pac. 681. ever appointed by the asserted cor-
48 Greensburgh & B. Plank-
Stoops V. poration to represent it in any way,
Eoad Co., 10 Ind. 47; Judah v. Ameri- or to act as its agent; and no jour-
can Live Stock Ins. Co., 4 Ind. 333. nal or record of the proceedings of
See Chap. 11, infra. the body corporate was ever kept, it
49 Drake v. Herndon, 122 Ky. 206, was held that the pretended corpora-
91 S. W. 674. tion was never in a position to exer-
See Chap. 11, infra. cise, or to pretend to exercise, any of
50 See Chap. 11, infra. the powers granted to corporations
51 Daily v. Marshall, 47 Mont. 377, by the and was not even a de
statute,
133 Pac. 681. facto corporation, or within a statu-
489
§252] Peivate Coeporations [Ch.9
with some of the statutory requirements cannot be taken advantage

of collaterally, but only in a direct proceeding instituted for that
purpose by the state.^*
The conduct of the corporators in acting under the charter may, as
between themselves, amount to an organization, or preclude them
from contending that no formal organization was had.** And there
is authority to the effect that a special charter cannot be forfeited in
quo warranto proceedings on the ground of nonuser based on the

failure of the corporators to organize under it, where, by reason
of such failure, the corporation never came into existence.**
The maxim that all things shall be presumed to have been rightly
and correctly done, until the contrary is proved, extends to the
tory provision prohibiting collateral North Carolina. Tar Eiver Nav. Co.
inquiry into the due incorporation of V. Neal, 10 N. C. 520.
any company claiming in good faith If the necessary amount of stock
to be a corporation and doing business has been subscribed for, the validity
as such. Martin v. Deetz, 102 Cal. of the acts of directors elected at a
55, 41 Am. St. Eep. 151, 36 Pac. 368. meeting of stockholders held for that
"The evidence tended to show that purpose cannot be questioned collat-
there were no meetings of the mem- erally on account of irregularities in
bers or trustees, no election of their election. Chamberlain v. Paines-
officers, no by-laws adopted, no certifi- ville & H. E. Co., 15 Ohio St. 225;
cates of shares or membership issued, Toledo Consol. St. Ey. Co. v. Toledo
no seal adopted or used, no records or Elec. St. Ey. Co., 6 Ohio Cir. Ct. 362,
—
minutes kept in short, nO corporate 393, aff'g 6 Ohio N. P. 537, which is
acts of any character performed; the affirmed by 50 Ohio St. 603, 36 N. E.
institutionwas managed after as it 312.
had been before the attempt to incor- See Chap. 10, infra.
porate. There was, therefore, no cor- 56After a corporation, composed of
poration de facto." Wall v. Mines, only two persons, has been duly con-
130 Cal. 27, 62 Pac. 1115. stitutedby act of the legislature, has
There is not even a corporation de entered upon the work for which it
facto where there no stock nor sub-
is was established, appointed an agent,
scription of stock,and no officers nor expended large sums on such work, and
board of directors, and nothing has has done acts which it would not have
been done to perfect the organization. been lawful to do but for the charter,
McVicker v. Cone, 21 Ore. 353, 28 Pac. it is too late to say that such corpora-
76. tion never had accepted the charter

See Chap.. 10, infra. or been organized as such, even though
Stoops v. Greensburgh
64 Indiana. it does not appear that there was ever
& B. Plank-Eoad Co., 10 Ind. 47. any formal organization by a meeting

Montana. Daily v. Marshall, 47 of the corporators and an election
Mont. 377, 133 Pac. 681. of the usual officers. McKay v. Beard,
New Jersey. Hackensaek Water 20 S. C. 156.
Co. V. De Kay, 36 N. Eq. 548.
J. 66 " If they have never organized
New York. Brouwer v. Appleby, 1 under the charter, they have simply
Sandf. 158. refused to accept it, and to become a
490
organization proceedings, and hence the corporation will be presumed

to have been duly organized where it proceeds to act as a corporation.*'
A
previous organization may be presumed from a legislative act
recognizing the corporation as organized.** And defects in the organ-
ization may be cured by a recognition by the legislature of the cor-
poration as a lawfully existing body.*^ Of course the legality of
the organization cannot in any way be affected by matters or pro-
ceedings which take place after it has been perfected.'*
—
§ 253. Time for orgaoizatioii În the absence of statute. In the
absence of any statutory provision on the subject, organization must
take place within a reasonable time.*^ So a railroad corporation has
no legal existence where its charter is not accepted and no organiza-
tion is had until after the expiration of the time fixed thereby for
the completion of the line.®*
corporation, and it can be of no mo- 602, it was held that an amendatory

ment to the state whether the act re- act did not necessarily constitute a
mains a dead letter or is formally recognition of the corporation as or-
repealed. In such a case the assembly ganized so as to prevent the state
might clearly repeal the act, though from questioning such organization at
it is doubtful if the court could annul the time of its passage.
it; for that would be simply to repeal 59 State V. Webb, 110 Ala. 214, 20
an act of the assembly. ' State v. Si-'
So. 462.
monton, 78 N. C. 57. 60 Lane v. Brainerd, 30 Conn. 565.
See Chap. 10, infra. 61 United States. See Planters' F.
57 Maltby v. Northwestern Virginia & M. Ins. Co. V. Tennessee, 161 U. S.
B. Co., 16 Md. 422; Hagers-Town 193, 40 L. Ed. 667.
Turnpike Eoad Co. v. Creeger, 5 Harr. Connecticut. State v. Bull, 16 Conn.
& J. (Md.) 122, 9 Am. Dee. 495; Ben- 179.
bow V. Cook, 115 N. C. 324, 44 Am. Georgia. Atlanta v. Gate City Gas
St. Eep. 454, 20 S. E. 453. Light Co., 71 Ga. 106.
"As the corporation could not pro- Maiyland. Bonaparte v. Baltimore,
ceed lawfully until duly organized, H. & L. E. E. Co., 75 Md. 340, 23 Atl.
and as they did not proceed to act as 784.
a corporation, this presumption has its Texas. Quinlan v. Houston & T. C.
effect. ' Packard v. Old Colony E. Co.,
'
Ey. Co., 89 Tex. 356, 34 S. W. 738.
168 Mass. 92, 46 N. E. 433; Narragan- In Atlanta v. Gate City Gas Light
sett Bank v. Atlantic Silk Co., 3 Mete. Co., 71 Ga. 106, it was held that the
(Mass.) 282. fact that a corporation created by a
It is to be presumed that the amount special act in 1875 was not organized
of stock requisite to authorize the until 1881 could be taken ad-
not
election of directors had been sub- vantage of collaterally.
scribed. Ashtabula & N. L. E. Co. v. 62 Bonaparte v. Baltimore, H. & L.
Smith, 15 Ohio St. 3'28. E. E. Co., 75 Md. 340, 23 Atl. 784.
B8 In Attorney General v. Chicago Where the charter of a railroad
& N. W. Ey. Co., 35 "Wis. 425, 586, company provides that the company
491
§254] Peivate Cokpokations [Ch.:
§ 254. —
Under constitutional and statutory provisions. General
incorporation laws and special charters frequently provide that the
corporation must be organized within a specified time.®^ And it is
frequently specifically provided that the charter shall be void, or be
regarded as revoked, or that the corporate powers shall cease, unless
the corporation is organized within a specified time from the date of
its incorporation,^* or after the proceedings for incorporation have
must commence the construction of its dence was held to support a finding
road within twelve months from its that the corporation organized and
organization and must have at least commenced business immediately
twenty-five miles of it graded within after the issuance of its certificate of
two years from the passage of the incorporation.
act, it necessarily follows that it must Georgia. In Atlanta v. Gate City
organize before the expiration of two Gas Light Co., 71Ga. 106, a provision
years from the date of the charter. that '
' No charter shall have any
If it does not, its position is the same force or effect for a longer period than
as if no charter had been granted. two years, unless the incorporators
Quinlan v. Houston & T. G. Ey. Co., within that time shall in good faith
89 Tex. 356, 34 S. W. 738. commence to exercise the powers
63 County of Macon v. Shores, 97 granted by the act of incorporation,"
U. S. 272, 24 L. Ed. 889; Lehman, was held not to apply to charters
Durr & Co. v. Warner, 61 Ala. 455; granted by the general assembly, but
People v. Bowen, 21 N. Y. 517, 30 only to those granted by the courts.
Barb. (N. Y.) 24. Montana. Rev. Codes 1907, § 8892.
Where the act of incorporation pro- This provision is the same as that of
vides that notice of organization shall the California statute. Daily v. Mar-
be given on or before a certain date, shall, 47 Mont. 377, 133 Pac. 681.
and the corporation is found in opera- New York. Rev. St. 1829, part 1,
tion afterwards under the act, it is e. 18, tit. 3, § 7, provided that if any
to be presumed that it was organized corporation tfiereafter created by the

as early as the time prescribed. Bank legislatureshould not organize and
of United States v. Lyman, 20 Vt. coinmence business within one year
666, aflf'd 12 How. (U. S.) 225, 13 L. from the date of its incorporation, its
Ed. 965. corporate powers should cease. Laws
61 California. Civ. Code, § 358, pro- 1846, c. 155, excepted from the terms
vides that" if a corporation does not of that provision any act incorporat-
organize and commence the trans- ing a railroad company which itself
action of its business, or the con- provided the terms and times in
struction of its works within one which it should be forfeited for non-
year from the date of its incorpora- user. These provisions were contin-
tion, * * * powersits corporate ued by the General Corporation Law
shall cease Martin v.
* * *." of 1890 (c. 563, §21), which was
Deetz, 102 Gal. 55, 41 Am. St. Rep. amended by Laws 1892, c. 687, so as to
151, 36 Pao. 368; People v. Stockton & read: "If any corporation, except a
V. R. Co., 45 Cal. 306, 13 Am. Rep. railroad, turnpike, plankroad or
178. bridge corporation shall not organize
In People v. Eosenstein-Cohn Cigar and commence the transaction of its
Co., 131 Cal. 153, 63 Pac. 163, the evi- business or undertake the aischarga
492
'
Ch. 9] Oeganizatiow [§254
reached a certain stage,*^ or after the taking effect of the provision

imposing the limitation.^^
of its corporate duties within two ness within two years after tie date
years from the date of its incorpora- of the license to the cbmmiasioners to
tion, its corporate powers shall cease. '
open books for stock subscriptions,
This provision is now embodied then such license shall be deemed re-
in the General Corporation Law. voked, and all proceedings thereunder
(Consol. Laws 1909, e. 23, § 36.) Peo- void.Kurd's Eev. St. 1913, c. 32, § 4;
ple V. Stilwell, 142 N. Y. Supp. 881, J. A. 112421; Africani Home Pur-
&
afC'g 78 Misc. 96, 138 N. Y. Supp. 693. chase & Loan Ass'n v. Carroll, 267
People V. Ellison, 51 Misc. 413, 101 111. 380, 108 N. B. 322; People v,
N. Y. Supp. 444, aff'd 115 N. Y. App. Mackey, 255 111. 144, 99 N". E. 370:
Div. 254, 101 N. Y. Supp. 55, which is Marshall v. Keach, 227 111. 35, 118 Am
aflarmed by 188 N. Y. 523, 81 N. E. St. Eep. 247, 10 Ann. Cas. 164, 81 N,
447. E. 29; Illinois Watch-Case Go. v. Pear
If the corporation does not organ- son, 140 111. 423, 16 L. E. A. 429, 31 N,
ize and does not commence business E. 400.
within the time prescribed, the at- "During the two years, the license
torney general may maintain an action is authority for taking the steps au-
to oust the persona claiming to act as thorized by the law, and cannot be
a corporation. People v. Stilwell, 142 revoked" by the secretary of state.
N. Y. Supp. 881, 78 Misc. 96, 138 N. Illinois Watch-Case Co. v. Pearson,
Y. Supp. 693. 140 111. 423, 16 L. E. A. 429, 31 N. E.
The date when the organization and 400.
commencement of business is re- Any corporation which does not elect
quired is not postponed by a pro- directors and commence business with-
vision in a special charter appointing in one year from the time of filing
certain persons as commissioners to the articles of incorporation, shall
open subscription books "at such thenceforth be divested of its cor-
times and places as they or a majority porate Lord's Ore. Laws,
powers.
of them shall determine." People v. § 6698; Coyote Gold & Silver Min. Co.
Stilwell, 142 N. Y. Supp. 881. v. Euble, 8 Ore. 284.
The statute applies to corporations Any corporation of the second class
formed under general or special laws. which fails to within two
organize
People V. Stilwell, 142 N. Y. Supp. years from the the letters
date of
881. patent shall be held and -deemed to
North Carolina. Code, §688; Ee- have forfeited its charter. 1 Purd.
visal 1905, § 1246; Boyd v. Redd, 120 Dig. 789, §49; Unorganized Trust
N. C. 335, 58 Am. St. Eep.. 792, 27 S. Companies, 33 Pa. Co. Ct. 353; Leba,-
E. 35. non Water Co., 9 Pa. Co. Ct. 589, 4
South Carolina. Code 1902, § 1850, Dauph. Co. Eep. (Pa.) 228.
provides that unless a corporation seuiinois Constitution of 1870, art.
organizes within twc years from the 11, § 2, provides that all existing
date of its incorporation or the date charters under which organization'
of the commission appointing the shall not have taken place or which
board of corporators, its corporate shall not have been iii operation vjrith-
powers shall cease. in ten days from the time when such
66 Unless the corporation shall be Constitution takes effect, shall there-
organized and shall proceed to busi- after have no validity or effect
493
§254] Pbivate Corpobations [CL9
In the ease of corporations creatqd under special charters, it is
often provided that such results shall follow where there is a failure
whatever. St. Louis, A. & T. H. K. purpose to take away any additional

Co. V. Belleville City E. Co., 158 111. special or exclusive privileges granted
390, 41 N. E. 916; McCartney v. Chi- to corporations, organized and in actu-
cago & E. E. Co., 112 111. 611; Attor- al operation * * * at the time the
ney General v. Chicago & E. E. Co., Constitution was submitted to the
112 111. 520. popular vote, or to interfere with any
So in condemnation proceedings, the grant of land made by the state before
introduction by the petitioner of its that date." This section is also
corporate charter, together with proof cited in People v. Loewenthal, 93 111.
of the exercise under it of the fran- 191.
chises and powers thereby granted, is "All existing charters, or grants
sufficient to establish prima facie, the of special or exclusive privileges, un-
existence of the corporation de facto, der which a bona fide organization
and if it failed to become organized shall not have taken place, and busi-
and go into operation within the time ness commenced in good faith, at the
prescribed by the Constitution, it is adoption of the Constitution, shall
for the defendant to show that fact. thereafter have no validity." Mo.
Bast St. Louis & C. E. Co. v. Belle- Const. 1875, art. ZII, §1.
ville City E. 159 111. 544, 42 N.
Co., Mont. Const, art. XV, § 1, provides
E. 974; St. Louis, A. & T. H. E. Co. v. that "All existing charters or grants
Belleville City E. Co., 158 111. 390, 41 of special or exclusive privileges, un-
N. E. 916. der which the corporations or grantees
In such a proceeding it is not nec- shall not have organized or com-
essary for the petitioner to show menced business in good faith at the
that an organization was had within time of the adoption of this Constitu-
the time thus limited. Peoria & P. tion, shall thereafter have no valid-
IT. E. Co. V. Peoria & F. E. Co., 105 ity." This provision refers only to
111. 110. corporations formed under special or
"The Constitution is silent as to private charters, and not to those
what extent the charter should have formed under general laws. Morrison
been in operation, requiring, merely, V. Clark, 24 Mont. 515, 63 Pac. 98.
its being in operation." McCartney All existing charters, or grants of
V. Chicago & E. E. Co., 112 111. 611. special or exclusive privileges, under
In this case it was held that the which a bona fide organization shall
charter of a railroad company, which not have taken place and business
had been organized, was in operation been commenced in good faith at the
vrithiu the meaning of this provi- time of the adoption of this Constitu-
sion. See also State v. Illinois Cent. tion, shall thereafter have no validity.
E. Co., 33 Fed. 730, 769 (reversed on Pa. Const, art. XVI, § 1; In re Phila-
other grounds, 146 U. S. 387, 36 L. delphia & M. Ey. Co.'s Petition, 187
Ed. 1018), where it is said that by Pa. S,t. 123, 40 Atl. 967; Chinclocla-
this provision "it is clear that the mouche Lumber & Boom Co. v. Com.,
framers of the Constitution intended 100 Pa. St. 438; Com. v. Continental
to strike down all corporations then Trust & Finance Co., 10 Pa. Dist. 451;
existing which, within ten days after Lejee v. Continental Pass. Ey. Co., 10
that instrument took effect, were still Phila. (Pa.)362, 32 Leg. Int. (Pa.)
unorganized, or were not in opera- 386, 2 Wkly. Notes Cas. (Pa.) 170.
tion as corporations. There was no This provision ôes not violate the
494
Cli.9] Oeganization [§ 254
to organize within a specified time after the passage of the act of

incorporation.^''
Organization within the time prescribed is essential to the existence
of a corporation de jure.** Noncompliance with such provisions has
sometimes been held to forfeit the corporate charter,'^ or the license
provision of the Federal Constitution Com. v.California & T. Ey. Const.
that no state shall pass any law im- Co., 5 Dauph. Co. Eep. (Pa.) 181.
pairing the obligation of contracts, 67 Illinois. Where the act of incor-
and is valid. Chincleclamouche Lum- poration provides that it shall be void
ber & Boom Co. V. Com., 100 Pa. St. unless the corporation shall organize
438. and proceed to business within two
"The word 'charter,' in the above years after and under it
its passage,
section of the Constitution, is syn- thecompany has no authority to com-
onymous with the words 'grants of mence business until all of its stock
exclusive or special privileges,' im- is subscribed, the act becomes void if
mediately following it; and the pur- all of the stock is not subscribed
pose of the constitutional provision within the two years. People v. Na-
under certain conditions, is to make tional Sav. Bank, 129 111. 618, 22 N. B.
invalid and destroy the entire cor- 288.
porate power and franchise and not Maine. Eev. St. 1883, o. 1, § 6, art.
to make invalid and destroy a mere 26; Eev. St. 1903, c. 1, §6, art. 28;
enlargement of privileges granted by Farnsworth v. Lime Eock E. Co., 83
subsequent legislation to a corpora- Me. 440, 22 Atl. 373.
tion already organized." In re Le- New Hampshire. Pub. St. 1901, c.
high Water Company's Appeal, 102 149, § 2;Comp. St. o. 147, § 35; Ossipee
Pa. St. 515, afE'd 121 U. S. 388, 30 L. Hosiery & Woolen Mfg. Co. v. Canney,
Ed. 1059. 54 N. H. 295.
"The charters, etc., referred to in New York. Welch v. Old Dominion
the section, contemplate an organiza- Min. & Ey. Co., 56 Hun 650, 10 N. Y.
tion by individuals under the existing Supp. 174 (construing the laws of Vir-
charters or grants of special or ex- ginia). See also Johnson v. Bush, 3
clusive privileges, and business com- Barb. Ch. 207.
menced under said organization." In North Carolina. Seaboard Air Line
re Lehigh Water Company's Appeal, E. E. V. Olive, 142 N. C. 257, 55 S. E.
102 Pa. St. 515, aff'd 121 U. S. 388, 263.
30 L. Ed. 1059. Vermont. See Bank of Manchester
This provision does not apply to a V. Allen, 11 Vt. 302.
corporation which was fully organized 68 Lehman, Durr & Co. Warner, v.
and doing business good faith at
in 61 Ala. 455; African! Purchase Home
the time of the adoption of the Con- & Loan Ass'n v. Carroll, 267 111. 380,
stitution, although it has an added 108 N. E. 322; People v. Maekey, 255
privilege which it has not exercised. HI. 144, 99 N. E. 370.
In re Philadelphia & M. E. Company 's 69 Attorney General v. Chicago &
Petition, 187 Pa. St. 123, 40 Atl. 967. E. E. Co., 112 111. 520.
Where the corporation was fully or- New York Consol. Laws 1909, c.
ganized and engaged in business in 23, § 36, is self-executing and no ac-

good faith when the Constitution was tion or judicial proceeding is needed
adopted, the validity of its charter to declare or complete the loss of cor-
was not affected by this provision. porate uowers. People v. Stilwell,
495
to organize a corporation,'"' ipso facto, and without the intervention

of the courts, in which case an attempted complertion of the organiza-
tion after the time prescribed is wholly ineffectual, and a complete
reorganization from the beginning is necessary in order to give the
corporation a legal existence.''^ So where the recording of a certificate
of complete organization issued by the secretary of state is a necessary
step in the organization of the corporation and a condition precedent
to its legal existence,'* it must be filed for record within the time
prescribed for completing the organization, and, if this is not done,
the license to organize is ipso facto revoked, all subsequent proceed-
ings looking toward the completion of the organization are void, and
the subsequent recording of the certificate has no effect on the legal
status of the corporation and cannot give it a legal existence.''' On
the other hand, some courts have held that provisions of this sort are
directory merely, and are not self-executing unless the statute pro-
vides to the contrary,''* and that they are conditions subsequent rather
than conditions precedent to incorporation.''* And it is generally held
142 N. T. Supp. 881, 78 N. T. Miac. 99 N. E. 370, it is said that there is
96, 138 N. Y. Supp. 693. See also some language in the opinion in Mar-
Brooklyn Steam Transit Co. v. City shall V. Keach, 227 111. 35, 81 N. E. 29,
of Brooklyn, 78 N. Y. 524; In re "from which the inference might be
Ijong Acre Elec. Light & Power Co., drawn that the failure to file and
117 N. Y. App. Div. 80, 102 N. Y. have recorded the certificate with the
Supp. 242; 51' N. Y. Misc. 407, 101 recorder was a mere informality,
N. Y. Supp. 460; Welch v. Old Domin- which did not affect the existence of
ion M. & B. Co., 56 Hun (N. Y.) 650, the corporation. In the course of the
10 N. Y. Supp. 174 (construing the discussion in that case it is said:
laws of Virginia) People v. Ellison,
; 'Under such a state of facts a copy
51 N. Y. Misc. 413, 101 N. Y. Supp. of the certificate could still be filed
444, aff'd 115 N. Y. App. Div. 254, for record with the recorder of the
101 N. Y. Supp. 55, 188 N. Y. 523, 81 county and the corporation would
N. E. 447. then be fully organized de jure.' If
70 Af ricani Home Purchase & Loan the above language be understood as
Ass'n V. Carroll, 267 111. 380, 108 N. authorizing the filing of the certificate
E. 322; People v. Mackey, 255 111. from the date the
after the two years
144, 99 N. E. 370.
licensehad expired it is misleading
71 African! Home Purchase & Loan
and should not be understood as the
Ass'n V. Carroll, 267 111. 380, 108
rule in this State. If applied to the
N. E. 322; People v. Mackey, 255 HI.
period of two years from the date
144, 99 N. E. 370.
72
of license the language correctly states
See § 272, infra.
the law."
73 Africani Home Purchase & Loan
74 Daily v. Marshall, 47 Mont. 377,
Ass'n V. Carroll, 267 111. 380, 108 N.
E. 322; People v. Mackey, 255 111. 144, 133 Pac. 681.
99 N. E. 370. 75 Daily v. Marshall, 47 Mont. 377,
In People v. Mackey, 255 HI. 144, 133 Pac. 881.
496
Ch. 9] Obganization- [§ 254
that noncompliance will not prevent an association from becoming a

corporation de facto,''® and that a forfeiture for failure to organize
within the time prescribed cannot be taken advantage of collaterally,
but only in a direct proceeding instituted for that purpose by the
state.'' But this; rule has been held not to apply where an act of
incorporation does not ipso facto create a corporation, but only pro-
vides for the creation of one in the future upon the performance of
certain prescribed conditions, and the charter is not accepted or the
corporation organized until after the expiration of the time limited
by the act for carrying out the objects for which the corporation is to
be formed, this for the reason that the corporation never has a legal
existence under such circumstanoes, and that a person setting up
such facts as a defense to an action by the corporation does not seek
to have a forfeiture declared.'* Such a provision does not take away
from a corporation falling within its purview title to property
previously acquired.'^
Since the state imposes the condition, it may waive the same, and
a waiver must be presumed until the state intervenes.*" Nor, as long
as the state acquiesces, have individuals any cause to complain.*^
And it has been held that a de facto organization in good faith under
color of the charter is a sufReient compliance with such a provision
in a charter or general law.*^ A
waiver may also result from a
subsequent recognition of the corporation by the legislature, as, for
example, by amending its charter.** And the legislature, in the
absence of constitutional limitations on its power, may revive cor-
porate charters which have become subject to forfeiture on this
ground,** and may also exempt corporations granted special charters
76 See Chap. 10, infra. 83 Farnsworth v. Lime Rock E. Co.,

77 See Chap. 10, infra. 83 Me. 440, 22 Atl. 373. But see Quin-
78 Bonaparte v. Baltimore, H. & L. Ian v. Houston & T. C. Ey. Co., 89 Tex.
E. E. Co., 75 Md. 340, 23 Atl. 784. 356, 34 S. W. 738. See also Planters'
See also State v. Bull, 16 Conn. 179. F. & M. Ins. Co. v. Tennessee, 161
79 Morrison v. Clark, 24 Mont. 515, U. S. 193, 40 L. Ed. 667.
63 Pac. 98. Mo. Const. 1865,
84 art. 8, §2, pro-
80 Lehman, Durr & Co. v. Warner, vided that "No law shAll be passed
61 Ala. 455. any act here-
revivilig or re-enacting
"The state may Vaive the for- tofore passed, creating any private
f eiture by its nonaction. ' ' Atlanta v. corporation, where such corporation
Gate City Gas Light Co., 71 Ga. 106. shall not have been organized, and
81 Lehman, Durr & Co. v. Warner, commenced the transaction of its busi-
61 Ala. 455. ness within one year from the time
82 0ssipee Hosiery & Woolen Mfg. such act took effect, or within such
Co. V. Canney, 54 N. H. 295. other time as may have been pre-
497
I Priv. Corp.— 32
§255] Pbivate Corpoeations [Cli.9
from the provisions of general laws in this regard,'* or extend the

time within which the organization is required to be effected.*^
§ 255. Time for election of directors and officers. The election of

directors cannot behad before the corporation comes into existence.*^
Persons incorporated under a special act have no authority to hold
the first meeting and elect officers before the day when the act of
incorporation goes into effect, and their acts in so doing are wholly
void.** But it has been held that when on and after that day persons
are found actually exercising the corporate powers, and claiming and
using the franchise, with the consent of the designated corporators,
and without objection on the part of the state, they constitute a
corporation de facto, and the lawfulness of their organization cannot
be impeached collaterally.'^
Since corporations have inherent power to elect directors and other

officers,®" provisions requiring that directors be chosen at the annual
meeting are directory merely, and the fact that the first directors
are chosen at a meeting held at some other time does not render their
scribed in such act for such organiza- provision of the general statute re-
tion and commencement of business." quiring corporations to organize and
This provision against reviving commence business within a year.
charters implies that the charter to People v. Bowen, 21 N. Y. 517, 30
be revived is lifeless, and does not pro- Barb. (N. Y.) 24.
hibit the legislature from reviving 88 See Johnson v. Bush, 3 Barb. Ch.
prior creating private corpora-
acts
(N. Y.) 207.
tions in all eases. Such an act which
87 The election of the first directors
does not on its face come within the
of a consolidated corporation cannot
prohibited cases will be presumed to
be held before the consolidated corpo-
be valid until the contrary is shown,
ration comes into existence by filing
as, for example where it is not shown
the required certificate with the sec-
that the company in question was not
retary of state. Mansfield, C. & L. M.
organized and did not commence busi-
R. Co. V. Brown, 26 Ohio St. 223.
ness within the time specified. St.
88Appleton Mut. Fire Ins. Co. v.
Joseph & I, R. Co. V. Shambaugh, 106
Jesser, 5 Allen (Mass.) 446.
Mo. 557, 17 'S. "W. 581.
89 The defective organization of a
85 A provision in an act incorporat-
be mutual insurance company cannot be
ing a gas company that it shall
set up as a defense to an action against
deemed to be organized when the
elected and shall be a policy holder to collect assessments
president is
under such circumstances. Appleton
deemed to be in practical operation
Mut. Fire Ins. Co. v. Jesser, 5 Allen
from the time when permission to lay
pipes is obtained from the city coun- (Mass.) 446.
cil, relieves the corporation from a
90 Hughes V. Parker, 20 N. H. 58.
498
election void.'^ Nor can the right of those chosen to hold office be
questioned collaterally.*''
A provision that the directors and treasurer shall be chosen an-
nually at such time and place as shall be provided by the by-laws
is obviously inapplicable to the first choice of such ofScers of a
corporation established by voluntary association, where organization

is essential tocorporate existence, since no by-laws can be adopted
before the corporation itself is created.*'
§256. Place of organization. Since, as is noted elsewhere, a

corporation can do no act outside of the state by or under whose
laws it is created, except such acts as it may do through its agents,**
it is generally held that the formal organization of a corporation in
another state is ineffectual, as this is a corporate act which cannot be
done through mere agents,'^ and that, when held outside of the
91 Though the charter provides that 525. See also Ohio & M. By. Co. v.
the directors are to be chosen at the McPherson, 35 Mo. 13, 86 Am. Dec.
annual meetings to be held at such 128.
times as the by-laws provided, an elec- North Carolina. Tuckasegee Min.
tion held at the first meeting and Co. V. Goodhue, 118 N. C. 981, 24 S.
before the adoption of by-laws is not E. 797.
void. Hughes v. Parker, 20 N. H. 58, In Heath v. Silverthorn Lead Min-
19 N. H. 181. ing & Smelting Co., 39 Wis. 146, it
92 Hughes V. Parker, 19 N. H. 181. is said: "It may well be that the
93 In such case the officers may be election of a board of directors at the
elected at the first meeting in such firstmeeting held outside the limits
manner as the corporators deem of was irregular and not
the state
proper. Boston Acid Mfg. Co. v. Mor- warranted by the charter, and yet the
ing, 15 Gray (Mass.) 211. corporation may not be in a position
94 See chapter on Foreign Corpora- to take advantage of the irregular-
tions, infra. See also Chap. 13, infra. ity" in an action upon its contracts.
95 Florida. Duke v. Taylor, 37 Pla. Speaking of corporations aggregate,
64, 31 L. E. A. 484, 53 Am. St. Eep. it was said by Judge Shepley in a
232, 19 So. 172; Taylor v. Branham & Maine case: "It is often stated in
Co., 35 Fla. 297, 39 L. E. A. 362, 48 the books, that such a corporation is
Am. Eep. 249, 17 So. 552.

St. created by its charter. This
not is
ludiaua. See Aspinwall v. Ohio & precisely correct. The charter only
M. E. Co., 20 Ind. 492, 83 Am. Dec. confers the power of life, or the right
329. to come and provides
into existence,
Maine. Freeman v. Machias "Water the instruments by which it may be-
Power & Mill Co., 38 Me. 343; Miller come an artificial being, or acting
v. Ewer, 27 Me. 509, 46 Am. Dee. 619. entity. Such a corporation has been
Maryland. Smith v. Silver Valley well defined to be an artificial being,
Min. Co., 64 Md. 85,' 54 Am. Eep. 760, invisible, intangible, and existiiig only
20 Atl. 1032. in contemplation of law. The instru-

Missouri. Camp v. Byrne, 41 Mo. ments provided to bring the artificial
499
,
§256] Peivate Cobpoeations [Ch. 9
state, a firstmeeting for purposes of organization, and all the pro-

ceedings taken at it and all acts done pursuant to it, are without
right or authority, and wholly void.'® And this is true though the
being into life and active operation, act in Missouri in organizing the cor-
are the personsnamed in the charter, poration, as the directors of a corpo-
and those who by virtue of its provi- ration are its agents, and not the
sions, may become associated with corporation itself. Ohio & M. Ey. Co.
them. Those persons or corporators, V. McPherson, 35 Mo. 13, 86 Am. Dec.
as natural persons, have no such power. 128.
The charter confers upon them a new A corporation, however, may enter
faculty for this purpose. A faculty into contracts and do other acts in
which they can have only by virtue another state through agents. See chap-
of the law, which confers it. That ter on Foreign Corporations, infra.
law is inoperative beyond the bounds 96 Duke V. Taylor, 37 Fla. 64, 31 L.
of the legislative power, by which it is E. A. 484, 53 Am.
Eep. 232, 19 So.
St.
enacted. As the corporate faculty 172; Miller v. Ewer, 27 Me. 509, 46
cannot accompany the natural persons Am. Dec. 619; Camp v. Byrne, 41 Mo.
beyond the bounds of the sovereignty, 525; Welch v. Old Dominion Min. &
which confers it; and they cannot pos- Ey. Co., 56 Hun (N. Y.) 650, 10 N. Y.
sess or exercise it there, can have no Supp. 174 (construing Virginia stat-
more power there to make the arti- ute).
ficial being act, than other persons Copp V. Lamb, 12 Me. (3 Pairf.) 312,
not named or associated as corpora- apparently holds to the contrary, but
tors, any attempt to exercise such a in Miller v. Ewer, 27 Me. 509, 46 Am.
faculty there, is merely an usurpation Dec. 619, it is pointed out that
of authority by persons destitute of the court in that case did not
it, and acting without any legal ca- enter upon an examination of the
pacity to act in that manner. It fol- question whether the corporators had
lows that all votes and proceedings of a right to organize outside of the
persons professing to act in the ca- state, but that the decision was based
pacity of corporators, when assembled upon the ground that all its acts were
without the bounds of the sovereignty ratified at a subsequent meeting which
granting the charter, are absolutely did not appear to have been held out
void." Miller v. Ewer, 27 Me. 509, of the state, and that it was not com-
518, 46 Am. Dec. 619. petent for a person claiming under
In "Wright V. Lee, 2 S. D. 596, 51 N. one of the corporators, who had acted
"W. 706, it is held that the rule laid as an officer of the corporation at that
down in Miller v. Ewer, supra, does meeting, to deny after so long a time
not apply in the case of meetings and under such circumstances, the le-
other than the first one, where the first gality of the exercise of the corporate
meeting has been held and the organ- powers.
ization perfected in the state under The court in Miller v. Ewer also
whose laws the corporation is formed. points out that while in McCall v.
Where a charter granted by the leg- Byram Mfg. Conn. 428, it ap-
Co., 6
islature of Illinois declared certain peared that all the meetings of the
persons to be a corporation, and named stockholders and directors were held
the directors, thereby creating the cor- outside of the state, the capacity of
poration, it was held in a Missouri the stockholders to act there was not
case that the directors could meet and examined or discussed, but that the
500
Ch.9] Okganization [§256
charter authorizes certainnamed persons to call the first meeting at

such place aa they may see fit,^' though it has been intimated that
such may not be the case where the charter provides for the meeting
of directors and the transaction of business outside of the state.**
Some courts have held that there is not even a de facto corporation
under such circumstances," and that the members are liable as part-
ners for debts contracted and liabilities incurred in behalf of the asso-
ciation, at least where there is no estoppel on the part of the other
party to deny that they are a corporation.^
Where the proceedings are deemed wholly void, persons chosen as
officers and directors at such a meeting are not even officers and
directors de facto, since the corporators have no power at all to
proceed to an election under such circumstances, and the persons so
chosen must therefore be considered as assuming to be officers and
directors withcmt any election,^ and hence have no authority to
convey or mortgage the corporate property.^ Nor can one become a
stockholder by virtue of such an attempted organization,* or recover
holding was that the secretary of the This for the reason that such at-
corporation appointed by the directors tempted organization is wholly ille-
at a meeting held outside of the state gal and without any semblance of
was a legally appointed of&cer, and authority. Duke v. Taylor, 37 Fla. 64,
distinguishes that case on the ground 31 L. E. A. 484, 53 Am. St. Eep. 232,
that, "The directors of a corpora- 19 So. 172.
tion are not a corporate body, are, See Chap. 10, infra.
when acting as a board, but a board IDukeV. Taylor, 37 Fla. 64, 31 L.
of officers or agents, and they may E. A. 484, 53 Am. St. Eep. 232, 19
exercise their powers as agents be- So. 172 (action on a note by an in-
yond the bounds, where the corpora- dorsee thereof) ; Taylor v. Branham
tion exists." This explanation of & Co., 35 Fla. 297, 39 L. E. A. 362,
those two cases is referred to in Smith 48 Am. St. Eep. 249, 17 So. 552 (as-
V. Silver Valley Min. Co., 64 Md. 85, sumpsit on an account for work and
54 Am. Eep. 760, 20 Atl. 1032. labor and materials).
Such a provision cannot be con-
97 2 Miller v. Ewer, 27 Me. 509, 46 Am.
strued as authorizing them to call the Dee. 619.
meeting at a place outside of the 8 A title derived through such a
state. Miller v. Ewer, 27 Me. 509, mortgage will not support a writ of
46 Am. Dec. 619. entry to recover the land. Miller v.
88 See Hasbi'ouck v. Eich, 113 Mo. Ewer, 27 Me. 509, 46 Am. Dec. 619.
App. 389, 88 S. W. 131, where the 4 There cannot be stock or stock-
court, while so intimating, held that holders in a nonexistent corporation,
in any event the defendant was es- and a stock certificate evidenced by
topped to set up that the organization ofBcers chosen at such a meeting is
was invalid. invalid. Freeman v. Machias Water
99 Welch V. Old Dominion Min. & Power & Mill Co., 38 Me. 343.
Ey. Co., 56 Hun (N. T.) 650, 10 N. T. Since the corporation has no legal
Supp. 174. existence, a suit by the holder of what
501
§ 256] Private Cobpobations [Ch. 9
dividends on stock certificates evidenced by officers chosen at such a

meeting.^ Such acts constitute mere usurpation of power, or, in other
words, mere attempts to exercise authority by persons destitute of
it, and will be declared inoperative and void whenever a court is asked
to grant relief, the right to which is founded upon the assumed or
supposed validity of those acts.^ Furthermore, the rule under con-

sideration will be applied and enforced in a proper ease in the
tribunals of the state in which the unauthorized acts are done or the
suit instituted, as well as by thef courts of the incorporating stated
Some courts, however, hold that, in the case of corporations formed
under general laws the fact that the meeting for purposes of organ-
ization was held outside of thp state cannot be taken advantage of
in a collateral action, but that such an inquiry can be made only in a
direct action instituted for that purpose,' by or under the authority
of the state under whose laws the incorporation was attempted.^ So
it has been held that such a defect cannot be taken advantage of in
a collateral proceeding by either the corporaticta or one contracting

with it as such, where the incorporation is pursuant to a general law
which does not expressly prohibit organization out of the state, and
under which the corporation comes into existence when the certificate
of incorporation is filed, and the directors for the first year are named
in the certificate and become such by operation of law, so that it is
possible for the corporation to carry on business for a year without
any meeting of the stockholders.^' And it has also been held that
purports to be a certificate of its stock and Welch v. Old Dominion Min. &
to set aside a forfeiture of such stock By. Co., 56 Hun (N. Y.) 650, 10 N. Y.
for nonpayment of assessments will Supp. 174, where it was held that no
be dismissed. Smith v. Silver Valley recovery could be had in New York
Min. Co., 64 Md. 85, 54 Am. Eep. 760, for services rendered to a pretended
20 Atl. 1032. corporation attempted to be orgau-
B Freeman v. Machias Water Power ized in that state under an act of the
& Mill Co., 38 Me. 343. legislature of Virginia.
6 Smith V. Silver Valley Min. Co., g McKee v. Title Insurance & Trust
64 Md. 85, 54 Am. Eep. 760, 20 Atl. q^ ^gg c^l. 206, 113 Pac. 140, hold-
1032 .
mg that the inquiry cannot be made
7 Smith Valley Mm. Co.,
V. Silver _ i- v ii.
1° .
•
; i
„. -.,, „- ,. . -r, i..„ „„ ... s-n action by the assignee in insol-
64 Md. 85, 54 Am.
Rep. 760, 20 Atl. . j., ^- j.
''^'"'^^
1032. See also Duke t. Taylor, 37 ^"7 . t
^<""^' '""""^
'^°''P'"^**^°" *"
Fla. 64, 31 L. R. A. 484, 53 Am. St. ^^ '*•
Eep. 232, 19 So. 172, and Taylor v. ^®« ^'^^P- ^^' ^'^^''^
Branham & Co., 35 Pla. 297, 39 L. R. ' McKee v. Title Insurance & Trust
A. 362, 48 Am. St. Rep. 249, 17 So. Co., 159 Cal. 206, 113 Pac. 140.
552, where the members were held 10 Humphreys v. Mooney, 5 Colo.

liable as partners in the state where 282. But see Jones v. Pearl Min. Co.,
the attempted organization took place, 20 Colo. 417, 38 Pac. 700.
502
Ch.9] Organization [§256
where a special charter ipso facto creates a corporation, and consti-

tutes the corporators therein named a board of directors, without
further action, until their successors are chosen, there is a corpora-
tion de facto though the first meeting of the stockholders is held
outside the state,^ând that the officers and directors chosen such at
meeting are officers and directors de facto.^* And it seems to have
been generally held that neither the corporation nor its debtors, nor
any one dealing with it as a lawful corporation, will be permitted
to deny its existence as a corporation, upon the ground that it was
organized in another state. *^
H Heath v. Silverthorn Lead Min- tion is estopped to deny the validity

ing & Smelting Co., 39 "Wis. 146. But of the corporation on this ground as
it isto be noted that in this case the a defense to an action thereon by a
court held that the corporation was bona fide holder. Camp v. Byrne, 41
estopped to deny the validity of its Mo. 525.
organization as a defense to an action In Duke v. Taylor, 37 Fla. 64, 31
on a note and mortgage executed by L. B. A. 484, 53 Am. St. Eep. 232, 19
it. So. 172, it was held that the facts
12 Heath v. Silverthorn Lead Min- did not bring the case within the rule
ing & Smelting Wis. 146.
Co., 39 that one contracting with an associa-
Directors so chosen, who accept their tion as a corporation is estopped to
offices and act under their election, deny its corporate existence.
are directors de facto, and their au- In Miller v. Ewer, 27 Me. 509, 46
thority to act in behalf of the Am. Dec. 619, it is held that the gran-
corporation cannot be questioned col- tees of the corporation and their
laterally without showing a judgment grantees could not claim to be pur-
of ouster against them in a direct pro- chasers from persons who had been
ceeding by the government for that held out by the corporation to the
purpose. Hence a subscriber to the public as its officers without any knowl-
corporate stock cannot question the edge of their real character and au-
validity of their election in an action thority, since the conveyances were
against him on a call made by them. made to persons who claimed to be
Ohio & M. Ey. Co. v. McPherson, 35 stockholders actively participating in
Mo. 13, 86. Am. Dec. 128. the proceedings of the corporation.
13 Tuckasegee Min. Co. v. Goodhue, Tn this case the court also says that
118 N. C. 981, 24 S. E. 797. the holding in Copp v. Lamb, 12 Me.
"The company ought not to be per- (3 Fairf.) 312, was based on the
mitted to say, in defense of an ac- ground that it was not competent for
tion of its contracts entered into a person claiming under one of the
under such circumstances, that it had corporators, who had acted as an of-
no legal existence when the contracts ficer at the first meeting, to deny
were executed, or that its officers were the legality of the exercise of cor-
not duly elected or appointed." Heath porate powers on the ground that
V. Silverthorn Lead Mining & Smelt- such meeting was held outside of
ing Co., 39 Wis. 146. the state, in view of the length of
A to stock who gives
subscriber time that had elapsed and the fact
notes for the amount of his subscrip- that all the acts of the corporatioa
503
§ 256] Peivate Coepoeations [Ch.9
The defective organization may be legalized by a subsequent re-

organization in the state,^* and acts done and contracts made in the
meantime may then be ratified and confirmed.^^ And it has been held
that where the directors of a corporation meet and organize outside
of the state, and afterwards the corporators, acting within the state,
elect directors, issue stock, and otherwise exercise corporate powers,
there is a sufficient organization within the state.^'
There is authority to the effect that where a special charter pro-
vides for a corporation of a local character to be located in a par-
ticular city, an organization and attempted establishment of a
corporation thereunder in another city is a perversion of the statute
and void.^''
§257. Procedure generally to effect organization. The pro-

cedure by which the organization of a corporation is effected depends
entirely on the terms of the act creating it or the general law under
had subsequently been ratified at a prior mortgage. Hasbrouck v. Rich,

meeting which it did not appear was 113 Mo. App. 389, 88 S. "W. 131. See
held out of the state. This explana- also Humphreys v.Mooney, 5 Colo.
tion of Copp V. Lamb is also referred 282; Ohio & M. Ey. Co. v. McPherson,
to in Smith v. Silver Valley Min. Co., 35 Mo. 13, 86 Am. Dec. 128. See Chap.
64 Md. 85, 54 Am. Eep. 760, 20 Atl. 11, infra.
1032. 14 Freeman v. Machias Water Power
In Handley v. Stutz, 139 U. S. 417, & Mill Co., 38 Me. 343.
35 L. Ed. 227, it is said: "It is true 16 But one who has acquired stock
there are holding that stock-
cases pursuant to an organization outside
holders' meetings cannot be legally of the state, and whose stock has been
held outside of the home state of the sold for nonpayment of assessment
corporation, but the question has gen- before the reorganization takes place,
erally arisen where a majority present cannot recover dividends thereon by
at such meeting had attempted by virtue of a vote then passed, ratifying
their action to bind a dissenting mi- and confirming all the previous acts
nority, or had taken action prejudicial and proceedings of the company, since
* * *
to the rights of third persons. if his ownership of the stock is thereby
Indeed, so far as we know, the authori- confirmed and made valid, the con-
ties are uniform to the effect that firmation also extends to and validates
the action taken at such meetings is its sale, and he is deprived of the
binding upon those who participate stockby the same act which invests
in or take the benefit of them." The
him with its ownership. Freeman v.
meeting in question in this case, how-
Machias "Water Power & Mill Co., 38
ever, was one held after organization.
Me. 343.
who have dealt with the
Creditors
Glymont Improvement & Excur-
16
corporation as such and whose claims
out of contracts made with it
sion Co. V. Toler, 80 Md. 278, 30 Atl.
arise
as such, are estopped to deny the le- 651.
gality of its organization on this 17 Booth V. Wonderly, 36 N. J. L.
ground for the purpose of avoiding a 250.
504
Cli.9] Obganization [§ 257
which it is formed. Under some statutes the organization meeting is

held and the directors or trustees and other officers are chosen before
the articles or certificate of incorporation are filed,^' and the directors
for the first year are sometimes required to be named in the articles.^'
Special charters sometimes name certain persons as commissioners,

whose duty it is to call for subscription to stock, and, when the
required amount is subscribed, to convene a meeting of the subscribers
at which the formal organization is perfected,^" or provide for the
18 The statute requires some sort United States. Falconer v. Camp-

of a preliminary organization, since bell, 2 McLean 195, Fed. Cas. No.
the application for the charter is re- 4,620.
quired to state the number of direc- Connecticut. Saugatuck Bridge Co.
tors and the names of those for the v. Westport, 39 Conn. 337; Litchfield
first year, and to show that ten Bank V. Church, 29 Conn. 137; State
per cent, of the authorized capital V. Bull, 16 Conn. 179.
has been paid in. Smith v. First Nat. Georgia. Wood v. Coosa & C. R. B.
Bank, 43 Tex. Civ. App. 495, 95 S. Co., 32 Ga. 273.
W. 1111. Illinois, Smith v. Bangs, 15 111.
See Chap. 40, infra. 399.

19 See Chap. 7, supra. Louisiana. Lallande v. Louisiana
20 '
' Sometimes the statute names State Ins. Co., 9 La. 326.
certain persons who as public officers Maryland. Bonaparte v. Baltimore,
call for subscriptions to the stock of H. & L. E. E. Co., 75 Md. 340, 23 Atl.
the corporation, and, when" the re- 784; Wellersburg & "W. N. Plank Eoad
quired amount "is subscribed, call Co. v. Hoffman/ 9 Md. 559.
a meeting of the subscribers to organ- Mississippi. Ellison v. Mobile & O.
ize the corporation, at which meeting E. Co., 36 Miss. 572.
the organization is effected by the New Jersey. Union Water Co. v.
subscribers." Eoosevelt v. Hamblin, Kean, 52 N. J. Eq. Ill, 27 Atl. 1015
199 Mass. 127, 18 L. E. A. (N. S.) (rev'd 52 N. J. Eq. 813, 46 Am. St.
748, 85 N. E. 98. Eep. 538, 31 Atl. 282, for want of
"An act is passed to create an inequitable jurisdiction) Elizabethtown
;
surance compan,y. It is to consist of Gas-Light Co. v. Green, 46 N. J. Eq.

the stockholders. But it seems proper 118, 18 Atl. 844; Van Dyke v. Stout,
that, for convenience, some persons 8 N. J. Eq. 333; Hardenburgh v.
should be designated to take the in- Farmers' & Mechanics' Bank of New
itiatory steps in getting up the com- Brunswick, 3 N. J. Eq. 68.
pany, and, at a proper time, to call New Troy & B. E. Co. v. Tib-
York.
the members together to fulfill another bits, 18 Barb. 297; Haight v. Day, 1
requirement of the charter, viz.: the
Johns. Ch. 18; Walker v. Devereaux, 4
election of directors. Thus concert
Paige 229; Crocker v. Crane, 21 Wend.
and union of action would be secured,
211, 34 Am. Dec. 228.
when, otherwise, it might not." Ju-
Ohio. James v. Cincinnati, H. & D.
dah V. American Live Stock Ins. Co.,
E. Co., 2 Disney 261.
4 Ind. 333.
For examples of charters of this Pennsylvania. Bavington v. Pitts-
kind see the following cases: burgh & S. E. Co., 34 Pa. St. 358.
505
§257] Peivate Cokpoeations [Ch.9
performance of these duties by the corporators or persons to whom

the charter is granted, or a specified number of them.''^
Similar provisions are also found in the general incorporation laws
of some of the states.*^ So it is sometimes provided that persons
desiring to form a corporation shall file a statement to that effect in
the office of the secretary of state, and the latter officer then issues
to them a license to act as commissioners.^^ And under some general
laws the organization is perfected by the corporators or a specified
Texas. Quinlan v. Houston & T. C. of money. J. & A. 11112418, 2419.

By. Oo., 89 Tex. 356, 34 S. W. 738; People V. Larsen, 265 111. 406, 106
Williams v. State, 23 Tex. 264. N. E. 947; Butler Paper Co. v. Cleve-
Veimont. Connecticut & P. B. B. land, 220 HI. 128, 110 Am. St. Bep.
Co. V. Bailey, 24 Vt. 465, 58 Am. Dec. 230, 77 N. E. 99, aff'g 121 111. App.
181; In re White Biver Bank, 23 Vt. 491; People v. Eose, 210 111. 582, 71
478; "Vermont Cent. B. Co. v. Clayes, N. E. 580; McCoy v. World's Colum-
21 Vt. 30. bian Exposition, 186 111. 356, 78 Am.
Virginia. Martin v. South Salem St. Eep. 288, 57 N. E. 1043, aff'g 87
Land 94 Va. 28, 26 S. E. 591;
Co., HI. App. 605; Loverin v. McLaughlin,
Stuart V. Valley R. Co., 32 Gratt. 146; 161 111. 417, 44 N. E. 99, aff'g 46 111.
Grays v. Lynchburg & S. Turnpike App. 373; Illinois Watch-Case Co. v.
Co., 4 Band. 578. Pearson, 140 111. 423, 16 L. B. A. 429,
Wisconsin. Attorney General v. 31 N. E. 400; Western Screw Mfg. Co.
Chicago & N. W. By. Co., 35 Wis. v. Cousley, 72 111. 531.
425. "When the proposers of the corpo-
21 For examples of charters of this ration have obtained a license, they
kind see the following cases: have called into exercise the power
Connecticut. Eidgefield & N. T. E. of the state, which alone can give
Co. V. Brush, 43 Conn. 86; Lane v. being to a corporation." Illinois
Braiuerd, 30 Conn. 565. Watch-Case Co. v. Pearson, 140 111.
Maryland. Franklin Fire Ins. Co. 423, 16 L. E. A. 429, 31 N. E. 400.
V. Hart, 31 Md. 59. The action of the secretary in is-
Massachusetts. Boosevelt v. Ham- suing the license is necessarily, to a
blin, 199 Mass. 127, 18 L. B. A. (N. S.) large extent, merely ministerial, and
748, 85 N. B. 98. the fact that he issues it is not conclu-
New Hampshire. Low v. Connecti- sive as to the right of the corporation
«-4t & P. B. E. Co., 45 N. H. 370;
to exercise all of the powers enu-
Hughes V. Parker, 20 N. H. 58.
merated in the application therefor.
Ohio. Second Nat. Bank v. Hall,
People V. Chicago Gas Trust Co., 130
35 Ohio St. 158.
22 See Peninsular By. Co. v. Duncan,
111. 268, 269, 8 L. E. A. 497, 17 Am.
St. Eep. 319, 22 N. E. 798.
28 Mich. 130.
23 The Illinois statute provides for In Illinois, railroad corporations are
the formation in this manner of cor- not organized in this manner, but un-
porations for pecuniary profit other der J. & A. Iflf 8735-8738, and do not
than those banking, insurance,
for require a license from the secretary of
real estate brokerage, the opera- state. People v. Eose, 210 111. 582, 71
tion of railroads, and the loaning N. E. 580.
506
Oh. 9] Organization [§257
number of them, whose duties are substantially the same as those of

commissioners.^*
ZlAlaliaiua. Formerly in Alabama and are the only persons authorized

persons desiring to incorporate were to attend to the preliminary business
required to file a declaration to that of the corporation. The directors
effect with the probate court, where- when elected, are elected (in our judg-
upon the probate judge was required ment) to do the business of a com-
to issue to them, or any two of them, pletely-organized corporation. They
a commission constituting them a are not elected for the purpose of ef-
board of corporators and giving them fecting an organization. That is the
authority to open books of subscrip- business of the original corporators.
tion and to call a meeting of the They are elected to attend to the busi-
subscribers after the requiredamount ness of the corporation after its or-
had been subscribed. First Nat. Bank ganization." Hunt v. Kansas & Mis-
of Decatur v. Henry, 159 Ala. 367, 49 souri Bridge Co., 11 Kan. 412..
So. 97; White v. Kahn, 103 Ala. 308, Maine. Eev. St. 1903, e. 47, § 7.
15 So. 595; Boiling v. Le Grand, 87 Eichmond Factory Ass'n v. Clarke, 61
Ala. 482, 6 So. 332; Sparks v. Wood- Me. 351.
stock Iron & Steel Co., 87 Ala. 294, 6 Oregon. The corporators, or any
So. 195. portion of them designated by a ma-
This method of incorporation no jority of the whole number are re-
longer obtains in that state. See Code quired to open books, to give notice
1907, § 3445 et seq. to the stockholders to meet at such
Connecticut. The statute provides time and place as they may designate
that after the required amount of for the election of directors, to act as
stock has been subscribed, a majority inspectors at such meeting, and to cer-
of the corporators shall call the first tify who are elected and to appoint
meeting of the stockholders at which the time and place for their first meet-
the organization is perfected. Pub. ing. Lord's Ore. Laws, § 6687. Good-
Acts 1903, e. 194, § 67; Gen. St. 1902, ale Lumber Co. v. Shaw, 41 Ore. 544,
§ 3363. Canfield v. Gregory, 66 Conn. 69 Pac. 546; Nickum v. Burekhardt,
9, 33 Atl. 536. 30 Ore. 464, 60 Am. St. Eep. 822, 48
Delaware. Until directors are Pac. 474, 47 Pac. 788; Fairview E. Co.
elected, the signers of the certificate v. Spillman, 23 Ore. 587, 32 Pae. 688;
of incorporation "shall have the di- Coyote Gold & Silver Min. Co. v. Eu-
rection of the affairs of the corpora- ble, 8 Ore. 284.
tion and may take such steps as are South Carolina. Under the statute
proper to obtain the necessary sub- the secretary of state issues to the
scriptions to stock and to perfect the persons who petition for incorpora-
organization of the company." 22 tion, or to any two of them, a com-
Bel. Laws, e. 394, § 8. Lippman v. mission constituting them a board of
Kehoe Stenograph Co., — Del. Ch. — ,
corporators, and, where there is to be
95 Atl. 895. capital stock, authorizing them to
Kansas, "Until directors and other open subscription books. When the
proper oflScers are elected, indeed, in required amount is subscribed, the
our judgment, until the corporation board calls a meeting of the stock-
may enter fully upon its corporate holders at which directors are elected.
functions, the original corporators' are Code 1902, §§1881, 1883. Glenn v.
the representatives of the corporation. Eosborough, 48 S. C. 272, 26 S. E. 611.
507
§257] Private Coepobations [Cli.9
Under some statutes, persons desiring to form a corporation may

apply to a justice of the peace, who is required to issue a warrant
directed to one of the applicants requiring him to call a meeting of
the applicants and the latter organize the corporation at such
meeting.25
"Where the charter provides for a provisional or temporary organ-
ization by the corporators to manage the affairs of the company until
the first meeting of the stockholders, and the charter is accepted and
such provisional organization effected, no subsequent withdrawal of
any of the corporators will affect its vitality, and those remaining
may call the first meeting.^*
A preliminary organization effected prior to incorporation does not

continue after the perfection of the incorporation and organization
thereunder.'^''
In the case of special charters, the organization must be perfected
by those who are thereby incorporated,** and they have no right to
assign the corporate franchise before organization, except where
the charter or statute so provides.*^ The grantees named in such a
charter are the sole members of the corporation until associates are
Wisconsin. Stat. 1898, § 1773, pro- rant was ever issued or served. Mc-
vides "Until the directors or trus- Kenney v. Bowie, 94 Me. 397, 47 Atl.
tees shall be elected, the signers' of 918.
the articles of organization shall have 26Busey v. Hooper, 35 Md. 15, 6
direction of the affairs of the corpo- Am. Eep. 350.
ration and make such rules as may be 27 The officers of such preliminary
necessary for perfecting its organ- organization are superseded by those
ization, accepting members, or regulat- chosen after the incorporation. Muhl-
ing the subscription of the capital hauser v. Cleveland Hospital for Wom-
' and also provides for the call-
'
stock, en and Children, 21 Ohio Cir. Ct. 88,
ing of the first meeting by any two of afE'd 66 Ohio St. 688, 65 N. E. 1131.
the signers of the articles after half 28 Welch V. Old Dominion Min. &
of the stock has been subscribed. Bad-
Ey. Co., 56 Hun (N. Y.) 650, 10 N. Y.
ger Paper Co. v. Eose, 95 Wis. 145, 37
Supp. 174. See also Booth v. Wonder-
L. R. A. 162, 70 N. W. 302; "Wechsel-
ly, 36 N. J. L. 250.
berg Flour City Nat. Bank, 64 Fed.
V.
29 In Welch v. Old Dominion Min.
90, 26 L. E. A. 470 (construing the
Wisconsin act). & Ey. Co., 56 Hun (N. Y.) 650, 10 N.
25 Packard v. Old Colony E. Co., 168
Y. Supp. 174, was held that such
it
Mass. 92, 46 N. E. 433 (ceniietery and an assignment was void, and that
religious corporations). neither a de jure nor a de facto cor-
Legal incorporation under such a poration was created by an attempted

provision is not shown where there is organization thereunder by the as-
no evidence that application was ever signees. See also Com. v. McKean
made for a warrant, or that any war- County Bank, 32 Pa. St. 185.
508
Ch.9] Organization [§259
admitted by them;^*' "and they may, at a meeting duly called and

directors and other officers.
"^^
holden, accept the charter and choose
In such eases "the duty to take the necessary steps to organize the
corporation rests, not upon individual members, but on the body of
the grantees, which, in its corporate capacity has the sole power to
determine by what measures and by what agents it shall be ef-
fected.
"^^
Generally, where the charter is granted to certain named persons
and their associates, those named may take in associates or not, as
they see fit.^^
§258. Commissioners —Qualifications. The commissioners or cor-

porators need not be made members of the corporation,'* nor need
they have any pecuniary interest therein.'^ The grantees of a special
charter are often designated as commissioners, however,*' and gen-
erally the commissioners may become subscribers to the stock in the
absence of a provision to the contrary.*''
§259. — Powers. Commissioners do not constitute the corpora-

tion, nor is the corporate franchise in any form or degree vested in
them.** Nor are they the agents of the corporation, for it is not
Low V. Connecticut & P. E. E.

30 34Judah American Live Stock
V.
Co.,45 N. H. 370. Bonaparte v. Bal-
Ins. Co., 4 Ind. 333;
"If there are no associates, then timore, H. & L. E. E. Co., 75 Md. 340,
the grantees compose the corpora- 23 Atl. 784; Walker v. Devereaux, 4
tion." Hughes V. Parker, 20 N. H. Paige Ch. (N. Y.) 229.
58. 36 Roosevelt v. Hamblin, 199 Mass.
31 Low V. Connecticut & P. E. E. 127, 18 L. E. A. (N. S.) 748, 85 N. E.
Co., 45 N. H. 370. And see to the 98; Coyote Gold & Silver Min. Co. v.
same effect, Hughes v. Parker, 20 N. Euble, 8 Ore. 284.
H. 58. 36McDermott v. Donegan, 44 Mo.
32 Low V. Connecticut & P. E. E. 85. See also Walker v. Devereaux, 4
Co., 45 N. H. 370. Paige Ch. (N. Y.) 229.
's Lessee v. Prostburg Coal
33 Prost 37 See Chap. 17, infra.
Co., 24 How. (U. S.) 278, 16 L. Ed. '38 Falconer v. Campbell, 2 McLean
637; Low v. Connecticut & P. E. E. 195, Fed. Cas. No. 4,620; Eoosevelt v.
Co., 45 N. H. 370; Hughes v. Parker, Hamblin, 199 Mass. 127, 18 L. E. A.
20 N. H. 58, 19 N. H. 181; Union (N. S.) 748, 85 N. E. 98. See also
Water Co. v. Kean, 52 N. J. Eq. Ill, Bonaparte v. Baltimore, H. & L. E.
27 Atl. 1015 (rev'd 52 N. J. Eq. 813, E. Co., 75 Md. 340, 23 Atl. 784.
46 Am. Eep. 538, 31 Atl. 282, on
St. See Chap. 14, infra, for treatment
the ground that a court of equity had of the status of the franchise after
no jurisdiction to determine the ques- the grant of a charter and before
tions involved). organization.
509
259] Pkivate Cokpoeatiows [CIi.9
yet in being.'* They "act as a statutory board, and derive their

powers from, the law and not from the corporation, *"> and are '
'
officers or agents of the state.*^ Their powers are limited to those

conferred by the statute,**^ and all who deal with them must look
to the source of their authority.** Their authority is generally con-
fined to receiving subscriptions, convening the first meeting of the
39Rutz & Eopiequet Mfg.

V. Esler Where the stock is oversubscribed,
Co., 3 App. 83; Walker v. Dev-
111. and hence there can be neither a cor-
ereaux, 4 Paige Ch. (N. Y.) 229; Caley poration nor stockholders the until
V. Philadelphia & C. C. R. Co., 80 Pa. stock has'been apportioned among the
St. Williams v. State, 23 Tex.
363; subscribers, they do not hold the stock
264. See also Lallande v. Louisiana nor act in the capacity of officers,
State Ins. Co., 9 La. 326. servants, agents or trustees of the cor-
They are a part of the necessary poration nor of the subscribers, but
machinery for getting the corpora- act "merely as officers or agents of
tion into operation, "and are quasi the government, appointed by the leg-
agents of the corporation, necessarily islature to assist in the organization
acting in their behalf prior to an or of the corporation and to create a
ganization." Vermont Cent. R. Co. stock in the same." Walker v. Dev-
V. Clayes, 21 Vt. 30. ereaux, 4 Paige Ch. (N. Y.) 229.
40Shurtz V. Schoolcraft & T. R. R, Quoted in Williams v. State, 23 Tex.
Co., 9 Mich. 269. 264.
41 State V. Bull, 16 Conn. 179; Bona- On the appointment of "the presi-
parte V. Baltimore, H. & L. R. R. Co dent and directors" of an existing
75 Md. 340, 23 Atl. 784; Caley v, corporation, the charter of which is
Philadelphia & C. C. R. Co., 80 Pa, about to expire, as commissioners to
St. 363; Attorney General v. Chicago open books for subscriptions to the
& N. W. Ey. Co., 35 Wis. 425, 600. stock of another corporation, they do
A commissioner "is an agent ap- not cease to be commissioners on the
pointed by law with a special power expiration of such charter. In open-
of attorney." Nippenose Mfg. Co. v. ing the books they do not represent
Stadon, 68 Pa. St. 256. See also Lal- either corporation, but act as indi-
lande V. Louisiana State Ins. Co., 9 La. viduals appointed by law to perform
326. a trust, and while so acting cannot
They the way through as
act all bind the stockholders of the first com-
public Roosevelt v. Hamblin,
officers. pany. Lallande v. Lauisiana State
199 Mass. 127, 18 L. R. A. (N. S.) Ins. Co., 9 La. 326.
748, 85 N. E. 98. 42 Bonaparte v. Baltimore, H. & L.
And the public has an interest in E. R. Co., 75 Md. 340, 23 Atl. 784;
the faithful discharge of such duties. Caley v. Philadelphia & C. C. E. Co.,
In re White River Bank, 23 Vt. 478. 80 Pa. St. 363; Nippenose Mfg. Co. v.
"They are agents for those who Stadon, 68 Pa. St. 256. See also Wood
shall afterwards subscribe to the V. Coosa & C. R. R. Co., 32 Ga. 273.
stock; and they have, in a certain 43 Caley v. Philadelphia & C. C. R,
sense, a trust to execute on behalf of Co., 80 Pa. St. 363; Nippenose Mfg.
the public." Hardenburgh v. Farm- Co. v. Stadon, 68 Pa. St. 256.
ers' &
Mechanics' Bank of New
Brunswick, 3 N. J. Eq. 68.
510
Ch. 9] Ohganization [§ 260
subscribers, and making a report of their proceedings.** They have

no right or power to accept the charter,** and hence none of their acts
can tend to show an acceptance.*^ Nor have they any right to change
the terms of the contract of subscription which the charter or law
authorizes them to make.*''
has been held that, where the majority of the commissioners
It
Qorruptly agree to transfer the franchise to a citizen of another state
without any bona fide subscription to the stock, an organization per-
fected by the minority is valid.**
Even though an incorporator as such cannot delegate his authority
as against the objection of his fellow incorporators, yet, if he attempts
to do so, neither he nor those of his fellow incorporators who acquiesce
in such delegation can question the validity of the organization on
that ground.*'
§260. — Duties. Their duties are to perfect the organization

of the corporation and to put it in working order, rather thau to
carry on its business enterprises, and they have no power to make
assessments, nor to prosecute the business for which the corporation
was created, nor to dispose of its future earnings, nor to fix rules to
control the action of the directors to be elected.*" Under some char-
ters they are required to apportion the stock among the subscribers,
where the capital is oversubscribed.*^
In the absence of a provision to the contrary, the election is not
under their management or control, and they are not required to
attend it, and have no power over it if they do attend.** But it is
44 McCoy V. World 's Columbian Ex- 46 Attorney General v. Chicago & N.

position, 186 111. 356, 78 Am. St. Eep. W. By. Co., 35 Wis. 425, 600.
288, 57 N. E. 1043, aff'g 87 111. App. 47 See Chap. 17, infra.
605; Coyote Gold & Silver Min. Co. v. 48 An organization by three eom-
Euble, 8 Ore. 284. missioners, and letters patent issued
For matters relating to the giving pursuant thereto were held valid,
of notice of the first meeting, see ^jjere the act authorized nine eom-
§§262-268, infra. missioners, or any three of them, to
For matters relating
* to the report, iu
i- ' organize„;
the j.-
corporation. Com. v.
/-,
For matters relating to the taking .

«Lippmaa v.
_ '
Kehoe
...
Stenograph
of subscriptions to stock, see Chap.
17 infra ^°-> ~ ^^^- ^^- ~' ®^ ^^^- *^^-
45 Bonaparte v. Baltimore, H. & L. *<> Coyote Gold & Silver Min. Co. v.
R. K. Co., 75 Md. 340, 23 Atl. 784; At- Euble, 8 Ore. 284.

torney General v. Chicago & N. W. 81 See Chap. 17, infra.
By. Co., 35 Wis. 425, 600. 62 Hardenburgh v. Farmers' & M«-

511
260] Peivate Coepoeations [Ch.9
sometimes provided that they shall be inspectors of the election,''*

and shall certify to the election of the directors chosen.** They
may be compelled by the courts to perform the duties imposed upon
them.**
Where they are required to certify to the stockholders that the
requisite amount of stock has been subscribed, and by whom, such
certificate is conclusive, and a subscriber cannot show that the same
is false in order to "escape liability on his subscription.*^
§261. —
Termination or revocation of authority. The powers
and functions of commissioners or corporators cease as soon as the
organization is fully perfected, and all the corporate powers conferred
by the charter then vest in the corporation.*''
chanics' Bank of New Brunswick, 3 57 Wellersburg & W. N. Plank Eoad

N. J;Eq. 68. Co. V. Hoffman, 9 Md. 559; Harden-
See Chap. 40, infra. burgh Farmers' & Mechanics' Bank
V.
63 Illinois. Smith v. Bangs, 15 111. of NewBrunswick, 3 N. J. Eq. 68;
399. James v. Cincinnati, H. & D. E. Co., 2
Missouri. McDermott v. Donegau, Disney (Ohio) 261; Nickum v. Burck-
44 Mo. 85. hardt, 30 Ore. 464, 60 Am. St. Eep. 822,
New York. Troy & B. B. Co. v. Tib- 48 Pac. 474, 47 Pac. 788.
bits, 18 Barb. 297; Walker v. Dev- Where books of subscription are
ereaux, 4 Paige Ch. 229. regularly opened, the requisite amount
Oregon. Nickum v. Burckhardt, 30 of stock subscribed, and a meeting
Ore. 464, 60 Am. St. Eep. 822, 48 Pae. of the stockholders held after due
474, 47 Pac. 788 (Lord's Ore. Laws, notice, atwhich directors are elected,
§ 6687). the powers of the commissioners are
Vermont. Connecticut & P. E. B. at an end, and they will be enjoined
Co. V. Bailey, 24 Vt. 465, 58 Am. Dec. from holding another meeting for the
181. election of directors. Smith v. Bangs,
See also Chap. 40, infra. 15 111. 399. And see to the same eflfect
B4 Smith V. Bangs, 15 111. 399; Nick- Union Water Co. v. Kean, 52 N. J.
um V. Burckhardt, 30 Ore. 464, 60 Am. Eq. Ill, 27 AtL 1015 (rev'd 52 N. J.
Eq. 813, 46 Am. St. Eep. 538, 31 Atl.
St.Eep. 822, 48 Pac. 474, 47 Pac. 788
282, for want of equitable jurisdic-
(Lord's Ore. Laws, §6687); Connecti-
tion).
cut & P. B. E. Co. V. Bailey, 24 Vt.
Upon the election of a board of di-
465, 58 Am. Dec. 181. See also Chap.
rectors the management of the affairs
40, infra.
of the corporation vests in them.
5S Lallande v. Louisiana State Ins.
Lippman v. Kehoe Stenograph Co.,
Co., 9 La. 326; Walker v. Devereaux, — Del. Ch. —
, 95 Atl. 895.
4 Paige Ch. (N. Y.) 229; In re White Thereafter all the affairs of the
Eiver Bank, 23 Vt. 478. corporation, including that "of receiv-
66 Lane v. Brainerd, 30 Conn. 565; ing further subscriptions, are in the
Litchfield Bank v. Church, 29 Conn. hands of the directors. Eidgefield &
137. See also Chap. 17, infra. N. Y. E. Co. V. Brush, 43 Conn. 86, and
512
Cli.9] Oeganization [§263
A license issued to commissioners by the secretary of state is
authority for taking the steps towards organization authorized by

law,*' and cannot be revoked unless the statute so provides."
A sometimes provided for where the organization is
revocation is
not perfected within the time prescribed by law.^° And it has beeh
held that where no such time is prescribed, the commissioners wil| be
deemed to have surrendered their authority if the organization of
the corporation is unreasonably delayed.^^
§262. Notice of first meeting' —Provision for. Provision i» gen-

erally made for giving notice to the stockholders or members of the
first meeting for the purpose of organization.*^
§263. — Purpoce of provision for notice.The purpose of pro-

visions requiring notice is to provide an orderly method of organiza-
tion and to secure the proper, orderly and prompt calling of the
the commissioners have no power to afterwards, and that where they did
take subscriptions (Ellison v. Mobile so, and their subscribers attempted to
& O. E. Co., 36 Miss. 572), and cannot organize a corporation, quo warranto
apportion the stock among the sub- would lie. State v. Bull, 16 Conn. 179.
scribers (State V. Lehre, 7 Blch. [S. "Where commissioners' appointed to
C] 234). take subscriptions to the stock of a
58 Illinois Wateh-Case Co. v. Pear- railroad corporation delay action un-
son, 140 ni. 423, 16 L. E. A. 429, 31 til after the expiration of the time
N. E. 400. limited by the charter for completing
59 The law nowhere confers upon
'
' the road, their powers are at an end,
the secretary of state the power to and they have no authority to then
revoke the license, except for failure take subscriptions and take steps to-
to organize and proceed to business wards the incorporation of the com-
within two years from the date of pany. Bonaparte v. Baltimore, H. &
such license," and during the two L. K. E. Co., 75 Md. 340, 23 Atl. 784.
years it cannot be revoked. Illinois 62 Illinois. See Eice v. Eock Island
"Watch-Case Co. v. Pearson, 140 HI. & A. R. Co., 21 ni. 93.
423, 16 L. K. A. 429, 31 N. E. 400. Indiana. Steinmetz v. Versailles &
60 Illinois Wateh-Case Co. v. Pear- O. Turnpike Co., 57 Ind. 457.
son, 140 111. 423, 16 L. R. A. 429, 31 Maine. McKenney v. Bowie, 94 Me.
N. B. 400. 397, 47 Atl. 918.
61 So was held that where sub-
it Minnesota. East Norway Lake
scriptions were opened, but the re- Church V. Proislie, 37 Minn. 447, 35
quired amount was not subscribed, N. W. 260.
and the commissioners thereupon North Carolina. Eev. 1905, §1142.
closed the subscriptions, repaid in- Benbow v. Cook, 115 N. C. 324, 44 Am.
italments paid by subscribers, and re- St.Eep. 454, 20 S. E. 453.

tired from the concern, they could not Ohio. 4 Page & Adams Ann Gen
again open subscriptions ten years Code, §8635. Toledo Consol. St. Ey.
513
I Priv. Corp.— 33
§263] Private Corpokations [Ch.9
meeting by the persons intrusted with the duty of calling it,*^ and
to secure to all the members of the corporation their right to par-
ticipate in its proceedings.**
The notice is not intended for the benefit of the public, but rather
for the benefit of the subscribers or members themselves.**
§264. — By whom given. This notice is generally to be given

by the persons whose duty it is to convene such meeting, as, for
*''
example, by the commissioners or corporators,** or by a majority
or other specified number ** of the persons named in the act of in
corporation.
Co. V. Toledo Elec. St. By. Co., 6 Ohio Massachusetts. See Eoosevelt v.
Cir. Ct. 362, 392, aff'g 6 Ohio N. P. Hamblin, 199 Mass. 127, 18 L. E. A.
537, which is affirmed by 50 Ohio St. (N. S.) 748, 85 N. E. 98, where this
603, 36 N. E. 312; State v. Halloway, method of calling meetings is referred
1 Ohio Cir. Ct. 157. to.
See also Chap. 40, infra. Michigan. See Swartwout v. Michi-
63 J. W. Butler Paper Co. v. Cleve- gan Air Line B. Co., 24 Mich. 389.
land, 220 111. 128, 110 Am. St. Bep. New Jersey. Hardenburgh v. Farm-
230, 77 N. E. 99, aff'g 121 111. App. ers' & Mechanics'. Bank of New
491; Neweomb v. Beed, 12 Allen Brunswick, 3 N. J. Eq. 68.
(Mass.) 362; Ossipee Hosiery & Ohio, Chamberlain v. Painesville &
Woolen Mfg. Co. v. Canney, 54 N. H. H. E. Co., 15 Ohio St. 225.
295. Oregon. Lord's Ore. Laws, §6688;
64Braintree Water-Supply Oo. v. Nickum v. Burekhardt, 30 Ore. 464,
Braintree, 146 Mass. 482, 16 N. E. 420; 60 Am. St. Bep. 822, 48 Pac. 474, 47
Benbow v. Cook, 115 N. C. 324, 44 Am. Pac. 788.
St. Bep. 454, 20 S. E. 453. 67 Walworth
v. Brackett, 98 Mass.
66 J. W. Butler Paper Co. v. Cleve- 98; Chester Glass Co. v. Dewey, 16
land, 220 111. 128, 110 Am. St. Bep. Mass. 94, 8 Am. Dec. 128; Neweomb
230, 77 N. E. 99, aff'g 121 111. App. V. Beed, 12 Allen (Mass.) 362.
491; McClinch v. Sturgis, 72 Me. 288. In Chester Glass Co. v. Dewey, 16
The strict requirements of the stat- Mass. 94, 8 Am. Dec. 128, D and L,
ute are intended to protect the stock- who were partners, were named in the
holders. Benbow v. Cook, 115 N. C. act of incorporation, and their firm
324, 44 Am. St. Eep. 454, 20 S. E. 453. name was signed to the advertisement
86 Alabama. White v. Kahn, 103 for calling the meeting. Consid-
first
Ala. 308, 15 So. 595. ering one signature, the

this as
nUnois. Kurd's Eev. St. 1913, e. advertisement was not signed by a
32, § 3; J. & A. If 2420; People v. Lar- majority of the corporators, while, if
son, 265 111. 406, 106 N. E. 947; J. W. the names were taken separately, it
Butler Paper Co. v. Clevelandy 220 111. was. It was held that the advertise-
128, 110 Am. St. Bep. 230, 77 N. E. 99, ment would be regarded as signed by
aff'g 121 m. App. 491; Bice v. Eoek each of the partners, the one who
Island & A. E. Co., 21 111. 93. actually signed, acting for the other.
Indiana. Judah v. American Live 68Lechmere Bank v. Boynton, 11
Stock Ins. Co., 4 Ind. 333. Cush. (Mass.) 369.
514
'
Ch. 9] '
Oeganization [§ 266
The persons calling the meeting and giving the notice act in a
purely ministerial capacity in so doing.*^ Their power is limited
to calling a meeting of those entitled to participate in the organiza-
tion,'" and the number so
entitled cannot be enlarged or diminished
by any act of theirs.'^ When given by commissioners, it is not essen-
tial that the call should be the result of any formal order on their
part. So it has been held sufficient though there was no formal

action on their part, where the notice was prepared by one of the
commissioners who was the secretary of the board, and who signed
thenames of all the others thereto, where it was not recalled or dis-
owned by the commissioners, but on the contrary was recognized by
them as valid by an attempt to postpone the meeting."
§265. — Time for giving'. Statutes and charters generally pro-

vide that the notice must be given a specified number of days before
the time fixed for the meeting.''*
§266. — Form and contents. The form and contents of the

notice are fixed by the charter or the general law under which the
corporation is formed.''* Usually it is required to be printed or in
writing,''^ and by the persons issuing it,''^ and to state the
to be signed
object of the meeting and the time when and the place where it is to
be held.''^
By three named persons, or any two 74 For form of notice see Stuart v.
of them. Hughes v. Parker, 20 N. Valley E. Co., 32 Gratt. (Va.) 146.
H. 58. These matters are regulated by stat-
69Lechmere Bank v. Boynton, 11 utes in most jurisdictions, to which
Cush. (Mass.) 369. reference should be had.
70Leehmere Bank v. Boynton, 11 76Hurd's Rev. St. 1913, c. 32, §3;
Cush. (Mass.) 369. J. &
A. 1 2420; J. "W. Butler Paper Co.
71 See § 270, infra. v. Cleveland, 220 111. 128, 110 Am. St.
72 Hardenburgh v. Farmers' & Me- Rep. 230, 77 N. E. 99, aff'g 121 111.
chauics^ Bank of New Brunswick, 3 App. 491.
''6 Burns' Ind. Ann.
N. J. Eq. 68. St. 1914, § 4048;
Hosiery & "Woolen Mfg.
73 Ossipee Newcomb v. Reed, 12 Allen (Mass.)
Co. v. Canney, 54 N. H. 295. 362.
In Illinois it must be given at least 77Hurd's Rev. St. 1913, c. 32, §3;
ten days before the time fixed. Hurd's J. & A. If 2420; J. W. Butler Paper Co.
Rev. St. 1913, c. 32, § 3; J. & A. If 2420; v. Cleveland, 220 111. 128, 110 Am. St.
J. W. Butler Paper Co. v. Cleveland, Rep. 230, 77 N. E. 99, aff'g 121 111.
220 111. 128, 110 Am. St. Eep. 230, 77 App. 491; Burns' Ind. Ann. St. 1914,
N. E. 99, afE'g 121 111. App. 491. See §4048; Judah v. American Live Stock
also Rice v. Rock Island & A. R. Ins. Co., 4 Ind. 333; In re London &
Co., 21 111. 93. S. C. T. L. Co., 31 Ch. Div. 223.
515
§ 267] Peivate Cobpoeations [Ch.9
§ 267. — Service. Provision is variously mad'e for personal

service,''" or for giving notice by mail,''' or by publication *" and, gen-
erally, if no other mode of notification is provided for in the charter
or by-lawB, or by statute, express notice must be given.'^
§268. -Êffect of noncompliance with provisioni ' as to notice.

Statutory and charter provisions as to notice are generally held to be
directory merely, so that a failure to comply with them will not
prevent the corporation from becoming one de jure, if the same result
is reached in some other mode.'^ Nor is such a provision rendered
mandatory by the use of the word "shall," "s nor by reason of the
fact that a copy of the notice is required to be included in a report of
the organization required to be made to the secretary of state.**
As has been seen above, the purpose of the notice is the protection
of the subscribers or members, and not to benefit the general public,**
and it may be waived by the subscribers or members.** Hence it is
, WB»^na' Ind. Ann. St. 1914, § 4048. ett, 98 Mass. 98; Newcomb v. Eeed,
79 The Illinois statute provides for 12 Allen 362.
the depositing of written or printed New Hampshire. Ossipee Hosiery &
notices in the post oflce, properly ad- Woolen Mfg. Co. v. Canney, 54 N. H.
dressed to each subscriber. Kurd's 295.
Eev. St. 1913, c. 32, § 3; J. & A. H 2420; Ohio. Chamberlain v. Painesville &
J. W. Butler Paper Co. v. Cleveland, H. E. 15 Ohio St. 225; To-
Co.,
220 111. 128, 110 Am. St. Eep. 230, 77 ledo Consol. St. Ey. Co. v. To-
N. E. 99, aff'g 121 111. App. 491. le3o Elec. St. Ey. Co., 6 Ohio Cir. Ct.
Burns Ind. Ann. St. 1914, §§ 4048,
80 ' 362, 392, afe'g 6 N. P. 537, which is
4515; Steinmetz v. Versailles & O. affirmed by 50 Ohio St. 603, 36 N. E.
Turnpike Co., 57 Ind. 457; Judah v. 312.
American Live Stock Ins. Co., 4 Ind. 83 J. W. Butler Paper Co. v. Cleve-
333; Ossipee Hosiery & Woolen Mfg. land, 220 111.128, 110 Am. St. Eep.
Co. V. Canney, 54 N. H. 295; Harden- 230, 77 N. E. 99, aff'g 121 111. App.
burgh V. Farmers' & Mechanics' Bank 491.
of New Brunswick, 3 N. J. Eq. 68. 84 The filing of a written waiver of
SlBenbow v. Cook, 115 N. C. 324, the required notice, signed by all of
44 Am. Eep. 454, 20 S. E. 453.
St. the subscribers, is a sufficient compli-
SZIUlnois. J. W. Butler Paper Co. ance with such a provision. J. W.
v. Cleveland, 220 111. 128, 110 Am. St. Butler Paper Co. v. Cleveland, 220 111.
Eep. 230, 77 N. E. 99, aff'g 121 111. 128, 110 Am. St.Eep. 230, 77 N. E. 99,
App. 491. aff'g 121 III. App. 491.
Indiana. Judah v. American Live 8B See § 263, supra.
Stock Ins. Co., 4 Ind. 333. SBBenbow v. Cook, 115 N. C. 324,
Maine. McClinch v. Sturgis, 72 Me. 44 Am. St. Eep. 454, 20 S. E. 453. See
288. also Lippman v. Kehoe Stenograph
Massachusetts. Braintree Water- Co., — Del. Ch. — , 95 Atl. 895; Pair-
Supply Co. V. Braintree, 146 Mass. view E. Co. V. Spillman, 23 Ore. 587,
482, 16 N. B. 420; Walworth v. Brack- 32 Pac. 688.
516
Ch. 9] Organization [§268
immaterial that no notice is given,*' or that it is not given in the

manner pointed ou(t by the statute,** if the persons entitled to notice
actually attend the meeting and participate in the business there trans-
acted. In other words, an organization is valid though the statutory
»'
provisions as to notice are disregarded, if all the members consent
thereto. Under such circumstances, the validity of the incorporation
is not affected by the fact that was not signed by a majority
ithe notice
of the persons named in the act of ineorporation.^"
Subscribers or members who are present at the meeting and partici-
pate therein cannot attack the validity of the organization on
the ground that they themselves were not properly notified,'^ nor on the
ground that notice was not given to other subscribers or members, at'
least where the amount of stock required to perfect the organization is
represented at the meeting.'^ Nor, where neither the state nor the
87 It is immaterial whether the 88 J. W.

Butler Paper Co. y. Cleve-
stockholders came together on a notice land, 220 128, 110 Am. St. Rep.
111.
given by the persons designated in 230, 77 N. E. 99, aff'g 121 HI. App.
the statute, or without any notice at 491; Braintree Water-Supply Co. v.
all, if all came, and in a proper and Braintree, 146 Mass. 482, 16 N. E. 420.
satisfactory manner elected directors. Compliance with the statute need
Judah V. American Live Stock Ins. not be shown when every person in-
Co., 4 Ind. 333. terested had express notice and par-
They may all meet by common con- ticipated in the meeting. Benbow v.
sent without notice. Union Water Cook, 115 N. C. 324, 44 Am. St. Rep.
Co. V. Kean, 52 N, J. Eq. Ill, 27 Atl. 454, 20 S. B, 453. See also South Bay
1015, rev'd 52 N. J. Eq. 813, 46 Am. Meadow Dam Co. v. Gray, 30 Me. 547.
St. Rep. 538, 31 Atl. 282, for want of 89 Braintree Water-Supply Co. v.
.
equitable jurisdiction. Braintree, 146 Mass. 482y 16 N. E.

"If all the persons interested 420.
should come together without any no- 90 Braintree Water-Supply, Qo. v.
tice or call whatever, and proceed to Braintree, 146 Mass. 482, 16 N. E. 420;
accept the charter, and do the other Walworth v. Braekett, 98 Mass. 98;
acts necessary to constitute the cor- Newcomb v. Reed, 12 Allen (Mass.) •
poration, we cannot doubt that their 362.

action would be valid, and that neither 91 In sUch case they do not suffef'
the public, nor any persons not be- by the oinission. Schenectady &' si'
longing to the association, would have Plank Road Co. v. Thatcher, 11 N. T.
any interest to question their proceed- 102. See also Judah v. American Live
ings." Newcomb v. Eeed, 12 Allen Stock Ins. Co., 4 Ind. 333; Bucksport
(Mass.) 362. Quoted in J. W. Butler & B. R. Co. v. Buck, 68 Me. 81.
Paper Co. v. Cleveland, 220 111. 128, 92Nickum v. Burckhardt; 30 Ore.
110 Am. St. Rep. 230, 77 N. E. 99, aff'g 464, 60 Am. St. Rep. 822, 48 Pae. 474,
121 111. App. 491. See also Handley 47 Pac. 788.
V. Stutz, 139 U. S. 417, 422, 35 L. Ed. Thus it is not a valid ground of oId-
227. jection in aueh a case that no notice
517
grantees of the charter complain, can the validity of the incorporation

be questioned by third persons, especially where they have recognized
the corporate existence.®' So notwithstanding the fact that the
notice is not signed by a majority of those named in the act of
incorporation, and though those not signing refuse to join in the call,
and do not participate in the organization, it has been held that the
organization is valid as Sigainst all persons but the state and those
so refusing.®* Nor can the fact that notice was not given to all of
the corporators be taken advantage of by a person who, though not
one of the corporators, was elected an associate at the first meeting,
took part in the organization, and subsequently recognized the cor-
poration as having a legal existence.®* Nor can persons who subscribe
to stock after the organization takes place object to the regularity of
the organization on the ground that notice was not given to certain
was given, and that some of the sub- of incorporation did not join in call-
scribers did not attend the meeting. ing the first meeting, where all the
Schenectady & S. Plank Boad Co. v. members were preseiit at such meet-
Thatcher, 11 N. Y. 102. ing, and no otjier objection to the
This is especially true of one who manner of calling it was made. Ches-
signed a certificate reciting that he ter Glass Co. v. Dewey, 16 Mass. 94,
and eight others had been duly elected 8 Am. Dec. 128.
by the subscribers as directors, and 94 The organization is valid, except
swore in the affidavit filed in the sec- as against the state, though only one
retary of state's office that he was a of three persons named in an act in-
director. Schenectady & S. Plank corporating them and their associates
Eoad Co. V. Thatcher, 11 N. Y. 102. signed the notice, and the other two
93 " If neither the grantors of the refused to join in the call and did not
charters (i. e., the state) nor the gran- take part in the organization, or au-
tees complained of the defect in the thorize the other persons participating
preliminary notice, it would seem that in the meeting to do so, where they
the objection could not be subse- made no objection to their associates
quently raised by this defendant who proceeding without them, and no claim
has taken stock in the corporation, to the exercise of the corporate pow-
thereby recognizing the corporate ex- ers, and there were no subscribers to
istence and manifesting his purpose the stock before the act of incorpora-
to participate in the profits thereof." tion. Walworth v. Brackett, 98 Mass.
Ossipee Hosiery & Woolen Mfg. Co. 98. See also McGinty v. Athol Reser-
V. Canney, 54 N. H. 295. Quoted with voir Co., 155 Mass. 183, 29 N. E. 510,
approval in McClinch v. Sturgis, 72 holding that where at least one of
Me. 288. the persons named in the act of in-
One who subscribes to stock after corporation, without objection from
the organization of the corporation the others, with seven others not
and otherwise deals with it as a cor- named, met and accepted the charter,
poration, cannot defend an action on etc., the persons taking part in such
his subscription on the ground that a proceedings became a corporation.

majoiity of those named in the act 96 McClinch' V. Sturgis, 72 Me. 288.
518
Ch. 9] Obganizatiok [§268
of the stockholders who were entitled thereto, if the amount of stock

required to perfect the organization was represented at the meeting,'*
nor on the ground that a less number of days' notice was given than
the charter required.''And the acts of directors chosen at the meet-
ing cannot be questioned collaterally on the ground that the notice
was not given by the persons designated by the statute to give it."
The subscribers may also expressly waive the giving of notice, where
allagree thereto, and the meeting is actually held." And the action
of the meeting will be valid though it was not called in the manner
prescribed where its action is subsequently ratified by all those who
were not present.^ Of course no notice is necessary where a charter
is granted to a single individual who is not required to take associates
and does not do so.''
Until the contrary is shown it is always presumed that the required

notice was given.^
98 Niokum v. Burekhardt, 30 Ore. meeting is held. J. W. Butler Paper

464, 60 Am. St. Eep. 822, 48 Pae. 788. Co. V. Cleveland, 220 111. 128, 110 Am.
'
' The result is that, in so far as they St. Rep. 230, 77 N. E. 99, aff'g 121 111.
are concerned, the company was diily App. 491.

incorporated; and this result is In Ohio the statute provides that if
reached, not because they are estopped all subscribers to stock are present in
by having dealt with it, but because person or by proxy, such notice may
it was legally organized prior to their be waived by them in writing. 4 Page
subscription to the capital stock." & Adams Ann. Gen. Code, § 8635; To-
Mckum V.Burekhardt, 30 Ore. 464, 60 ledo Consol. St. Ry. Co. v. Toledo Elec.
Am. St. Eep. 822, 47 Pae. 788, 48 Pac. St. Ry. Co., 6 Ohio Cir. Ct. 362, 392,
474. aff'g 6 Ohio N. P. 537, which is af-
97 0ssipee Hosiery & Woolen Mfg. firmed by 50 Ohio St. 603, 36 N. E.
Co. V. Canney, 54 N. H. 295. 312. Similar provisions are to be
98 Chamberlain v. Painesville & H. found in the statutes of a number of
R. Co., 15 Ohio St. 225. See also Chap. other states, to which reference
10, infra. should be "had.
But it has been held that the ap- 1 Benbow v. Cook, 115 N. C. 324, 44
pointment of a director is invalid Am. St. Rep. 454, 20 S. E. 453.

where the notice required by the char- ZA
provision for notice in such a
ter is not given. Wolf v. East Nigel charter "assumes that persons were
Gold Min. Co., 21 T. L. R. 660. to assemble, entitled to be notified
99 There is a corporation de jure of the time and place of meeting. It
v/here all the subscribers execute a would have been necessary, if the de-
written instrument waiving the statu- fendant had taken associates; but if
tory notice and requesting the commis- he had no one to notify, and no one
sioners to convene the meeting at a to consult, it would have been a use-
specified time and place, and where a less formality. Day v. Stetson, 8 Me.
'
'
notice specifying the object, time and (8 Greenl.) 365.

place of the meeting is personally de- 3 Benbow v. Cook, 115 N. C. 324,
li vfered to each of them before such 44 Am. St. Rep. 454, 20 S. E. 453;
519
§ 269] Peivatb Cokporations [Ch. 9
§ 269. Postponement of meeting. As soon as a lawful notice has

been given, the subscribers acquire the right to meet and hold the
election at the time appointed and to come into possession of the
property they have invested in, with which rights the commissioners
cannot, as a general rule, thereafter interfere.* So, unless given
authority to do so, the commissioners cannot thereafter adjourn or
postpone the meeting, at least where it is not necessary to do so for
the protection of their own interests, or of those of the subscribers or
of the community. For example, it has been held that they have no
right to postpone or adjourn it because their treasurer has. refused
or neglected, when requested, to deposit subscription money collected
by them in a bank which they have designated, nor because their
expenses have not been paid. Nor will a court of equity interfere
with an election held on the date originally fixed because of such
attempted postponement, where it does not appear that any consider-
able number of subscribers were deprived of their elective franchise
by reason thereof, or that any fraud or concealment was practiced,
or that the officers elected were not chosen by a majority of the whole
number of votes.^
It has also been doubted whether, if the meeting is not held at the
time originally appointed, the commissioners have power to designate
another day.^
§270. Conduct of meeting and persons who may participate.

Only those persons who are incorporated may take part in the first
meeting.'' "Whether or not persons other than those petitioning for
a special charter, as, for example, persons who subscribe to stock,
may do so depends entirely upon the terms of the charter.^
Grays v. Lynchburg & S. Turnpike Co., 6 See Walker v. Devereaux, 4 Paige

4 Band. (Va.) 578. See also Bank Ch. (N. Y.) 229, 247.
of United States v. Lyman, 20 Vt. ' Leehmere Bank v. Boynton, 11
666, aff'd 12 How. (TJ. S.) 225, 13 L. Cush. (Mass.) 369.
Ed. 965. "The grantees named in the charter
4 Hardenburgh v. Farmers ' & Me- are the sole members of the eorpora-
chanics' Bank of New Brunswick, 3 tion until associates are admitted by
N. J. Eq.See also Union Water
68. them; and they may, at a meeting
Co. V. Kean, 52 N. J. Eq. Ill, 27 Atl. duly called and holden, accept the
1015, rev'd 52 N. J. Eq. 813, 46 Am. charter and choose directors and other
St. Eep. 538, 31 Atl. 282, for want of corporate officers." Low v. Connecti-
equitable jurisdiction. cut & P. E. E. Co., 45 N. H. 370.
B Farmers' & Me-
Hardenburgh v. 8 In Leehmere Bank v. Boynton, 11
chanics' Bank of New Brunswick, 3 Cush. (Mass.) 369) it was held that
N. J. Eq. 68. where a charter was granted to three
520
Ch.9] Okganization [§271
The number entitled to participate cannot be increased or dimin-

ished by the person or persons issuing the call for the meeting, and
hence persons not so entitled cannot be given that right by the fact
that the notice is addressed to them.^ Nor are they given that right
by being invited to participate by those who are so entitled.^"
In the absence of a provision in the statute or charter, it is not
any particular number of them,
essential that all the corporators, or
be present at the first meeting.^^ And if any particular number are
required to be present, it will be presumed that they were present,
where there is no showing to the contrary, and the meeting was held
and the corporators proceeded to act as a corporation.^'^
The meeting is conducted in the same manner as other stockholders'
meetings and the same rules as to voting apply.^'
Usually the incorporators may act by proxy,^* and in any event
neither those who attempt to so act nor others who acquiesce in this
mode of procedure can afterwards question the validity of the organi-
zation on that ground.^*
§271. Eeport of commissioners, corporators or officers. Where

the organization is in charge of commissioners or a board of corpo-
named persons and their associates such an application, it was held that
and successors, the word "associates" it was not necessary for all of them,
meant those who were associated with or even for ten of them, to attend
the persons named in petitioning for the first meeting. Packard v. Old
the charter, and did not include per- Colony R. Co., 168 Mass. 92, 46 N. E.
sons who subscribed for stock but did 433. See also § 268, supra.
not join in the petition, and that the 12 Packard v. Old Colony E. Co., 168
latter had no right to participate in Mass. 92, 46 N. E. 433.
the meeting. 13 See Chap. 40, infra.
9Lechmere Bank v. Boynton, H 14 See Lippman v. Kehoe Steno-

Cush. (Mass.) 369. graph Co., — Del. Ch. —, 95 Atl. 895.
10 The power of a corporation to re- See also Chap. 40, infra.

ceive associates is a corporate right, 15 In Lippman v. Kehoe Steno-
and hence cannot be exercised until graph Co., — Del. Ch. —, 95 Atl. 895,
after corporate organization, "and there were three incorporators, who

therefore, such organization,
until were also the only stockholders. Two
there can be no such associates, and of them executed a power of attorney
therefore no such one can act in the authorizing a fourth person to vote
organization, although invited to do their stock and act for them at the
so by some, or even a majority of in- first meeting, which he did. The third
dividual grantees." Lechmere Bank incorporator participated in the meet-
V. Boynton, 11 Cush. (Mass.) 369. ing without objection. It was held
• 11 Where the statute required ten that the meeting was valid and was
or more persons to sign an application unimpeachable by any one, and espe-
for the formation of a cemetery cor- cially by any of the incorporators.
poration, and eleven persons signed
521
rators, they are aften required to make a report of their proceedings

and to file the same in some public ofiice, usually that of the secretary
of state.^^
The form and contents of the report is governed by the general or
special law under which the corporation is organized. Among the
common requirements are that it shall contain a statement as to the
amount of capital subscribed and the amount paid in,^'' and the names
of the directors or managers chosen and their terms of ofiice. ^^ Under
some statutes it must also include a copy of the subscription list,^' and
16 UnderCode 1896, §§1251-1260, Their certificate is known as the re-

and upon {he comple-
earlier statutes, turn of the corporators. Code 1902,
tion of the organization and the pay- § 1884. See Glenn v. Eosborough, 48
ment of a designated per cent, of the S. C. 272, 26 S. E. 611.
subscriptions to the stock, the board Under the Act of 1845, §5, the
of corporators were required to cer- commissioners were required to make
tify the facts to the judge of probate. and file with the secretary of state a
First Nat. Bank v. Henry, 159 Ala. certificate of organization, which was
367, 49 So. 97; White v. Kahn, 103 conclusive evidence of the legal or-
Ala. 308, 15 So. 595; Boiling v. Le ganization of the corporation. Con-
Grand, 87 Ala. 482, 6 So. 332; Sparks necticut & P. E. E. Co. V. Bailey, 24
V. Woodstock Iron & Steel Co., 87 Vt. 465, 58 Am. Dec. 181.
Ala. 294, 6 So. 195. 17 See Boiling v. Le Grand, 87 Ala.
This method of incorporation no 482, 6 So. 332.

longer obtains in that state. See Code The Illinois statute provides that
1907, § 3445 et seq. the report must include, "a statement
The commissioners are required to of the amount of the capital, not less
make a full report of their proceed- than one-half actually paid in, the
ings, which must be sworn to by at amount of such capital not paid in,
least a majority of the commission- what disposition has been made of
ers, and must be filed in the office of stock subscribed and not paid, and if
the secretary of state. Kurd's Eev. any proportion of the capital has been
St. 1913, c. 32, §4; J. & A. 112421; paid in property, the same shall be ap-
People V. Larsen, 265 111. 406, 106 N. praised by said commissioners and they
E. 947; McCoy v. World's Columbian shall report the fair cash value
Exposition, 186 111. 356, 78 Am. St. thereof." Kurd's Eev. St. 1913, c.
Bep. 288, 57 N. B. 1043, afE'g 87 111. 32, § 4; J. & A. f 2421; People v. Lar-
App. 605; Western Screw & Manufac- sen, 265 111. 406, 106 N. E. 947. See
turing Co. V. Cousley, 72 111. 531. also Foster v. Kip Lung Ying Kee &
In South Carolina upon payment of Co., 243 111. 163, 90 N. E. 375.
the required amount on stock subscrip- 18 Kurd's Eev. St. 1913, c. 32, §4;
tions to the treasurer of the corpora- J. & A. H 2421.
tion, or some other officer designated 19 Kurd's Eev. St. 1913, e. 32, § 4; J.
for the purpose by the subscribers, the & A. 1[ 2421; People v. Larsen, 265 111.
board of corporators, or a majority of 406, 106 N. E. 947; McCoy v. World's.

them, are required to certify to the Columbian Exposition, 186 111. 356, 78
secretary of state that the statutory Am. St. Eep. 288, 57 N. E. 1043, aflf'g
requirements have been complied with. 87 111. App. 605.
522
Ch.9] Oeganization [§ 271
a copy of the notice of the first meeting of the subscribers or cor-

porators.^"
Under some statutes the ofiScers and directors of the corporation are
required to make a certificate of organization and to file the same with
the secretary of state.''^
Statutes in some states require the corporation to make a report

of its organization to the secretary of state within a specified time
after such organization, and provide that, if it is not made within
the time required, the charter shall be void and that all persons doing
business thereunder shall be liable as partners.^* And it is also some-
times provided that no corporation shall commence business until a
majority of its directors have caused to be filed a certificate of
organization.23 And
that a certified copy of such certificate shall be
prima facie evidence that the corporation has been duly organized
and is duly authorized to exercise all of its corporate powers.^* Since
20 Hurd's Kev. St. 1913, o. 32, § 4; J. ute by making a report which is not
& A. 2421; People v. Larsen, 265 111.
11 received by the secretary of state is
406, 106 N. E. 947. not sufficient, but the incorporators
This provision is fully satisfied by must see that it is received. Eagland
including in the report a written in- V. Doolittle, 100 Miss. 498, 56 So. 445.
strument in which such notice is 23 The Connecticut statutes contain
waived. J. W. Butler Paper Co. v. such a provision. Pub. Acts 1903, c.
Cleveland, 220 111. 128, 110 Am. St. 194, § 69; Gen. St. 1902, § 3365;Chieppo
Eep. 230, 77 N. E. 99, aff'g 121 111. V. Chieppo, 88 Conn. 233, 90 Atl. 940;
App. 491. Scholfield Gear & Pulley Co. v. Schol-
21 Mass. Eev. L. 1902, c. 110, §20; field, 71 Conn. 1, 40 Atl. 1046; Canfield
Boston Acid Mfg. Co. v. Moring, 15 V. Gregory, 66 Conn. 9, 33 Atl. 536.

Gray (Mass.) 211. See also Wood v. Wiley Const. Co., 56
Under some statutes, especially in Conn. 87, 13 Atl. 137.
the case of religious and other corpo- The disability imposed by this pro-
rations having no capital stock, the vision is merely temporary, and is re-
first step in the process of incorpora- movable at the volition of the
tion is to choose directors or trustees corporation, without the consent of
and other officers, and these officers any official vested with discretionary
are then required to make and file a power. Chieppo v. Chieppo, 88 Conn.
certificate of incorporation or organ- 233, 90 Atl. 940.
ization, which takes the place of, or In Maine the president, secretary
corresponds to the articles of incorpo- and a majority of the directors are
ration required by other statutes. This required to prepare such a certificate.
is really a part of the proceedings to Eev. St. 1903, e. 47, § 8; Eichmoud Fac-
effect incorporation and has been con- tory Ass'n V. Clarke, 61 Me. 351.
sidered in the chapter dealing with 24 Conn. Pub. Acts 1903, e. 194, § 69;
that subject. See Chap. 7, supra. Gen. St. 1902, § 3365; Canfield v. Greg-
22 Miss. Code 1906, §930; Eagland ory, 66 Conn. 9, 33 Atl. 536; Wood v.
V. Doolittle, 100 Miss. 498, 56 So. 445. Wiley Const. Co., 56 Conn. 87, 13 Atl.
An attempt to comply with the stat- 137. See Chap. 14, infra.
523
§271] PKIVATE COEPOKATIONS [Cli.9
the meeting must be held and the onganization perfected before

first
such a can be filed, it follows that the corporation must have

certificate
a qualified existence for some purposes before it is filed.^^ So it may
recover for false representations made to its directors after its first
meeting and before the certificate is filed, where it has acted upon
them after such filing.^^ And it has also been held that such a provi-
sion does not operate to make contracts of a corporation made after
the approval of its certificate of incorporation and before the filing
of its certificate of organization mere nullities, and does not prevent
their enforcement against the corporation on principles of ratification
or estoppel after the certificate of organization is filed.^''
Directors who sign such a certificate are estopped to deny the truth
of the matters recited therein.^'
§272. Certificate of organization; issuing and recording. Under

some statutes upon the filing of the report of the commissioners or
corporators having charge of the organization of the corporation,^^ or
SBScholfield Gear &

Pulley Co. v. N. E. 1043, afe'g 87 111. App. 605;
Scholfield, 40 Atl. 1046;
71 Conn. 1, Loverin v. McLaughlin, 161 111. 417,
Canfield v. Gregory, 66 Conn. 9, 33 44 N. E. 99, aff'g 46 111. App. 373;
Atl. 536. Bushnell v. Consolidated Ice Mach.
26Scliolfield Gear & Pulley Co. v. Co., 138 111. 67, 27 N. E. 596; Western
Scholfield, Conn. 1, 40 Atl. 1046.
71 Screw Mfg. Co. v. Cousley, 72 111.
27 Chieppo V. Chieppo, 88 Conn. 233, 531; Standard Varnish Co. v. Jay,
90 Atl. 940. 149 m. App. 25; Hoyt v. McCallum, 102
28 Canfield v. Gregory, 66 Conn. 9, 111. App. 287; Gay v. Kohlsaat,
33 Atl. 536. 80 111. App. 178; Owen v. Shepard, 59
29 In the case of corporations for Fed. 746 (Illinois statute).
pecuniary profit, the Illinois statute In South Carolina, upon the filing
provides that upon the filing of the of the return of the board of corpora-
report of the commissioners, the sec- tors, and the payment of a recording-
retary of state shall issue a certificate fee, the secretary of state is required
of complete organization, "making a to issue a certificate, to be known as

part thereof a copy of all the papers the charter, that the corporation has
filed in his oflSce in and about the or- been fully organized according to law
ganization of the corporation, and duly and is authorized to commence busi-
authenticated under his hand and seal ness. Code 1902, § 1884.
of state." Kurd's Rev. St. 1913, c. The statutes of Alabama (Code 1876,
32, § 4; J. & A. U 2421; People v. Lar- § 1807; Code 1896, §§ 1251-1260) for-
sen, 265 111. 406, 106 N. E. 947; Gay merly provided that upon certification
V. 111. 260, 79 N. E. 77,
Kohlsaat, 223 of the facts as to the organization by
aff'g 126 App. 4, 8; Edwards v.
111. the board of corporators to the judge
Armour Packing Co., 190 111. 467, 60 of probate, the latter should issue such
N. B. 807, aff'g 90 111. App. 333; Mc- a certificate to the company. First
Coy V. World's Columbian Exposition, Nat. Bank of Decatur v. Henry, 159
186 111. 356, 78 Am. St. Eep. 288, 57 Ala. 367, 49 So. 97; State v. Webb,
524
Ch.9] Oeganizatioit [§272
the filing of a certificate of intention to incorporate by the persons

desiring to form the corporation,'" with the secretary of state or the
probate judge, that officer is required to issue a certificate of organiza-
tion. Some enactments require that this certificate be recorded
in the office of the recorder of deeds, or. other similar officer, in the
county where the principal office of the corporation is located,*^ and
110 Ala. 214, 20 So. 462; White v. 111.App. 507; Clinton Co. v. Schwarz,
Kahn, 103 Ala. 308, 15 So. 595; Boil- 175 111. App. 577; Standard Varnish
ing V. Le Grand, 87 Ala. 482, 6 So. Co. V. Jay, 149 111. App. 25; Stanwood
332; Sparks v. Woodstock Iron & Steel V. Sterling Metal Co., 107 111. App.
Co., 87 Ala. 294, 6 So. 195. This pro- 569; Seymour v. O. S. Eichardson
vision has since been abrogated, the Fueling Co., 103 111. App. 625, reversed
present law (Code 1907, § 3445 et seq.) on other grounds 205 111. 77, 68 N. E.
providing an entirely different method 716; Hoyt v. McCallum, 102 111. App.
of incorporation. 287: The Frances, 85 111.
Joliet v.
80 This provision is made by the Il- App. 243; Eicker Larkin, 27 111. App.
v.
linois statute in the case of corpora- 625. And see the following decisions
tions not for pecuniary profit. Hurd's construing the Illinois statute. Elgin
Rev. St. 1913, e. 32, §§ 29, 30; J. & A. Nat. Watch Co. v. Loveland, 132 Fed.
1[1f2447, 2448. 41; Owen v. Shepard, 59 Fed. 746;
Slit is so provided in Illinois. EoU v. St. Louis & C. Smelting &
Hurd's Eev. St. 1913, o. 32, §§4, 30; Mining Co., 52 Mo. App. 60.
J. & A. 11112421, 2448; African! Home Compliance with such provision as
Purchase & Loan Ass'n v. Carroll, 267 to recording is essential to a complete
111. 380, 108 N. E. 322; People v. Lar- organization. Eicker v. Larkin, 27

sen, 265 111. 406, 106 N. E. 947; Peo 111. App. 625.
pie V. Mackey, 255 111. 144, 99 N. E, But the corporators have done all
370; O. S. Eichardson Fueling Co. v. that is required of them when they
Seymour, 235 111. 319, 85 N. B. 496 file the certificate with the proper of-
Marshall v. Keach, 227 111. 35, 118 Am, ficer for record. Bushnell v. Consoli-
St. Eep. 247, 10 Ann. Cas. 164, 81 N. dated Ice Mach. Co., 138 111. 67, 27
E. 29; Chicago Tel. Co. v. Northwest- N. E. 596.
ern Tel. Co., 199 111. 324, 65 N. E Although the literal language of the
329, aff'g 100 111. App. 57; Edwards v, statute "would seem to demand only
Armour Packing Co., 190 111. 467, 60 a, recording of the 'copy of all pa-
N. E. 807, aff'g 90 111. App. 333 pers filed' in the oflSce of the secre-
McCoy V. World's Columbian Exposi- tary of state, yet it is the evident
tion, 186 111. 356, 78 Am. St. Eep. 288. intention to require the recording, not
57 N. A 1043, aff'g 87 111. App. 605 of the copy only/ but also of the cer-
Curtis v. Tracy, 169 111. 233, 61 Am, tificate of the secretary of which such
St. Eep. 168, 48 N". E. 399, aff'g 62 copy is a: part." Loverin v. Mc-
111. App. 49; Gade v. Forest Glen Laughlin, 161 111. 417, 44 N. E. 99,
Brick & Tile Co., 165 111. 367, 46 N. aff'g 46 111. App. 373.
111. App. 181; Western
B. 286, aff'g 55 A similar provision is found in the
Screw & Manufacturing Co. v. Cous- statutes of South Carolina. Code 1902,
ley, 72 HI. 531; Woodlawn Social En- § 1884. See Glenn v. Eosborough, 4S
tertainment Ass'n V. Anderson, 187 8. C. 272, 26 S. E. 611-
525
'
272] Peivate Corporations [Ch.9
it issometimes provided that when the same is recorded, the corpora-

tion shall bedeemed fully organized and may proceed to business.^^
It has been held that a provision of the latter character is equivalent
to a provision that the corporation shall not be deemed fully organized
and shall not be authorized to proceed to business unless and until
the certificate is so recorded.^^ But while it has been held that the
'
32 Such a provision is contained in ' The grant ' to proceed to business
the statutes of Illinois. Kurd's Eev. is plainly made to depend on such re-
St. 1913, c. 32, A.
§§4, 30; J. & cording. The prohibition to proceed
1I1f2421, 2448; People v. Liarsen, 265 to business' need not bo in express
111. 406, 106 N. E. 947; Marshall v. words. The corporation depends for
Keaeh, 2^7 111. 35, 118 Am. St. Eep. its powers upon the provisions of the
247, 10 Ann. Caa. 164, 81 N. E. 29; statute either express or implied, and
McCoy V. World's Columbian Exposi- none is granted without the record."
tion, 186 111. 356, 78 Am. St. Rep. 288, Eieker v. Larkin, 27 111. App. 625.
57 N. E. 1043, aff'g 87 111. App. 605; Eeeording is a necessary step in the
Loverin v. McLaughlin, 161 111. 417, organization of the corporation, and
44 N. E. 99, aff'g 46 111. App. 371; a condition precedent to its legal ex-
Bushnell v. Consolidated Ice Mach. istence. Elgin Nat. Watch Co. v.
Co., 138 111. 67, 27 N. E. 596; Western Loveland, 132 Fed. 41; African! Home
Screw & Manufacturing Co. v. Cous- Purchase & Loan Ass'n v. Carroll, 267
ley, 72 111. 531; Woodlawn Social En- HI. 380, 108 N. E. 322; People v. Mac-
tertainment Ass'n v. Anderson, 187 key, 255 111. 144, 99 N. E. 370; Schei-
111. App. 507; Eioker v. Larkin, 27 111. del Coil Co. v. Eose, 242 111. 484, 90
App. 625; Creswell v. Oberly, 17 111. N. E. 221; Chicago Tel. Co. v. North-
App. 281. This statute was similarly western Tel. Co., 199 111. 324, 65 N. E
construed in Elgin Nat. Watch Co. v. 329, aff'g 100 111. App. 57; Standard
Loveland, 132 Fed. 41; Owen v. Shep- Varnish Co. v. Jay, 149 111. App. 25;
ard, 59 Fed. 746. EoU V. St. Louis & Colorado Smelting
S3 Armour Packing Co.,
Edwards v. & Mining Co., 52 Mo. App. 60.
190 111. N. E. 807, aflE'g 90 111.
467, 60 Until the certificate is recorded, no
App. 333; Gade v. Forest Glen Brick authority exists for the corporation to
& Tile Co., 165 111. 367, 46 N. E. 286, proceed to business. Hamill v. Watts,
aff'g 55 HI.App. 181; Loverin v. Mc- 180 111. App. 279; J. W. Butler Paper
Laughlin, 161 111. 417, 44 N. E. 99, Co. v. Cleveland, 121 111. App. 491,
aff'g 46 111. App. 373; Elgin Nat. aff'd 220 111. 128, 110 Am. St. Eep.
Watch Co. V. Eppenstein, 1 Cir. Ct. 230.
(111.) 602.
But where everything necessary has
"It seems clear that the act of re-
been done except to file the certificate,
cording the certificate is the neces-
the corporation is in existence for all
sary and final act which gives to the
purposes incident to the completion
organization its corporate life and en-
of its organization, and its officers
dows it with its franchises and facul-
and stockholders may reduce the
ties. Until this is done, there is in
fact no corporation in esse, capable of
amount of its capital stock, and the
doing business or contracting liabili- organization may then be completed
ties." Creswell v. Oberly, 17 111. App. with the reduced capital. Gade v.
281. Forest Glen Brick & Tile Co., 165 111.
526
Ch.9] Oeganization [§272
issuance ^*and recording ^^ of the certificate are essential to a de jure

corporation, and a failure to record it may render the officers and
directors individually liable for debts contracted in the corporate
name,'® it is generally held that the fact that it is not so recorded will
not prevent the association from becoming a corporation de facto, and
is not ground for collateral attack.'' And the pretended corporation
and persons contracting with it as such may be estopped to deny its
corporate existence on the ground that no certificate was issued or
recorded."
Under some statutes the certificate is merely evidence of the fact
that the incorporation has become complete, and is not a condition
precedent to its becoming so.'^
The recording is of no effect where it is done fraudulently and

surreptitiously and contrary to the agreement of the incorporators.***
Where, under the statute, the first meeting cannot he convened nor
the certificate of complete organization be issued until the full amount
of capital has been subscribed *^ the certificate is prima facie evidence
that such subscription has been made.*^
367, 46 N. E. 286, aff'g 55 111. App. V. Sterling Metal Co., 107 111. App.
181. 569; Hoyt v. McCallum, 102 111. App.
And an ordinance granting a fran- 287; The Frances,
Joliet
v. 85
chise to a corporation is valid though 111. App. Forest Glen Brick
243;
it isintroduced before the certificate & Tile Co. V. Gade, 55 111. App.
is where it is not passed until
filed, 181, aff'd 165 111. 367, 46 N. E. 286;
after it has been filed. Chicago Tel. Creswell v. Oberly, 17 111. App. 281;
Co. V. Northwestern Tel. Co., 199 111. Elgin Nat. Watch Co. v. Eppenstein,
324, 65 N. E. 329, aff'g 100 111. App. 1 Cir. Ct. (111.) 602. See also Bushnell
57. V. Consolidated Ice Mach. Co., 138 111.
34 Gay V. Kohlsaat, 223 111. 260, 79 67, 27 N. E. 596.

N. E. 77, aff'g 126 111. App. 4, 8, 80 36 See Chap. 10, infra.
111. App. 178. 37 See Chap. 10, infra.

35 Elgin Nat. Watch Co. v. Loveland, 38 See Chap. 10 and Chap. 11, infra.
132 Fed. 41; Africani Home Purchase 39 This was held to be true in Ala-
& Loan Ass'n v. Carroll, 267 111. 380, bama under statutes, since repealed,
108 N. E. 322; People v. Mackey, 255 requiring the probate judge to issue
111. 144, 99 N. E. 370; O. S. Eichard- such a certificate. Sparks v. Wood-
son Fueling Co. v. Seymour, 235 111. stock Iron & Steel Co., 87 Ala. 294,
319, 85 N. E. 496; 103 111. App. 625, 6 So. 195.
reversed on other grounds, 205 111. 77, 40 Kicker v. Larkin, 27 111. App.
68 N. E. 716, which reverses 103 111. 625.
App. 625; Marshall v. Keach, 227 111. 41 See Chap. 40, and Chap. 17, infra.
35, 118 Am. St. Rep. 247, 10 Ann. Cas. 42 McCoy V. World's Columbian Ex-
164, 81 N. E. 29; Clinton Co. v. position, 186 111. 356, 57 N. E. 1043,

Schwarz, 175 111. App. 577; Stanwood aff'g 87 111. App. 605;
527
'
If the statement in the report of the commissioners as to the fact of

such payment is false, the organization and certificate are illegal, and
the corporation may be ousted of its franchise in a quo warreinto
proceeding instituted for that purpose by the state.*'
The action of the designated officer in issuing the certificate is neces-
sarily, to a large extent, merely ministerial,** and the fact that he
issues it is not conclusive on the question of the right of the corpora-
tion to exercise the powers enumerated in its application for incor-
poration.*^ When his duty in this regard is deemed ministerial,
mandamus will lie to compel its performance.**
43 People V. Larsen, 265 111. 406, 106 People v.

Co., 87 Ala. 294, 6 So. 195;
N. E. 947. See also State v. Webb, Chicago Gas Trust Co., 130 111. 268,
110 Ala. 214, 20 So. 462. 269, 8 L. E. A. 497, 17 Am. St. Eep.
As to the right of subscribers to 319, 22 N. E. 798.
avoid their subscriptions on this 4S See Chap. 21, infra,
ground, see Chap. 17, infra. 46 See chapter on Mandamus, infra.
44 Sparks v. Woodstock Iron & Steel
528
CHAPTER 10
De Facto Corporations
§ 273. Definition and nature.
II. DOCTKINE IN RELATION TO COLLATERAL ATTACK
§ 274. Statement of the rule.

§ 275. Statutory provisions.
§ 276. Basis of and reasons for the rule.
§ 277. Limitations of and exceptions to rule.
III. REQUISITES OP CORPORATIONS DE FACTO
§ 278. General statement.

§ 279. Lawful authority for existence of corporation — În general.
§ 280. — Organization under unconstitutional statute.
§ 281. — Corporations prohibited by or contrary to public
statute policy.
§ 282. — Organization under inapplicable statute.
§ 283. — Unauthorized consolidation.
§ 284. — Corporations organized in one to do business in or to
state evade laws
of another.
§ 285. — Expiration or forfeiture of charter.
§ 286. — Effect of ouster by state.
§ 287. Effect of fraud— Special charters.

§ 288. — Organization under general laws.
§ 289. Bona attempt to incorporate.
fide
§ 290. Compliance with provisions of statute or charter —In general.

§291. —
View that substantial compliance necessary.
§ 292. —
View that colorable compliance suficient.
§ 293. — Provisions persons who may
as to incorporate.
§ 294. — Execution of or articles certificate.
§ 295. — Contents of or
articles and certificate affidavits.
§ 296. — Corporate name.

§ 297. — Provisions as to capital stock.
§ 298. — Piling recording
or articles or certificate.
§ 299. — Payment of and deposit of

fees securities.
§ 300. — Issuance of or authorization by public

certificate officer.
§ 301. — Provisions as to organization.

§ 302. — Consolidation, reorganization and amendment.
§ 303. Assumption or user of corporate powers.
529
I Priv. Corp.—34
§ 273] Peivate Cokpoeations [Ch, 10
IV. BIGHTS AND LIABILITIES OF DE TACTO CORPOKATIONS AND THEIB MEMBERS
§ 304. In general.
§ 305. Contracts with de facto corporations.
§ 306. Ownership of property and conveyances of same.
I 307. Mortgages.
§ 308. Devises or bequests to corporation.
§ 309. Eight to exercise special franchises.
§ 310. Eight to exercise power of eminent domain.
§ 311. Eight to exercise taxing power.
§ —
312. Actions by and jigainst In general.
§ 313. —Actions by and against state.
§ 314. Torts by and against— Torts by.
§ 315. — Torts against.
§ 316. Criminal proceedings — Criminal responsibility.
§ 317. — Crimes against de facto corporations.
§ 318. Eights and of members and
liabilities —In officers general.
§ 319. — Controversies between members or members and officers.
§ 320. — on subscriptions
Liability to capital stock.
§ 321. — Statutory for corporate
liability debts.
I. GENERAL CONSIDBEATIONS
§273. Definition and nature. "The expression 'de facto corpora-

tions' is generally used to denote associations exercising corporate
powers under color of a more or less legal organization,"^ and "a
corporation de facto is in plain English a corporation in fact."^ It
Las been defined to be "a corporation from the fact of its acting as
such, though not in law or of right a corporation." ^ And also "one
where the proceedings for its organization are irregular or defective,
when, by regularity of proceedings to incorporate, it might be one
de jure. " * " It is an apparent corporate organization, asserted to be
a corporation by its members, and actually acting as such, but lack-
ing the creative fiat of the law." ^
A corporation de facto exists "where a number of persons have
organized and acted as a corporation; * * * have conducted
1 Brown v. Atlanta Eailway & Power 2 Lamkin v. Baldwin & Lamkin Mfg.
Co., 113 6a. 462, 39 S. E. 71; Cason v. Co., 72 Conn. 57, 44 L. E. A. 786, 43
State, 16 Ga. App. 820, 86 S. E. 644. Atl. 593.
"De facto" means, "of fact; in deed; 'Finnegan v. Noerenberg, 52 Minn,
in point of fact; actually; really." 239, 18 L. E. A. 778, 38 Am. St. Eep.
Jaques v. Board Sup 'rs Yuba Co. 24 552, 53 N. W. 1150.
Cal. App. 381, 141 Pac. 404. Also, 4City of Guthrie v. Wylie, 6 Okla.
"from, arising out of, or founded in 61, 55 Pac. 103.
fact." McCahon v. Leavenworth 5 In re Gibb 's Estate, 157 Pa. St. 59,
County Com'rs, 8 Kan. 437, quoting 22 L. E. A. 276, 27 Atl. 383.

Burr. L. Diet.
530
Ch. 10] De Facto Cobpobations [§ 274
their affairs, to some extent at least, by the methods and through the
oflScers usually employed by corporations, and have assumed the
appearance, at least, of the counterfeit presentment of a legal cor-
porate body."^ "not a corporation legally constituted, but a
It is
corporation organized and operated under color of law. " ' So long
as it exists, it is a reality and has a substantial, legal existence,' and
"an independent status, recognized by the law, as distinct from
that of its members. " ^ It is, as the term implies, a corporation,^"
and enjoys the status of a corporation de jure until the state ques-
tions its existence.^^
A corporation cannot act simultaneously in the dual capacity of a
corporation de jure and a corporation de facto.^*
II. DOCTRINE IN RELATION TO COLLATERAL ATTACK
§ 274. Statement of the rule. If an association assuming to act as

a corporation has been so far organized in compliance with the law
as to be a de facto corporation, the general rule is that its existence as
a corporation cannot be collaterally attacked, either by the state or
by private individuals, although its organization may have been so
irregular and defective that the state might bring a direct proceeding
against it to oust it from the exercise of corporate powers.^^
8 Martinv. Deetz, 102 Cal. 55, 41 9 Owensboro Wagon Co. v. Bliss, 132
Am. Eep. 151, 36 Pae. 368, quoted
St. Ala. 253, 90 Am. Eep. 907, 31 So.
St.
in Jaques v. Board Sup'rs Yuba Co., 81; Snider's Sons' Co. v. Troy, 91 Ala.
24 Cal. App. 381, 141 Pac. 404; Barnes 224, 11 L. E. A. 515, 24 Am. St. Eep.
V. Board Sup'rs Colusa Co., 13 Cal. 887, 8 So. 658.
App. 760, 110 Pac. 820; Eeclamation lOKleckner v. Turk, 45 Neb. 176, 63
Dist. No. 765 v. McPhee, 13 Cal. App. N. W. 469; Society Perun v. Cleve-
382, 109 Pac. 1106. See also Camp v. land, 43 Ohio St. 481, 3 N. E. 357.
Land, 122 Cal. 167, 54 Pac. 839. H Bearing Springs Townsite Co. v.
7 American Salt Co. v. Heiden- Paducah Tel. Co., —
Tex. Civ. App.
heimer, 80 Tex. 344, 26 Am. St. Eep. — 164 S. W. 50. It is to be regarded
,
743, 15 S. W. 1038. as a corporation duly formed. People

8 Marshall v. Reach, 227 111. 35, 118 v. Leonard, 106 Cal. 302, 39 Pac. 617.
Am. St. Eep. 247, 10 Ann. Cas. 164, 12 Boca & L. E. Co. v. Sierra Valleys
81 N. E. 29; Kleckner v. Turk, 45 Neb. E. Co., 2 Cal. App. 546, 84 Pac. 298.
176, 188, 63 N. W. 469; Society Perun 13 United States. D. E. Wilder
v. Cleveland, 43 Ohio St. 481, 3 N. E. Mfg. Co. v. Corn Products Eeflning
357; Beck v. Eocky Elver Village Co., 236 XT. S. 165, 59 L. Ed. 520, Ann.
School Dist., 14 Ohio N. P. 312. It Cas. 1916 A 118, aff'g 11 Ga. App. 588,
has an existence for all purposes so 75 S. E. 918; Tulare Irrigation Dist.
long as it is not questioned by a direct v. Shepard, 185 U. S. 1, 46 L. Ed. 773;
proceeding. People v. Schafer, 228 Shapleigh v. San Angelo, 167 IT. S.
111. 17, 81 N. E. 785. 646, 42 L. Ed. 310; Dallas County v.
531
§274] Pbivate Cobpokations [Ch. 10
This rule, the basis and reasons for which are discussed in a sue-
Huidekoper, 154 U. S. 654 appx., 25 Trust Co. V. Toledo, A., A. & N. M.

L. Ed. 974, aff'g 3 Dill. 171, Fed. Cas. Ry. Co., 67 Fed. 49; National Life
No. 6,850; id., 154 U. S. 655 appx., Ins. Co. of Montpelier v. Board of
25 L. Ed. 974; Baltimore & P. E. Co. Education, City of Huron, 62 Fed. 778,
V. Fifth Bapt. Church, 137 U. S. 568, certiorari denied 159 U. S. 262, 40 L.
34 L. Ed, 784; Pacific Railroad Re- Ed. 147 (mem. dec); Hyde v. Doe, 4
moval Cases, 115 IT. S. 1, 16, 29 L. Ed. Sawy. 133, Fed. Cas. No. 6,969. See
319, 324; Ralls County v. Douglass, also Harrison v. Philadelphia Contri-
105 U. S. 728, 26 L. Ed. 957; Macon butionship, etc., 171 Fed. 178, aff'd
County V. Shores, 97 U. S. 272, 24 L. 176 Fed. 323, certiorari denied 217 U.
Ed. 889; Douglass County Com'rs v. S. 603, 54 L. Ed. 898 (mem. dec.) Jones ;
Bolles, 94 U. S. 104, 24 L. Ed. 46; v. Missouri-Edison Eleo. Co., 144 Fed.

Smith V. Sheeley, 12 Wall. 358, 20 L. 765; Dental Vulcanite Co. v. Wether-
Ed. 430; Frost's Lessee v. Frostburg bee, 2 Cliff. 555, 3 Pish. Pat. Cas. 87,
Coal Co., 24 How. 278, 16 L. Ed. 637; Fed. Cas. No. 3,810.
Utah Light & Traction Co. v. United Alabama. Floyd v. State, 177 Ala.
States, 230 Fed. 343; Quinton v. Equi- 169, 59 So. 280; Rudolph v. City of
table Inv. Co., 196 Fed. 314; In re Ely ton, 161 Ala. 525, 50 So. 80;
.lackson Brick & Tile Co., 189 Fed. Planters' & Merchants' Independent
636; Goldfield Consol. Mines Co. v. Packet Co. v. Webb, 144 Ala. 666, 39
Goldfield Miners' Union No. 220, 159 So. 562; Central of Georgia R. Co. v.
Fed. 500; Knapp v. S. Jarvis Adams Union Springs & N. R. Co., 144 Ala.
Co., 135 Fed. 1008; Old Colony Trust 639, 2 L. R. A. (N. S.) 144, 39 So.
Co. V. City of "Wichita, 123 Fed. 762, 473; Owensboro Wagon Co. v. Bliss,
aff'd 132 Fed. 641; Armour v. E. 132 Ala. 253, 90 Am. St. Rep. 907, 31
Bement'a Sons, 123 Fed. 56; Eyland v. So. 81; Harris v. Gateway Land Co.,
Holliuger, 117 Fed. 216; Postal Tel. 128 Ala. 652, 29 So. 611; Christian &
Cable Co. of Montana v. Oregon Short Craft Grocery Co. v. Fruitdale Lum
Line R. Co., 114 Fed. 787; AUis Chal- ber Co., 121 Ala. So. 566
340, 25
mers Co. V. Reliable Lodge, 111 Fed. Bibb V. Hall, 101 Ala. 79,
14 So. 98
264; Manship v. New South Building Snider 's Sons' Co. v. Troy, 91 Ala
& Loan Ass'n, 110 Fed. 845; Clapp v. 224, 11 L. R. A. 515, 24 Am. St. Rep
Otoe County, 104 Fed. 473; Davis v. 887, 8 So. 658; Merchants' & Planters'
Stevens, 104 Fed. 235; Miller v. Perria Line v. Waganer, 71 Ala. 581; Central
Irrigation Dist.,9.9 Fed. 143, 92 Fed. Agr. & Mech. Ass'n v. Alabama Gold
263, 85 Fed. 693; Toledo, St. L& K. C. Life Ins. Co., 70 Ala. 120; Ex parte
R. Co. v. Continental Trust Co., 95 Moore, 62 Ala. 471; Lehman, Durr &
Fed. 497, afC'g 86 Fed. 929, 82 Fed. Co. V. Warner, 61 Ala. 455; Duke v.
642, application for certiorari denied Cahawba Nav. Co., 16 Ala. 372, 10
176 U. S. 219, 44 L. Ed. 442; American Ala. 82; Selma & T. E. Co. v. Tipton,
Steel & Wire Wire Drawers' &
Co. v. 5 Ala. 787, 39 Am. Dee. 344. See also
Die Makers' Unions Nos. 1 and 3, 90 Harris v. Nesbit, 24 Ala. 398.
Fed. 608; Speer v. Board Com'rs Arkansas. Jones v. Dodge, 97 Ark.
Kearney Co., 88 Fed. 749; Andrews v. 248, L. R. A. 1915 A 472, 133 S. W.
National Foundry & Pipe Works, 77 828; Whipple v. Tuxworth, 81 Ark.
Fed. 774, 36 L. R. A. 139; Young Re- 391, 99 S. W. 86; Town of Searcy v.
versibleLock-Nut Co. V. Young Lock- Yarnell, 47 Ark. 269, 1 S. W. 319; Nie-
Nut Co., 72 Fed. 62; Farmers' Loan &. meyer & Darragh v. Little Rock June-
532
Ch. 10] De Facto Cobpobations [§274
ceeding section of this chapter, is so well-settled that it may be
tion Ey., 43 Ark. 111. See also Granite Co., 3 Cal. App. 668, 87 Pac.
Brown v. Wyandotte & S. E.Ey. Co., 27; Boca & L. E. Co. v. Sierra Valleys
68 Ark. 134, 56 S. "W. 862. is. Co., 2 Cal. App. 546, 84 Pac. 298
Califomla. MoPhee v. Eeclamation Colorado. Union Pac. E. Co. v. Colo

Dist. No. 765, 161 Cal. 566, 119 Pac. rado Postal Tel. Cable Co., 30 Colo,
1077; Keeeh v. Joplin, 157 Cal. 1, 106 133, 97 Am. St. Eep. 106, 69 Pac. 564
Pae. 222;
• California Cured Fruit Jones v. Aspen Hardware Co., 21 Colo
Ass'n V. Stelling, 141 Cal. 713, 75 Pac. 263, 29 L. E. A. 143, 52 Am. St. Eep.
320; Eaphael Weill & Co. v. Critten- 220, 40 Pae. 457; Grand Elver Bridge
den, 139 Cal. 488, 73 Pac. 238; San Co. V. Eollins, 13 Colo. 4, 21 Pac. 897
Diego Gas Co. v. Frame, 137 Cal. 441, Duggan V. Colorado Mortgage & Invest
70 Pac. 295; People v. Linda Vista ment Co., 11 Colo. 113, 17 Pac. 105; City
Irrigation Dist., 128 Cal. 477, 61 Pac. of Denver v. Mullen, 7 Colo. 345, 3 Pac
86; Los Angeles Holiness Bank v. 693; Humphreys v, Mooney, 5 Colo
Spires, 126 Cal. 541, 58 Pae. 1049; 282; Cowell v. Colorado Springs Co.;
Hamilton v. County of San Diego, 108 3 Colo. 82, aflE'd 100 U. S. 55, 25 L,
Cal. 273, 41 Pac. 305; People v. Leon- Ed. 547; Denver & S. Ey. Co. v. Den
ard, 106 Cal. 302, 39 Pae. 617; Eecla- ver City Ey. Co., 2 Colo. 673; Crystal
mation Dist. No. 542 v. Turner, 104 Park Co. v. Morton, 27 Colo. App. 74,
Cal. 334, 37 Pac. 1038; Quint v. HofE- 146 Pac. 566. See also O'Eeilly v.
man, 103 Cal. 506, 37 Pac. 514; Mar- Noxon, 49 Colo. S62, 113 Pac. 486;
tin V. Deetz, 102 Cal. 55, 41 Am. St. Woods Gold Min. Co. v. Eoyston, 46
Eep. 151, 36 Pae. 368; Swamp Land Colo. 191, 103 Pac. 291.
Dist. No. 150 V. Silver, 98 Cal. 51, Connecticut. New Hartford Water
32 Pae. 866; Eeelamation Dist. No. Co. V. Village Water Co., 87 Conn.
124 V. Gray, 95 Cal. 601, 30 Pac. 779; 183, 87 Atl. 358; New Haven Wire Co.
First Bapt. Church of San Jos6 v. Cases, 57 Conn. 352, 394, 5 L. E. A.
Branham, 90 Cal. 22, 27 Pac. 60; Peo- 300, 18 Atl. 266.
ple V. La Eue, 67 Cal. 526, 8 Pac. 84; Delaware.Wilmington City E. Co.
Bakersfield Town Hall Ass'n v. Ches- V. Wilmington & B. S. E. Co., 8 Del.
ter, 55 Cal. 98; Dean v. Davis, 51 Cal. Ch. 468, 46 Atl. 12; City of Wilming-
406; Stockton & L. Grave'l Eoad Co. v. ton V. Addicks, 8 Del. Ch. 310, 7 Del.
Stockton &
E. Co., 45 Cal. 680;
C. Ch. 56, 43 Atl. 297.
Pacific Bank v. De Eo, 37 Cal. 538; Georgia. Brown v. Atlanta Eail-
Eondell v. Fay, 32 Cal. 354; Danne- way & Power Co., 113 Ga. 462, 39 S.
broge Gold Quartz Min. Co. v. Ailment, E. 71; Georgia Southern & F. E. Co.
26 Cal. 286; Spring Valley Water V. Mercantile Trust & Deposit Co., 94
Works v. San Francisco, 22 Cal. 434; Ga. 306, 32 L. E. A. 208, 47 Am. St.
Mokelumne Hill Canal & Mining Co. Eep. 153, 21 S. E. 701; Pattisoh v. Al-
V. Woodbury, 14 Cal. 424, 73 Am. bany Building & Loan Ass'n, 63 Ga.
Dec. Jaques v. Board Sup'rs
658; 373; Wood v. Coosa & C. B. Co., 32
Yuba 24 Cal. App. 381, 141 Pac.
Co., Ga. 273; Southern Bank v. Williams,
404; Metcalfe v. Merritt, 14 Cal. App. 25 Ga. 534; McDougald v. Lane, 18
244, 111 Pac. 505; Barnes v. Board Ga. 444; Cason v. State, 16 Ga. App.
Sup'rs Colusa Co., 13 Cal. App. 760, 820, 86 S. E. 644. See also City of
110 Pac. 820; Eeclamation Dist. No. Atlanta v. Gate City Gas Light Co.,
765 V. McPhee, 13 Cal. App. 382, 109 71 Ga. 106.
Pac. 1106; Madera E. Co. v. Eaymond Idaho. Henry Gold Min. Co. v.
533
§274] Pkivate Coepoeations [Ch. 10
reckoned among the axioms of the law. However, there is great
Henry, 25 Idaho 333, 137 Pac. 523; School Dist., 135 HI. 464, 28 N. E. 49;
Pickett V. Board County Com'rs, 24 Winget V. Quincy Building & Home-
Idaho 200, 133 Pac. 112; School Dist. stead Ass'n, 128 III. 67, 21 N. E. 12,
No. 25 V. Rice, 11 Idaho 99, 81 Pac. aff'g 29 111. App. 173; Cook County v.
155; Bellevue Water Co. v. Stocks- Chicago Industrial School for Girls,
lager, 4 Idaho 636, 43 Pac. 568; Wright 125 111. 540, 1 L. R. A. 437, 8 Am. St.
V. Kelley, 4 Idaho 624, 43 Pac. 565; Rep. 386, 18 N. E. 183; Evans v.
Boise City Canal Co. v. Pinkham, 1 Lewis, 121 lU. 478, 13 N. E. 246;
Idaho 790. Henry v. Centralia & C. R. Co., 121 111.
Illinois. Hossack v. Ottawa Devel- 264, 12 N. E. 744; Keigwin v. Drain-

opment Ass'n, 244 111. 274, 91 N. E. age Com'rs Hamilton Tp., 115 111. 347,
439; Foster v. Hip Lung Ying Kee & 5 N. E. 575; Hudson v. Green Hill
Co., 243 111. 163, 90 N. E. 375; Im- Seminary Corporation, 113 111. 618;
perial Bldg. Co. V. Chicago Open People V. School Trustees, 111 111.
Board of Trade, 238 111. 100, 87 N. E. 171; Blake v. People, 109 111. 504;
167; Smith v. Claussen Park Drainage Louisville, N. A. & C. R. Co. v. Shires,
& Levee Dist., 229 111. 155, 82 N. B. 108 111. 617; Peoria & P. U. R. Co. v.
278; Gillette v. Aurora Rya. Co., 228 Peoria & F. R. Co., 105 III. 110; Os-
111. 261, 81 N. E. 1005; People v. Soha- born V. People, 103 111. 224; Alderman
N. E. 785; Marshall
fer, 228 III. 17, 81 V. School Directors, 91 111. 179; Mix
V. Keach, 227 HI. 35, 118 Am. St. Rep. V. National Bank of Bloomington, 91
247, 10 Ann. Cas. 164, 81 N. E. 29; HI. 20, 33 Am. Rep. 44; McCarthy v.
People V. Pederson, 220 111. 554, 77 N. Lavasche, 89 111. 270, 31 Am. Rep. 83;
E. 251; Eddlenfan v. Union County People V. Trustees of Newberry's Es-
Traction & Power Co., 217 111. 409, 75 tate, 87 111. 41; Meeker v. Chicago
N. E. 510; Cleveland, C, C. & St. L. Cast-Steel Co., 84 HI. 276; Renwick v.
R. Co. V. Polecat Drain. Dist., 213 111. Hall, 84 111. 162; Trumbo v. People,
83, 72 N. E. 684; Trust
Illinois State 75 HI. 561; Cincinnati, L. & C. R. Co.
Co. V. St. Louis, I. M. & 208
S. R. Co., v. Danville & V. R. Co., 75 111. 113;
111. 419, 70 N. E. 357; People v. Dyer, Thompson v. Candor, 60 111. 244; Ket-
205 m. 575, 69 N. E. 70; Gale v. tering V. City of Jacksonville, 50 111.
Knopf, 193 111. 245, 62 N. E. 229; 39; Mitchell v. Deeds, 49 111. 416, 95
Morrison v. Forman, 177 111. 427, 53 Am. Dec. 621; Tisdale v. Town of
N. E. 73; Aldis v. South Park Com'ra, Minonk, 46 111. 9; Chiniquy v. Catho-
171 HI. 424, 49 N. E. 565; Dubs v. lic Bishop of Chicago, 41 HI. 148;
Egli, 167 111. 514, 47 N. E. 766; Coz- Stone V. Great Western Oil Co., 41 111.
zens V. Chicago Hydraulic-Press Brick 85; Baker v. Backus' Adm'r, 32 111.
Co., 166 111. 213, 46 N. E. 788, aff'g 79; Goodrich v. Reynolds, Wilder &
64 111. App. 569; Thomas v. St. Louis, Co., 31 lU. 490, 83 Am. Dec. 240; Illi-
B. & S. R. Co., 164 111. 634, 46 N. E. nois Grand Trunk R. Co. v. Cook, 29
8; Smith v. Mayfield, 163 HI. 447, 45 111. 237; Marsh v. Astoria Lodge No.
N. B. 157, aff'g 60 III. App. 266; 112, I. O. O. F., 27 m. 421; Tarbell v.
American Loan & Trust Co. v. Minne- Page, 24 111. 46; Hamilton v. Carth-
sota & N. W. R. Co., 157 111. 641, 42 age, 24 111. 22; Rice v. Rock Island &
N. E. 153; Bushnell v. Consolidated A. R. Co., 21 III. 93; Town of Men-
Ice Mach. Co., 138 111. 67, 27 N. E. dota V. Thompson, 20 111. 197; Wood-
596; School Directors Union School land Social Entertainment Ass'n v.
Dist. V. School Directors New Union Anderson, 187 111. App. 507; People
534
Ch. 10] De Facto Cokpokations [§274
difficulty regarding its applicability to the facts of each case in which
V. Citizens Tel. Co. of Pekin, Illinois, Co., 82 Ind. 417; Baker v. Neff, 73
186 App. 260; Melick
III. v. Central Ind. 68; Mullikin v. City of Bloom
Investment Co., 186 111. App. 24; ington, 72 Ind. 161; White v. State,
Brown v. Melick, 185 111. App. 3; 69 Ind. 273; Aurora & C. E. Co. v,
Nelson Chesman & Co. v. Singers, 183 Miller, 56 Ind. 88; Heaston v. Cinein
111. App. 591; Henssler v. A. G. Wiese nati & Ft. Wayne E. Co., 16 Ind. 275,
Drug Co., 133 111. App. 539; Stan- 79 Am. Dee. 430; Farmers' Ins. Co
wood V. Sterling Metal Co., 107 111. v. Borders, 26 Ind. App. 491, 60 N.
App. 569; Terry v. Chicago Packing E. 174. See also Board Com'rs Law-
& Provision Co., 105 111. App. 663; rence Co. v. Hall, 70 Ind. 469.
Lincoln Park Chapter No. 177, E. A. Iowa. Troutman v. Council Bluffs
M. V. Swatek, 105 111. App. 604, aff'd Street Fair & Carnival Co., 142 Iowa
204 111. 228, 68 N. E. 429; Joliet v. 140, 120 N. W. 730; Petty v. Hayden,
"Frances, 85 111. App. 243; Concord 115 Iowa 212, 88 N. W. 339; Town of
Apartment House Co. v. Alaska Ee- Decorah v. Gillis, 10 Iowa 234. See
frigerator Co., 78 111. App. 682. See also Cedar Eapids Water Co. v. Cedar
also Lees v. Drainage Com'rs, 125 111. Eapids, 118 Iowa 234, 91 N. W. 1081;
47, 16 N. E. 915. State V. City of Des Moines, 96 Iowa
Indiana. Louisville & N. Ey. Co. v. 521, 31 L. E. A. 186, 59Am. St. Eep.
Western U. Tel. Co. of Indiana, — 381, 65 N. W. 818.
Ind. —
110 N. E. 70; Jo^lifE v. Mun-
, Kansas. Levitt v. City of Wilson,
cie Elec.Light Co., 181 Ind. 650, 105 72 Kan. 160, 83 Pac. 397; Topeka v.
N. E. 234; Cluthe v. Evansville, Mt. Dwyer, 70 Kan. 244, 3 Ann. Cas. 239,
C. & N. E. Co., 176 Ind. 162, Ann. 78 Pac. 417; State v. Mason, 61 Kan.
Gas. 1914 A 935, 95 N. E. 543; Jen- 102, 58 Pac. 978; Atchison, T. & 8.
nings v. Dark, 175 Ind. 332, 92 N. B. F. E. Co. v. Board Com 'rs Sumner Co.,
778; Smith v. Cleveland, C, C. & St. 51 Kan. 617, 33 Pac. 312; In re Short,
L. E. Co., 170 Ind. 382, 81 N. E. 501; 47 Kan. 250, 27 Pac. 1005; School Dist.
Clark V. American Cannel Coal Co., No. 2 v. School Dist. No. 1, 45 Kan.
165 Ind. 213, 112 Am. St. Eep. 543, 26 Pac. 43; Mendenhall v. Bur-
217, 73 N. E. 1083, 35 Ind. App. 65, 73 ton, 42 Kan. 570, 22 Pac. 558; Eitchie
N. E. 727; Marion Bond Co. v. Mexi- V. Mulvane, 39 Kan. 241, 17 Pac.
can Coffee & Eubber Co., 160 Ind. 830; Chicago, K. & W. E. Co. v. Staf-
558, 65 N. E. 748; Doty v. Patterson, ford County Com'rs, 36 Kan. 121, 12
155 Ind. 60, 56 N. E. 668; Carmel Nat. Pae. 593; Atchison, T. & S. F. E. Co.
Gas & Improvement Co. v. Small, 150 v. Wilson, 33 Kan. 223, 6 Pac. 281;
Ind. 427, 50 N. E. 476, 47 N. E. 11; School Dist. No. 25 v. State, 29 Kan.
Williams v. Citizens' Ey. Co., 130 57; Eeisner v. Strong, 24 Kan. 410;
Ind. 71, 15 L. E. A. 64, 30 Am. St. Eep. Pape V. Capitol Bank, 20 Kan. 440,
201, 29 N. E. 408; Crowder v. Town 27 Am. Eep. 183; Krutz v. Paola Town
of Sullivan, 128 Ind. 486, 13 L. E. A. Co., 20Kan. 397; Voss v. Union School
647, 28 N. E. 94; North v. State, 107 Dist. No. 11, 18 Kan. 467; Hunt v.
Ind. 356, 8 N. E. 159; Hasselman v. Kansas & M. Bridge Co., 11 Kan. 412;
United States Mortgage Co., 97 Ind. Kansas Town & Land Co. v. City of
365; Williamson v. Kokomo Building Kensington, 6 Kan. App. 247, 51 Pac.
& Loan Fund Ass'n, 89 Ind. 389; How 804; McLennan v. Hopkins, 2 Kan.
V. State, 89 Ind. 249; Smelser v. App. 260, 41 Pac. 1061.
Wayne & II. Straight Line Turnpike Kentucky. Calor Oil & Gas Co. v.
535
§274] Peivate Cobpobations [Ch. 10
it is invoked. That this is trire is apparent from thfe number of cases
Franzell, 128 Ky. 715, 36 L. E. A. (N. 55, 30 L. E. A. (N. S.) 580, Ann. Cas.
S.) 456, 109 S. W. 328; Cumberland 1912 A W. 695; Bridge
1022, 127 N.
Telegraph & Telephone Co. v. Louis- St. & A. Gravel-Eoad Co. v. Hoga-
ville Home Tel. Co., 114 Ky. 892; 72 done, 150 Mich. 638, 114 N. W. 917;
S. W. 4; Johnson v. Mason Lodge No. Detroit & T. S. L. E. Co. v. Campbell,
33, I. O. O. F., 106 Ky. 838, 51 S. W. 140 Mich. 384, 103 N. W. 856; Shad-
620; "Wight v. Shelby E. Co., 16 B. ford V. Detroit, Y. & A. A. Ey., 130
Mon. 4, 63 Am. Dee. 522; Harrison v. Mich. 300, 89 N. W. 960.; Wyandotte
Lexington & F. E. Co., 9 B. Mon. Elec. Light Co. v. City of Wyandotte,
470; Gill's Adm'x v. Kentucky & C. 124 Mich. 43, 82 N. W. 821; Canal St.
Gold & Silver Min. Co., 7 Bush. 635; Gravel Eoad Co. v. Paas, 95 Mich. 372,
Hughes V. Bank of Somerset, 5 Litt. 54 N. W. 907; Chicago & G. T. Ey.
45. But see Warden v. Madisonville, Co. v. Miller, 91 Mich. 166, 51 N.
H. & E. E. Co., 125 Ky. 644, 101 S. W. 981; Nichols v. Ann Arbor & Y.
W. 914. St. Ey. Co., 87 Mich. 361, 16 L. E.
Louislaua,New Iberia Sugar Co. A. 371, 49 N. W. 538; Toledo & A. A.
V. Lagarde, 130 La. 387, 58 So. 16; E. Co. V. Johnson, 55 Mich. 456, 21
Weil V. Leopold Weil Building & Im- N. W. 888; Coe v. Gregory, 53 Mich.
provement Co., 126 La. 938, 53 So. 56. 19, 18 N. W. 541; Wilcox v. Toledo &
See also Chicago, St. L. & N. O. E. Co. A. A. E. Co., 43 Mich. 584, 5 N. W.
V. Town of Kentwood, 49 La. Ann. 1003; Merchants' & Manufacturers'
931, 22 So. 192. Bank v. Stone, 38 Mich. 779; Grand
Maine. Taylor v. Portsmouth, Kit- Eapids Bridge Co. v. Prange, 35 Mich.
tery & Y. St. E. Co., 91 Me. 193, 64 400, 24 Am. Eep. 585; Bold v. Perkins,
Am. St. Eep. 216, 39 Atl. 560; Simp- 33 Mich. 28; Clement v. Everest, 29
son V. Garland, 76 Me. 203; McClineh Mich. 19; Monroe v. Ft. Wayne, J.
V. Sturgis, 72 Me. 288. & S. E. Co., 28 Mich. 272; Swartwout
Maryland. Keene v. Van Eeuth, 48 V. Michigan Air Line E. Co., 24 Mich.
Md. 184; Laflin & Eand Powder Co. 389. See also Toledo & A. A. E. Co.
V. Sinsheimer, 46 Md. 315, 24 Am. V. Johnson, 49 Mich. 148, 13 N. W.
Eep. 522; Lord v. Essex Bldg. Ass'n 492; Montgomery v. Merrill, 18 Mich.
No. 4, 37 Md. 320; Taggart v. West- 338.
ern Maryland E. Co., 24 Md. 5.63, 89 Minnesota. St. Paul Gaslight Co. v.
Am. Dec. 760. See also Planters' Bank Village of Sandstone, 73 Minn. 225,
V. Bank of Alexandria, 10 Gill. & J. 75 N.W. 1050; State v. Board Com'rs
346; University of Maryland v. Wil- Crow Wing Co., 66 Minn. 519, 35 L.
liams, 9 Gill. & J. 365, 31 Am. Dee. E. A. 745, 73 N. W. 631, 69 N. W. 925,
72; Chesapeake & O. Canal Co. v. Bal- 68 N. W. 767; State v. Honerud, 66
timore & O. E. Co., 4 Gill. & J. 1. Minn. 32, 68 N. W. 323; Finnegan v.
Massachusetts. Butchers' & Drov- Noerenberg, 52 Minn. 239, 18 L. E.
ers' Bank of St. Louis v. McDonald, A. 778, 38 Am. St. Eep. 552, 53 N.
130 Mass. 264; Barrett v. Mead, 10 W. 1150; East Norway Lake Church
Allen 337; Appleton Mut. Fire Ins. V. Froislie, 37 Minn. 447, 35 N. W.
Co. V. Jesser, 5 Allen 446. 260; In re Minneapolis & St. L. Ey.
Michigan. Newcomb-Endicott Co. Co., 36 Minn. 481, 32 N. W. 556.
V. Fee, 167 Mich. 574, 133 N. W. 540; Mississippi. See Fargason v. Ox-
International Harvester Co. of Ameri- ford Mercantile Co., 78 Miss. 65, 27
ca V. Eaton Circuit Judge, 163 Mieh. So. 877.
536
Ch. 10] De Facto Cokpoeations [§274
m which the question has been passed upon these cases, as will be
MIssovirl. State v. Center Creek Klix V. Polish Roman Catholic SI.

Min. Co., 262 Mo. 490, 171, S. W. 356; Stanislaus Parish, 137 Mo. App. 347,
Barnes v. Missouri Valley Const. Co., 118 S. W. 1171; National Lead Co. v.
257 Mo. 175, Ann. Gas. 1915 C 34, 165 S. E. Grote Paint Store Co., 80 Mo.
S. W. 723; State v. Young, 255 Mo. App. 247; School Dist. of Agency v.
627, 164 8, W. 579; State v. Blair, 245 Wallace, 75 Mo. App. 317; Billings
Mo. 680, 151 S. "W. 148; State v. V. Dunnaway, 54 Mo. App. 1; Pierce
Woods, 233 Mo. 357, 135 S. W. 932; V. Lutesville, 25 Mo. App. 317; Staun-
State V. Miner, 233 Mo. 312, 135 S. ton Copper Min. Co. v. Thurmond, 7
W. 483; School Dist. of Columbia v. Mo. App. 587. See also Kansas City
Jones, 229 Mo. 510, 129 S. W. 528; Hotel Co. v. Hunt, 57 Mo. 126.
State V. Andrae, 216 Mo. 617, 116 S. Montana. Barnes v. Smith, 48 Mont.
W. 561; Webb
v. Rockefeller, 195 Mo. 309, 137 Pac. 541; Daily v. Marshall,
57, 6 L. R. A. (N. S.) 872, 93 S. W. 47 Mont. 377, 133 Pac. 681.
772; First Nat. Bank of Deadwood, Nebraska. Lusk v. Biggs, 70 Neb.
S. D. V. Rockefeller, 195 Mo. 15, 93 718, 102 N. W. 88; Davis' Estate v.
S. W. 761; State v. Birch, 186Mo. 205, Watkins, 56 Neb. 288, 76 N. W. 575;
85 S. W. 361; School Dist. No. 35 v. Livingston Loan & Building Ass'n v.
Hodgin, 180 Mo. 70, 79' S. W. 148; Drummond, 49 Neb. 200, 68 N. W.
Kansas City v. Stegmiller, 151 Mo. 375; Hogue v. Capital Nat. Bank of
189, 52 S. W. 723; Flynn v. City of Lincoln, 47 Neb. 929, 66 N. W. 1036;
Neosho, 114 Mo. 567, 21 S. W. 903; Kleckner v. Turk, 45 Neb. 176, 63 N.
Crenshaw v. UUman, 113 Mo. 633, 20 W. 469; Haas v. Bank of Commerce,
S. W. 1077; Finch v. UUnian, 105 Mo. 41 Neb. 754, 60 N. W. 85; State v.
255, 24 Am. St. Rep. 383, 16 S. W. 863; Whitney, 41 Neb. 613, 59 N. W. 884;
State V. Fuller, 96 Mo. ,165, 9 S. W. Lincoln Bldg. & Sav. Ass'n v. Gra-
583; Haskell v. Worthington, 94 Mo. ham, 7 Neb. 173; Abbott v. Omaha
560, 7 S. W.
481; Fredericktown v. Smelting & Refining Co., 4 Neb. 416;
Fox, 84 Mo. 59; Catholic Church v. Otoe County Fair & Driving Park
Tobbein, 82 Mo. 418; Franklin Ave. Ass'n V. Doman, 1 Neb. (UnofE.) 179.
German Sav. Inst. v. Board of Educa- Nev Hampshire. Saunders v.
tion, 75 Mo. 408; St. Louis v. Shields, Farmer, 62 N. H. 572; Haynes v.
62 Mo. 247; Smith v. Clark County, 54 Brown, 36 N. H. 545, 562; State v.
Mo. 58, 81; Ohio & M. Ry. Co. v. Mc- Carr, 5 N. H. 367.
Pherson, 35 Mo. 13, 86 Am. Dec. 123; New Jersey. Way v. American
Bank of Missouri v. Merchants ' Bank, Grease Co., 60 N. J. Eq. 263, 47 Atl.
10 Mo. 123; Atchison v. Crawford 44; Coast Co. v. Borough of Spring
County Farmers' Mut. Fire Ins. Co., Lake, 56 N. J. Eq. 615, 51 L. R. A.
192 Mo. App. 362, 180 S. W. 438; 657, 36 Atl. 21, afE'd 58 N. J. Eq. 586,
Campbell Lumber Co. v. Levee Diit. 51 L. R. A. 657, 47 Atl. 1131; Attor-
No. 4, 186 Mo. App. 371, 172 S. W. ney General v. American Tobacco Co.,
64; Rialto Co. v. Miner, 183 Mo. i.pp. 55 N. J. Eq. 352, 36 Atl. 971, aS'i 56
119, 166 S. W. 629; O'Kell v. Chama N. J. Eq. 847, 42 Atl. 1117; Kuser v.
Valley Lands & Irrigation Co., 181 Wright, 52 N. J. Eq. 825, 31 Atl. 397,
Mo. App. 466, 168 S. W. 887; Salem v. rev'g 52 N. J. Eq. 392, 28 Atl. 719;
Young, 142 Mo. App. 160, 125 S. W. Union Water Co. v. Kean, 52 N. J.
857; Stout v. St. Louis, L M. & S. B. Eq. Ill, 27 Atl 1015, rev'd on other
Co., 142 Mo App, 1, 125 S. W. 230; grounds 52 N. J. Eq. 813, 46 Am. St,
537
seen by referring to tlie note in support of the rule, ranging from the
earliest period to the present day.
Eep. 538, 31 Atl. 282; Blizabethtown Vinegar Co. v. Schlegel, 143 N. Y,

Gas-Light Co. v. Green, 46 N. J. Eq. 537, 38 N. E. 729, aff'g 67 Hun 356,
118, 18 Atl. 844, aff'd 49 N. J. Eq. 22 N. Y. Supp. 407; Lancaster v. Am-
329, 24 Atl. 560; Hackensack Water sterdam Improvement Co., 140 N. Y.
Co. V. De Kay, 36 N. J. Eq. 548; West 576, 24 L. E. A. 322, 35 N. E. 964;
Jersey B. Co. v. Cape May & 8. L. E. Phoenix Warehousing Co. v. Badger,
Co., 34 N. J. Eq. 164; National Docks 67 N. Y. 294; Buffalo & A. E. Co. v.
Ey. Co. V. Central E. Co. of New Jer- Gary, 26 N. Y. 75; Bank of Toledo v.
sey, 32 N. J. Eq. 755, rev'g 31 N. J. International Bank, 21 N. Y. 542;
Eq. 475; Attorney General v. Stevens, Methodist Episcopal Union Church v.
1 N. J. Eq. 369, 22 Am. Dec. 526; Pickett, 19 N. Y. 482, aff'g 23 Barb.
St. John the Baptist Greek Catholic 436; Eaton v. Aspinwall, 19 N. Y. 119,
Church V. Baron (N. J. Ch.), 73 Atl. aff'g 6 Duer 176; Stevens v. Episcopal
422; Bell v. Pennsylvania, 8. & N. E. Church History Co., 140 App. Div.
E. Co. (N. J. Ch.), 10 Atl. 741, 10 570, 125 N. Y. Supp. 573; Smith v.
N. J. L. J. 336; Walsh v. Thompson, Havens Belief Fund Society, 118 App.
87 N. J. L. 49, 93 Atl. 857; Sisters of Div. 678, 103 N. Y. Supp. 770, aff'g
Charity of St. Elizabeth v. Morris E. 44 Misc. 594, 90 N. Y. Supp. 168, aff'd
Co., 84 N. L. 310, 50 L. E. A. (N.
J. 190 N. Y. 557, 83 N. E. 1132; In re
S.) 236, 86 Atl. 954, aff'g82 N. j; L. Long Acre Elee. Light & Power Co.,
214, 81 Atl. 817; Philadelphia & C. 117 App. Div. 80, 102 N. Y. Supp.
Ferry Co. v. Intercity Link E. Co., 73 242; Green v. Grigg, 98 App. Div. 445,
N. 62 Atl. 184, afC'd 74 N. J.
J. L. 86, 90 N. Y. Supp. 565; Bank of Port Jef-
L. 594, 65 Atl. 1118; Keyes v. Smith, ferson V. Darling, 91 Hun 236, 36 N.
67 N. J. L. 190, 51 Atl. 122; Attorney Y. Supp. 153; Lamming v. Galusha, 81
General v. Town of Dover, 62 N. J. Hun N. Y. Supp. 767, aff'd 151
247, 30
L. 138, 41 Atl. 98; Eichman v. Adams, N. Y. 648, 45 N. E. 1132; Globe Sewer
59 N. J. L. 280, 36 Atl. 699; Eiverton Pipe Co. V. Otis, 67 Hun 652, 22 N. Y.
& P. Water Co. v. Haig, 58 N. J. L. Supp. 411; Sodus Bay & C. E. Co. v.
295, 33 Atl. 215; Mueller v. Egg Har- Hamlin, 24 Hun 390; National See.
bor City, 55 N. J. L. 245, 26 Atl. 89; U. S. Daughters of 1812 v. American
Vanneman v. Young, 52 N. J. L. 403, Surety Co. of N. Y., 56 Misc. 627, 107
20 Atl. 53; State ex rel. Steelman \. N. Y. Supp. 820; Eaisbeck v. Oster-
Viekers, 51 N. J. L. 180, 14 Am. St. richer, 4 Abb. N. Cas. 444; Persse &
Eep. 675, 17 Atl. 153; Stout v. Zulick, Brooks Paper Works v. Willett, 19
48 N. J. L. 599, 7 Atl. 362. See also Abb. Pr. 416; White v. Boss, 15 Abb.
Terhune v. Potts, 47 N, J. L. 218; Pr. 66; Buffalo City Ey. Co. v. New
State V. Patterson & H. Turnpike Co., York Cent., etc., B. Co., 22 Alb. L. J.
21 N. J. L. 9. 134; Erie County Sav. Bank v. Bald-
New Mexico. Community Ditches win, 22 Alb. L. J. 134; Dorris v.
or Acequias of Tularosa Townsite v. Sweeney, 64 Barb. 636; Van Buren v.
Tularosa Coinmunity Ditch, 16 N. M. Eeformed Church of Gansevoort, 62
750, 120 Pac. 301; Palatine Ins. Co. Barb. 495; Doyle v. Peerless Petroleum
V. Santa Fe Mercantile Co., 13 N. M. Co., 44 Barb. 239; Sands v. Hill, 42
241, 82 Pac. 363. Barb. 651, rev'd on other grounds

New York. Coxe v. State, 144 N. 55 N. Y. 18; Cooper v. Shaver, 41
Y. 396, 39 N. F,. 400; United States Barb. 151; Hyatt v. Esmond, 37 Barb.
538
Ch. 10] De Facto Cobpoeations [§274
There have been, manifold statements of the rule, varying greatly
601; Abbott v. Aspinwall, 26 Barb. 592, 122 Pac. 691; Blackwell v. City
202; Jones v. Dana, 24 Barb. 395; of Newkirk, 31 Okla. 304, Ann. Cas.
In re Arden, 1 Connolly Surr. 159, 4 1913 E 441, 121 Pac. 260.
N. Y. Supp. 177; Mechanics' Bldg. Oregon. State v. Adler, 71 Ore. 70,
Ass'n V. Stevens, 5 Duer 676. 142 Pao. 344; Tyree v. Crystal Dist.
North Caxolina. Claremont College Improvement Co., 64 Ore. 251, 126 Pac.
V. Eiddle, 165 N. C. 211, 81 S. E. 283; 605; Splonskofsky v. Minto, 62 Ore.
Daniels v. Boanoke Bailroad & Lum- 560, 126 Pac. 15; Brown v. Webb, 60
ber Co., 158 N. 0. 418, 74 S. E. 331; Ore. 526, Ann. Cas. 1914 A 148, 120
Holly Shelter R. Co. v. Newton, 133 Pac. 387; Leavengood v. McGee, SO
N. C. 132, 45 S. E. 549; Kinston & 0. Ore. 233, 91 Pac. 453; Marsters v.
K. Co. V. Stroud, 132 N. C. 413, 43 Umpqua Oil Co., 49 Ore. 374, 12 L.
S. E. 913; Boyd v. Eedd, 120 N. C. E. A. (N. S.) 825, 90 Pac. 151; Wash-
335, 58 Am. St. Kep. 792, 27 S. E. ington Nat. Building, Loan & Invest-
35; Wellington & P. E. Co. v. Cashie ment Ass'n v. Stanley, 38 Ore. 319,
& C. Eailroad & Lumber Co., 114 N, 58 L. E. A. 816, 84 Am. St. Eep. 793,
C. 690, 19 S. E. 646; Atkinson v. Ashe- 63 Pac. 489; Jones v. Hale, 32 Ore.
ville St. By. Co., 113 N. C. 581, 18 S. 465, 52 Pac. 311. See also Pairview B.
E. 254; Atlantic, T. & O. E. Co. v. Co. V. Spillman, 23 Ore. 587, 32 Pao.
Johnston, 70 N. C. 348; Wilmington, C. 688; Oregon Cent. B. Co. v. Seoggin
& E. E. Co. V. Thompson, 52 N. C. 387; 3 Ore. 161.
Wilmington & M. E. Co. v. Saunders, Pennsylvania. Curry v. Harmony
48 N. C. 126.See also Elizabeth City Elee. Co., 251 Pa. 344, 96 Atl. 822;
Academy v. Lindsey, 28 N. C. 476, 45 Burkhard v. Pennsylvania Water Co.,
Am. Dec. 500; Buncombe Turnpike 234 Pa. 41, 82 Atl. 1120; Pittsburg,
Co. V. McCarson, 1 Dev. & B. 306; S. & N. B. Co. V. Keating & S. E. Co.,
Tar Biver Nav. Co. v. Neal, 3 Hawks 233 Pa. 71, 81 Atl. 935; Andel v. Du-
520." quesne St. B. Co., 219 Pa. 635, 69 Atl.
North Dakota. Coler v. Dwight 278; Myersdale & S. St. E. Co. v. Penn-
School Tp., 3 N. D. 249, 28 L. E. A. sylvania & M. St. E. Co., 219 Pa. 558,
649, 55 N. W. 587. 69 Atl. 92; Tibby Bros. Glass Co. v.
Ohio. Society Perun v. City of Pennsylvania E. Co., 219 Pa. 430, 68
Cleveland, 43 Ohio St. 481, 3 N. E. Atl. 975; Thirteenth & Fifteenth Sts.
357; Webb v. Moler, 8 Ohio St. 548, Passenger E. Co. v. Broad St. Eapid
72 Am. Dec. 606; Dickason v. .Grafton Transit B. Co., 219 Pa. 10, 67 Atl. 901;
Sav. Bank Co., 6 Ohio Cir. Ct. (N. S.) Packard v. Thiel College, 209 Pa. 349,
329; Shawnee Commercial & Savings 58 Atl. 670; Windsor Glass Co. v. Car-
Bank Co. v. Miller, 1 Ohio Cir. Ct. (N. negie Co., 204 Pa, 459, 54 Atl. 329;
S.) 569; Fosdick v. Green, 13 Ohio Olyphant Sewage-Drainage Co. v.
Dec. 707, 1 Cine. Super. Ct. 537, rev'd Borough of Olyphant, 196 Pa. St. 553,
on other grounds 27 Ohio St. 484, 46 Atl. 896; Monongahela Bridge Co.
22 Am. Eep. 328; Benninger v. Gall, V. Pittsburg & B. Traction Co., 196
13 Ohio Dec. 581, 1 Cine. Super. Ct. Pa. St. 25, 79 Am. St. Eep. 685, 46 Atl.
331; Beck v. Eocky Biver Village 99; Com. v. Philadelphia County, 193
School Dist., 14 Ohio N. P. 312. Pa. St. 236, 44 Atl. 336; Pinkerton v.
Oklahoma. Swofford Bros. Dry Pennsylvania Traction Co., 193 Pa.
Goods Co. V. Owen, 37 Okla. 616, 133 St. 229, 44 Atl. 284; Hooven Mercan-
Pao. 193; Mitchell v. Carter, 31 Okla. tile Co. V. Evans Min. Co., 193 Pa. St.
539
in form, but it is believed that the terms in which it is given above
28, 44 Atl. 277; Com. v. Yetter, 190 Fifteenth Sts. Passenger Ey. Co. v.
Pa. St. 488, 43 Atl. 226; In re Peti- Broad St. Eapid Transit Ey. Co., 31
tion of Philadelphia & M. Ey. Co., 187 Pa. Co. Ct. 99; Pexnsylvania IVTilk
Pa. St. 123, 40 Atl. 967; In re Gibb's Producers' Ass'n v. First Nat. Bank
Estate, 157 Pa. St. 59, 22 L.. E. A. 276, of Honeybrook, 20 Pa. Co. Ct. 540;
27 Atl. 383; Hamilton v. Clarion, M. Eothschild v. Eochester & P. E. Co.,
& P. E. Co., 144 Pa. St. 34, 13 L. E. 1 Pa. Co. Ct. 620; Donaldson v. Ea-
A. 779, 23 Atl. 53; Twelfth St. Market benhold, 5 Berks Co. L. J. 282; Oly-
Co. V. Philadelphia & E. Terminal E. phant Sewage-Drainage Co. v. Oly-
Co., 142 Pa. St. 580, 21 Atl. 902, aff'g phant, 5 Lack. Leg. N. 346; White
10 Pa. Co. Ct. 25; Eliot v. Himrod, Haven Loan & Building Ass'n v. Kel-
108 Pa. St. 569, 580; Johnston v. Eliza- ley, 9 Luz. Leg. Eeg. 9; Benevolent
beth Building & Loan Ass'n, 104 Pa. Order of Active Workers v. Sanders,
St. 394; Spahr v. Farmers' Bank of 28 Wkly, Notes Cas. 321. See also
Carlisle, 94 Pa. St. 429; Becket v. Albright v. Lafayette Bldg. & Sav.
Ilniontown Building & Loan Ass'n, 88 Ass'n, 102 Pa. St. 411.
Pa. St. 211; Henry v. Deitrieh, 84 Pa. South Carolina. Atlantic Coast Line
St. 286; Garrett v. Dillsburg & M. E. E. Co. V. Epperson, 85 S. C. 134, 67 S.
Co., 78 Pa. St. 465; Cochran v. Arnold, E. 235.
58 Pa. St. 399, overruling 45 Pa. St. South Dakota. Sogers v. Penobscot
410; Dyer & Co. v. Walker, 40 Pa. St. Min. Co., 28 S. D. 72, Ann. Cas. 1914 A
157; McCully v. Pittsburgh & C. E. 1184, 132 N. W. 792; Building & Loan
Co., 32 Pa. St. 25; MeConahy v. Centre Ass'n of Dakota v. Chamberlain, 4 8.
& K. Turnpike Eoad Co., 1 Penr. & W. D. 271, 56 N. W. 897; Davis v. Stevens,
426; Centre & K. Turnpike Eoad Co. 104 Fed. 235 (construing South Dakota
V. MeConaby, 16 Serg. & E. 140; statute). See also Sioux Falls Light
Yeingst v. Philadelphia, H. & P. E. & Power Co. v. Coughran, 27 S. D. 443,
Co., 40 Pa. Super. Ct. 106; Dunmore 1 31 N. W. 504; Thomas v. Wilcox,' 18
Borough V. Seranton Ey. Co., 34 Pa. S. D. 625, 101 N. W. 1072; Wright v.
Super. Ct. 294; International Savings Lee, 2 S. D. 596, 51 N. W. 706.
& Trust Co. V. Stenger, 31 Pa. Super. Tennessee. Shields v. Clifton Hill
Ct. 294; Com. v. Philadelphia, H. & P. Land 94 Tenn. 123, 26 L. E. A.
Co.,
E. Co., 23 Pa. Super. Ct. 235; Good- 509, 45 Am. St. Eep. 700, 28 S. W.
bread V. Philadelphia, B. & B. M. 668; Greene ville & P. E. Narrow Gauge
Turnpike Co., 13 Pa. Super. Ct. 82; E. Co. V. Johnson, 8 Baxt. 332; Merri-
Chester County Gas Co. v. Merion & E. man v. Magiveny, 12 Heisk. 494; Ten-
Gas & Electric Co., 16 Pa. Dist. 214; nessee Automatic Lighting Co. v. Mas-
Hartman v. Pennsylvania Eange sey (Tenn. Ch.), 56 S. W. 35. See also
Boiler Co., 9 Pa. Dist. 560, 24 Pa. Co. La Grange & M. E. Co. v. Eainey, 7
Ct. 324; Travaglini v. Soeieta Italiane, Coldw. (47 Tenn.) 420; State v. Mer-
& Fifteenth
5 Pa. Dist. 441; Thirteenth chants' Insurance & Trust Co., 8
Sts. Passenger Ey. Co. v. Southern Humph. (27 Tenn.) 235.
Passenger Ey., 3 Pa. Dist. 337; Ger- Texas. Crabb v. Celeste Independ-
man Ins. Co. v. Strahl, 13 Phila. 512; ent School Dist., 105 Tex. 194, 39 L.
Consolidated Stock Exchange of Phila- E. A. (N. S.) 601, Ann. Cas. 1915 B
delphia, 31 Pa. Co. Ct. 226 (opinion of 1146, 146 S. W. 528; El Paso v. Euck-
attorney general on application for a man, 92 Tex. 86, 46 S. W. 25; McLeary
writ of quo warranto) ; Thirteenth & v. Dawson, 87 Tex. 524, 29 S. W. 1044;
540
,
Ch. 10] De Facto Cobpokations [§274
are sufficiently comprehensive. A brief statement is that of the
American Salt Co. v. Heidenheimer, 80 Co., 23 Utah 474, 90 Am. St. Eep. 705,
Tex. 344, 26 Am. St. Eep. 743, 15 S. 65 Pae. 735; Marsh v. Mathias, 19 Utah
W. 1038; Lum v. City of Bowie, 350, 56 Pac. 1074; Tarpey v. Deseret
(Tex.), 18 S. "W. 142; Graham v. Salt Co., 5 Utah 494, 17 Pac. 631.
City of Greenville, 67 ^x. 62, 2 S. Virginia. Shinn v. Com., 32 Gratt.
W. 742; Brennan v. City of Weather- 899. See also Dismal Swamp E. Co.
ford, 53 Tex. 330, 37 Am. Eep. 758; V. John L. Eoper Lumber Co., 114 Va.
Medlin v. Commonwealth Bonding & 537, Ann. Cas. 1914 C 641, 77 S. E. 598.
Casualty Ins. Co., Tex. Civ. App. — Washington. Kwapil v. Bell Tower
— 180 S. W. 899; Cohen v. City of
, Co., 55 Wash. 583, 104 Pac. 824; Pur-
Houston, —
Tex. Civ. App. , 176 S.
— din v. Washington Nat. Building, Loan
W. 809; Roaring Springs Townsite Co. & Investment Ass'n, 41 Wash. 395,
v. Padueah Tel. Co., Tex. Civ. App. — 83 Pac. 723; Carroll v. Pacific Nat.
— , 164 S. W. 50; Wilson v. Carter,
— Bank, 19 Wash. 639, 54 Pac. 32; State
Tex. Civ. — 161 W. 411;
App. , S. v. Superior Court of Spokane County,
Davis Parks, — Tex. Civ. App. —
V. 15 Wash. 668, 37 L. E. A. Ill, 55 Am.
157 W. 449; Conley
S. Daughters v. St. Eep. 907, 47 Pac. 31.
of Republic of Texas, — Tex. Civ. West Virginia. Board of Education
App. — 151 ,W. 877; International
S. V. Berry, 62 W. Va. 433, 125 Am. St.
& G. N. Ey. Co. Anderson County, v. Eep. 975, 59 S. E. 169; Bon Aqua Im-
— Tex. Civ. App. — 150 W. 239; , S. provement Co. V. Standard Eire Ins.
Parker Harris County Drain. Dist.
v. Co., 34 W. Va. 764, 12 S. E. 771;
No. — Tex. Civ. App. — 148
2, , S. Childs V. Hurd, 32 W. Va. 66, 98, 9
W. 351; Wilson Brown, — Tex. Civ.v. S. E. 362.
App. — 14? ,W. 639; Dillard
S. A. v. Wisconsin. Pranke v. Mann, 106
G. McAdams Lumber — Tex. Civ. Co., Wis. 118, 48 L. E. A. 856, 81 N. W.
App. — 141 ,W. 1023; Coffman
S. v. 1014; Slocum v. Head, 105 Wis. 431,
Goi-ee Independent School — Dist., 50 L. E. A. 324, 81 N. W. 673; Gilkey
Tex. Civ. App. — 141 W. 132; , S. v. Town of How, 105 Wis. 41, 49 L.
Chapman Trinity Valley & N. By.
v. K. A. 483, 81 N. W. 120; Golonbieski
Co., — Tex. Civ. App. — 138 W. , S. V. State, 101 Wis. 333, 77 N. W. 189;
441; Missouri, K. & T. E. Co. of Texas Boane Iron Co. v. Wisconsin Trust Co.,
V. Bratcher, 54 Tex. Civ. App. 10, 118 99 Wis. 273, 67 Am. St. Eep. 856, 74
S. W. 1091; City of Carthage v. Bur- N. W. 818; Independent Order of For-
ton, 51 Tex. Civ. App. 195, 111 S. W. esters V. United Order of Foresters,
440; Oriental In v. Co. v. Sline, 17 94 Wis. 234, 68 N. W. 1011; City of
Tex. Civ. App. 692, 41 S. W. 130; The Ashland v. Wheeler, 88 Wis. 607, 60
Oriental v. Barclay, 16 Tex. Civ. App. N. W. 818; Whitney v. Eobinson, 53
193, 41 8. W. 117; McCrary v. City of Wis. 309, 10 N. W. 512. See also
Comanche (Tex. Civ. App.), 34 S. W. Stedman v. City of Berlin, 97 Wis.
680; Troutman v. McClesky, 7 505, 73 N. W. 57; Strong v. McCagg,
Tex. App. 561, 27 S. W. 173.
Civ. 55 Wis. 624, 13 N. W. 895.
See also Parks v. West, 102 Tex. 11, Canada. Askew v. Manning, 38 U.
111 S. W. 726, rev'g (Tex. Civ. App.), C. Q. B. 345.
108 S. W. 466. "Acertiiicate of incorporation is-
Mitchell v. Jensen, 29 Utah
Utah. sued by the secretary of state is a
346, 81 Pac. 165; Postal Tel. Cable final determination of the corpora-
Co. of Utah V. Oregon Short Line E. tion's right to do business as such,
541
Indiana court, that "mere irregularities in organization cannot be

^* '
shown collaterally, where there is no defect of power. '
§275. Statutory provisions. In some jurisdictions the doctrine

under consideration is by express statutory provision.
established
Thus, the statutes of several states provide that the due incorpora-
tion of any company claiming in good faith to be a corporation, and
doing business as such, shall not be inquired into collaterally in any
private suit to which the de facto corporation shall be a party. ^^
and * * * thereafter, the state only, 151, 36 Pac. 368; Golden Gate Mill &
by a direct proceeding, can challenge Mining Co. v. Joshua Hendy Mach.
itscorporate existence or its right to Works, 82 Cal. 184, 23. Pac. 45; Lake-
do business as a corporation." Boat- side Ditch Co. V. Crane, 80 Cal. 181,
men's Bank v. Gillespie, 209 Mo. 217, 22 Pac. 76; Weaver ville & M. Wagon
108 S. W. 74. Eoad Co. V. Board of Sup'rs, 64 Cal.
The fact that a school district vol- 69, 28 Pac. 496; Bakersfield Town
untarily becomes a party to a suit Hall Ass'n v. Chester, 55 Cal. 98; Pa-
to enjoin the collection of school cific Bank v. De Eo, 37 Cal. 538; Oro-
taxes, inwhich the validity of its or- ville & V. E. Co. v. Plumas County,
ganization is assailed, and tenders the 37 Cal. 354; Daunebroge Gold Quartz
issue of its corporate existence, does Min. Co. V. Ailment, 26 Cal. 286; Eec-
not estop it from contending that the lamation Dist. No. 765 v. MePhee, 13
plaintiff has no right to attack its Cal. App. 382, 109 Pac. 1106; Her-
existence collaterally. Black v. Early, ring V. Modesto Irrigation Dist., 95
208 Mo. 281, 106 S. "W. 1014. But Fed. 705 (construing California stat-
where parties agree to submit the utes).
question of the legality and regular- The statute was not intended as a
ity of the organization of a corpora- curative act only, but was intended
tion to the court in a collateral as a rule for future corporations as
proceeding, they cannot thereafter well. Pacific Bank v. De Eo, 37 Cal.
question the right to do so. Ft. Dodge 538, distinguishing Harris v. McGre-
City School Dist. v. District Tp. of gor, 29 Cal. 124.
- Wahkansa, 17 Iowa 85. Montana. Eev. Code, § 3892; Barnes
14 Perkins, J., in Heaston v. Cincin- V. Smith, 48 Mont. 309, 137 Pac. 541;
nati & F. W. E. Co., 16 Ind. 275, 79 Daily v. Marshall, 47 Mont. 377, 133
Am. Dec. 430. Pac. 681.
16 California. Civ. Code, § 358; Val-
The purpose of this provision is to
lejo E. Co. V. Eeed Orchard Co.,
& N. prohibit inquiry in any private civil
169 Cal. 545, 147 Pac. 238; Eobinson
action into the question whether the
V. Blood, 151 Cal. 504, 91 Pac. 258;
ostensible corporation has a legal ex-
San Diego Gas Co. v. Frame, 137 Cal.
istence, further than to ascertain
441, 70 Pac. 295; Los Angeles Holi-
whether the requirements prescribed
ness Bank v. Spires, 126 Cal. 541,
58 Pac. 1049; People's Ditch Co.
by Eev. Code, § 3825, relative to the
preparation and filing of articles of
v. '76 Land & Water Co., (Cal.), 44
Pac. 176; People v. Leonard, 106 incorporation with the county eierk
Cal. 302, 39 Pac. 617; Martin v. and the secretary of state, and the
Deetz, 102 Cal. 55, 41 Am. St. Eep. issuance of a certificate by the lat-
542
;
Ch. 10] Db Facto Cobpobations [§275
In other statutes are contained somewhat similar provisions." Pro-
ter, have been complied with. Daily Friendship Lodge No. 5, I. O. O. F.

V. Marshall, 47 Mont. 377, 133 Pae. of Lexington, 106 Ky. 424, 50 S. W.
681. 836; Drake v. Herndon, 28 Ky. L.
Oklahoma.Rev. Laws 1910, § 1212; Eep. 1106, 91 S. W. 674.
Watton V. Cruce, 44 Okla. 186, 143 Louisiana. Act. No. 78 of 1904, § 2,
Pae. 1152; Mitchell v. Carter, 31 Okla. provides "that wherever parties have
592, 122 Pae. 691; "Western U. Tel. attempted to form a corporation and
Co. V. Mexican Agr. Land Co., 31 have executed, recorded and published
Okla. 528, Ann. Cas. 1914 C 1244, 122 the charter, all contracts made and
Pae. 505; Higbee v. .3!tna Building & acts done by such corporation shall
Loan Ass'n, 26 Okla. 327, Ann. Cas. be treated as the contracts and acts
1912 B 223, 109 Pae. 236. of valid corporations so far as affects
South Dakota. Civ. Code, § 399 the rights and obligations of the cor-
(Comp. Laws 1910, p. 39) ; Mason v. poration and its shareholders, reserv-
Stevens, 16 S. D. 320, 92 N. W. 424; ing, however, to the state the right
Building & Loan Ass'n of Dakota v. to take such proceedings as may be
Chamberlain, 4 S. D. 271, 56 N. W. authorized by law enjoin or dis-
to
897; Davia v. Stevens, 104 Fed. 235 solve said corporation if informal, or
(construing South Dakota statute). to compel the compliance by them
18 Georgia. Code 1911, § 2226, pro- with the requirements of the law in
vides that the existence of a corpo- the formation of corporations." Bond
ration claiming a charter under color & Braswell v. Seott Lumber Co., 128
of law cannot be collaterally at- La. 818, 55 So. 468; Leader Eealty Co.
tacked. V. Lakeview Land Co., 127 La. 1059,
Kentucky. Gen. St. 1873, c. 56, § 17, 54 So. 350.
provided that persons acting as a cor- Tennessee. Shannon 's Code, § 2063,
poration under the provisions of the provides that persons acting as a cor-
act "shall be presumed to be legally poration under the provisions of the
organized until the contrary is shown statute will be presumed to be legally
and no such franchise shall be de- incorporated until the contrary is
clared actually null or forfeited ex- shown, and that no such franchise
cept in a regular proceeding brought shall be declared actually null or
for that purpose." Walton v. Eiley, forfeited except in a regular proceed-
85 Ky. 413, 3 S. W. 605, overruling ing brought for the purpose. Id.,
Heinig v. Adams & Westlake Mfg. § 2026, provides that a certificate of
Co., 81 Ky. 300. This provision has registration of the application for in-
been replaced by Ky. St. 1909, § 566, corporation given by the secretary of
which provides that no corporation state, under the great seal of the
shall be permitted to set up or rely state, shall, when
registered in the
upon the want of legal organization register's ofSce of the county where
as a defense to any action against it; the principal ofllce of the company is
nor shall any person transacting busi- situated, witha facsimile of said seal,
ness with such corporation, or sued complete the formation of the com-
for injury to its property, be permit- pany as a body politic, and the va-
ted to rely upon such want of legal lidity of the same in any legal
organization as a defense. Johnson proceeding shall not be collaterally
v. Mason Lodge No. 33, L O. O. F., questioned. Carpenter v. Frazier, 102
106 Ky. 838, 51 S. W. 620; Wood v. Tenn. 462, 52 S. W. 858. Id., §2031,
543
visions of this character are merely declaratory of the existing law,^''

suppose that a de facto corporation exists,^* and do not preclude
a private person from denying the existence de jure or de facto of
an alleged corporation,^' nor render the mere allegation that a party
is a corporation conclusive so as to put the question whether it is
such a corporation beyond the reach of inquiry in a suit with a pri-

vate person.^" Moreover, to render such a provision operative, the
alleged corporation must both claim in good faith that it is such cor-
poration and must be doing business as such corporation.*^
A statute giving the courts the right of inquiry^, at the instance of
private parties, into the existence and extent ** of franchises conferred
relative to the amendment of special Co. V. Lakeview Land Co., 127 La

charters, provides that the validity 1059, 54 So. 350.
of the amendment shall not be col- 18 Davis V. Stevens, 104 Fed. 235
laterally questioned in any legal pro- Meyer v. Brunson, — S. C. — , 88 S
ceeding. Deitch V. Staub, 115 Fed. E. 359.
309. 19 McPhee v. Eeclamation Dist. No
South Carolina. Code 1902,
Civ. 765, 161 Cal. 566, 119 Pac. 1077; Mar
§§ 1885, 1906, provide that no irregu- tin V. Deetz, 102 Cal. 55, 41 Am. St
larity in complying with the provi- Eep. 151, 36 Pac. 368; Oroville & V
siotis of the statute "shall be held to E. Co. V. Plumas County, 37 Cal. 354
vitiate the incorporation until a di- Milwaukee Gold Extraction Co. v
rect proceeding to set aside and annul Gordon, 37 Mont. 209, 95 Pac. 995
the charter be instituted by the proper Meyer v. Brunson, S. C. , —
88 S —
authorities of the state; and all acts E. 359.
done and contracts entered into shall So it may be shown that there was
have the same force and effect as if no law authorizing its incorporation.
no irregularity had existed." Meyer Davis V. Stevens, 104 Fed. 235. Or
V. Brunson, — S. C. — , 88 S. E. 359; that it was organized for a purpose
Sumter Tobacco Warehouse Co. v. not authorized by law. Western U.
Phoenix Assur. Co., 76 S. C. 76, 10 Tel. Co. V. Mexican Agr. Land Co., 31
L. E. A. (N. S.) 736, l2l Am. St. Eep. Okla. 528, Ann. Cas. 1914 C 1244, 122
941, 11 Ann. Cas. 780, 56 S. E. 654. In Pac. 505.
construing this provision, the court 20 Martin v. Deetz, 102 Cal. 55, 41
in Meyer v. Brunson, supra, says: Am. St. Eep. 151, 36 Pac. 368; Oro-
"We take it the legislature meant ville & V. E. Co. V. Plumas County,
that a failure of the corporators to 37 Cal. 354; Milwaukee Gold Extrac-
comply regularly and exactly with all tion Co. V. Gordon, 37 Mont. 209, 95
the provisions of the law about the Pac. 995.
formation of corporations should not 21 Oroville & V. E. Co. v. Plumas
vitiate the charter.We think that it County, 37 Cal. 354.
did not mean that the corporators 22 Andel v. Duquesne St. E. Co., 219
might ignore the substance of the lav,^ Pa. 635, 69 Atl. 278; Myersdale & S.
and escape." St. E. Co. V. Pennsylvania & M. St.
17 Davis V. Stevens, 104 Fed. 235; E. Co., 219 Pa. 558, 69 Atl. 92; Tibby
Bond & Braswell v. Scott Lumber Co., Bros. Glass Co. v. Pennsylvania E. Co.,
128 La. 818, 55 So. 468; Leader Eealty 219 Pa. 430, 68 Atl. 975.
544
Ch. 10] Db Facto Cobpobatiows [§276
by corporate charters when the latter are set up in support of acts

injurious to the individual parties complaining, has been held not to
have the effect of permitting inquiries respecting the validity of
charters to be entertained in such proceedings.
§ 276. Basis of and reasons for the rule. The doctrine in relation
to de facto corporations and that their corporate existence cannot be
questioned in collateral proceedings is generally held to be based upon
grounds of public has been said that the reason for it

policy.^' It
'
is that if rights and franchises have been usurped they are the rights
'
and franchises of a sovereign, and he alone can interpose. Until such

interposition the public may treat those possessing and exercising cor-
porate powers under color of law as doing so rightfully. The rule is
in the interest of the public, and is essential to the safety of business
transactions with corporations."^* For "it would produce only dis-
order and confusion, embarrass and endanger the rights and interests
of all dealing with the association, if the legality of its existence coul'd
be drawn in question, in every suit to which it was a party, or in
S3Pape V. Capitol Bank, 20 Kan. "As to third parties the legality

440, 27 Am. Rep. 183; Krutz v. Paola of the corporation is avouched by
Town Co., 20 Kan. 397; State v. Board its charter from the state which re-
Com'rs Crow Wing Co., 66 Minn. 519, serves to itself the power to with-
.iS L. E. A. 745, 73 N. W. 631, 69 N. draw the franchises bestowed upon
W. 925, 68 N. W. 767; State v. Hone- evidence of fraudulent obtention or
rud, 66 Minn. 32, 68 N. W. 323; East subsequent abuse." National Lead
Norway Lake Church v. Froislie, 37 Co. v. S. E. Grote Paint Store Co., 80
Minn. 447, 35 N. W. 260; Society Mo. App. 247. It is for the state
Perun v. Cleveland, 43 Ohio St. 481, alone to question the right, in appro-
3 N. E. 357; Beck v. Rocky River Vil- priate proceedings for that purpose.
lage School Dist., 14 Ohio N. P. 312; Haas v. Bank of Commerce, 41 Neb.
Parks V. West, 102 Tex. 11, 111 S. W. 754, 60 N. W. 85.
726, rev'g (Tex. Civ. App.), 108 S. "The corporation must of necessity
AV. 466. be presumed to be rightfully in pos-
It "is founded upon the policy of session of the franchise, and right-
the common-law prohibition against fully to exercise the power, which the
unauthorized corporate action." Mil- legislative grant confers. Individual
ler v. Newburg Orrel Coal Co., 31 W. right is not invaded, if the negative
Va. 836, 13 Am. St. Rep. 903, 8 S. E. is true in fact, and there is usurpation.
600. It is the state —the —

sovereign whose
In Buffalo & A. R. Co. v. Cary, 26 rights are invaded, and whose author-
N. y. 75, it is said that "any other ity is usurped. The individual could
rule * * *
must be fraught with not create the corporation could not—
serious consequences and great public grant, define, limit its powers; and no
mischief." grant of these by the sovereign can
24 Duggan Colorado Mortg.
V. & Inv. lessen his rights. There can conse-
Co., 11 Colo. 113, 17 Pac. 105. quently be no cause of complaint by
545
I Priv. Corp. —35
'
§276] Private Coepobations [Ch. 10
which rights were involved springing out of its corporate existence. ^^ '
'
Another reason sometimes given is that the state, though it is the

party chiefly concerned, could not be heard by counsel in the col-
lateral action.**
In some of the cases, the doctrine in relation to de facto corpora-
tions has been confused with the' doctrine in relation to estoppel to
deny corporate existence, and it seems to have been assumed that the
existence of a de facto corporation may be collaterally questioned by
an individual, unless he has dealt with the association as a corpora-
*''
tion, and thereby estopped himself to deny its corporate character ;
the citizen, and no right to inquire Eock Island & A. E. Co., 21 III. 93.
whether the corporate existence is Business could not be transacted un-
—
rightful de jure, or merely color- der such circumstances. Smith v. May-
able." Lehman v. Warner, 61 Ala. field, 163 111. 447, 45 N. E. 157, aflf'g
455, quoted with approval in Snider 'a 60 111. App. 266. And to the same
Sons' Co. V. Troy, 91 Ala. 224, 11 L. eifect, see Wright
Kelley, 4 Idahov.
E. A. 515, 23 Am. St. Eep. 887, 8 So. 624, 43 Pac. 565; Black v. Early, 208
658. Mo. 281, 106 S. W. 1014; School Dist.
26 Central Agricultural & Mechani- No. 35 Hodgin, 180 Mo. 70, 79
V. S.
cal Ass'n V. Alabama Gold Life Ins. W. 148; Askew v. Manning, 38 U. C.
Co., 70 Ala. 120, quoted with approval Q. B. 345.
in Floyd v. State, 177 Ala. 169, 59 So. 26 Abbott V. Omaha Smelting & Ee-
280; Bibb v. Hall, 101 Ala. 79, 97, 14 fining Co., 4 Neb. 416.
So. 98; Calor Oil & Gas Co. v. Pran- 27 See Bates v. Wilson, 14 Colo. 140,
zell,128 Ky. 715, 36 L. E. A. (N. S.) 158, 24 Pae. 99; Wheelock v. Kost, 77
456, 109 S. "W. 328; Cumberland Tele- 111. 296.
graph & Telephone Co. v. Louisville In Butchers' & Drovers' Bank v.
Home Tel. Co., 114 Ky. 892, 72 McDonald, 130 Mass. 264, it is said
S. W. 4. that: "The
plaintiff being a corpo-
"It would be unjust and intoler- ration de facto, and the defendant
able if * * »
every interloper and having contracted with it as such, the
intruder were allowed to thus take legality of its organization cannot bo
advantage of every informality or impeached by him when sued upon his
irregularity of organization." East contract. '
Norway Lake Church v. Proislie, 37 In Sloeum v. Providence Steam &

Minn. 447, 35 N. W. 260. Gas Pipe Co., 10 E. I. 112, the court
It would be intolerable to permit an said: "We know of no rule which pre-
inquiry into the right to exercise cor- cludes inquiry into the question
porate powers in every action to which whether a company which assumes to
such body was a party, a right which act as a corporation has ever been
it for the state alone to question
is incorporated, in any case, in the ab-
in appropriate proceedings for that sence of any matter of estoppel to
purpose. Lusk v. Eiggs, 70 Neb. 718, prevent the inquiry." See also Slo-
102 N. W. 88; Haas v. Bank of Com- eum V. Warren, 10 E. I. 116; National
merce, 41 Neb. 754, 60 N. W. 85. It Mut. Fire Ins. Co. v. Yeomana, 8 E.
would lead to intolerable embarrass- L 25, 86 Am. Dec. 610.
ments and inconveniences. Eiee v.
546
but this is contrary to the weight of authority. According to most of

the cases, such corporations have a substantial legal existence,** and
the rules in relation to them do not depend upon the ground of equi-
table estoppel, but may be applicable though the elements of an
estoppel are not shown.*^
Among other cases in which it has been held that the existence of
a de facto corporation cannot be attacked, though there are no ele-
ments of estoppel, are eases in which an attack is made on the right
of a de facto corporation to condemn land under the power of emi-
nent domain,'" or to collect assessments for benefits,'^ or to build a
railroad or canal, or take tolls, or exercise the exclusive franchise of
maintaining a bridge, or water or gas works, and the like,'* or to
recover damages for injuries to its property.''
§ 277. Limitations of and exceptions to rule. To render the rule

prohibiting collateral attack applicable, the existence of the requisites
necessary to constitute a corporation de facto must be shown.'* Hence
28 See § 273, supra. not by any one else.

'
' The court thus
29 Kansas. Pape v. Capitol Bank, clearly shows that it did not intend
20 Kan. 440, 27 Am. Eep. 183; Krutz to say that any element, of estoppel
V. Paola Town Co., 20 Kan. 397. was necessary to prevent a person from
Minnesota. East Norway Lake collaterally attacking the existence of
Church v. Froislie, 37 Minn. 447, 35 a corporation de facto.
N. W. 260. New York. Buffalo & A. E. Co. v.
Nebraska. Kleckner v. Turk, 45 Gary, 26 N. Y. 75.
Neb. 176, 188, 63 N. W. 469. Ohio. Society Perun v. City of
New Jersey. In Stout v. Zulick, 48 Cleveland, 43 Ohio St. 481, 490, 3 N. E.
N. J. L. 599, 7 Atl. 362, it was said: 357; Beck v. Eocky Eiver "Village
"In the absence of a statutory provi- School Dist., 14 Ohio N. P. 312.
sion making shareholders liable in case West Virginia. Miller v. Newburg
of failure to comply with the require- Orrel Coal Co., 31 W. Va. 836, 13Am.
ments of the charter, or with the re- St. Eep. 903, 8 S. E. 600.
quirements of the act under which the "This rule is not limited to cases
company is incorporated, persons who where one by contract admits corpo-
have contracted with a de facto cor- rate existence, but it is a rule of gen-
poration, as a corporation, cannot deny eral application." Doty v. Patterson,
its corporate existence in order to 155 Ind. 60, 56 N. E. 668. But see
charge its shareholders individually as Heaston v. Cincinnati & F. W. E. Co.,
partners. ' ' Immediately afterwards, 16 Ind. 275, 79 Am. Dec. 430.
however, the court goes on to say, SO See § 310, infra.
after defining the essentials of a de 31 See § 311, infra.
facto corporation: "And it is entirely 32 See § 309, infra.

settled that the corporate existence S3 See § 315, infra.
of such corporation de facto cannot 34Stanwood v. Sterling Metal Co.,

* * *
bo inquired into collaterally. 107 111. App. 569; School Dist. of
The legality of its corporate existence Agency v. Wallace, 75 Mo. App. 317.
may be inquired into by the state, but
547
it does not preclude inquiry as to whether or not there is a corpora-

tion de facto,'* and a determination of this question may involve nec-
essarily the question of the legal right of the corporation to exist.*'
If the articles or the charter are void on the face, the court will
so declare in any proceeding to exercise corporate power claimed there-
under.*' There is not a collateral attack upon the charter under such
circumstances, but merely a holding that the articles are invalid and
of no effect and confer no corporate powers.**
"Whether or not a corporation exists which may sue or he sued,
is always open to challenge by a proper plea in an action by or against
it as such. * * * And such a plea is not regarded as a collateral

attack, hut one which challenges the very existence of the corpora-
tion and its right to sue or be sued. *® And it follows that where
'
'
the corporate existence of the plaintiff corporation is properly denied,

the burden is on it to prove its corporate existence either de jure or
de facto, or else to show an estoppel on the part of the defendant to
deny such existence.*"
So the rule as to collateral attack has no application where persons
35 Carey v. Cincinnati & C. E. Co., 38 & C. E. Co. v. Stroud, 132
Kinston
5 Iowa 357; Sisters of Charity of St. N. 43 S. E. 913.
C. 413,
Elizabeth v. Morris B. Co., 84 N. J. L. 39 Elgin Nat. Watch Co. v. Love-
310, 50 L. E. A. (N. S.) 236, 86 Atl. land, 132 Eed. 41.
954, aff'g 82 N. J. L. 214, 81 Atl. 817. The contention that the company
See also Griffin v. Clinton Line Ext never had any corporate existence may
tension E. Co., I'ed. Cas. No. 5,816; be inquired into in a collateral pro-
Mahouey v. Bank of State, 4 Ark. 620. ceeding. Carey v. Cincinnati & C. E.
"The issue of nul tiel corporation Co., 5 Iowa 357.
is upon the existence of a de facto In assumpsit against a corporation,
corporation, where one de jure is au- the plaintiff must prove that the de-
thorized. " Heaston v. Cincinnati & fendant was in fact incorporated, or
Ft. W. E. Co., 16 Ind. 275, 79 Am. that it contracted as a corporation, so
Dec. 430. as to create an estoppel. Stoddard v.
36 Sisters of Charity of St. Eliza- Onondaga Annual Conference, 12
beth V. Morris E. Co., 84 N. J. L. 310, Barb. (N. Y.) 573.
50 L. E. A. (N. S.) 236, 86 Atl. 954, 40 Schloss V. Montgomery Trade Co.,
afE'g 82 N. J. L. 214, 81 Atl. 817. 87 Ala. 411, 13 Am. St. Eep. 51, 6 So.
37 Holly Shelter E. Co. v. Newton, 360.
133 N. C. 132, 45 S. E. 549; Kinston "Before a suit can be maintained
6 C. E. Co. V. Stroud, 132 N. C. 413, by an alleged corporation, although
43 S. E. 913. So held where the ar- it may not be necessary to prove tho
ticles company showed
of a railroad legality of the existence of such cor-
on their face that the required amount poration, its actual or de facto exist-
of stock per mile had not been sub- ence must be proved, or else a state of
scribed or paid in. Kinston & C. E. facts shown which will operate to es-
Co. V. Stroud, 132 N. C. 413, 43 S. E. top the defendant from denying such
913. de facto existence. ' ' Schloss v. Mont-
548
Ch. 10] De Facto Coepokations [§277
who are sued individually seek to escape individual liability by

setting up the defense that the services were performed for a corpora-
tion. In such case the burden of proving the existence of the cor-
poration rests upon the defendants, and requiring them to prove it
does not constitute a collateral attack upon the validity of the cor-
poration by the plaintiff.*^ Nor does the rule whereby corporations
are upheld as de facto corporations where they have exercised acts of
user apply in a proceeding in which it seeks to be invested with cor-
porate and functions, as, for example, in a proceeding by a rail-
life
road company to obtain from the board of railroad commissioners a
certificate that public convenience and necessity require the construc-
tion of its proposed road. At that time it is subject to inspection for
the very purpose of determining whether as a legal body,
it exists
and the certificate may
be refused on the ground that the statutory
provisions relative to incorporation have not been complied with.**
'
There is also an obvious distinction between a challenge to the cor-
'
porate existence and a challenge to the power which may be exercised

by the corporation, whether it be a de facto or de jure corporation.
In the former ease the general rule is * * * that the corporate
existence may not be attacked collaterally; but it has always been
gomery Trade Co., 87 Ala. 411, 13 Am. this is denied in the answer, the bur-
St. Rep. 51, 6 So. 360. den on the plaintiff to prove that
is
Though ordinarily the right to ques- fact. Goodale Lumber Co. v. Shaw,
tion the exercise of corporate powers 41 Ore. 544, 69 Pac. 546; Columbia
is with the state and cannot be raised Valley Trust Co. v. Smith, 56 Ore. 6,
collaterally, "a denial of corporate 107 Pac. 465.
existence in an answer requires some «Owen V. Shepard, 59 Fed. 746.
proof on the part of the plaintiff. This 42 As, for example, that the re-
may be furnished by the introduction quired amount of the subscriptions to
of a charter and evidence of its ac- the stock has not been paid in cash.
ceptance, by evidence of the exercise In re Kings, Q. & S. E. Co., 6 N. T.
of the powers of a corporation for a App. Div. 241, 39 N. Y. Supp. 1004.
long time without objection, by estop- See also In re Wood, 99 N. Y. App.
pel, and in other ways." Daniels v. Div. 334, 91 N. Y. Supp. 225, aff'd 181
Eoanoke Railroad & Lumber Co., 158 N. Y. 93, 73 N. E. 561; People v. Board
N. C. 418, 74 S. E. 331. of Eailroad Com'rs, 81 N. Y. App.
If the plaintiff 's corporate existence Div. 242, 81 N. Y. Supp. 20, aff'd 175
is properly denied, the plaintiff must N. Y. 516, 67 N. E. 1088. Or that the
prove it, and if no evidence is of- certificate of incorporation is not
fered on that issue, a judgment in piroperly acknowledged. People v.
favor of the plaintiff will be reversed. Board of Eailroad Com'rs, 105 N. Y.
Hartford Fire Ina. Co. v. Central E. App. Div. 273, 93 N. Y. Supp. 584, 7S
E. of Oregon, 74 Ore. 144, 144 Pac. N. Y. App. Div. 106, 77 N. Y. Supp.
417. So where the complaint alleges 380.
that the plaintiff is a corporation, and
549
held that the ultra vires acts of the corporation may be thus chal-
lenged, often by the corporation itself. And this rule would apply
as well to a de facto corporation as to one de jure. ^
'
'
There is no such thing in law as a de facto power.** So a conten-

tion by heirs of a deceased person that corporations to whom he devised
land are religious corporations and hence cannot take such property
is not a collateral attack on the existence of such corporations.**
Since the rule with reference to de facto corporations and col-
lateral attack on their existence is founded on public policy,*^ it will
not be so applied as to defeat the assertion of just, legal rights by
parties in the courts.*' And it has been said that even where the
conditions requisite to the existence of a de facto corporation are ful-
filled, the courts will allow enjoyment of the corporate franchise with-
out a substantial compliance with the statutory requirements as to
incorporation only where considerations of equitable estoppel or of
public policy justify it.*'
In Rhode Island the doctrine relative to collateral attack appears

to have been entirely repudiated.*^ And statutes sometimes expressly
permit inquiries respecting the validity of the charter to be made in
other proceedings than by an action in the name of the state.*"
43 Boca & L. K. Co. v. Sierra Val- which precludes inquiry into the ques-
leys E. Co., 2 Cal. App. 546, 84 Pae. tion, whether a company which as-
298. And see Lehman, Durr & Co. v. sumea to act as a corporation has
Warner, 61 Ala. 455, 467. ever been incorporated, in any ease, in
14 Boca & L. E. Co. v. Sierra Val- the absence of any matter of estoppel
leys E. Co., 2 Cal. App. 546, 84 Pae. to prevent the inquiry." And it was
298. held that, unless an estoppel was
45 Proctor V. Board of Trustees M. shown, the defendant might take
E. Church, 225 Mo. 51, 123 S. W. 862. advantage of noncompliance with a
See also People v. Dyer, 205 111. 575, statute providing that no act of in-
69 N. E. 70; In re McGraw's Estate, corporation shall "take effect until
111 N. Y. 66, 2 L. E. A. 387, 19 N. E. the persons therein incorporated shall
233. have paid to the general treasurer
46 See § 275, supra. the sum of one hundred dollars. '
It '
47 Parks v. West, 102 Tex. 11, 111 is to be noted, however, that it was
S. W. 726, rev'g (Tex. Civ. App.), 108 also held that the defendant was es-
S. W. 466. topped, and hence that the above
American Ball Bearing Co. v.
48 quoted statement was not necessary
Adams, 222 Fed. 967. to a decision. See also, in this con-
49 In Slocum V. Providence Steam nection, Slocum v. Warren, 10 E. 1.
& Gas Pipe Co., 10 E. I. 112, which was 116; National Mut. Fire Ins. Co. v.
an action by creditors to enforce the Yeomans, 8 E. I. 25.
individual liability of stockholders, *" See § 275, supra,
the court said: "We know of no rule

550
Ch. 10] De Facto Coepobations [§ 278
m. REQUISITES OP CORPORATIONS DE FACTO
§278. General statement. There has been so much conflict in

the decisions of the different courts with respect to what is sufficient
to give a body of men the status of a de facto corporation, that it is
difficult to formulate definite rules on the subject which will apply in
all the states. On some points, the decisions in the different states
are in direct conflict. Indeed, on some points it is difficult, if not
impossible, to reconcile the decisions in the same state. As we shall
see in the following paragraphs, some courts have lêld that there
may be a corporation de facto without ra valid law authorizing it.
Some have held, or seem to have held, that it is not necessary that
there shall have been under
any organization or attempt to organize
the law, but that mere user of corporate powers Some, is sufficient.
while requiring an attempt to organize, have held that there need not
be even a colorable compliance with conditions precedent prescribed
by the legislature and others have held that all conditions precedent
;
must be substantially complied with. The rule laid down by a ma-

jority of decisions seems to be that the essential requisites of a de
facto corporation are First, the existence of a charter or law under
:
which a corporation with the powers assumed might lawfully exist;

second, an effort in good faith to incorporate thereunder and third, ;
an actual user or exercise of corporate powers and that there is such

;
a corporation when the existence of these requisites is shown, not-

withstanding irregularities or defects in the organization, or a fail-
ure to comply in all respects with the provisions of the charter or
statute.*^
Bl United Sta,tes. Tulare Irrigation Arkansas. Bainwater v. Childress,

Dist. V. Shepard, 185 TJ. S. 1, 46 L. Ed. — Ark. — , 182 S. W. 280; Bank of
773; Baltimore & P. E. Co. v. Fifth Midland v. Harris, 114 Ark. 344, Ann.
Baptist Church, 137 U. S. 568, 34 L. Cas. 1916 B 1255, 170 S. "W. 67; Hears
Ed. 784; Whitney v. Wyman, 101 U. v. State, 84 Ark. 136, 104 S. W. 1095;
S. 392, 25 L. Ed. 1050; Commissioners Whipple v. Tuxworth, 81 Ark. 391,
of Douglass Co. v. Bolles, 94 U. S. 104, 99 S. W. 86. See also Steele v. Hughes,
24 L. Ed. 46; Utah Light & Traction 104 Ark. 517, 149 S. W. 336.
Co. V. United States, 230 Fed. 343; California. People's Ditch Co. v.
Allen V. Rhodes, 230 Fed. 321; Ameri- '76 Land & Water Co. (Cal.), 44 Pac.
can Ball Bearing Co. v. Adams, 222 176; Hamilton v. San Diego County,
Fed. 967; In re Cordova Shop, 216 108 Cal. 273, 41 Pae. 305; People v.
Fed. 818. See also Toledo, St. L. & K. La Rue, 67 Cal. 526, 8 Pac. 84; Jaques
C. E. Co. V. Continental Trust Co., 95 v. Board Sup 'rs Tuba Co., 24 Cal. App.
Fed. 497, aff'g 86 Fed. 929, 82 Fed. 381, 141 Pae. 404. See also Stockton
642, application for certiorari denied & L. Gravel Road Co. v. Stockton &
176 U.. S. 219, 44 L. Ed. 442. C. R. Co., 45 Cal. 680.
553
§278] Pkivate Coepobations [Ch. 10
By some of the eases is added as a fourth requisite a colorahle or
Colorado. Jones v. Aapen Hard- Lodge No. 112, I. O. O. F., 27 111. 421;
ware Co., 21 Colo. 263, 29 L. E. A. 143, Dean & Son v. W. B. Conkey Co., 180
52 Am. St. Eep. 220, 40 Pae. 457; App. 162; Clinton Co. v. Schwarz,
111.
BatesV. Wilson, 14 Colo. 140, 24 Pae. 175111. App. 577; Stanwood v. Sterling
99; Buggan v. Colorado Mortg. & In v. Metal Co., 107 111. App. 569; Joliet v.
Co., 11 Colo. 113, 17 Pae. 105; Cowell Frances, 85 111. App. 243; Edwards v.
V. Colorado Springs Co., 3 Colo. 82, Cleveland Dryer Co., 83 111. App. 643;
aff'd 100 U. S. 55, 25 L. Ed. 547. Concord Apartment House Co. v.
Connecticut. State v. Byrne, 45 Alaska Refrigerator Co., 78 111. App.
Conn. 273. See also New York, B. & 682.
E. E. Co. V. Motil, 81 Conn. 466, 71 Indiana. Jennings v. Dark, 175 Ind.
Atl. 563; Lamkin v. Baldwin & Lam- 332, 92 N. E. 778; Clark v. American
kin Mfg. Co., 72 Conn. 57, 44 L. E. Cannel Coal Co., 165 Ind. 213, 112 Am.
A. 786, 43 Atl. 593. St. Eep. 217, 73 N. E. 1083, 35 Ind.
Delaware. City of Wilmington v. App. 65, 73 N. E. 727; Marion Bond
Addicks, 8 Del. Ch. 310, 43 Atl. 297. Co. V. Mexican Coffee & Eubber Co.,
Georgia. McEee v. Quitman Oil 160 Ind. 558, 65 N. E. 748; Doty v.
Co., 16 Ga. App. 12, 84 8. E. 487. Patterson, 155 Ind. 60, 56 N. E. 668;
Idaho. Fairview Inv. Co. v. Lamber- Crowder v. Town of Sullivan, 128 Ind.
Bon, 25 Idaho 72, 136 Pae. 606; Pick- 486, 13 L. E. A. 647, 28 N. E. 94;
ett V. Board of County Com'rs, 24 Harter v. Eltzroth, 111 Ind. 159, 12
Idaho 200, 133 Pae. 112. See also N. E. 129; North v. State, 107 Ind.
School Dist. No. 25 v. Eice, 11 Idaho 356, 8 N. E. 159; Hasselman v. United
99, 81 Pae. 155. States Mortg. Co., 97 Ind. 365; Wil-
Illinois. Imperial Bldg. Co. v. Chi- liamson V. Kokomo Building & Loan
cago Open Board of Trade, 238 111. Fund Ass'n, 89 Ind. 389; Hon v. State,
100, 87 N. E. 167, aff'g 136 111. App. 89 Ind. 249; Smelser v. Wayne & U.
006; Gillette v. Aurora Eys. Co., 228 Straight Line Turnpike Co., 82 Ind.
111. 261, 81 N. E. 1005; People v. Scha- 417; Baker v. Neff, 73 Ind. 68; Mulli-
fer, 228 111. 17, 81 N. E. 785; Marshall kin V. City of Bloomington, 72 Ind.
V. Keaeh, 227 111. 35, 118 Am. St. Eep. 161; Shafer v. Moriarty, 46 Ind. 9;
247, 10 Ann. Cas. 164, 81 N. E. 29; Farmers' Mutual v. Eeser, 43 Ind.
People V. Pederson, 220 III. 554, 77 App. 634, 88 N. E. 349; Cleveland, C,
N. E. 251; Cozzens v. Chicago Hy- C. & St. L. E. Co. V. Feight, 41 Ind.
draulic Press Brick Co., 166 111. 213, App. 416, 84 N. E. 15; Huntington
46 N. B. 788, aff'g 64 111. App. 569; Mfg. Co. V. Sehofield, 28 Ind. App.
American Loan & Trust Co. v. Minne- 95, 62 N. E. 106. See also Ewing v.
sota & N. W. E. Co., 157 in. 641, 42 Eobeson, 15 Ind. 26.
N. E. 153; Hudson v. Green Hill Semi- Kansas. Levitt v. City of Wilson,
nary Corporation, 113 111. 618; Blake 72 Kan. 160, 83 Pae. 397; Topeka v.
V. People, 109 111. 504; Cincinnati, L. Dwyer, 70 Kan. 244, 3 Ann. Cas. 239,
& C. E. Co. V. Danville & V. E. Co., 78 Pae. 417; State v. Mason, 61 Kan.
75 111. 113; Willard v. Methodist Epis- 102, 58 Pae. 978; School Dist. No. 2
copal Church of Eockville Centre, 66 V. School Dist. No. 1, 45 Kan. 543, 26
HI. 55; Thompson v. Candor, 60 111. Pae. 43. See also Eitehie v. Mulvane,
244; Mitchell v. Deeds, 49 111. 416, 39 Kan. 241, 17 Pae. 830 (holding that
95 Am. Dee. 621; Marsh v. Astoria certain territory was de-facto a part
552
apparent compliance with such requirements of the charter or law
of a city); Atchison, T. & S. F. R. Co. Norway Lake Church v. Froislie, 37

V. Wilson, 33 Kan. 223, 6 Pae. 281; Minn. 447, 35 N. W. 260.
School Dist. No. 25 v. State, 29 Kan. Missouri. Eialto Co. v. Miner, 183
57; Massey v. Citizens Bldg. & Sav. Mo. App. 119, 166 S. W. 629.
Ass'n, 22 Kan. 624; Pape v. Capitol Montana. Milwaukee Gold Extrac-
Bank, 20 Kan. 440, 27 Am. Eep. 183; tion Co. v. Gordon, 37 Mont. 209, 95
Kansas Town & Land Co. v. City of Pac. 995.
Kensington, 6 Kan. App. 247, 51 Pac. Nebraska. Lusk v. Riggs, 70 Neb.
804; McLennan v. Hopkins, 2 Kan. 718, 102 N. W. 88; Haas v. Bank of
App. 260, 41 Pac. 1061. Commerce, 41 Neb. N. W.
754, 757, 60
Louisiana. Bond & Braswell v. 85. See also Porter v. Sherman Coun-
Scott Lumber Co., 128 La. 818, 55 So. ty Banking Co., 36 Neb. 271, 54 N. W.
468; Leader Eealty Co. v. Lakeview 424.
Land 127 La. 1059, 54 So. 850;
Co., New Jersey. McCarter v. Keteham,
Weil V. Leopold Weil Building & Im- 72 N. J. L. 247, 62 Atl. 693; Keyes v.
provement Co., 126 La. 938, 53 So. 56. Smith, 67 N. J. L. 190, 51 Atl. 122;
Maryland. Keene v. Van Eeuth, 48 Vanneman v. Young, 52 N. J. L. 403,
Md. 184; Laflin & Band Powder Co. 20 Atl. 53; In re Trenton St. R.
V. Sinsheimer, 46 Md. 315, 24 Am. Eep. Co. (N. J. Eq.), 47 Atl. 819; Way v.
522. American Grease Co., 60 N. J. Eq. 263,
Massachusetts. Montgomery v. 47 Atl. 44.
Forbes, 148 Mass. 249, 19 N. E. 342; New York. Leonardsville Bank v.
Barrett v. Mead, 10 Allen 337. See Willard, 25 N. Y. 574; Eaton v. Aspin-
alsoPackard v. Old Colony E. Co., 168 wall, 19 N. Y. 119, aff'g 6 Duer
Mass. 92, 46 N. E. 433; Merchants' 176; Welch v. Old Dominion Min.
Nat. Bank v. Glendon Co., 120 Mass. & Ey. Co., 56 Hun 650, 10 N. Y. Supp.
97. 174; Buffalo City Ry. Co. v. New
Michigan. Newcomb-Endicott Co. York Cent., etc., R. Co., 22 Alb. L. J.
V. Pee, 167 Mich. 574, 133 N. W. 540; 134; Dorris v. Sweeney, 64 Barb. 636;
People V. Carter, 122 Mich. 668, 81 N. Hyatt V. Esmond, 37 Barb. 601.
W. 924; Eaton v. Walker, 76 Mich. North Carolina. Claremont College
579, 6 L. E. A. 102, 43 N. W. 638; Mer- V. Riddle, 165 N. C. 211, 81 S. E. 283;
chants' & Manufacturers' Bank v. Wilmington & M. R. Co. v. Saunders,
Stone, 38 Mich. 779; Clement v. Ever- 48 N. C. 126.
est,29 Mich. 19; Monroe v. Ft. Wayne, Ohio. Society Perun v. Cleveland,
J. & S. E. Co., 28 Mich. 272; Swart- 43 Ohio St. 481, 3 N. E. 357; Gaff v.
wout V. Michigan Air Line E. Co., 24 Flesher, 33 Ohio St. 107, 453; State
Mich. 389. V. Toledo & L. C. Burial Ass 'n, 8 Ohio
Minnesota. Healey v. Steele Center Cir. Ct. (N. S.) 233; Shawnee Commer-
Creamery Ass'n, 115 Minn. 451, 133 cial & Savings Bank Co. v. Miller, 1
N. W. 69; St. Paul Gaslight Co. v. Ohio Cir. Ct. (N. S.) 569; Union Trust
Village of Sandstone, 73 Minn. 225, 75 Co. V. New York, C. & St. L. R. Co., 9
N. W. 1050; Johnson v. Okerstrom, 70 Ohio Dec. 773. See also Hagerman v.
Minn. 303, 73 N. W. 147; Hause v. Ohio Bldg. & Sav. Ass'n, 25 Ohio St.
Mannheimer, 67 Minn. 194, 69 N. W. 186.
810; Finnegan v. Noerenberg, 52 Oklahoma. Swofford Bros. Dry
Minn. 239, 18 L. E. A. 778, 38 Am. St. Goods Co. V. Owen, 37 Okla. 616, 133
Rep. 552, 53 N. W. 1150. See also East Pae. 193; Mitchell v. Carter, 31 Okla.
553
,
278] Peivate Cobpobations [Ck 10
as are intended by the legislature to be conditions precedent to cor-
592, 122 Pac. 691; Guthrie v. Wylie, Vermont. Vermont Mining & Quar-
6 Okla. 61, 55 Pae. 103. rying Co. V. Windham County Bank,
Oregon. Splonskofsky v. Minto, 62 44 Vt. 489.
Ore. 560, 123 Pac. 15; Brown v. Webb, Washington. Bash v. Culver Gold
60 Ore. 526, Ann. Gas. 1914 A 148, 120 Min. Co., 7 Wash. 122, 34 Pac. 462.
Pac. 387; Leavengood v. McGee, 50 West Virginia. Board of Education
Ore. 233, 91 Pae. 453; Marsters v. V. Berry, 62 W. Va. 433, 125 Am. St.
Umpqua Oil Co., 49 Ore. 374, 12 L. E. Eep. 975, 59 S. E. 169; Bon Aqua Im-
A. (N. S.) 825, 90 Pac. 151; Washing- provement Co. V. Standard Fire Ins.
ton Nat. Building, Loan & Investment Co., 34 W. Va. 764, 12 S. E. 771.
Ass'n V. Stanley, 38 Ore. 319, 58 L. Wisconsin. Gilman v. Druse, 111

E. A. 816, 84 Am. St. Eep. 793, 63 Wis. 400, 87 N. W. 557; Franke v.
Pac. 489; State v. Savage, 36 Ore. Mann, 106 Wis. 118, 48 L. E. A. 856,
191, 61 Pac. 1128, 60 Pac. 610; Jones 81 N. W. 1014; Gilkey v. Town of
V. Hale, 32 Ore. 465, 52 Pac. 311. How, 105 Wis. 41, 49 L. E. A. 483, 81
N. W. 120. See also Stedman v. City
PennsylvSinla. In re Gibb's Estate,
of Berlin, 97 Wis. 505, 73 N. W. 57;
157 Pa. St. 59, 22 L. E. A. 276, 27 Atl.
Evenson v. Ellingson, 67 Wis. 634,
383.
31 N. W. 342.
Bhode Island, Providence Pire & A de facto corporation exists where
Marine Ins., Co. v. Murphy, 8 E. I. 131.
an association of persons to whom
South Dakota. Mason v. Stevens, the sovereign has offered a franchise
16 S. D. 320, 92 N. W. 424; State v. has "done acts indicating a purpose
Stevens, 16 S. D. 309, 92 N. W. 420. to accept such offer and effected an or-
See also Merchants' Nat. Bank v. Me- ganization designated to be, but in
Kinney, 2 S. D. 106, 48 N. W. 841 (as fact not, in substantial conformity
to de facto county). with its terms." Mackay v. New
Tennessee. Tennessee Automatic York, N. H. & H. E. Co., 82 Conn. 73,
Lighting Co. v.Massey (Tenn. Ch.), 24 L. E. A. (N. S.) 768, 72 Atl. 583.
56 S. W. 35; Merriman v. Magiveny, '
Any actual organization of a munici-
'
12 Heisk. 494. pality in the ostensible possession and

Texas. HcLeary v. Dawson, 87 in the exercise of municipal powevs ia
Tex. 524, 29 8. W. 1044, rev'g (Tex. a de facto corporation." Salem v.
Civ. App.), 25 S. W. 705; Cohen v. Young, 142 Mo. App. 160, 125 S. W.
City of Houston, —
Tex. Civ. App. — 857. To the same effect see Pierce v.
176 S. W. 809 (as to de facto munici- Lutesville, 25 Mo. App. 317. Proof
pal corporations); Eoaring Springs that defendant was known and trans-
Townsite Co. v. Paducah Tel. Co., — acted business as a corporation was
Tex. Civ. App. —

, 164 S. W. 50; Wil-
held sufficient to show that it was a
son V. Carter, —
Tex. Civ. App. — de facto corporation, in Patton & Gib-
161 S. W. 411; Wilson v. Brown, — son Co. v. Shreve & Kelso, 134 111.
App. 271.
Tex. Civ. App. — , 145 S. W. 639; City
In United States Mortg. Co. v.
of Carthage v. Burton, 51 Tex. Civ.
McClure, 42 Ore. 190, 70 Pac. 543,
App. 195, 111 S. W. 440.
v^rit of errordismissed 197 U. S. 624,
Utah. Mitchell v. Jensen, 29 Utah 49 L. Ed. 911 (mem. dec), it is held
346, 81 Pac. 165; Tarpey v. Deseret that the production of a duly authen-
Salt Co., 5 Utah 494, 17 Pac. 631. ticated copy of the special charter of
554
Ch. 10] Db Facto Cobpoeations [§278
porate existence ;
*^ or state that the essentials are a charter or law
under which such a corporation could exist with the powers it assumes
to exercise, a colorable compliance with its requirements and a user
of the rights claimed under it, or hold that a de facto corporation
exists when these facts are shown ;
^' or where there is an exercise and
a foreign corporation plaintiff, with — , 182 S. W. 280; Steele v. Hughes,

proof of user, was prima faeie suf- 104 Ark. 517, 149 S. W. 336; Whipple
ficient to establish its corporate exist- v. Tuxworth, 81 Ark. 391, 99 S. W.
ence, and to show that the conditions where both rules are stated.
86,
precedent to the assumption of the would appear that this require-
It
power conferred had been complied ment is intended to be included in the
with, and that the defendant was requirement that there must have
thereby put to his proof to overcome been a bona flde efEort to incorporate
the case thus made. under the law, for there could hardly
In the case of corporations created be a bona fide effort to comply with a
by special acts of the legislature, it law unless there was at least a color-
has been held in a number of eases able compliance with its provisions.
that to show the charter or act creat- And at least a colorable compliance
ing the corporation and user is at least with the provisions of the statute or
prima facie sufl&cient. charter is required even in those
Illinois. East St. Louis & C. E. Co. states where it is not specifically
V. Belleville City E. Co., 159 111. 544, enumerated in stating the essential
42 N. E. 974. requisites of such corporations. See
Maine. Penobscot Boom Corpora- cases cited in preceding note, and
tion V. Lamson, 16 Me. 224, 33 L. E. also § 292, infra.
A. 656. 63 United States. Upton v. Hans-
Massachusetts. Com. v. Bakeman, brough, 3 Biss. 417, Eed. Cas. No.
105 Mass. 53; Appleton Mut. Eire Ins. 16,801.
Co. V. Jesser, 5 Allen 446. Alabama. Cory v. Lee, 93 Ala. 468,
Michigan. Way v. Billings, 2 Mich. 8 So. 694; Snider Sons' Co. v. Troy,
's
397. 91 Ala. 224, 11 L. E. A. 515, 24 Am.

New York. McFarlan v. Triton Ins. St. Eep. 887, 8 So. 658. See also
Co., 4 Denio 392; United States Bank Selma & T. E. Co. v. Tipton, 5 Ala.
v. Stearns, 15 Wend. 314; Williams 787, 39 Am. Dec. 344.
v. Bank of Michigan, 7 Wend. 539; Georgia. Brooke v. Day, 129 Ga.
Utica Ins. Co. v. Cadwell, 3 Wend. 694, 59 S. E. 769; Brown v. Atlanta
296; Utica Ins. Co. v. Tilman, 1 Wend. Eailway & Power
Co., 113 Ga. 462, 39
555. S. E. 71;Georgia Southern & F. E. Co.
Vermont. Montpelier & W. E. E. V. Mercantile Trust & Deposit Co., 94
Co. V. Langdon, 46 Vt. 284; Sears- Ga. 306, 32 L. E. A. 208, 47 Am. St.
burgh Turnpike Co. v. Cutler, 6 Vt. Eep. 153, 21 S. E. 701.
315. Nebraska. Kleckner v. Turk, 45
62 Gillette v.Aurora Eys. Co., 228 Neb. 176, 63 N. W. 469.
111. N. E. 1005; Society Perun
261, 81 New Jersey. Stout v. Zulick, 48 N.
v. Cleveland, 43 Ohio St. 481, 3 N. E. J. L. 599, 601, 7 Atl. 362.
357; Brown v. Webb, 60 Ore. 526, Ann. New York. Buffalo & A. E. Co. v.
Cas. 1914 A 148, 120 Pac. 387. See Gary, 26 N. Y. 75; Bank of Toledo v.
also Eainwater v. Childress, Ark. — International Bank, 21 N. Y. 542 •
§278] Pbivate Cobpobations [CL 10
user of the corporate franchises under color of legal organization;**

or under color of authority or of law.**
While some of the cases omit one or more of these essentials in stat-
Lamming v. Galusha, 81 Hun 247, 30 an act authorizing the incorporation

N. Y. Supp. 767, afE'd 151 N. Y. 648, (Bank 'of Toledo v. International
45 N. E. 1132; Dewitt v. Hastings, 40 Bank, 21 N. Y. 542)." A motion for
Super. Ct. (8 J. & S.) 463, afE'd 69 N. leave to appeal to the Court of Ap-
Y. 518. See also In re Long Acre Elec. peals in this case was denied, 6 N. Y.
Light & Power Co., 117 App. Div. 80, Misc. 128, 26 N. Y. Supp. 4.
102 N. Y. Supp. 242. It will be noted that a number of
Nortli Dakota. Coler v. Dwight the cases adopting this rule are from
School Tp., 3 N. D. 249, 28 L. E. A. states in which the court has also
649, 55 N. W. 587. adopted the rule first stated (see note
Utah. Marsh v. Mathias, 19 Utah 51, this section), and that a color-
350, 56 Pac. 1074; Kilpatriok-Koch able compliance with the provisions
Dry-Goods Co. v. Box, 13 Utah 494, of the statute is generally required
45 Pac. 629. even by those courts which do not
Washington. Kwapil v. Bell Tower specifically include it in the general
Co., 55 "Wash. 583, 104 Pac. 824. statement of the essentials to de facto
Wisconsin. Independent Order of corporate existence. (See § 290, infra.)
Foresters v. United Order of Forest- Itwould therefore appear that the re.
ers,94 Wis. 234, 68 N. W. 1011. quirement of a colorable compliance
"Color of legal organization as a with the statute is regarded by them
corporation under some charter or law, as being included in the requirement
and user of the supposed corporate that there must be a bona flde attempt
franchise in good faith are indis- to incorporate under the statute.
pensable * * *." Harrill v. Davis, 84 Harris v. Gateway Land Co., 128
168 Fed. 187, 22 L. E. A. (N. S.) 1153, Ala. 652, 29 So. 611; Bibb v. Hall, 101
rev'g 7 Indian T. 152, 15 Ann. Gas. Ala. 79, 14 So. 98; Central Agricultur-
1134, 104 S. W. 573. In Bradley Fer- al & Mechanical Ass'n v. Alabama

tilizer Co. V.South Pub. Co., 4 N. Y. Gold Life Ins. Co., 70 Ala. 120. See
Misc. 172, 23 N. Y. Supp. 675, rev'g Floyd Vi State, 177 Ala. 169, 59 So.
1 N. Y. Mise. 512, 21 N. Y. Supp. 472; 280; Gunderson v. Illinois Trust &
id., 44 N. Y. St. Eep. 119, 17 N. Y. Savings Bank, 199 111. 422, 65 N. E.
Supp. 587, rev'g 39 N. Y. St. Eep. 218, 326, aflf'g 100 111. App. 461.
14 N. Y. Supp. 917, it is said: "A de 65 United States. National Life

facto corporation is constituted by a Ins. Co. of Montpelier v. Board of
user of corporate franchises, and by Education, City of Huron, 62 Fed. 778.

acts in the nature of corporate pro- Idaho. Bellevue Water Co. v.
ceedings under color of organization Stockslager, 4 Idaho 636, 43 Pac. 568;
(Childs V. Smith, 55 Barb. 56); or Wright V. Kelley, 4 Idaho 624, 43 Pac.
where proceedings have been taken in 565.
professed compliance with some law Nebraska. Otoe County Fair &
authorizing the formation of a cor- Driving Park Ass'n v. Doman, 1 Neb.
poration, and there are acts of subse- (Unoffi.) 179.
quent user (Church v. Pickett, 19 N. Korth Carolina. Buncombe Turn-

y. 482) or where there is a user of
; pike Co. v. McCarson, 1 Dev. & B.
corporate franchises under color of (18 N. C.) 306.
556
Cli.lO] De Facto Coepoeatiosts [§279
as, for example, the requirement that there must

ing the general rule,
be an attempt in good faith to incorporate under the statute,^^ an ex-
amination of them will generally disclose that the omitted element
was shown to exist, or that its absence was held to prevent the cor-
poration from being one de facto. And regardless of how the require-
ments are stated, at least a colorable compliance with the statute is
generally required to be shown.^''

"It is not necessary that some particular period of time should
elapse in order to show a de facto existence. Such existence depends
rather upon what has been done under and by virtue of the organ-
ization, rather than upon the length of time which may elapse after
its inception.
'
'
5* The was insolvent from the
fact that a corporation
time of its organization does not prevent it from being a corporation
de facto,^^ nor does a corporation de jure become one de facto by
entering into an ultra vires contract with another corporation.^"
"Whether a corporation is in existence either de jure or de facto is a
question for the court to determine where there is no dispute as to
the facts.®^
§ 279. Lawful authority for existence of corporation În general. —

In some of the cases it has been held that a corporation de facto may
exist without any authority at all from the legislature.®'' And there
Oklahoma. Blackwell v. City of L. E. A. (N. S.) 144, 39 So. 473;

Newkirk, 31 Okla. 304, Ann. Gas. Owensboro Wagon Co. v- Bliss, 132
1913 E 441, 121 Pae. 260. Ala. 253, 90 Am. St. Bep. 907, 31 So.
Washington. Purdin v. Washington 81; Snider Sons' Co. v. Troy, 91 Ala.
's
Nat. Building, Loan & Investment 224, 11 L. E. A. 515, 24 Am. St. Eep.
Ass'n, 41 Wash. 395, 83 Pac. 723. 887, 8 So. 658; Duke v. Taylor, 37 Fla.
"A corporation de facto exists 64, 31 L. E. A. 484, 53 Am. St. Eep.
when, from irregularity or defect in 232, 19 So. 172.
the organization or constitution, or 66 See § 289, infra,
from some omission comply with
to 87 See § 292, infra,
the conditions precedent, a corpora- 68 Eeclamation Dist. No. 765 v.
tion de jure is not created, but there McPhee, 13 Cal. App. 382, 109 Pae.
has been a colorable compliance with 1106.
the requirements of some law under 69 Lamkin v. Baldwin & Lamkin
which an association might be law- Mfg. Co., 72 Conn. 57, 44 L. E. A. 786,
fully incorporated for the purposes 43 Atl. 593.
and powers assumed, and a user of 60 Dayton & Union Ey. Co. v. Pitts-
the rights claimed to hp conferred by burgh, C, C. & St. L. Ey. Co., 15 Ohio
the law, when there is an organiza- Cir. Dee. 705, afif'd 67 Ohio St. 523.
tion with color of law and the 61 Daily v. Marshall, 47 Mont. 377,
exercise of corporate franchises." 133 Pac. 681.
Central of Georgia E. Co. v. Union 62 In a dictum in Pergusou v. Ox-
Springs & N. E. Co., 144 Ala. 639, 2 ford Mercantile Co., 78 Miss. 65, 27
557
12791 Peivate Cobporations [Oh. 10
is authority to the effect that there may be a corporation de facto

though it isorganized for a purpose not authorized by the statute."
But according to the great weight of authority, in order that there
may be a corporation de facto, there must be a charter or law under
which a corporation of its character, and for the objects and purposes
for which it is organized, might exist.**
So. 877, it is stated that "even if a rev'g 7 Indian T. 152, 15 Ann. Cas.
concern should be carried on, appar- 1134, 104 S. W. 573; Davis v. Stevens,
ently as a corporation, without any 104 Fed. 235; Toledo, St. L. & K. 0.
charter at all, it cannot be that its E. Co. V. Continental Trust Co., 95
creditors would be powerless to collect Fed. 497, aff'g 86 Fed. 929, 82 Fed.
from it, or that it could not pay its 642, application for certiorari denied,
debts." And in Cullins v. Overton, 7 176 TJ. S. 219, 44 L. Ed. 442-; In re
Okla. 470, 54 Pac. 702, it was held Mendenhall, Fed. Cas. No. 9,425.
that a county organized pursuant to Alabama. Cory v. Lee, 93 Ala. 468,
an act of the legislature of Texas was 8 So. 694; Snider 's Sous' Co. v. Troy,
one de facto, though the Federal Su- 91 Ala. 224, 11 L. E. A. 515, 24 Am.
preme Court later decided that the St. Rep. 887, 8 So. 658. And see Cen-
territory comprising it did not belong tral Agricultural & Mechanical Ass'n
to that state. V. Alabama Gold Life Ins. Co., 70 Ala.
De facto existence has been accord- 120.
ed a corporation even though it was Arkansas. Whipple v. Tuxworth, 81
illegally organized for an illegal pur- Ark. 391, 99 S. W. 86.
pose, to evade and violate the law. California. Brandenstein v. Hoke,
Lincoln Bldg. & Sav. Ass 'n v. Graham, 101 Cal. 131, 35 Pac. 562.
7 Neb. 173. See also United States Coloiado, Jones v. Aspen Hard-
V. Insurance Companies, 22 Wall. (TJ. ware Co., 21 Colo. 263, 29 L. E. A. 143,
S.) 99, 22 L. Ed. 816, holding that a 52 Am. Rep. 220, 40 Pac. 457.
St.
statute creating a corporation passed Duke v. Taylor, 37 Fla. 64,
Florida.
by the legislature during the civil war 31 L. R. A. 484, 53 Am. St. Rep. 232,
was valid, and that such corporation 19 So. 172. See also Taylor v. Bran-
could sue in the federal courts after ham, 35 Fla. 297, 39 L. R. A. 362, 48
the war, since such legislature was at Am. St. Rep. 249, 17 So. 552.
leasta legislature de facto. Georgia. Brown v. Atlanta Bail-
Thus in New Orleans Debenture
63 way & Power Co., 113 Ga. 462, 39 S.
Bedemption Co. v. Louisiana, 180 U. E. 71; Georgia Southern & F. R. Co.
S. 320, 45 L. Ed. 550, aff'g 51 La. V. Mercantile Trust & Deposit Co., 94
Ann. 1827, which was a proceeding 6a. 306, 32 L. R. A. 208, 47 Am. St.
in the nature of quo warranto to an- Rep. 153, 21 S. E. 701.
nul a corporate charter, the defendant Illinois. Chicago & W. I, R. Co. v.
was held to be a corporation de facto Heidenreioh, 254 111. 231, Ann. Cas.
though it was organized for a pur- 1913 .C 266, 98 N. B. 567; Hossack v.
pose not authorized by the statute. Ottawa Development Ass 'n, 244 111.
et United States. Tulare Irrigation 274, 91 N. E. 439; Imperial Bldg. Co.
Dist. V. Shepard, 185 U. S. 1, 46 L. V. Chicago Open Board of Trade, 238
Ed. 773; American Ball Bearing Co. v. 111. 100, 87 N. E. 167, 136 111. App.
Adams, 222 Fed. 967; Harrill v. Davis, 606; Gillette v. Aurora Bys. Co., 228
168 Fed. 187, 22 L. R. A. (N. S.) 1153, 111. 261, 81 N. E. 1005; Marshall v.
558
Ch. 10] De Facto Coepoeations [§279
A somewhat different form in which this rule as to the necessity
Keach, 227 111. 35, 118 Am. St. Eep. Minn. 303, 73 N. W. 147; Hause t.
247, 10 Ann. Cas. 164, 81 N. E. 29; Mannheimer, 67 Minn. 194, 69 N. W.
American Loan & Trust Co. v. Min- 810; Finnegan v. Noerenberg, 52 Minn.
nesota & N. W. R. Co., 157 111. 641, 239, 18 L. R. A. 778, 38 Am. St. Rep.
42 N. E. 153; Woodla^nd Social Enter- 552, 53 N. W. 1150; East Norway Lake
tainment Ass'n V. Anderson, 187 111. Church V. Froislie, 37 Minn. 447, 35
App. 507; Concord Apartment House N. W. 260.
Co. V. Alaska Refrigerator Co., 78 111. Montana. Milwaukee Gold Extrac-
App. 682. See also People v. Cowan, tion Co. V. Gordon, 37 Mont. 209, 95
247 HI. 357; People v. Shedd, 241 111. Pac. 995.
155, 89 N
E. 332, aff'd 217 TJ. S. 597,
Nebraska. Kleckner v. Turk, 45
54 L. Ed. 896 (mem. dec); Pettis v.
Neb. 176, 63 N. W. 469; Abbott v.
Atkins, 60 111. 454.
Omaha Smelting & Refining Co., 4
Indiana. Jennings v. Dark, 175 Ind.
Neb. 416.
332, 92 N. E. 778; Clark v. American
Cannel Coal Co., 165 Ind. 213, 112 Am.
New Jersey. Sisters of Charity of
St. Elizabeth, v. Morris R. Co., 84 N.
St. Rep. 217, 73 N. E. 1083, 35 Ind.
J. L. 310, 50 L. R. A. (N. S.) 236, 86
App. 65, 73 N. E. 727; Doty v. Patter-
Atl. 954, aff 'g 82 N. J. L. 214, 81 Atl.
son, 155 Ind. 60, 56 N. E. 668; Heas-
817.
ton V. Cincinnati & F. W. R. Co., 16
Ind. 275, 79 Am. Dec. 43»; Harrimau New York. Methodist Episcopal
V. Southam, 16 Ind. 190; Farmers' Union Church v. Pickett, 19 N. Y.
Mutual V. Eeser, 43 Ind. App. 634, 88 482, aff 'g 23 Barb. 436; Welsh v. Old
N. E. 349; Indiana Bond Co. v. Ogle, Dominion Min. & By. Co., 56 Hun
22 Ind. App. 593, 72 Am. St. Rep. 326, 650, 10 N. Y. Supp. 174.
54 N. E. 407. See also Snyder v. Ohio. Society Perun v. Cleveland,

Studebaker, 19 Ind. 462, 81 Am. Dee. 43 Ohio St. 481, 3 N. E. 357; GafE v.
415; Farmers' Ins. Co. v. Borders, 26 Flesher, 33 Ohio St. 107, 453. See
Ind. App. 491, 60 N. E. 174. Raccoon River Nav. Co. v. S^gle, 29
Iowa. See Cedar Rapids Water Co. Ohio St. 238, the holding in which is
V. Cedar Rapids, 118 Iowa 234, 91 N. explained in Society Perun v. Cleve-
W. 1081. land, 43 Ohio St. 481, 3 N. E. 357, and
Pape v. Capitol Bank, 20
Kansas. in Gaff v. Flesher, 33 Ohio St. 107.
Kan. 440, 27 Am. Rep. 183; Krutz v. Oklahoma. Mitchell v. Carter, 31
Paola Town Co., 20 Kan. 397. Okla. 592, 122 Pac. 691; Western U.
Iiouisiana. Bond & Braswell v. Tel. Co. V. Mexican Agr. Land Co., 31
Scott Lumber Co., 128 La. 818, 55 So. Okla. 528, Ann. Cas. 1914 C 1244, 122
468; Leader Realty Co. v. Lake view Pac. 505; Guthrie v. T. W. Harvey
Land Co., 127 La. 1059, 54 So. 350. Lumber Co., 9 Okla. 464, 60 Pae. 247;
Michigan. Eatoa v. Walker, 76 Guthrie v. Wylie, 6 Okla. 61, 55 Pac.
Mich. 579, 6 L. R. A. 102, 43 N. W. 103; Guthrie Nat. Bank v. McEl
638; Burton v. Schildbach, 45 Mieh. Hinney, 5 Okla. 107, 47 Pae. 1062;
504, 8 N. W. 497. And see Schuetzen Oklahoma City v. T- M. Richardson
Bund V. Agitations Verein, 44 Mich. Lumber Qo., 3 Okla. 5, 39 Pac. 386;
313, 38 Am. Rep. 270, 6 N. W. 675. Blackburn v. Oklahoma City, 1 Okla.
Minnesota. Healey v. Steele Center 292, 33 Pac. 708, 31 Pae. 782; Guthrie
Creamery Ass'n, 115 Minn. 451, 133 v. Territory, 1 OkJa. 188, 21 L. R. A.
N. W. 69; Johnson, v. Okerstrom, 70 841, 31 Pac. 190.
559
§279] Peivate Cokpokations [Ch.lO
of lawful authority to incorporate is occasionally stated is that
Tennessee. Tennessee Automatic- to an answer in an action for dam-

Lighting Co. V. Massey (Tenn. Ch.), ages alleging that the plaintiff's or-
56 S. W. 35. ganization was a pretended one in
Texas. MeLeary v. Dawson, 87 Tex. fraud of the law, in that it was not
524, 29 S. "W. 1044, rev'g (Tex. Civ. organized for any purpose authorized
App.), 25 S. W. 705; Staaeke v. Eout- by such laws, was improperly sus-
ledge, — Tex. Civ. App. — , 175 S. W. tained.
444; Gordon v. American Patriots of Where there is no law authorizing
Springfield, Illinois, —
Tex. Civ. App. incorporation for the purposes in
— , 141 S. W. 331;Bankers'Whaley v. question, the members are liable as
Union of World, 39 Tex. Civ. App. partners. Hanstein v. Johnson, 112
385, 88 S. W. 259. And see Parks v. N. C. 253, 17 S. E. 155; Bain v. Clin-
West, 102 Tex. 11, 111 S. W. 726, ton Loan Ass'n, 112 N. C. 248, 17 S.
rev'g (Tex. Civ. App.), 108 S. W. 466. E. 154; Lynch v. Perryman, 29 Okla.
Vermont. State v. Rutland Rail- 615, Ann. Cas. 1913 A 1065, 119 Pac.
way, Light & Power Co., 85 Vt. 91, 229. But in Watton v. Cruce, 44 Okla.
Ann. Cas. 1914 A 1305, 81 Atl. 252. was held that a
186, 143 Pac. 1152, it
Wisconsin. Huber v. Martin, 127 person who had done work for a cor-
Wis. 412, 3 L. E. A. (N. S.) 653, 115 poration under a contract could not
Am. St. Rep. 1023, 7 Ann. Cas. 400, attack its existence nor hold its mem-
105 N. W. 1031; Town of Winneconne bers liable as partners on the ground
V. Village of Winneconne, 111 Wis. that the statute did not authorize the
10, 86 N. W. 589; Gilkey v. Town of formation of a corporation for the pur-
How, 105 Wis. 41, 49 L. E. A. 483, poses stated in its articles. This was
81 N. W. 120. a commissioner's opinion, adopted by
A charter granted by the chancery the court, and while it was held that
court for a purpose not authorized by the ruling of the trial court sustaining
the general law is void on collateral a demurrer to the complaint could be
attack. Heck v. McEwen, 12 Lea sustained on the ground above stated,
(Tenn.) 97. it was also held that the purpose for
Where two or more churches cannot which the corporation was organized
lawfully be organized into one cor- was authorized by the statute. Apple-
poration, an attempt to do so does ton Mut. Eire Ins. Co. v. Jesser, 5
not create a corporation de facto. Ev- Allen (Mass.) 446, was an action by
enson v. Ellingsou, 67 Wis. 634, 31 a mutual insurance company, incor-
N. W. See African M. E. Church
342. porated under a special charter, to
V. New 15 La. Ann. 441,
Orleans, collect assessments upon premium
where it was held, in an action by a notes. The defense interposed was
colored religious corporation to have that the corporators met and chose
certain ordinances interfering with its officers before the act of incorpora-
church services declared void, that the tion went into
effect. In the course
statute did not authorize the organi- of the Opinion the court says: "The
zation of corporations by colored per- essential quality of a corporation is
sona, and that such corporation ha;d no the power granted by the sovereign
legal existence. In Western U. Tel. to persons designated and described,
Co. V. Mexican Agr. Land Co., 31 to act in a corporate capacity. The
Okla. 528, Ann. Cas. 1914 C 1244, 122 acts of this corporation before the day
Pac. 505, it was held that a demurrer when the statute went into effect were
560
'
Ch. 10] Db Facto Coeporations [§279
there must be at least color of law for its corporate existence,*^

and there is no law under which the power assumed by the corpora-
if
tion might lawfully be created, the mere fact of assuming such

power does not constitute the persons a corporation de facto, even
though they act in the full belief that they are legally incorporated. «*
In other words, in order that a body may become a corporation
de facto, a law must exist authorizing it to become a corporation de
'
jure,®'' ' and acts done in the former case must be legally authorized to
wholly void. But when on and after a purpose authorized by the laws of
that day persons were found with the that state, and hence that a conten-
consent and under the authority of tion that it was neither a corporation
the designated corporators, and with- de jure nor de facto within the rule
out objection on the part of the sov- laid down in Imperial Bldg. Co. v.
ereign power, actually exercising the Chicago Open Board of Trade, 238
corporate powers, and claiming and III. 100, 87 N. E. 167, could not be
using the franchise, they constituted sustained.
a corporation de facto; and the law- 66 Imperial Bldgi. Co. v. Chicago
fulness of their organization cannot Open Board of Trade, 238 111. 100, 87
be impeached collaterally in an action N. B. 167, 136 111. App. 606; Gillette
to recover an assessment." V. Aurora Eys. Co., 228 111. 261, 81 N.
That there is no law authorizing the E. 1005; American Loan & Trust Co.
formation of a union school section V. Minnesota & N. W. E. Co., 157 111.
out of parts of other sections may be 641, 42 N. E. 153; Eaton v. Walker,
taken advantage of as a defense to 76 Mich. 579, 6 L. E. A. 102, 43 N. W.
the collection of a school rate im- 638. See also Mandeville v. Court-
posed by the officers of a union sec- wright, 126 Fed. 1007, rev'd on other
tion so formed. Askew v. Manning, grounds 142 Fed. 97, 6 L. E. A. (N.
38 U. C. Q. B. 345. See also eases cited S.) 1003.
§ 277, supra. 67 United States. Davis v. Stevens,'
6B Snider 's
Sons' Co. v. Troy, 91 104 Fed. 235; Toledo, St. L. & K. C.
Ala. 224, 11 L. E. A. 515, 24 Am. St. E. Co. V. Continental Trust Co., 95
Eep. 887, 8 So. 658; Lehman, Kurr & Fed. 497, aff'g 86 Fed. 929, 82 Fed.
Co. V. Warner, 61 Ala. 455; Bradley 642, application for certiorari denied,
v. Eeppell, 133 Mo. 545, 54 Am. St. 176 U. S. 219, 44 L. Ed. 442. See also
Eep. 685, 34 S. W. 841, 32 S. "W. 645; Cunningham v. City of Cleveland, 98
Catholic Church v. Tobbein, 82 Mo. Fed. 657.
418; St. Louis v. Shields, 62Mo. 247; Florida. Duke v. Taylor, 37 Fla.
Douthitt V. Stinson, 63 Mo. 268; 64, 31 L. E. A. 484, 53 Am. St. Eep..
Atchison v. Crawford County Farmers 232, 19 So. 172.
Mut. Fire Ins. Co., 192 Mo. App. 362, Georgia. Brown v. Atlanta Eailway
180 S. W.See also Douthitt v.
438. & Power 113 6a. 462, 39 S. E. 7;
Co.,
Stinson, 63 Mo. 268; Foster v. Hare, Georgia Southern & F. E. Co. v. Mer-
26 Tex. Civ. App. 177, 62 S. W. 541. cantile Trust & Deposit Co., 94 Ga.
In Eialto Co. v. Miner, 183 Mo. App. 306, 32 L. E. A. 208, 47 Am. St. Eep.
119, 166 S. W. 629, it wag held that an 153, 21 S. E. 701.
Illinois corporation was organized for Illinois. Imperial Bldg. Co. v. Chi-
561
I Priv. Corp.— 36
§279] Peivate Cokpobations [Ch. 10
be done in the they are not protected or sanctioned by the

latter, or
law. Such must have an apparent right. " ^*
acts
It follows that "the question whether there is any law under which
it could exercise the powers assumed is open to question at all times
when it attempts to ex'ercise such powers, ^* and may be raised in a '

'
collateral proceeding.'"' So, where a charter is assigned by the per-

sons to whom it is granted before any organization under it, the
eago Open Board of Trade, 238 111. Civ. App. —

, 141 S. W. 331; Whaley v.
]00, 87 N. E. 167, 136 111. App. 606; Bankers' Union of World, 39 Tex. Civ.
Gillette v. Aurora Eys. Co., 228 111. App. 385, 88 S. W. 259.
261, 81 N. E. 1005; American Loan & Vermont. State v. Eutland Eail-
Trust Co. V. Minnesota & N. W. B. way. Light & Power Co., 85 Vt. 91,
Co., 157 111. 641, 42 N. E. 153. Ann. Cas. 1914 A 1305, 81 Atl. 252.
Indiana. Clark v. American Cannel Wisconsin. Huber v. Martin, 127
Coal Co., 165 Ind. 213, 112 Am. St. Wis. 412, 3 L. E. A. (N. S.) 653, 115
Eep. 217, 73 N. E. 1083, 35 Ind. App. Am. St. Eep. 1023, 7 Ann. Cas. 400, 105
65, 73 N. E. 727; Indiana Bond Co. v.
N. W. 1031; Town of Winneconne v.
Ogle, 22 Ind. App. 593, 72 Am. St. Village of Winneconne, 111 Wis. 10,
86 N. W. 589; Gilkey v. Town of How,
Eep. 326, 54 N. E. 407.
105 Wis. 41, 49 L. E. A. 483, 81 N. W.
Iowa. See Cedar Eapids Water Co.
120; Evenson v. EUingson, 67 Wis.
V. Cedar Eapids, 118 Iowa 234, 91 N.
634, 31 N. W. 342.
W. 1081.
68 Evenson
EUingson, 67
v. Wis. 634,
Missouri. Bradley v. Eeppell, 133
31 N. W.quoted in
342, Clark v.
Mo. 545, 54 Am. St. Eep. 685, 34 S. "W.
American Cannel Coal Co., 165 Ind.
841, 32 S. W. 645.
213, 112 Am. St. Eep. 217, 73 N. E.
OWo. See Gaff v. Flesher, 33 Ohio
1083, 35 Ind. App. 65, 73 N. E. 727.
St. 107, 453.
Oklahoma. Mitchell v. Carter, 31 69 Gillette v. Aurora Eys. Co., 228
Okla. 592, 122 Pac. 691; Western U. 111. 261, 81 N. E. 1005.
Tel. Co. V. Mexican Agr. Land Co., 70 United States. Davis v. Stevens,
31 Okla. 528, Ann. Cas. 1914 C 1244, 104 Fed. 235.
122 Pac. 505; Guthrie v. T. W. Harvey Illinois. Imperial Bldg. Co. v. Chi-
Lumber Co., 9 Okla. 464, 60 Pac. 247; cago Open Board of Trade, 238 111.
Guthrie v. Wylie, 6 Okla. 61, 55 Pac. 100, 87 N. E. 167, 136 111. App. 606;
103; Guthrie Nat. Bank v. McEl Hin- Gillette v. Aurora Eys. Co., 228 111.
ney, 5 Okla. 107, 47 Pac. 1062; Okla- 261, 81 N. E. 1005.
homa City V. Eichardson Lumber Co., Indiana. Clark v. American Cannel
3 Okla. 5, 39 Pac. 386; Blackburn v. Coal Co., 165 Ind. 213, 112 Am. St.
Oklahoma City, 1 Okla. 292, 33 Pac. Eep. 217, 73 N. B. 1083, 35 Ind. App.
708, 31 Pac. 782; Guthrie v. Territory, 65, 73 N. B. 727; Indiana Bond Co. v.
1 Okla. 188, 21 L. E. A. 841, 31 Pac. Ogle, 22 Ind. App. 593, 72 Am. St.
190. Eep. 326, 54 N. E. 407. See also
Tennessee. See Euohs v. Athens, 91 Farmers' Ins. Co. v. Borders, 26 Ind.
Tenn. 20, 30 Am. St. Eep. 858, 18 S. W. App. 491, 60 N. E. 174.
400. Micmgan. Eaton v. Walker, 76
Texas. Gordon v. American Patri- Mich. 579, 6 L. E. A. 102, 43 N. W.
ots of Springfield, Illinois, — Tex. 638.
562
assignment is void, and the assignees do not acquire existence as a

de facto corporation by organizing under it and assuming corporate
powersJ^
But it has been held that a corporation organized in a territory
where no law provides therefor may become a corporation de facto
upon the passage of a law authorizing corporations of a similar nature,
there having been continuance of the business as if incorporated,''^
and that even though a charter granted by the chancery court is in-
valid because the court had no power to create a corporation for the
purpose in question, it is sufficient if there is an attempt to comply
with a general law subsequently passed providing for the incorpora-
tion of such associations and permitting corporations previously
organized under special charters to take advantage of its provisions^*
There may also be a de facto corporation though the articles of
Missouri. Atchison v. Crawford which they were engaged at the time

County Farmers' Mut. Fire Ins. Co., was not one which the statute per-
192 iMo. App. 362, 180 S. "W. 438. mitted corporations to carry on, for
Oklahoma. Western U. Tel. Co. v. the purpose of holding the stockhold-
Mexican Agr. Land Co., 31 Okla. 528, ers liable as partners. Staacke v.
Ann. Cas. 1914 1244, 122 Pac. 505. Eoutledge, — Tex. Civ. App. —, 175
Texas. Staacke v. Eoutledge, — S. W. 444.
Tex. Civ. App. — 175 S. W. 444; Gor-
, In Doty American Telephone &
V.
don V. American Patriots of Spring- Telegraph 123 Tenn. 329, Ann.
Co.,
field, Illinois, —Tex. Civ. App. 141 — , Cas. 1912 C 167, 130 S. W. 1053, which
S. W. 331; Whaley v. Bankers' Union was an ejectment suit to recover prop-
of World, 39 Tex. Civ. App. 385, 88 erty taken by the telephone company
S. W. 259. See also Parks v. West, under the power of eminent domain,
102 Tex. 11, 111 S. W. 726. the court considered ajid passed on
Wisconsin. Huber v. Martin, 127 the contention of the plaintiff that
Wis. 412, 3 L. E. A. (N. S.) 653, 115 there was no law authorizing the in-
Am. St. Rep. 1023, 7 Ann. Caa. 400, corporation of a telephone company
105 N. W. 1031; Town of Winneconne
with power to construct or operate a
V. Village of Winneconne, 111 Wis.
telephone line, holding that there was
10, 86 N. W. 589; Chicago & N. W. Ey.
such a law. The right to raise the
Co. v. Oshkosh, A. & B. W. R. Co.,
question was not discussed or raised.
107 Wis. 192, 83 N. W. 294.
See also cases cited in previous notes
Where there is no law authorizing
in this section.
incorporation for the purpose in ques-
tion, the attempted incorporation has
71 Welsh v. Old Dominion Min. &
no legal effect and does not relieve Ry. Co., 56 Hun (N. T.) 650, 10 N. Y.
from individual liability. Vredenburg Supp. 174.
V. Behan, 33 La. Ann. 627. 72 Mason v. Stevens, 16 8. D. 320,
One who is injured by the negli- 92 N. W. 424; State v. Stevens, 16 S.
gence of the employees of a corpora- D. 309, 92 N. W. 420.
tion may set up that the business in 73 Deitch V. Staub, 115 Fed. 309.
563
'
incorporation enumerate purposes which are in part not authorized

by the statute,''* or confer powers not authorized by the statute.''*
§280. —
Organization under unconstitutional statute. It would
seem necessarily to follow from this principle that there cannot be a
corporation de facto under a statute which is unconstitutional, for an
unconstitutional statute is absolutely void, and the better opinion is
in support of this view.''®
74 Marion Bond Co. v. Mexican Cof- Co. V. Mercantile Trust& Deposit Co.,
fee & Rubber Co., 160 Ind. 558, 65 N. 94 Ga. 306, 32 L. R. A. 208, 47 Am.
E. 748; Saunders v. Farmer, 62 N. H. St. Rep. 153, 21 S. B. 701; Doboy &
572; In re Trenton St. Ry. Co. (N. J. Union Island Tel. Co. v. De Magathias,
Ch.), 47 Atl. 819. See also Shoun v. 25 Fed. 697 (construing Georgia
Armstrong (Tenn. Ch.), 59 S. W. statute).
790. St. George's Church Society v. Illinois. See Imperial Bldg. Co. v.
Branch, 120 Mo. 226, 25 S. W. 218. Chicago Open Board of Trade, 238 111.
The fact that a corporation was 100, 87 N. E. 167, 136 111. App. 606;
formed for two incompatible purposes, People V. Hamill, 134 111. 666, 17 N.
in violation of the statute, is a good E. 799, 29 N. E. 280; Ross v. Chicago,
defense to an expropriation proceed- B. & Q. E. Co., 77
111. 127. But in
ing instituted by it. Bayou Cook Winget Quincy Building & Home-
v.
Navigation & Fisheries Co. v. Doullut, stead Ass'n, 128 111. 67, 84, 21 N. E.
111 La. 517, 35 So. 729. 12, aff'g 29 111. App. 173, it is said
7B Weil V. Leopold Weil Building & that a party who has contracted with
Improvement Co., 126 La. 938, 53 So. a de facto corporation cannot allege
56; Eastern Plank Eoad Co. v. any defect in its organization as a de-
Vaughan, 14 N. Y. 546; Becket v. fense to an action by it on the con-
TJniontovvra Building & Loan
Ass'n, 88 tract, and that "this rule applies even
Pa. St. 211. See also Albright v. La- where the corporation is organized
fayette Bldg. & Sav. Ass'n, 102 Pa. under a law alleged to be unconsti-
'
St. 411. tutional.
A charternot void on collateral
is Indiana. Clark v. American Cannel
attack because it attempts to confer Coal Co., 165 Ind. 213, 112 Am. St.
some powers not authorized by tlio Rep. 217, 73 N. E. 1083, 35 Ind. App.
general law, but such provisions will 65, 73 N. E. 727; Heaston v. Cincin-
be treated as surplusage. Heck v. nati & Ft. W. R. Co., 16 Ind. 275, 79
McEwen, 12 Lea (Tenn.) 97; Tennes- Am. Dec. 430. See also Marion Trust
see Automatic Lighting Co. v. Massey Co. v. Bennett, 169 Ind. 346, 124 Am.
(Tenn. Ch.), 56 S. W. 35. St. Rep. 228, 82 N. E. 782.
76 California. Brandenstein v. Michigan. Eaton v. Walker, 76
Hoke, 101 Cal. 131; City & County of Mich. 579, 6 L. R. A. 102, 43 N. W.
San Francisco v. Spring Valley Water 638; Skinner v. Wilhelm, 63 Mich.
Works, 48 Cal. 493. 568, 30 N. W. 311; Burton v. Schild-
Delaware. See Wilmington v. Ad- bach, 45 Mich. 504, 8 N. W. 497; Hurl-
dicks, 8 Del. Ch. 310. but V. Britain & Wheeler, 2 Dougl.
Georgia. Georgia Southern & F. R. 191; Green v. Graves, 1 Dougl. 351.
564
It has been held, however, in a state in which this view is taken,

that the fact that the particular statute under which it is attempted
to organize a corporation is unconstitutional does not prevent its exist-

ence as a corporation de facto under another statute, which is con-
stitutional, and under which it might have been organized.''' And
ithas also been held that an unconstitutional statute of another state,
intended to legalize a corporation there attempted to be organized, is
New
Jersey. Sisters of Charity of statute under which the plaintiff cor-
St. Elizabeth v. Morris E. Co., 84 N. poration was organized was unconsti-
J. L. 310, 50 L. E. A. (N. S.) 236, 86 tutional. See also Kellogg v. Union
Atl. 954, aff'g 82 N. J. L. 214, 81 Atl. Co., 12 Conn. 7, where the question of
817. the eonatitutiouality of the special
Wisconsin. Huber
Martin, 127v. charter of a navigation company was
Wis. 412, 3 L. E. A. (N. S.) 653, 115 raised and considered in an action by
Am. St. Eep. 1023, 7 Ann. Cas. 400, said company to recover tolls. A
105 N. W. 1031; Town of Winneconne further illustration of the application
V. Village of Winneconne, 111 Wis. of this rule is seen in Kline v. State,
10, 86 N. W. 589. See also Evenson v. 146 Ala. 1, in which case it was held
Ellingson, 67 Wis. 634, 31 N. W. 342. that an indictment for a crime com-
But see Black Eiver Improvement Co. mitted in territory attempted by an
V. Holway, 85 Wis. 344, 55 N. W. 418, unconstitutional statute to be detached
holding that a corporation whose origi- from one county and attached to
nal charter had expired and had been another was improperly found in the
extended by an unconstitutional stat- latter county, and a conviction was re-
ute was a de-facto corporation as to a versed on that ground.
former stockholder who has sold his 77 Georgia Southern & F. E. Co. v.
stock after such extension. Mercantile Trust & Deposit Co., 94 Ga.
An unconstitutional law is abso- 306, 32 L. E. A. 208, 47 Am. St. Eep.
lutely void, and "a
void law is no 153, 21 S. E. 701. In this case it was
law. ' ' Brandenstein v. Hoke, 101 Cal. held that a railroad company might be
131, 35 Pac. 562, To the same effect regarded as a de facto corporation
see Norton v. Shelby County, 118 U. under a general law under which it
S. 425, 30 L.Ed. 178; Clark v. Ameri- might have been organized, and which
can Cannel Coal Co., 165 Ind. 213, 112 was constitutional, although it was in
Am. St. Eep. 217, 73 N. E. 1083, 35 fact organized under an unconstitu-
Ind. App. 65, 73 N. E. 727. In tional special charter. This decision
accordance with this view it has been was followed by the federal court in
held that the unconstitutionality of Georgia. Central Trust Co. of New
the statute under which a bank was York V. Chattanooga, E & C. E. Co.,
organized a good defense to an ac-

is 94 Fed. 275, aff'g 89 Fed. 388. See
tion by its receiver on a note payable also Georgia Southern & F. Ey. Co. v.
to it. Green v. Graves, 1 Dougl. Barton, 101 Ga. 466, 471, 28 S. E. 842;
(Mich.) 351. St. John
V. Andrews Institute for
In Etowah Light & Power Co. v. Girls,117 N. Y. App. Div. 698, 102 N.
Yancey, 197 Fed. 845, a demurrer to Y. Supp. 808, modified as to another
the petition in a suit to condemn land point, 191 N. Y. 254, 14 Ann. Cas.
was sustained on the ground that the 708, 83 N. E. 981.
§65
§280] Pbivate Cokpobations [Ch. 10
admissible to show a recognition by that state of the fact that the

corporation there assumes to exist and act as a corporation, and as
evidence that such state has treated it as a de facto corporation and
has acquiesced in its acting as such.''*

There is not wanting, however, authority for the view that there
may be a corporation de facto though the statute under which the
organization is attempted is unconstitutional.™ In support of this
view claimed that even under such circumstances the corpora-
it is
tion organized under color of law '" that the statute is presump-
is
;
tively valid until it has been judicially declared to be invalid, and

that until it is so declared men have a right to actand contract on
this presumption ;
'^ and that their acts and contracts and those of
78 Hudson V. Green Hill Seminary New York. Coxe v. State, 144 N. Y,
Corporation, 113 111. 618. 396, 39 N. E. 400; St. John v. An
79 United States. See Clapp v. Otoe drews Institute for Girls, 117 App
County, 104 Fed. 473. Div. 698, 102 N. Y. ffupp. 808, modi
fled as to another point 191 N. Y.
Maine. Taylor v. Portsmouth, K.
254, 14 Ann. Cas. 708, 83 N. B. 981
& Y. St. Ey., 91 Me. 193, 64 Am. St.
Rep. 216, 39 Atl. 560; McClineh v,
And see Chenango Bridge Co. v. Paige,
83 N. Y. 178, 38 Am. Rep. 407, holding
Sturgis, 72 Me. 288.
that an unconstitutional charter is
Minnesota, Bichards v. Minnesota
void and affords no protection to those
Sav. Bank, 75 Minn. 196. See also
who act under it. But see Debow v.
East Norway Lake Church v. Froislie,
People, 1 Denio 9.
37 Minn. 447, 35 N. W. 260.
Pennsylvania. Burkhard v. Penn-
Missouri. Catholic Church v. Tob- sylvania Water Co., 234 Pa. 41, 82 Atl.
bein, 82 Mo. 418; City of St. Louis v. 1120; Com. v. Philadelphia County,
Shields, 62 Mo. 247. In Farmers' 193 Pa. St. 236, 44 Atl. 336; Yeingst
Bank V. Garten, 34 Mo. 119, the ques- V. Philadelphia,H. & P. E. Co., 40 Pa.
tion of the constitutionality of the Super. Ct. 106; Com. v. Philadelphia,
act chartering a bank was considered H. & P. R. Co., 23 Pa. Super. Ct. 235,
in an action brought byon a bill it holding such to be the case though
of exchange. And in Keith &• Perry the title of the act granting its char-
Coal Co. V. Bingham, 97 Mo. 196, 10 ter does not clearly express the
S. W. 82, the constitutionality of the subject of the act as required by the
statute was inquired into and the stat- constitution.
ute upheld. But see Bradley v. Eep- 80 Clapp V. Otoe County, 104 Fed.
pell, 133 Mo. 545, 54 Am. St. Bep. 685, 473; Speer v. Board Com'rs Kearney
34 S. W. 841, 32 S. W. 645, which Co., 88 Fed. 749; Back v. Carpenter,
holds that there can be no corporation 29 Kan. 349. See also McCain v. Des
de facto where there cannot be one Moines, 174 U. S. 168, 43 L. Ed. 936;
de jure, at least where there is no State V. Des Moines, 96 Iowa 521, 31
estoppel, and that a corporation is not L. B. A. 186, 59 Am. St. Rep. 381, 65
one de facto after the expiration of N. W. 818; Topeka v. Dwyer, 70 Kan.
its corporate existence by limitation. 244, 3 Ann. Cas. 239, 78 Pac. 417.
Nebraska. Lincoln Bldg. & Sav. 81 Speer v. Board Com 'rs Kearney
Ass'n T. Graham, 7 Neb. 173. Co., 88 Fed. 749.
566
Ch. 10] De Facto Coepobations [§280
the corporation, before the validity of the statute is challenged or its
invalidity is so declared, must be treated as valid and lawful, and

cannot be avoided, as against the interests of the public or of third
parties who have acted or invested in good f Eiith in reliance upon their
validity, by any ex post facto declaration or decision that the law
under which they acted was void.'^
This rule is frequently applied in the case of municipal and quasi
municipal corporations organized under unconstitutional statutes,^'
SZSpeer v. Board Com'rs Kearney organized county to an organized one

Co., 88 Fed. 749. for judicial purposes was void because
83 United States. Speer v. Board its title purported to attach said un-
Com'rs Kearney Co., 88 Fed. 749. organized county to one county while
Idaho. Bellevue Water Co. v. the body of the act attached it to an-
Stockslager, 4 Idaho 636, 43 Pac. 568; other one, a township organized in the
Wright V. Kelley, 4 Idaho 624, 43 Pac. attached territory was not one de
565. facto. The court distinguishes School
Iowa. See State v. Des Moines, 96 Dist. No. 25 V. State, supra, on the
Iowa 521, 31 L. E. A. 186, 59 Am. St. ground that there the error did not
Eep. 381, 65 N. W. 818; McCain v. inhere in the law creating the district,
Des Moines, 174 U. S. 168, 43 I/. Ed. and that it could be ascertained only
936. by a measurement and calculation of
Kansas.Topeka v. Dwyer, 70 Kan. land areas. In Speer v. Board Com'rs
244, Ann. Cas. 239, 78 Pac. 417;
3 Kearney Co., 88 Fed. 749, which was
Eiley v. Garfield Tp., 58 Kan. 299, 49 a case involving the same questions
Pac. 85. In Bitchie v. Mulvane, 39 and arising under the same statutes,
Kan. 241, 17 Pac, 830, it was held that the federal court refused to follow
certain territory was de facto a part the holding in Atchison, T. & S. F.
of a city, though annexed under the E. Co. v. Board Com'rs Kearney Co.,
provisions of an unconstitutional stat- supra, but instead applied the rule laid
ute. And see also School Dist. No. down School District No. 25 v.
in
25 V. State, 29 Kan. 57, holding that State, and held that where an unor-
a school district was organized under ganized county was attached to an
the general laws of the state relating existing county by an unconstitutional
to the organization of school districts, statute, and it was provided by
and not under an unconstitutional a valid law that unorganized coun-
statute detaching the territory in ties so attached to organized counties
in which it was situated from one should constitute townships of the
county and attaching it to another latter, its organization into a
county. But in Atchison, T. & S. F. E. township was under the latter law and
Co. V. Board Com'rs Kearny Co., 58 not under the unconstitutional stat-
Kan. 19, 48 Pac. 583, it was held that ute, and also that there might be a de
"there can be no such thing as a de facto corporation under an unconsti-
facto municipal organization where tutional law. In Clapp v. Otoe Coun-
the evidence of its nonexistence de ty, 104 Fed. 473 (certiorari denied
jure is patent from the face of the 180 U. S. 638, 45 L. Ed. 710), in sus-
law itself," and hence that where a taining this view the court said:
statute purporting to attach an un- "There is another reason why the d&
567
§280] Peivate Coepoeations [Ch. 10
and this view has Keen taken even where it is held that there cannot
be a de facto private corporation under such circumstances.**
§ 281. — Corporations prohibited by statute or contrary to public

policy. When the existence of a particular corporation, or of
fense which we have been consider- as such under an unconstitutional

ing cannot be sustained. It is that the statute.
general acquiescence by the inhabit- Louisiana. See Chicago, St. L. &
ants of a political subdivision organ- N. O. E. Co. V. Town of Kentwood,
ized under color of law, and by the 49 La. Ann. 931, 22 So. 192.
departments and officers of the state Minnesota. See Burt v. Winona &
and county having official relations St. P. E. Co., 31 Minn. 472, 18 N. W.
with it, gives to the acts and con- 285.
tracts of those officers on its behalf Missouri. Louis v. Shields, 62
St.
as a subdivision de facto all the Mo. 247; State Eich & Eich, 20 Mo.
v.
force and validity of their acts in its 393. In State v. Blair, 245 Mo. 680,
behalf as a subdivision de jure. The 151 S. W. 148, it was held that the le-
acts of ordinary municipal bodies or- gality of the organization of a drain-

ganized under color of law depend far age district could not be collaterally
more upon general acquiescence than attacked on the ground that the stat-
upon the legality of their action or ute under which it was organized was
the existence of every condition prece- unconstitutional.
dent prescribed by the statutes un^ Ohio. Beck v. Eocky Eiver Village
der which they organize and act. The School Dist., 14 Ohio Dec. N. P. 312.
interests of the public which depend See State v. Gardner, 54 Ohio St. 24,
upon such municipalities and their 31 L. E. A. 660, 42 N. E. 999, where
various subdivisions, the rights and it is held that there may be a df
the relations of private citizens which facto public officer under an uncon-
become fixed in relianceupon their stitutional statute, until the statute
existence, the injustice and confusion has been held to be unconstitutional
which must result from an ex post in a direct proceeding appropriate to
facto avoidance of their acts, com- that end.
mend the justice and demand the en- Pennsylvania. Com. v. Philadelphia
forcement of the rule that, when a County, 193 Pa. St. 236, 44 Atl. 336.
municipal body or a political subdi- See also King v. Philadelphia Co., 154
vision of a state or county has, or Pa. St. 160, 21 L. E. A. 141, 35 Am.
its officers have, assumed, under color St. Eep. 817, 26 Atl. 308.
of authority, and have exercised for a For a detailed treatment of this
considerable period of time, with the question, see McQuillin on Municipal
consent of the state and its citizens, Corporations, § 151, et seq.
powers of a kind recognized by the 84 Lang V. Bayonne, 74 N.

J. L. 455,
organic law, neither the corporation, 15 L. E. A. (N. S.) 93, 68 Atl. 90;
subdivision, nor any pp-ivate party Holloway v. Dickinson, 69 N. J. L. 72,
can, in private litigation, question the 54 Atl. 529; Attorney General v. Town
legality of the existence of the cor- of Dover, 62 N. J. L. 138, 41 Atl. 98;
poration or subdivision." In Back v. Eiverton & P. "Water Co. v. Haig, 58
Carpenter, 29 Kan. 349, it was held N. J. L. 295, 33 Atl. 215; Steelman v.
that a city was a city of the second Vickers, 51 N. J. L. 180, 14 Am. St. Eep.
class de facto, though it was organized 675, 17 Atl. 153; Coast Co, v. Borough' of
568
corporations for a particular purpose, is prohibited by a positive law,

or is contrary to public policy, such a corporation cannot be recog-
nized as having a de facto existence, and its existence and right to
exercise corporate powers may be attacked collaterally as well as
directly, and by individuals.** Or, stated in another way, a de facto
corporation can never be recognized in violation of a positive law.**
And a similar rule has been applied where a charter is granted to a
corporation by the court notwithstanding a constitutional provision
giving the legislature exclusive power to grant such charters.*'
Some courts, however, seem to have adopted a contrary view. So
Spring Lake, 56 N. J. Eq. 615, 51 L. Texas. Empire Mills v. Alston Gro-

E. A. 657, 36 Atl. 21, afE'd 58 N. J. cery Co., 4 Willson Civ. Cas. Ct. App.
Eq. 586, 51 L. E. A. 657, 47 Atl. 1131. §221.
The unconstitutionality of a stat- A corporation organized for the
ute under which a village was reor- purpose of agitating the repeal of liq-
ganized cannot be raised in an action uor laws and to resist their enforce-
to recover back property seized for ment cannot sue to recover a debt.
taxes. Coe v. Gregory, 53 Mich. 19, Schuetzen Bund v. Agitations Verein,
18 N. W. 541. 44 Mich. 313, 38 Am. Eep. 270, 6 N.
85 United States. See Oregonian W. 675.
Ey. Co. V. Oregon Ey. & Nav. Co., 10 In McGrew V. City Produce
Sawy. 464, 23 Fed. 232, 241, 27 Exchange, 85 Tenn. 572, 4 Am. St.
Fed. 277. Where a corporation is Eep. 771, 4 S. W. 38, it was held that
organized ostensibly for the purpose a pretended corporation organized for
of constructing and operating works the ostensible purpose of dealing in
of public improvement, but in reality grain, but with the real object of il-
for the purpose of conducting a lot- legally gambling in futures, was not
tery, and its stock is issued as fully a corporation de facto.
paid when in fact nothing has been In Chicora Exporting & Importing
paid thereon, the charter is a fraud Co. of South Carolina v. Crews, 6 S. C.
on the law, and the court will not lend 243i it was held that a corporation
its aid to protect the rights of the organized for the purpose of running
original stockholders. Le Warns v. the blockade during the civil war
Meyer, 38 Fed. 191. could not sue on contracts made by it.
Colorado. Jones v. Aspen Hardware 86 Jones V. Aspen Hardware Co., 21
Co., 21 Colo. 263, 29 L. E. A. 143, 52 Colo. 263, 269, 29 L. E. A. 143, 52 Am.
Am. St. Eep. 220, 40 Pac. 457, St. Eep. 220, 40 Pae. 457; National
Greorgla. Georgia Southern & F. E. Shutter Bar Co. v. Zimmerman & Co.,
Co. V. Mercantile Trust & Deposit Co., 110 Md. 313, 73 Atl. 19; Maryland
94 Ga. 306, 32 L. E. A. 208, 47 Am. Tube & Iron Works v. West End Im-
St. Eep. 153, 21 S. E. 701. provement Co., 87 Md. 207, 39 L. E. A.
Illinois.Imperial Bldg. Co. v. Chi- 810, 39 Atl. 620.
cago Open Board of Trade, 238 111. 87 In such case the charter is void,
100, 87 N. E. 167, 136 111. App. 606. and the coi-poration cannot maintain
Louisiana. Workingmen 's Accom- an action for damages for injury to its
modation Bank v. Converse, 29 La. property. Doboy & V. I. Tel. Co. v.
Ann. 369. De Magathias, 25 Fed. 697.
569
it has been held that the existence of a corporation cannot be col-

laterally attackedon the ground that it was organized for an illegal
purpose, as, for example, to evade and violate the usury laws,'* or
for the purpose of running the blockade during the civil war, where
purpose was a legal one,'® or to foster gambling,"* nor
its ostensible
on the ground that it violates a constitutional provision prohibiting

the organization of religious corporations except to hold title to real
estate for certain church purposes.'^ And it has been held that there
is a de facto school district though its organization is in violation of a
statute prohibiting the formation of a new district, the boundary line
of which will be nearer than one mile to a schoolhouse.®"
It has also been held by a number of courts that the existence of a
corporation cannot be collaterally attacked on the ground that it is
a trust and therefore or that the purpose of the incorporation

illegal,
was to establish a monopoly, at least if the purpose stated in the
articles is a lawful one,'* though there is authority permitting a col-
lateral attack on this ground.'*
88 Lincoln Bldg. & Sav. Ass'n v. United States Vinegar Co. v. Sehlegel,
Graham, 7 Neb. 173. 143 N. Y. 537, 38 N. E. 729, a£E'g 67
89 Importing & Exporting Co. v. Hun (N. Y.) 356, 22 N. Y. Supp. 407;
Locke, 50 Ala. 332. Globe Sewer Pipe Co. v. Otis, 67 Hun
90 Where a corporation is ostensi- (N. Y.) 652, 22 N. Y. Supp. 411.
bly organized for a legitimate purpose, "Where a suit is brought by a cor-
it is no defense to an action by a re- poration to enforce or protect a pri-
ceiver to recover the amount of an vate right by injunction, a claim that
unpaid stock subscription that its the corporation is illegal or is a mo-
real purpose was to foster gambling. nopoly cannot be made collaterally as
Augir V. Eyan, 63 Minn. 373, 65 N. a defense." Goldfield Consol. Mines
W. 640. Co. V. Goldfield Miners' Union No.
91 Klix V. Polish Eoman Catholic 220, 159 Fed. 500.
St. Stanislaus Parish, 137 Mo. App. The existence of a corporation can-
347, 118 S. W. 1171. But see St. Louis not be collaterally attacked on the
Colonization Ass'n v. Hennessy, 11 ground that it was not organized in
Mo. App. 555. good faith but is a subsidiary cor-
.
92Trumbo v. People, 75 111. 561. poration, acting in combination with

93 Allis Chalmers Co. v. Reliable other similar corporations in pursuit
Lodge, 111 Fed. 264; American Steel of an unlawful monopolistic conspiracy
& Wire Co. v. Wire Drawers' & Die in restraint of trade and to prevent
Makers' Unions, 90 Fed. 608; Inter- competition. Joliff v.Muncie Elee.
national Harvester Co. of America v. Light Co., 181 Ind. 650, 105 N. E. 234.
Eaton Circuit Judge, 163 Mich. 55, 94 "Where the unlawful conspiracy
30 L. R. A. (N. S.) 580, Ann. Cas. exists in the articles of association
1912 A 1022, 127 N. W. 695; Attorney * * *." Finek v. Schneider Granite
General v. American Tobacco Co., 53 Co., 187 Mo. 244, 106 Am. St. Eep.
N. J. Eq. 352, 36 Atl. 971, aflf'd 56 N. 452, 86 S. W. 213. The Missouri stat-
J. Eq. 847, 42 Atl. 1117. See also ute expressly permits the violation
570
Oh. 10] De Facto Coepokations [§282
It has also been held that motives or intentions of the incorporators

in obtaining a charter or certificate of incorporation cannot be i*-
quired into in a collateral proceeding,^^ and that where the purpose
as expressed in the charter is within the statute, there is a de facto
corporation though the real purpose is other than that so expressed
and So
authorized.^^ the existence of a corporation cannot be col-
laterally attacked on the ground that it was a fraudulent scheme
entered into for the purpose of cheating and defrauding the public,
where the purpose expressed is a lawful one.'''
§282. — OrgaJiization under inapplicable statute. Since a cor-

poration cannot exist de facto in the absence of a law authorizing it,
an association for a particular purpose, or of a particular character,

is not a de facto corporation, when the statute under which it claims
the right to corporate existence authorizes corporations for some other

purpose only, or of some other character only '* nor can a corpora- ;
tion organized under a special law claim a de facto existence under a

general law which it does not recognize as its charter, and under
which its rights and liabilities would be different.'* Some courts,
however, hold that a corporation may be one de facto though it is
of its provisions to be set up as a ton, 64 N". J. Eq. 572, 54 Atl. 153, rev'd
defense to an action by the corpora- on other grounds 67 N. J. Eq. 606,
tion to recover the purchase price of 61 Atl. 1065. And in Evenson v. El-
goods sold. National Lead Co. v. S. lingson, 67 Wis. 634, 645, 31 N. W.
E. Grote Paint Store Co., 80 Mo. App. 342, it was held that an attempt to
247. organize a corporate body composed
95 Boatmen 's Bank v. Gillespie, 209 of two churches did not create a cor-
Mo. 217, 108 S. W. 74. poration de facto under a statute au-
96 Seymour Opera-House Co. v. thorizing a corporation composed of
Wooldridge (Tex. Civ. App.), 31 S. one church only. See Indiana
also
W. 234. Bond Co. V. Ogle, 22 Ind. App. 593,
97 Boatmen's Bank v. Gillespie, 209 72 Am. St. Rep. 326, 54 N." E. 407,
Mo. 217, 108 S. W. 74. where it is "If a corpora-
said that:
98 Thus, in Davis v. Stevens, 104 tion claims the right to exist for a
Fed. 235, it was held that a bank was certain purpose, it must show that it
not a de facto corporation where there was organized under a statute author-
was no statute permitting the incor- izing the creation of a corporation
poration of banks when it received for that particular purpose." But in
its certificate of incorporation. In this case there was no statutory au-
like manner it has been held that a thority whatever for the organization
corporaticta created under a statute of the corporation.
limiting its powers to educational and 99 Marion Trust Co.
v. Bennett, 169
social does not become a
purposes Ind. 346, 124 Am.
Eep. 228, 82 N.
St.
corporation de facto to transact com- E. 782. But see Jennings v. Dark, 175
mercial business. Henry v. Siman- Ind. 332, 92 N. E. 778.
571
282r Pbivate Coepobations [Ch. 10
organized under a statute which does not co rer corporations for the
purpose in question, where there is another statute permitting incor-
poration for that purpose.^
§ 283. —
Unauthorized consolidation. The rule that there can be
no de facto corporation in the absence of lawful authority, or, in
other words, that there cannot be a de facto corporation where there
cannot be a corporation de jure, applies to an unauthorized consoli-
dation of corporations, and hence there cannot be a de facto
consolidated corporation where there is no law authorizing the con-
solidation of corporations.'' So it has been held that an attempted
1 Pennsylvania Milk Producers' chise to an electric light company can-

Ass'n V. First Nat. Bank of Honey- not question the legality of its
brook, 20 Pa. Co. Ct. 540. a collateral proceeding,
existence, in
Pursuant to this view, there may be on the ground that it was incorpo-
a de faeto religious corporation, though rated under the statute relating to
it is organized under a statute pro- manufacturing companies instead of
viding for the organization of corpo- under the statute relating to electric
rations not for pecuniary profit instead light companies. Wyandotte Elec.
of under the act providing for the in- Light Co. V. City of Wyandotte, 124
corporation of religious societies. St. Mich. 43, 82 N. W. 821. See also Fos-
John the Baptist Crreek Catholic ter V. Moulton, 35 Minn. 458, 29 N.
Church v. Baron (N. J. Ch.), 73 Atl. W. 155, holding that a mutual bene-
422.
fit association was a corporation de
This has also been held true of a
facto as between its members though
corporation organized under a stat-
it had not complied with the statute
ute permitting incorporation for the
so as to become an insurance corpora-
purpose "of carrying on any lawful
tion de jure, and was not a benevolent
business not otherwise specially pror
society and hence could not have been
vided for" instead of under one au-
incorporated under the statute rela-
thorizing incorporation for works of
tive to such societies.
public and advantage, as it
utility
should have been. Weil v. Leopold 2 United States. Toledo, St. L. &
Weil Building & Improvement Co., 126 K. C. K. Co. V. Continental Trust Co.,
La. 938, 53 So. 56. 95 Fed. 497, aff'g 86 Fed. 929, 82 Fed.
In Vredenburg v. Behan, 33 La. Ann. 642, application for certiorari denied
627, it was held that a rifle club or- 176 U. S. 219, 44 L. Ed. 442. See also
ganized under a statute authorizing Kavanagh v. Omaha Life Ass'n, 84
corporations for scientific purposes Fed. 295.
only was not a corporation de facto, American Loan & Trust Co.
Illinois.
as the purpose was not within the stat- V. Minnesota & N. W. E. Co., 157 111.
ute, but apparently there was no other 641, 42 N. E. 153.
provision under which it might have Indiana. Cleveland, C, C. & St. L.

been incorporated. E. Co. V. Peight, 41 lud. App. 416, 84
A city which has granted a fran- N. E. 15.
572
Ch. 10] De Facto Cobpoeations [§ 283
consolidation by a foreign and a domestic corporation does not create

a de facto consolidated corporation where thereis no statute authoriz-
ing the consolidation of domestic and foreign corporations.' And it

has also been held that the petition of a foreign railroad company-
seeking to exercise the power to condemn land conferred by a statute
upon foreign corporations purchasing railroad lines in the state will
be dismissed where in attempting to prove shows that the its right it
line purchased was a parallel and competing one and therefore one
which, under the statute, it could not lawfully purchase.*
Some courts, however, hold that where there is a statute authoriz-
ing the consolidation of corporations of the class in question, the con-
solidated corporation may have a de facto existence notwithstanding
a defect in the qualification of' some of the constituent companies, or
in other words, though some of them do not possess all the qualifica-
tions which the statute requires corporations to possess in order to
effect a consolidation under it.® So it has been held that where the
statute permits the consolidation of railroad companies only where
they have lines constructed and in operation,^ or where their lines
have been built or are in process of construction,'' there may be a
de facto consolidated corporation though these conditions do not exist
in the case of one or more of the consolidating corporations. And it
has also been held that there may be a de facto consolidated corpora-
tion though the lines of the consolidating companies are not in ad-
joining states and the statute only permits a consolidation with roads
in adjoining states ;
* and that the fact that the consolidation was in
violation of a statute prohibiting the consolidation of competing rail-
road lines is no defense to eminent domain proceedings instituted by
Texas. Gordon v. American Patri- 70 N. E. 357. See also Chicago & W.

ots of Springfield, Illinois, — Tex. Civ. I. B. Co. v Heidenreich, 254 111. 231,
App. ,—141 S. W. 331; Whaley v. Anpi. Cas. 1913 C 266, 98 N. E. 567.
Bankers Union of World, 39 Tex. Civ.
' 6 Continental Trust Co. v. Toledo,
App. 385, 88 S. W. 259. St. L. & K. C. E. Co., 86 Ted. 929, 82
Vermont. State v. Eutland Rail- Fed. 642, afC'd 95 Fed. 497, applica-
way. Light & Power Co., 85 Vt. 91, tion for certiorari denied 176 U. S.
Ann. Cas. 1914 A 1305, 81 Atl. 252. 219, 44 L. Ed. 442; Cleveland, C, C. &
S American Loan & Trust Co. v. St. h. B. Co. v. Feight, 41 Ind. App.
Minnesota & N. W. E. Co., 157 111. 641, 416, 84 N. E. 15.
42 N. E. 153; Gordon v. American Pa- 6 Cleveland, C, C. & St. L. R. Co. v.
triots of Springfield, Illinois, — Tex. Feight, 41 Ind. App. 416, 84 N. E.
Civ. App. — , 141 S. W. 331. See also 15.
Kavanagh v. Omaha Life Ass'n, 84 7 Union Trust Co. v. New York, C.
Fed. 295. & St. L. E. Co., 9 Ohio Dee. 773.
4 Illinois State Trust Co. v. St. 8 Union Trust Co. v. New York, C.
Louis, I. M. & S. R. Co., 208 111. 419, & St. L. E. Co., 9 Ohio Dee. 773.
573
'
§ 283] Private Cokpobations [Oh. 10
the consolidated corporation.^ A reason given for this rule is that

"the possibility of a de jure corporation is the only condition requisite
in such cases, and that " It is not a sound
'
to a de facto corporation, '
test that the particular constituents could not have become a de jure
consolidated corporation. That would open every such organization
to parol attack, and destroy its de facto character, not by showing the
impossibility of a de jure corporation of the kind in question, but by
evidence affecting the internal history of the parts composing the
whole.""
A corporation resulting from the consolidation of two existing cor-
porations has been held to be a new corporation, at least de facto,
though the title to the act amending the charter of one of them, under
which the attempted consolidation was made, did not authorize the
creation of a new corporation.^^ And it has been held that there is a
de facto consolidated corporation though the acts under which the
consolidating corporations were organized did not authorize a con-
solidation,^^ or though they have no authority to consolidate, if they
attempt to do so, and the legislature subsequently confirms the con-
solidation.^'
§ 284. — Corporations organized in one state to do business in or

to evade laws of another. There is a conflict of authority as to the
status of a corporation organized in one state to carry on business
entirely in other states. According to one view, such a corporation
may be one de facto,^* while other decisions have held that the incor-
porators are liable as partners under such circumstances, upon the
9 Oregon-Washington E. & Nav. Co. cation for certiorari denied 176 IT. S.
V.Wilkinson, 188 Fed. 363; Tibby Bros. 219, 44 L. Ed. 442, quoted with ap-
Glass Co. V. Pennsylvania E. Co., 219 proval in Cleveland, C, C. & St. L.
Pa. 430, 68 Atl. 975. See also Toledo, E. Co. v. Peight, 41 Ind. App. 416, 34
St. L. & K. C. E. Co. V. Continental N. E. 15.
Trust Co., 95 Fed. 497, aff 'g 86 Fed. 11 Atlanta & E. A. L. E. Co. v. State,
929, 82 Fed. 642, application for eer- 63 Ga. 483.
tiorari denied 176 U. S. 219, 44 L. Ed. 12 Shadf ord v. Detroit, T. & A. A.
442, where it is said by way of die- E. E., 130 Mich. 300, 89 N. W. 960.
turn that if the law permits noncom- 13 Eaeine & M.
E. Co. v. Farmers
peting railroads to consolidate, the de Loan & Trust 49 111. 331, 95 Am.
Co.,
facto consolidation cannot be de- Dec. 595. As to the effect generally
stroyed by proof that the consolidat- of legislative recognition of defec-
ing companies were in fact operating tively organized corporations, see Chap,
competing lines. 11, infra.
10 Toledo, St. L. & K. C. E. Co. v. 14 Burwash v. Ballou, 230 111. 34, 15
Continental Trust Co., 95 Fed. 497, L. E. A. (N. S.) 409, 82 N. E. 355,
afE'g 86 Fed. 929, 82 Fed. 642, appli- aff'g 132 111. App. 71.
574
ground that the attempted incorporation is a fraud upon the law

which does not produce even a de facto corporation.^" In some juris-
dictions this latter rule has heen held to apply only where the cor-
poration wag organized in another state for the purpose of evading
the laws of the forum, or for some other fraudulent purpose.^*
IB Lynch v. Ferryman, 29 Okla. 615, never had any legal existence, and that
Ann. Gas. 1913 A 1065, 119 Pae. 229; its members would be held liable as
Empire Mills v. Alston Grocery Co., partners in Missouri. In Davidson v.
4 Willson Civ. Cas. Ct.App. §221. In Hobson, 59 Mo. App. 130, and Cleaton
Hill V. Beach, 12 N. J. Eq. 31, where v. Emery, 49 Mo. App. 345, the mem-
persons associated themselves together bers of corporations organized under
for the purpose of carrying on the the laws of Colorado to do business
quarrying business in New Jersey, and in Missouri were held to be liable as
took proceedings to incorporate under partners on the ground of fraud where
a general corporation law of New none or only a small part of the al-
York, they were held liable as part- leged large capital had in fact been
ners upon the ground that they were subscribed. But it has been pointed
not even a corporation de facto. The out that these decisions "are really
chancellor said that they were not a based upon the theory that fraud was
domestic corporation, and could not contemplated in the very inception
be sued as such, and that they were of the organization of the corporation,
not a foreign corporation, because it and that, therefore, the corporation
was manifest upon the face of their had no legal existence." Tribble v.
proceedings that their attempted or- Halbert, 143 Mo. App. 524, 127 S. W.
ganization under the general law of 618. These cases and also many from
New York was a fraud upon that law. other states on the same subject are
16 The Missouri Court of Appeals has reviewed in State v. Cook, 181 Mo.
decided in several eases that the stock- 596, 80 S. W. 929, where a similar
holders of a corporation which had conclusion is reached. See also to the
been incorporated in another state same effect First Nat. Bank of Dead-
for the purpose of evading the laws wood, South Dakota v. Eockefeller,
of Missouri, or for some other fraudu- 195 Mo. 15, 56, 93 S. W. 761.
lent purpose, will be held liable as A corporation is not
invalidated
partners. So in Journal Co. v. Nelson, nor are its members liable as part-
133 Mo. App. 482, 113 S. "W. 690, it ners merely because the object of pro-
was held that where citizens of Mis- curing the charter in the state of the
souri organized a corporation under forum rather than in another state,
the laws of Arizona for the ostensible where most of the incorporators re-
purpose of mining in Colorado, but its sided, was to evade the laws of the
capital stock was fixed at $5,000,000, latter state relative to the liability
of which only about $500 had been of stockholders. Boatmen's Bank v.
paid, although the prospectus stated Gillespie, 209 Mo. 217, 108 S. W. 74.
that it had all been paid, and its evi- The Missouri statute provides that
dent purpose was to sell stock in "the secretary of state shall not li-
Missouri, and not to conduct mining cense any foreign corporation to do
operations in Colorado, it was, from its business in Missouri when it shall ap-
inception, a fraud upon the laws of pear that such corporation was organ-
the states of Arizona and Colorado, and ized under the laws of a foreign state
575
,
It has alsp been held that the legal existence of a foreign corpora-
tion cannot be collaterally attacked on the ground that it was organ-
ized in another state in order to escape certain provisions of the law
of the forum and secure the privileges of the less stringent laws of
another state.^? Nor is the existence of a domestic corporation liable
to attack on the ground that the object of procuring the charter in
the state of the forum rather than in another state where most of
the incorporatoris resided was to evade the laws of the latter state
relative to the liability of stockholders.^'Nor can such a corpora-
tion's existence be questioned in an eminent domain proceeding on
the ground that it was organized solely for the purpose of con-
demning land for the benefit of a foreign corporation so as to evade
by indirection the laws of the state which do not extend the right of
eminent domain to foreign corporations.^®
§285. — Expiration or forfeiture of charter. In some states,

corporations continuing to exercise corporate powers after the expira-
by citizens and residents of Missouri where there is no actual intent to

for the purpose of avoiding the laws evade or defraud the laws of the state.
of this state, as it would be a fraud Second Nat. Bank v. Lovell, 13 Ohio
upon the laws of both states and its Dee. 972, 2 Cine. Super. Ct. 397.
pretended incorporators would be held IT Cumberland Telegraph & Tele-
as partners, and as such become liable phone Co. V. Louisville Home Tel. Co.,
for the debts of the alleged corpora- 114 Ky. 892, 72 S. W. 4. See also State
tion." Laws 1903, pp. 122-123. v. Cook, 181 Mo. 596, 80 S. W. 929.
This provision has no application In Indian Biver Mfg. Co. v. Wooten,
where the pretended purpose of 55 Fla. 745, 46 So. 185, it was held
the corporation was not to do business that it was no defense to an action bj'
in Missouri. Journal Co. v. Nelson, a foreign corporation to protect real
133 Mo. App. 482, 113 S. W. 690. In estate belonging to it from trespass
State v. Cook, 181 Mo. 596, 80 S. W. that it was organized under the laws
929, it is held that the secretary of of another state with intent to evade
state has no right to refuse a foreign the requirements of the law of the
corporation a license to do business forum as to cash capital, where the
in Missouri merely because two of its laws of the foreign state were com-
three incorporators, who own all its plied with and there was no show-
stock but one share, reside in Mis- ing that they were in any way evaded
souri, and all its property is located or that any fraud was committed. See
there and all its business is to be chapter on Foreign Corporations,
transacted there, where it is organ- infra.
ized for a lawful purpose and in con- 18 Such a corporation is not illegal
formity with the laws of the state Boatmen's Bank v. Gillespie, 209 Mo
where it was incorporated, and its 217, 108 S. "W. 74.
proposed business will not violate the 19 Louisville & N. By. Co. v. West'
laws of Missouri. eru U. Tel. Co. of Indiana, — Ind- —
There is no liability as partners 110 N. E. 70.
576
Ch, 10] De Facto Cobpobations [§285
tion of their charter have been recognized as corporations de facto,

on the ground that there is color of authority, and it has been held
that no person except the state can question their corporate existence.*^"
The same rule has been applied where an attempted extension of the
corporate existence was void because the statute under which the
proceedings were taken was inapplicable to corporations of the kind
in question,2i and where a statute renewing an expired corporate
charter was unconstitutional.^'*
By the weight of authority, however, a corporation is dissolved and
ceases to exist when its charter expires, unless there is some statutory
provision to the contrary, for there is no longer any law under which
it can exist, and therefore it cannot, after expiration of its charter,
be a corporation either de jure or de facto. According to this view,

itsright to exercise corporate powers, including the right to srue as a
corporation, may be questioned collaterally.^^
20 Brady Delaware Mut. Life

v. its existence as limited in its charter
Ins. Pennew. (Del.) 237, 45
Co., 2 could not set up the expiration of its
Atl. 345. See Wilmington v. Addieks, charter to defeat an action against it
8 Del. Ch. 310; Bushnell v. Consoli- for the tort. Miller v. Newburg Orrel
dated Ice Mach. Co., 138 111. 67, 71, Coal Co., 31 W. Va. 836, 13Am. St.
27 N. E. 596; Campbell v. Perth Am- Eep. 903, 8 S. E. 600. See Merges v.
boy Mut. Loan, Homestead & Build- Altenbrand, 45 Mdnt. 355, 123 Pac.
ing Ass'n, 76 N. J. Eq. 347, 74 Atl. 21, where it is said that while a cor-
144. In "Wassori v. Boland, 136 Mo. poration which continues in business
App. 622, 118 S. W. 663, this is said after
the expiration of its charter
to be the rule in Iowa. In Citizens' may properly be regarded as one de
Bank of Clinton v. Jones, 117 Wis. facto for certain purposes, that the
446, 94 N. W. 329, it is said that there rule had no application in the case
are adjudications to this effect. at bar, which was an action for the
The expiration of the charter can- purpose of having it adjudged that
not be interposed as a defense in con- the charter of a corporation had ex-
demnation proceedings. People v, pired and to have a receiver appointed.
Wayman, 256 111. 151, 99 N. E. 941. 21 Campbell v. Perth Amboy Ship-
In West Virginia, where a statute building & Engineering Co., 70 N. J.
provided in effect that when the char- Eq. 40, 62 Atl. 319, aff'd 71 N. J. Eq.
ter of a corporation should expire, or 302, 71 Atl. 1133.
it should be dissolved, suits might be 22 Black River Improvement Co. v.
brought, continued or defended, prop- Holway, 85 Wis. 344, 55 N. W. 418.
erty conveyed, and all lawful acts be 23 United States. If there is no sav-
done in the corporate name in the ing statute, the corporation is de facto
like manner and with like effect as be- dead when the term limited by its
fore such dissolution or expiration, so charter expires. Greeley v. Smith, 3
far as necessary to wind up its affairs, Story 657, Fed. Gas. No. 5,748.
it was held that a corporation continu- Indiana. Clark v. Americain Can-
ing in business committing a
and nel Coal Co., 165 Ind. 213, 112 Am. St.
tort after expiration of the term of Eep. 217, 73 N. E. 1083; 35 Ind. App
577
I Priv. Corp.— 37
285] Private Corporations [Ch. 10
A corporation continues to be one de facto, and its corporate ex-

and rights
istence cannot be questioned collaterally, though its charter
and franchises are subject to forfeiture for misuser or nonuser where
there has been no judgment or decree declaring such forfeiture.^*
And it has also been held that the existence of a corporation cannot
65, 73 N. E. 727; Brookville & G. Virginia. Supreme Lodge K. of P.

Turnpike Co. v. McCarty, 8 Ind. 392, V. Weller, 93 Va. 605, 25 S. E. 891.
65 Am. Dec. 768; Morgan v. Lawrence- In a prosecution for practicing medi-
burg Ins. Co., 3 Ind. 285; Guaga Iron cine without a license from a board
Co. V. Dawson, 4 Blackf. 202. of examiners appointed by a medical
Kansas. Marysville Inv. Co. v. society, the defendant may show that
Munson, 44 Kan. 491, 24 Pao. 977; the charter of the society had been
Krutz V. Paola Town Co., 20 Kan. vacated and the society dissolved.
397. See also Eagle Chair Co. v. Kel-
United States v. Williams, 5 Craneh
sey, 23 Kan. 632.
C. C. 62, Fed. Cas. No. 16,713.
Michigan. See Grand Bapids Bridge
Where the law under which a cor-
Co. V. Prange, 35 Mich. 400, 24 Am.
poration is organized is repealed un-
Bep. 585.
der a reserved power, the officers have
Missouri. Bradley v. Beppell, 133
no right to contract as such, and if
Mo. 545, 54 Am. St. Eep. 685, 34 S.
they do so, the corporation and its
W. 841, 32 S. W. 645. In this case it
stockholders are not liable thereon,
is pointed out that the statement to
and may interpose such repeal as a
the contrary in St. Louis Gaslight Co.
defense. Wilson v. Tesson, 12 Ind.
V. St. Louis, 84 Mo. 202, aff'g 11 Mo.
285.
App. 55, is dictum, and hence not
controlling. during the pendency of an ac-
If,
New York. Sturges v. Vanderbilt, tion, a corporation defendant becomes

73 N. Y. 384. See People v. Man- extinct by a voluntary surrender of
hattan Co., 9 "Wend. 351, 383. its charter and an acceptance of the
North Carolina. Asheville Div. No, surrender by the legislature, the suit
15, Sons of Temperance v. Aston, 92
abates as to it by operation of law.
N. C. 578; Dobson v, Simonton, 86 N. In such case the fact may be suggested
C. 492. by the attorney for the corporation by
Tennessee, ua Grange & M. B. Co. plea, or otherwise, on the record. Gree-
V. Eainey, 7 Coldw. 420; White v. ley V. Smith, 3 Story 657, Fed. Cas.
Campbell, 5 Humph. 38. In La Grange No. 5,748.
& M. E. Co. V. Bainey, supra, it is Where the charter of a corporation
said that if the act of incorporation expires pending an action against it,
fixes a definite time in which the char-
the act of persons owning all its
ter shall expire, the corporation is
stock in continuing to defend the ac-
dissolved when that time expires, but
tion does not make it a corporation
that if the continuance of the corpo-
de facto so as to authorize the plain-
ration beyond a fixed time is made to
tiffto proceed to judgment against it.
depend on the performance of a con-
dition precedent, nonperformance of
Venable Bros v. Southern Granite Co.,
the condition is a mere ground of for- 135 Ga. 508, 32 L. B. A. (N. S.) 446,
feiture, which cannot be taken ad- 69 S. E. 822. See also § 286, infra.
vantage of collaterally. 24 Phillips V. Albany, 28 Wis. 340.
578
Ch. 10] De Facto CoBPOBATioNS [§287
be collaterally attacked on the ground that it has been dissolved by

the purchase of all its stock by a municipality.^''
§ 286. — Effect of ouster by Since a corporation de facto

state.
is a reality, and has an actual and substantial legal existence, subject
only to the right of the state to oust it from the exercise of corporate
powers in a direct proceeding brought for that purpose, it follows
that a judgment of ouster in such a proceeding does not relate back
so as to affect the validity of transf ere or other acts done or contracts
made by it before its corporate existence was questioned. As to such
acts, the rules in relation to de facto corporations apply notwith-
standing the judgment of ouster.^® For this reason, when a corpora-
tion de facto has been ousted from the franchise of being a corporation
in quo warranto proceedings by the state, such ouster is no defense
to a suit by a creditor of the corporation against stockholders to
enforce payment of their subscriptions.'*'' Nor will such ouster affect
the validity of prior assessments by a reclamation district if it
was a de facto corporation when they were levied,*' nor destroy all
the property held by the supposed corporation at the date of the
judgment.*' It is otherwise, of course, with respect to acts done after
such judgment.^"
§ 287. Effect of fraud— Special charters. If a special charter is

obtained from the legislature by false and fraudulent representations,
the state may obtain a judgment of forfeiture in direct proceedings
26 Monongahela Bridge Co. v. Pitts- Texas. American Salt Co. v. Hei-

burg & B. Traction Co., 196 Pa. St. 25, denheimer, 80 Tex. 344, 26 Am. St.
79 Am. Eep. 685, 46 Atl. 99.
St. Kep. 743, 15 S. W. 1038. See also
28 Shapleigh v. San
United States. Bwing v. Commissioners ' Court of
Angelo, 167 U. S. 646, 42 L. Ed. 310; Dallas Co., 83 Tex. 663, 19 S. W. 280;
Miller v. Perris Irrigation Dist., 99 White v. City of Quanah (Tex. Civ.
Fed. 143. See also Hill v. City of App.), 27 S. W. 839.
Kahoka, 35 Fed. 32. Wisconsin. Gilkey v. Town of How,
California. McPhee v. Reclamation 105 Wis. 41, 49 L. B. A. 483, 81 N. W.
Dist. No. 765, 161 Cal. 566, 119 Pae. 120'.
1077. 27 Rowland v. Header Furniture Co.,

Indiana. Farnsworth v. Drake, 11 38 Ohio St. 269; Gaflf v. Flesher, 33
Ind. 101. Ohio St. 107, 115.
Kansas.Riley v. Garfield Tp., 58 28 McPhee v. Reclamation Dist. No.

Kan. 299, 49 Pac. 85. 765, 161 Cal. 566, 119 Pac. 1077.
Ohio. Society Perun v. Cleveland, 29 New York, B. & E. R. Co. v. Mo-
43 Ohio St. 481, 3 N. E. 357; Rowland til, 81 Conn. 466, 71 Atl. 563.
V. Neader Furniture Co., 38 Ohio St. 30 See chapter on Forfeiture, Dis-
269; Gaff v. Flesher, 33 Ohio St. 107, solution, etc., infra.
453.
579
§ 287] Pbivate Cobbobations [Oh. 10
for that purpose, but the fraud is no ground for a collateral attack
upon the existence of the corporation and its exercise of corporate
powers. Notwithstanding the fraud, it is a corporation de f acto.'^
'
It is otherwise, however, when persons not named as corporators
in a special charter fraudulently attempt to organize and exercise
corporate powers under it. This distinction is well illustrated by a
New Jersey case, in which persons who had obtained control of a
special charter creating a corporation to be located in Trenton, but
who were not named as corporators therein, attempted to use it to
establish a corporation to be located at Jersey City. The court said
that the company had some semblance of a corporation in name, form
of organization and assumption of a seal, yet not enough to give it
a de facto corporate existence. The attempt to establish the company
in Jersey City, it was said, was a palpable and entire perversion of
the act, and a fraud upon the act, and could not give corporate color
to the company.'''
—
Organization under general laws. There seems to be a
5i
of authority as to the effect in this regard of a fraudulent

eo'nflict
attempt to incorporate under general laws. Some courts have adopted

the rule that if persons fraudulently attempt to organize and exercise
corporate powers under color of a general incorporation law, the fraud
Will preiveht them from acquiring the status of a corporation de facto,
and their corporate existence may be collaterally attacked whenever
it is properly in issue, or, in other words, that if the pretended in-
corporation is a fraud upon the act under which corporate existence
is claimed, there is no corporation either de jure or de facto.'' So
.31 Alabama. Duke v. Cahawba Nav. 32 Booth v. Wonderly, 36 N. J. L.

Go,, 10 Ala. 82, 44 Am. Dee. 472; 16 250.
Ala. 372. 33 See Chicago & G. T. Ey. Co. v.
Georgia. Pattison v. Albany Build- Miller, 91 Mich. 166, 51 N. W. 981.
iug & Loan Ass 'n, 63 Ga. 373. This is true where it is alleged that
Massachusetts. Proprietors of its organization is a pretended one
Charles Eiver Bridge Vw Proprietors in fraud of the laws of the state in
of Warren Bridge, 7 Pick. 345, 371, that it is not organized for any pur-
aff'd 11 Pet. (II; S.) 420, 9 L. Ed. 773. pose authorized by them. Western U.
New York. See All Saints Church Tel. Co. v. Mexican Agr. Land Co., 31
V. Lovett, 1 Hall 213. Okla. 528, Ann; Cas. 1914 C 1244, 122
Pennsylvania. McGonahy v. Centre Pac. 505.
& K. Turnpike Road Co., 1 Penr. & W. In Gartside Coal Co. v. Maxwell, 22
426; Centre & K. Turnpike Eoad Co. Fed. 197, it is said that "where per-
Vi McConaby, 16 Serg. & E. 140. sons knowingly and fraudulently
Vermont. See State v. Bradford, assume a corporate existence, or pre-
32 Vt. 50. tend to have a corporate existence,
580
'
ithas been held that, in the absence of the element of estoppel, the
incorporation is open to collateral attack where it is a mere fraudulent
device on the part of the incorporators to escape liability as partners
by putting forward a sham Corporation without capital or assets to
cover a real partnership, though on the face of the proceedings there
is a regular and complete corporation.^* And it has also been held
that it is a good defense to condemnation proceedings instituted by
a corporation, or good ground for enjoining the same, that the cor-
poration was fraudulently organized for the purpose of enabling the
incorporators to exercise the power of eminent domain for their own
private use and benefit ^' or on the ground that it was not a bona
;
fide corporation organized to and operate a railroad as

build
pretended, but was in effect a bridge company, and that its organiza-
tion was merely a colorable scheme to enable certain existing com-
panies to construct and use a bridge and derive revenue therefrom
with the exemption from taxation accorded by statute to the bridges
of railroads.'^ In this connection it has been said that: ""With
regard to corporations not acting under special charters of legislative
grant, but voluntarily organized under general laws, although their
existence as corporations cannot be questioned collaterally, yet if they
they can be held liable as individu- sought to hold the stockholders li-
als," on contracts made in the corpo- able as partners on a contract which

rate name. See Metcalf v. Arnold, they claim was made in behalf of the
110 Ala. 180, 55 Am. St. Rep. 24, 20 corporation, that the company had no
where it was held that a bill
So. 301, capital, no stock subscriptions
that
by judgment creditors of a partner- were paid, that no corporate functions
ship to set aside a transfer of firm as- were performed except the pretended
sets to a corporation, organized after election of officers, that no meeting
the indebtedness to the complainants of directors was held, and that no in-
was incurred, on the ground that the corporation fee was paid. Christian
formation of the corporation and the & Craft Grocery Co. v. Fruitdale Lum-
transfer to it were in fraud of credi- ber Co., 121 Ala. 340, 25 So. 566.
tors, was not a collateral attack on 35 Mountain Park Terminal R. Co.
the existence of the corporation. See V. Field, 76 Ark. 239, 88 S. W. 897;
also State v. Webb, 110 Ala. 214, 20 New Orleans Terminal Co. v. Teller,
So. 462, holding that a corporate char- 113 La.' ^33, 2 Ann. Cas. 127, 37 So;'*'
ter may be ratified and confirmed by 624; Sarinan v. Caretta R. Co., 61 W:*
a subsequent act of the legislature Va. 356, 123 Am. St. Rep. 985, '56 S.
though property taken in payment of E. 520. See also §310, infra, as to
stock subscriptions was fraudulently the right of de facto corporations to
overvalued. exercise the power of eminent do-
34 Christian & Craft Grocery Co. v. main.
Fruitdale Lumber Co., 121 Ala. 340, 36Niemeyer & Darragh v. Little
25 So. 566. To this end it may be Rock Junction Ry., 43 Ark. 111.
shown, in an action in which it is
581
have resulted from fraudulent combinations of individuals to procure

powers under circumstances, and for purposes not within the scope
and purpose of legislative intent, and the corporators, under shelter
of their articles, are about to exercise powers oppressive to the indi-
vidual, they may be restrained by private suit of those injured or
about to be. Fraud has no immunity anywhere, in any guise. ^"^ '
'
Other courts, however, hold that there may be a corporation de

facto notwitstanding the incorporation is procured through fraud,
and that the corporate existence of such a corporation cannot be
collaterally attacked on that ground, but can only be questioned in a
direct proceeding instituted for that purpose by the state.^® So it
37Niemeyer & Darragh v. Little stock of goods of a partnership so as

Bock Junction Ey., 43 Ark. Ill, 120, to defeat the creditors of the latter.
quoted in Mountain Park Terminal E. The charge of fraud was based chiefly
Co. V. Field, 76 Ark. 239, 88 S. W. on the fact that the statement of the
897. commissioners authorized to incorpo-
38 United States. Knapp v. S. Jar- rate the company showed that all of
vis Adams Co., 135 Fed. 1008. See the stock was paid to them on or be-
Comanche County v. Lewis, 133 IT. S. fore the date of the alleged incorpo-
198, 33 L. Ed. 604, holding that there ration, while it appeared that a part
was a de facto county, which was or all of it was not paid until after
made into one de jure by legislative that date, and that the law required
recognition, though it was fraudu- the commissioners to report that not
lently organized. "The rule that the less than half of the stock subscribed
existence of a corporation may not had been paid in before the certificate
be collaterally assailed by a private of organization issued. It did appear
individual constitutes no bar to a that the full amount was paid before
suit by a minority stockholder to the merchandise was purchased. The
avoid for fraud or breach of trust a court held that the evidence did not
contract and act of consolidation of show a fraudulent incorporation, and
corporations and to restore the prop- said that, moreover, they were "dis-
erty of the corporation injured to its posed to hold that the legal existence
former owner." Jones v. Missouri- of this corporation can only be deter-
Edison Elec. Co., 144 Fed. 765. mined by a direct proceeding, the
CaUfomia. Dean v. Davis, 51 Cal. evidence showing a de facto corpora-
406. tion," and that therefore it was
Georgia. In Southern Bank v. Wil- unnecessary to decide whether the
liams, 25 6a. 534, itwas held that the statute required payment of half the
ifact that a bank was fraudulently or- amount subscribed before the report
ganized was no defense to an action by the commissioners. In Gunderson
by it on bills of exchange against the V. Illinois & Savings Bank, 199
Trust
acceptor thereof. 111. 422, 65N. E. 326, aff'g 100 111.
XUinols.In Foster v. Hip Lung Ting App. 461, it was held that fraud in the
Kee & 243 111. 163, 90 N. E. 375,
Co., organization of a corporation would
it was contended that a corporation not afford a valid defense to an action
was fraudulently organized for the by holders of its bonds to foreclose a
purpose of fraudulently purchasing a trust deed securing them. See Foster
582
Ch. 10] De Facto Cokpoeations [§288
has been held that the legal existence of a corporation cannot be col-
laterally attacked, nor its members held liable as partners, on the
ground that its incorporation was procured through false representa-
V. Staar, 148 111. App. 485, aff'd 243 where the articles were recorded and
111. 163, 90 N. E. 375, on the question where they stated that it was to be
as to what constitutes such fraudulent carried on, and was not intended to be
organization as will prevent the cor- carried on there, and the jury found
poration fpom obtaining relief in a that the defendant did not in good
court of equity. See also Terwilliger faith intend to organize a corporation,
V. Great Western Tel. Co., 59 111. there was no corporation, and that the
249. defendant was individually liable Jor
Maryland. Haacke v. Knights of the purchase price of goods bought in
Liberty Social & Literary Club, 76 the corporate name.
Md. 429; Laflin & Band Powder Co. Missouri. Webb
v. Eockefeller, 195
V. Sinsheimer, 46 Md. 315, 24 Am. Eep. Mo. E. A. (N. S.) 872, 93 S.
57, 6 L.
522v W. 772; First Nat. Bank of Deadwood,
Massachusetts. In Eice v. National South Dakota v. Eockefeller, 195 Mo.
Bank of Commonwealth, 126 Mass. 300, 15, 9S S. W. 761; Smith v. Heidecker,
it is held that where all the laws with 39 Mo. 157. "A
certificate of in-
reference to the organization of cor- corporation issued by the secretary
porations are complied with and a of state is a final determination of
certificate of incorporation is issued, the corporation's right to do business
which the statute makes conclusive as such, and * * » thereafter the
evidence of the establishment and or- state only, by a direct proceeding, can
ganization of the coxporaition, the challenge its corporate existence or
corporate franchise cannot be annulled its right to do business as a corpora-
in quo warranto proceedings upon the tion, even though fraud should be prac-
application of individuals on the ticed upon the secretary of state in
ground that the incorporation was ob- obtaining the certificate. Boatmen 's
'
'
tained by fraud, but only by the leg- Bank v. Gillespie, 209 Mo. 217, ig8 S.
islature, or at the suit of the state' W. 74. "It cannot be shown, in de-
or of the attorney general in its be- fense to a suit of a corporation, that
half. In Boston Eubber Shoe Co. v. the charter was obtained by fraud."
Boston Eubber Co., 149 Mass. 436, 21 Kayser v. Trustees of Bremen, 16 Mo.
N. E. 875, it is said that "The ques- 88.
tion whether the franchise was im- New Jersey. In Sisters of Charity
properly obtained, or improvidently of St. Elizabeth v. Morris E. Co., 84
granted may arise in proceedings for a N. ,7. L. 310, 50 L. E. A. (N. S.) 236,
forfeiture in behalf of the public, but 86 Atl. 954, aff 'g 82 N. J. L. 214, 81 Atl.
is not open in proceedings by a private 817, it is held that if the organization of
person * * * ?? In Montgomery v. a railroad company is regular on its
Eorbes, 148 Mass. 249, 19 N. E. 342, face, whether or not it was fraudu-
it was held that where the pretended lent is not open to question in con-
associates of the defendant in the or- demnation proceedings. And in Bell
ganization of the corporation were V. Pennsylvania, S. & N. E.
E. Co.
such in name only, and he alone was (N. J. Ch.), 10 Atl. 741, it is held
interested in the enterprise, and took that a stockholder of a consolidating
all the shares of stock, and the busi- company cannot maintain a bill to
ness was not carried on at the' place annul the consolidation and to set
583
tions as to the amount of capital subscribed or paid in ;

'* nor because
the cash payment required by the statute was not exacted from sub-
aside mortgages of the consolidated and, when made to appear, the

this is
company on the ground that the con- fiction will disregarded by the
be
solidation was fraudulent. But in Hill courts, and the acts of the real par-
V.Beach, 12 N. J. Eq. 31, persona who ties dealt with, as though no such
endeavored to incorporate under the corporation had been formed, on the
laws of New York for the purpose ground that fraud vitiates everything
of carrying on business in New Jer- into which it enters, including the
sey were held liable as partners on most solemn acts of men."
the ground that such attempted in- Fennsylvaiua. Garrett v. Dillsburg
corporation was a fraud on the laws & M. E. Co., 78 Pa. St. 465; Cochran
of New York. And see in this con- V. Arnold, 58 Pa. St. 399, overruling
nection Stout V. Zulick, 48 N. J. L. Paterson v. Arnold, 45 Pa. St. 410;
599, 7 Atl. 362, where the holding in Travaglini v. Societa Italiane, 5 Pa.
Hill V. Beach, supra, is explained. Dist. 441; German Ins. Co. v. Strahl,
New Jones v. Dana, 24 Barb.
York. 13 Phila. 512; Benevolent Order of
395; Palmer v. Lawrence, 3 Sandf. 161. Active Workers v. Sanders, 28 Wkly.
A fraudulent misstatement in the arti- Notes Cas. 321; Donaldson v. Eaben-
cles of a railroad company as to the hold, 5 Berks Co. L. J. 282. Stock-
length of the road will not defeat an holders who participated in the fraud
action by the company. Buffalo & P. cannot procure the appointment of a
B. Co. V. Hatch, 20 N. Y. 157. In receiver on this ground. Hartman v.
United States Vinegar Co. v. Schlegel, Pennsylvania Eange Boiler Co., 9 Pa.
143 N. Y. 537, 38 N. E. 729, afC'g 67 Dist. 560.
Hun 356, 22 N. Y. Supp. 407, it was Whether a consolidation was fraudu-
held that the fact that the promoters lent cannot be inquired into collat-
of a foreign corporation procured its erally in a suit by a stockholder to
incorporation by deceiving the au- annul the consolidation and to set aside
thorities of the state, where it was or- mortgages given by the consolidated
ganized as to their real purpose in company. Bell v. Pennsylvania, S.
forming it, was no defense to an ac- & N. E. E. E. (N. J. Ch.), 10 Atl. 741.
tion by it to recover on a subscrip- 39 Georgia. In Southern Bank v.
tion to its stock. See also Demarest Williams, 25 Ga. 534, it was held that
y. Flack, 128 N. Y. 205, 13 L. E. A. the fact that incorporation was pro-
854, 28 N. E. 645. cured by fraudulent representations as
North Carolina. Holly Shelter E. to the amount of capital paid in, was
Co. V. Newton, 133 N. C. 132, 45 S. E. no defense to an action by the bank
549. against the acceptor of a bill of ex-
Ohio. Benninger v. Gall, 13 Ohio change.
Dec. 581, 1 Cine. Super. Ct. 331. But Maryland. The existence of the
see First Nat. Bank of Chicago- v. corporation could not be collaterally
Trebein Co., 59 Ohio St. 316, 52 N. E. attacked on the ground that the per-
834, in the syllabus of which the court sons whose names were signed to the
says: "A corporation cannot be articles of association, and who were
formed for the purpose of accomplish- represented to the secretary of state
ing a fraud or other illegal act under as corporators, had not paid ten per
the disguise of the fiction [of the cent, of the par value of the stock
separate entity of the corporation]; subscribed for. Laflin & Eand Pow^
584
scribers; *•>
nor because there was a fraudulent overvaluation of prop-
erty taken in payment of subscriptions *^ nor because the secretary
;
of state did not know, when he issued the certificate of incorporation,

that all the incorporators had not signed the articles of incorpora-
tion.** And it has also been held that the good faith of the corporators
in forming the corporation cannot be inquired into in condemnation
proceedings, nor can it be shown as a defense to such proceedings or as
a basis for enjoining the exercise of the power of eminent domain that
the corporation is not in fact a bona fide corporation ^ or that it ;
was fraudulently organized for the purpose of enabling the cor-

porators to exercise the power of eminent domain for their own private
use and benefit.**
der Co. v. Sinsheimer, 46 Md. 315, 560. See also Patterson v. Franklin,
24 Am. Eep. 522. 176 Pa. St. 612, 35 Atl. 205, holding
Massachusetts. See Bice v. Nation- that a receiver of the corporation can-
al Bank of Commonwealth, 126 Mass. not maintain an action for damages
300. against the incorporators because of
Missouri. Webb v. Rockefeller, 195 their fraud in this regard, because
Mo. 6 L. R. A. (N. S.) 872, 93 S.
57, the corporation was benefited rather
W. 772; First Nat. Bank of Dead- than injured by it.
wood, South Dakota v. Rockefeller, 40 Donaldson v. Rabenhold, 5 Berks
195 Mo. 15, 93 S. W. 761; "Webb v. Co. L. J. (Pa.) 282.
Rockefeller, supra, expressly over- 41 State V. "Webb, 110 Ala. 214, 20
rules the contrary holding in Hyatt v. So. 462.

Van Mo. App. 664, 78 S. W.
Riper, 105 48 First Nat. Bank of Deadwood,
1043, and also necessarily overrules South Dakota v. Rockefeller, 195 Mo.
the contrary holdings in Davidson v. 15, 93 S. "W. 761.
Hobson, 59 Mo. App. 130, and cases 43 Co. v. Raymond Gran-
Madera E.
there though not specifically
cited, ite Co., 3 Cal. App. 668, 87 Pao. 27;
mentioning them. Joliff V. Muneie Elec. Light Co., 181
New York. There is a de facto Ind. 650, 105 N. E. 234; Dismal Swamp
corporation from the time when a cer- R. Co. V. John L. Roper Lumber Co.,
tificate of association conforming to 114 Va. 537, Ann. Cas. 1914 C 641,
the terms of the statute is recorded 77 S. B. 598.
and filed, notwithstanding false and 44 The good faith of the incorpora-
fraudulent statements therein as to the tors cannot be inquired into. Ma-
capital subscribed and paid. Palmer dera E. Co. V. Raymond Granite Co.,
V. Lawrence, 8 Sandf. 161. See also 3 Cal. App. 668, 87 Pae. 27. See also
Farnham v. Benedict, 107 N. Y. 159, Union Pac. R. Co. v. Colorado Postal
13 N. E. 784. Tel. Cable Co., 30 Colo. 133, 97 Am.
Pennsylvania, Cochran v. Arnold, St. Eep. 106, 69 Pae. 564; Connolly
58 Pa. St. 399, overruling Paterson v. V. Woods, 13 Idaho 591, 92 Pac. 573;
Arnold, 45 Pa. St. 410. Stockholders Kansas & T. Coal Ey. v. Northwestern
who participated in the fraud cannot Coal & Mining Co., 161 Mo. 288, 51
procure the appointment of a receiver L. R. A. 936, 84 Am. St. Rep. 717, 61
on this ground. Hartman v. Pennsyl- S. W. 684; Postal Tel. Cable Co. of
vania Range Boiler Co., 9 Pa. Dist. Utah V. Oregon Short Line E. Co., 23
585
§288] Private Corpobations [Ch. 10
A reason sometimes given for the latter holding is that if the cor-
poration is in fact a public service corporation it may be compelled
to perform the duties which such corporations owe to the public if it
refuses to perform them voluntarily.** It has been held that in such
a proceeding the landowner cannot raise the question as to whether
the plaintiff is not a corporation in fact, but only a pretended or
"fake" corporation *® nor make the objection that the company is
;
not using the power granted it to condemn land for a steam railway,
but is exercising it for the purpose of securing lands for the construc-
tion of the line of a trolley company which the latter could not law-
fully take because it had not complied with the statute under which
it was incorporated.*'
There is also a conflict of authority as to whether the legal existence
of a corporation may be collaterally attacked on the ground that it
was formed under the laws of one state for the sole purpose of carry-
ing on business in another.*'
§ 289. Bona fide attempt to incorporate. To give an association

the status of a corporation de facto, there must have been, at the very
least, a bona fide attempt to incorporate under the statute.*' The
Utah 474, 90 Am. St. Eep. 705, 65 Pac. S. E. 549; Windsor Glass Co. v. Car-
735; Dismal-Swamp E. Co. v. John L. negie Co., 204 Pa. 459, 54 Atl. 329.
Eoper Lumber Co., 114 Va. 537, Ann. See also Oliver v. Thompson's Eun
Cas. 1914 G 641. Bridge Co., 197 Pa. 344, 47 Atl. 230;
That the corporators of a railroad Chapman v. Trinity Valley & N. Ey.
company were mere agents of a cor- Co., —Tex. Civ. App. , —
138 S. W.
poration which was to furnish all the 440. See also § 310, infra, as to the
money to be paid on their subscrip- right of de facto corporations to ex-
tions, and that the road was solely for ercise the power of eminent domain.
its benefit, and therefore for a private 46 Connolly v. "Woods, 13 Idaho 591,
purpose, is not ground for an injunc- 92 Pac. 573.
tion. National Docks Ey. Co. v. Cen- 46 Postal Tel. Cable Co. of Mon-
tral E. Co. of New Jersey, 32 N. J. tana v. Oregon Short Line E. Co., 114
Eq. 755, rev'g 31 N. J. Eq. 475; "Wel- Fed. 787.
lington & P. E. Co. V. Cashie & C. 47 Sisters of Charity of St. Eliza-
Eailroad & Lumber Co., 114 N. C. 690, beth V. Morris E. Co., 84 N. J. L. 310,
19 S. E. 646. 50 L. E. A. (N. S.) 236, 86 Atl. 954,
The objection that the charter of aff'g 82 N. J. L. 214, 81 Atl. 817.
a railroad company is a fraud upon 48 See § 284, supra.
the public in that the real object is to 49 United States. Tulare Irrigation
operate a lumber road and not a road Dist. V. Shepard, 185 TJ. S. 1, 46 L. Ed.
for the conveyance of freight and 773; Kline Bros. & Co. v. Eoyal Ins.
passengers cannot be raised in con- Co., 192 Eed.
rev'd on other
378,
demnation proceedings. Holly Shelter grounds 198
Fed. 468; Harrill v.
E. Co. V. Newton, 133 N. G. 132, 45 Davis, 168 Fed. 187, 22 L. E. A. (N.
586
Ch. 10] Be Facto Cobpobations [§289
mere assumption of a corporate name will not constitute an association

a corporation de facto where there was never any attempt by the asso-
S.) 1153, rev'g 7 Indian T. 152, 15 Montana. Milwaukee Gold Extrac-

Ann. Cas. 1134, 104 S. W. 573. tion Co. V. Gordon, 37 Mont. 209, 95
Arkansas. Eainwater v. Childress, Pac. 995.
— Ark. — , 182 S. W. 280; Whipple v. New Jersey. Henry v. Simanton,
Tuxworth, 81 Ark. 391, 99 S. W. 86. 64 N. J. Eq. 572, 54 Atl. 153, rev'd on
Callfoniia. Hamilton v. San Diego other grounds 67 N. J. Eq. 606, 61
County, 108 41 Pac. 305;
Gal. 273, Atl. 1065. See also Hill v. Beach, 12
Martin 41 Am.
v. Deetz, 102 Cal. 55, N. J. Eq. 31; Booth v. Wonderly, 36
St. Rep. 151, 36 Pac. 368; People v. N. J. L. 250.
Volcano Canyon Toll-Road Co., 100 New York. Von Lengerke v. New
Cal. 87, 34 Pac. 522; Oroville & V. E. York, 150 App. Div. 98, 134 N. Y.
Co. V. Supervisors of Plumas Co., 37 Supp. 832, aff'd 211 N. Y. 558, 105 N.
Cal. 354. E. 1101; Stevens v. Episcopal Church
History Co., 140 App. Div. 570, 125 N.
Colorado. Jones v. Aspen Hardware
Y. Supp. 573; Emery v. De Peyster,
Co., 21 Colo. 263, 269, 29 L. E. A. 143,
77 App. Div. 65, 78 N. Y. Supp. 1056;
52 Am. Rep. 220, 40 Pac. 457; Dug-
St.
gan V. Colorado Mortg. & Inv. Co., 11 Card v. Moore, 68 App. Div. 327, 74
N. Y. Supp. 18, aff'd 173 N". Y. 598,
Colo. 113-, 17 Pac. 105.
66 N. E. 1105; Welsh v. Old Domin-
Illinois. Gillette v. Aurora Rys. Co.,
ion Min. & Ey. Co., 56 Hun 650, 10 N. Y.
228 111. 261, 81 N. E. 1005; Marshall v.
Supp. 174; Perrine v. Levine, 68 Misc.
Keach, 227 111. 35, 118 Am. St. Eep.
327, 123 N. Y. Supp. 1007; Bradley
247, 10 Ann. Cas. 164, 81 N. E 29;
Fertilizer Co. v. South Pub. Co., 4
Bushnell v. Consolidated Ice Mach.
Misc. 172, 23 N. Y. Supp.- 675, rev'g 1
Co., 138 111. 67, 27 N. E. 596; Concord
Misc. 512, 21 N. Y. Supp. 472, 44 N.
Apartment House Co. v. Alaska Re-
Y. St. Eep. 119, 17 N. Y. Supp. 587,
frigerator Co., 78 111. App. 682.
rev'g 39 N. Y. St. Eep. 218, 14 N. Y.
Indiana. Doty v. Patterson, 155 Ind. Supp. 917; motion for leave to appeal
60, 56 N. E. 668; Farmers' Mutual v. denied 6 Misc. 128, 26 N. Y. Supp. 4;
Eeser, 43 Tnd. App. 634, 88 N. E. 349; Van Buren v. Eeformed Church of
Huntington Mfg. Co. v. Sehofield, 28 Gansevoort, 62 Barb. 495.
Ind. App. 95, 62 N. E. 106. Tesas. McLeary v. Dawson, 87
Kansas. Papa v. Capitol Bank, 20 Tex. 524, 29 S. W. 1044, rev'g (Tex.
Kan. 440, 27 Am. Eep. 183; McLennan Civ. App.) 25 S. W. 705; Allen v.
V. Hopkins, 2 Kan. App. 260, 41 Pae. Long, 80 Tex. 261, 26 Am. St. Eep.
1061. 735, 16 S. W. 43; Eoaring Springs
Massachusetts. Montgomery v. Townsite Co. v. Paducah Tel. Co., —
Forbes, 148 Mass. 249, 19 N. E. 342. Tex. Civ. App. —
, 164 S. W. 50.
Utah. Mitchell v. Jensen, 29 Utah

Michigan. Baton v. Walker, 76
346, 81 Pac. 165.
Mich. 579, 6 L. E. A. 102, 43 N. W.
Washington. Bash v. Culver Gold
638.
Min. Co., 7 Wash. 122, 34 Pac. 462.
Minnesota. Healey v. Steele Center Wisconsin. Gilman v. Druse, 111
Creamery Ass'n, 115 Minn. 451, 133 Wis. 400, 87 N. W. 557.
N. W. 69; Finnegan v. Noerenberg, 52 "To give a body of men assuming
Minn. 239, 18 L. E. A. 778, 38 Am. St. to act as a corporation, where there
Eep. 552, 53 N. W. 1150. has been no attempt to comply with
587
§289] Private Cobpoeations [Ch. 10
elates to organize themselves into a corporation.^'* Nor is a de facto

corporation created by merely taking out a license to open books for
the provisions of any law authorizing A mere general statement by a mem-

them to become such, the status of a ber of the alleged corporation that
de facto corporation might open the the corporation was duly organized
door to frauds upon the public. It is not sufficient to show such an at-
would certainly be impolitic to per- tempted organization. Von Lengerke
mit a number of men to have the sta- V. New York, 150 N. Y. App. Div. 98,
tus of a corpci!ration to any extent 134 N. Y. Supp. 832, aff'd 211 N. Y.
merely because there is a law under 558, 105 N. B. 1101. See also State
which they might have become in- V. Ford County, 12 Kan. 441, holding
corporated, and they have agreed that there was no de facto county or-
among themselves "to act, and they ganization prior to the completion of
have acted, as a corporation." Per the proceedings for the organization
GrilfiHan, C. J., in Finnegan v. Noeren- of the county.
berg, 52 Minn. 239, 243, 18 L. E. A. 50 Forbes v. V^hittemore, 62 Ark.
778, 38 Am. St. Eep. 552, 53 N. W. 229, 35 S. W. 223. Such is the case
1150, quoted with approval in Harrill where an individual operates a toll
V. Davis, 168 Fed. 187, 22 L. E. A. road under a corporate name, but
(N. S.) 1153, rev'g 7 Indian T. 152, without officers or directors and with-
15 Ann. Gas. 1134, 104 S. W. 573. out acting in corporate form. Peo-
In Kline Bros. & Co. v. Eoyal Ins. ple v. Volcano Canyon Toll-Eoad Co.,
Co., 192 Fed. 378, it is said: "The loo Cal. 87, 34 Pae. 522.
doctrine of de facto corporations only A bank owned exclusively by a pri-
helps out a corporation in Whose or- vate individual is not a corporation de
ganization there has been some de- facto though its business is conducted
fect after the incorporators have bona by a president and cashier, where ar-
fide completed all the steps that they ticles of incorporationhave never been
meant to take. It implies that they adopted and has no board of di-
it
have in good faith completed the or- rectors and has never pretended to
ganization so far as they understood possess or exercise corporate powers.
the statutory requirements^ but that Longfellow v. Barnard, 59 Neb. 455,
their understanding of those require- 8'1 N. W. 307, 58 Neb. 612, 76 Am. St.
ments is defective. '

' The circuit Eep. 117, 79 N. W. 255.
court in this ease hisld that the doc- VPhere parties make no pretense
trine had no application to a case whatever to an organization, but
where a policy of insurance was issued siiiiply take a corporate name and
before the incorporation of the insured commence business, they are liable as
was completed, where the incorpora- partners. Cincinnati Cooperage Co. v.
tors knew what the requirements Bate, 96 Ky. 856, 49 Am. St. Eep. 300,
of the law were and subsequently fully 26 S. W. 538, aff'g 14 Ky. L. Eep.
complied with them, so that the ebi:- 469. See in this connection Drake v.
poration became one de jure. A judg- Herndon, 122 Ky. 206, 91 S. W. 674.
ment for the plaintiff in this case was In MeKenney v. Bowie, 94 Me. 397,
reversed by the Circuit Court of Ap- 47 Atl. 918, it was held that members
peals (198 Fed. 468) on the ground Of an agricultural society signing a
that the provisions of the policy had note were individually liable thereon,
been violated, the court expressly de- where there was no evidence that any
clining to consider any other question. application was ever made to a jus-
588
Ch. 10] Db Facto Cokpoeations [§289
stock subscriptions,^^ nor by merely obtaining a charter,^^ nor is it

sufficient toshow -that there is a law under which they might have
incorporated and that they agreed to form a corporation and have
acted as such;*^ but there must have been "an apparent attempt to
perfect an organization under the law, ** and some of the statutory
'
'
steps must have been taken in an honest attempt to comply with its
requirements.**
'
There must also be something more tangible and effective than a
'
;
mere mental operation in the direction of what is intended " *® or a
tice of the peace for a warrant to call 85 Eainwater v. Childress, — Ark.
a,meeting for the organization of a — , 182 S. W. 280; Stevens v. Episco-
corporation, or that any such war- pal Church History Co., 140 N. Y. App.
rant was ever issued. Div. 570, 125 N. Y. Supp. 573; Dewitt
51 Petrue v. Wakem & McLaughlin, V. Hastings, 40 N. Y. Super. Ct. (8 J.
99 ni. App. 463. & S.) 463, aff'd 69 N. Y. 518; Guth-

rie V. Wylie, 6 Okla. 61, 55 Pae. 103.
52 '
' Individuals who embark in a
The mere signing of a subscrip-
business cannot escape personal lia-
tion contract with the intention of
bility because prior thereto they had
forming a corporation is not enough,
secured a charter to conduct a busi-
where no steps whatever are taken
ness of the character in which they
towards its organization. Eainwater
have engaged," but in addition
thereto, "they must do some act
V. Childress, — Ark. — , 182 S. W. 280.
66 McLennan v. Hopkins, 2 Kan.
manifesting an attempt at corporate
App. 260, 41 Pac. 1061.
organization." So the mere obtain-
ing of a charter will not constitute
A mere unexecuted intention to be-
come a corporation will not relieve
them a corporation de facto where
the associates in a business from li-
they do no act indicating an accep-
ability as partners. Martin v. Fewell,
tance of it, or colorable compliance
79 Mo. 401.
with its requirements. Brooke v. Day,
One who takes part in preliminary
129 Ga. 694, 59 S. E. 769.
proceedings looking towards the for-
63 Eainwater v. Childress, — Ark. mation of a corporation and is chosen
— , 182 S. W. 280; Finnegan v. Noe-
as a director at a preliminary meeting
renberg, 52 Minn. 239, 18 L. R. A. 778,
held before the filing of articles of
38 Am. St. Eep. 552, 53 N. W. 1150;
incorporation, but who later refuses
Guthrie v. Wylie, 6 Okla. 61, 55 Pac.
to act further as such director and
103.
whose place is filled by another, can-
64 Finnegan v. Noerenberg, 52
Minn. not be held an assessment
liable for
239, 18 L. E. A. 778, 38 Am. St. Eep. levied by the reOr-ganized board before
552, 53 N. W. 1150; Kwapil v. Bell incorporation, oli'the theory that there
Tower Co., 55 Wash. 583, 104 Pac. was a de facto" corporation, where he
824. Where there is no attempt to took no further part in the incorpora-
comply with the terms of the statute tion, and the articles did not purport
relative to incorporation, the members to include' as members all persons who
are liable as partners. .Hanstein v. had previously acted as directors nor
Johnson, 112 N. C. 253, 17 S. E. 155; in any way recognize them by name.
Bain v. Clinton Loan Ass 'n, 112 N. Middle Branch Mut. Tiel. Co. v. Jones^
C. 248, 17 S. E. 154. 137 Iowa 396, 115 K W. 3,
589
'
§ 289] Peivate Cokpoeations [Oh. 10
"mere physical organization, or formal arrangement into a working

promoters of the enterprise;"" and "something must
force, of the
be done beyond the mere transaction of business in the manner and
form usually adopted by corporations. ** '
'
'
The steps taken and the attempt made must, to some extent and
'
in some degree, have resulted in the effecting of those things which

the law designates as prerequisites to a corporate existence, however
informal and irregular such proceedings and results may be."*'
If there was no intention to incorporate and no effort to do so, the
association cannot be held to be a de facto corporation.®" So where
partners do not intend to form a corporation, but merely to carry on
business under a corporate name, and deliberately intend to stop short
of complete incorporation, there is no de facto corporation as between
them though some of the statutory steps to incorporate are taken.**
And where a single individual took all the stock in a pretended cor-
poration and the other persons who signed the articles were his asso-
ciates in name only, and the statement in the articles as to the place
where the business was to be carried on was knowingly false, it was,
held that there was no corporation and that such individual was
personally liable on contracts made in the corporate name, even
though he believed that there was a valid corporation.*^ But it has
been held that, where the requirements for organization under a
special charter and under a general law are substantially the same,
57 McLennan v. Hopkins, 2 Kan. a president and cashier. Longfellow

App. 260, 41 Pae. 1061. v. Barnard, 58 Neb. 612, 76 Am. St.
58 McLennan v. Hopkins, 2 Kan. Eep. 117, 79 N. "W. 255.
App. 260, 41 Pae. 1061. 61 Card v. Moore, 68 N. Y. App. Div.
69 McLennan v. Hopkins, 2 Kan. 327, 74 N. Y. Supp. 18, aff'd 173 N.
App. 260, 41 Pae. 1061. Y. 598, 66 N. E. 1105.
60 See People v. Reclamation Dist. 62 Montgomery v. Forbes, 148 Mass.
No. 556, 130 Cal. 607, 63 Pae. 27; 249, 19 N. E. 342. In this case the
Farmers' Mutual v. Eeser, 43 Ind. court says: "Here there was no cor-
App. 634, 88 N. E. 349. This is true poration. It was just the same as if
where it does not appear that the the defendant had done nothing at all
association ever attempted or desired in the way of organizing a corpora-

to be a body corporate. Atchison v. tion, but had conducted his business
Crawford County Farmers' Mut. Fire under the name the 'Forbes Woolen-
Ins. Co., 192 Mo. App. 362, 180 S. W. Mills,' calling it a corporation. The
438. business was his personal business,
An
unincorporated bank exclusively which he transacted under that name,
owned by one person, and which never * * * He
cannot escape responsibility
pretended to be a corporation, was held for purchases by the device of
his
not to be a corporation de facto, al- putting such a mere name between
though the business was conducted by himself and the plaintiffs. '
590
it is sufficientto constitute a de facto corporation under the general

law an attempt to organize under the special charter, though
if there is
it is unconstitutional, and though there has been no attempt to or-
ganize under the general law.®' There are some cases which seem to
omit this requirement of a bona fide attempt to incorporate, and to
hold that to show a user of corporate powers under
it is sufficient
color of authority from the state, but it is believed that in most

instances, at least, an examination of them will show that there was
in fact an attempt to comply with the provisions of the statute.®*
63 Georgia Southern & F. E. Co. v. Powder Co. v. Sinsheimer, 46 Md. 315,

Mercantile Trust & Deposit Co., 94 24 Am. Eep. 522. But in all these cases
Ga. 306, 32 L. E. A. 208, 47 Am. St. itappears that an attempt had been
Eep. 153, 21 S. E. 701. made to comply with the statute, and
64 For example, in Methodist Epis- some of its provisions had been com-
copal Union Church v. Pickett, 19 N. plied with.
Y. 482, afE'g 23 Barb. 436, it is said In Finnegau v. Noerenberg, 52
that: "Two things are necessary to Minn. 239, 18 L. E. A. 778, 38 Am. St.
be shown in order to establish the ex- Eep. 552, 53 N". W. 1150, it is said
istence of a corporation de facto, viz.: that the statement of the essentials
1. The existence of a charter, or some in East Norway Lake Church v. Prois-
law under which a corporation with lie, 37 Minn. 447, 35 N. "W. 260, which
the powers assumed might lawfully was apparently adopted from Metho-
be created; and, 2, a user by the dist Episcopal Church v. Pickett,
party to the suit, of the rights claimed supra, is defective in that it leaves
to be conferred by such charter or out of account any attempt to organ-
law." But it appears that there ac- ize under the charter or law.
tually was an attempt to organize In Eaton v. Walker, 76 Mich. 579,
under the statute. The requirements 585, 6 L. E. A. 102, 43 N. W. 638,
as stated in the above case were quoted Long, J., said: "Two things are
in Van Buren v. Eeformed Church of necessary to be shown in order to es-
Gansevoort, 62 Barb. (N. Y.) 495, but tablish a corporation de facto, viz.:
it was held that there was not even 1. The existence of a charter or some
a de facto corporation where there law under which a corporation, with
was no special charter and no attempt the powers assumed, might lawfully
to incorporate under the general law. be created. 2. A
user by the party to
In Jones v. Dana, 24 Barb. (N. Y.) the suit of the rights claimed to be
395, it is said: "If the company had conferred by such charter or law."
in form a charter authorizing it to act In the very next sentence, however,
as a body corporate, and was in fact he goes on to say: "If the law ex-
in the exercise of corporate powers at ists, and the record exhibits a bona
the time of its dealings with the fide attempt to organize under it, very
plaintiffs then it was, as to them and slight evidence of user beyond this
all third persons, a corporation de is all that can be required."
facto." And this statement is quoted In Osborn v. People, 103 111. 224, it
with approval in Miller v. Perris Ir- is said that a plea of nul tie! corpora-
rigation Dist., 85 Fed. 693; Dean v. by a corporation "is
tion in an action
Davis, 51 Cal. 406; Laflin & Band overcome when the corporation proves
591
'
§290] Pbivate Coepoeations [CL 10
§ 290. Compliance with provisions of statute or charter În gen- —

eral. The authorities are agreed that to constitute a body of men
a de facto corporation, there must be at least a colorable or apparent
compliance with statutory requirements. Mere assumption of cor-
porate powers under a statute authorizing incorporation, without an
organization in apparent or colorable compliance with the statute,
does not give corporate existence either de jure or de facto.®* But
there is much conflict in the decisions as to just how far the pro-
it is known and transacts business Callfoinia. McCallion v. Hibernia

under that name," but it appears that Savings & Loan Society, 70 Cal. 163,
the forms required by the statute for 12 Pac. 114; Oroville & V. E. Co. v.
the organizing of drainage districts Supervisors of Plumas Co., 37 Cal.
had been complied with. 354.
In Miami Powder Co. v. Hotchkiss, Colorado. Jones v. Aspen Hardware
17 111. App. 622, it is said that the Co., 21 Colo. 263, 29 L. E. A. 143, 52
essentials are the existence of a char- Am. St. Eep. 220, 40 Pac. 457; Dug-
ter or law under which a corporation gan Colorado Mortg. & Inv. Co., 11
V.
with the powers assumed might exist, Colo. 113, 17 Pac. 105.
and user of corporate powers, but it Georgia. Brooke v. Day, 129 Ga.
appears from the opinion that a cer- 6S4, 59 S. E. 769; Georgia Southern &
tificate of incorporation had been r. E. Co. V. Mercantile Trust & De-
issued, and hence that some of the posit Co., 94 Ga. 306, 32 L. E. A. 208,
statutory steps had been taken. 47 Am St. Eep. 153, 21 S. E. 701. See
In Lakeside Ditch Co. v. Crane, 80 also Ward-Truitt Co. v. Bryan & Lamb,
Cal. 181, 22 Pac. 76, it is said that 144 Ga. 769, 87 S. E. 1037.
the corporation in question was rec- Illinois. Gillette v. Aurora Eys. Co.,
ognized in the community as a cor- 228 111. 261, 81 N. E. 1005; Loverin v.
poration and acted as such, and that McLaughlin, 161 111. 417, 44 N. E. 99;
the evidence was suflB.cient to support Gent V. Manufacturers' & Merchants'
a finding that it was a corporation, Mut. Ins. Co., 107 111. 652; Bigelow
acting in good faith as such, so that V. Gregory, 73 HI. 197,
it came within the terms of a statute Iowa. Kaiser v. Lawrence Sav.
prohibiting collateral inquiry into the Bank, 56 Iowa 104, 41 Am. St. Eep.
due incorporation of any company, 85, 8 N. W. 772.
"claiming in good faith to be a cor-
Kansas, Walton v. Oliver, 49 Kan.
poration, and doing business as such. '
Am. St. Eep. 355, 30 Pac. 172;

107, 33
It does not appear that no attempt
McLennan v. Hopkins, 2 Kan. App.
tocomply with the statute was made,
260, 41 Pae. 1061.
and the California cases previously
Maine. Eichmond Factory Ass 'n v.
cited in this section willshow that ';
Clarke, 61 Me. 351.

such an attempt' is necessary before"'
it can be said that the company is
Massacliusetts, Montgomery v.
'
' claiming, in good faith to be a cor- Forbes; 148 Mass. 249, 19 N. E. 342;
poration." Utley v. Union Tool Co., 11 Gray 139.
65 Arkansas. Rainwater v. Chil- Michigan. Eaton v. Walker, 70
dress, Ark. — —182 S. W. 280; Whip-
, Mich. 579, 6 L. E. A. 102, 43 N. W.
ple V. Tuxworth, 81 Ark. 391, 99 S. 638; Doyle v. Mizner, 42 Mich. 332, 3
W. 86. N. W. 968.
592
Ch. 10] Db Facto Cobpoeations [§291
visions of the statute whether and how

must be followed, and as to
far compliance with conditions precedent must be shown. Some
of the cases hold that a substantial compliance with all conditions
precedent is necessary. Others hold, or seem to hold, that no com-
pliance at all with conditions precedent is necessary. And others
range between these two extremes. Indeed it is sometimes difiScuIt,
®^
if not impossible, to reconcile decisions, in the same state.
Statutes in some states make the stockholders individually liable

for corporate debts in case there is a failure to comply substantially
with the statutory conditions precedent, and, where this is the case,
substantial compliance must be shown in order to relieve them from
such liability.*''
§ 291. — View that substantial compliance necessary. In a num-

ber of states it seems to have been held that if a general laW author-
Minnesota. Johnson v. Okerstrom, 105 Wis. 41, 49 L. R. A. 483, 81 N. W.

70 Minn. 303, 73 N. W. 147; Johnson 120; Bergeron v. Hobbs, 96 Wis. 641,
V. Corser, 34 Minn. 355, 25 N. W. 799. 65 Am. St. Eep. 85, 71 N. W. 1056.
Missouri. Hurt v. Salisbury, 55 Mo. There must be color of legal organ-
310. ization under the statutes. Eainwater
Montana. Teitig v. Boesman, 12 V. Childress, —
Ark. , —
182 S. W.
Mont. 404, 31 Pac. 371. 280.
New Jersey. Oottentin v. Meyer, There must be color of incorporation
80 N. J. L. 52, 76 Atl. 341; Stout v. or apparent corporation. Harrill v.
Zuliek, 48 N. J. L. 599, 7 Atl. 362; Davis, 168 Fed. 187, 22 L. E. A. (N.
Union Water Co. v. Kean, 52 N. J. S.) 1153, rev'g 7 Indian T. 152, 15
Eq. Ill, 27 Atl. 1015. Ann. Cas. 1134, 104 S. W. 573.
New York. Card v. Moore, 68 App. Where there is no attempt to com-
Div. 327, 74 N. Y. Supp. 18, aff'd 173 ply with the terms of the statute rela-
N. Y. 598, 66 N. E. 1105; Lamming tive to incorporation, the members are
V. Galusha, 81 Hun 247, 30 N. Y. Supp. liable as partners. Hanstein v. John-
767, afE'd 151 N. Y. 648, 45 N. E. son, 112 N. C. 253, 17 S. E. 155; Bain
1132; Perrine v. Levin, 68 Misc. 327, V. Clinton Loan Ass'n, 112 N. C. 248,
123 N. Y. Supp. 1007; Dewitt v. Hast- 17 S. E. 154. See Coler v. Dwight
ings, 40 Super. Ot. (8 J. & S.) 463, School Tp., 3 N. D. 249, 264, 28 L. E.
aff'd 69 N. Y. 518. A. 649, 55 N. W. 587, holding that
North Carolina. Wilmington & M. a school township was a de facto
E. Co. V. Wright, 5 Jones 304. municipal corporation and distinguish-
Ohio. Society Perun v. Cleveland, ing Dartmouth Sav. Bank v. School
43 Ohio St. 481, 3 N. E. 357. Dists. Nos. 6 & 31, 6 Dak. 332, 43
Oregon. McVicker v. Cone, 21 Ore. N. W. 822, on the ground that in
353, 28 Pae. 76. the latter case "it might be said that
Pennsylvania. Guekert v. Hacke, there was no color of organization."
159 Pa. St. 303, 28 Atl. 249. See § 278 and § 281, supra.
Washington. Bash v. Culver Gold 66 See §§ 291-301, infra.
Min. Co., 7 Wash. 122, 34 Pac. 462. 67 See Chap. 17.
Wisconsin. Gilkey v. Town of How,
593
I Priv. Corp.—38
291] Pbivate Coepobations [Ch. 10
izing the formation of corporations requires certain steps to be taken,

and expressly or impliedly makes compliance with such requirements
a condition precedent to the existence of corporate powers, failure to
comply substantially with any one of such conditions precedent will
prevent the coming into existence of a corporation either de jure or
de facto, and that the omission may be taken advantage of collaterally
as well as directly, and in any action or proceeding in which the
question of incorporation may be properly in issue,^' unless there is
68 United States. Griffin v. Clinton ing to condemn where it does not ap-
Line Extension E. Co., Fed. Cas. No. pear that the statutory conditions
5,816. precedent have been complied with.
Kansas. See Central Nat. Bank of The introduction of a duly certified
Junction City v. Sheldon, 86 Kan. 460, copy of the articles of incorporation
121 Pac. 340, where it is said that the will make out a prima facie case of in-
incorporators cannot be held person- corporation, however. Warden v. Madi-
ally liable on contracts made or debts sonville, H. & E. E. Co., 128 Ky. 563,
incurred in the name of the corpo- 108 S. W. 880.
ration if there has been a substan- Maryland. National Shutter Bar
tial compliance with the statute. In Co. V. Zimmerman & Co., 110 Md. 313,
McLennan v. Hopkins, 2 Kan. App. 73 Atl. 19; Maryland Tube & Iron
260, 41 Pac. 1061, it is said: "That Works V. West End Improvement Co.,
a substantial, though imperfect and 87 Md. 207, 39 L. B. A. 810, 39 Atl.
and irregular, compliance with the 620; Bonaparte v. Baltimore, H. & L.
law," will create a de facto corpo- E. E. Co., 75 Md. 340; Boyce v. Tow-
ration. In reference to tlie associa- sontown Station of M. E. Church, 46
tion in question in that case, it was Md. 359. But see Keene v. Van Eeuth,
said: "There was no substantial com- 48 Md. 184; Laflin & Eand Powder Co.
pliance with the law, and there could V. Sinsheimer, 46 Md. 315, 24 Am. Eep
be no de facto corporation." In the 522.

latter however, there was not
ease, Tennessee. The rule stated in the
even a colorable compliance with the text appears to have been adopted in
statute, for there was an entire fail- Tennessee. In Shields v. Clifton Hill
ure to execute and file articles of in- Land 94 Tenn. 123, 26 L. E. A.
Co., .
corporation. And in the former case 509, 45 Am. St. Eep. 700, 28 S. W.
the indebtedness sued on was incurred 668, it is said: "There can be no
before any part of the capital stock doubt that persons assuming to act
had been subscribed or paid. under a charter, invalid because some
Kentucky. In Kentucky it is held positive requirement of the law has
that where the corporation is organ- not been complied with, are liable as
ized as the statute requires, neither individuals for all debts contracted by
its purpose nor its validity can be them in the name of such corpora-
inquired into collaterally. Calor Oil tion." And a charter was held void
& Gas Co. V. Franzell, 128 Ky. 715," because the acknowledgment of the
36 L. R. A. (N. S.) 456, 109 S. "W. proposed incorporators was made be-
328. But in condemnation proceed- fore a notary instead of the clerk of
ings, at least, the defendant may deny court. In Brewer v. State, 7 Lea 682,
the incorporation of the company seek- it was held that a person indicted for
594
some element of estoppel.^' In this connection it has been said that

"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." And it was further
added that "In respect any material omission will be
to the former,
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 incorpora-
tion is responsible only to the government in a direct proceeding to
'
forfeit the charter.
'
'"
§ 292. —
View that colora.ble compliance sufficient. The view that
there cannot be a corporation de facto without a substantial com-
pliance with all conditions precedent cannot be sustained either in
reason or on principle, and it is opposed to the decided weight of
authority. A substantial compliance with all conditions precedent
will make a corporation de jure, and therefore, to hold that this much
is necessary to give rise to a corporation de facto, does away alto-
gether with the necessity for the doctrine in relation to de facto
selling liquor within four miles of an 70 Colorado. Jones v. Aspen Hard-

incorporated institution of learning ware 21 Colo. 263, 29 L. E. A.
Co.,
could not be convicted where the in- 143, 52 Am. St. Eep. 220, 40 Pae. 457;
corporators of such institution had not Humphreys v. Mooney, 5 Colo. 282.
registered the certificate of incorpora- Iowa. Kaiser v. Lawrence Sav.
tion issued by the secretary of state Bank, 56 Iowa 104, 41 Am. Rep. 85,
and the facsimile of the seal of the 8 N. W. 772.
state. This case is referred to in Maryland. Maryland Tube & Iron
Carpenter 102 Tenn. 462,
v. Prazier, "Works V. West End Improvement Co..
52 S. W. 858, as sustaining the rule 87 Md. 207, 39 L. E. A. 810, 39 Atl
that when compliance with certain 620.
statutory requirements is made a Missouri. Granby Mining & Smelt
condition of corporate life, noncompli- ing Co. V. Eichards, 95 Mo. 106, 8 S,
ance is fatal, and the corporation can- W. 246.
not be viewed as a de facto concern, Ifebraska. Abbott v. Omaha Smelt
but it is held that the rule was inap- ing & Eefining Co., 4 Neb. 416.
plicable to the case at bar because This rule is also stated in Moke
there had been a substantial compli- lumne Hill Canal & Mining Co. v
ance with the statute. Though this Woodbury, 14 Cal. 424, 73 Am. Dec
view was apparently not followed in 658. And see also, to the same effect,
Tennessee Automatic. Lighting Co. v. Elgin Nat. Watch Co. v. Loveland-
Massey (Tenn. Ch.), 56 S. W. 35, it is 132 Fed. 41; National Shutter Bar Co,
to be noted that in that case the ele- v. Zimmerman & Co., 110 Md. 313, 73
ment of estoppel was present. Atl. 19; Boatmen's Bank v. Gillespie,
69 See § 276, supra. 209 Mo> 217, 108 S. W. 74. But as
595
292] Peivate Ookporations [Ch. 10
corporations. In reason, it is too clear to adfuit of question that some-

thing less required for a corporation de facto than is necessary for
is
a corporation de jure. According to the weight of authority, there-

fore, it is sufficient to constitute a de facto corporation if there has
been a colorable or apparent compliance with the requirements of
the charter or general law under which incorporation is attempted,
and it is immaterial that the requirements which have not been sub-
stantially complied with were intended by the legislature as condi-
tions precedent to the exercise of corporate powers.'^
shown in § 292, infra, this rule does no longer obtains in view of the
not now obtain in California, Colorado statutory provision that the due in-
or Nebraska. See criticism of rule in corporation of any company claiming
Lamming Galusha, 81
v. Hun (N. Y.) in good faith to be a corporation, and
247, 30 N. Y. Supp. 767, affi'd 151 N. doing business as such, shall not be
Y. 648, 45 N. E. 1132. inquired into collaterally in any pri-
71 United States. Stokes v. Pindlay, vate suit to which such de faeto cor-
4 McCrary 205, Fed. Cas. No. 13,478. poration shall be a party. "Many of
Alabama. Central of Georgia E. the acts required to be performed in
Co. V. Union Springs & N. R. Co., 144 order to make a complete organiza-
Ala. 639, 2 L. R. A. (N. S.) 144, 39 tion of the corporation may have been
So. 473. irregularly performed, or some of them
Arkansas. Rainwater v. Childress, may have been entirely omitted, and
— Ark. ,—182 S. W. 280; Bank of the rule of the statute is, that such
Midland v. Harris, 114 Ark. 344, Ann. irregular or defective performance
Cas. 1916 B 1255, 170 S. W. 67; Whip- shall not defeat the incorporation
ple V. Tuxworth, 81 Ark. 391, 99 S. when drawn into question collater-
W. 86. See also Steele v. Hughes, 104 ally." Oroville &
V. E. Co. v. Super-
Ark. 517, 149 S. "W. 336. visors of Plumas Co., 37 Cal. 354,
Califoniia. In Mokelumne Hill Ca- quoted with approval in Bakersfield
nal & Mijiing Co. v. Woodbury, 14 Cal. Town Hall Ass'n v. Chester, 55 Cal.
424, 73 Am. Dec. 658, the court lays 98. In Harris v. McGregor, 29 Cal.
down the rule that where the corpora- 124, it is said that there must be at
tion is formed under a general statute, least a substantial compliance with
substantial compliance with conditions conditions precedent before the cor-
precedent must be shown, and that any poration can be considered in esse, but
material omission in this regard will in Pacific Bank v. De Ro, 37 Cal.
be fatal to the existence of the corpo- 538, it is pointed out that the
ration and may be taken advantage statute was not referred to in
of collaterally in any form of action that case, that the was not
action
in which the fact of incorporation one to which the corporation whose
can properly be called in question, existence was attacked was a party,
but holds that the filing of a dupli- and that no attempt was made to
cate certificate of incorporation in prove that it was a corporation de
the of&ce of the secretary of state is facto. See also § 291, supra, and eases
not such a condition, and that the there cited.
failure to file it cannot be taken ad- Colorado. The rule stated in the
vantage of collaterally. But this rule text is adopted in Duggan v. Colorado
596
Ch. 10] Db Facto Corpobations [§292
Or, to state the rule in another way, "the failure as to some sub-
Mortg. & Inv. Co., 11 Colo. 113, 116, 17 nized in violation of a positive Isiw.
Pac. 105, where the court, in the Oounectlcut. Canfield v. Gregory,
course of its opinion, says: are "We 66 Conn. 9, 33 Atl. 536.
aware of the distinction between mere . Idaho. Even a failure to perform
omissions or irregularities, and what conditions precedent Can be inquired
are called 'prerequisites' of the stat- into by the state only. Boise City
utes. The distinction may well be Canal Co. Pinkham, 1 Idaho 790.
v.
taken in a direct proceeding or other Illiuois. Gunderson v. Illinois Trust
exceptional cases where strict proof & Savings Bank, 199 111. 422, 65 N. E.
is required, but we do not regard it 326, afe'g 100 111. App. 461; Bushnell
as having any controlling place in the V. Consolidated lee Mach. Co., 138
case at bar. "What is or what is not 111. 67, 27 N. E. 596; Hudson v. Green
a prerequisite is often a difficult ques- Hill Seminary Corporation, 113 III.

tion for a professional man, and much 618.
more for a layman, to determine. To Indiana. Heaston v. Cincinnati &
cast such a burden upon the public Ft. W. E. Co., 16 Ind. 275, 79 Am. De;e.
as between its individual members is 430.
to lose sight of the reason for, and Louisiana. The statute now prohibits
largely abrogate,
the salutary rule collateral attacks on the existence
respecting de facto corporations." In of a corporation which has executed,
Humphreys v. Mooney, 5 Colo. 282, recorded and published its char-
the court refers to the other rule, but ter, except in the ease of insurance or
goes no further than to hold that a banking corporations, or those having
requirement that the articles should the right to exercise the power of
specify whether the stock was assess- eminent domain. Act No. 78 of 1894.
able or nonassessable was not a con- In Bond & Braswell v. Scott Lumber
dition precedent, and that a failure Co., 128 La. 818, 55 So. 468, the court
to observe it would not prevent the says: "It is quite evident that, if
corporation from being one de facto there had been no mistakes, omissions,
even under that rule. The holding in irregularities, or defects in the pro-
Jones V. Aspen Hardware Co., 21 Colo. ceedings, the result would have been
263, 29 L. R. A. 143, 52 Am. St. Eep. a perfect de jure corporation" to
220, 40 Pac. 457, that there can be no which the statute would have no appli-
corporation de facto where the statu- cation. The statute is "intended to
tory fee for filing the articles of in- apply in cases where there have been
corporation has not been paid, is not mistakes, or omissions, and where the
in conflict with this rule. It was law has not been complied with, and
based on a statute providing that no it applies (to quote the language)
corporation "shall have or exercise 'wherever parties have attempted to
any corporate powers or be permit- form a corporation and have exe-
ted to do any business in this state cuted, recorded, and published the
until the said fee shall have been charter.' " In this case the statute
paid," and the court said that to rec- was held applicable where one of
ognize the defendant as a de facto the three incorporators required by the
corporation would be in direct con- statute was ineligible. Some of
flict with the express language of the the earlier cases decided before the
act, and applied the rule that a de adoption of the statute seem to have
facto corporation can never t)e recog- required a substantial compliance. See
597
stantial requirement will prevent the body being a corporation de
Williams v. Hewitt, 47 La. Ann. 1076, ports, although its articles filed are
49 Am. St. Rep. 394, 17 So. 496; in some particular defective. I see
Spencer Field & Co. v. Cooks, 16 La. no reason why it does not then stand
Ann. 153. on the same footing as does a corpora-
Michigan. Eaton v. Walker, 76 tion de factowhose charter has come
Mich. 579, 6 L. E. A. 102, 43 N. W. from legislative enactment,
directly
638. and by which certain conditions made
Minnesota. Healey v. Steele Center requisite to its creation or organiza-
Creamery Ass'n, 115 Minn. 451, 133 tion have not been performed." Lam-
N. W. 69; Johnson v. Okerstrom, 70 ming V. Galusha, 81 Hun 247, 30 N.
Minn. 303, 73 N. W. 147; Finnegan v. Y. Supp. 767, 151 N. Y. 648, 45
aflf'd
Noerenberg, 52 Minn. 239, 18 L. E. A. N. E. 1132; Buffalo & A. E. Co. v.

778, 38 Am. St. Eep. 552, 53 N. W. Cary, 26 N. Y. 75; Methodist Episco-
1150. pal Union Church v. Pickett, 19 N. Y.
Nebraska. Lusk v. Eiggs, 70 Neb. 482; Eaton v. Aspinwall, 19 N. Y. 119.
718, 102 N. W. 88. North Caiollna. Tar Eiver Nav.
New Jersey. Stout v. Zulick, 48 N. Co. V. Neal, 3 Hawks 520.
J. L. 599, 7 Atl. 362; Union Water Co. Ohio. Society Perun v. Cleveland,
V. Kean, 52 N. J. Eq. Ill, 27 Atl. 1015. 43 Ohio St. 481, 3 N. E. 357. See
NewYork. ' A distinction between
' Union Trust Co. v. New York, C. &
corporations having their charter di- St. L. E. Co., 9 Ohio D^c. 773. But
rectly from legislative enactment and see Bartholomew v. Bentley, 1 Ohio
those created pursuant to general laws St. 37, where it is said that mere ir-
is observed by the courts in some regularities in organizing under a
cases, where it is held that failure of charter will not deprive the officers
the former to perform certain condi- and stockholders of its benefit nor
tions imposed to enable them to take make them privately responsible, but
the benefit of the charter will not sub- that the provisions of the act of in-
ject their corporate character to at- corporation must be substantially pur-
tack by third persons, while it is sued to entitle them to such benefit.
otherwise in respect to corporations Oregon. Splonskofsky v. Minto, 62
sought to be created under general Ore. 560, 126 Pac. 15; Brown v. Webb,
laws when there is a failure to comply 60 Ore. 526, Ann. Cas. 1914 A 148, 120
fully with the conditions precedent to Pac. 387.
their creation. That distinction may Pennsylvania. In re Gibb's Estate,
be well founded so far as relates to 157 Pa. St. 59, 22 L. E. A. 276, 27 Atl.
the organization of them, as in the 383. See also Spahr v. Farmers'
one case they are created by the stat- Bank, 94 Pa. St. 429.
ute and in the other their creation is Utah. Marsh v. Mathias, 19 Utah
authorized by it. But when, by pro- 350, 56 Pac. 1074.
ceedings taken for the purpose, there Washington. Kwapil v. Bell Tower
has been an attempt to comply with Co., 55 Wash. 583, 104 Pac. 824; Car-
the statute under which it is sought roll V. Bank, 19 Wash.
Pacific Nat.
to incorporate the company, and 639, 54 Pac. 32; Bash v. Culver Gold
articles of association have been filed, Min. Co., 7 Wash. 122, 34 Pac. 462.
it, by user as such, becomes a cor- Wisconsin. Franke v. Mann, 106
poration de facto, with all the rights Wis. 118, 48 L. R. A. 856, 81 N. W.
as to third persons which that im- 1014; Slocum v. Head, 105 Wis. 431,
598
Ch. 10] De Facto Cokpobations [§293
jure ; but, if there be user pursuant to such attempted organization,,

it will not prevent it being a corporation de facto."
"
§293. —
Provisions as to persons who may incorporate. When
persons assume to act as a body, and are permitted by the acquiescence
of the public and the state to act as if they were legally a particular
kind of corporation, for the organization, existence and continuance
of which there is express recognition by the general law, such a body
of persons a corporation de facto, although the particular persons
is
thus exercising the franchise of being a corporation may have been

ineligible and incapacitated by the law to do so. This is on the same
principle on which it is held that a person may be a de facto of&cer,
although ineligible.''' So there may be a corporation de facto though
the corporators and ofScers, or a certain number of them, are not
residents of the state,''* or though one of them was the wife of one of
the others, and so was incapable.''* And the same rule has been
50 L. E. A. 324, 81 N. "W. 673. But the constitution provided that no coun-

see Bergeron v. Hobbs, 96 "Wis. 641, 65 ty could be organized until more than
Am. St. Eep. S5, 71 N. "W. 1056. one township had been organized in
See also § 290, supra. the proposed county territory.
78 Gilfillan, C. J., in Finnegan v. 71 Humphreys v. Mooney, 5 Colo.
Noerenberg, 52 Minn. 239, 244, 18 L. 282.
E. A. 778> 38 Am. St. Eep. 552, 53 N. Where articles of association and
W. 1150, quoted with approval in incorporation, alleging that two of
Whipple V. Tuxworth, 81 Ark. 391, 99 the corporators were residents of the
S. W. 86; Johnson v. Okerstrom, 70 state, were regularly filed, and a cer-
Minn. 303, 73 N. W. 147; Eoariug tificateissued by the secretary of
Springs Townsite Co. v. Paducah Tel. state,and it afterwards appeared that
Co., —
Tex. Civ. App. , 164 S. W. — there were not two citizens of the
50. state among the corporators, it was
73 Toledo, St. L. & K. C. E. Co. v. held that there was a de facto cor-
Continental Trust Co., 95 Fed. 497, poration, and that subsequent stock-
aff'g 92 Fed. 642, 86 Fed. 929, appli- holders could not be held liable as
cation for certiorari denied, 176 U. S. partners. American Salt Co. v. Heid-
219, 44 L. Ed. 442. And see American enheimer, 80 Tex. 344, 26 Am. St.
Salt Co. V. Heidenheimer, 80 Tex. 344, Eep. 743, 15 S. W. 1038.
26 Am. St. Eep. 743, 15 S. W. 1038. The corporate existence cannot be
In Ashley v. Board Sup'rs Presque attacked on the ground
collaterally
Isle Co., 60 Fed. 55, which is cited as that the requirement has not been
authority in Toledo, St. L. & K. C. E. complied with, where the articles are
Co. V. Continental Trust Co., supra, regular on their face. The Oriental
it was held that a county was a de V. Barclay, 16 Tex. Civ. App. 193, 41
facto corporation, and that its exist- S. W. 117. And see Halbert v. San
ence could not be collaterally attacked Saba Spring Land & Live Stock Ass'n
in an action on bonds issued by it, (Tex. Civ. App.), 34 S. W. 636.
though when organized it had within 76 Bond & Braswell v. Scott Lumber
its borders but one township, while Co., 128 La. 818, 55 So. 468.
599
§293] Peivatb Corpobations [Ch. 10
applied in the case of consolidated corporations where one or more

of the constituent companies is not within the class of corporations
which the statute provides may consolidate.''* But it has been held
that there is no de facto corporation where certain corporations at-
tempt to form another corporation, though thie la,w does not authorize
them to do so, and where there is no room for the application of the
doctrine of estoppel and no considerations, of puljlic policy require a
contrary holding.'''
§294. — Execution of articles or certificate. According to the

great weight of authority there not even a de facto corporation
is
where there has been an entire failure to execute articles of incor-

poration,'" though there seem to be some holdings to the contrary.''^
But, on the other hand, there may be such a corporation though
the articles or certificate are not executed by the full number of
persons required by law,*" or though a purported signature thereto
Vfi See § 283, supra. that some organization took place with
77Ameriean Ball Bearing Co. v. a view to establish a corporation. In
Adams, 222 Fed. 967. the course of the opinion the court
78 McLennan v. Anspaugh, 2 Kan. says: "It is not a case of a defective
App. 269, 41 Pae. 1063; McLennan v. organization under a charter or act
Hopkins, 2 Kan. App. 260, 41 Pac. of incorporation, nor of erroneous pro-
1061; Cottentin v. Meyer, 80 N". J. L. ceedings after the necessary steps
52, 76 Atl. 341; Childs v.' Smith, 550 were taken tothe assumption of
Barb. (N. Y.) 45. corporate powers, but there is an abso-
If the articles, though adopted, have lutewant of proof that any corpora-
never been subscribed by any of the tionwas ever called into being, which
members, there is no corporation hav- had the power of contracting debts or
ing capacity to sue, and hence a con- of rendering persons liable therefor
tention that an action should have as stockholders."
been brought by it, rather than by 79 In Knight v. Flatrock & "W. Turn-
the individuals composing it, cannot pike Co., 45 Ind. 134, it was said that
be sustained. Lawrie v. Silsby, 76 a turnpike company was a corpora-
Vt. 240, 104 Am. St. Eep. 927, 56 Atl. tion by user where organization had
1106. been attempted by electing officers and
In Utley Union Tool Co., 11 Gray
v. choosing a corporate name, and the
(Mass.) 139, it was held that the functions of a corporation had been
members of a company sued as a cor- exercised, though no articles of as-
poration could not be held liable as sociation had been entered into and
stockholders where the issue of the none existed. The question involved
existence of the corporation was prop- in this ease, however, was whether the
erly raised, and there was nothing in company was a corporation de jure.
the evidence to show that any articles 80 Johnson v. Okerstrom, 70 Minn.
of agreement were ever entered into 303, 73 N. W. 147; First Nat. Bank of
for the formation of a corporation Deadwood, South Dakota v. Rocke-
under the statute, though it was shown feller, 195 Mo. 15, 93 S. W. 761; Buf-
600
is a forgery,8i or though they are signed and acknowledged in behalf

of one or more of the incorporators by an attorney in fact,^^ or by
a trustee who had no authority to act for them.^s And the same may
be true though the articles or certificate were signed and acknowledged
outside of the state,^* or though the statutory provisions relative to
^s
their execution have not been strictly complied with as, for ex- ;
ample, where they are not signed at the end thereof; ** or where there
are no seals annexed to the names of tte incorporators, *' or though
the articles were not executed in triplicate and no copy was retained
in the office of the company.**
It is also generally may be a de facto corporation,
held that there
the existence of which not subject to collateral attack, though the
is
acknowledgment of the articles or certificate of incorporation is in-

sufficient or defective in form,*' or though they were acknowledged
falo City R. Co. v. New York Cent., where only six out of eight articles
etc., E. Co., 22 Alb. L. J. (N. Y.) 134; were subscribed, and at least one of
Washington. Nat. Buildingf, Loan & the others was material under the
Investment Ass'n v. Stanley, 38 Ore. statute.
319, 58 li. E. A. 816, 84 Am. St. Eep. 87 Stoker v. Schwab, 56 N. Y. Super.
793, 63 Pae. 489. Ct. 122, N. Y. Supp. 425. Contra,
1
81 Duggan V, Colorado Mortg. & Inv. GrifSn v. Clinton Line Extension E.
Co., 11 Colo. 113, 17 Pac. 105. Co., Fed. Cas. No. 5,816.
82 Doyle V. San Diego Land & Town 88Kwapil V. Bell Tower Co., 55
Co., 46 Fed. 709. Wash. 583, 104 Pac. 824.
83 Boatmen's Bank v. Gillespie, 209 89 OaJlfornia.. Danuebroge Gold
Mo. 217, 108 S. W. 74. Quartz Min. Co. v. Ailment, 26 Cal.
84 See Humphreys v. Mooney, 5 286. See also Oroville & V. E. Co. v.
Colo. 282. Supervisors Plumas Co., 37 Cal. 354.
85 Keene v. Van Eeuth, 48 Md. 184; Iowa. Troutman v. Council BlufEs
Kalamazoo v. Kalamazoo Heat, Light Street Fair & Carnival Co., 142 Iowa
& Power Co., 124 Mich. 74, 82 N. W. 140, 120 N. W. 730.
811; East Norway Lake Church v. Minnesota. East Norway Lake
Troislie, 37 Minn. 447, 35 N. W. 260. Church V. Froislie, 37 Minn. 447, 35
86 Gilman v. Druse, 111 Wis. 400, 87 N. W. 260.
N. W. 557. New Jersey. Keyes v. Smith, 67
Such is the case where the incor- N. J. L. 190, 51 Atl. 122; Stout v. Zu-
porators did not sign the certificate lick, 48 N. J. L. 599, 7 Atl. 362.
at the end thereof, but signed it above Tennessee. Tennessee Automatic
the attestation clause, and it was Lighting Co. v. Massey (Tenn. Ch.),
properly acknowledged. Lyell Ave. 56 S. W. 35.
Lumber Co. v. Lighthouse, 137 N. Y. As, for example, where a corporator
App. Div. 422, 121 N. Y. Supp. 802. probated the articles upon the oath of
But see Kaiser v. Lawrence Sav. Bank, a subscribing witness and acknowl-
56 Iowa 104, 41 Am. Eep. 85, 8 N. W. edged their execution by himself.
772, holding that an attempt to in- Wadesboro Cotton Mills Co. v. Burns,
corporate under the laws of Kansas 114 N. C. 353, 19 S. E. 238.
did not create a de facto corporation
601
§294] Pbivate Cobpobations [Oh. 10
before the wrong officer,®" or before a notary who was himself a Cor-
porator ;
®^ and the same is generally held to be true though there is
no acknowledgment whatever,** though there is authority to the con-
trary.'^
§ 295. —
Contents of articles or certificate and affidavits. There
may be a de facto corporation, the existence of which cannot be col-
laterally attacked, though the certificate filed in the office of the
secretary of state varies from the articles of association,'* or though
the articles or certificates fail to state all the facts required by the
statute to be stated,'* or state some of them incorrectly,'^ or contain

unnecessary statements,''' or even though some of such statements are
knowingly false and fraudulent."
For example, it has been held that there may be such a corporation
though there is a failure to state the names of the corporators," or
90 As where they were acknowl- making of the contract sued on.Mer-

edged before a notary instead of the riman v. Magiveny, 12 Heisk. (Tenn.)
clerk of court (Bon Aqua Improve- 494.
ment Co. V. Standard Fire Ins. Co., 93 In Kaiser v. Lawrence Sav. Bank,
34 W. Va. 764, 12 S. B. 771); or a 56 Iowa 104, 41 Am. Eep. 85, 8 N. W.
justice of the peace. (See Spinning v. 772, it is held that an attempt to in-
Home Bldg. & Sav. Ass'n, 26 Ohio St. corporate under the laws of Kansas
483; Hagerman v. Ohio Bldg. & Sav. did not create a de facto corporation
Ass'n, 25 Ohio St. 186.) where the articles were not acknowl-
91 Whitney v. Wyman, 101 U. S. 392, edged.
25 L. Ed. 1050. 94 Saunders v. Farmer, 62 N. H. 572.
92 Alabama. Central Agricultural 9B Lamming v. Galusha, 81 Hun (N.
& Mechanical Ass'n v. Alabama Gold Y.) 247, 30 N. Y. Supp. 767, aff'd 151
Life Ins. Co., 70 Ala. 120. N. Y. 648, 45 N. B. 1132. See also
Colorado. Duggan v. Colorado People V. Leonard, 106 Cal. 302, 39
Mortg. & Inv. Co., 11 Colo. 113, 17 Pac. Pac. 617, and cases cited in the follow-
105. ing notes.
New Jersey. Philadelphia & C. 96 In an action by a railroad cor-
Ferry Co. v. Intercity Link E. Co., poration, evidence that the length of
73 N. J. L. 86, 62 Atl. 184, aff'd 74 the road differs from that stated in
N. J. L. 594, 65 Atl. 1118. the articles is not admissible to de-
Oregon. Brown v. Webb, 60 Ore. feat the action, whether the difference
526, Ann. Cas. 1914 A 148, 120 Pac. arose from fraud or mistake. Buffalo
387. & P. E. Co. V. Hatch, 20 N. Y. 157.
Wisconsin. Oilman v. Druse, 111 See also Oroville & V. E. Co. v. Su-
Wis. 400, 87 N. W. 557; Franke v. pervisors of Plumas Co., 37 Cal. 354;
Mann, 106 Wis. 118, 48 L. E. A. 856, Spring Valley Water Works "v. San
81 N. W. 1014. Francisco, 22 Cal. 434.
Such was the holding though the 97 Eastern Plank Eoad Co. v.
statutory memorandum was not ac- Vaughan, 14 N. Y. 546.
knowledged until after the organiza- 98 See § 288, supra.
tion of the corporation and after the 99 Central of Georgia E. Co. v. Union
602
Ch. 10] Db Facto Cokpoeations [§295
the number and names of the first trustees,^ or the date of their
election and term of ofBce,^ or to include a provision for di-
their
rectors, trustees or any governing body,' or to fix and limit the
amount of the capital stock,* or to state whether or not it is assessable,*
or to state the place where the corporate business is to be carried on.'
But the contrary has been held to be true where the articles fail to
state the corporate name,' or the number of shares of stock held by
each stockholder,* or the maximum indebtedness which the corpora-
tion may ineur.^
has been held that there may be a de facto railroad, ditch or
It
bridge company though the articles or certificate do not comply with
the statute in describing the proposed improvement,^" while on the
other hand there is authority to the effect that the failure of the
Springs & N. R. Co., 144 Ala. 639, 2 Plumas Co., 37 Cal. 354; Spring Val-
L. E. A. (N. S.) 144, 39 So. 473. leyWater Works v. San Francisco, 22
1 See Oroville & V. E. Co. v. Super- Cal. 434.
visorsPlumas Co., 37 Cal. 354; Spring 'Failure of the articles of a gravel
Valley Water Works v. San Francisco, road company to state the corporate
22 Cal. 434. name is ground for enjoining the col-
2 Baltimore & P. E. Co. v. Fifth lection of assessments for the con-
Baptist Church, 137 U. S. 568, 34 L. struction of the road. Piper v.
Ed. 784. Ehodes, 30 Ind. 309.
3 Bates V. Wilson, 14 Colo. 140, 24 8 Williams v. Hewitt, 47 La. Ann.
Pae. 99. 1076, 49 Am. St. Eep. 394, 17 So. 496.
1 Healey v. Steele Center Creamery 9 Stivers v. Carmichael, 83 Iowa 759,
Ass'n, 115 Minn. 451, 133 N. W. 69. 49 N. W. Heuer v. Carmichael,
983;
5 Humphreys v. Mooney, 5 Colo. 282. 82 Iowa 288, 47 N. W. 1034.
6 Farmers Ins. Co. v. Borders, 26
' 10 Detroit & T. S. L. E. Co. v. Camp-
Ind. App. 491, 60 N. E. 174; Finne- bell, 140 Mich. 384, 103 N. W. 856.
gan V. Noerenberg, 52 Minn. 239, 18 This has been held true though the
L. E. A. 778, 38 Am. St. Eep. 552, 53 certificate of incorporation of a rail-
N. W. 1150. See also Kennett v. road company fails to state the route
Woodworth-Mason Co., 68 N. H. 432, or termini of the road, as required by
39 Atl. 585. the statute. Cayuga Lake E. Co. v.
Stating that a certain city is the Kyle, 64 N. Y. 185.
place of business of the corporation It has so been held though the
instead of the "principal place of certificate of incorporation of a ditch
business" immaterial in condemna-
is company does not specify from what
tion proceedings. In re Spring Val- stream the water is to be taken, the
ley Water Works, 17 Cal. 132. terminal points of the ditch and other
Harris v. McGregor, 29 Cal. 124, ap- specifications required by the statute.
parently holds to the contrary, but in City of Denver v. Mullen, 7 Colo.
Pacific Bank v. De Eo,
37 Cal. 538, 345, 3 Pae. 693.
it was pointed out that the question In Hunt V. Kansas & M. Bridge
of the de facto existence of the cor- Co., Kan. 412, it was held that
11
poration was not involved. See also the description of the location of a
Oroville & V. E. Co. v. Supervisors bridge for the purpose of building
603
.
articles of a draining or ditching association to describe the proposed

drain or ditch with reasonable certainty renders the attempted in-
corporation invalid on collateral attack.^^
There may be a corporation de facto though affidavits required by
law are not attached to the articles or filed with them,^" or though an
affidavit so attached or filed does not comply with the statute,!^ or does
not contain all the allegations required.^*
§ 296. — Corporate name. There may be a de facto corporation

though the corporate name violates the statute in that it so closely
resembles that of a pre-existing corporation that it will tend to de-
ceive the public, and hence the secretary of state should have refused
to file the articles,^" or though the name does not indicate the char-
acter of business to be carried on, as required by statute.^®
which the corporation was organized to or filed with the articles. Sioux
was not so indefinite as to render the Palls Light & Power Co. v. Coughran,
organization invalid on collateral 27 S. D. 443, 131 N. W. 504.
attack. For the effect of a failure to file
llMilligan v. State, 60 Ind. 206; an affidavit or certificate showing
Smith V. Duck Pond Ditching Ass'n, that the required amount of capital
54 Ind. 235; Crawford v. Prairie Creek stock has been subscribed and paid,
Ditching Ass'n, 44 Ind. 361; Newton see § 297, infra.
County Draining Co. v. Nofsinger, 43 Sioux Falls Light & Power Co. v.
13
Ind. 566; Skelton Creek Draining Co. Coughran, 27 S. D. 443, 131 N. W. 504.
V. Mauek, 43 Ind. 300; Seyberger v. 14 So held though the affidavit an-
Calumet Draining Co., 33 Ind. 330; nexed to the articles of association of
O'Eeiley v. Kankakee Yalley Drain- a railroad company does not contain
ing Co., 32 Ind. 169; West v. Bullskiu the allegation requiredby statute, that
Prairie Ditching Co., 32 Ind. 138. This it intended in good faith to con-
is
rule was afterwards changed by a re- struct or to maintain and operate the
peal of the statute. Milligan v. State, road mentioned in the articles. Buf-
60 Ind. 206. falo & A. E. Co. V. Cary, 26 N. T. 75;
12 So held though there is a failure First Baptist Society v. Eapalee, 16
to attach to the certificate of incor- Wend. (N. T.) 605, and decisions of
poration an affidavit that the state- the supreme court.
ments therein are true. Baltimore & ISVallejo & N. E. Co. v. Eeed Or-
P. E. Co. V. Fifth Baptist Church, chard Co., 169 Cal. 545, 147 Pae. 238.
137 IT. S. 568, 34 L. Ed. 784. But it has been held that there is no
Where a certificate of authority has de facto corporation where the secre-
been issued to an electric light, street tary of state refuses to allow the in-
railway, or power company by the corporation papers to be filed because
secretary of state, it is a de facto cor- of a similarity of title to that of an
poration though an affidavit that the existing corporation. Sherwin v.
signatures to the articles are genuine Sternberg, 78 N. J. L. 557, 74 Atl. 510,
and that it is intended in good faith aff'g 77 N. J. L. 117, 71 Atl. 117.
to construct or maintain and operate 16 Crystal Park Co. v. Morton, 27
the utilities referred to is not attached Colo. App. 74, 146 Pac. 566.
604
§ 297. — Provisions as to capital stock. According to the weight

of authority, there may be a de facto corporation, the existence of
which cannot be collaterally attacked though the capital stock or a
certain percentage thereof weis not subscribed or paid, as required
by the statute,^'' or though an affidavit or certificate showing such sub-
17 United States. Allen v. Ehodes, Mich. 47, 102 N. W. 279; Continental

230 Fed. 321; In re Jackson Brick & Varnish & Paint Co. v. Secretary of
Tile Co., 189 Fed. 636; Young Re- State, 128 Mich. 621, 87 N. W. 901;
versible Lock-Nut Co. V. Young Lock- Swartwout v. Michigan Air Line E.
Nut Co., 72 Fed. 62; Stokes v. Co., 24 Mich. 389.
Findlay, 4 MeCrary 205, Fed. Caa. No. Mississippi. Fargasou v. Oxford
13,478. Mercantile Co., 78 Miss. 65, 27 So.
Alabama. Bibb v. Hall, 101 Ala. 79, 877.
14 So. 98; Lehman, Durr & Co. v. War- Missouri, Webb
v. Eockefeller, 195
ner, 61 Ala. 455; Duke v. Cahawba Mo. A. (N. S.) 872, 93 S.
57, 6 L. E.
Nav. Co., 16 Ala. 372; id., 10 Ala. 82, W. 772; First Nat. Bank of Deadwood,
44 Am. Dee. 472. See also Selma & South Dakota v. Eockefeller, 195 Mo.
T. E. Co. V. Tipton, 5 Ala. 787, 39 Am. 15, 93 S. W. 761; O'Kell v. Chama
Dec. 344. Valley Lands & Irrigation Co., 181
California, See Spring Valley Mo. App. 466, 168 S. W. 887.
Water Works v. San Francisco, 22 Cal. Nebraska. Porter v. Sherman Coun-
434. ty Banking Co., 36 Neb. 271, 54 N. W.
Connecticut. Fish v.Smith, 73 424.
Conn. 377, 84 Am. St. Eep. 161, 47 Atl. New Jersey. Attorney General v.
711; Lamkin v. Baldwin & Lamkin American Tobacco Co., 55 N. J. Eq.
Mfg. Co., 72 Conn. 57, 44 L. E. A. 786, 352, 36 Atl. 971, aff'd 56 N. J. Eq.
43 Atl. 593; Oanfield v. Gregory, 66 847, 42 Atl. 1117; Elizabethtown Gas-
Conn. 9, 17, 33 Atl. 536. Light Co. V. Green,46 N. J. Eq. 118,
Creorgia. Howard v. Long, 142 Ga. 18 Atl. 844, aff'd 49 N. J. Eq. 329, 24
789, 83 S. E. 852; Burns v. Beck, 83 Atl.560; Hackensack Water Co. v.
Ga. 471, 10 S. B. 121; McDougald v. DeKay, 36 N. J. Eq. 548. In Eliza-
Lane, 18 Ga. 444; Cason v. State, 16 bethtown Gas-Light Co. v. Green, 46
Ga. App. 820, 86 S. E. 644; Orr v. Mc- N. J. Eq. 118, 18 Atl. 844, aff'd 49 N.
Leay, 6 Ga. App. 417, 65 S. E. 164. J. Eq. 329, 24 Atl. 560, it is said that
Illinois. Foster v. Hip Lung Ying Jersey City Gas Co. v. Dwight, 29 N.
Kee & Co., 243 111. 163, 90 N. E. 375; J. Eq. 242, is in effect overruled by
Henry v. Centralia & C. E. Co., 121 National Docks Ey. Co. v. Central E.
111. 264, 12 N. E. 744; Illinois Grand Co. of New Jersey, 32 N. J. Eq. 755.
Trunk E. Co. v. Cook, 29 111. 237; Eice New York.
Aspinwall v. Sacehi, 57
V.Eock Island & A. E. Co., 21 111. 93; N. Y. 331; Eaton v. Aspinwall, 19 N.
Washburn v. Eoesch, 13 HI. App. 268. Y. 119, aff'g 6 Duer 176; Jones v.
Indiana. Smith v. Cleveland, C, 0. Dana, 24 Barb. 395.
& St. L. R. Co., 170 Ind. 382, 81 N. E. North Carolina. Fayetteville St.
501. Ey. V. Aberdeen & E. E. Co., 142 N.
Maryland. Laflin & Eand Powder C. 423, 9 Ann. Cas. 683, 55 S. E. 345;
Co. V. Sinsheimer, 46 Md. 315, 24 Am. Marshall Foundry Co. v. Killiau, 99
Eep. 522. N. C. 501, 6 Am. St. Eep. 589, 6 S. E.
Idicliigan. Love v. Eamsey, 139 680.
605
seriptionand payment has not been filed,^* or is insufficient,^® or

though some of the subscriptions were fictitious or were not made
in good faith,^" or were not paid in cashj'î or though there was a
Ohio. Dickason v. Grafton Sav. 20 United States. In re Jackson

Bank Co., 6Ohio C. C. (N. S.) 329; Brick & Tile Co., 189 Fed. 636.
Shawnee Commercial •& Savings Bank Illinois. Gunderson v. Illinois Trust
Co. V. Miller, 1 Ohio 0. C. (N. S.) 569. & Savings Bank, 199 111. 422, 65 N.
Pennsylvania. Johnston v. Eliza- E. 326, aff'g 100 111. App. 461; Illinois
beth Building & Loan Ass'n, 104 Pa. Grand Trunk E. Co. v. Cook, 29 111.
St. 394; Cochran v. Arnold, 58 Pa. St. 237.
399, overruling 45 Pa. St. 410. Missouri. Webb
v. Eockefeller, 195
Washington. See American Eadi- Mo. A. (N. S.) 872, 93 S.
57, 6 L. E.
ator Co. V. Kinnear, 56 Wash. 210, 35 W. 772; First Nat. Bank of Deadwood,
L. E. A. (N. S.) 453, 105 Pac. 630. South Dakota v. Eockefeller, 195 Mo.
Noncompliance with a statute re- 15, 93 S. W. 761.
quiring a certain amount to be paid New York. Palmer v. Lawrence,
in before commencing business cannot 3 Sandf. 161, aff'd 5 N. Y. 389. See
be set up to defeat an action against also Abbott v. Aspinwall, 26 Barb.
a stockholder on a subscription note. 202.
Jones V. Dodge, 97 Ark. 248, L. E. A. This is true though stock notes were
1915 A 472, 133 S. W. 828. surrendered to the makers without
18 McGowau V. American Pressed payment. Cooper v. Shaver, 41 Barb.
Tan Bark Co., 121 U. S. 575, 30 L. Ed. (N. Y.) 151. And though subscrip-
1027; Bank of Port Jefferson v. Dar- tions were paidby checks which were
ling, 91 Hun (N. Y.) 236, 36 N. Y. not used and were returned. Union
Supp. 153. See also In re New York, Water Co. v. Kean, 52 N. J. Eq. Ill,
W. & B. E. Co., 193 N. Y. 72, 85 N. E. 27 Atl. 1015, rev'd (on other grounds)
1014. 52 N. J. Eq. 813, 46 Am. St. Eep. 538,
The contrary view has been taken, 31 Atl. 282. Or by checks which it was
however, where the corporation was agreed should not be presented for
created under a special charter making payment, and which were never so
the filing of a certificate showing sub- presented. Bibb v. Hall, 101 Ala. 79,
scription and payment a. condition 14 So. 98.
precedent.Attorney General v. Chi- But the contrary has been held to be
cago & N. W. Ey. Co., 35 Wis. 425, true where there was never any real
603. subscription to the capital stock or
For the a failure to make
effect of any intention by the corporators to so
the required statements as to the capi- subscribe, and no payments for such
tal in the articles or certificate of in- stock were ever made or intended to
corporation, see § 295, supra. be made. Provident Bank & Trust Co.
19 It was so held where the af&davit V. Saxon, 116 La. 408, 40 So. 778.
as to the amount subscribed and paid, 21 United States. Armour v. E.

required by the statute to be annexed Bement's Sons, 123 Fed. 56.
to the articles filed in the ofliice of the Georgia. McDougald v. Bellamy,
secretary of state, was made by three 18 Ga. 411; Cason v. State, 16 Ga.
of the directors instead of five, as re- App. 820, 86 S. E. 644.
quired. Monroe v. Ft. Wayne, J. & Illinois. Washburn v. Eoeseh, 13
S. E. Co., 28 Mich. 272. 111. App. 268.
606
fraudulent overvaluation of property taken in payment of subscrip«-

or though there were irregularities in the manner of obtaining
tions,22
subscriptions,^ or in paying them.^*
But some courts have held that there is not even a de facto cor-
poration where no part of the capital stock has been subscribed or
paid in,^ or where statutory provisions as to the amount that must
be subscribed and paid as a condition to incorporation,^ or requiring
Ifllssisslppi. See Smith v. Missis- Goodale Lumber Co. v. Shaw, 41 Ore.

sippi A. E. Co., 6 Smedes & M. 179.
& 544, 69 Pae. 546.
Missouri. Staunton Copper Min. The corporators are individually
Co. V. Thurmond, 7 Mo. App. 587. liable for corporate debts where no
Nebraska. Porter v. Sherman part of the stock has been subscribed
County Banking Co., 36 Neb. 271, 54 for. Smith v. Colorado Fire Ins. Co.,
N. W. 424. 14 Fed. 399. In Ward-Truitt Co. v.
Such was the holding where the Bryan & Lamb, 144 Ga. 769, 87 S. E.
stock was issued without being fully 1037, it was held that the members
paid in cash. Healey v. Steele Center of a firm could not escape individual
Creamery Ass'n, 115 Minn. 451, 133 liabilityon notes signed in the firm
N. W. 69. And where property in- name on the ground that the partner-
stead of money was taken for stock. ship had been dissolved and a
Persse & Brooks Paper Works v. Wil- corporation had succeeded to the busi-
lett> 19 Abb. Pr. (N. Y.) 416. See ness, where there was no stock sub-
also Persse & Brooks Paper Works v. scription or list of stockholders, and
Willett, 24 N. Y. Super. Ct. (1 Eob.) no minutes were kept. In Weehsel-
131. berg V. Flour City Nat. Bank, 64 Fed.
That subscriptions were paid in se- 90, 26 L. E. A. 470, it was held that,
curities instead of in cash cannot be under the laws of Wisconsin, persona
raised on collateral attack. Boane who signed the articles of incorpora-
Iron Co. V. Wisconsin Trust Co., 99 tion were individually liable for debts
Wis. 273, 67 Am. St. Eep. 856, 74 N. incurred in the corporate name where
W. 818. no part of the capital stock was paid
22 See § 288, snpra. in or subscribed.
23 Attorney General v. Stevens, 1 26 In Attorney General v. Chicago &
N. J. Eq. 369, 22 Am. Dec. 526; Mc- N. W. Ey. Co., 35 Wis. 425, 603, it was
Farlan v. Triton Ins. Co., 4 Denio so held under a special charter mak-
(N. Y.) 392. ing subscription and payment condi-
24 See Geneva Mineral Spring Co. v. tions precedent. In American Ball
Coursey, 45 N. Y. App. Div. 268, 61 Bearing Co. v. Adams, 222 Fed. 967, it
N. Y. Supp. 98. was held that a corporation attempted
25 In McVicker v. Cone, 21 Ore. 353, to be organized under the laws o£
28 Pae. 76, it is held that there was Ohio, but failing to comply with the
not a de facto corporation where no statutes of that state in this regard,
part of the stock had been subscribed, could not maintain an action for in-
and the corporation had not been or- fringement of a patent on the ground
ganized by the election of officers. See that it was a de facto corporation,
also Coyote Gold & Silver Min. Co. v. there being no considerations of equit-
Ruble, 8 Ore. 284; Fairview E. Co. v. able estoppel or public policy requir-
Spillman, 23 Ore. 587, 32 Pae. 688; ing the application of the de facto
607
§ 298], Peivate Cobpoeations [Ch. 10
the original subscriptions to be recorded,'^'' have not been complied

•with.
§ 298. — Piling or recording articles or certificate. The author-

itiesseem to be agreed that there is not even a .de facto corporation
where no articles or certificate of incorporation have ever been filed
or recorded as? required by law, or, in other words, where there has
been no attempt whatever to comply with the provisions of the statuta
doctrine. In JMeyer v. Brunson, — In Bond & Braswell v. Scott Lum-

S. C. —
88 S. E. 359, tjiere was held
, ber Co., 128 La. 818, 55 So. 468,
to be no de facto corporation where it was held that stockholders could
the required amount was not sub- not be held individually liable
scribed or paid, there had been no for corporate debts though the sub-
meeting of the subscribers, and it did scribed capital was not all paid.
not appear that the return of the cor- Nor is it a defense, in an action
porators to the secretary of state against a third person, that the stock
showed what part of the stock sub- of the plaintiff, which was organized
scribed had been paid. under the Act of 1904, was issued
While a corporation has an exist- without any real consideration. See
ence when its charter is filed with the Leader Eealty Co. v. Lakeview Land
secretary of state, still, if nothihg Co., 127 La. 1059, 54 So. 350.
further is done to perfect its organi- In Glove Eealty Co. v. Whitney, 106
zation, and no part of its capital stock La, 257, 30 So. 745, it was held that a
is subscribed or paid, it has no right corporation formed under Act No. 36
to transact any business, nor have its of 1888 could have no existence
directors any right to enter into con- until it had obtained a capital stock
tracts or incur debts or liabilities in of $5,000, and that it took no title to
its name, and they are personally liable property purchased in the corporate
for any debts or liabilities so incurred. name before that time, and that this
Central Nat. Bank of Junction City v. fact was a good defense to a suit by
Sheldon, 86 Kan. 460, 121 Pac. 340; it for breach of a contract to pur-
Walton V. Oliver, 49 Kan. 107, 33 Am. chase such property from it.
St. Kep. 355, ,30 Pac. 172. show on their face

If the articles
' Where the only facts alleged as to
'
that the required amount of stock
the organization of a corporation, so has not been subscribed and that the
called, are that there was a notarial required amount has not been paid in,
charter, and that the same was record- the court will declare them void in a
ed in the proper mortgage book, there proceeding in which it is sought to
is no basis for the contention that the exercise corporate powers, as in emi-
petition admits the organization of a nent domain proceedings. Kinston &
corporation, either de jure or de facto; C. E. Ca V. Stroud, 132 N. C. 413, 43
itnot appearing what was the amount S. E. 913.
of the capital stock requisite for the 27 Louisiana Nat. Bank v.Hender-
organization, or that the same was son, 116 La. 413, 40 So. 779; Provident
actually subscribed or paid." Louisi- Bank & Trust Co. v. Saxon, 116 La.
ana Nat. Bank v. Henderson, 116 La. 408, 40 So. 778.
413, 40 So. 779.
608
Gh. 10] Db Facto Cokpoeations [§298
in this regard,''* but that there may be such a corporation if there

has been an attempt in good faith to comply with such provisions
28 McLennan v. Anspaugh, 2 Kan. 147, it is stated that the reason for

App. 269, 41 Pac. 1063; McLennan v. holding the associates liable as part-
Hopkins, 2 Kan. App. 260, 41 Pac. ners in Johnson v. Gorser, 34 Minn.
1061; Provident Bank & Trust Co. v. 355, was that they had merely signed
Saxon, 116 La. 408, 40 So. 778; Spencer articles bu.t filed them fdr
had not
Meld & Co. V. Cooks, 16 La. Ann. 153; record, which was necessary' to con-
Stevens v. Episcopal Church History- stitute them a de facto corporation.
Co., 140 N. Y. App. Div. 570, 125 N. There is no de facto partnership as-
Y. Supp. 573; Childs v. Smith, 55 sociation, limited, where the articles
Barb. (N. Y.) 45. See also Kaiser v. are never filed or recorded as required
Lawrence Sav. Bank, 56 Iowa 104, by law. Nichols v. Buell, 157 Mich.
41 Am. Bep. 85, 8 N. W. 772; Daily v. 609, 122 W. 217. But it has been
N".
Marshall, 47 Mont. 377, 183 Pac. 681; held that a corporation attempted to
Bash v. Culver Gold Min. Co., 7 "Wash. be formed before there was any law
122, 34 Pac. 462. authorizing its incorporation became
There is not even a de facto cor- one de jure where it continued to do
poration where the articles have not business after the passage of such a
been filed with the secretary of state. law providing that corporations pre-
Bank of De Soto v. Eeed, 50 Tex. viously formed inight take advantage
Civ. App. 102, 109 S. W. 256. of its provisions by filing a certificate
Where the articles or certificate are of acceptance with the secretary of
not filed, and nothing further has been state, though no such certificate was
done towards incorporating than sign- . filed. Mason v. Stevens, 16 S. D.
ing the same, the associates are liable 320, 92 N. W. 424.
as partners. Bigelow v. Gregory, 73 In Utah Light & Traction Co. v.
111. 197; Tuccillo v. Pittelli, 127 N. Y. United States, 230 Fed. 343, it was
Supp. 314. held that the existence of a corpora-
In Goodale Lumber Co. v. Shaw, 41 tion attempted to be organized under
Ore. 544, 69 Fac. 546, which was an the laws of Utah territory could not
action by a corporation on a prom- be collaterally attacked on the ground
issory note, was held that where
it that it had not filed its articles nor
was
the plaintiff's corporate existence made any other filing in the ofS^ce of
properly put in issue and there was the secretary of the territory. It does
no proof that the articles were ever not appear from the case whether the
filed either in the office of the secre- had been filed elsewhere.
articles
tary of state or with the county clerk, In Shakopee Mfg. Co., 37
re
or that any of its capital stock had Minn. 91, 33 N. W. 219, it was held
been taken, or that any directors had that the filing of the certificate re-
been elected, a nonsuit should have quired by Gen. St. 1878, o. 37, § 178,
been granted. See in this connection to be filedby manufacturing compan-
United States Mortg. Co. v. MoClure, ies before commencing business was
42 Ore. 190, 201, 70 Pac. 543. not essential to the creation and ex-
In Finnegan v. Noerenberg, 52 istence of the corporation, and hence
Minn. 239, 18 L. E. A. 778, 38 Am. St. that the fact that such a certificate
Eep. 552, 53 N". W. 1150, and Johnson was not verified did not make the
V. Okerstrom, 70 Uinn. 303, 73 N. "W. stockholders liable as partners.
609
I Priv. Corp.— 39
'
though all of the statutory requirements have not been strictly ob-
served.*^
There is considerable conflict of authority, however, as to the effect
in this regard of a failure to comply with particular statutory pro-
and recording, due, in part at least, to the
visions relative to filing
wording of the various statutes on the subject. So the authorities
are in conflict as to whether there may be a de facto corporation
though the articles or certiflcate of incorporation,^" or a certificate
or affidavit of organization, required to be prepared by the cor-
29 Stevens v. Episcopal Church His- 229, 44 Atl. 284; Pierce v. Hacke, 1

tory Co., 140 N. Y. App. Div. 570, 125 Pa. Dist. 517. So one who brings an
N. Y. Supp. 573. See also Keene v. action for damages for the death of a
Van Eeuth, 48 Md. 184, where there passenger against two railway com-
was an attempt
at least to comply panies, one of which has leased its
with the statute, and see cases cited lines to the other, cannot contend that
in the following notes. the lessor is not a legal corporation
sounder tie general law of Ar- because its certiflcate was not record-
kansas in force in the Indian Ter- ed, and hence that the lease was void,
ritory, it was held that there could be and the lessor was therefore liable.
no color of a legal' incorporation, and Pinkerton v. Pennsylvania Tractiou
hence no de facto corporation, until Co., 193 Pa. St. 229, 44 Atl. 284. The
the articles of incorporation were filed court in this case distinguishes the
with the clerk of the court of appeals. cases of New York Nat. Exch. Bank
Harrill v. Davis, 168 Fed. 187, 22 L. V. Crowell, and Guckert v. Hacke,
E. A. (N. S.) 1153, rev'g 7 Indian infra, on the ground that they express-
T. 152, 15 Ann. Cas. 1134, 104 S. W. ly concede that actual knowledge by
573. the plaintiff and dealing as with a cor-
"Agreements to form one, state- poration will estop him notwithstand-
ments that there was one, signed ar- ing the failure to record, and say that
ticles of association to make one, in the case at bar the lessor made
acts as one, created no color of in- the lease in its corporate capacity,
corporation, because there could be was sued as a corporation, and the
no incorporation or color of it under necessary basis of the action was the
the law until the articles were filed.
'
passage ticket bought from it as an
Harrill v. Davis, 168 Fed. 187, 22 L. acting corporation. But if the cer-
B. A. (N. S.) 1153, rev'g 7 Indian T. tificate is not so recorded the
152, 15 Ann. Cas. 1134, 104 S. W. incorporators are personally liable on
573. contracts made with persons who have
The corporation is one de facto, no knowledge of the incorporation.
and its charter cannot be collaterally Tonge V. Item Pub. Co., 244 Pa. 417,
attacked by one who has dealt with it 91 Atl. 229; Pittsburg Sheet Mfg. Co.
as a corporation, though the certificate V. Beale, 204 Pa. 85, 53 Atl. 540;
of incorporation is not recorded in the Pinkerton v. Pennsylvania Traction
ofice of the recorder of the county Co., 193 Pa. St. 229, 44 Atl. 284; New
where its chief operations are to be York Nat. Exch. Bank of City of
carried on. Tonge v. Item Pub. Co., New York v. Crowell, 177 Pa. St. 313,
244 Pa. 417, 91 Atl. 229; Pinkerton v. 35 Atl. 613; Guckert v. Hacke, 159 Pa.
Pennsylvania Traction Co., 19S Pa. St. St. 303, 28 Atl. 249.
610
Ch. 10] De Facto Corporations [§298
porators '^ or a certificate of ineorpoTation or registration, or complete

organization wMeh the statute requires to be issued by the secretary
of state,^2 is not gied or recorded in the designated office in the county
where the principal office of the corporation is located.
It has been very generally held that there may be a de facto cor-
poration where the articles or certificate have been filed or recorded
31 Failure of a religious corporation of the corporation is located. Mar-

to show that its certificate of organi- shall V. Keach, 227 111. 35, 118 Anu
zation was recorded in the offlce of the St.Eep. 247, 10 Ann. Cas. 164, 81 N.
recorder of deeds does not prevent it E. 29; Bushnell v. Consolidated Ice
from proving its corporate existence Mach. Co., 138 111. 67, 27 N. E. 596;
by user. Fifth Baptist Church of Woodland Social Entertainment Ass'n
Washington, D. C. v.Baltimore & P. V. Anderson, 187 111. App. 507; People
R. Co., 5 Mackey (D. C.) 269. V. Citizens Tel. Co. of Pekin, Illinois,
A church may be a religious corpora- 186 111. App. 260; Clinton Co. v.
tion de facto though the afSdavit or Schwarz, 175 111. App. 577; Eiemann
organization has not been recorded in V. Tyroler & Vorarlberger Verein, 104
the office of the recorder of deeds. 111 App. 413; Hoyt v. McCallum, 102
Trapp V. St. John's Baptist Church, 111. App. 287; Joliet v. Frances, 85
174 111. App. 213. 111. App. 243; Edwards v. Cleveland
In East Norway Lake Church v, Dryer Co., 83 111. App. 643; Curtis v.
Froislie, 37 Minn. 447, 35 N. W. 260, Meeker, 62 111. App. 49, aff'd 169 111.
the court said that it was wholly un- 233, 61 Am. St. Eep. 168, 48 N. E.
necessary to consider the contention 399; Forest Glen Brick & Tile Co. v
that the certificate of incorporation Gade, 55 111. App. 181, aff'd 165 111.
of a religious corporation was "not 367, 46 N. E. 286; American Live
properly executed, acknowledged, or Stock Commission Co. v. Chicago Live
recorded," for the reason that it was Stock Exchange, 41 111. App. 149, aff'd
at least a corporation de facto. 143 HI. 210, 18 L. E. A. 190, 36 Am.
If the certificate of organization of St. Eep. 385, 32 N. E. 274.
an agricultural association, with a But in Africani Home Purchase &
copy of its constitution, is not filed Ijoan A.ss'n
v. Carroll, 267 111. 380,
with the register of deeds as required 108 E. 322, it was held that, in
IM.
by the statute, the organizers are not view of tHe provisions of the statute
acting as a corporation under color of (Kurd's Eev. St. 1913, o. 32, § 4, J. &
legal right, and hence are not a cor- A. If 2421), that unless the corpora-
poration de facto. The mere record- tion shall be organized and shall pro-
ing of the papers is not enough where ceed to within two years
business
they are neither left nor intended to after the date of such license, then
be left there. Bergeron v. Hobbs, 96 such license shall be deemed revoked,
Wis. 641, 65 Am. St. Eep. 85, 71 N. W. and all proceedings thereunder void,
1056. the faUure to record the certificate
32 It has been held in numerous within two years ipso facto terminates
eases that there may be a de facto the corporate existence, and thereafter
corporation though the certificate of there is no license to organize a cor-
incorporation has not been recorded in poration. All subsequent proceed-
the office of the recorder of deeds of ings looking to its organization are
the county where the principal office void, and a complete reorganization
611
in one or more of several places required by the statute, though not

in all of them,33 as, for example, where they are filed in the office of
the seoretary of state, but are not filed or recorded in the required
office of the county where the corporation has its principal place of
business,^* or where they are filed or recorded in the proper county

office but not with the secretary of state.**
is necessary. And such failure may poration may be collaterally attacked

be taken advantage of in a collateral on the ground that the certificate was
proceeding, as, for example, in a suit not filed in the oflSce of the county
by tke corporation for specific per- clerk, though not because a dupli-
formance of a contract. cate was not filed in the office of the
The statute relative to homestead comptroller of the treasury.
loan associations (Hurd's Bev. St. 34 California. Bakersfield Town
1913, c. 32, § 80, J. &
A. H 2592) con- Hall Ass'n v. Chester, 55 Cal. 98.
tains a similar provision, and hence Colorado. Humphreys v. Mooney, 5
the, same rule applies tb them. It is Colo. 282. See also Woods Gold Min.
to be noted that the contract involved Co. V. Eoyston, 46 Colo. 191, 103 Pac.
in the above ease was held to be ultra 291.
vires and hence that the holding was Michigan. Galvin v. Detroit Steer-
not necessary to the decision. It ap- ing Wheel & Windshield Co., 176 Mich.
pears to be in conflict with Bushnell 569, 142 N. W. 792; Newcomb-Endi-
v. Consolidated Ice Mach. Co., 138 111. cott Co. V. Pee, 167 Mich. 574, 133
67, 27 N. E. 596, and at least some of N. W. 540; Whitney v. Wyman, 101
the other eases previously cited. See U. S. 392, 25 L. Ed. 1050 (construing
also People v. Mackey, 255 111. 144, 99 the Michigan act).
N. E. 370, which explains and quali- Missouri. Granby Mining & Smelt-
fies the holding on this subject in ing Co. Mo. 106, 8 S.
V. Richards, 95
Marshall v. Keach, supra. W. 246.
The charter may be collaterally at- NewYork. Dewitt v. Hastings, 40
tacked if the certificate of registra- N. Y. Super. Ct. 463, afC'd 69 N. Y.
tion in the of&ce of the secretary of 518; In re Cordova Shop, 216 Fed.
state and the facsimile of the seal of 818 (construing the New York act).
the are not registered in the
state Oklahoma. Swofford Bros. Dry
county where the principal office of Goods Co. v. Owen, 37 Okla. 616, 133
the company is situated. Brewer v. Pac. 193.
State, 7 Lea (Tenn.) 682. But where 35 Arkansas. Bank of Midland v.
it appears that the certificate was Harris, 114 Ark. 344, Ann. Cas. 1916 B
registered, it is not ground for col- 1255, 170 S. W. 67.
lateral attack that the facsimile of In Garnett v. Eichardson, 35 Ark.
the seal was not accurately drawn. 144, it was held that where the act
Carpenter v. Frazier, 102 Tenn. 462, of incorporation was incomplete by
52 S. W. 858. reason of a failure to file the articles
33 Stevens v. Episcopal Church His- of incorporation with the secretary of
tory Co., 140 N. Y. App. Div. 570, 125 state, the incorporators were person-
N. T. Supp. 573. ally liable as partners. But in Bank
In Childs v. Hurd, 32 W. Va. 66, 9 of Midland v. Harris, 114 Ark. 344,
S. E. 362, it is held that under the Ann. Cas. 1916 B 1255, 170 S. W. 67,
New Tork law the existence of a cor- the court holds that there is a de
612
Usually there may be a de facto railroad company though its artides
facto corporation under such circum- Stokes V. Findlay, 4 McCrary (U. S,

stances and that the stockholders may C. C.) 205, Fed. Cas. No. 13,478 (under
be held liable under a statutory pro- Iowa act).
vision making stockholders in banks Kentucky. Failure to file the ar-
personally liable for public funds de- ticles with the secretary of state can
posited therein which the bank fails be taken advantage of only in a direct
to pay over on demand. In speaking proceeding to annul the franchise.
of the decision in Garnett v. Eichard- Portland & G. Turnpike Co. v. Bobb,
son, the court says: "That decision 88 Ky. 226, 10 S. 'W. 794.
seems to be against the weight of Failure of a corporation organized
modern authority, and the doctrine for the purpose of constructing a work
of it should not be extended any fur- of internal improvement to file its
ther. It does not follow that the articles with the secretary of state
corporation itself would not also bo within the time prescribed by the
liable as a de facto corporation, nor statute can be taken advantage of only
that statutory liability of incorpora- in a direct proceeding to annul its
tors would be unenforceable." franchise. Walton v. Eiley, 85 Ky.
California. Mokelumne Hill Canal W. 605, overruling Heinig v.
413, 3 S.
& Mining Co. v. Woodbury, 14 Cal. Adams & Westlake Mfg. Co., 81 Ky.
424, 73 Am. Dec. 658; Hyde
Doe, 4 v. 300.
Sawy. (U. S.) 133, No.
Fed. Cas. Louisiana. Bond & Braswell v.
6,969 (under California act). See also Scott Lumber Co., 128 La. 818, 55 So.
Oroville & V. E. Co. v. Supervisors of 468.
Plumas Co., 37 Cal. 354; Spring "Val- MicMgan. In Sehaub v. Coffin, 135
ley Water Works v. San Francisco, 22 Mich. 435, 97 N. W. 968, it was held
Cal. 434. that a company was liable as a do
Colorado. Grand Eiver Bridge Co. facto corporation on a contract made
V. EoUins, 13 Colo. 4, 21 Pac. 897. by it with a person who was given
In Jones v. Aspen Hardware Co., to understand that it was incorpo-
21 Colo. 263, 29 L. E. A. 143, 52 Am. rated, where its articles had been
St. Eep. 220, 40 Pac. 457, it was held signed and filed with the county clerk,
that there was no de facto corpora- and sent to the secretary of state,
tion though the articles were filed with though they were afterwards rejected
the county clerk, where they were not and returned by the latter officer.
filed with the secretary of state and Nebraska. Lincoln Butter Co. v.
the required fees were not paid. The Edwards-Bradford Lumber Co., 76
holding in this case was based on Neb. 477, 107 N. W. 797; Lusk v.
the nonpayment of the fee, however. Biggs, 70 Neb. 718, 102 N. W. 88.
Illinois. Under Act Feb. 10, 1849, Prior to the adoption of the Act of
Baker v. Backus' Adm'r, 32 111. 79; 1897, e. 18, requiring the articles to
Tarbell v. Page, 24 111. 46; Cross v. be both places, they were only
filed in
Pinekneyville Mill Co., 17 111. Act

54; required to be filed with the county
Feb. 18, 1857; Stone v. Great West- clerk, and it was then held that filing
ern Oil Co., 41 111. 85. them there was a condition precedent
Indiana. Baker v. Neff, 73 Ind. 68. to the right todo business other than
Iowa. See Seaton v. Grimm, 110 the organization of the company, and
Iowa 145, 81 N. W. 225; First Nat. that the mere adoption of articles
Bank v. Da vies, 43 Iowa 424; without so filing them gave no right
613
298] Peivate Ooepobations [Ch. 10
or certificate are not recorded in every county through which its road
runs.'^
As a rule, the fact that the articles or certificate of incorporation
are filed in thewrong puhlie office will not prevent the corporation
from attaining de facto existence.''' Nor will the fact that the certifi-
cate of incorporation issued hy the secretary of state instead of
the articles of incorporation,'* or a copy instead of a duplicate of the
even as a de faeto corporation to Chester, 55 Cal. 98; Emery v. De Peys-

transact business. Lusk v. Eiggs, 70 ter, 77 N. Y. App. Div. 65, 78 N. Y.
Neb. 718, 102 N. W. 88; Abbott v. Supp. 1056.
Omaha Smelting & Befining Co., 4 That the proposed charter was reg-
Neb. 416. istered in the office of the register of
New Jersey. Mc Carter v. Ketch am, deeds instead of before the clerk does
74 N. J. L. 829, 69 Atl. 253; 74 N. J. not prevent de facto existence. Clare-
L. .825, 67 Atl. 610; 72 N. J. L. 247, mont College v. Eiddle, 165 N. C. 211,
62 Atl. 693; Vanneman v. Young, 52 81 S. E. 283. Nor does such result
N. J. L. 403, 20 Atl. 53; Way v. Ameri- arise because the articles were filed
can Grease Co., 60 N. J. Eq. 263, 47 in the office of the county clerk in-
Atl. 44. stead of recorded in the office of the
In Sherwin v. Sternberg, 78 N. J. Kalamazoo
register of deeds; Kala-
v.
L. 557, 74 Atl. 510, aff'g 77 N. J. L. mazoo Heat, Light & Power 124
Co.,
117, 71 Atl. 117, it is held that there Mich. 74, 82 N. W. 811, nor because
was no de facto corporation where the county clerk, to whom the articles
the secretary of state refused to al- were handed, and who was also the
low the incorporation papers to be county recorder, marked the docu-
filed because of a. similarity of title ment as filed with the recorder instead
to that of an existing corporation, of with the clerk. San Diego Gas. Co.
though the certificate of incorpora- V. Frame, 137 Cal. 441, 70 Pac. 295.
tion was filed with the county clerk. The existence of the corporation can-
NewYork, Leonardsville Bank v. not be collaterally attacked on the
Willard, 25 N. Y. 574; Greorgeson v. ground that the articles were filed
Caffrey, 71 Hun 472, 24 N. Y. Supp. with the county recorder instead of
971; Baisbeck v. Oesterricher, 4 Abb. in the office of the county clerk, where
N. Cas. 444; Meriden Tool Co. v. Mor- the clerk was ex officio recorder. San
gan, 1 Abb. N. Cas. 125, note; Erie Diego Gas Co. v. Frame, 137 Cal. 441,
County Sav. Bank v. Baldwin, 22 Alb. 70 Pac. 295.
L. J. 134. See also "Western U. Tel. That the certificate of a religious
Co. V. Union Pac. By. Co., 3 Fed. 721, corporation is recorded in the regis-
729 (under New York act). ter's office instead of in the office
Tennessee. Merriman v. Magiveny, of the county clerk does not prevent
12 Heisk. 494. the corporation from taking effect as
36Brown v. Melick, 185 HI. App. 3. such. In re Arden, 1 Connolly Surr.
Eegistration in the county where its (N. Y.) 159, 4 N. Y. Supp. 177.
principal office is situated is sufficient 38 So where the certificate is filed
to protect the corporate existence and recorded in the county recorder's

against attack.
collateral Anderson office instead of the articles. Hunt-
V. Eailroad, 91Tenn. 44, 17 S. "W. 803. ington Mfg. Co. V. Schofield, 28 Ind.
37Bakersfield Town Hall Ass'n v. App. 95, 62 N. E. 106.
614
Ck 10] Db Facto Cobpoeations [§298
articles,'* or the original articles instead of a certified copy,*" are filed

or recorded. And there may also be a de facto corporation where
the articles or certificate are filed for record though it does not appear
that they were in fact recorded."
According to the weight of authority there may he a corporation de
facto though statutory provisions relative to the publication of the
articles of incorporation or of a notice of incorporation have not
been complied with,*^ though there are holdings to the contrary.**
Failure to make the required proof of publication will not prevent
the corporation from being one de facto.**
39 In Hudson v. Green Hill Semi- But the stockholders are person-

nary Corporation, 113 111. 618, it is ally liable for the corporate debts
held that a corporation attempted to where the law relative to the publica-
be organized under the laws of In- tion of notice is not complied with.
diana was one de facto though a copy Clegg V. Hamilton & Wright County
of the articles was filed with the sec- Grange Co.,61 Iowa 121, 15 N. W.
retary of state instead of a duplicate, 865; Marshall v. Harris, 55 Iowa 182,
as required by the Indiana statute. 7 N". W. 509.
MSlocum V. Head, 105 Wis. 431, Kentucky. Failure to publish the
50 L. E. A. 324, 81 N. W. 673. articles within the time prescribed
41 Washington College v. Duke, 14 can be taken advantage of only in
Iowa 14. a direct proceeding to annul the cor-
So held where the certificate show- porate franchise. Walton v. Riley, 85
ing the organization of the corpora- Ky. 413, 3 S. W. 605, overruling Hei-
tion by the meeting of the subscrib- nig V. Adams & Westlake Mfg. Co.,
ers and the election of officers was not 81 Ky. 300; and Robinson & Co. v.
recorded. Owensboro Wagon Co. v. Harris, 5 Ky. L. Rep. 928.
Bliss, 132 Ala. 253, 90 Am. St. Eep. Nebraska. Lincoln Butter Co. v.
907, 31 So. 81. Edwards-Bradford Lumber Co., 76 Neb.
In Johnson v. Okerstrom, 70 Minn. 477, 107 N. W. 797; Kleckner v. Turk,
303, 73 N. W. 147, it was held that 45 Neb. 176, 63 N. W. 469.
there was a de facto corporation where New York. Holmes v. Gillilaad, 41
the articles were filed in the office of Barb. 568.
the proper town clerk, though it did 43 Louisiana Nat. Bank v. Hender-
not appear that he recorded them. son, 116 La. 413, 40 So. 779; Provident
42 Connecticut. See Wood v. Wiley Bank & Trust Co. v. Saxon, 116 La.
Const. Co., 56 Conn. 87, 13 Atl. 137. 408, 40 So. 778; Williams v. Hewitt,
Illinois. See Kettering v. City of 47 La. Ann. 1076, 49 Am. St. Eep.
Jacksonville, 50 111. 39, holding that 394, 17 So. 496.
the failure to publish a municipal In Bigelow V. Gregory, 73 111. 197,
charter as required by its terms could it was held that there was not a de
not be taken advantage of collater- facto corporation under the laws of
ally. Wisconsin where the articles were
Iowa. Troutman v. Council Bluffs never published and the required cer-
Street Fair & Carnival Co., 142 Iowa tificate of incorporation was never
140, 120 N. W. 730. See also Stokes filed.
V. Findlay, 4 MeCrary (U. S. C. C.) *4Hause v. Mannheimer, 67 Minn.

205, Ted. Cas. No. 13,478. 194, 69 N. W. 810. See also Chris-
615
§299. — Payment of fees and deposit of securities. In some

jurisdictions it has been held that there may be a de facto corpora-
tion, the existence of which cannot be collaterally attacked, though
there was no payment of themoney required by the statute to be paid
to the state treasurer.** But in others it is held that there is not even
a corporation de facto under such circumstances, and that the non-
payment may be taken advantage of collaterally.*®
has been held that the failure of a banking corporation to comply
It
with a provision requiring it to deposit securities to a certain amount
with the bank department before commencing business will not pre-
vent it from being a de facto corporation.*''
§ 300. — Issuance of certificate or authorization by public officer.
Some courts have held that there is no corporation de facto where

there has not been an issue of a certificate of incorporation** or
letters patent.*®But others take a contrary view.®" And it has even
been held that the fact that an association is conducting a particular
business without a charter and without any shadow of right does
tian V. Bowman, 49 Minn. 99, 51 N. idence Steam & Gas Pipe Co., 10 E.
W. 663. I. See also State v. Consolidated
112.
So held though proof of the publi- Gas, Elec. Light & Power Co., 104
cation of the charter is not filed in Md. 364, 65 Atl. 40; Murphy v. Wheat-
the office of the secretary of state. ley, 102 Md. 501, 63 Atl. 6h.
Bond & Braswell v. Scott Lumber Co., 47 Leonardsville Bank v. Willard, 25
128 La. 818, 55 So. 468. N. Y. 574.
45 Owensboro Wagon Co. v. Bliss, 48 See Daily v. Marshall, 47 Mont.
132 Ala. 253, 90 Am. St. Kep. 907, 31 377, 133 Pac. 681.
So. 81; Christian & Craft Grocery Co. 49 Humphreys v. Drew, 59 Fla. 295,
V. Fruitdale Lumber
121 Ala. 340,
Co., 52 So. 362.
25 So. 566; McClinch v. Sturgis, 72 BO There may be a de facto corpo-
Me. 288; Eaton v. Aspinwall, 19 N. ration though no certificate of incor-
Y. 119; Muehlenbeok v. Babylon & poration was issued by the secretary
N. S. E. Co., 26 N. Y. Misc. 136, 55 of state; Bank of Midland v. Harris,
N. Y. Supp. 1023. 114 Ark. 344, Ann. Cas. 1916 B 1255,
46 Union Horse Shoe "Works v. Lewis, 170 S. W. 67; Keith & Perry Coal Co.
1 Abb. (tJ. S.) 518, Fed. Cas. No. 14,- V. Bingham, 97 Mo. 196, 10 S. W. 32;
365; Jones v. Aspen Hardware Co., or by the probate judge. Owensboro

21 Colo. 263, 29 L. E. A. 143, 52 Am. Wagon Co. v. Bliss, 132 Ala. 253, 90
St. Eep. 220, 40 Pae. 457; National Am. St. Eep. 907, 31 So. 81.
Shutter Bar Co. v. G. F. S. Zimmerman Though a certificate of incorpora-
& Co., 110 Md. 313, 73 Atl. 19; Cleave- tion is never issued by the judge of
land V. Mullin, 96 Md. 598, 54 Atl. 665; probate, the charter may be ratified
Maryland Tube & Iron Works v. West and confirmed by a subsequent act of
End Improvement Co., 87 Md. 207, 39 the legislature. State v. Webb, 110
L. E. A. 810, 39 Atl. 620; Slocum v. Ala. 214, 20 So. 462.
Warren, 10 E. I. 116; Slocum v. Prov-
616
not prevent it from being a de facto corporation where such business

is not without the pale of the law.*^
It has been held that there is no corporation de facto where the

corporators have failed to obtain the authorization or certificate, re-
quired by the statute, from the attorney general, district attorney or
judge *2 but, on the other hand, there are holdings to the effect that
;
failure to obtain a certificate from the state auditor authorizing com-

mencement bank to obtain a certificate
of business,^' or the failure of a
of authority from the bank commissioner,^* or the approval of its
charter by congress,^* or of a railroad company to obtain a certificate
of necessity and convenience from the railroad commission,*® does not
prevent it from becoming a de facto corporation.
§301. — Provisions as to organization. Generally the fact that

the corporation was not organized within the time limited by the
charter or the general law does not prevent it from becoming a cor-
In Petty v. Brunswick & W. Ey.

51 themselves out to the world as such,
Co., 109 Ga. 666, 35 S. E. 82, it was before they became a corporation de
said that, though a railway employ- jure by obtaining a charter under an-
ees' relief association might possibly other name, and it does not appear
be conducting a general mutual bene- what, if anything, had been done
fit insurance business without a char- toward complying with the statute.
ter and without the least shadow of But the holding in the case is that
right, this was a matter as to which where property was purchased by such
the state was alone concerned. "As persons for the benefit of the corpora-
it not attempting to engage in a
is tion and on its credit before the char-
business without the pale of the law, ter was obtained, the corporation took
it stands upon the footing of a de the equitable title thereto, and that
facto corporation, at least. 'But else-
' such persons were estopped to deny
where in the opinion the court says the character and name under which
that it was immaterial whether it was they traded and obtained the credit,
a copartnership, a corporation or a especially after judgment had been
mutual benefit association, since the obtained against them covering the
plaintifE, by his demurrer, had admit- transaction.
ted that he had become a member of 52 Field V. Cooks, 16 La. Ann. 153;
the association, and had thereby rec- Richmond Factory Ass'n v. Clarke,
ognized its right to make a lawful 61 Me. 351.
contract, and was not, therefore, in 63 Stokes V. Findlay, 4 MeCrary 205,
a position to question its authority to Fed. Cas. No. 13,478.

transact the business in which it was 64 State v. Mason, 61 Kan. 102, 58
engaged, especially after he had re- Pae. 978.
ceived the fruits of the contract. 66 Smith V. Sheeley, 12 Wall. (U.
In Georgia Ice Co. v. Porter, 70 Ga. S.) 358, 20 L. Ed. 430.
637, parties were referred to as hav- 66 Muehlenbeck v. Babylon & N. S.
ing carried on business as a corpora- R. Co., 26 N. T. Misc. 136, 55 N. Y.
tion de facto, and as having held Supp. 1023.
617
poration de facto, nor render its existence subject to collateral attack,"

nor, as a rule, will such results follow from the fact that the cor-
poration was organized before the articles or certificate of incorpora-
tion were acknowledged or recorded,** or that there was a failure
to give the notice required by the statute of the meeting for the
purpose of organization ^* or that there were informalities in the
;
proceedings of such meeting,^" or that no certificate of organization
B7 Dallas County v. Huidelsoper, 154 Y. Super. Ct. 131, 19 Abb. Pr. (N. Y.)
U. S. 655, 25 L. Ed. 974, 154 U. S. 654, 416.
25 L. Ed. 974, aff'g 3 Dill. 171, Fed. This is true though the notice given
Caa. No. 6,850; Ealls County v. Doug- is shorter than the statute requires,;
lass, 105 U. S. 728, 26 L. Ed. 957; Ma- Ossipee Hosiery & Woolen Mfg. Cq
con County V. Shores, 97 U. S. 272, V. Canney, 54 N. H. 295; or though
277, 24 L. Ed. 889; Lehman v. War- the form of the notice is defective.
ner, 61 Ala. 455; St. Louis, A. & T. H. MEClinch v. Sturgis, 72 Me. 288.
E. Co. V. Belleville City Ey. Co., 158 The fact that the notice was not
111. 390, 41 N. E. 916. See also At- given by the persons named in the cer-
lanta V. Gate City Gas Light Co., 71 tificate as incorporators is not ground
6a. 106; Smith v. Clark County, 54 for questioning collaterally the va-
Mo. 58, 81; Daily v. Marshall, 47 Mont. lidity of the action of the directors
377, 133 Pae. 681; Boyd v. Eedd, 120 who are chosen at such meeting.
N. C. 335, 58 Am. St. Eep. 792, 27 S. Chamberlain v. Painesville & H. E.
E. 35. Co., 15 Ohio St. 225, 250.
The fact that by the terms of its The corporation is valid as to all
charter the corporate powers of a cor- persons except the state, though the
poration came to an end on the expira- notice of the first meeting was not
tion of a year for failure to complete signed by a majority of the persons
its organization is no defense to an named in the act of incorporation and
action to enforce a statutory liability though only one of such persons par-
of its stockholders for its debts. ticipated in the organization. Wal-
Bearse v. Mabie, 198 Mass. 451, 84 worth V. Brackett, 98 Mass. 98; New-
N. E. 1015. But see Welsh v. Old Do- comb V. Eeed, 12 Allen (Mass.) 362.
minion Min. & Ey. Co., 56 Hun (N. Y.) But see Smith v. Schoodoe Pond Pack-
650, 10 N. Y. Supp. 174, holding that ing Co., 109 Me. 555, 84 Atl. 268, hold-
under the laws of Virginia the ating that, as between themselves cer-
tempted organization is void under tain persons conducting a business
such circumstances. And see chapter

were not a corporation de facto, in
on Stock and Stockholders, infra.
view of the fact that notice of a meet-
ing of stockholders at which officers
SSMerriman v. Magiveny, 12 Heisk.
were elected was not given to all the
(Tenn.) 494.
stockholders.
S9East Norway Lake Church v.
National Mut. Eire Ins. Co. v.
60
Froislie, 37 Minn. 447, 35 N. W. 260;
Yeomans, 8 E. I. 25, 86 Am. Dee. 610.
Diekason v. Grafton Sav. Bank Co.,
See also Persse & Brooks Paper Works
6 Ohio Cir. Ct. (N. S.) 329; Eranke v. v. Willett, 24 N. Y. Super. Ct. 131, 19
Mann, 106 Wis. 118, 48 L. E. A. 856, Abb. Pr. (N. Y.) 416; Vermont Min-
81 N. W. 1014. See also Persse & ing & Quarrying Co. v. Wendham
Brooks Paper Works v. Willett, 24 N. County Bank, 44 Vt. 489.
618
,
Ch. la] De Facto Cobporations [§301
was executed or filed.*^ And the same has been held to be true
though no board of directors has been elected,*'' and though there
were irregularities with respect to the number, term, place of resi-
dence and of meeting of the board of directors,*' or some of the persons
chosen as directors are not qualified.** Some courts hold that there
must have been some attempt at organization, however,*^ though there
is authority to the contrary.** And under the statutes of some states
there ceases to be even a de facto corporation if the corporation does
not organize and proceed to business within a specified time after
the date of its certificate of incorporation.*''
There is a square conflict of authority as to the effect in this regard
of an attempt to organize the corporation in a state other than the
one under the laws of which it is incorporated. In some jurisdictions
61 In re Halsey W. Kelley & Co., The issuance of a certificate by the

215 Fed. 155. secretary of state to the purchaser at
62 Conley v. Daughters of Repub- a judicial sale of the property and
lic of Texas, —
Tex. Civ. App. — franchises of a railroad company does
151 S. W. 877. not ipso facto create a corporation
This rule has been held to apply authorized to operate the road, but
though no provision is made for di- organization thereunder by the elec-
rectors or none are
trustees and tion of directors, etc., is necessary, and
chosen, but the management and con- the fact that no such organization has
trol of the company isvested in cer- taken place is a good defense to an
tain named officers. Bates v. Wilson, action for personal injuries against
14 Colo. 140, 24 Pac. 99. the company. Watson v. Albany & N.
The mere failure to elect a board By. Co., Ill
Ga. 10, 36 S. E. 324. See
of directors does not invalidate the also Wechselberg v. Flour City Nat.
organization of the corporation so as Bank, 64 Fed. 90, 26 L. R. A. 470;
to render the incorporators liable as Meyer v. Brunson, — S. C. — , 88 S.
partners. Drake
Herndon, 122 Ky.
v. E. 359.
206, 91 S. W. 674. But see Goodale 66There may be a de facto corpo-
Lumber Co. v. Shaw, 41 Ore. 544, 69 ration though no stock certificates
Pac. 546. have been issued, no regular meetings
63 Smith v. Cleveland, C, C. & St. of stockholders or directors have been
L. R. Co., 170 Ind. 382, 81 N. E. 501. called, no officers eletted and no re-
See also Fargason v. Oxford Mercan- ports filed. In re Cordova Shop, 216
tile Co., 78 Miss. 65, 27 So. 877. Fed. 818. See also Katama Land Co.
64 Hackensack Water Co. v. De Kay, V. Holley, 129 Mass. 540.
S6 N. J. Eq. 548. 67 Kurd's Rev. St. 1913, e. 32, §§4,
65 A corporation which has never 80; J. & A. 111[2421, 2592; African!
been organized has no capacity to sue, Home Purchase & Loan Ass'n v. Car-
even though articles have been sub- roll, 267 111. 380, 108 N. E. 322. And
scribed, and hence a contention that see also People v. Mackey, 255 111.
an action should have been brought 144, 99 N. E. 370, which reviews the
by it cannot be sustained. Lawrie v. authorities, and explains and limits
Silsby, 76 Vt. 240, 104 Am. St. Rep. the holding on this subject in Mar-
927, 56 Atl. 1106. shall V. Keach, 227 111. 35, 118 Am.
619
;
§ 301] Private Cgbpokations [Oh. 10
it is held that the legality of the corporation cannot be collaterally
attacked on this ground,^* while in others it is held that there is not

even a de facto corporation under such circumstances.®'
§302. — Consolidation, reorganization and amendment. Where

there a law authorizing the consolidation of two or more corporations,
is
a bona fide attempt to consolidate under it and user, the consoli-

dated corporation is a corporation de facto, and neither irregulari-
ties in the proceedings whereby the consolidation was effected,'"' nor
the question whether the facts were such as to justify the consolidar
St. Eep. 247, 10 Ann. Cas. 164, 81 County V. Barnes, 94 TJ. S. 70, 24 L.
N. E. 29. Ed. 63.
68MeKee v. Title Insurance & Illinois. McAuley v. Columbus, C.
Trust 159 Cal. 206, 113 Pac. 140;
Co., & L C. E. Co., 83 111. 348; Mitchell
Heath v. Silverthorn Lead Mining & V.Deeds, 49 111. 416, 95 Am. Dee. 621
Smelting Co., 39 Wis. 146. See also Eaeine & M. E. Co. v. Farmers' Loan
Ohio & M. Ey. Co. v. McPherson, 35 & Trust Co., 49 111. 331, 95 Am. Dec.
Mo. 13, 86 Am. Dec. 128. 595.
69 Duke V. Taylorj^ 37 Ma. 64, 31 L. Indiana. Smith v. Cleveland, C, C.
E. A. 484, 53 Am. St. Eep. 232, 19 So. & St. L. E. Co., 170 Ind. 382, 81 N.
172; Taylor v. Branham, 35 Fla. 297, E. 501; Bradford v. Frankfort, St. L.
39 L. E. A. 362, 48 Am. St. Eep. 249, & T. E. Co., 142 Ind. 383, 41 N. E. 819,
17 So. 552. 40 N. B. 741.
Au attempt to organize in another Kansas. Atchison, T. & S. F. E. Co.
state is void, and persons elected as v. Board Com'rs Sumner Co., 51 Kan.
directors under such circumstances are 617, 33 Pac. 312; Chicago, K. & W. E.
not even directors de facto. Miller Co. V. Commissioners of Stafford Co.,
V. Ewer, 27 Me. 509, 46 Am. Dec. 619. 36 Kan. 121, 12 Pac. 593.
In Smith v. Silver Valley Min. Co., Michigan. Swartwout v. Michigan
64 Md. 85, 54 Am. St. Eep. 760, 20 Air Line E. Co., 24 Mich. 389. See also
Atl. 1032, a bill by a stockholder Mansfield, C. & L. M. E. Co. v. Drinker,
against a foreign corporation to an- 30 Mich. 124.
nul a forfeiture of his stock was dis- New Jersey. Terhune v. Potts, 47
missed on the ground that the cor- N. In re Trenton St. Ey. Co.
J. L. 218;
poration was organized and its char- (N. J. Ch.), 47 Atl. 819. See also Coe
ter accepted in a "state other than that V. New Jersey Midland Ey. Co., 31 N.
by which it was created. See also J. Eq. 105, holding that the validity
Saltmarsh v. Spaulding, 147 Mass. 224, of the consolidation could not be raised
17 N. E. 316; Welsh v. Old Dominion by interveners in a suit to foreclose
Min. & Ey. Co., 56 Hun (N. Y.) 650, a mortgage given by the consolidated
10 N. Y. Supp. 174. corporation, since the rights of per-
70 United States. Leavenworth sons claiming title to the mortgaged
County Com'rs v. Chicago, E. I. & premises in hostility to the mortgagor
P. E. Co., 134 TJ. S. 688, 33 L. Ed. cannot be litigated in such a suit.
1064; Pacific Eailroad Eemoval Cases, Ohio. Union Trust Co. v. New York,
115 IT. S. 1, 15, 29 L. Ed. 319; L. D. C. & St. L. E. Co., 9 Ohio Dec. 773.
George Lumber Co. v. Daugherty, 214 Pennsylvania. Hamilton v. Clarion,
Fed. 958. See also Leavenworth M. & P. E. Co., 144 Pa. St. 34, 13 L.
620
Ch. 10] De Facto Gobpoeations [§ 303
tion,'! orwhether the consolidation was fraudulentj'^ can be inquired

into in a collateral proceeding.So, where there has been an attempted
consolidation of railroad corporations under such circumstances, it
cannot be contended in condemnation proceedings by the consolidated
company that such corporations could not be lawfully consolidated
because their lines were parallel and competing.''^ And there may be
a de facto consolidated corporation notwithstanding a failure to give
a statutory notice to stockholders or to file a certificate of consolida-
tion as required by the statute.'* Nor can the validity of the incor-
poration of one of the constituent corporations be collaterally
attacked.''*
De facto corporations may consolidate under a statute permitting
the consolidation of corporations so as to form a new corporation in
all respects valid, and in such quo
case proceedings in the nature of
warranto against the new corporation cannot be extended to an in-
quiry and determination as to the regularity of the several steps by
which the original corporations were organized.''® But there cannot
be a de facto consolidated corporation where there is no law author-
izing the consolidation.''"'
A reorganized corporation may be one de facto notwithstanding
irregularities in its reorganization.''* And where there is statutory
authority for the amendment of a corporate charter in the particulars
in which it is sought to be amended, and an effort in good faith to
amend thereunder, and the corporation transacts business as such
after the amendment, it is a de facto corporation, though the pro-
visions of the statute are not literally complied with.'"
§ 303. Assumption or user of corporate powers. To make a body

of men a corporation de facto, it is not enough to show merely that
R. A. 779, 23 Atl. 53; Eothsohild v. 74 Farmers' Loan & Trust Co. v. To-
Eochester & P. E. Co., 1 Pa. Co. Ct. ledo, A. A. & N". M. Ey. Co., 67 Fed,
620. 49.
Texas. See Whaley v. Bankers' 75Yeingst v. Philadelphia, H. & P.
Union of World, 39 Tex. Civ. App. R. Pa. Super. Ct. 106.
Co., 40
385, 88 S. W. 259. 76 People v. La Eue, 67 Cal. 526,
71 Chicago & W. I. E. Co. v. Heid- 8 Pac. 84.
enreieh, 254 111. 231, Ann. Cas. 1913 77 See §283, supra.
266, 98 N. E. 567. See also § 283, 78 Pittsburg, S.& N. E. Co. v. Keat-
supra. ^ ing & 233 Pa. 71, 81 Atl. 935.
S. E. Co.,
72 See § 283, supra. 79 In re "Western Bank & Trust Co.,
73 Chicago & W. I. E. Co. v. Heiden- 163 Fed. 713; Deitch v. Staub, 115
reieh, 254 111. 231, Ann. Cas. 1913 C Fed. 309.
266, 98 N. E. 567.
621
§303] Private Cobpobations [Ch. 10
there is a law under which they might be a corporation, that they

have attempted in good faith to organize under it, and that they have
colorably or apparently complied with its provisions, but it is
also necessary to show that they have assumed the character of a cor-
poration, and exercised corporate powers, or, in other words, that
there was an actual user of the corporate franchise,*" that is, it must
80 United States. Tulare Irrigation shall V. Reach, 227 111. 35, 118 Am.
Diat. V. Shepard, 185 U. S. 1, 46 L. Ed. St. Rep. 247, 10 Ann. Cas. 164, 81 N.
773; Harrill v. Davis, 168 Fed. 187, E. 29; St. Louis, A. & T. H. R. Co. v.
22 L. E. A. (N. S.) 1153, rev'g 7 In- Belleville City R. Co., 158 111. 390, 41
dian T. 152, 15 Ann. Cas. 1134, 104 N. E. 916; American Loan & Trust
S. W. 573; Elgin Nat. Watch Co. v Co. V. Minnesota & N. W. R. Co., 157
Loveland, 132 Fed. 41. ni. 641, 42 N. E. 153; Mitchell v.
Alabama. Owensboro Wagon Co. v. Deeds, 49 111. 416, 95 Am. Dec. 621;
Bliss, 132 Ala. 253, 90 Am. St. Rep. Woodland Social Entertainment Ass'n
907, 31 So. 81. V. Anderson, 187 111. App. 507; Stan-
Arkansas. Rainwater v. Childress, wood V. Sterling Metal Co., 107 111.
— Ark. , —
182 S. W. 280; Whipple App. 569; Concord Apartment House
V. Tuxworth, 81 Ark. 391, 99 S. W. Co. V. Alaska Refrigerator Co., 78 111.
86. App. 682; Washburn v. Roesch, 13
California. People v. Reclamation 111. App. 268.
Dist. No. 556, 130 Oal. 607, 63 Pac. 27; Indiana. Doty v. Patterson, 155
Wall Mines, 130 Cal. 27, 62 Pao.
V. Ind. 60, 56 N. E. 668; Farmers' Mutual
386; Hamilton v. San Diego County, V. Reser, 43 Ind. App. 634, 88 N. E.
108 Cal. 273, 41 Pac. 305; Martin v. 349.
Deetz, 102 Cal. 55, 64, 41 Am. St. Rep. Kansas. Pape v. Capitol Bank, 20
151, 36 Pae. 368; People v. Volcano Kan. 440, 27 Am. Rep. 183; Krutz v.
Canyon Toll-Road Co., 100 Cal. 87, 34 Paola Town Co., 20 Kan. 397; McLen-
Pae. 522; McCallion v. Hibernia Sav- nan V. Hopkins, 2 Kan. App. 260, 41
ings & Loan Society, 70 Cal. 163, 12 Pac. 1061.
Pac. 114; Oroville & V. R. Co. v. Su- Michlgaji. Newcomb-Endicott Co.
pervisors of Plumas Co., 37 Cal., 354. V. Fee, 167 Mich. 574, 133 N. W. 540;
See also San Diego Gas Co. v. Frame, Eaton V. Walker, 76 Mich. 579, 6 L.
137 Cal. 441, 70 Pac. 295. R. A. 102, 43 N. W. 638.
Colorado. Jones v. Aspen Hardware Minnesota. Healey v. Steele Cen-
Co., 21 Colo. 263, 269, 29 L. R. A. ter Creamery Ass'n, 115 Minn. 451,
143, 52 Am. St. Rep. 220, 40 Pac. 457; 133 N. W. 69; Finnegan
v. Noeren-
Duggan V. Colorado Mortg. & Inv. Co., berg, 52 Minn. 239, 18 L. R. A. 778,
11 Colo. 113, 17 Pac. 105. 38 Am. St. Rep. 552, 53 N. W. 1150.
Connecticut. Greene v. Dennis, 6 Missouri. School Dist. of Agency
Conn. 293, 16 Am. Dec. 58. V. Wallace, 75 Mo. App. 317.
Georgia. Brooke v. Day, 129 Ga. Nebraska. Abbott v. Omaha Smelt-
694, 59 S. E. 769; Georgia Southern ing & Refining Co., 4 Neb. 416.
& P. R. Co. V. Mercantile Trust & De- New Jersey. Stout v. Zulick, 48 N.
posit Co., 94 6a. 306, 32 L. R. A. 208, J. L. 599, 7 Atl. 362.
47 Am. St. Rep. 153, 21 S. E. 701. New York. De Witt v. Hastings, 69
Illinois. Gillette v. Aurora Rys. N. Y. 518, afE'g 40 N. Y. Super. Ct.
Co., 228 111. 261, 81 N. E. 1005; Mar- 463; Von Lengerke v. New York, 150
622
be shown that the corporation has exercised its particular franchise

by doing business under it.*^
"In substance user consists in an enjoyment and exercise (although
not rightful) of such corporate franchises and powers as would be
given by the law to an association if the attempted organization had
'
been perfected. '
'^ The acts relied upon as showing user must be
corporate acts, as distinguished from acts which might just as well be
performed by an unincorporated association,^^ or from acts of indi-
App. Div. 98, 134 N. Y. Supp. 832, a corporation. Allen v. Long, 80 Tex.
aff'd 211 N. Y. 558, 105 N. E. 1101; 261, 26 Am. Eep. 735, 16 S. W. 43.
St.
Emery v. De Peyster, 77 App. Div. 65, Anorphan asylum is not a de facto
78 N. Y. Supp. 1056; Card v. Moore, corporation where the evidence shows
68 App. Div. 327, 74 N. Y. Supp. 18, "that there were no meetings of the
aflf'd 173 N. Y. 598, 66 N. E. 1105; members or trustees, no election of of-
Lamming v. Galusha, 81 Hun 247, 30 ficers, no by-laws adopted, no certifi-
N. Y. Supp. 767, aff'd 151 N. Y. 648, cates of shares or membership issued,
45 N. E. 1132; Welsh v. Old Dominion no seal adopted or used, no records or
Min. & Ey. Co., 56 Hun 650, 10 N. Y. minutes kept; in short, no corporate
Supp. 174; Perrine v. Levin, 68 Misc. acts of any character performed";
327, 123 N. y. Supp. 1007; Bradley and "the institution was managed
Fertilizer Co. v. South Pub. Co., 4 after as it had been before the at-
Misc. 172, 23 N. Y. Supp. 675, rev'g tempt to incorporate. Wall v. Mines,
'
'
1 Misc. 512, 21 N. Y. Supp. 472; id., 44 130 Cal. 27, 62 Pac. 386.
N. Y. St. Eep. 119, 17 N. Y. Supp. 587, See also § 278, supra.
rev'g 39 N. Y. St. Eep. 218, 14 N. Y. 81 Duggan v. Colorado Mortg. &
Supp. 917 (motion for leave to ap- Inv. Co., 11 Colo. 113, 17 Pac. 105;
peal to court of appeals denied, 6 State V. Byrne, 45 Conn. 273; Emery
Misc. 128, 26 N. Y. Supp. 4). Childs V. De Peyster, 77 N. Y. App. Div. 65,
T. Smith, 55 Barb. 45; Holmes v. 78 N. Y. Supp. 1056.
Gillilaud, 41 Barb. 568. 82Dewitt V. Hastings, 40 N. Y.
Ohio. Society Perun v. Cleveland, Super. Ct. 463, aff'd 69 N. Y. 518.
43 Ohio St. 481, 3 N. E. 357. See also 83 United States. Elgin Nat. Watch
Eaccoon Eiver Nav. Co. v. Eagle, 29 Co. V. Loveland, 132 Fed. 41.
Ohio St. 238. California. See Wall v. Mines, 130
Oregon. Brown v. Webb, 60 Ore. Cal. 27, 62 Pac. 386.
526, Ann. Cas. 1914 A 148, 120 Pac. Connecticut. Greene v. Dennis, 6
387. Conn. 293, 16 Am. Dee. 58.
Tennessee. Tennessee Automatic Illinois. Stanwood
v. Sterling Metal
Co., 107 App. 569.
111.
Lighting Co. v. Massey (Tenn. Ch.),
Iowa.
Kirkpatrick v. United Pres-
56 S. W. 35.
byterian Church of Keota, 63 Iowa
Utah. Mitchell v. Jensen, 29 Utah
372, 19 N. W. 272.
346, 81 Pac. 165.
Nebraska. Lincoln Butter Co. v.
Washington. Bash v. Culver Gold Edwards-Bradford Lumber Co., 76 Neb.
Min. Wash. 122, 34 Pac. 462.
Co., 7
477, 107 N. W. 797.
Wisconsin. Gilman v. Druse, 111 New York. Dewitt v. Hastings, 40
Wis. 400, 87 N. W. 557. N. Y. Super. Ct. 463, aff'd 69 N. Y.
It must be dealt with and act as 518.
623
viduals which would not be corporate acts if there were a charter.^*

If the business is such that it may
be carried on "either as an
unincorporated association or as a corporation, according to the elec-
tion of its members, there must be some effort to act as a corporation,
or a holding out as such," and the mere fact that it does business
under a name which might be that of a corporation is not enough.*^
But if the business is such that it can only be carried on by a cor-
poration, then the carrying on of such business is enough, since its
members must of necessity act as a corporation, if they act at all.*^
And even though the business transacted in the corporate name might
have been done in the same way without incorporation, a person who
has prosecuted an action against the association in that corporate
name, and in such action has attached their property, cannot be
heard, in an action for damages growing out of such attachment, to
had not been conducted as corporate business,
allege that the business
and that the transactions which were suitable and proper to a cor-
porate existence were not had and done by the plaintiff in its
corporate capacity.*''
It has been said that the degree of proof of user necessary to show
de facto corporate existence depends to some extent upon the nature
of the corporation, and the law under which it is organized. Where
no provision is made for any permanent evidence of the fact of
organization, more proof of user is necessary than where the essential
.steps by which the organization is accomplished are required to be
made a matter of record. If there is a valid law under which a cor-
poration might exist, and the record shows a bona fide attempt to'
organize under it, very slight evidence of user beyond this is neces-
sary.** Generally it is sufficient to show that the corporation was
"If the acts and proceedings of can exist only as a body corporate
a company or association consist only Atchison v. Crawford County Farin-
of such acts and proceedings as might ers' Mut. Fire Ins. Co., 192 Mo. App
be performed without an incorporat- 362, 180 S. W. 438.
ing act, or corporate grant or f ran- 87 Lincoln Butter Co. v. Edwards-
ehise, a corporation cannot be inferred Bradford Lumber Co., 76 Neb. 477,
from such acts." Abbott v. Omaha 107 N. "W. 797.
Smelting & Eefining Co., 4 Neb. 416, 88 Methodist Episcopal Union Church
420. V. Pickett, 19 N. Y. 482, afC'g 23 Barb.
84Dewitt V. Hastings, 40 N. Y. (N. Y.) 436, quoted in whole or in
Super. Ct. 463, aff'd 69 N. Y. 518. part and followed in Newcomb-Endi-
85 Atchison v. Crawford County cott Co. v. Fee, 167 Mich. 574, 133 N
Farmers' Mut. Fire Ins. Co., 192 Mo. W. 540; Eaton v. VTalker, 76 Mich. 579,
App. 362, 180 S. "W. 438. 6 L. E. A. 102, 43 N. W. 638; Kansas
86 An example of this is found in City Hotel Co. v. Hunt, 57 Mo. 126
the case of a school district, since it Emery v. De Peyster, 77 N. Y. App.
624
acting as a corporation and transacted business as such.^^ But there

is no fixed rule for determining just how much business must be done.*"
Taking subscriptions to managers and di-

and issuing stock, electing
rectors, adopting by-laws, buying a and constructing and leasing a
lot
building upon it ^^ electing officers and trustees, who manage the cor-
;
porate property for years, and lease and mortgage it, and expend large
sums of money ,®^ executing powers of attorney, and loaning money and
taking a note and mortgage theref or,^^ have been held to be sufficient.
And in the case of a railroad company it has been held that the
appointment of an engineer, the location of the proposed road, and
the taking of other steps towards its construction all tend to show the
existence of a corporation de facto.'* But acts done relative to the
formation of a corporation before taking any of the statutory steps
to that end do not constitute user,®^ nor does the mere organization
or attempted organization of the corporation by the election of
officers, and the like,'® nor the passage of resolutions by the directors
Div. 65, 78 N. Y. Supp. 1056; Dewitt V. Krittenbrink, 269 111. 244, 109 N.
V. Hastings, 40 N. Y. Super. Ct. 463, E. 1005.
aff'd 69 N. Y. 518; Merriman v. Ma- 90 People V. Reclamation Dist. No.
giveny, 12 Heisk. (Tenu.) 494; Bon 556, 130 Cal. 607, 63 Pac. 27.
Aqua Improvement Co. v. Standard 91 Pinnegan v. Noerenberg, 52 Minn.
Fire Ins. Co., 34 "W. Va. 764, 12 S. B. 239, 18 L. E. A. 778, 38 Am. St. Rep.
771. 552, 53 N. W. 1150.
Slight evidence of corporate acts is Electing officers and the transac-
suflficient. Ward Minnesota & N.
v. tion of business as a corporation is
"W. E. Co., 119 111. 287, 10 N. E. 365. sufficient. Bushnell v. Consolidated
See also Postal Tel. Cable Co. of Utah lee Mach. Co., 138 111. 67,27 N. E.
v. Oregon Short Line E. Co., 23 Utah 596.
474, 90 Am. St. Eep. 705, 65 Pac. 735. 92 Thompson
v. Candor, 60 III. 244.
And see Augusta Mfg. Co. v. Vertrees, See United States Mortg. Co. v.
93
4 Lea' (Tenn.) 75, holding that very McClure, 42 Ore. 190, 70 Pac. 543, writ
slight evidence of user is necessary of error dismissed 197 U. S. 624, 49
to show acceptance of a charter L. Ed. 911 (mem. dec).
granted by an act of the legislature. 94 Ward
V. Minnesota & N. W. R.
89 Any acts tending to show that the Co.,119 HI. 287, 10 N. B. 365, quoted
corporation is doing business under with approval in Postal Tel. Cable Co..
its charter are admissible to show of Utah V. Oregon Short Line R. Co.,
user. Brown v. Webb, 60 Ore. 526, 23 Utah 474, 90 Am. St. Rep. 705,
Ann. Cas. 1914 A 148, 120 Pac. 387. 65 Pac. 735.
General reputation is sufficient evi- 95 Dewitt V. Hastings, 40 N. Y.
dence of user, prima facie. Holmes v. Super. Ct. 463, aff'd 69 N. Y. 518.
Gilliland, 41 Barb. (N. Y.) 568. But 96 Emery v. De Peyster, 77 N. Y.
the mere opinion of a witness that App. Div. 65, 78 N. Y. Supp. 1056;
the owner of stolen property did busj- Welsh V. Old Dominion Min. & Ry. Co.,
ness as a corporation affords no proof 56 Hun (N. Y.) 650, 10 N. Y. Supp
of user, and is incompetent. People 174.
625
relating to contracts purely executory in their nature,^'' nor will the

mere issuance of stock, at least when accompanied by acts which would
justify a finding that there was a disclaimer on the part of the
associates to take part in the further prosecution of the corporate
business."
To constitute the purchase of property by an officer of the company
an act of user, it must be shown that he purchased it for the com-
pany and pursuant to power conferred upon him by it to do so.'^
"Where the contest is between third parties, user will not create a
de facto corporation as against one who does not take any part in
the acts of user, especially where he has done all in his power to pre-
vent business being done by the association.'
IV. RIGHTS AND LIABILITIES OP DE FACTO CORPORATIONS AND THEIR

MEMBERS
§ 304. In general. With respect to the application of the doctrine

in relation to de facto corporations, it is safe to say that it is sufficient
to show a de facto corporate existence in almost all actions or pro-
ceedings in which the existence of a body of men as a corporation
may be in issue, except in a direct proceeding by the state in quo
warranto to question their right to be a corporation, and to oust them
from the exercise of corporate powers. Such a corporation is deemed
to have a substantial legal existence,* and ordinarily, in its relation
with all persons except the state, has the same powers,^ and is subject
to the same liabilities, duties and responsibilities,* as a corporation
97 Emery v. De Peyster, 77 N. T. Georgia. See Georgia Southern &

App. Div. 65, 78 N. Y. Supp. 1056. F. E. Co. v. Mercantile Trust & De-
98 Dewitt V. Hastings, 40 N. Y. Su- posit Co., 94 Ga. 306, 32 L. K. A. 208,
per. Ct. 463, aff'd 69 N. Y. 518. 47 Am. St. Eep. 153, 21 S. E. 701.
99 Dewitt V. Hastings, 40 N. T. Gunderson v. Illinois Trust
Illinois.
Super. Ct. 463, aff'd 69 N. Y. 518. & Savings Bank, 199 111. 422, 65 N. E.
1 Dewitt V. Hastings, 40 N. Y. Super. 326, aff'g 100 111. App. 461.
Gt. 463, aff'd 69 N. Y. 518. Michigan. Shadford v. Detroit, Y.
2 See § 274, supra. & A. A. K. R., 130 Mich. 300, 89 N.
3 Roaring Springs Townsite Co. v. W. 960.
Paducah Tel. Co., —
Tex. Civ. App. ,
— Texas. Roaring Springs Townsite
164 S. W. 50. Co. V. Paducah Tel. Co., — Tex. Civ.
< Alabama. Harris v. Gateway App. ,
—
164 S. W. 50.
Land Co., 128 Ala. 652, 29 So. 611; Vermont. Searsburgh Turnpike Co.
Bibb V. Hall, 101 Ala. 79, 14 So. 98; v. Cutler, 6 Vt. 315.
Central Agricultural & Mechanical The conversion of a corporation do
Ass'n V. Alabama Gold Life Ins. Co., facto into one de jure will not ex-
70 Ala. 120. See also Floyd v. State, empt property held by it in the lat-
177 Ala. 169, 59 So. 280. ter character from liability for
626
de jure, and is bound by all such acts as it might rightfully perform

if it were a corporation de jure.' In other words, so long as the state
acquiesces in its existence and its exercise of corporate functions, it
is "under the protection and governed by the same

of the same law
legal principles" as de jure corporations,^ and may legally do and
perform every act and thing which the same entity could do or
perform were it a de jure corporation. As to all the world except the
paramount authority under which it acts and from which it receives
its charter, it occupies the same position as though in all respects
valid, and even as against the state, except in direct proceedings to

arrest its usurpation of power, its acts are to be treated as efficacious.'
So the property of a de facto corporation is subject to taxation in
obligations incurred by it in the for- Vermont. Searsburgh Turnpike Co.

mer. Georgia Ice Co. v. Porter, 70 V. Cutler, 6 Vt. 315.
Ga. 637. 7 United States. Clapp v. Otoe
6 Society Perun v. Cleveland, 43 County, 104 Fed. 473; Miller v. Fer-
Ohio St. 481, 3 N. E. 357; Beck v. ris Irrigation Dist., 99 Fed. 143, 85
Eocky Eiver Village School Dist., 14 Fed. 693.
Ohio N. P. 312. Arkansas. Whipple v. Tuxworth,
Its acts are binding upon it if 81 Ark. 391, 99 S. W. 86.
within the powers granted to a legally California. People v. Montecito
organized corporation. National Life Water Co., 97 Cal. 276, 33 Am. St.
Ins. Co. of Montpelier v. Board of Eep. 172, 32 Pac. 236; First Baptist
Education City of Huron, 62 Fed. Church of San JoaS v. Branham, 90
778. Cal. 22, 27 Pac. 60; People v. La Eue,
6 Alabama. Central of Georgia E. 67 Cal. 526, 530, 8 Pac. 84; Eeclama-
Co. V. Union Springs & N. E. Co., 144 tion Dist. No. 705 v. McPhee, 13 Cal.
Ala. 639, 2 L. E. A. (N. S.) 144, 39 So. App. 382, 109 Pac. 1106.
473; Owensboro Wagon Co. v. Bliss, Kansas. Eitchie v. Mulvane, 39
132 Ala. 253, 90 Am. St. Eep. 907, 31 Kan. 241, 17 Pac. 830; Back v. Car-
So. 81; Snider 's Sons' Co. v. Troy, 91 penter, 29 Kan. 349; School Dist. No.
Ala. 224, 230, 11 L. E. A. 515, 24 Am. 25 V. State, 29 Kan. 57.
St. Eep. 887, 8 So. 658. New York. Eaton v. Aspinwall, 19
Kansas. State v. Mason, 61 Kan. N. Y. 119, aff'g 6 Duer 176; Lamming
102, 58 Pac. 978. v. Galusha, 81 Hun 247, 30 N. Y.
New York. Lamming v. GJalusha, 81 Supp. 767, afE'd 151 N. Y. 648, 45 N.
Hun N. Y. Supp. 767, aff'd 151
247, 30 E. 1132.
N. Y. 648, 45 N. E. 1132. Nortk Carolina. Claremont College
Oklahoma. Swofford Bros. Dry V. Eiddle,165 N. C. 211, 81 S. E. 283.
Goods Co. v. Owen, 37 Okla. 616, 133 Oklahoma. Mitchell v. Carter, 31
Pac. 193. Okla. 592, 122 Pac. 691.
'
Oregon. Brown v. Webb, 60 Ore. Texas. Eoaring Springs Townsite

526, Ann. Cas. 1914 A 148, 120 Pac. Co. V. Paducah Tel. Co., —
Tex. Civ.
387. App. — , 164 S. W. 50.
Texas. Roaring Springs Townsite Washington. Purdin v. Washington
Co. V. Paducah Tel. Co., — Tex. Civ. Nat. Building, Loan & Investment
App. — , 164 S. W. 50. Ass'n, 41 Wash. 395, 83 Pae. 723.
627
the same manner as though it were a de jure corporation and under

*
the statutes relative to the taxation of corporations of the latter class
And where the question of the incorporation of a municipality arises
in an action for negligence based on a violation of an ordinance, it is
sufficient toshow an incorporation de facto.^ And the fact that the
corporation is a de facto one is sufficient to relieve the vendor of its
stock from liability as to any implied warranty as to the existence of

the corporation,^" and to require performance on the part of the
vendee. ^^ Proof that the corporation is one de facto is also sufficient
to bring a contract for the sale of its stock within the terms of a
statute prohibiting the sale of corporate stock by one who is not its
owner or assignee or the agent of the owner or assignee.^^
§ 305. Contracts with de facto corporations. A

de facto corpora-
tion has the same capacity as a de jure corporation to enter into eon-
tracts, and it is sufficient, therefore, to show a de facto corporate
existence in order to sustain an action by or against an association as
a corporation on a note, bond, or other contract,^' or in order to
West Virginia. Board of Education N. E. 29; Harter v. Eltzroth, 111 Ind.

V. Berry, 62 W. Va. 433, 125 Am. St. 159, 12 N. E. 129.
Eep. 975, 59 S. E. 169. 11 The vendee will not be excused
"So long as the state itself does from performing his contract on the
not see fit to interfere and terminate ground that the corporation is not one
its existence by direct proceedings de jure, where it is one de facto, in
brought by its attorney general, a the absence of a special guaranty.
de facto municipal government may Burwash v. Ballou, 230 111. 34, 15 L.
exercise upon the citizen, through of- E. A. (N. S.) 409, 82 N". E. 355, afE'g
ficers appointed by it, all the powers 132 111. App. 71; Marshall v. Keach,
conferred by the legislature upon the 227 111. 35, 118 Am. St. Eep. 247, 10
municipality as fully and completely Ann. Cas. 164, 81 N. E. 29.
as if the legality of its existence was 12 Barrett v. Mead, 10 Allen (Mass.)
beyond question." Morris v. Fagan, 337.
85 N. J. L. 617, 90 Atl. 267. 13 United States. Dallas County v.
8 Atlanta & E. A. L. E. Co. v. State, Huidekoper, 154 U. S. 654, 25 L. Ed.
63 Ga. 483. 974; In re Halsey W. Kelley & Co.,
9 Louisville, N. A. & C. E. Co. v. 215 Fed. 155; Campbell & Zell Co. v.
Shires, 108 111. 617. American Surety Co., 129 Fed. 491,
The acts of a court held in the aff'd 138 Fed. 531, certiorari denied
county seat of a de facto county are 199 TJ. S. 607, 50 L. Ed. 331 (mem.
as valid and binding as if it were dec.) Lippincott v. Shaw Carriage
;
a county de jure. Bellevue Water Co. Co., 25 Fed. 577. See also Baltimore
V. Stockslager, 4 Idaho 636, 43 Pae. & P. E. Co. V. Fifth Baptist Church,
568. 137 U. S. 568, 34 L. Ed. 784.
10 Marshall v. Keach, 227 111. 35, 118 California. Pacific Banlt v. De Ro,
Am. St. Eep. 247, 10 Ann. Cas. 164, 81 37 Cal. 538.
628
defeat an action against the stockholders or members of an association

as individuals on a note or other contract made by them as a cor-
Oonnecticut. Lamkin v. Baldwin & V. Schofleld, 28 Ind. App. 95, 62 N. E.

Lamkiu Mfg. Co., 72 Conn. 57, 44 L. 106.
E. A. 786, 43 Atl. 593, 1042. Kansas. Chicago, K. & W. R. Co. v.
Georgia. Georgia Southern & F. K. Commissioners of Stafford Co., 36
Co. V. Mercantile Trust & Deposit Co., Kan. 121, 12 Pao. 593; Pope v. Capital
94 Ga. 306, 32 L. E. A. 208, 47 Am. Bank of Topeka, 20 Kan. 440, 27 Am.

St. Eep. 153, 21 S. E. 701; Pattison v. Eep. 183.
Albany Building & Loan Ass 'n, 63 Ga. Massachusetts. Butchers' & Drov-
373. ers' Bank of St. Louis v. McDonald,
Idaho. 130 Mass. 264; Merchants' Nat. Bank
Boise City Canal Co. v.
Pinkham, v. Glendon Co., 120 Mass. 97; Barreft
1 Idaho 790.
V. Mead, 10 Allen 337; Appleton Mut.
Illiuois.Guuderson v. Illinois Trust
Fire Ins. Co. v. Jesser, 5 Allen 446.
& Savings Bank, 199 111. 422, 65 N. E.
Michigan. Schaub v. Coffin, 135
326, aff'g 100 111. App. 461; Cozzens
Mich. 435, 97 N. W. 968.
V. Chicago Hydraulic Press Brick Co.,
Missouri. Smith v. Clark County,
166 111. 213, 46 N. E. 788, aff'g 64 111.
54 Mo. 58; Eialto Co. v. Miner, 183
App. 569; Hudson v. Green Hill Semi-
Mo. App. 119, 166 S. W. 629 (Illinois
nary Corporation, 113 111. 618; Osborn
corporation).
V. People, 103 111. 224; Willard v.
Nebraska. Haas v. Bank of Com-
Methodist Episcopal Church of Eock-
merce, 41 Neb. 754, 60 N. W. 85; Lin-
ville Centre, 66 111. Mitchell v.
55;
coln Bldg. & Sav. Ass'n v. Graham,
Deeds, 49 111. 416, 95 Am. Dec. 621;
7 Neb. 173.
Goodrich v. Eeynolds, Wilder & Co.,
New Hampshire. Lamed v. Beal,
31 111. 490, 83 Am. Dec. 240; Marsh
65 N. H. 184, 23 Atl. 149.
V. Astoria Lodge No. 112; I. 0. O. ¥.,
New Jersey. Hackensaek Water Co.
27 111. 421; American Ins. Co. of New-
v. De Kay, 36 N.J. Eq. 548.
ark, New Jersey v. McClelland, 184
New
York. Buffalo & A. E. Co. v.
111. App. 381; Nelson Chesmau & Co.
Cary, 26 N. Y. 75; Leonardsville Bank
V. Singers, 183 111. App. 591; Dean &
V. Willard, 25 N. Y. 574; Methodist
Son V. W. B. Conkey Co., 180 111. App.
Episcopal Union Church v. Pickett,
162; American Sales Book Co. v. Wem- 19 N. Y. 482, aff'g 23 Barb. 436; Baton
ple, 168111. App. 639; Patton & Gib-
V. Aspinwall, 19 N. Y. 119, aff'g 6
sou Co. V. Shreve & Kelso, 134 111.
Duer 176; Bank of Port Jefferson v.
App. 271; Eiemann v. Tyroler & Vor- Darling, 91 Hun 236, 36 N. Y. Supp.
arlberger Verein, 104 HI. App. 413;
153; Muehlenbeck v. Babylon & N. S.
Concord Apartment House Co. v. E. Co., 26 Misc. 136, 55 N. Y. Supp.
Alaska Refrigerator Co., 78 111. App. 1023; Jones v. Dana, 24 Barb. 395;
682; Holt Tennent-Stribliug Shoe
v.
McFarlau v. Triton Ins. Co., 4 Den.
Co., 69 III. App. 332; Walker Paint 392; Benesch v. John Hancock Mut.
Co. V. Euggles, 48 111. App. 406; Mi- Life Ins. Co., 32 N. Y. St. Eep. 73,
ami Powder Co. v. Hotchkiss, 17 HI. 11 N. Y. Supp. 348; Palmer v. Law-
App. 622. rence, 3 Sandf. 161, aff'd 5 N. Y. 389.
Indiana. Doty v. Patterson, 155 Ind. North Carolina. New Bern Banking
60, 56 N. E. 668; Heastou v. Cincin- & Trust Co. V. Duffy, 156 N. C. 83, 72
nati & Pt. W. E. Co., 16 Ind. 275, 79 S. B. 96; Eyan v. Martin, 91 N. C. 464.
Am. Dee. 430; Huntington Mfg. Co. Ohio. Shawnee Commercial & Sav-
629
§305] Private Coepokatioits [Ch. 10
poration,^* or an action against the ofScers by whom such a contract
ings Bank Co. v. Miller, 1 Ohio Cir. Colorado. Humphreys v. Mooney,

Ct. (N. S.) 569; Beck v. Eocky Eiver 5 Colo. 282.
Village School Dist., 14 Ohio N. P. Connecticut. See Stafford Nat,
312. Bank Palmer, 47 Conn. 443.
v.
Oregon. See McVicker v. Cone, 21 Florida. Duke v. Taylor, 37 Fla.
Ore. 353, 28 Pac. 76. 64, 31 L. R. A. 484, 53 Am. St. Eep.
Pennsylvania. Spahr v. Farmers' 232, 19 So. 172.
Bank, 94 Pa. St. 429. Georgia. Howard v. Long, 142 Ga.
Bbode Island. Providence Fire & 789, 83 S. E. 852; Brooke v. Day, 129
Marine Ins. Co. v. Murphy, 8 E. I. Ga. 694, 59 S. E. 769; Planters' &
131. Miners' Bank v. Padgett, 59 Ga. 159;
.Tennessee. Greenevllle & P. E. McEee v. Quitman Oil Co., 16 Ga. App.
Narrow Gauge E. Co. v. Johnson, 8 12, 84 S. E. 487.
Baxt. 332; Merriman v. Magiveny, 12 Illinois. Hoyt v. MeCallum, 102 111.
Heisk. 494. App. 287; Edwards v. Cleveland Dryer
Utah. Kilpatrick-Koch Dry-Goods Co., 83 HI. App. 643.
Co. V. Box, 13 Utah 494, 45 Pao. 629. Indiana. Doty v. Patterson, 155 Ind.
Vermont. Eeynolds v. Myers, 51 60, 56 N. E. 668.
Vt. 444; Montpelier & W. E. E. Co. v. Maine. McClinch v. Sturgis, 72 Me.
Langdon, 46 Vt. 284. 288.
Washington. Yakima Nat. Bank v. Maryland. Laflin & Eand Powder
Knipe, 6 Wash. 348, 33 Pac. 834. Co. V. Sinsheimer, 46 Md. 315, 24 Am.
West Virginia. Bon Aqua Improve- Eep. 522.
ment Co. V. Standard Fire Ins. Co., 34 Michigan. Neweomb-Endicott Co.
W. Va. 764, 12 S. E. 771; Miller v. V. Fee, 167 Mich. 574, 133 N. W. 540;
Newburg Orrel Coal Co., 31 W. Va. Gow V. Collin & Parker Lumber Co.,
836, 13 Am. St. Eep. 903, 8 S. E. 600. 109 Mich. 45,' 66 N. W. 676; American
A de facto corporation is capable Mirror & Glass Beveling Co. v. Bulk-
of assuming liability for money ad- ley, 107 Mich. 447, 65 N. W. 291;
vanced to it. In re Cordova Shop, 216 Merchants' & Manufacturers' Bank v.
Fed. 818. Stone, 38 Mich. 779.
No distinction can be made between Minnesota. Johnson v. Okerstrom,
the executed and executory contracts 70 Minn. 303, 73 N. W. 147.
of a de facto corporation. Beck V. Missouri. Webb v. Eockefeller, 195
Eocky Eiver Village School Dist., 14 Mo. 57, 6 L. E. A. (N. S.) 872, 93 S.
Ohio N. P. 312. W. 772; First Nat. Bank of Deadwooii,
A judgment against a de facto cor- South Dakota v. Eockefeller, 195 Mo.
poration in an action against it on a 15, 93 S. W. 761; Wasson v. Boland,
contract may be enforced against
136 Mo. App. 622, 118 S. W. 663.
stockholders who have not paid their
Nebraska. Hogue v. Capital Nat.
subscriptions. Sehaub v. Coffin, 135
Bank of Lincoln, 47 Neb. 929, 66 N.
Mich. 435, 97 N. W. 968.
W. 1036; Kleckner v. Turk, 45 Neb.
14 United States. Stokes v. Find-
176, 63 N. W. 469; Globe Pub. Co. v.
lay, 4 McCrary 205, Fed. Cas. No.
State Bank of Nebraska, 41 Neb. 175,
13,478.
Alabama. Owensboro Wagon Co. v. 27 L. E. A. 854, 59 N. W. 683; Porter
Bliss, 132 Ala. 253, 90 Am. St. Eep. V. Sherman County Banking Co., 36
907, 31 So. 81. Neb. 271, 54 N. W. 424; Abbott v.
630
.
Ch. 10] De Facto Cobporations [§305
ismade.** Proof of a de facto corporate existence is sufScient where

the validity of a contract by a body of men claiming to be a corpora-
tion is in issue in a suit between third persons.**
Of course this rule does not permit the enforcement of a contract
against a de facto corporation which it would have had no power to
make had it been a corporation de jure.*'' And there is authority to
Omaha Smelting & Refining Co., 4 Wis. 118, 48 L. R. A. 856, 81 N. W.

Neb. 416. 1014; Slocum v. Head, 105 Wis. 431,
New Hampshire. Lamed v. Beal, 50 L. R. A. 324, 81 N. W. 673; Har-
65 N. H. 184, 23 Atl. 149. rod V. Hamer, 32 Wis. 162.
New Jersey. Vanneman v. Young, A corporation de facto "can incur
52 N. J. L. 403, 20 Atl. 53; Stout v. obligations as a corporation which do
Zulick, 48 N. J. L. 599, 7 Atl. 362. not bind those who associated to con-
New York. Whitford v. Laidler, stitute it, in their individual capaci-
94 N. Y. 145, 46 Am. Eep. 131, rev'g ties, * * *." Lamkin v. Baldwin &
25 Hun 136; Merchants' Nat. Bank v. Lamkin Mfg. Co., 72 Conn. 57, 44 L.
Pendleton, 55 Hun 579, 9 N. Y. Supp. R. A. 786, 43 Atl. 593, 1042.
46. See also Fox v. McComb, 63 Hun "In the absence of a statutory pro-
630, 17 N. Y. Supp. 783 (concurring vision making shareholders liable iu
opinion) case of failure to comply with the
Ohio. Rowland v. Header Furniture requirements of the charter, or with
Co., 38 Ohio St. 269; Bartholomew v. the requirements of the act under
Bentley, 1 Ohio St. 37. which the company is incorporated,
Oregon. See McVicker v. Cone, 21 persons who have contracted with a
Ore. 353, 28 Pac. 76. de facto corporation, as a corporation,
Pennsylvania. Cochran v. Arnold, cannot deny its corporate existence in
58 Pa. St. 399, overruling Patterson v. order to charge its shareholders in-
Arnold, 45 Pa. St. 410. See also In re dividually as partners. '
' Runyon, Ch.,
Gibb's Estate, 157 Pa. St. 59, 22 L. in Stout V. Zulick, 48 N. J. L. 599,
E. A. 276, 27 Atl. 383. 7 Atl. 362.
South Dakota. Maaon v. Stevens, In Seaton v. Grimm, 110 Iowa 145,
16 S. D. 320, 92 N. W. 424. 81 N. W. 225, it is said that the great
Tennessee. Merriman v. Magiveny, weight of authority supports the rule
12 Heisk. 494. stated in the text, in the absence of
Texas. American Salt Co. v. Hei- statute.
denheimer, 80 Tex. 344, 26 Am. St. See also § 312, infra.
Rep. 743, 15 S. W. 1038; Seymour 15 Lamming
v. Galusha, 81 Hun (N.
Opera-House Co. v. "Wooldridge (Tex. Y.) 247, 30 N. Y. Supp. 767; id., 151
Civ. App.), 31 8. W. 234. N. Y. 648, 45 N. E. 1132; Bartholomew
Vermont. Reynolds v. Myers, 51 Vt. V. Bentley, 1 Ohio St. 37. See also
444. Scanlau v. Keith, 102 111. 634, 40 Am.
West Virginia. Miller v. Newburg Rep. 624. See also § 312, infra.
Orrel Coal Co., 31 W. Va. 836, 13 Am. 16 New Haven Wire Co. Cases, 57
St. Rep. 903, 8 S. E. 600. See also Conn. 352, 394, 5 L. R. A. 300, 18 Atl.
Bon Aqua Improvement Co. v. Stand- 266; Smith v. Mayfield, 163 HI. 447,
ard Fire Ins. Co., 34 W. Va. 764, 12 457, 45 N. E. 157.
S. E. 771. 17So the leasing by a national bank
Wisconsin. Franke v. Mann, 106 of banking rooms before the comp-
631
the effect that a consolidated corporation must be one de jure in order

to succeed to the rights of the consolidating corporations."
By statute in some states stockholders are made individually liable
for the corporate debts where the statutory conditions precedent to
incorporation are not complied with.^' But it has been held that the
right to sue a de facto corporation on a contract entered into before
all its stock has been subscribed is not affected by the fact that the
statute makes the officers, agents and directors of the corporation

personally liable for all by them in
debts and liabilities contracted
its name under such For example, proof of a de
circumstances.^"
facto corporate existence is sufficient to sustain an action by a mutual
insurance company against a member to collect an assessment,^^ or
against a policy holder on a premium note,''^ or an action by the
indorsee of a note made payable to a corporation,^' or an action by a
corporation as indorsee or assignee of a note,^* or an action against
the indorser of a note made by a corporation.^* Similarly, proof of
a de facto corporation is sufficient to sustain an action to foreclose a
mortgage given by a corporation,^® or an action by a corporation on
a policy of insurance,*'' or on a bond given to it to dissolve an at-
tachment,^* or against a former stockholder and director for services
rendered,*^ or an action against a corporation on a lease.'"
troller has authorized it to commence 22 Farmers ' Ins. Co. v. Borders, 2G

business is ultra vires, and, in so far Ind. App. 491, 60 N. E. 174; Provi-
as the lease is executory, it cannot denee Fire & Marine Ins. Co. v. Mur-
be enforced against it on the theory phy, 8 R. I. 131.
that it is the contract of a de facto 23 Bibb v. Hall,101 Ala. 79, 14 So.
corporation. "Its acts in this regard gg. Goodrich Reynolds, Wilder &
v.
were not a defective use of power or q^^ 31 m 490^ 83 Am. Dec. 240.
the work of a merely de facto eor-
accreditors' Union v. Lundy, 16
poration, but a transaction which this
^^^ gg ^^^.p^^ g^^. ^.^ ^_
de jure and de facto corporation was
j^^^j^^^j ^^^^ „f Bloomington, 91 111.
specially forbidden to engage m."
20, 33 Am. Eep. 44.
McOormick v. Market Nat. Bank of
2= Pacific Bank v. De Eo, 37 Cal.
Chicago, 162 111. 100, 44 N. E. 381,
^^^•
aff'g 61 111. App, 33.
18 Brown v. Dibble's Estate, 65 26 See § 307, infra.
Mich. 520, 32 N. W. 656; Mansfield, 27 Bon Aqua Improvement Co. v.
C. & L. M. E. Co. V. Drinker, 30 Mich. Standard Fire Ins. Co., 34 W. Va. 764,
124. 12 S. E. 771.
19 See chapter on Stock and Stock- 28 Campbell & Zell Co. y. American
holders. Surety Co., 129 Fed. 491, aff'd 138

20 Gunderson v. Illinois Trust & Sav- Ted. 531, certiorari denied 199 TJ. S.
ings Bank, 199 111. 422, 65 N. E. 326, 607, 50 L. Ed. 331 (mem. dec).
sS'g 100 111. App. 461. 29 Black Eiver Improvement Co. v.
21 Appleton Mut. Fire Ins. Co. v. Holway, 85 Wis. 344, 55 N. W. 418.
Jesser, 5 Allen (Mass.) 446. 3" Trapp v. St. John 's Baptist
632
Ch. 10] De Facto Corpoeations [§ 305
A
de facto corporation having the right to possession of premises
may recover rent against one holding under it, and payment to it will
release the tenant.*^ And proof that a corporation to which property
has been sold is one de facto is sufficient to warrant a recovery by a
broker in an action against the vendor for commissions.^^
Bonds issued by a de facto corporation are valid and enforceable
to the same extent as if the corporation were one de jure, and the
legality of its incorporation cannot be questioned in an action to
enforce them or to prevent their enforcement.'* So, the validity of
the incorporation of an improvement corporation organized for irri-
gation or drainage purposes,'* or of a city'* or school district,'*

cannot be collaterally attacked in a suit by a private individual to
enjoin it from issuing bonds. Similarly one who agrees to purchase
bonds issued by a reclamation district on condition that they are legal
and valid is liable for the purchase price if the district has a de facto
existence when they are issued.''' Also proof that the company has a
Church, 174 111. App. 213; Whitford v. & Savings Bank, 199 HI. 422, 65 N.
Laidler, 94 N. Y. 145, 46 Am. Eep. 131, E. 326, aff'g 100 HI. App. 461.
rev'g 25 Hun (N. Y.) 136. Kansas. Eiley v. Garfield Tp., 58
31 Philippine Sugar Estates Devel- Kan. No.
299, 49 Pac. 85; School Dist.
opment Co. V. United States, 39 Ct. 25 V. Kan. 57.
State, 29
CI. (U. S.) 225. Minnesota. St. Paul Gaslight Co. v.
"Village of Sandstone, 73 Minn. 225,
32 Smith V. Mayfield, 163 111. 447,
75 N. W. 1050.
45 N. E. 157, aff'g 60 111. App. 266.
Missouri. Franklin Ave. German
33 United States. Quinton v. Equit-
Sav. Institution v. Board of Educa-
able Inv. Co., 196 Eed.Clapp 314;
tion, 75 Mo. 408.
V. Otoe County, 104 Fed. 473; Miller
North Dakota,. Coler v. Dwight
V. Ferris Irrigation Dist., 99 Fed. 143,
School Tp., 3 N. D. 249, 28 L. E. A.
92 Fed. 263, 85 Fed. 693; Herring v.
649, 55 N. W. 587.
Modesto Irrigation Dist., 95 Fed. 705;
The same is true of township war-
Central Trust Co. of New York v.
rants. Speer v. Board Com'rs Kear-
Chattanooga, E. & C. E. Co., 94 Fed.
ney Co., 88 Fed. 749.
275, aff'g 89 Fed. 388; National Life 34 Tyree v. Crystal Dist. Improve-
Ins. Co. of Montpelier v. Board of Edu-
ment Co., 64 Ore. 251, 126 Pac. 605.
cation, City of Huron, 62 Fed. 778, cer-
35 Cohen v. City of Houston, — Tex.
tiorari denied 159 U. S. 262, 40 L. Ed.
147 (mem. dec); Hill v. City of Ka-
Civ. App. — , 176 S. W. 809. See Mc-
Quillin on Municipal Corporations,
hoka, 35 Fed. 32.
§§158, 159.
California. Metcalfe v. Merritt, 14 36 Davis V. Parks, —
Tex. Civ. App.
Cal. App. 244, 111 Pac. 505. — , 157 S. W. 449; Wilson v. Browc,
Georgia. Georgia Southern & F. R. — Tex. Civ. App. , —
145 S. W. 639.
Co. V. Mercantile Trust & Deposit Co., See Abbott on Public Securities,
94 Ga. 306, 32 L. E. A. 208, 47 Am. St. §266.
Eep. 153, 21 S. E. 701. 37 Metcalfe v. Merritt, 14 Cal. App,
Illinois. Gunderson v. Illinois Trust 244, 111 Pac. 505.
633
305] Pbivate Cokpobations [CL 10
de facto corporate existence is all that is necessary to sustain an action

on bonds given by a county or municipal corporation in aid of a
railroad company, whether the action is brought by the company or
by an assignee,^^ or in an action to compel the county authorities to
issue bonds in payment of a subscription to the company's stoek.^'
§ 306. Ownership of property and conveyances of same. It is well

settled that a corporation de facto is just as capable of taking and
holding property, real or personal, as a corporation de jure, and is
just as capable of conveying or transferring property. conveyance A
or transfer of property to or by a corporation de facto, therefore, is
valid and binding as against all the world except the state, and even
as against the state except in direct proceedings in quo warranto.*"
88 Dallas County v. Huidekoper, 155 California. San Diego Gas Co. v.

XT. S. 655, 25 L. Ed. 974, 154 U. S. Frame, 137 Cal. 441, 70 Pac. 295; Oak-
654, 25 L. Ed. 974, aff'g 3 Dill. 171, land Gas Eght Co. v. Dameron, 67 Cal.
Fed. Gas. No. G,850; Kails County v. 663, 8 Pac. 595; Bakersfield Town
Douglass, 105 U. S. 728, 26 L. Ed. Hall Ass'n v. Chester, 55 Cal. 98;
957; Macon County v. Shores, 97 U. Dannebroge Gold Quartz Min. Co. v.
S. 272, 24 L. Ed. 889; Commissioners Ailment, 26 Cal. 286.
Douglas Co. V. Bolles, 94 U. S. 104, Connecticut. New York, B. & B. E.
24 L. Ed. 46; Darlington v. La Cledo Co. V. Motil, 81 Conn. 466, 71 Atl. 563.
County, 4 Dill. (U. S. C. C.) 200, Fed. Florida. Booske v. Gulf lee Co.,
Cas. No. 3,577; Smith v. Clark County, 24 Fla. 550, 5 So. 247.
54 Mo. 58. See also Board Com'rs Illinois. Hudson v. Green Hill Semi-
Kingman Co. v. Cornell University, 57 nary Corporation, 113 111. 618; Thomp-
Fed. 149. son V. Candor, 60 111. 244; People v.
In Faruham v. Benedict, 107 N. T. Citizens Tel. Co. of Pekin, Illinois, 186
159, 13 N. E. 784, it was held that 111. App. 260; Joliet v. Frances, 85
where the corporation was not one de App. 243.

111.
jure because conditions precedent as Indiana.Baker v. Neff, 73 Ind. 68;

to subscription and payment of capi- Farnsworth v. Drake, 11 Ind. 101.
tal had not been complied with, and Maryland. Keene v. Van Eeuth, 48
because the affidavit of such compli- Md. 184.
ance required to be filed with the ar- Minnesota. East Norway Lak-e
ticles was intentionally false, the Church V. Froislie, 37 Minn. 447, 35
bonds were not valid except in the N. "W. 260.
hands of bona fide holders. Missouri. Crenshaw v. TJllman, 113
39 Chicago, K. & W. E. Co. v. Com- Mo. 633, 20 S. W. 1077; Finch v. UU-
missioners Stafford Co., 36 Kan. 121, man, 105 Mo. 255, 24 Am. St. Eep. 383,
12 Pac. 593. 16 S. W. 863; Catholic Church at Lex-
40 United States. Baltimore & P. ington V. Tobbein, 82 Mo. 418.
R. Co. V. Fifth Baptist Church, 137 U. New Hampshire. Saunders v. Far-
S. 568, 34 L. Ed. 784; In re Jackson mer, 62 N. H. 572.
Brick & Tile Co., 189 Fed. 636; Doylo New Jersey. See Way v. American
V. San Diego Land & Town Co., 46 Fed. Grease Co., 60 N. J. Eq. 263, 47 Atl.
709. 44.
634
Ch. 10] Db I'acto Cokporations [§ 307
And such a corporation is entitled to the possession of its property

until deprived of it by a proper proceeding in a court of competent
jurisdiction.*! It follows that the title to property cannot be attacked
on the ground that a corporation appearing as grantee and grantor
in the chain of title was a de facto corporation only.*^ If a corpora-
tion has a de facto existence, the validity of an assignment of a note
to or by it cannot be attacked because of defects or irregularities in
its organization.*^
§ 307. Mortgages. A mortgage made by or to a corporation de

facto is as valid as if it were made by or to a corporation de jure, and
New York. Lancaster v. Amsterdam cuted and delivered before. Dyer v,
Improvement Co., 140 N. Y. 576, 24 Eich, 1 Mete. (Mass.) 180. But an
L. E. A. 322, 35 N. E. 964. See also attempted conveyance by an organ-
Stoker v. Schwab, 56 N. Y. Super. Ct. ization as a corporation, where wholly
122, 1 N. Y. Supp. 425. without corporate powers, is of course
North Carolina. See Claremont Col- void. Lafferty v. Evans, 17 Okla. 247,
lege V. Riddle, 165 N. C. 211, 81 S. E. 21 L. E. A. (N. S.) 363, 87 Pac. 304.
283. See also § 306, and § 308, infra.
Ohio. Society Perun v. Cleveland, 41 State V. SuperiorCourt Spokane
43 Ohio St. 481, 3 N. E. 357. Co., 15 Wash. 668, 37 L. E. A. Ill, 55
Oregon. See Brown v. Webb, 60 Am. St. Rep. 907, 47 Pac. 31.
Ore. 526, Ann. Cas. 1914
148, 120 A 42 Illinois. Thompson v. Candor, 60
Pac. 387; Leavengood v. McGee, 50 111. 244.
Ore. 233, 91 Pac. 453. Maryland. Keene v. Van Eeuth, 48
Augusta Mfg. Co. v.
Tennessee. Md. 184.
Vertrees, 4 Lea 75. Missouri. Crenshaw v. XJIlman, 113
Utah. Tarpey v. Deseret Salt Co., Mo. 633, 20 S. W. 1077.
5 Utah 494, 17 Pac. 631. New Hampshire. Saunders v.
Wisconsin.Eicketson v. Galligan, Farmer, 62 N. H. 572.
89 "Wis. 394, 62 N. "W. 87. New York. Stoker v. Schwab, 56 N.
The fact that the vendor of prop- Y. Super. Ct. 122, 1 N. Y. Supp. 425.
erty is a corporation which is irregu- North Carolina. Claremont College
larly or illegally organized does not V. Eiddle, 165 N. C. 211, 81 S. B. 283.
have the effect of causing such prop- Utah. Tarpey v. Deseret Salt Co., 5
erty to continue to be the property of Utah494, 17 Pae. 631.
the vendor. Goodwin v. Bodcaw Lum- Wisconsin. Eicketson v. Galligan,
ber Co., 109 La. 1050, 34 So. 74. 89 Wis. 394, 62 N. W. 87.
A deed to a corporation executed See also other cases cited in the
before it has filed its articles of in- preceding note.
corporation, but not delivered until The good if it was a de
title is
afterwards, is good. Sayward v. Gard- facto corporation. Fairview Inv. Co.

ner, 5 Wash. 247, 33 Pac. 389, 31 Pac. V. Lamberson, 25 Idaho 72, 136 Pac.
761. 606. See also § 312, infra.
Indeed, it has been held that, by 43Parnsworth v. Drake, 11 Ind. 101;
reason of the estoppel of the grantor, Toledo & A. A. E. Co. v. Johnson, 55
a deed to a corporation is good after Mich. 456, 21 N. W. 888.
its organization, although both exe-
635
cannot be attacked on the ground of want of incorporation, either

by the mortgagor or by persons claiming under him or it, or by third
persons.** A
mortgage given by it may be foreclosed in a suit brought
for that purpose against it in its corporate name,** and it may sue in
the corporate name to quiet title to the mortgaged property and to
restrain a threatened interference with its possession of the same.*®
It may also maintain a suit to foreclose a mortgage running to it as
mortgagee.*'
§308. Devises or beqnests to corporation. A corporation de

facto has the same capacity as a corporation de jure *' to take prop-
erty by devise or bequest, and its title . to property so acquired
cannot be defeated because of the defects or irregularities in its
organization preventing it from becoming a corporation de jure.*'
44 United States. Toledo, St. L. & Oregon. See Marsters v. Umpqua

K. C. E. Co. V. Continental
Trust Co., Oil Co., 49 Ore. 374, 12 L. E. A. (N. S.)
95 Fed. 497, modifying 86 Fed. 929; 825, 90 Pae.151; Washington Nat.
Central Trust Co. v. Chattanooga, E. Building, Loan & Investment Ass'n v.
& C. E. Co., 94 Fed. 275, afE'g 89 Fed. Stanley, 38 Ore. 319, 58 L. E. A. 816,
388; Farmers' Loan & Trust Co. v. To- 84 Am. St. Eep. 793, 63 Pac. 489.
ledo, A. A. & N. M. E. Co., 67 Fed. Pennsylvania. See Johnston v.
49. Elizabeth Building & Loan Ass'n, 104
Califonua. First Baptist Church of Pa. St. 394.
San Jos6 v. Branham, 90
Cal. 22, 27 45 Gunderson v. Illinois Trust & Sav-
Pae. 60. ings Bank, 199 111. 422, 65 N. B. 326,
Georgia. Georgia Southern & F. E. afE'g 100 111. App. 461. See also First
Co. V. Mercantile Trust & Deposit Co., Baptist Church of San Jos6 v. Bran-
94 Ga. 306, 32 L. E. A. 208, 47 Am. ham, 90 Cal. 22, 27 Pac. 60.
St. Eep. 153, 21 S. B. 701. See also 46 First Baptist Church of San Jos6
Georgia Southern & F. Ey. Co. v. Bar- V. Branham, 90 Cal. 22, 27 Pac. 60.
ton, 101 Ga. 466, 28 S. E. 842. 47 Washington Nat. Building, Loan
Illinois. See Forest Glen Brick & & Investment Ass'n v. Stanley, 38
Tile Co. V. Gade, 55 111. App. 181, afe'd Ore. 319, 84 Am. St. Eep. 793, 63 Pae.
165 111. 367, 46 N". E. 286. 489.
Maryland. Lord v. Essex Bldg. 48 See § 306, supra.
Ass'n, 37 Md. 320. 49 See Quinn v. Shields, 62 Iowa 129,
Netiraska. Lincoln Bldg. & Sav. 49 Am. Eep. 141, 17 N. W. 437 (this
Ass'n Graham, 7 Neb. 173.
V. case was under a statute) ; Catholic
New Hackensack Water
Jersey. Church at Lexington v. Tobbein, 82
Co. V. De Kay, 36 N. J. Eq. 548, 558. Mo. 418 In ;re Arden, 1 Connolly Surr.
Ohio. See Union Trust Co. v. New- (N. Y.) 159, 4 N. Y. Supp. 177. See
York, C. & St. L. E. Co., 9 Ohio Dee. also In re Trustees Congregational
773. Church & Society of Cutchogue, 131
Oklahoma. See Higbee v. .^tna N. Y. 1, 30 N. E. 43; Smith v. Havens
Building & Loan
Ass'n, 26 Okla 327, Belief Fund Society, 118 N. Y. App.
Ann. Cas. 1912 B 223, 109 Pac. 236. Div. 678, 103 N. Y. Supp. 770, afE'g 44
636
Ch. 10] Db Facto Cobpoeations [§ 309
And the same is true of a devise in trust for the benefit of a de factoi
corporation.^"
§309. Bight to exercise special franchises. A corporation de

facto has the same capacity to exercise a franchise granted by the
state or a municipality, as has to take and hold property, the
it —
same capacity, in other words, as a corporation de jure, and its —
right to exercise a franchise cannot be questioned in a collateral pro-
ceeding merely on the ground that it is only a corporation de facto.^^
Thus, a corporation de facto may construct and maintain a railroad,^^
and may sue to enjoin others from interfering with its franchise.**
A de facto navigation, bridge or toll road company may take and
exercise a franchise, and may take tolls and sue to collect them.**
N. T. Misc. 594, 90 N. Y. Supp. 168, of defects in its organization. Nichols

aff'd 190 N. Y. 557, 83 N. E. 1132; V. Ann Arbor & Y. St. Ry. Co., 87
Mclntire Poor School v. Zanesville Mich. 361, 16 L. R. A. 371, 49 N. W.
Canal & Manufacturing Co., 9 Ohio 538. And see Williams v. Citizens'
203, 288, 34 Am. Dec. 436. Ry. Co., 130 Ind. 71, 15 L. R. A. 64,
BO Cruse V. Axtell, 50 Ind. 49. 30 Am. St. Rep. 201, 29 N. E. 408.
61 See O'Reilly v. Noxon, 49 Colo. The charter of a street railway
362, 113 Pac. 486; New Hartford Water company cannot be collaterally at-
Co. V. Village Water Co., 87 Conn. 183, tacked in proceedings by another com-
87 Atl. 358. But see Aspen Water & pany to enjoin it from laying tracks
Light Co. V. Aspen, 5 Colo. App. 12, on a street; Thirteenth & Fifteenth
37 Pae. 728, holding that where all Sts. Passenger Ry. Co. v. Southern Pas-
which was done towards the creation senger Ey., 3 Pa. Dist. 337; Thirteenth
of a corporation was the issuance of & Eifteenth Sts. Passenger Ey. Co. v.
the statutory certificate and no stock Broad St. Eapid Transit Ey. Co., 31
subscription was shown and no stock Pa. Co. Ct. 99; nor in an action against
issued, the corporation had not such it to set aside the assignment of a
power. franchise to it and to restrain it
62That a railroad company cannot from acting thereunder. Atkinson v.
be enjoined or prevented from con- Asheville St. Ey. Co., 113 N. C. 581,
structing its road because of defects 18 S. E. 254.
in its organization, if it is a de facto 63 Denver & S. Ey. Co. v. Denver
corporation, see Aurora & C. E. Co. v. City Ey. Co., 2 Colo. 673.
Laurenceburgh, 56 Ind. 80; National 64 Duke V. Cahawba Nav. Co., 16
Docks Ey. Co. v. Central E. Co., 32 N. Ala. 372, 10 Ala. 82, 44 Am. Dec. 472;
J. Eq. 755; Attorney General v. Stev- Stockton & L. Gravel Eoad Co. v.
ens, 1 N. J. Eq. 369, 22 Am. Dec. 526; Stockton & C. E. Co., 45 Cal. 680;
Twelfth St. Market Co. v. Philadelphia Canal St. Gravel-Eoad Co. v. Paas,
& R. Terminal B. Co., 142 Pa. St. 580, 95 Mich. 372, 54 N. W. 907; Pontiac
21 Atl. 902, 989. & L. Plank-Eoad Co. v. Hilton, 69
A de facto street railroad company Mich. 115, 36 N. W. 739. This was
cannot be enjoined from laying its assumed to be the law in Grand Eapids
tracks in the street, at the suit of an Bridge Go. v. Prange, 35 Mich. 400, 24
abutting property owner, on the ground Am. Eep. 585. See also Smelser v.
637
§309] Pkivate Cokpobations [Ch. 10
And such a company may also maintain an action to recover posses-

sion of its road from a trespasser,** or to enjoin others from interfering
with or usurping its exclusive franchise,** or for damages for breaking
down and passing its toll gates,*' or to recover a statutory penalty
for forcibly and illegally passing the same,** or for refusal to work
on its road.*' And the question whether such a company was ever
lawfully incorporated cannot be inquired into by the county authori-
ties on an application to them to fix its rates of toll, or in a proceed-
ing by mandamus to compel them to fix such rates.^
A
de facto corporation having the exclusive franchise of furnishing
a municipality and its inhabitants with water may exercise such fran-
chise and sue to enjoin interference or usurpation by others.*^ And
the same is true of a de facto gaslight corporation.^^
A de facto telephone company may construct and maintain its lines
on a public highway,*^ and may maintain suits to protect its rights
under its franchises.®* And a de facto canal company cannot be
enjoined from constructing its canal merely because of its not being
a corporation de jure.**
Wayne & U. Straight Line Turnpike 26 Pac. 513; Weaverville & M. Wagon
Co.,82 Ind. 417; Proprietors of Charles Road Co. V. Board of Sup'rs, 64 Cal.
Eiver Bridge v. Proprietors of War- 69, 28 Pac. 115. But see People v.
ren Bridge, 7 Pick. (Mass.) 345. Volcano Canyon Toll-Road Co., 100
In an action to recover tolls, a plea Cal. 87, 34 Pac. 522.
involving the forfeiture or invalidity Union Water Co. v. Kean, 52 N.
61
of the plaintiff 's charter is demurrable, J. Eq. Ill, 27 Atl. 1015, rev'd on
or may be treated as a nullity. Dyer other grounds 52 N. J. Eq. 813, 46
& Co. V. Walker, 40 Pa. St. 157. Am. St. Rep. 538, 31 Atl. 282. See also
55 Stockton & L. Gravel Eoad Co. v. Mueller v. Egg Harbor City, 55 N. J.
Stockton & C. R. Co., 45 Cal. 680. L. 245, 26 Atl. 89; Ashland v. Whee-
As to the right of de facto corpora- ler, 88 Wis. 607, 60 N. W. 818.
tions to maintain actions for tres- 62 Elizabethtown Gas Light Co. v.
pass generally, see § 315, infra. Green, 46 N. J. Eq. 118, 18 Atl. 844,
66 Proprietors of Charles River afE'd 49 N. J. Eq. 329, 24 Atl. 560.
Bridge v. Proprietors of Warren 63 People V. Citizens Tel. Co. of Pe-
Bridge, 7 Pick. (Mass.) 344. kin, Illinois, 186 111. App. 260; Roar-
57 Searsburgh Turnpike Co. v. Cut- ing Springs Townsite Co. v. Paducah
ler, 6 Vt. 315. Tel. Co., — Tex. Civ. App. —, 164 S.
The existence of a toll road com-

68 W. 50.
pany as a corporation is not involved, 64 Cumberland Telegraph & Tele-
in an action. Canal Street
such phone Co. V. Louisville Home Tel. Co.,
Gravel-Road Co. v. Paas, 95 Mich. 114 Ky. 892, 72 S. W. 4.
372, 54 N. W. 907. 65 Society for Establishing Useful
69 Buncombe Turnpike Co. v. Mc- Manufacturers v. Morris Canal &
Carson, 1 Dev. & B. (N. C.) 306. Banking Co., 1 N. J. Eq. 157, 21 Am.
60 Volcano Canon Road Co. v. Su- Dec. 41.
pervisors of Placer Co., 88 Cal. 634,
638
Ch. 10] Db Facto Coepoeations [§ 310
This doctrine that the right of a corporation de facto to exercise

corporate powers cannot be collaterally questioned applies only to
the right to be and act as a corporation, and does not prevent a per-
son from showing that a corporation has no right to exercise other
franchises than that of being a corporation, not because it is not a
corporation capable of exercising such franchises, but because the
right to exercise them is for some reason not vested in it. For ex-
ample, a person may attack the right of a de facto bridge company to
take tolls on the ground that the period for which the right to take
tolls was granted to it by the county or state has expired.^® And a
citymay set up that the franchise of a corporation to operate a sys-
tem of waterworks within its limits has expired as a defense to a suit
by the corporation to enjoin the enforcement of an ordinance limit-
'
ing water rates.^'
§ 310. Right to exercise power of eminent domain. According to

the better opinion the rule that de facto corporate existence is suffi-
cient as against every person but the state is as applicable in proceed-
ings by a corporation under the power of eminent domain
to take land
as in the eases above mentioned,®' and it is not necessary in such pro-
ceedings that it shall show that it is a de jure corporation, nor can
66 Grand Eapids Bridge Co. v. California. Vallejo & IST. B. Co. v.

Prange, 35 Mich. 400, 24 Am. Eep. Eeed Orchard Co., 169 Cal. 545, 147
585. Pac. 238; Madera E. Co. v. Eaymond
67 Cedar Rapids Water Co. v. Cedar Granite Co., 3 Cal. App. 668, 87 Pac.
Eapids, 118 Iowa 234, 91 N. W. 1081. 27. See also Spring Valley Water
68 United States. Postal Tel. Cable Works v. San Francisco, 22 Cal. 434;
Co. of Montana v. Oregon Short Line In re Spring Valley Waterworks, 17
R. Co., 114 Fed. 787;Oregon Short Cal. 132, and Boca & L. E. Co. v.
Line E. Co. v. Postal Tel. Cable Co. Sierra Valleys E. Co., 2 Cal. App. 546,
of Idaho, 111 Fed. 842, aflf'g 104 Fed. 84 Pac. 298.
623. Colorado. Union Pac. E. Co. v. Colo-
Alabama. Central of Georgia E. rado Postal Tel. Cable Co., 30 Colo.
Co. V. Union Springs & N. E. Co., 144 133, 97 Am. St. Eep. 106, 69 Pae. 564;
Ala. 639, 2 L. E. A. (N. S.) 144, 39 Crystal Park Co. v. Morton, 27 Colo.
So. 473. App. 74, 146 Pac. 566. See also La-
Arkansas. Mountain Park Termi- velle v. Town of Julesburg, 49 Colo,
nal E. Co. v. field, 76 Ark. 239, 88 S. 290, 112 Pac. 774.
W. 897; Niemeyer & Darragh v. Little Illinois. Chicago & W. I. E. Co. v.
Eock Junction By., 43 Ark. 111. See Heidenreich, 254 111. 231, Ann. Cas.
also St. Louis, I. M. & 8. E. Co. v. Ft. 1913 C 266, 98 N. E. 567; Terre Haute
Smith & V. B. E. Co., 104 Ark. 344, & P. E. Co. v. Bobbins, 247 HI. 376,
148 S. W. 531; Brown v. Wyandotte 93 N. B. 398; Smith v. Claussen Park
& S. E. Ey. Co., 68 Ark. 134, 56 S. W. Drainage & Levee Dist., 229 111. 155,
862. 82 N. E. 278; Gillette v. Aurora Eys.
639
§310] Peivatb Coepobations [Ch. 10
the legality of its incorporation be inquired into in such a proceeding,

or in a suit to enjoin it from exercising the power.
Co., 228 111. 261, 81 N. E. 1005; Eddle- Kentucky. Calor Oil & Gas Co. v.
raan v. Union County Traction & Tranzell, 128 Ky. 715, 36 L. E. A. (N.
Power Co., 217 m. 409, 75 N. E. 510; S.) 456, 109 S. W. 328; Portland & G.
Cleveland, C, C. & St. L. E. Co. v.
Turnpike Co. v. Bobb, 88 Ky. 226,
Polecat Drain. Dist., 213 111. 83, 72
10 S. W. 794.
iM. E. 684; Illinois State Trust Co. v. Michigan. Detroit & T. S. L. E.

St. Louis, I. M. & S. E. Co., 208 111.
Co. V. Ferguson, 140 Mich. 400, 103
419, 70 N. E. 357; Morrison v. Eor- N. W. 862; Detroit & T. S. L. E. Co.

V. Campbell, 140 Mich. 384, 103 N. W.
man, 177 111. 427, 53 N. E. 73; Thomas
V. St. Louis, B. & S. Ey. Co., 164 111.
856; Traverse City, K. & G. E. Co. v.
Seymour, 81 Mich. 378, 45 N. W. 826;
634, 46 N. E. 8; East St. Louis & C. E.
Co. V. Belleville City E. Co., 159 111.
Shroeder v. Detroit, G. H. & N. Ey.
Co., 44 Mich. 387, 6 N. W. 872.
544, 42 N. E. 974; St. Louis, A. & T.
H. E. Co. V. Belleville City E. Co., Minnesota. In re Minneapolis & St.
158 111. 390, 41 N. B. 916; Chicago & L. Ey. Co., 36 Minn. 481, 32 N. W.
E I. E. Co. V. Wright, 153 111. 307, 556.
38 N. E. 1062; Lake Shore & M. S. E. Missouri.In Kansas & T. Coal Ey.
Co. V. Baltimore & 0. & C. E. Co., 149 V. Northwestern Coal & Mining Co.,
m. 272, 37 N. E. 91; Brown v. Calu- 161 Mo. 288, 51 L. E. A. 936, 84 Am.
met Eiver E. Co., 125 111. 600, 18 N. St. Eep. 717, 61 S. W. 684, it is said
E. 283; Henry v. Centralia & C. E. that it would be intolerable if,
Co., 121 111. 264, 12 N. E. 744; Ward in such a proceeding, "the courts
v. Minnesota & N. W. E. Co., 119 111. should stop to inquire into the
287, 10 N. E. 365; Chicago & N. W. charter or regularity or legality of
Ey. Co. v. Chicago & E. E. Co., 112 its organization, or into the motives
111. 589; Peoria & P. U. Ey. Co. v. of the incorporators * * *." In
Peoria & F. Ey. Co., 105 111. 110; Mc- this ease, however, the contention
Auley V. Columbus, C. & I. C. Ey. Co., was that the corporation seeking to
83 111. 348. condemn was organized solely for the
Indiana. Louisville & N. Ey. Co. v. benefit of a private corporation and
Western V. Tel. Co. of Indiana, — hence was a private and not a public
Ind. — , 110 N. E. 70; Joliff v. Muncie railroad, and that the use to which
Elee. Light Co., 181 Ind. 650, 105 N. the land was to be applied was a pri-
E. 234; Smith v. Cleveland, C, C. & vate and not a public one.
St. L. E. Co., 170 Ind. 382, 81 N. B. In School Dist. of Columbia v. Jones,
501; Morrison v. Indianapolis & W. E. 229 Mo. 510, 129 S. W. 705, and School
Co., 166 Ind. 511, 9 Ann. Cas. 587, 77 Dist. No. 35 V. Hodgin, 180 Mo. 70,
N. E. 744, 76 N. E. 961; Aurora & 0. 79 S. W. 148, it was held that the
E. Co. V. Miller, 56 Ind. 88. See also regularity of the proceedings leading
Eichland School Tp. v. Overmyer, 164 to the formation of a school district
Ind., 382, 73 N. E. 811; Boyd v. Logans- could not be raised in condemnation
port, E. & N. Traction Co., 161 Ind. proceedings instituted by it.
587, 69 N. E. 398; Aurora & C. E. Co. In Orrick School Dist. v. Dorton,
V. Lawrenoeburgh, 56 Ind. 80. 125 Mo. 439, 28 S. W. 765, it was held
Kansas. Eeisner v. Strong, 24 Kan. that the corporate existence of a
410. school district may be put in issue in
640
Some courts, however, have taken a contrary view, and have held
condemnation proceedings instituted sess the damages in condemnation

by the court stating that the rule
it, proceedings.
of that state seems to be different New Jersey, Twombley v. Morris
from that obtaining in some of the R. Co., 84 N. J. L. 421, 86 Atl. 956,
other states where "It has been held aff'g 82 N. J. L. 214, 81 Atl. 817;
that a de facto corporation might ex- Sisters of Charity of St. Elizabeth v.
ercise the right of eminent domain." Morris, R. Co., 84 N. J. L. 310, 50 L.
In St. Joseph & I. R. Co. v. Sham- R. A. (N. 8.) 236, 86 Atl. 954, aff'g
baugh, 106 Mo. 557, 17 S. W. 581, it 82 N. J. L. 214, 81 Atl. 817; Phila-
was held that the corporate existence
'
' delphia & C. Perry Co. v. Intercity
of the plaintiff is an issue which may Link R. N. J. L. 86, 62 Atl.
Co., 73
be made in a proceeding to condemn N. J. L. 594, 65 Atl. 1118;
184, aff 'd 74
property; for, if the plaintiff has no National Docks Ry. Co. v. Central
corporate capacity, it has no right to R. Co. of New Jersey, 32 N. J. Eq.
prosecute this suit, ' ' and that the per- 755; In re Trenton St. Ry. Co. (N. J.
formance of conditions precedent, if Ch.), 47 Atl. 819.
there are any, necessary to cor-
is North Carolina. Payetteville St.
porate existence. The corporation in Ry. V. Aberdeen & R. R. Co., 142 N.
this case was incorporated by a spe- 0. 423, 9 Ann. Cas. 683, 55 S. E. 345;
cial act, and it was contended that it Holly Shelter R. Co. v. Newtoii, 133
had not accepted its charter, and ap- N. C. 132, 45 S. E. 549; Kinstou & C.
parently that there were certain R. Co. v. Stroud, 132 N. C. 413, 43
conditions precedent which it had not S. E. 913; "Wellington & P. R. Co. v.
performed. It also failed to complete Cashie & C. Railroad & Lumber Co.,
its road within the time originally 114 N. C. 690, 19 S. E. 646.
prescribed, and was contended that
it '
FeuusylTania. Burkhard v. Penn-
an act extending the time was uncon- sylvania Water Co., 234 Pa. 41, 82
stitutional. The decision in this caso Atl. 1120; Twelfth Street Market Co.
was followed in Roosa v. St. Joseph & V. Philadelphia & R. T. R. Co., 142 Pa.
I. R. Co., 114 Mo. 508, 21 S. W. 1124. St. 580, 21 Atl, 902, 989, aff'g 10
In City of Hopkins v. Kansas City, Pa. Co. Ct. 25; Yeingst v. Philadel-
St. J. & C. B. R. Co., 79 Mo. 98, it was phia, H. &P. R, Co., 40 Pa. Super.
held that a eity seeking to exercise Ct. 106. See also Farnham v. Dela-
the power of eminent domain must ware & H. Canal Co., 61 Pa. St. 265.
show that it has taken advantage of South Dakota. Sioux Falls Light &
the privileges of the law authorizing Power Co. v. Coughran, 27 S. D. 443,
incorporation, and has become incor- 131 N. W. 504.
porate, and that it has no standing to Texas. Roaring Springs Townsite
maintain such a proceeding where Co. V. Paducah Tel. Co., —
Tex. Civ.
there is no evidence of its incorpora- App. —
164 S. W. 50; Chapman v.
,
tion. Trinity Valley & N. Ry. Co., Tex. —

In West End Narrow Gauge R. Co. Civ. App. —
, 138 S. W. 440.
V. Almeroth, 13 Mo. App. 91, it is Utah. Postal Tel. Cable Co. of Utah
held that the corporate existence of a V. Oregon Short Line R. Co.,23 Utah
railroad company cannot be ques- 474, 90 Am. St. Rep. 705, 65 Pac. 735.
tioned on an application by it for the Virginia. Dismal Swamp R. Co. v.
appointment of commissioners to as- John L. Roper Lumber Co., 114 Va.
641
I Priv. Corp.— 41
§310] Pbivate Coepokations [Ch. 10
that in such a ease a de jure corporate existence must be shown. 69
537, Ann. Cas. 1914 C 641, 77 S. E. The legality of the incorporation

598. of a street railway company cannot
Washlng^ton. See State v. Superior be questioned in a suit by abutting
Court Yakima Co., 49 Wash. 390, 95 owners to enjoin it from construct-
Pac. 490, in connection with the eases ing its line in a highway without com-
there cited. pensation to them. Nichols v. Ann
Arbor & Y. St. Ey. Co., 87 Mich. 361,
That there are grounds for the for-
16 L. E. A. 371, 49 N. W. 538.
feiture of the corporate charter
89 United States. See Tulare Irri-
cannot be taken advantage of in a
gation Dist. V. Shepard, 185 U. S. 1,
proceeding to condemn nor in a suit
17, 46 L. Ed. 773, where there is a
to enjoin condemnation. Thomas v.
statement by way of dictum to this
South Side El B. Co., 218 111. 571, 75
effect.
N. E. 1058; Cluthe v. Evansville, Mt.
C. & N. E. Co., 176 Ind. 162, Ann. Cas. Louisiana. Act No. 78 of 1904,
1914 A 935, 95 N. E. 543; Ulmer v. which in effect prohibits collateral at-
Lime Eock E. Co., 98 Me. 579, 66 L. tack on the existence of de facto cor-
E. A. 387, 57 Atl. 1001; New Central porations, expressly excepts from its
Coal Co. V. George's Creek Coal & provisions corporalions which may ex-
Iron Co., 37 Md. 537; Hamilton v. ercise the power of eminent domain.
Annapolis & E. E. E. Co., 1 Md. Ch. The fact that the plaintiff corpora-
107; Briggs v. Cape Cod Ship Canal tion was formed for two incompatible
Co., 137 Mass. 71; Oregon Cascade E. purposes, in violation of the statute,
Co. V. Baily, 3 Ore. 164; In re Phila- is a good defense to an expropriation
delphia & M. Ey. Company's Petition, proceeding. Bayou Cook Navigation
87 Pa. St. 123, 40 Atl. 967; Dismal & Fisheries Co. v. Doullut, 111 La.
Swamp E. Co. v. Roper Lumber Co., 517, 35 So. 729.
114 Va. 537, Ann. Cas. 1914 C 641, 77 It is also a good defense to such a
S. E. 598. Nor as a ground for main- proceeding by a foreign consolidated
taining ejectment to recover the land corporation that it has not complied
condemned. New York & N. E. E. with conditions precedent to consoli-
Co. V. New York, N. H. & H. E. Co., dation imposed by the constitution of
52 Conn. 274. Nor can the fact that the state where the consolidation took
the charter of the corporation has ex- place.Cumberland Telephone & Tele-
pired by limitation be interposed as a graph Co. V. Morgan's Louisiana &
defense in such a proceeding. People T. E. & 8. S. Co., 112 La. 287, 36 So.
V. Wayman, 256 111. 151, 99 N. E. 941. 352. See also Cumberland Telephone
That a consolidation of two rail- & Telegraph Co. v. St. Louis, I. M. &
S. E. Co., 117 La. 199, 41 So. 492,
road companies violated a provision
prohibiting the consolidation of rail- where it is held that a foreign corpora-
tion seeking to expropriate a right of

road corporations owning competing
lines is no defense to proceedings to
way must meet objection raised on
condemn instituted by the consoli- the ground of illegality of its organi-
dated corporation. Oregon-Washing- zation by proving the regularity of
its organization.
ton E. & Nav. Co. V. Wilkinson, 188
Fed. 363; Tibby Bros. Glass Co. v. New York. In re New York, W. &
Pennsylvania E. Co., 219 Pa. 430, 68 B. E. Co., 193 N. Y. 72, 85 N. E. 1014;
Atl. 975. In re Union El. R. Co. of Brooklyn,
642
In Kentucky it is held that when the corporation is organized as

the statute requires, neither its purpose nor its validity can be in-
quired into in such a proceeding,'"' but that the owner of land sought
to be condemned by a railroad corporation organized under the
general law may deny its incorporation where it is not shown that
the statutory conditions precedent to its right to do business have
been complied with.''! The introduction of a duly certified copy of
the articles of incorporation will make out a prima facie case as to
incorporation, however.'^
112 N. Y. 61, 2 L. E. A. 359, 19 N. E. acter, an attempt by the legislature

664; New York Cable Co. v. New to waive such forfeiture by a special
York, 104 N. Y. 1, 43, 10 N. E. 332; In act is in effect a, grant of a special
re New York, L. & W. Ry. Co., 99 N. Y. charter in violation of the constitu-
12, 1 N. B. 27, aff'g 35 Hun 220; In tional provision prohibiting such
re Broadway & S. A. E. Co., 73 Hun 7, and this fact may be taken
grants,
25 N. Y. Supp. 1080. But "where the advantage of as a defense to the pro-
power is conferred upon a corporation ceeding to condemn.In re Brooklyn,
duly formed, it will not be defeated "W. &
N. E. Co., 75 N. Y. 335.
simpjy because the corporation has Ohio. Queen City Tel. Co. v. City
done or omitted some act which may of Cincinnati, 73 Ohio St. 64, 76 N. E.
be a cause of forfeiture of its rights 392; Powers v. Hazelton & L. Ey. Co.,
and franchises, for it rests with the 33 Ohio St. 429; Atkinson v. Marietta
state to determine whether such for- & C. E. Co., 15 Ohio St. 21; Atlantic
feiture win be enforced. Judicial pro- & O. E. Co. V. Sullivant, 5 Ohio St.
ceedings are necessary to enforce such 276. See also Society Perun v. Cleve-
a forfeiture, and it may be waived." land, 43 Ohio St. 481, 3 N. E. 357.
New York Cable Co. v. New York, West Virginia. See Miller v. New-
104 N. Y. 10 N. B. 332. To the
1, 43, burg Orrel Coal Co., 31 W. Va. 836,
same In re Brooklyn El. E.
effect are 13 Am. St. Eep. 903, 8 S. E. 600.
Co., 125 N. Y. 434, 26 N. E. 474, and' Wisconsin. See Miller v. Prairie du
In re Brooklyn, W. & N. E. Co., 72 Chien & M. Ey. Co., 34 Wis. 533, where
N. Y. 245, 75 N. Y. 335. If, however, it is said that the corporate character
under the terms of its charter, the cor- of a railroad company seeking to
porate life and franchises ipso facto condemn lands '
can only be raised be-
'
terminate, without the intervention of fore the court or judge when the appli-
the courts or the legislature, on fail- cation is made for the appointment of
ure to perform certain conditions sub- commissioners, or in the supervisory
sequent, then the power to condemn is court to which the proceedings may
lost, and the fact of such forfeiture be removed by certiorari, or in some
may be set up as a defense in the con- other direct proceeding to the same
demnation proceedings. In re Brook- end, authorized by law."
lyn El. E. Co., 125 N. Y. 434, 26 N. 70Calor Oil & Gas Co. v. Franzell,
E. 474; Brooklyn Steam Transit Co. 128 Ky. 715, 36 L. E. A. (N. S.) 456,
v. Brooklyn, 78 N. Y. 524; In re 109 S. W. 328.
Brooklyn, W. & N. E. Co., 75 N. Y. 71 Warden v. Madisonville, H. & E.
335, 72 N. Y. 245. E. Co., 125 Ky. 644, 101 S. W. 914.
If the charter has been forfeited 72Calor Oil & Gas Co. v. Franzell,
under a provision of the latter char- 128 Ky. 715, 36 L. E. A. (N. S.) 456,
643
§ 310] Private Cobporations [Gh. 10
As in other cases,''* the de facto existence of the corporation may

always be inquired into at the instance of the owner of the land
sought to be condemned,''* and it has been held that where the articles
of incorporation or charter are void on the face, the proceeding may
not be maintained.''*
The question whether there is any law under which the corporation
can exercise the power assumed is also open to question at all times
when it attempts to exercise such power. '"^ So a corporation may not
maintain that it is such de facto and therefore qualified to maintain
condemnation proceedings, where such proceedings could not be
maintained were it a corporation de jure, and therefore a railroad
cannot ex;ercise the power to condemn land for a line included in its
ariticies of incorporation as a corporation de jure and at the same time
exercise a like power as a de facto corporation in respect to lines not

ô included.''''
There is a conflict of authority as to the right to raise the conten-
tion that the corporation was fraudulently organized for the purpose
of enabling the corporators to exercise the power for private pur-
poses.'"
109 S. W. 328; Warden v. Madison- demnation proceedings instituted by

ville, H. & E. R. Co., 125 Ky. 644, 101 a corporation attempted to be organ-
S. W. 914. ized for that purpose. Chicago & N.
73 See § 277, supra. W. R. Co. V. Oshkosh, A. & B. W. R.
of Charity of St. Eliza-
74 Sisters Co., 107 Wis. 192, 83 N. W. 294.
beth Morris E. Co., 84 N. J. L. 310,
V. 76 Holly Shelter R. Co. v. Newton,
50 L. R. A. (N. S.) 236, 86 Atl. 954, 133 N. C. 132, 45 S. E. 549; Kinston &
aff'g 82 N. J. L. 214, 81 Atl. 817; C. R. Co. V. Stroud, 132 N. C. 413, 43
Hampton v. Clinton Water & Water S. E. 913.
Supply Co., 65 N. J. L. 158, 46 Atl, 76 Gillette V. Aurora Rys. Co., 228

650. See Bridwell v. Gate City Ter- 111. 261, 81 N. E. 1005.
minal Co., 127 Ga. 520, 10 L. R, A. (N. A foreign railroad corporation
S.) 909, 56 S. E. 624. which has purchased a parallel and
On motion to dismiss the petition competing line in violation of the ex-
the petitioner must produce some evi- press provisions of the law of the
dence of its existence as a de facto state where the latter line runs, can-
or de jure corporation. Proof of cor- not claim the right to condemn land
porate acts done by it tends to show in such state on the theory that it is
that it is a corporation de facto, Lake a de facto corporation. Illinois State
Shore & M. S. E. Co. v. Baltimore & Trust Co. V. St. Louis, I. M. & S. R.
O. & C. R. Co., 149 111. 272, 37 N. E. Co., 208 111. 419, 70 N. E. 357.
91. 77 Boca & L. R. Co. v. Sierra Val-
The fact that the statute does not leys R. Co., 2 Cal. App. 546, 84 Pac.
authorize the formation of a railroad 298.
corporation for the carriage of pas- 78 See § 288, supra.
sengers only, is a good defense to con-
644
'
Ch. 10] De Facto .Cobpobations [§ 311
When open to consideration, the question whether or not an organ-

ization seeking to condemn land has existence as a corporation is one
of law to be determined by the court.'"
§311. Right to exercise taxing power. There is a conflict of

opinion as to whether show a de facto corporate ex-
it is sufficient to
istence when a corporation seeks, under statutory authority, to col-
lect assessments or taxes against property for benefits resulting from
the construction of its works, as in the case of incorporated drainage
and reclamation districts or companies, turnpike companies and
the like. Some courts hold that it is necessary to show that the cor-
poration has complied with all conditions precedent in its organiza-
tion, and is a corporation de jurCj^** while others hold that it need only
show that it is a corporation de facto.*' And the latter rule has also
79 Chicago, St. L. & N. O. R. Co. v. rigation Dist. V. Shepard, 185 TJ. S. 1,
Liebel, 27 Ky. L. Eep. 716, 86 S. W. 46 L. Ed. 773.

549. Arkansas. Whipple v. Tuxworth,
80 Knight V. Flatroek & W. Turn- 81 Ark. 391, 99 S. W. 86.
pike Co., 45 Ind. 134; Newton County California. McPhee v. Reclamation
Draining Co. v. Nofsinger, 43 Ind. Dist. No. 765, 161 Cal. 566, 119 Pac.
566; Busenback Attica & B. Gravel
v. 1077 (overruling statements to the
Road Mclntire v. Mo-
Co., 43 Ind. 265; contrary in Reclamation Dist. No. 537
Lain Ditching Ass'n, 40 Ind. 104; of Yolo Co. v. Burger, 122 Cal. 442,
O'Reiley v. Kankakee Valley Drain- 55 Pac. 156) ; Reclamation Dist. No.
ing Co., 32 Ind. 169; Piper v. Rhodes, 542 v. Turner, 104 Cal. 334, 37 Pac.
'
30 Ind. 309. 1038; Quint v. Hoffman, 103 Cal. 506,

"There no hardship or injustice
is 37 Pac. 514, 777; Swamp Land Dist.
in requiringthose who seek to be No. 150 V. Silver, 98 Cal. 51, 32 Pac.
clothed with the power of imposing 866; Reclamation Dist. No. 124 v.
taxes upon the property and burdens Gray, 95 Cal. 601, 30 Pac. 779; Dean
upon the shoulders of others to com- V. Davis, 51 Cal. 406; Reclamation
ply with the plain, unambiguous, and Dist. No. 765 v. McPhee, 13 Cal. App.
undoubted requirements of the stat- 382, 109 Pac. 1106. See also Barnes
ute which confers the power. The leg- V. Board Sup'rs Colusa Co., 13 Cal.
islature has prescribed the conditions App. 760, 110 Pac. 820.
upon which these corporate and ex- Illinoi?. People v. Dyer, 205 III.
traordinary powers may be exercised, 575, 69 iSf. E. 70; Evans v. Lewis, iSi
and it is but reasonable and just that 111. 478, 13 N. E. 246; Keigwin v!
just those who accept the benefits Drainage Com 'rs Hamilton Tp., 115
conferred should comply with the con- 111. 347, 5 N. E. 575; Blake v. People,'
ditions imposed." Busenback v. At- 109 111'. 504^; Osborn v. People, 103 ill.
tica & B. Gravel Road Co., 43 Ind. 224.
265. But see Cicero Hygiene Drain- State v. Young, 255 Mo.
Missouri.
ing Co. Craighead, 28 Ind. 274.
V. ,
627, 164 S. W,
579; State v. Blair, 245
81 United States. Miller v. Perris Mo. 680, 151 S. W. 148; State v. Wil-
Irrigation Dist., 99 Fed. 143, 92 Fed! son, 216 Mo. 215, ^74, 115 S. W. 549!
263, 85 .'êd. 693. See also Tulare Ir- Texas. Parker v. Harris Co. Drain.
645
§311] Pbivate Coepobations [Ch. 10
been applied in mandamus proceedings to compel the payment of a

warrant issued by a protection district to an individual.'* And a
de facto municipal or quasi municipal corporation may levy and col-
lect taxes notwithstanding defects in the proceedings for its incor-
poration.'^
Dist. No. 2, — Tex. Civ. App. — , 148 New Jersey. Walsh v. Thompson,
S. W. 351. 87 N. J. L. 49, 93 Atl. 857; Rellstab
Washinston. Purdin v. Washing- V. Borough of Belmar, 58 N. J. L. 489,
ton Nat. Building, Loan & Investment 34 Atl. 885.
Ass 'n, 41 Wash. 395, 83 Pac. 723. Oregon. Splonskofsky v. Minto, 62
«2Keeeh v. Joplin, 157 Cal. 1, 106 Ore. 560, 126 Pac. 15.
Pac. 222. Texas. Crabb v. Celeste Independ-
83 CaJifornia. Hamilton v. San ent School Dist., 105 Tex. 194, 39 L.
Diego County, 108 Cal. 273, 41 Pae. E. A. (N. S.) 601, Ann. Cas. 1915 B
305. 1146, 146 S. W. 528; El Paso v. Euck-
Illinois. People
Pederson, 220 111.
v. man, 92 Tex. 46 S. W. 25; Gra-
86,
554, 77 N. E. 251; Gale v. Knopf, 193 ham V. Greenville, 67 Tex. 62, 2 S.
111. 245, 62 N. E. 229; Aldis v. South W. 742; Davis v. Parks, Tex. Civ. —
Park Com'rs, 171 111. 424, 49 N. E. App. — , 157 S. W. 449; Wilson v.
565; School Directors Union School Brown, — Tex. Civ. App. — , 145 S.
Dist. V. School Directors New Union W. 639; McCrary Comanche (Tex.
v.
School Dist., 135 111. 464, 28 N. E. 49; Civ. App.), 34 S. W. 679; Troutman v.
People V. Trustees of Newberry's Es- McClesky, 7 Tex. Civ. App. 561, 27
tate, 87 111. 41; Trumbo v. People, 75 S. W. 173.
111. 561; Geneva v. Cole, 61 HI. 397. Tax deeds of a de facto city are val-
See also Eenwick v. Hall, 84 111. 162. id. Back V. Carpenter, 29 Kau. 349.
Indiana. Hullikin v. Bloomington, It is sufSeient to show "a de facto
72 Ind. 161. corporation or a de facto extension
Kansas. School Dist. No. 2 v. School of the city limits of a municipal cor-
Dist. No. 1, 45 Kan. 543, 26 Pac. 43; poration" in an action against a
Ritchie v. Mulvane, 39 Kan. 241, 17 landowner on a special tax bill for a
Pac. 830; Atchison, T. & S. F. E. Co. v. municipal improvement. Salem v.
Wilson, 33 Kan. 223, 6 Pac. 281; Voss Young, 142 Mo. App. 160, 125 S. W.
v. Union School Dist. No. 11, 18 Kan. 857.
467; Kansas Town & Land Co. v. City A municipal corporation cannot
of Kensington, 6 Kan. App. 247, 51 question the legal existence of an-
Pac. 804. other municipal corporation de facto
* Michigan. Coe v. Gregory, 53 Mich. in a suit involving the right to tax
19, 18 N. W. 541; Bird v. Perkins, 33 private property. Eiverton & Pal-
Mich. 28; Clement v. Everest, 29 myra Water Co. v. Haig, 58 N. J. L.
Mich. 19. 295, 33 Atl. 215.
IkUssourt State v. Center Creek The legal existence of a town can-
Min. Co., 262 Mo. 490, 171 S. W. 356; not be questioned in mandamus pro-
Black V. Early, 208 Mo. 281, 106 S. W. ceedings by its school trustees to
1014; Burnham v. Rogers, 167 Mo. 17, compel a township trustee to pay over
66 S. W. 970; Stamper v. Roberts, 90 school funds in his hands. Hon v.
Mo. 683, 3 S. W. 214; Kayser v. Trus- State, 89 Ind. 249.
tees of Bremen, 16 Mo. 88.
646
'
—
§312. Actions by and against În general. A corporation de
facto may sue '* and be sued '* in the corporate name. So it may
sue or be sued on causes of action arising ex contractu.'® And as a
rule, it may maintain an action against anyone who has done it a
wrong,*'' and may be held liable in damages for torts committed by
84 United States. Baltimore & P. facto or de jure, does not matter when
E. Co. V. Fifth Baptist Ohureh, 137 it sues to enforce a right." OSborn
U. S. 568, 34 L. Ed. 784. V. People, 103 III. 224.
Atkanaaa. Whipple v. Tuxworth, 81 See also oases cited in the follow-
Ark. 391, 99. S. W. 86. ing notes, and in § 304, supra.
Califoraia. First Baptist Ohuroh of 86 Arkansas. Whipple v. Tuxworth,
San Joa6 v. Branham, 90 Cal. 22, 27 81 Ark. 391, 99 S. W. 86.
Pae. 60; People's Ditch Co. v. '76 Georgia. Georgia Southern & F. E.
Land & Watei* Co. (Cal.), 44 Pae. 176. Co. V. Mercantile Trust & Deposit Co.,
Georgia. Georgia Southern & F. R. 94 Ga. 306, 32 L. E. A. 208, 47 Am..
Qo. V.Mercantile Trust & Deposit St. Eep. 153, 21 S. E. 701.
Co., 94 Ga. 306, 32 L. R. A. 208, 47 Illinois.School Directors Union
Am St. Eep. 153, 21 S. E. 701. School Dist. V. School Directors New
Tninois. School Directors Union Union School Dist., 135 111. 464, 28 N.
School DJst. V. School Directors New E. 49.
Union School Dist., 135 111. 464, 28 Indiaua, Heaston v. Cincinnati &
N. E. 49; Osborn v. People, 103 111. Ft. W. E. Co., 16 Ind. 275, 79 Am. Dee.
224; Willard v. Methodist Episcopal 430.
Church of Rockville Centre, 66 111. 55. West Virginia. Miller v. Newburg
Indiana. Cicero Hygiene Draining Orrel Coal Co., 31 W. Va. 836, 13 Am.
Co. V. Ol-aighead, 28 Ind. 274; Heaston St. Eep. 903, 8 S. E. 600.
V. Cincinnati & Ft. W. B. Co., 16 Ind. 86See § 305, supra.
275, 79 Am. Dec. 430. 87 Baltimore & P. E. Co. v. Fifth
Michigan. Swartwout v. Michigan Bapt. Church, 137 U. S. 568, 34 L.
Air Line E. Co., 24, Mich. 389. Ed. 784. See also: Shawnee Commer-
New York. Eaton v. Aspinwall, 19 cial & Savings Bank Co. V. Miller, 1
N. Y. 119, aff'g6Duer 176. Ohio Cir. Ct. (N. S.) 569, 24 Ohio Cir.
North Carolina. See Atlantic, T. & Ct. 198; Miller v. Newburg Orrel Coal
O. E. Co. V. Johnston, 70 N. C. 348. Co., 31 W. Va. 836, 13 Am, St. Eep.
Ohio. Shawnee Commercial & Sav- 903, 8 S. E. 600 (dictum). And see
ings Bank Co. v. Miller, 1 Ohio Cir. Ct. cases cited in the following notes.
(N. S.) 569. But in American Ball Bearing Co.
Oregon. Washington Nat. Building, V. Adams, 222 Fed. 967, the court
Loan & Investment Ass'n v. Stanley, says that the de facto doctrine applies
38 Ore. 319, 58 L. B. A. 816, 84 Am. only "where the parties to be charged
St.Rep. 793, 63 Pae. 489. have contracted with the claimed cor-
Pennsylvania. Centre & K. Turn- poration, or where it acts as a con-
pike Eoad Co. V, McOonaby, 16 Berg. duit for a title to real estate, * • »
& E. 140. or where the alleged corporation is

West Virginia. Miller v. Newburg made defendant in an action of tort, '
Orrel Coal Co., 31 W. Va. 836, 13 Am. and that "it believed the well-con-
is
St. Eep. 903, 8 S. E. 600. sidered cases do not go beyond the

"Wlether it is a corporation de limits thus stated."
647
§ -612] Pbivatb Coepobations [Ch. 10
it.'* And since such a corporation may take and hold property,"^
it may assert its property rights in the courts.®" And has the same
right as a corporation de jure to maintain actions to recover or pro.
tect its property, or to recover damages for injuries by trespass or
otherwise. Thus may
maintain an action of ejectment,®^ or a writ
it
of entry ,®2 or a suit to quiet title,'* or a.n action of unlawful entry

and detainer,** or a suit to enjoin wrongful interference with its
property or franchises,®* or to enjoin a sale on an execution against
another.®^ It may also maintain an action to recover damages for a
trespass *'' or, in a proper case, an action will lie to recover damages
It is also stated that the statement Baptist Church of San

86 First
in Baltimore & P. R. Co. v. Fifth Bap- Jose Branham, 90 Cal. 22, 27 Pae.
V.
tistChurch, 137 U. S. 568, 34 L. Ed. 60; Denver & S. Ey. Co. v. Denver
784, thata de facto corporation may City Ey. Co., 2 Colo. 673; Cincin-
maintain an action against any one nati, L. F. & C E. Co. V. Danvillo & V.
"who has done it a wrong," was Ey. Co., 75 111. 113; Franke v. Mann,
merely dictum. 106 Wis. 118, 48 L. E. A. 856, 81 N.
88 See § 314, infra. W. 1014.
88 See § 306, supra. The regularity of its existence- can-
80 Utah Light & Traction Co. v. not be inquired into in such an action.
United States, 230 Fed. 343. Cumberland Telegraph & Telephone
81 California. Oakland Gas Light Co. V. Louisville Home Tel. Co., 114
Co. V. Dameron, 67 Cal. 663, 8 Pac. Ky. 892, 72 S. W. 4.
595; Bakersfield Town Hall Asa'n v. It may maintain a suit to enjoin

Chester, 55 Cal. 98. the removal of an alleged fixture from
Illinois. Chiniquy v. Catholic Bish- its land. State Security Bank v. Hos-
op of Chicago, 41 111. 148. kins, 130 Iowa 339, 8 L. E. A. (N. S.)
MJnnesota. East Norway Lake 376, 106 N. W. 764.
Church V. Froislie, 37 Minn. 447, 35 The lessees of a de facto ditch com-
N. W.' 260. pany may sue to enjoin a city from
Oregon. Brown v. WeT)b, 60 Ore. interfering with the flow of water in
526, Ann. C^s. 1914 A 148, 120 Pae. the ditch. Denver v. Mullen, 7 Oolo.
387; Washington Nat. Building, Loan 345, 3 Pae. 693.
& Investment Asa'n v. Stanley, 38 A de facto water company may sue
Ore. 319, 58 L. E. A. 816, 84 Am. St. to enjoin a diversion of water from
Eep. 793, 63 Pae. 489. a river which" will interfere with its
Tennessee. Augusta Mfg. Co. v. prior appropriation. People's Ditch
Vertrees, 4 Lea 75. Co. V, '76 Land & Water Co. (Cal.),
82 Saunders Farmer, 62 N. H.,572.
v. 44 Pac. 176. i
83 First Baptist Church of San Jose 96 Dannebroge Gold Quartz Min.

V. Branham, 90 Cal. 22, 27 Pac. 60; Co. V. Aliment, 26 Cal. 286.
Proprietors of Jeffries Neck Pasture Golden Gate Mill & Mining Co.
97
V, Inhabitants of Ipswich, 153 Mass. V. Joshua Hendy Mach. Works, 82

42, 26 N. E. 239. Cal. 184, 23 Pac. 45; Stockton & L.
94 Board of Education v. Berry, 62 Gravel Eoad Co. v. Stockton & C. E.
W. Va. 433, 125 Am. St. Eep. 975, 59 Co., 45 Cal. 680; Eondell v. Fay, 32
S, E. 169. Cal. 354; Alderman v. School Direct-

648
Ch. 10] De Facto Coepoeations [§312
for conversion,88 qj. ^q enjoin or recover damages for a nuisance,^'

or to enjoin or recover damages for infringement of a patent, trade-
mark or copyright,^ or for damages for breaking down and passing
a toll gate belonging toit,^ or to recover funds wrongfully withdrawn
from its treasury by one of its former officers,' or to protect or obtain

redress for .the violation of any other right*
Ade facto corporation which purchases land subject to the ap-
parent lien of a void judgment by confession may apply to have such
judgment set aside, and the validity of the corporation cannot be
questioned in such a proceeding.^ And it is entitled to a writ of
ors, 91 111. 179. See Atlantic, T. & a company which had attempted to
O. E. Co. V. Johnston, 70 N. C. 348; incorporate under the laws of Ohio,
Searsburgh Turnpike Co. v. Cutler, 6 could not maintain an action for in-
Vt. 315, 322. fringement of a patent on the theory
A trespasser sued for wrongfully that it was a de facto corporation,
taking property from the possession where it was organized entirely by
of a corporation, cannot take advan- other corporations, which was not au-
tage of defects in its organization. thorized by the statute, and the statu-
Persse & Brooks Paper Works v. Wil- tory, requirements as to subscriptions
lett, 24 N. Y. Super. Ct. 131. and payment for stock had not been
But in Doboy & Union Island Tel. complied with, there being no consid-
Co. V. De Magathias,
25 Ped. 697, it erations of estoppel or public policy
was held that, where the constitution involved.
gave to the legislature the exclusive 8 Searsburgh Turnpike Co. v. Cut-
power to charter telegraph companies, ler, 6 Vt. 315.
such a company having only a charter 3 Kwapil V. Bell Tower Co., 55 Wash.
granted by the court could not main- 583, 104 Pae. 824.
tain an action for damages for injury 4 Where a corporation has been
to one of its cable lines. chartered by the legislature, and there
98 Remington Paper Co. v. O 'Dough- has been a de facto organization
erty, 65 N. Y. 570; Persse & Brooks thereof, it may sue to restrain per-
Paper Works v. Willett, 19 Abb. Pr. sons from acting under an invalid
(N. Y.) 416. See also Elizabeth City organization attempted to be made
Academy v. Lindsey, 28 N. C. 476, 45 thereafter by some of the original in-
Am. Dec. 500. corporators, acting without authority.
89 Baltimore & P. E. Co. v. Fifth Union Water Co. v. Kean, 52 N. J.
Baptist Church, 137 U. S. 568, 34 L. Eq. Ill, 27 Atl. 1015, rev'd on other
Ed. 784 (noise and smoke from opera- grounds 52 N. J. Eq. 813, 46 Am. St.
tions of a railroad). Bep. 538, 31 Atl. 282.
1 Young Eeversible Lock-Nut Co. v. A showing that an alleged owner of
Young Lock-Nut Co., 72 Fed. 62; attached property is a de facto cor-
American Cable Ey. Co. v. New York, poration is suflScient to entitle it to
68 Fed. 227, rev'd on other grounds intervene in the attachment proceed-
70 Fed. 853. See Dental Vulcanite ings. Petty V. Hayden, 115 Iowa 212,
Co. V. Wetherbee, 2 Cliff. 555, 3 Fish 88 N. W. 339.
Pat. Cas. 87, Fed. Cas. No. 3,810. fiKeyes v. Smith, 67 N. J. L. 190,
In American Ball Bearing Co. v. 51 Atl. 122.
Adams, 222 Fed. 967, it was held that
649
§ 312] Peivate Cokpokations [Ch. 10
prohibition to restrain a court from appointing a receiver to take

possession of its property, where such action is in excess of the court 's
jurisdiction.* And proof of a de facto corporation is sufficient where
it is sought to set aside a conveyance to it as being in fraud of
creditors.'
A
de facto corporation may remove a case from a state to a federal
court on the ground that a federal question is involved.*
But it has been held that in order to make a corporation a citizen of
the state where attempted to be created, so as to give a federal
it is
court jurisdiction of an action by or against it on the ground of
diverse citizenship, it must be a corporation de jure as distinguished

from one de facto.® And a suit brought by a corporation in the
federal court on the ground of diverse citizenship will be dismissed,
where it appears that the complainant was coUusively organized under
the laws of another state, by a corporation which was a citizen of the
same state as the defendant, for the sole purpose of creating a case
cognizable by the federal courts.^"
§ 313. — Actions by and against state. All the courts agree that
in a direct proceeding by the state to question the right of an asso-
ciation to be a corporation, and to oust it from the exercise of cor-
porate powers, necessary for the association to show that it is a
it is
corporation de jure; and to show this, it must show not only that
there is a valid law under which it might be a corporation, and that
there has been an attempt to organize as a corporation under the law,
but also that all the requirements of the law intended as conditions
precedent have been substantially complied with.^^ It is not neces-
sary, however, to show a de jure corporate existence, even as against
the state, when the existence of a corporation is collaterally attacked,
as in a suit against the state on a claim in favor of the corporation,^^
or in a criminal prosecution of the corporation by the state.^^
6 state V. Superior Court Spokane 10 Southern Realty Inv. Co. v.

Co., 15 "Wash. 668, 37 L. E. A. Ill, 55 "Walker, 211 U. S. 603, 53 L. Ed. 346;
Am. St. Eep. 907, 47 Pae. 31. Miller & Lux v. East Side Canal &
Irrigation Co., 211 U. S. 293, 53 Z,. Ed.
7Lusk V. Eiggs, 70 Neb. 718, 102
jj -^ gg 189; Lehigh Min. & Mfg. Co. v. Kelly,
.^'
„ 160 U. S. 327, 40 L. Ed. 444.
Eemoval ^
., , ,
8 Pacific Railroad Cases,
.^ g^^ ^^ ^^ Forfeiture, Disso-
115 U. S. 1, 15, 29 L. Ed. 319.
,^,,^^^ ^^^_^ ^^^^^
Cotton Mfg. Co. v. "W. L.
9 Gastonia 12 People v. La Eue, 67 Cal. 526, 8
"Wells Co., 128 Fed. 369, rev'g 118 Fed. Pae. 84; North v. State, 107 Ind. 356,
190. This ease was reversed by the Su- 8 N. E. 159; Coxe v. State, 144 N. Y.
preme Court (198 U. S. 177, 49 L. Ed. 396, 39 N. E. 400. See also cases cited
1003), on the ground that the corpora- § 312, supra.
tion in question was one de jure. 13 See § 316, infra.
650
§ 314. Torts by and against —Torts by. A de facto corporation is
as fully liable in an action for damages for wrongs committed by it
as a corporation de jure would be, and therefore it is only necessary

to show a de facto corporate existence to sustain an action against a
corporation for a tort committed by it,^* as an action for negligence
causing personal injury or death,^* or for injury to property.^^
§315. — Torts a^fainst. As was shown in a previous section, a

corporation de facto, being capable of taking and holding property as
against all the world but the state, may maintain, to the same extent
as a corporation de jure, an* action for a tort affecting its property,
as an action for trespass, or conversion, or nuisance, or infringement
of a patent, trade-mark or copyright, and in such an action by a
corporation it is no defense to show that for some reason it is not a
de jure corporation.^''
Statutes in anumber of states specifically provide that one who
issued for an injury to the property of a corporation, or for a wrong
done to its interests, shall not be permitted to set up want of its legal
organization as a defense.*' And such a provision has been held to
14 See American Ball Bearing Co. v. 8 L. E. A. (N. S.) 376, 106 N. "W. 764;
Adams, 222 Fed. 967. Quinn v. Shields, 62 Iowa 129, 49 Am.
16 Missouri. Pierce v. Lutesville, Eep. 141, 17 N. "W. 437.
33 Mo. App. 317. Kentucky. Stat. 1909, §566; Gen.
New York.
See Demarest v. Flack, St. 1873, c. 56, §18; Fruin-Colnon
16 Daly 337, 11 N. Y. Supp. 83, aff'd Contracting Co. v. Chatterson, 146
128 N. Y. 205, 13 L. E. A. 854, 28 N. Ky. 504, 40 L. E. A. (N. S.)
E. 645. 857, 143 S. W. 6; Warden v. Madi-
Pennsylvania. Pinkerton v. Penn- sonville, H. & E. E. Co., 125 Ky. 644,
sylvania Traction Co., 193 Pa. St. 229, 101 S. W. 914; Com. v. Licking Valley
44 Atl. 284. Bldg. Ass'n No. 3, 118 Ky. 791, 82
Texas. Oriental Inv. Co. v. Sline, S. W. 435; Johnson v. Mason Lodge
17 Tex. Civ. App. 692, 41 S. W. 130; No. 33, L
O. O. F., 106 Ky. 838, 51 S.
The Oriental v. Barclay, 16 Tex. Civ. W. 620; Wood v. Friendship Lodge
App. 193, 41 S. "W. 117. No. 5, I. O. O. F. of Lexington, 106
West Virginia. Miller v.Newburg Ky. 424, 50 S. W. 836; Walton v.
Orrel Coal Co., 31 W. Va. 836, 13 Am. Eiley, 85 Ky. 413, 3 S. W. 605, over-
St.Eep. 903, 8 S. E. 600. ruling Heinig v. Adams & Westlake
A de facto railroad corporation
18 Mfg. Co., 81 Ky. 300, 5 Ky. L. Eep.
may be held liable in damages for kill- 281, and, by implication, Eobinson &
ing stock. Cincinnati, H. & I. E. Co. Co. V. Harris, 5 Ky. L. Eep. 928 (ab-
V. McDougall, 108 Ind. 179, 8 N. B. stract); Handley v. Stutz, 139 U. S.
571. 417, 35 L. Ed. 227 rev'g on other
17 See § 312, supra. grounds 41 Fed. 531 (construing Ken-
18 Florida. Gen. St. 1906, §2687. tucky statute).
Iowa. Code 1897, § 1636; State Se- Maryland. Acts 1908, c. 240, § 6,
curity Bank v. Hoskins, 130 Iowa 339, provides that "no certificate of incor-
651
§316] Private Ooepobations [Ch. 10
apply in action brought by a corporation to protect its property from

the wrongful acts of the defendant."
—
§ 316. Criminal proceedings Criminal responsibility. de facto A
corporation is liable for its infractions of the criminal law, and in a
criminal prosecution against a corporation it is only necessary to
show its de facto existence.*** And such a showing is generally re-
garded as sufficient in criminal prosecutions for making false entries
in the books of a banking corporation with intent to defraud,*^ or false
statements and reports to the bank commissioner in respect to the
poration shall be declared void for Lincoln Butter Co. v. Edwards-Brad-

formal defects merely; and where an ford Lumber Co., 76 Neb. 477, 107 N.
effort has been made in good faith to "W. 797.
form under the laws of this state a Tennessee. Shannon's Code, § 2064;
corporation formable thereunder, Pope V. Merchants' Trust Co., 118
neither party to any transaction with Tenn. 506, 103 S. W. 792.
it shalldeny the legality of its incor- 19 It was held to apply in
an action
poration or organization in any suit, or to enjoin the removal from a farm
proceeding growing out of such trans- owned by a corporation of a gasoline
action, and 'transaction' shall include engine set up there by a former owner
any wrong to person or property giv- and claimed by the defendant under
ing rise to a cause of action or equi- a bill of sale of the personal property
table relief against such corporation." on the farm executed to him by said
This provision does not apply in an former owner. State Security Bank
action by an alleged corporation for v. Hoskins, 130 Iowa 339, 8 L. E. A.
libel, where the def endajit 's plea does (N. S.) 376, 106 N. W. 764.
not deny the legality of the plain- 20 This rule has been applied to
tiff's incorporation or its right to sue prosecutions on the following charges:
or be sued when the action was violation of local option law; George
brought, but merely alleges that, by H. Goodman Co. v. Com., 30 Ky. li.
reason of its failure to pay the fee or Rep. 519, 99 S. W. 252; selling oil
bonus tax required by statute, it had without license; Standard Oil Co. v.
not yet become incorporated or come Com., 122 Ky. 440, 91 S. W. 1128;
into existence at the time of the pub- failure of railway company to block
lication of the alleged libel, and hence a frog. Louisville & N. E. Co. v.
was not injured by it. National Shut- Com., 154 Ky. 293, 157 S. W. 369.
ter Bar Co. v. G. F. S. Zimmerman & Likewise the validity of its existence
Co., 110 Md. 313, 73 Atl. 19. cannot be inquired into in such a pro-
It does not apply to cases where ceeding. Com. V. Philadelphia, H. &
there has been no attempt at all to P. E. Co., 23 Pa. Super. Ct. 235.
comply with conditions precedent, as, See also Morse v. Com., 129 Ky. 294,
for example, where there has been a 111 8. W. 714; State v. "Western North
failure to pay the bonus tax required Carolina E. Co., 95 N. C. 602.
by statute. National Shutter Bar Co. ZlMears v. State, 84 Ark. 136, 104
V. G. F. S. Zimmerman & Co., 110 Md. S. W. 1095; State v. Mason, 61 Kan.
313, 73 Atl. 19. 102, 58 Pac. 978.
Nebraska. Comp. St. 1911, §2102;
652
financial condition of a bank/^ or for receiving deposits in an in-
solvent bank,'^^ or for the embezzlement or stealing of corporate

funds or property by its officers or agents.^*
§ 317. —
Crimes aiâinst de facto corporations. Criminal offenses
may be committed against corporations de facto the same extent as
they may be committed against corporations de jure. It is settled,
therefore, that it. is only necessary to show a de facto corporate
existence in a criminal prosecution for an offense against a corpora-
tion,^^ as in a prosecution for destroying a vessel ^^ or burning prop-
erty *'' with intent to defraud an insurance company, or for conspiring
to defraud life insurance companies,''* or for forgery with intent to
defraud a corporation,^' as for forging a check,^" or for passing a
raised check on a bank,^^ or for forging or counterfeiting a note of a
banking company,^^ or for obstructing the road of a railroad com-
22 State V. M-ason, 61 Kan. 102, 58 26 United States v. Amedy, 11

Pac. 978. Wheat. (U. S.) 392, 6 L. Ed. 502.
"23 state V. Stevens, 16 S. D. 309, 92
27 People V. Schwartz, 32 Cal. 160
N. W. 420. People V. Hughes, 29 Cal. 257; Peo
24 See §318, infra. pie V. Morley, 8 Gal. App. 372, 97 Pac
Under the Illinois statute, user is
26 84; State v. Byrne, 45 Conn. 273
prima facie evidence of the legal ex- Graff V. People, 208 111. 312, 70 N. E
istence of a corporation in all criminal 299, aff'g 108 111. App. 168. See Jhons
cases involving such existence, and V. People, 25 Mich. 499.
sufficiently supports the allegations 28 See State v. Turner, 119 N. C.
where there is no countervailing proof. 841, 25 S. E. 810, holding that it is
People V. Fryer, 266 111. 216, 107 N. sufficient to show that the corporation
E. 134; Graff v. People, 208 111. 312, carried on business under the corpo-
70 N". E. 299, aff'g 108 111. App. 168; rate name set forth in the indictment.
Waller v. People, 175 HI. 221, 51 N. E.
29 PeopleV. Prank, 28 Cal. 507;
900; Kiucaid v. People, 139 111. 213,
State V. Jackson,- 90 Mo. 156, 2 S. W.
28 N. E. 1060; Sykes v. People, 132
128; State v. Shaw, 92 N. C. 768.
111.32, 23 N. E. 391; "Whiteman v.
SO See State v. Cleavland, 6 Nev.
People, 83 111. App. 369.
181.
The statute applies as well in the
31 People V. Dole, 122 Cal. 486, 68
case of foreign as domestic corpora-
tions. Graff V. People, 208 111. 312, 70
Am. St. Rep. 50, 55 Pac. 581.
K. E. 299, aff'g 108 111. App. i68; Kin- 32 California. People v. Ah Sam, 41
caid v. People, 139 111. 213, 28 N. E. Cal. 645.
1060. Georgia. State v. Calvin, E. M.
But the mere opinion of a witness Charlt. 151.
that the owner of stolen property did New Hampshire. State v. Carr, 5
business asa corporation is incom- N. H. 367.
petent and affords no proof of user. ; New York. People v. Chadwick, 2
People V. Krittenbrink, 269 111. 244, Park. Cr. 163. But see Debow v. Peo-
109 N. E. 1005. ple, 1 Den. 9.
653
§3171 Pbivate Cobpoeations [Ch. 10
pany,'^ or burning a railroad bridge,'* or for injuring a toll gate of

a turnpike company,'^ or, generally, for burglary,^* or larceny,*'
or robbery,** or embezzlement ** of the property or money of a corpora-
OUo. Beed v. State, 15 Ohio 217. 36 Franklin v. State, 85 Ind. 99.

See also Sasser v. State, 13 Ohio 453. 36 Coloradoi Tollif son
v. People,
Wisconsin. State v. Cole, 19 Wis. 49 Colo. 219, 112 Pac. 794; Perry v.
129, 88 Am. Dec. 678. People, 38 Colo. 23, 87 Pac. 796.
But see State v. Newland, 7 Iowa Illinois. Kincaid v. People, 139
242, 71 Am.
Dec. 444, holding that 111. 213, 28 N. E. 1060.
where the indictment charged that the Indiana. Norton v. State, 74 Ind.
bank was "a corporation duly author- 337.
ized for that purpose by the state of Kansas. State v. Thompson, 23 Kan.
Massachusetts," it was incumbent on 338, 33 Am. Eep. 165.
the state to prove the fact as al- Ohio. Burke v. State, 34 Ohio St.
leged. And see State v. Murphy, 17 79.
E. I. 698, 16 L. E. A. 550, 24 Atl. 473, South Carolina. State v. Sowell, 85
liolding that it is not enough to show S. C. 278, 67 S. E. 316.
that an act had been passed incor- 37 Arkansas. Brown v. State, 108
porating the company,, and that it was
Ark. 336, 157 S. W. 934. See also
doing business under the corporate
Turner v. State, 109 Ark. 332, 158 S.
name, but that it was necessary for
W. 1072.
the state to prove the organization of
California. People v. Barric, 49
the company under said act.
Cal. 342.
In Tennessee it has been held that
Colorado. Tollifsou v. People, 49
on a prosecution for passing counter-
Colo. 219, 112 Pac. 794; Perry v.
feit bank notes, or for fraudulently
People, 38 Colo. 23, 87 Pac. 796.
having them in possession, it is not
Indiana. Smith v. State, 28 Ind.
necessary to allege and prove that
321.
the bank is a chartered institution
Hlchigan. See People v. Parsons,
where it' is a domestic bank. Owen
105 Mich. 177, 63 N. "W. 69.
V. State, 5 Sneed (Tenn.) 493. But
Nebraska. Sharp v. State, 61 Neb.
the contrary is true in the case of
187, 85 N. W.
Braithwaite
3,8; v. State.
extraterritorial banks, and where the
28 Neb. 832, 45 N. W. 247.
existence of such a banking corpora-
North Carolina.. See State v. Grant,
tion is alleged, it can be proved
104 N. C. 908, 10 S. E. 554.
only by the production of its
Oregon. State v. Savage, 36 Ore.
charter. Owen v. State, 5 Sneed
191, 61 Pac. 1128, 60 Pac. 610.
(Tenn.) 493; Jones v. State, 5
Virginia. Shinn v. Com., 32 Gratt.
Sneed (Tenn.) 346.
899.
Parol evidence cannot be received,
Wisconsin, See Golonbieski v.
if objected to, to show the organiza-
tion and existence of a domestic bank,
State, 101 Wis. 333, 77 N. W. 189.
38 People V. Oldham, 111 Cal. 648,
but the memorandum of incorporation,
or a certified copy thereof, must be 44 Pac. 312.
produced. Trice v. State, 2 Head 39 Arkansas. Fleener v. State, 58
(Tenn.) 591. Ark. 98, 23 S. W. 1.
S3 Com. V. Bakeman, 105 Ma^s. 53. OaUfomia. People v. Ward, 134
34 Duncan v. State, 29 Fla. 439, 10 Cal. 301, 66 Pac. 372; People v. Leon-
So. 815. ard, 106 Cal. 302, 39 Pac. 617,
654
Ch. 10] De Facto Coeporations [§318
tion, or for receiving property stolen from it,**" or obtaining money

from it by false pretenses,*^ or for trespass upon its property.*^ And
the same has been held to be true in a criminal prosecution against a
receiver of a corporation for embezzling money coming into hia hands
in that capacity,*^ or for stealing bank bills from persons other than
the bank issuing them.**
§ 318. Rights and liabilities of members and officere —In general.

The officers and directors of a de facto corporation are subject to
all the liabilities and penalties attending to officers and directors duly
chosen by a corporation de jure,** including liability under the crimi-
nal law,*® and statutory liability for- corporate debts,*'' and their acts
are binding when such acts would be within the power of such officers
if the corporation were one de jure.*'
Directors are not personally liable for acts done by them in the
performance of their duties as such, provided they would not be
liable if the corporation were one de jure.*'
Of course officers and members of a de facto corporation who par-
Florida. Thalheim v. State, 38 Fla. Oregon. State v. Adler, 71 Ore. 70,

169, 200, 20 So. 938. 142 Pac. 344.
Georgia. Carson v. State, 16 Ga. Rhode Island. State v. Habib, 18
. App. 820, 86 S. B. 644. K. I. 558, 30 Atl. 462.
Kentucky. Morse v. Com., 129 Ky. Tennessee. State v. Missio, 105
294, 111 8. "W. 714. Tenn. 218, 58 S. W. 216.
Louisiana. State v. CoUens, 37 La. 41 Cowan V. State, 22 Neb. 519, 35
Ann. 607. N. W. 405.
Michigan. People v. Carter, 122 It is sufficient to show that the com-
Mich. 668, 81 N. W. 924. pany carried on business as such.
Minnesota. State v. Eue, 72 Minn. Queen v. Langton, 2 Q. B. D. 296.
296, 75 N. "W. 235. 42 Such as cutting a tree belonging
Mlfisonrl. State v. Cheek, 6-3 Mo. to it. White v. State, 69 Ind. 273.
364. 43 Fields V. United States, 27 App.
Nebraska. Higbee v. State, 74 Neb. Cas. (D. C.) 433.
331, 104 N. "W. 748. 44 Johnson v. People, 4 Den. (N. T.)
Ohio. Calkins v. State, 18 Ohio St. 364; People v. Caryl, 12 Wend. (N.
366, 98 Am. Dec. 121. Y.) 547.
Washington. State v. Pittam, 32 46 People V. Leonard, 106 Cal. 302,
Wash. 137, 72 Pac. 1042. 39 Pac. 617.
Wyoming. Edelhoff v. State, 5 Wyo. 46 See § 317, supra.
19, 36 Pac. 627. 47 See § 321, infra.

40 Colorado. Miller v. People, 13 48 People V. Pederson, 220 111. 554,
Colo. 166, 21 Pac. 1025. 77 N. E. 251.
Florida. Butler v. State, 35 Fla. 49 An action cannot be maintained
246, 17 So. 551. against the directors of a de facto
Nebraska. Bloom v. State, 95 Neb. railroad company individually to re-
710, 146 N. W. 965. strain them from maintaining and op-
6!)5
.
ticipate in wrongful acts by the corporation are personally liable, as
well as the corporation, but this is true also in the case of a de jure
corporation.^"
It has been held in Louisiana that the members of an association
claiming to be a corporation must show full compliance with the
statutory requirements, or, in other words, a de jure corporate exist-
ence, when they seek to defeat an action against them as individuals
for wrongful acts, on the ground that such acts were corporate acts.*^
§ 319. — Controversies between members or members and officers.

It is sufScient to show a de tacto corporate existence when the legal
existence of a corporation is in issue in controversies between the
members, or between the members and officers, as in a suit in equity
by a minority and the
of the stockholders against the corporation
directors to hold them and to enjoin mismanagement,*^ or
liable for
in a suit by directors, in the name of the company to compel an ac-
counting by an officer,*^ or in a suit by officers or stockholders to wind
up the corporation,** or in an action by a stockholder who has been
held individually liable for a debt of the corporation by reason of
noncompliance with a statute requiring the recording of a certificate
showing that the capital stock has been paid in, against the other
stockholders for contribution.** Nor can a stockholder and former
officer of a de facto corporation maintain a suit to have it declared
a partnership and to compel the other members to account to him as

copartners.**
An a de facto corporation is entitled to be reimbursed for
officer of
material furnished and money advanced by him in carrying on the

business of the corporation.*''
§ 320. —
Liability on subscriptions to capital stock. The doctrine
that a corporation de facto has the same capacity to contract and to
erating the road and for damages on B2 Merchants & Planters' Line v.
'
the ground that the plaintiff's prop- Waganer, 71 Ala. 581, 585.
*3 Grand Eiver. Bridge Co. .y. Eol-
erty is thereby unlawfully invaded.
Lamming v. Galiisha, 81 Hun (N. Y.) ""S, 13 Colo. 4, 21 Pac. 897. l,
S^Ti-outman y. Council Bluffs Street

247, 30 N. Y. Supp. 767, aff'd 151 ^l'-
V 648, ^>; -NT -p
fiâ 45 iiqp ^^^^ ^ Carnival Co., 142 Iowa 140,
Y. N. E. 1132.
50 See chapters on Directors, on OflS-
^^^ ^ ^ ^^^_ Eaisbeck y. Oester-
^j^j^^^.^ ^ ^^^ jj_ q^^ ^j^ Y.) 444.
cers and Agents and on Stock and 55 Aspinwall v; Sacchi, 57 N. Y. 331.
Stockholders. 56 Bushnell y. Consolidated Ice
51 Vredenburg v. Behan, 33 La. Ann. Maeh. Co., 138 111. 67, 27 N. E. 596.
635 (in this case the action was for 57 Grand Eiver Bridge Co. v. Eol-
keeping a vicious animal) lins, 13 Colo. 4, 21 Pac. 897.
656
Ch. 10] De Facto Cokpobations [§ 321
enforce contracts as a corporation de jure applies to the subscrip-

its
tions to the capital stock of a corporation after its organization and

assumption of corporate powers. If a person subscribes for stock in
a corporation after it is organized and not preliminary to organization,
and on condition, express or implied, that he shall not be liable until
complete organization and de jure incorporation, it is sufQcient to
show de facto corporate existence to support an action on the sub-
scription. But the contrary is true where the subscription is pre-
liminary to organization, and under such circumstances a corporation
de jure must be shown unless the subscriber has waived the express
or implied condition to this effect, or has estopped himself from main-
taining that it has not been performed.^*
§321. — Statutory liability for corporate debts. A de facto

corporate existence is all that need be shown in order to sustain an
action by a creditor of the corporation against a stockholder to en-
force his statutory liability for the debts of the corporation,^' as, for
example, a statutory liability resulting from a failure of the president
and directors to make and record a certificate that the capital stock
has been paid,^" or a statutory liability of stockholders in a bank for
public funds deposited therein which the bank has failed to pay over
on demand.®^
On the other hand, proof of a corporation de facto will not relieve
directors and officers from a statutory liability imposed upon them
individually for debts and liabilities incurred by them in the name
58 See Chap. 17, infra. The fact that by the terms of the
59 CaJifomia. Eobinson v. Blood, statute the corporate powers of the
151 Cal. 504, 91 Pac. 258. corporation came to an end at the ex-
Illinois. Wheeloek v. Kost, 77 111. piration of a year, for failure to com-
296. is no defense to
plete its organization,
Minnesota.See Gardner v. Minne- such an action. Bearse v. Mabie, 198
apolis & St. L. By. Co., 73 Minn. 517, Mass. 451, 84 N. E. 1015.
76 N. W. 282, afE'd 177 U. S. 332, 44 60 Aspinwall v. Sacchi, 57 N. Y. 331.
L. Ed. 793. Proof of a de facto corporation is
Nebraska. Porter v. Sherman also sufficient in an action by a stock-
County Banking Co., 36 Neb. 271, 54 holder who has been held liable un-
N. W. 424. der the statute for a debt of the
New Eaton v. Aspinwall, 19
York. corporation to enforce contribution by
N. Y. 119, aff'g 6 Duer 176. the other stockholders. Aspinwall v.
Ohio. Bowland v. Meader Furni- Sacchi, 57 N. Y. 331.
ture Co., "38 Ohio St. 269; Dickason 61 Bank of Midland v. Harris, 114
V. Gi-afton Sav. Bank Co.. 6 Ohio Ch-. Ark. 344. Ann. Cas. 1916 B 1255, 170
Ct. (N. S.) 329. S. W. 61.
657
I Priv. Corp.— 42
§ 321] Peivate Cobpobations [Ch. 10
of the corporation before its incorporation or organization is com-

pleted, but to escape that liability a corporation de jure must be
shown.®*
62 0. S. Richardson Fueling Co. v. derson v. Illinois Trust & Savings

Seymour, 235 111. 319, 85 N. E. 496; Bank, 199 111. 422, 65 N. B. 326, aff'g
J. W. Butler Paper Co. v. Cleveland, 100 111. App. 461; Loverin v. MeLaugh-
820 111. 128, 110 Am. St. Eep. 230, 77 lin, 161 111. 417, 44 N. E. 99, aff'g 46
N. E. 99, aff'g 121 111. App. 491; Gun- III. App. 373.
«9ft
—
CHAPTER 11
Corporations by Estoppel
i 322. Nature of corporations by estoppel.
II. ESSENTIAL REQUISITES OP ESTOPPEL
§ 323. Necessity for recognition or holding out of pretended corporation.

§ 324. Necessity for equitable grounds of estoppel and effect of fraud.
§ 325. Good faith, knowledge, notice and reliance.

§ 326. Necessity for de facto corporate existence.
§ 327. Necessity for lawful authority.
§ 328. Corporations prohibited by statute or public policy.
§ 329. Organization outside of the state.
§ 330. Effect of dissolution of corporation —Dissolution before acts constituting
estoppel.
§ 331. — Dissolution after acts constituting estoppel.
III. ACTS CONSTITUTING ESTOPPEL AND PERSONS ESTOPPED
§ 332. General nature of acts constituting estoppel — General considerations as to

recognition.
§ — General considerations as to holding
333. out.
§ 334. Estoppel of persons contracting or dealing with corporation— În general
§ 335. — Statutory provisions.
§336. — Contracting name implying corporate
in existence.
§ 337. — Conveyances, mortgages and leases.
§338. —Bonds.
§ 339. — Further illustrations.
§340. — Eight to sue menlbers or as individuals.
officers
§341. — Estoppel in cases other than actions on contract.

§342. — Limitations upon and exceptions to the rule.
§ Estoppel of pretended corporation — In general.

343.
§344. — Statutory provisions.
§345. — Use of name importing corporate existence.
§346. — Applications of the rule.
§347. — Estoppel in actions other than on contract.
§ 348. Estoppel of promoters, members and officers of pretended corporation
Estoppel of promoters and members.
§ 349. — Estoppel of officers.
§ 350. — Estoppel of members and officers as between themselves or as against
the corporation.
659
§ 351. Estoppel of sureties or guarantors for corporation.

§ 352. Estoppel arising from actions by or against pretended corporation — Êstop-
pel of persons suing or sued by corporation.
§ 353. — Actions and proceedings by the state.
§ 354. — Estoppel of corporation.
§ 355. Estoppel by judgment.
§ 356. Estoppel as affected by privity of contract or estate —Estoppel resulting
from privity.
§ 357. — Estoppel in favor of persons in privity with corporation or its members.
I. GENEEAI, CONSIDERATIONS
§ 322. Nature of corporations by estoppel. "While as against the

state a corporation cannot be created by the mere agreement or
other act or omission of private persons, yet as between private liti-
gants they may, by their agreements, admissions, or conduct, place
themselves where they would not be permitted to deny the fact of
the existence of the corporation."^ The corporation, under such
circumstances, is often designated a corporation by estoppel.^
There is authority to the effect that the fact that a corporation, or
those dealing with it, may be estopped to deny its corporate existence
does not make
a citizen of the state in which it was attempted to
it
be created so as to give a federal court jurisdiction of an action by

or against it on the ground of diverse citizenship, but in order to
make it a citizen of a state it must be a corporation de jure under
its laws.^
On the other hand, it has been held that a corporation which holds
itself out as being chartered by the laws of a particular state, and
recites and shows the charter granted by the legislature of that state
and its laws in bonds and mortgages given to secure them as part of
its authority to issue them, will not be permitted to deny its exist-
ence as a corporation of that state for the purpose of ousting the
federal court of that state of jurisdiction oyer a suit to foreclose
such a mortgage on the ground that it is not a citizen of the district
in which the suit is brought.*
1 Ingle System Co. v. Norris & Hall, S Gastonia Cotton Mfg. Co. v. W.
132 Tenn. 472, 178 S. "W. 1113. See, L. Wells Co., 128 Fed. 369, rev'g 118
to the same effect, Harris v. Inde- Fed. 190. This case was reversed by
pendence Gas Co., 76. Kan. 750, 13 L. the Supreme Court, 198 TT. S. 177, 49
E. A. (N. S.) 1171, 92 Pac. 1123. L. Ed. 1003, on the ground that the
2 Brown v. Atlanta Railway & corporation in question was one de
Power Co., 113 Ga. 462, 39 S. E. 71; jure.
Cason v. State, 16 Ga. App. 820, 86 4 Blackburn v. Selma, M. & M. R.
S. E. 644. Co., 2 Flip. 525, Fed. Cas. No. 1,467.
660
Ch. 11] COEPOBATIONS BY EsTOPPEL [§ 323
II. ESSENTIAL REQUISITES OF ESTOPPEL
§ 323, Necessity for recognition or holding out of pretended cor-

poration. The doctrine in relation to estoppel to deny the corporate
existence of an association is always based upon some conduct show-
ing either recognition of the association as a corporation, or an ex-
press or implied representation that it is a corporation, and it cannot
apply, therefore, to one who has not dealt with the association, or in
any way recognized it as having a corporate existence, or in any way
participated in holding it out as a corporation.* Aijd hence there is
no estoppel where the association never assumed to be a corporation

and the person dealing with it did not deal with it as such.^
For the same reason, a person claiming title to land by adverse
possession cannot be estopped to attack a conveyance of the land to
;
a pretended corporation, which he has in no way recognized and ''
a person who draws a bill of exchange for the accommodation of the

B United States. Baxter y. Jones, Fenusylvanla. Tonge v. Item Pub.
185 Fed. 900. Co., 244 Pa. 417, 91 Atl. 229; Guckert
Alabama. Christian & Craft Gro- V. Haeke, 159 Pa. St. 303, 28 Atl. 249.
cery Co. V. Fruitdale Lumber Co., 121 Utah. Mitchell v. Jensen, 29 Utah
Ala. 840, 25 So. 566; Schlosa v. Mont- 346, 81 Pac. 165.
gomery Trade Co., 87 Ala. 411, 13 Am. Washington. Bash v. Culver Gold
St. Eep. 51, 6 So. 360; Marion Sav. Min. Co., 7 Wash. 122, 34 Pac. 462.
Bank v. Dunkin, 54 Ala. 471. Persons who are not shareholders
Dakota. Dartmouth Sav. Bank v. in a gravel road company and who
School Dists. Nos. 6 & 31, 6 Dak. 832, have never contracted with it as a
43 N. W. 822. corporation or otherwise recognized
Lawrence v. Nyberg Auto-
Illinois. it as such are not estopped to deny its
mobile Works, 162 111 App. 348. corporate a proceeding
existence in
Indiana. Farmers Mutual v. Eeser,
' instituted by them to enjoin the col-
43 Ind. App. 634, 88 N. E. 349. lection of assessments for the con-
Missouri. Bradley v. Eeppell, 133 struction of the road. Piper v. Ehodes,
Mo. 545, 54 Am. St. Eep. 685, 34 S. 30 Ind. 309.
W. 841, 32 S.W. 645; Atchison v. The owner of a bank which has
Crawford County Farmers' Mut. Fire never pretended to possess or exer-
cise corporate powers and has never
Ins. Co., 192 Mo. App. 362, 180 S. W.
held itself out as a corporation is not
438.
precluded from asserting the truth.
New York.
Bradley Fertilizer Co.
Longfellow v. Barnard, 58 Neb. 612,
V. South Pub. 4 Misc. 172, 23 N.
Co.,
76 Am. St. Eep. 117, 79 N. W. 255.
Y. Supp. 675, rev'g 1 Misc. 512, 21
As to what constitutes recognition
N. Y. Supp. 472, 17 N. Y. Supp. 587, or holding out, see §§ 332, 355, infra,
rev'g 14 N. Y. Supp. 917; petition for 8 Farmers ' Mutual v. Eeser, 43 Ind.
leave to appeal to court of appeals App. 634, 88 N. B. 349.
denied, 6 Misc. 128, 26 N. Y. Supp. 4. 7 Bradley v. Eeppell, 133 Mo. 545,
Oregon. See MeVicker v. Cone, 21 54 Am. St. Eep. 685, 34 S. W. 841, 32
Ore. 353, 28 Pae. 76. S. W. 645.
661
§ 323] Pkivate Cohpokations [Ch. 11
acceptor not estopped to deny the corporate existence of a bank by

is
which the bill is discounted without his participation, consent or
knowledge.* Nor is the maker of a note estopped to deny the cor-

porate existence of an indorsee thereof to whom it is not made payable
by name ^ nor, at least in the absence of recognition or holding out,
;
is thereany estoppel to deny the corporate existence of an associa-

tion to defeat its attempt to condemn land under the power of eminent
domain, or to collect assessment for benefits to land from the con-
struction of its works ^^ nor does the doctrine of estoppel apply to
;
a ease where it is sought to hold a corporation liable for goods sold

to one of its incorporators long before there was any attempted in-
corporation and while he was doing business individually under the
name subsequently adopted by the corporation on its formation, and
where neither the goods nor their proceeds came into its possession
and it never derived any benefit from them.'*
§324. Necessity for equitable grounds of estoppel and effect of
fraud. The doctrine in relation to estoppel to deny corporate exist-
ence by reason of recognition of a pretended corporation by dealing
with it rests upon the ground that such dealing creates relations and
encourages conduct which there may be difficulty in undoing, or
which it would be inequitable to undo.^^ It originates in equitable
principles, and therefore it does not apply when it would be in-
equitable to apply it, or where equitable principles do not require its
application.'^ So it does not apply in the case of fraud,'* as where
8 Marion Sav. Bank v. Dunkin, 54 Ann. Cas. 1913 A 1065, 119 Pae. 229.
Ala. 471. If there are any excepticns to the
9 Johnson v. Hanover Nat. Bank, 88 general rule that a persoi. dealing
Ala. 271, 6 So. 909. with a body of men assuming to be a
lO'Piper V. Ehodes, 30 Ind. 309; Bu- corporation is estopped to deny its
senback v. Attiea & B. Gravel Eoad corporate existence, it is only where
Co., 43 Ind. 265. there are no facts which make it le-
11 Bradley Fertilizer Co. v. South gaily unjust to forbid its denial. Es-
Pub. Co., 4 N. Y. Misc. 172, 23 N. Y. tey Mfg. Co. v. Eunnels, 5-5 Mich.
Supp. 675, rev'g 1 N. Y. Misc. 512, 21 130, 20 N. W. 823.
N. Y. Supp. 472, 17 N. Y. Supp. 587, "The fact that a creditor has con-
rev 'g 14 N. Y. Supp. 917; petition for tracted with a company holding itself
leave to appeal to court of appeals out as a corporation does not neces-
denied, 6 N. Y. Misc. 128, 26 N. Y. sarily work an estoppel to deny
Supp. 4. its corporate existence." Provident
12 Doyle v. Mizner, 42 Mich. 332, Bank & Trust Co. v. Saxon, 116 La.
3 N. W. 968. And see Montgomery v. 408, 40 So. 778. To the same effect,
Forbes, 148 Mass. 249, 19 N. E. 342; see Louisiana Nat. Bank v. Hender-
Estey Mfg. Co. v. Runnels, 55 Mich. son, 116 La. 413, 40 So. 779.
130, 20 N. W. 823. 14Judah v. American Live Stock
13 Lynch v. Ferryman, 29 Okla. 615, Ins. Co., 4 Ind. 333; Kr»tz v. Paola
862
Ck 11] COEPOBATIONS BY ESTOPPEL [§3^4
the recognition of a pretended corporation is itself brought about

by false representations that it is incorporated,^* or by fraudulent
dealings carried on for the very purpose of entrapping the party into
the action on which such recognition is based.^*
But to render it inequitable to hold a person who has dealt with
an association as a corporation estopped to set up fraud in its organ-
ization, or in obtaining its charter, the fraud must affect him. Thus,
the fraudulent organization of a corporation, or fraud in obtaining
its charter, cannot be set up as a defense against an action on an
acceptance in favor of the corporation,^' nor by a stockholder as a

defense to a suit by the trustee of bondholders to foreclose a mort-
gage securing their bonds nor by parties who contract with the
;
^'
corporation with knowledge of the fraud ^' nor by a stockholder who ;
has participated in the formation of the corporation or otherwise

recognized its existence as a defense to an action to enforce his sub-
scription.^" And a subscriber who participates in obtaining a charter
by means of false, feigned and fraudulent subscription lists cannot
defend an action by the corporation on his subscription on the ground
that it was a party to the fraud.^^ Nor can one who signs as surety
Town Co., 20 Kan. 403; Williams v. fact, and if there are no facts which
Hewitt, 47 La. Ann. 1076, 49 Am. St. make it legally unjust to forbid its
Eep. 394, 17 So. 496; Nichols v. Buell, denial, it is difficult to understand
157 Mich. 609, 122 N. "W. 217; Chicago what room there estoppel."
is for
& G. T. R. Co. V. Miller, 91 Mich. 166, Doyle V. Mizner, 42 Mich. 332, 3 N. W.
51 N. "W. 981; Doyle v. Mizner, 42 968.
Mich. 332, 3 N. W. 968. IT Southern Bank of Georgia v. Wil-
15 Not where one is induced to make liams, 25 Ga. 534. And see Pattison
conveyances to a company by false V. Albany Building & Loan Ass'n, 63
representations that it is duly organ- Ga. 373; State v. Bailey, 16 Ind. 46,
ized and incorporated. Provost v.
79 Am. Dec. 405; Jones v. Dana, 24
Morgan 's L. & T. E. Co., 42 La. Ann. Barb. (N. Y.) 395.
809, 8 So. 584. 18 Gunderson v. Illinois Trust & Sav-
If a person selling goods to a sup-
ings Bank, 100 111. App. 461, aflE 'd199
posed corporation is informed that a 111. 422.
certificate of incorporation has been
19 Cochran v. Arnold, 58 Pa. St.
issued, when in fact it is not issued
overruling Paterson Arnold,
399, v.
until after the sale,and if he knows
45 Pa. St. 410.
nothing to the contrary, he may re-
20 Smith V. Heidecker, 39 Mo. 157;
plevin them on discovering the truth
after the corporation has made an as-
Palmer v. Lawrence, 3 Sandf. (N. Y.)
signment for the benefit of its credi- 161, afE'd 5 N. Y. 389. See Chap. 17,
tors. Whiting & Sons Co. v. Barton, infra.
204 Mass. 169, 90 N. E. 528. 21 Graff V. Pittsburgh & S. R. Co.,

16 "If there was no corporation in 31 Pa. St. 489.
663
§ 324] Pkivatb Cokpoeations [Ch. 11
a note given by a subscriber to tbe stock of a bank in lieu of the cash

payment required by the statute set up the illegality of the transac-
tion as a defense to an action on a note.**
is no defense to an action
Similarly, fraud in the incorporation
by the holders bonds to foreclose a mortgage given to
of corporate
secure them.*' And one who intervenes in a suit to foreclose a mort-
gage given by a consolidated corporation, on the ground that he has
a prior lien, cannot contend that the consolidation was fraudulent
because the stock was subscribed by persons who were neither able
nor expected to pay their subscriptions.**
§ 325. Good faith, knowledge, notice and reliance. The estoppel

of a person who has dealt with a body as a corporation to deny its
eoiporate existence does not depend upon any question of knowledge
on his part of its want of incorporation. person is so estopped by A
contracting with a pretended corporation, although he may at the
time have believed that it was a corporation,** or though he did not
know whether it was a corporation or a partnership,*® provided he
knew, or was chargeable with knowledge, that it claimed to be a cor-
poration.*''
If the incorporation papers are on file, or have been recorded in
the proper public he has constructive notice of what has been

office,
done towards its incorporation, and therefore is chargeable with

knowledge that it is not a corporation de jure,** and that it is at least
a corporation de facto,*^ when such is the case, and hence cannot hold
its officers individually liable or its members or stockholders liable
as partners. And he is also estopped, even though such papers have

not been filed or recorded, if he has actual knowledge of the attempted
incorporation and deals with the association as a corporation.'" But
22 Pine Eiver Bank v. Hodsdon, 46 of knowledge or means of knowledge

N. H. 114. was taken into consideration.
23 Gunderson v. Illinois Trust & Sav- 27 See § 332, infra.
ings Bank, 100 III. App. 461, aflE 'd 199 28 Thisfor the reason that they
111. 422. have the power to ascertain its char-
24'Venner v. Farmers' Loan & Trust aeter and are presumed to know the
Co., 90 Fed. 348, certiorari denied 173 law. Love v. Eamsey, 139 Mich. 47,
XJ. S. 704, 43 L. Ed. 1185 (mem. dec). 102 N. W. 279.
25 Booske V. Gulf Ice Co., 24 Fla. 29 Owensboro Wagon Co. v. Bliss,
550; Eansom v. Priam Lodge No. 145, 132 Ala. 253, 90 Am. St. Eep. 907, 31
F. &
A. Masons, 51 Ind. 60. So. 81.
26 Toledo Computing Scale Co. v. SOPinkerton v. Pennsylvania Trac-
Young, 16 Idaho 187, 101 Pac. 257. tion Co., 193 Pa. St. 229, 44 Atl. 284;
But see Field v. Cooks, 16 La. Ann. Guckert v. Hacke, 159 Pa. St. 303,
153, where the absence of a showing 28 Atl. 249.
664
'
,Ch. 11] COBPOBATIONS BY EsTOPPEL [§325
if the papers have not been recorded so as to give him constructive

notice, and he has no knowledge of the attempted incorporation, and
there is nothing to put him on inquiry, then he is not estopped to
hold the persons with whom he deals liable individually.'^
To give rise to an estoppel against stockholders or members par-
ticipating in holding out a pretended corporation as having a legal
existence, it is not necessary that there shall be either bad faith, wil-
ful wrong or gross carelessness.*^ Nor is an estoppel prevented by
the fact that they act in entire good faith, and in the belief that the
corporation is legally organized, since they have the means of knowing
the truth which the general public has not.**As in other cases; there
must be ignorance of the truth and absence of equal means of knowl-
edge of it by the party who claims the benefit of the estoppel,** and
he must have relied on and have been induced to act to his prejudice
by the misrepresentations of the party against whom the estoppel
is invoked.** So it has been held that persons who actively engage
in business for profit under the name and pretense of a corporation
31 Tonge V. Item Publishing. Co., Pennsylvania. Tonge v. Item Pub.

244 Pa. 417, 91 Atl. 229; Pinkerton Co., 244 Pa. 417, 91 Atl. 229.
V. Pennsylvania Traction Co., 193 Pa. Texas. Gordon v. American Patri-
St. 229, 44 Atl. 284; New York Nat. ots of Springfield, Illinois, — Tex.
Exeh. Bank City of New York v. Civ. App. , —
141 S. W. 331.
Crowell, 177 Pa. St. 313, 35 Atl. 613; If he knows that the representa-
Guckert v. Haeke, 159 Pa. St. 303, 28 tion is false, it cannot be contended
Atl. 249. See also Pittsburg Sheet that it was calculated to mislead him
Mfg. Co. V. Beale, 204 Pa. 85, 53 or that it actually did so. Card v.
Atl. 540. Moore, 68 N. Y. App. Div. 327, 74 N.
32Canfield v. Gregory, 66 Conn. 9, Y. Supp. 18, aff'd 173 N. Y. 598, 66
33 Atl. 536; Callender v. Painesville N. E. 1105; Kohlsaat v. Gay, 126 111.
& H. E. Co., 11 Ohio St. 516. App. 4, aff'd 223 111. 260.
33 "It is not his intent, so much 36 Harrill v. Davis, 168 Fed. 187,
as the result of his conduct, which 22 L. E. A. (N. S.) 1153, rev'g 7 In-
determines his liability." Canfield v. dian T. 152, 15 Ann. Cas. 1134, 104 S.
Gregory, 66 Conn. 9, 33 Atl. 536. W. 573. And see Griffin v. Clinton
84 United States. Harrill v. Davis, Line Extensioit' E. Co., Fed. Cas. No.
168 Ped. 187, 22 L. E. A. (N. S.) 1153, 5,816; National Shutter Bar Co. v.
rev'g 7 Indian T. 152, 15 Ann. Cas. G. F. S. Zimmerman & Co., 110 Md.
1134, 104 S. W. 573. 313, 73 Atl. 19; Tonge v. Item Pub.
Illinois. Kohlsaat v. Gay, 126 111. Co.,244 Pa. 417, 91 Atl. 229.
App. 4, aff'd 223 111. 260. "One whodeals with a corporation
Louisiana. Provost v. Morgan's L. in such manner as to recognize its
& T. E. Co., 42 La. Ann. 809, 8 So. existence, and thereby causes it to
584. change its condition to its detriment,
New York. Card v. Moore, 68 App. is estopped from denying as against
Div. 327, 74 N. Y. Supp. 18, aff'd 173 it that it has been legally organized. '
N. Y. 598, 66 N. E. 1105. Spreyne v. Garfield Lodge No. 1
665
which they know neither exists nor has any color of existence may
not escape individual liability because strangers are led by their
pretense to contract with their pretended entity as a corporation.^^
The view is taken that under such circumstances the false repre-
sentation is made by the persons who so engage in business rather
than by the persons who deal with them, because they have better
means of knowledge as to the status of the pretended corporation than
the persons who deal with them, and know that it is not a corporation,
and because they are not induced to act by any representation of the
persons dealing with them that it is a corporation, or by their treat-
ment of it as such.''' Nor are they in any way misled by the fact
that the contract is made in the corporate name.'*
has also been held that where members of an organization do not
It
actively induce a person dealing with them to believe that they are
incorporated, they are not estopped to deny their incorporation, and
may escape liability on their preliminary subscriptions to stock as
against him on the ground that the certificate of incorporation has
not been filed, since the person so dealing with them had the means
of ascertaining the truth of the matter by consulting the records,
which it was his duty to do for his own protection.'* And it has
been held that the filing of a claim for a mechanic's lien against a
company in which it is stated under oath that it is a corporation
will not estop the claimant from thereafter suing its members on the
same demand as partners, where the latter have not been induced
thereby to take any action from which they can suffer any injury by
proof of the truth.*"
United Slavonian Benev. Society, 117 not participate in the conduct of the
111. App. 253. business or the making of the debt
36 Harrill v. Davis, 168 Fed. 187, sued on, or who did not know of the
22 L. E. A. (N. S.) 1153, rev'g 7 In- failure to do anything necessary to
dian T. 152, 15 Ann. Gas. 1134, 104 S. perfect the incorporation. Magnolia
W. 573; Cottentin v. Meyer, 80 N. J. Shingle Co. v. J. Zimmem's Co., 3
L. 52, 76 Atl. 341. Ala. App. 578, 58 So. 90. See also
The benefit of an estoppel cannot be Harrill v. Davis, 168 Fed. 187, 22 L.
claimed by one who actively partiei- E. A. (-N. S.) 1153, rev'g 7 Indian T.
pates in contracting the debt sued on 152, 15 Ann. Cas. 1134, 104 S. W. 573.
in the name of the pretended corpora- 37 Harrill v. Davis,
168 Fed. 187,
tion, in which he claims to be merely 22 L. E. A. (N. S.) 1153, rev'g 7 In-
a stockholder, if he knew at the time dian T. 152, 15 Ann. Cas. 1134, 104
that the company had no real exist- S. W. 573.
ence as a corporation. Magnolia Shin- 38 Cottentin v. Meyer, 80 N. J. L.
gle Co. V. J. Zimmern 's Co., 3 Ala. 52, 76 Atl. 341.
App. 578, 58 So. 90. 39 Tonge v. Item Pub. Co., 244 Pa.
There is no individual liability, 417, 91 Atl. 229.
however, as to stockholders who did 40 Harrill v. Davis, 168 Fed. 187
666
Oh. 11] COBPOKATIONS BY ESTOPPBL [§ 325
On the other hand, it has been held that every person contracting
with the corporation is conclusively presumed to do so in view of
the statements in the recorded certificate of incorporation, and that
a promoter and stockholder who signs such a certificate containing
a statement that a certain per cent, of the stock has been paid in
is estopped to contend that there was no valid incorporation because
such payment had not in fact been made, in a suit against him by
a trustee in insolvency to recover assessments upon his stock. Under
such circumstances it is immaterial whether his acts and representa-
tions were ever in fact known to or relied on by the creditors repre-
sented by the trustee.*^
The principle of estoppel cannot be invoked in favor of a person
who is himself a member of the association and therefore must be
presumed to know that it is no corporation, in a case where the con-

tract in question does not purport to be made by a corporation or in
a corporate name.*^ And where partners agree to carry on the part-
nership business under a corporate name, and do not intend to form
a corporation but rather to stop short of doing so, they are not
estopped to deny incorporation as between themselves though some
of the statutory steps to incorporate have been taken.*^ Nor can one
of the promoters of a company, who is cognisant of all the facts, and
who knows that the necessary legal steps have not been taken, con-
tend that such company is estopped, as against him, to deny its cor-
porate existence by the use of a corporate name in its dealings with
him.** Similarly, the general attorney of a corporation cannot in-
voke the principle of estoppel for the purpose of holding it liable on
a contract made with him before payment of the franchise fee, since
it must be presumed that he knew that the fee had not been paid and
therefore that the contract was unlawful.*^

"Where suit is brought against a partnership as a corporation, and
the only service of process is made upon one of the members of the
firm as an officer of the alleged corporation, the partners are under
no obligation to inform the plaintiff of his mistake, and the fact
that they fail to do so will not estop them from enjoining a sale of
partnership property under the levy of an execution issued on a
22 L. E. A. (N. 8.) 1153, rev'g 7 In- 43 Card v. Moore, 68 N. Y. App.

dian T. 152, 15 Ann. Cas. 1134, 104 S. Div. 327, 74 N. Y. Supp. 18, aff'd 173
W. 573. N. Y. 598, 66 N. E. 1105.
41 Canfield v. Gregory, 66 Conn. 9, 44 Bash v. Culver Gold Min. Co., 7
33 Atl. 536. Wash. 122, 34 Pac. 462.
42 White V. Belief ontaine Lodge, I. 45 Wright v. St. Louis Sugar Co.,
O. O. F., 30 Mo. App. 682. 146 Mich. 555, 109 N. W. 1062.
667
default judgment in such action against the supposed corporation.

In such ease there is no duty on the part of the partners to speak and
no right on the part of their adversary to rely on their silence, and
hence the essential elements of an estoppel by silence are lacking.*®
The fact that a company which is sued as a corporation does not
plead nul tiel corporation, or otherwise disclose the fact that it is a
partnership, is not ground for permitting the plaintiff, after re-
covering judgment against it as a corporation, to enforce the same
against its members as partners, since the statute requires the cer-
tificate of incorporation to be recorded, and therefore he could have
discovered the truth by examining the records.*''
§ 326. Necessity for de facto corporate existence. The authorities

are in conflict as to whether there may be an estoppel to deny the
legal incorporation of an association which is not a corporation de
facto. Some courts hold that there may be an estoppel even under
such circumstances.*'
46 Baxter v. Jones, 185 Fed. 900. of proving that it is a corporation de

47 Pittsburg Sheet Mfg. Co. v. Beale, jure or de facto, "or else to show an
204 Pa. 85, 53 Atl. 540. estoppel which would operate to pre-
48 United States. In re Western clude the defendant from denying the
Bank & Trust Co., 163Fed. 713. plaintiff's corporate existence." In
Alabama. This appears to be the McDonnell v. Alabama Gold Life Ins.
rule in Alabama, though there are ex- Co., 85 Ala. 401, 5 So. 120, it was
pressions in some of the cases which held that stockholders were estopped
might lead to a contrary conclusion. to deny the constitutionality of the
Thus, in Christian & Craft Lumber Co. statute underwhich the corporation
V. Fruitdale Lumber Co., 121 Ala. 340, was organized and had carried on
25 So. 566, it is held that where there business as a de facto corporation for
is no bona fide purpose and effort to eighteen years, in an action by credi-
organize a real corporation, but the tors to enforce their personal liabil-
purpose is to put forward a mere ity. In City of Greenville v.
sham, the pretended existence of a Greenville Water Works Co., 125 Ala.
corporation is open to collateral at- 625, 27 So. 764 and First Nat. Bank
tack as a mere fraudulent device, and of Decatur v. Henry, 159 Ala. 367,
that "the pretended corporate entity 49 So. 97, the rule as to the estoppel
is to be taken as nonexistent except of one who has dealt with a corpora-
as to persons who have contracted tion is stated generally, and is not
with it as a corporation in such way limited in its application to de facto
as to estop themselves to show the corporations. In Owensboro Wagon
fraud." In Schloss & Kahn v. Mont- Co. V. Bliss, 132 Ala. 253, 90 Am. St
gomery Trade Co., 87 Ala. 411, 13 Am. Eep. 907, 31 So. 81; Harris v. Gate
St. Eep. 51, 6 So. 360, it is held that way Xiand Co., 128 Ala. 652, 29 So
the interposing of a plea of nul tiel 611; Bibb v. Hall, 101 Ala. 79, 14 So
corporation in an action by a corpora- 98; Cory v. Lee, 93 Ala. 468, 8 So. 6!
tion imposes upon it the necessity Snider 's Sons' Co. v. Troy, 91 Ala
668
Ch. 11] COEPOEATIONS BY EsTOPPEL [§326
On the other hand, in a number of jurisdictions it has been held,

or at least intimated or assumed, that the doctrine of estoppel can-
not be invoked unless the corporation has at least a de facto exist-
224, 11 L. E. A. 515, 24 Am. St. Eep. articles assumed the payment of

it
887, 8 So. 658, and Central Agr. & such and accepted dues
certificate
Mech. Ass'n v. Alabama Gold Life from the beneficiary. Sloan v. Loyal
Ins. Co., 70 Ala. 120, the rule is stated Fraternal Home Ass'n, 139 Mo. App.
to be that persons who contract with 443, 123 S. W. 57.
a de facto corporation are estopped to South Dakota. Building & Loan
deny the legality of its existence. But Ass'n of Dakota v. Chamberlain, 4
it is to be noted that in all of these S. D. 271, 56 N. W. 897, holds that a
cases a de facto corporation was member of a building and loan asso-
shown, and in none of them is it ciation cannot set up that the stat-
stated that there can be no estoppel ute under which it is organized is
unless there is a de facto corporation. unconstitutional as a defense to an
Moreover most, if not all of them, action on a note and to foreclose a
treat the rule of estoppel as being mortgage given by him for money
separate and distinct from that pro- borrowed from it. The court refers
hibiting a collateral attack upon the to the doctrine of estoppel but says
existence of a corporation de facto. that in so far as the question arises
See also, in this connection, Lehman, in that jurisdiction, it is settled by
Durr & Co. v. Warner, 61 Ala. 455. the statute providing that the due
Callfoniia. Fresno Canal & Irri- incorporation of any company claim-
gation Co. V. Warner, 72 Cal. 379, 14 ing in good faith to be a corporation
Pac. 37. and doing business as such shall not
Louisiana. Tulane Improvement Co. be inquired into collaterally in any
V. S. A. Chapman & Co., 129 La. 562, private suit to which such de facto
56 So. 509. And see Bond & Bras- corporation may be a party, thus ap-
well V. Scott Lumber Co., 128 La. 818, parently holding that such a corpo-
55 So. Weil v. Leopold Weil
468; ration is one de facto.
Building & Improvement Co., 126 La. * Vermont. Corey v. Morrill, 61 Vt.
938, 955, 53 So. 56. 598, 17 Atl. 840.
Minnesota. Gardner v. Minneapo- "One who deals with a corporation
lis & St. L. Ey. Co., 73 Minn. 517, 76 as existing in fact," said Mr. Justice
N. W. 282, aff'd 177 U. S. 332, 44 L. Gray, in the Supreme Court of the
Ed. 793; Minnesota Gas-Light Econo- United States, "is estopped to deny
mizer Co. v. Denslow, 46 Minn. 171, as against the corporation that it has
48 N. W. 771. been legally organized." Close v.
IMissouri. Eeinhard v. Virginia Glenwood Cemetery, 107 TJ. S. 466,
Lead Min. Co., 107 Mo. 616, 28 Am. 477, 27 L. Ed. 408. And see, to the
St. Eep. 441, 18 S. W. 17; Camp v. same effect, McGowau v. American
Byrne, 41 Mo. 525, 535. But see Dou- Pressed Tan Bark Co., 121 U. S. 575,
thitt v. Stinson, 63 Mo. 268. A fraternal 593, 30 L. Ed. 1027. Here there is
benefit not estopped
association is clearly no requirement that the cor-
to deny its on a benefit
liability poration shall have a de facto exist-
certificate issued by another society, ence as such. And certainly a de
previously dissolved, by reason of facto corporate existence is not nec-
the fact that before the secretary essary in order that a stockholder in
of state issued a certified copy of its a pretended corporation may be es-
669
§ 326j Pbivate Coepoeations [Ch. 11
ence.** And there are also numerous holdings to the effect that per-
sons contracting with an association as a corporation may hold its
topped to deny its existence in a suit This question must be answered in the
by a receiver or assignee in bank- afELrmative. " From this language it
ruptcy to enforce his statutory lia- perhaps might be inferred that they
bility. It was said by Mr. Justice were estopped though there was not
Swayne, in such a ease in the Su- even a corporation de facto, but the
preme Court of the United States: court goes on to hold that there was
"Where a shareholder of a corpora- a corporation de facto.
tion is called upon to respond to a Illinois. Imperial Bldg. Co. v. Chi-
liability as such, and where a party cago Open Board of Trade, 238 111.
has contracted with a corporation, and 100, 136 111. App. 606; American Loan
is sued upon the contract, neither is & Trust Co. V. Minnesota & N. W.
permitted to deny the existence or E. Co., 157 ni. 641, 42 N. E. 153;
the legal validity of such corporation. Bushnell v. Consolidated lee Maeh.
To hold otherwise would be contrary Co., 138 III. 67, 74, 27 N. E. 596; Win-
to the plainest principles of reason get V. Quincy Building & Homestead
and of good faith, and involve a Ass'n, 128 111. 67, 84, 21 N. E. 12,
mockery of justice. Parties must aff'g 29 111. App. 173; Wheelock v.
take the consequences of the position Kost, 77 111. 296; Illinois Grand Trunk
they assume. They are estopped to E. Co. V. Cook, 29 111. 237. In Pe-
deny the reality of the state of things true V. Wakem & McLaughlin, 99 111.
which they have made appear to ex- App. 463, was held that the plain-
it
ist,and upon which others have been tiff was not estopped to deny the cor-
led to rely. Sound ethics require that porate existence of a company under
the apparent, in its effects and conse- the name of which the defendant did
quences, should be as if it were real, business and to hold him individually
and the law properly so regards it." liable because he did business with
Casey v. Galli, 94 U. S. 673, 680, 24 him under that name, where nothing
L. Ed. 168. had been done towards incorporating
As to the necessity for a valid law except to take out a license to open
authorizing incorporation for the pur- books for stock subscriptions.
poses in question, see § 327, infra. Indiana. Snyder v. Studebaker,
United States.
49 In re Menden- 19 Ind. 462, 81 Am. Dec. 415; Gilles-
hall. Fed. Gas. No. 9,425; Griffin v. pie V. Ft. Wayne & S. E. Co., 17 Ind.
Clinton Line Extension E. Co., Fed. 243; Heaston v. Cincinnati & Ft. W.
Cas. No. 5,816. E. Co., 16 Ind. 275, 79 Am. Dec. 430;
Colorado. Jones v. Aspen Hard- Harriman v. Southam, 16 Ind. 190.
ware A. 143,
Co., 21 Colo. 263, 29 L. E. Maryland. National Shutter Bar
52 Am. St. Eep. 220, 40 Pae. 457. See
Co. V. G. F. S. Zimmerman & Co., 110
also Humphreys v. Mooney, 5 Colo.
Md. 313, 73 Atl. 19; Maryland Tube
282. In Bates v. Wilson, 14 Colo. 140,
& Iron Works v. West End Improve-
24 Pac. 99, the court in speaking of
ment Co., 87Md. 207, 39 L. E. A. 810,
persons who participated in the or-
39 Atl. 620.
ganization of a corporation, acted as
Michigan. Baton v. Walker, 76
its officers, ar.d made conveyances to
Mich. 579, 6 L. E. A. 102, 43 N. W.
it, said: "Are they not estopped from
denying the existence of the body 638; Merchants' & Manufacturers'

corporate as a corporation de facto? Bank v. Stone, 38 Mich. 779; Swart-
670
Ch. 11] COEPOBATIONS BY EsTOPPEL [§327
members individually liable where it is not even a corporation de

facto.50
§ 327. Necessity for lawful authority. Some courts have held, on

the theory that the doctrine of estoppel is limited to de facto cor-
porations, that there no estoppel to deny the existence of a pre-
is
tended corporation, where there is no law under which it might exist,
or, what amounts to the same thing, if the statute under which it
claims to exist is unconstitutional.*^
wout V. Michigan Air Line R. Co., 24 Texas. See Empire Mills v. Alston
Mich. 389. Grocery Co., 4 Willson Civ. Cas. Ct.
Ifebraska. Abbott v. Omaha Smelt- App. §221, 12 L. B. A. 366, 15 S.
ing &
Refining Co., 4 Neb. 416. W. 200.
New Jersey. "A
person who en- 60 This has been held to be true
ters into a written contract which by some of the courts which have
purports to be made with a corpora- held that a person dealing with an as-
tion is not thereby estopped in a case sociation as a corporation may be
where there is no colorable organiza- estopped to deny its legal existence
tion of a de facto corporation, from even though it is not a corporation
showing that the corporate name was de facto. See § 327, infra.
a name under which the individuals 61United States, In re Menden-
with whom he dealt, were acting." hall, Fed. Cas. No. 9,425.
Cottentin v. Meyer, 80 N. J. L. 52, 76 California. In Brandenstein v.
Atl. 341. See also Stout v. Zulick, 48 Hoke, 101 Cal. 131, 35 Pac. 562, it
]Sr. J. L. 599, 7 Atl. 362. was held that the board of reclama-
New York. See Whitford v. Laid- tion fund commissioners of a levee
ler, 94 N. Y. 145, 151, 46 Am. Eep. district were not estopped to set up,
131, rev'g 25 Hun 136. as a defense to mandamus proceed-
Ohio. In Shawnee Commercial & ings to compel them to levy a tax to
Savings Bank Co. v. Miller, 24 Ohio pay the bonds of such district, that
Cir. Ct. 198, 1 Ohio Cir. Ct. (N. S.) such bonds were void because such
569, it is said by way of dictum that: district was organized under an un-
"Estoppel as to corporate existence constitutional statute, though they
seems to be that the corporation is had retained the benefit derived from
obliged to prove only a de facto ex- the proceeds of their sale and had
istence, and need not prove the paid interest upon them for several
details of incorporation," citing years.
LeonardsvUle Bank v. Willard, 25 N. Colorado. Humphreys v. Mooney,
Y. 574. 5 Colo. 282. See also Jones v. Aspen
Oregon. See Jones v. Hale, 32 Ore. Hardware Co., 21 Colo. 263, 29 L. E.
465, 52 Pac. 311. A. 143, 52 Am. St. Eep. 220, 40 Pac.
Tennessee. In Euohs v. Athens, 91 457. But see Cowell v. Colorado
Tenn. Am. St. Hep. 858, 18 S.
20, 20 Springs Co., 3 Colo. 82, aff'd 100 U.
W. 400, it was held that bonds is- S. 55, 25 L. Ed. 547.
sued by a municipality which was not Illinois. In Imperial Bldg. Co. v.
even a corporation de facto were void Chicago Open Board of Trade, 238 111.
in the hands of bona fide holders. 100, 87 N. E. 167, 136 111. App. 606,
671
It has been said that this rule "is based on the principle that the
law will not recognize nor lend its aid to the organization as a de
facto corporation where the law does not authorize or where it for-
bids such corporation," and that it is "analogous to ultra vires acts
it was held that a lessee of a corpo- stitutional. And in Dows

v. Naper, 91
ration, against whom a judgment for 111. 44, and McCarthy Lavasche, 89
v.
rent had been entered by confession 111. 270, 31 Am. Eep. 83, it was held
on a warrant of attorney in the lease, that even though the provisions of a

was not estopped to defend against charter are unconstitutional, if a
it on the ground that the corporation stockholder has acted under it, and
was organized for the purpose of ac- thereby induced or contributed to the
quiring and holding real estate, and loss of a creditor, he is estopped to
that the organization of corporations deny his liability under its provisions.
for that purpose was forbidden by These cases are not referred to in Im-
statute. The court does not draw any perial Bldg. Co. v. Chicago Open Board
distinction between corporations or- of Trade, supra, though they are ap-
ganized for a forbidden purpose and parently in conflict with it. The
cases where there is no law authoriz- court does, however, distinguish Pat-
ing the corporation, and lays down terson V. Northern Trust Co., 230 111.
the broad rule that there is no estop- 334, 82 N. B. 837, aff'g 132 111. App.
pel where there is no law authorizing 208, on the ground that the estoppel
the incorporation. There was no ques- in that case was predicated on the
tion ofthe constitutionality of the complainant's previous attitude in the
statute involved, but the court quotes litigation, and that he would not be
approvingly from Heaston v. Cincin- permitted to assume an attitude incon-
nati & Tt. W.
E. Co., 16 Ind. 275, 79 sistent with that previously assumed
Am. Dec. 430, which holds that there therein. In Lincoln Park Chapter
is no estoppel where the corporation No. 177, R. A. M. v. Swatek, 204 111.
is organized under an unconstitutional 228, 68 N. E. 429, aff'g 105 111. App.
statute.And in Hossack v. Ottawa 604, it was held that a stockholder
Development Ass'n, 244 111. 274, 91 who had participated in a dividend
N. E. 439, the court says that the Im- could not thereafter maintain a bill
perial Bldg. Co. case, supra, and the to have the association declared a
authorities therein reviewed, hold partnership and to have the same dis-
that "if there is no law authorizing solved, on the ground that the statute
such organization there is no corpo- did not permit incorporation for the
ration de facto and no estoppel to purposes set forth in its charter. In
deny the corporate existence." But this case, however, the purpose of the
in Winget v. Quincy Building & Home- corporation, as stated in its articles,
stead Ass'n, 128 111. 67, 21 N. E. 12, was not unlawful, but it was con-
afe'g 29 111. App. 173, it was held tended that its real purpose was to
that a member of a building associ- deal in real estate. See also "Walker
ation, in a suit to enjoin a sale under 96 N. E. 1055;
V. Taylor, 252 111. 424,
a trust deed given by him to secure Eoby V. Title Guarantee & Trust Co.,
notes for money loaned to him by 166 HI. 336, 46 N. E. 1110.
the association, was estopped to con- Indiana. Snyder v. Studsbaker, 19
tend that the statute under which the Ind. 462, 81 Am. Dec. 415, overruling
aasociation was organized was uncon- Evansville, I. & Q, Straight Line E.
672
Ch. 11] COBPOBATIONS BY EsTOPPEL [§327
and contracts of the corporation wholly beyond and outside the

general scope of its corporate powers and entirely foreign to the
objects and purposes of its creation," and which "are held void as
against public policy and incapable of being validated and enforced
Co. V. Evansville, 15 Ind. 395; Gilles- under such a statute could not recover
pie V. Ft. Wayne & S. E. Co., 17 Ind. on a note executed to it. But see
243; Heaston v. Cincinnati & Ft. W. Niles V. Benton Harbor-St. Joe Eail-
E. Co., 16 Ind. 275, 79 Am.
Dec. 430; way & Light Co. 154 Mich. 378, 117
Harriman v. Southam, 16 Ind. 190; N. W. 937, holding that a consolidated
Indiana Bond Co. v. Ogle, 22 Ind. App. corporation cannot assert that there
593, 72 Am. St. Eep. 326, 54 N. E. was no law authorizing the consoli-
407. See also Jennings v. Dark, 175 dation in an action against it to en-
Ind. 332, 33 L. E. A. (N. S.) 123, 92 force a liability of one of the
N. E. 778; Williams v. Franklin Town- consolidating companies. Nor will a
ship Academical Ass'u, 26 Ind. 310; consolidated corporation be permitted
Jones V. Cincinnati Type Foundry Co., to assert that the consolidation was
14 Ind. 89; Farmers' Ins. Co. v. Bor- illegaland void because not author-
ders, 26 Ind. App. 491, 60 N. E. 174. ized by the laws under which the con-
Kentucky. See Bryan v. Board of solidating companies were organized
Education of Kentucky Annual Con- for the jpurpose of avoiding a liability
ference, 90 Ky. 322, 16 S. W. 276. of one of the latter companies. Shad-
Michigan. This rule is apparently ford V. Detroit, Y. & A. A. E. Co., 130
adopted by the court in Eaton v. Mich. 300, 89 K. W. 960. And in
Walker, 76 Mich. 579, 6 L. E. A. 102, Wyandotte Elec. Light Co. v. Wyan-
43 N. W. 638, where the court quotes dotte, 124 Mich. 43, 82 N. W. 821, it
from Heaston v. Cincinnati & Ft. was held that a city granting a fran-
W. E. Co., 16 Ind. 275, 79 Am. Dec. chise to a corporation is estopped to
430, and says that the same rule was deny its legality on the ground that
laid down by implication in Swart- itwas organized under a general stat-
wout Michigan Air Line E. Co., 24
V. ute instead of under a statute speci-
Mich. 389. In Burton v. Schildbach, ficallyproviding for the incorporation
45 Mich. 504, 8 N. W. 497, it was held of companies of the kind in question.
that a corporation organized under Missouri. As to the trend of the
an unconstitutional statute could not decisions in this state see note 55,
enforce a mortgage given to it. And infra, this section.
in Skinner v. Wilhelm, 63 Mich. 568, Ohio. The question does not ap-
30 N. W. 311, that the receiver of a pear to have been squarely decided in
mutual insurance company incorpo- this state. In Gaff v. Flesher, 33 Ohio
rated under an unconstitutional stat- St. 107, 453, the court held that if it
ute could not recover on a premium were admitted that there could be
note. In Hurlbut v. Britain & Whee- no estoppel under such circumstances,
ler, 2 Doug. 191, it was held that the there was a valid law under which
assignee of a mortgage executed by a the corporation in question could have
bank, which was organized under an been formed. Eaccoon Eiver Nav.
unconstitutional statute, could not Co. V. Eagle, 29 Ohio St. 328, was
maintain an action to foreclose it; an action to recover upon a stock
and in Green v. Graves, 1 Doug. 351, subscription. The plaintiff claimed to
that the receiver of a bank organized be incorporated under an act to au-
673
I Priv. Corp.— 43
§327] Pkivate Cobpoeations [Ch. 11
by having acted under them. ^^ And another reason sometimes

'
'
given for so holding is that "the estoppel arises upon matter of fact
' '
only, and not upon matter of law, ^^ or, in other words, ' goes to '
the mere de facto organization, not to the question of legal authority

to make an organization.
'
'
^*
This view, however, cannot be sustained on principle, and is con-

trary to the weight of authority. The doctrine of estoppel to deny
incorporation does not depend at all on the right to be a corporation,
nor on the existence of a corporation de facto, and there'fore persons
who hold themselves out as a corporation, or who deal with a pre-
tended corporation, may be estopped to deny incorporation, whether
there is any valid law authorizing such a corporation or not.^* For
thorize incorporation for the purpose 81 Am. Dec. 415, quoted with ap-
of improving any stream which had proval and followed in Imperial Bldg.
been declared navigable by any law Co. V. Chicago Open Board of Trade,
of the state. There was no law de- 238 111. 100, 87 N. B. 167, 136 111. App.
claring the particular river which the 606.
plaintiff was incorporated to improve B4Heaston v. Cincinnati & Ft. W.
to be navigable, and it was held that E. Co., 16 Ind. 275, 79 Am. Dec. 430,
the defendant was not estopped to quoted with approval in Eaton v.
deny the legality of its incorporation Walker, 76 Mich. 579, 6 L. E. A. 102,
on this ground. The holding in this 43 N. W. 638. See also Humphreys v.
case isexplained in Society Perun v. Mooney, 5 Colo. 282; Jones v. Cincin-
Cleveland, 43 Ohio St. 481, 3 N. E. nati Type Foundry
Co., 14 Ind. 89.
357, and in Gaff v. Flesher, 33 Ohio St. 6B United States.
See In re West-
107. In Mansfield, C. & L. M. E. Co. ern Bank & Trust Co., 163 Fed. 713.
v. Stout, 26 Ohio St. 241, it is held Alabama. National Commercial
that a subscriber to the stock of a Bank v. McDonnell, 92 Ala. 387, 9 So.
railway company, who had no knowl- 149; McDonnell v. Alabama Gold Life
edge of the progress of proceedings Ins. Co., 85 Ala. 401, 5 So. 120.
for its consolidation with another com- G-eorgia. Brown v. Atlanta Railway
pany, and who had not recognized the & Power 113 Ga. 462, 39 S. E. 71.
Co.,
legal existence of the consolidated See Georgia Southern & F. E. Co. v.
company, might deny such existence, Mercantile Trust & Deposit Co., 94
in an action brought by it to recover Ga. 306, 32 L. R. A. 208, 47 Am. St.
on his subscription, on the ground Eep. 153, 21 S. E. 701.
that the consolidation was unauthor- Louisiana. This rule applies in ac-
ized because the road of the consoli- tions by the corporation against its
dating company was not made or in stockholders. American Homestead
process of construction. But of Co. V. Linigan, 46 La. Ann. 1118, 15
course, under such circumstances, the So. 369; East Pascagoula Hotel Co. v.
essential elements of an estoppel were West, 13 La. Ann. 545. But in Work-
wanting. ingmen's Accommodation Bank v.
52 Imperial Bldg. Co. v. Chicago Converse, 29 La. Ann. 369, it is held
Open Board of Trade, 238 111. 100, 87 that there is no estoppel in actions
N. E. 167, 136 111. App. 606. against third persons, as in an action
53 Suydjer v. Studebaker, 19 Ind. 462, by the corporation on a bond given by
674
Ch. 11] COBPOEATIONS BY EsTOPPEL [§327
example, a stockholder in a pretended corporatipn is estopped to set

up the unconstitutionality of the statute under which corporate exist-
ence has been claimed, for the purpose of escaping constitutional or
one of its employees for the faithful exchange, but the right of the defend-
performance of his duties. This hold- ant to raise the question was not dis-
ing is followed in Workingmen 's cussed and apparently was not raised.
Bank v. Converse, 33 La. Ann. 963, See Eeinhard v. Virginia Lead Min,
and Hincks v. Converse, 37 La. Ann. Co., 107 Mo. 616, 28 Am. St. Rep. 441,
484, but is criticised in American 18 S. W. 17, where it is said by way
Homestead Co. v. Linigan, supra. of dictum that "estoppel applies to
Maine. See McClinch v. Sturgis, the regularity of the organization of
72 Me. 288. the corporation, and can only apply
Minnesota. Gardner v. Minneapo- when there is authority of law to or-
lis & St. L. Ey. Co., 73 Minn. 517, 76 ganize." In Eialto Co. v. Miner, 183
N. W. 282, afl'd 177 U. S. 332, 44 L. Mo. App. 119, 166 S. W. 629, it was
Ed. 793. said that it hardly lay in the mouth
IMississippi. See dictum in Parga- of one who had taken a lease from
son V. Oxford Mercantile Co., 78 Miss. a foreign corporation to challenge its
65, 27 So. 877, to the effect that ' even
'
corporate existence on the ground that
if a concern should be carried on ap- it was organized for an unlawful pur-
parently as a corporation, without pose.

any charter at all, it cannot be that A corporation which has accepted
its creditors would be powerless to an recognizing
act its existence
collect from it, or that it could not cannot thereafter question its validity.
pay its debts." St. Louis E. Co.
v. Northwestern St.
Missouri. St. Louis v. Shields, 62 L. Ey. Co., 2 Mo. App. 69, rev'd on
Mo. 247. In Atchison v. Crawford other grounds 69 Mo. 65.
County Farmers' Mut. Pire Ins. Co., Oklahoma. In Lynch v. Perry-
192 Mo. App. 362, 180 S. "W. 438, it man, 29 Okla. 615, Ann. Cas. 1913 A
was held that a mutual fire insurance 1065, 119 Pac. 229, it is held that the
company was not estopped to deny doctrine of estoppel will apply under
its corporate existence in an action on such circumstances where there are
a policy issued by it, where at the no facts which will render it unjust
time of its organization there was to follow the general rule, and the
no law authorizing its incorporation, court distinguishes LafiFerty v. Evans,
and there was no showing that after infra, on this ground. So one who
the passage of such a law it ever conveys property to a corporation, and
attempted to incorporate or held itself those claiming under him, are estopped
out to be a corporation. In Douthitt to deny its corporate existence on this
V. Stinson, 63 Mo. 268, it was held that ground. Lynch v. Ferryman, 29 Okla.
a deed to a pretended corporation was 615, Ann. Cas. 1913 A 1065, 119 Pac.
a nullity and could not give rise to 229; Myatt v. Ponca City Land &; Im-
an estoppel, where there was no spe- provement Co., 14 Okla. 189, 68 L. E.
cial charter or general law authorizing A. 810, 78 Pac. 185. For example, one
the incorporation. In Farmers Bank who sells property to a corporation
v. Garten, 34 Mo. 119, the question and takes a lease from it is estopped
of the constitutionality of the act from defending against an action for
chartering a bank was considered in rent on the ground that there was no
aii action brought by it on a bill of law under which a corporation for its
675
-
statutory liability for nor will he be permitted to set up

its debts,^®
that the law under which the corporation was attempted to be organ-
ized did not authorize incorporation for the contemplated purposes,
in order to escape liability on his subscription.^''' And a creditor who
has dealt with a corporation is estopped to contend that its stock-
holders are liable as partners because of the unconstitutionality of a
statuteunder which it amended its articles so as to change its name
and place of business.^' And one who gives a mortgage to a cor-
poration will not be permitted to defend an action to foreclose it on
the ground that the statute under which it was incorporated is un-
constitutional.^*
declared purpose could be organized. Pennsylvania. Weinman v. Wilkins-

Lynch v. Ferryman 29 Okla. Ann.
615, burg & E. L. P. By. Co., 118 Pa. St.
Gas. 1913 A 1065, 119 Pac. 229. But 192, 12 Atl. 288; Freeland v. Pennsyl-
in an action for damages brought by vania Cent. Ins. Co., 94 Pa. St. 504.
the plaintiff as a domestic corpora- South Dakota. Beach v. Co-opera-
tion against a telegraph company for tive Savings & Loan Ass'n, 10 S. D.
failure to correctly transmit a mes- 549, 74 N. W. 889; Building & Loan
sage and for delay in delivering a Ass'n of Dakota v. Chamberlain, 4
message, tBe defendant is not estopped S. D. 271, 56 N. W. 897.
to deny the corporate existence of the Wisconsin. Black Eiver Improve-
plaintiff on the ground that there was ment Co. V. Holway, 85 Wis. 344, 55
no law authorizing its incorporation N. W. 418.
for the purposes for which it was England. In Cromford & H. P. B.
organized. Western Union Tel. Co. v. Co. V. Lacey, 3 Y. & J. 79, it was held
Mexican Agr. Land Co., 31 Okla. 528, that a subscriber who, wjth knowledge
Ann. Cas. 1914 C 1244, 122 Pac. 505. of misrecitals in the act incorporat-
And where a foreign corporation ating the company, had acted as a pro-
tempts to acquire the title to prop- prietor and had paid previous calls,
erty vested in an individual, the latter could not defend an action for calls
may deny its corporate capacity on on the ground that the act was in-
the ground that it was organized for valid because of such recitals.
an unauthorized purpose. Myatt v. 56 National Commercial Bank v. Mc-
Ponca City Land & Improvement Co., Donnell, 92 Ala. 387, 9 So. 149; Mc-
14 Okla. 189, 68 L. B. A. 810, 78 Pac. Donnell V. Alabama Gold Life Ins.
185. And where a corporation is or- Co., 85 Ala. 401, 5 So. 120; Gardner
ganized in one state for the sole Minneapolis & St. L. By. Co., 73
V.
purpose of buying and selling land in Minn. 517, 79 N. W. 282, aff'd 177
another, for which purpose it could U. S. 332, 44 L. Ed. 793.
not have been organized in the latter, 67 American Homestead Co. v. Lini-
a conveyance by it in the latter state gan, 46 La. Ann. 1118, 15 So. 369.
isvoid, and the grantee may defend 58 Eichards v. Minnesota Sav. Bank,
an action on a note and mortgage 75 Minn. 196, 77 N. W. 822.
given for the purchase price on the 69 Crete Building & Loan Ass'n v.
ground of want of consideration. Laf Patz, 1 Neb. (Unof.) 768, 95 N. W.
ferty v. Evans, 17 Okla. 247, 21 L. E. 793.
A. (N. 8.) 363, 87 Pac. 304.
676
Ch. 11] COBPOBATIONS BY EsTOPPEL [§ 328
It has also been held that one may be estopped to deny the exist-
ence of a corporation, though its existence has been claimed under a
territorial act which is void because it has not been approved by
congress,^" or because it is in violation of an act of congress.^^ And
it has also been held that one who has been a stockholder and director
of a corporation and who sold his stock after the extension of its
corporate charter took effect is estopped to deny its existence on the
ground that the statute making such extension was unconstitutional,
in an action against him by the corporation for services rendered.^*
A creditor of a consolidated corporation is estopped to deny the
legality of its organization on the ground that the law did not permit
the consolidation of domestic and foreign corporations, for the pur-
pose of defeating bonds of the consolidated corporation.®*
§328. Corporations prohibited by statute or public policy. Ac-

cording to the weight of authority, the doctrine in relation to estoppel
to deny corporate existence does not apply where" a pretended cor-
poration is expressly prohibited by statute, or where it is contrary to
public policy.®* For example, a stockholder in a pretended cor-
poration not estopped to set up the fact that its existence is in
is
violation of an express constitutional prohibition, in order^ to avoid
liability on his subscription.®^ And where it is attempted to organize
and do business as a banking corporation in violation of an express
statutory prohibition, an employee of the pretended corporation and
the sureties on his bond are not estopped in an action by the pretended
corporation on the bond.®® Nor is one who leases propertyfrom a
corporation estopped to deny its legal existence on the ground that
it was organized for the purpose of acquiring real estate and hold-
ing it for investment, in violation of the statute and public policy of
the state prohibiting corporations from holding and acquiring real
60 Smith V. Sheeley, 12 Wall. (U. S.) Ass'n, 244 111. 274; Imperial Bldg. Go.
358, 20 L. Ed. 430. v. Chicago Open Board of Trade, 238

61 Cowell V. Colorado Springs Co., 111. 100, 136 111. App. 606; Working-
3 Colo. 82, aff'd 100 U. S. 55, 25 L. Ed. men's Accommodation Bank v. Con-
547; Platte Valley Bank v. Harding, verse, 29 La. Ann. 369; St. Louis
1 Neb. 461. Colonization Ass'n v. Hennessy, 11
62 Black Eiver Improvement Co. v. Mo. App. 555.
Holway, 85 Wis. 344, 55 N. W. 418. 65 St. Louis Colonization Ass 'n v.
63 Louisville Trust Co. v. Louisville, Hennessy, 11 Mo. App. 555. See also
N. A. & C. Ey. Co., 84 Ted. 539, rev'd § 350, infra.
on other grounds 174 U. S. 674, 43 66 Workingmen 's Accommodation
L. Ed. 1130. Bank v. Converse, 29 La. Ann. 369.
64Hossack v. Ottawa Development
677
§ 328] Pkivate Cokpobations [Ch. 11
estate as an investment." And it has also been held that where an

association is incorporated in one state for the sole purpose of carry-
ing on business in another state, whose laws prohibit the organization
of such corporations, a person dealing with it as a corporation in the
latter state is not thereby estopped to deny its corporate existence.*'
On the other hand, the Supreme Court of the United States has
held that one who has dealt with and purchased goods from a cor-
poration as an existing concern having capacity to sell, cannot assert
in an action by the corporation to recover the purchase price of the'
goods that it had no legal existence because it was an unlawful com-

bination in violation of the antitrust act.®' It has also been held that
one who has dealt with an investment company as a corporation, with
full knowledge of its affairs and of the business it intended to do,
cannot deny its corporate existence, on the ground that was organ-
it
ized for the purpose of issuing contracts which were illegal and con-
trary to public policy, for the purpose of holding its members liable
as partners on a valid contract made by him with it.'"'
There are also holdings to the effect that one who sells real prop-
erty to a concern acting as and denominated in the deed as a cor-
poration cannot, when sued for rent, set up that the corporation was
a nullity because organized in another state for the sole purpose of
transacting business in the state of the forum.'^ Nor can a stoek-
67 Hossack V. Ottawa Development Cas. Ct. App. (Tex.) § 221, 12 L. E.

Ass'n, 244 111. 274; Imperial Bldg. Co. A. 366, 15 S. W. 200.
V. Chicago Open Board of Trade, 238 Where a corporation is organized in
111. 100, 136 111. App. 606. In Walker one state for the sole purpose of buy-
V. Taylor, 252 111. 424, 96 N. E. 1055, ing and selling land in another state,
it is held that the fact that one has for which purpose it could not be
conveyed land to a corporation will organized under the laws of the lat-
not estop him from asserting that it ter, a conveyance by it in the latter
was organized for an unlawful pur- state is void, and the grantee, when
pose, and therefore that such convey- sued on a note and mortgage given
ance was ineffective, in a suit brought by him for the purchase price, may
by him as a stockholder after the defend on the ground of want of eon-
dissolution of the corporation for par- sideration. Lafferty v. Evans, 17
tition of the unsold land of the corpo- Okla. 247, 21 L. E. A. (N. S.) 363, 87
ration among the stockholders, where Pae. 304.
he seeks no advantage that would 69 D. E. Wilder Mfg. Co. v. Corn
not have accrued to him had the bill Products Eefining Co., 236 U. S. 165,
been filed by any other stockholder. 59 L. Ed. 520, Ann. Cas. 1916 A 118,
68 A creditor dealing with a mor- aff'g 11 Ga. App. 588, 75 S. E. 918.
cantile corporation is not estopped un- 10 Ivy Press v. McKechnie, 88 Wash.
der such circumstances. Empire Mills 643, 153 Pae. 1067.

V. Alston Grocery Co., 4 Willson Civ. 71 Especially where, in the lease, he
678
:h. 11] COEPORATIONS BY ESTOPPEL [§330
holder set up, as a defense to an action by the corporation on notes

given by him for the purchase price of stock, that the corporation
was organized to carry on business solely and exclusively in another
state, and that the legislature could not authorize its incorporation for
that purpose.'^
§ 329. Organization outside of the state. The doctrine in relation to

estoppel operates to prevent a person who has contracted or dealt
with a corporation,'* or a corporation which has contracted as such,'*
from denying the legality of its incorporation on the ground that it
was organized in a state other than that under the laws of which its
corporate existence is claimed.
§330. Effect of dissolution of oorporation Dissolution before —

acts constituting estoppel. A corporation sued on a contract made
by it will not be heard to say that its charter had expired by limita-
tion when the contract was made.'^ And the same rule has been ap-
agrees that he will never claim or was organized and its charter ac-
contest the rights of the lessor in the cepted in a state other than that by
property. Lynch v. Ferryman, 29 which it was created.
Okla. 615, Ann. Cas. 1913 A 1065, 119 74 It cannot escape liability on its
Pac. 229. contracts on the ground that its first
72 East Pascagoula Hotel Co. v. meeting for the purpose of organizing
West, 13 La. Ann. 545. and electing officers and all subse-
73 Camp V. Byrne, 41 Mo. 525; Ohio quent meetings were held outside of
& M. R. Co. V. McPherson, 3:: Mo. 13, the state. Heath v. Silverthorn Lead
86 Am. Dee. 128; Tuckasegee Min. Co. Mining & Smelting Co., 39 "Wis. 146.
V. Goodhue, 118 N". C. 981, 24 S. E. 75 Brady v. Delaware Mut. Life Ins.
797. Co., 2 Pennew. (Del.) 237, 45 Atl. 345;
One who has given a note to the Chadwiek v. Dicke Tool Co., 186 111.
corporation for the amount of his App. 376. See Merges v. Altenbrand,
stock subscription cannot set up this 45 Mont. 355, 123 Pac. 21.
defense when sued thereon by a bona Even if the act of those who were
fide holder. Camp v. Byrne, 41 Mo. directors of a corporation at the time
525. So he cannot question the cor- of the expiration of its charter in
porate existence on the ground that thereafter deferidiug an action pend-
the first organization meeting was ing against it would estop them from
held in a state other than that issu- questioning its validity in a credi-
ing the charter. Hasbrouek v. Rich, tor's suit to enforce the judgment
113 Mo. App. 389, 88 S. "W. 131. recovered in such action, the estoppel
In Smith v. Silver Valley Min. Co., will not extend to a former director
64 Md. 85, 54 Am. Eep. 760, 20 Atl. who had sold his stock and severed
1032, a bill by a stockholder against his connection with the corporation
a foreign corporation to annul a for- long before its dissolution. Sturges
feiture of its franchise was dismissed V. Vanderbilt, 73 N. T. 384.
on the ground that the corporation

679
plied in suits by stockholders to set aside corporate eontracts,'* or to

recover damages for a sale of corporate property in fraud of the cor-
Nor can the corporation or those claiming under it assert
poration.''''
that the corporation was dormant because having only two trustees
when the contract in question was made.''*
A similar rule applies against persons who have contracted with
the pretended corporation as such, and they are estopped to show
that its charter had expired,'" or had been declared forfeited by the
secretary of state,*" before the contract was made, or that proceedings
for the dissolution of the corporation were pending at the time when
the contract was entered where no decree of dissolution had
into,
been entered.*^ Nor can creditors, and a receiver who represenis
them, insist that the corporation did not have a de facto existence
at the time when their claims arose and an alleged prior mortgage
was executed, because there were but two persons legally qualified
to act as trustees, while the statute required three trustees.*^
But there is authority to the effect that while one dealing with
the corporation after the expiration of its charter may be estopped
to deny his responsibility for property which he has received from it.
As where the holders of stock

76 creditor of the grantor, who subse-
issued by a railroad company to pay quently recovered judgment against
for the line of another company pur- him, on the ground that the deed
chased by it sought to have the sale and the note secured by it were in-
set aside on the ground that the char- operative and void for want of a
ter of the latter company had expired cestui que trust and a payee respec-
before it executed the final deed to tively.
said line. Branch v. Jesup, 106 TJ. S. They will not be permitted to show
468, 27 L. Ed. 279. that proceedings for the extension of
77 Hoag V. Edwards, 69 N. T. Mise. the corporate existence were taken
237, 124 N. T. Supp. 1035. under a statute which did not apply
N. T. 131, aff'g
78 Castle V. Lewis, 78 to corporations of the character of
13 Hun (N. Y.) 298. the one in question, and hence were
79 West Missouri Land Co. v. Kan- void. Campbell v. Perth Amboy Ship-
sas City Suburban Belt R. Co., 161 building & Engineering Co., 70 N.
Mo. 595, 61 S. W. 84/; St. Louis Gas J. Eq. 40, 62 Atl. 319, afe'd 71 N. J.
Light Co. V. City of St. Louis, 11 Mo. Eq. 302, 71 Atl. 1133.
App. 55, affi'd 84 Mo. 202. See also 80 Gilmer Creamery Ass 'n v. Quen-
Bradley v. Eeppell, 133 Mo. 545, 54 tin, 111. App. 448.

142
Am. St. Rep. 685, 34 S. W. 841, 32 Saunders v. Bank of Mecklen-
81
S. W. 645; Citizens Bank of Clinton burg, 112 Va. 443, Ann. Cas. 1913 B
V. Jones, 117 "Wis. 446, 94 N. W. 329. 982, 71 S. E. 714.
In White Campbell, 24 Tenn. (5
v. 82 Welch v. Importers' & Traders'
Humph.) 38, a deed of trust executed Nat. Bank, 122 N. Y. 177, 25 N. E.

to a corporation whose charter had 269.
expired was set aside at the suit of a
680
Ch. 11] COKPOBATIONS BY EsTOPPEL [§ 331
he is not estopped to deny that the company is a corporation and to
claim that for that reason it has no capacity to sue him for the pro-
ceeds of such property.8^ And that the defendant in ejectment may
object to the deed of a corporation offered by the plaintiff as a link
in his chain of on the ground that the corporate existence had
title,
expired by limitation before such deed was executed.** And it has

also been held that if, after the expiration of the charter, the members
continue business under the same name pursuant to an aêement
which makes them liable as partners to third persons, one contracting
with them in such name may hold them individually liable though he
did not know of the dissolution and supposed that he was dealing
with the corporation.*^
Though the capital stock of a corporation has passed entirely into
the hands of a single person, and for that reason it is in abeyance
and its functions for the time being have cea.sed, persons who make
use of it for their own purposes are estopped to deny its corporate
capacity, though they act in good faith.'^ This rule does not apply,
however, in controversies growing out of dealings of the ostensible
with the sole owner of the stock, though he deals in the name
officers
of the corporation, but, under such circumstances, the corporate
entity will be ignored, and the contract liabilities of the company
to them will be treated as those of the owner of the. stock.*''
§ 331. —
Dissolution after acts constituting estoppel. corpora- A
tion when sued on a contract made by it ** or its stockholders, when
they are sought to be held individually liable for its debts, *^ may show
the cessation of its corporate functions, either by expiration of its
charter, or by judgment of dissolution, after the making of the eon-
tract, and before the commencement of the action thereon. Nor will
83 Krutz V. Paola Town Co., 20 Kan. its existing debts, sues such directors
397. on their contract of guaranty. Barnes
84 Marysville Inv. Co. v. Munson, v. Smith, 48 Mont. 309, 137 Pae. 541.
44 Kan. 491, 24 Pac. 977. 88 Dobson v. Simonton, 86 N. C.
85 National Union Bank v. Landon, 492. See also Greeley v. Smith, 3
45 N. Y. 410. Story 657, Fed. Gas. No. 5,748;
86 Barnes v. Smith, 48 Mont. 309, "West v. Carolina Life Ins. Co., 31
137 Pae. 541. Ark. 476; Grossman v. Vivienda Water
87 As, for example,where the owner Co., 150 Gal. 575, 89 Pac. 335.
of the stock inducestwo of the direc- 89 They may show that the corpora-
tors of the company to indorse its tion was voluntarily dissolved after
note as guarantors, and, after he has the indebtedness was incurred and be-
sold the stock and has paid the note fore the commencement of the ac-
under an agreement with the vendee tion. Grossman v. Vivienda Water
to save the corporation harmless from Co., 150 Gal. 575, 89 Pac. 335.
681
§331] Peivate Cokpokations [Ch. 11
the fact that the sole owners of the stock of a corporation, whose
charter expires pending an action against it, continue to defend
the action make the dead corporation a corporation by estoppel so
as to authorize the plaintiff to proceed to judgment against it.'"
Similarly, a person who is sued on a contract made by him with a

pretended corporation is not estopped to show that such corporation
has ceased to exist since the contract was entered into,'^ and hence
may show that its charter has since expired,*^ or may set up a judg-
SOVenable Bros. v. Southern Gran- showing how the corporate powers
ite Co., 135 Ga. 508, 32 L. E. A. (N. came to a termination. Eansom v.
S.) 446, 69 S. E. 822.
Priam Lodge No. 145, F. & A. Masons,
51 Ind. 60; Sutherland v. Lagro & M.
91 Clark V. American Cannel Coal
Plank Eoad Co., 19 Ind. 192; Hubbard
Co., 165 Ind. 213, 112 Am. St. Rep.
V. Chappel, 14 Ind. 601; Ft. Wayne
217, 73 N. E. 1083; afC'g 35 Ind. App.
& B. Turnpike Co. v. Deam, 10 Ind.
65, 73 N. E. 727; Hartsville University
563; Ensey v. Cleveland & St. L. E.
V. Hamilton, 34 Ind. 506; Meikel v.
Co., 10 Ind. 178; Brookville & G. Turn-
German Savings Fund Society, 16 Ind. pike Co. V. MeCarty, 8 Ind. 392, 65
181; Ft. Wayne & B. Turnpike Co. v. Am. Dec. 768; Harris v. Muskingum
Deam, 10 Ind. 563; Brookville & G. Mfg. Co., 4 Blaekf. (Ind.) 267, 29 Am.
Turnpike Co. v. McCarty, 8 Ind. 392, Dec. 372; John v. Farmers' & Mechan-
65 Am. Dec. 768; Morgan v. Law- ics' Bank, 2 Blaekf. (Ind.) 367, 20
renceburgh Ins. Co., 3 Ind. 285; Guaga Am. Dec. 119; Wood v. Friendship
Iron Co. V. Dawsoi}, 4 Blaekf. (Ind.) Lodge No. 5, I. O. O. F. of Lexing-
202; John v. Farmers' & Mechanics' ton, 106 Ky. 424, 50 S. W. 836; Jones
Bank, 2 Blaekf. (Ind.) 367, 20 Am. V. Bank of Tennessee, 8 B. Mon. (Ky.)
Dec. 119. See also Barren Creek 122, 46 Am. Dee. 540.
Ditching Co. v. Beck, 99 Ind. 247; 92 Bank of UnitedStates v. Mc-
Latiolais v. Citizens' Bank, 33 La. Laughlin 's Adm'r, 2 Cranch C. C.
Ann. 1444; Boston Glass Manufactory (U. S.) 20; Clark v. American Cannel
V. Langdon, 24 Pick. (Mass.) 49, 35 Coal Co., 165 Ind. 213, 73 N. E. 1083;
Am. Dee. 292. 35 Ind. App. 65, 73 N. E. 727; Bank
"The estoppel, if any, relates to of Galliopolis v. Trimble, 6 B. Mon.
the time of entering into the contract, (Ky.) 599.
and does not admit that there cannot If after the rendition of a judg-
be a dissolution." Vernon Society ment against a corporation it is dis-
V. Cow. (N. Y.) 23, 16 Am.
Hills, 6 solved under the terms of a statute
Dec. 429. But where the plea or an- by the surrender of its charter to an-
swer admits that the plaintiff had other corporation and the acceptance
been a corporation, it will be presumed of the surrender by the latter, a scire
that it has continued to be, and still facias to revive such judgment cannot
is one, unless it is alleged and shown thereafter be maintained. Mumma
that its existence has terminated in V. Potomac Co., 8 Pet. (U. S.) 281,
some way known to the law. Dar- 8 L. Ed. 945.
rell V. Hilligoss, M., M. & E. Gravel If the charter expires pending the
Eoad Co., 90 Ind. 264;Beaver v. suit and that fact is properly brought
Hartsville University, 34 Ind. 245. In to the attention of the court, the ac-
such ease the answer must aver facts tion must terminate, and if it expires
682
,
Ch. 11] COEPOEATIONS BY EsTOPPEL [§ 332
ment of forfeiture or ouster rendered in proceedings by the state

after that time.'*
The question of the forfeiture of the charter cannot be tried col-
laterally in such an action, however,'* and to warrant such a defense
it must appear that the corporation has come to an end by some legal
process.'®
m. ACTS CONSTITUTING ESTOPPEL AND PERSONS ESTOPPED

§ 332. General nature of acts constituting estoppel General con- —
siderations as to recognition. Recognition of an association as a
corporation which will give rise to an estoppel may consist in any
statements, conduct or course of dealing whereby a person expressly
or impliedly admits its corporate existence. So an estoppel may arise
from written statements or admissions having that tendency,'® or
from the fact that one contracts or deals with the association as a
corporation,''' especially where the latter uses a name which implies
or imports a corporate body " or from the fact that a person sues
;
an association as a corporation, or fails to put its corporate existence

in issue when sued by it."
But to give rise to an estoppel on the ground of recognition by
dealing with a pretended corporation, it must have been dealt with
or treated as a corporation, and no estoppel will result from conduct
which is just as consistent with the existence of an unincorporated
after judgment in favor of the corpo- 94 See chapter on Forfeitures, Disso-
ration, execution cannot issue on such lution and Winding Up.
judgment. May v. State Bank of 96 Hartsville University v. Hamil-
North Carolina, 2 Eob. (Va.) 56, 60, to^^ 34 j^^ gog. John v. Farmers' &
40 Am. Deo. 726. Mechanics' Bank, 2 Blackf. (Ind.)
See chapter on Forfeiture, Dissolu- „g,, gn Am
Dec 110
tion, etc., infra. ^ 2.1. 1.'
'-,, ' . .
Clark V. American Cannel Coal

93
-, J „ ,
bh-d
96 Proof that one i_ has m
writing
^ ,, . , .
^«P«^t«^ly recognized the corporate

Co., 165 Ind. 213, 112 Am. St. Eep.
217, 73 N. E. 1083, 35 Ind. App. 65,
existence of the plaintiff m reference
*° ^^^ transaction in question, accom-
78 N. E. 727; Hartesville University
V. Hamilton, 34 Ind. 506; Brookville V^^^^d by proof of facts sufficient to
& G. Turnpike Co. v. MeCarty, 8 Ind. show a de facto corporation, is enough
392, 65 Am. Dec. 768; Morgan v. Law- to overcome a plea of nul tiel corpo-
renceburgh Ins. Co., 3 Ind. 285; Guaga ration in an action to recover a bal-
Iron Co. V. Dawson, 4 Blackf. (Ind.) ance due for goods sold. Walker
202; John v. Farmers' & Mechanics' Paint Co. v. Euggles, 48 HI. App. 406;
Bank, 2 Blackf. (Ind.) 367, 20 Am. Holt v. Tennent-Stribling Shoe Co.,
Dec. 119; Jones v. Bank of Tennessee, 69 111. App. 332;
8 B. Mon. (Ky.) 122, 46 Am. Dee. 97 See § 334, infra.
540. 9* See § 336, infra.
See chapter on Forfeiture, Dissolu- 99 See § 355, infra,
tion, etc., infra.
683
§332] Pkivate Cokpokations [Ch. 11
association as with the existence of a corporation.^ So the mere fact

that one contracts or otherwise deals with an association or its agent
will not estop him from denying that it is a corporation, where he
does not deal or contract with it as a corporation,® especially if he
1 Alaljama. Christian & Craft Gro- In an Alabama case it was held that
cery Co. V. Fruitdale Lumber Co., in an action by a corporation, suing
121 Ala. 340, 25 So. 566; Schloss v. as such, against a subscriber to its
Montgomery Trade Co., 87 Ala. 411, capital stock before incorporation, the
13 Am. St. Eep. 51, 6 So. 360. payment by the defendant of former
Arkansas. Garnett v. Eichardson, instalments as called for, and an aver-
35 Ark. 144. ment that the instalment sued for was
Florida. Duke v. Taylor, 37 Fla. "duly and regularly called in by
64, 31 L. E. A. 484, 49 Am. St. Eep. and demand therefor made
plaintiff,
394, 19 So. 172. upon defendant," did not, without
Louisiana. Williams v. Hewitt, 47 more, show an estoppel against the de-
La. Ann. 1076, 17 So. 496; Field v. fendant to deny the organization and
Cooks, 16 La. Ann. 153. corporate existence of the plaintiff, as
Michigan. Eaton v. Walker, 76 it did not appear that the call was
Mich. 579, 6 L. E. A. 102, 43 N. W. made even under color of corporate

638; Trustees, etc., of M. E. Church organization or capacity, and the pay-
V. Clark, 41 Mich. 730, 3 N. W. 207; ment made did not imply a recogni-
Eredenburg v. Lyon Lake M. E. tion of corporate existence, and was
Church, 37 Mich. 476. not inconsistent with a payment pre-
Oregon. McVicker v. Cone, 21 Ore. liminary to, or in anticipation of,
353, 28 Pac. 76. organization. Schloss v. Montgomery
Pennsylvania. Guckert v. Haeke, Trade Co., 87 Ala. 411, 13 Am. St.
159 Pa. St. 303, 28 Atl. 249. Eep. 51, 6 So. 360.
The fact that a testator for a con- 2 Farmers' Mutual v. Eeser, 43 Ind.
sideration had deeded land to an as- App. 634, 88 N. E. 349.
sociation in his lifetime was held not One who takes a note signed with
to estop his next of kin from claiming the name of a company is not estop-
that it was a voluntary unincorpo- ped to hold its members liable as part-
rated association, and hence incapable ners where he did not deal with them
of taking a legacy under his will. as a corporation but as individuals,
Lutheran Eeformed Church v. Mook, using that name solely as a trade
1 Eedf. Surr. (N. T.) 513. name. Brooke v. Day, 129 Ga. 694,
The fact that the plaintiff in a for- 59 S. E. 769.
mer suit recognized the defendants Where a dispatch without
line is
as forming a company, without any corporate entity, its name

having
reference to their having been regu- been assumed merely for convenience
larly incorporated, is not such an by several lines of railroad in han-
admission as will estop him from show- dling freight, one who has dealt with
ing that they have no legal existence it in making a shipment of goods is
as a corporation, for, "in order to not estopped to deny its corporate ex-
estop * * * there should, at least, istence in a suit which it brings
be an admission that the company was against him, where he has never dealt
entitled to exercise corporate rights with it as a corporation and there is
and privileges." Eield v. Cooks, 16 no inconsistency between his dealings
La. Ann. 153. with it and the relation which existed
684
Ch. 11] Corporations by Estoppel [§332
does not know that it not chargeable

claims to be a corporation, and is
witl^ knowledge of that fact, but rather supposes that it is doing

business as an unincorporated association.^ Nor does the fact that
the business of a company is transacted or its contracts executed by
officers, such as a president, or secretary, or treasurer, give rise to
a presumption that it is a corporation sro as to preclude a person
dealing, with it from denying knowledge that it claimed to be a cor-
in fact between the dispatch line and testimony that the payee of notes
the The action, in such
railroads. had dealt with a corporation, which
ease, should have been brought by the the members of a partnership had at-
component railroad companies, they tempted to form to succeed to the
being the real parties in interest. partnership business, as a corporation,
Kanawha Dispatch v. Fish, 219 III. would not prevent the enforcement of
236, N. E. 352, rev'g on other
76 the notes against the firm whose
grounds 118 111. App. 284. names were signed to it.
"Where a party contracts with an- 3 Eaton V. Walker, 76 Mich. 579,
other, but not as a corporation, he ia 6 L. E. A. 102, 43 N. W. 638; Martin
not as to such contract estopped to V. Fewell, 79 Mo. 401; Eust-Oweu
deny the corporate existence of such Lumber Co. v. Wellman, 10 S. D. 122,
other party, or to show that the entity 72 N. W. 89. Compare Stoflet v.
with which he dealt was an individual Strome, 101 Mich. 197, 59 N. W. 411.
or partnership." Christian & Craft There is no estoppel where there
Grocery Co. v. Fruitdale Lumber Co., is nothing to indicate that the party
121 Ala. 340, 25 So. 566. ever supposed he was dealing with a
It follows, therefore, that in an ac- corporation. Lawrence v. Nyberg
tion on such a contract, in which it is Automobile Works, 162 111. App. 348.
sought to charge the defendants as One is not estopped to hold the mem-
partners or individuals, and in which bers of an alleged corporation
they defend on the ground that they individually liable where he has no
were only stockholders or officers of knowledge of the existence of the cor-
a de facto corporation, with which poration, and there is nothing, either
l.hey claim the plaintiff dealt as a cor- in the name under which they do busi-
poration, it competent and mate-
is ness, or in their conduct, to put him
rial for the plaintiff toshow that he on inquiry, and the certificate of in-
did not deal with the defendants as a corporation has not been recorded so
corporation, but as individuals com- as to charge him with notice. Tonge
posing a partnership. And to this V. Item Pub. Co., 244 Pa. 417, 91 Atl.
end he may show that one of the de- 229; Guckert v. Hacke, 159 Pa. St.
fendants purchased the goods in 303, 28 Atl. 249. See also Pittsburg
question for the company on the repre- Sheet Mfg. Co. v. Beale, 204 Pa. 85,
sentation that it was a partnership 53 Atl. 540; Mandeville v. Courtright,
composed of himself and the other de- 142 Fed. 97, 6 L. E. A. (N. S.) 1003,
fendants. Christian & Craft Grocery rev'g 126 Fed. 1007.
Co. V. Fruitdale Lumber Co., 121 Ala. Evidence that a company published
340, 25 So. 566. a notice in the papers that it was a.
In Ward-Truitt Co. v. Bryan & corporation and had mailed circulars
Lamb, 144 Ga. 769, 87 S. E. 1037, it and letterheads showing that fact to
was held that mere uncontradicted the plaintiff, which it is not shown
685
poration, or from holding its members liable as partners.* Moreover,

the fact that persons are members of a corporation does not prevent
them from doing business and contracting as individuals or co-
partners, and if they so conduct their business as to induce a person
who contracts with them to believe that they are conducting it as
individuals and not as a corporation, and he contracts and gives credit
to them as individuals or copartners and not as a corporation, he
may hold them personally liable on the contract.* And it has also
been held that not estopped to hold the incorporators indi-
if one is
vidually liable on a contractmade with them, the acceptance by him

of a note of the corporation for the amount due him, after he has
fully performed, will not, in the absence of an express agreement,
he ever received, will not support a which formed the consideration there-
finding that the plaintiff knew that for was sold to the company in its
there was a corporation and did busi- corporate name. Cory v. Lee, 93 Ala.
ness on that In such
supposition. 468, 8 So. 694.
case it is evidence
error to exclude 4 "No presumption of incorpora-
offered by the plaintiff that he did from the fact that the busi-
tion arises
not know that there was a corpora- ness of the company was transacted
tion, and did not deal with it as such, by a president and secretary" so as
but was informed by one of their to preclude a person dealing with it
number that they were a copartner- from holding its members liable as
ship and that he dealt with them in partners. Clark v. Jones, 87 Ala. 474,
the belief that they were. Easton v. 6 So. 362, quoted in Baxter v. Jones,
Walker, 76 Mich. 579, 6 L. E. A. 102, 185 Fed. 900.
43 N. "W. 638. So no such presumption arises from
But one who contracts with a de the fact that a note or other contract
facto corporation in its corpoiate is executed by persons as president
name and capacity and on its credit and secretary of a company. Duke v.
as a corporation cannot thereafter Taylor, 37 Fla. 64, 31 L. E. A. 484, 53
hold its stockholders or officers in- Am. St. Hep. 232, 19 So. 172.
dividually liable on the ground that One tO' whom a note is indorsed is
he had no notice or knowledge of the not put on inquiry as to the corporate
attempted incorporation, or that it character of the maker company so as
ever claimed to be doing business as to preclude him from holding its mem-
a corporation. And an averment that bers liable as partners by reason of
the plaintiff had no knowledge or the fact that it is signed and indorsed
notice that the persons composing the in the namecompany by an in-
of the
company ever had attempted to in- New York Nat.
dividual as treasurer.
corporate, or ever claimed to be Exch. Bank City of New York v.
doing business as a corporation, is Crowell, 177 Pa. St. 313, 35 Atl. 613.
inconsistent with averments showing See also Longfellow v. Barnard, 58
that it was a de facto corporation, and Neb. 612, 76 Am. St. Eep. 117, 79 N.
that the bill of exchange sued on was W. 255.
drawn by the plaintiff on, and ac- Eust-Owen Lumber Co.
B v. Well-
cepted by, the company in its cor- man, 10 S. D. 122, 72 N. W. 89.
porate name, and that the material
686
Ch. 11] CoKPOEATiONS BY Estoppel [§333
operate by way of election or estoppel to prevent him from thereafter

holding them so liable, but the note will be regarded as additional
security rather than as a satisfaction of the debt.®
The mere money
fact that one indorses a bill to a bank,' or deposits
in a bank,* does not estop him from denying its corporate existence.
Nor does the fact that one sued on a note by an officer of a bank
interposes the defense that the plaintiff is president of the bank,
and, as such, could not acquire notes coming to his hands as presi-
dent, and that the note belongs to the bank, estop him to deny after-
wards that the bank is incorporated, for this might just as well be
said of an unincorporated bank and its president.^ So, too, the mere
fact that one admits that an account made out in the name of the
plaintiff as a corporation is correct, and that he owes the money, is
not an admission that the plaintiff is in fact a corporation, and does
not estop him from denying that such is the case.^"* And an agree-
ment with individuals that when they become incorporated they will
give the plaintiff a certain amount of paid up stock as part of the
consideration for property sold to them individually is not a dealing
with the corporation and does not prevent the plaintiff from suing
them individually for the value of the property.^'
§ 333. —
General considerations as to holding out. Persons who
have expressly represented that they were a corporation,^^ or who
have contracted as a corporation,^* or who have taken part in the
organization of a pretended corporation, or acted as members or
officers of the same,^* may be estopped to deny the corporate existence
on the ground that they have thereby held themselves out as being
incorporated.
e Guckert v. Haeke, 159 Pa. St. 303, 10 Florsheim & Co. v. Fry, 109 Mo.
28 Atl. 249. App. 487, 84 S. W. 1023.
7 Such an indorsement merely ad- 11 Carmody v. Powers, 60 Mich. 26,
mits that the person to whom it is in- 26 N. W. 801.
doTsed has assumed the corporate 12 A
representation that it was a
name. Hargrave v. Bank of Illinois, corporation made in a letter written
Breese (1 111.) 122. by the purchaser of goods to the seller
8 He not estopped from asserting
is is sufficient proof of
corporate its
that it is not a corporation but a part- character in an action by the seller
nership doing business as a private to recover the purchase price. Marx
bank, and hence subject to be adjudi- v. Raley & Co., 6 Cal. App. 479, 92
cated a bankrupt as a private bank. Pac. 519.
Davis V. Stevens, 104 Fed. 235. 13 See § 386, infra.
9 Williams v. Hewitt, 47 La. Ann. 14 See § 349, infra.
1076, 1084, 49 Am. St. Rep. 394, 17 So.
496.
687
333] Pkivate Ooepokations [Ch. 11
But in order that members or agents of an association may be

estopped to deny that it is a corporation on this ground, the acts
relied upon must be equivalent to a representation or admisfsion of
corporate existence,^^ and therefore will not operate as an estoppel
if they are just as consistent with the existence of an unincorporated
association or a partnership as with the existence of a corporation.^^
In other words, they must be clearly and unmistakably corporate
acts,^'' which distinctly pertain to corporate powers,^* and which show
distinctly and unequivocally an attempt to exercise such powers ^' ;
for estoppels never arise from ambiguous facts, but must be estab-
lislêd by those which are unequivocal, and not susceptible of two
constructions.^"
An attempt to incorporate is not an exercise of assumed corporate
powers, so as to create an estoppel to deny corporate existence.^^ In
accordance with this rule, the mere fact that the associates have
passed by-laws, held business meetings, acquired property, received
and paid out money, appointed agents and made contracts will not
operate as an estoppel, as these acts may be done as well by an unin-
corporated association as by a corporation.^^ Nor will the fact that
15 Baxter v. Jones, 185 Fed. 900; 87 Ala. 411, 13 Am. St. Eep. 51, 6 So.
Methodist Episcopal Church of New- 360; Predenburg v. Lyon Lake M. E.
ark V. Clark, 41 Mich. 730, 3 N. W. Church, 37 Mich. 476.
207. 18 Kirkpatrick v. United Presbyte-
16 United States. Baxter v. Jones, rian Church of Keota, 63 Iowa 372, 19
185 Fed. 900. N. W. 272. See also Methodist Epis-
Alaliama. Schloss v. Montgomery copal Church of Newark v. Clark, 41
Trade Co., 87 Ala. 411, 13 Am. St. Eep. Mich. 730, 3 N. "W. 207.
51, 6 So. 360. 19 Kirkpatrick v. United Presbyte-
Iowa. Kirkpatrick v. ITnited Presb. rian Church of Keota, 63 Iowa 372, 19

Church of Keota, 63 Iowa 372, 19 N. N. W. 272.
W. 272. 20 Baxter v. Jones, 185 Fed. 900;
Michigan. Fredenburg v. Lyon Fredenburg v. Lyon Lake M. E.

Lake M. E. Church, 37 Mich. See 476. Church, 37 Mich. 476.
alsoMethodist Episcopal Church of 21 Kirkpatrick v. United Presbyte-
Newark v. Clark, 41 Mich. 730, 3 N. rian Church of Keota, 63 Iowa 372, 19

W. 207. N. W. 272.
Nebraska. See Lincoln Butter Co. 22 Kirkpatrick v. United Presbyte-
V. Edwards-Bradford Lumber Co., 76 rian Church of Keota, 63 Iowa 372, 19

Neb. 477, 107 N. W. 797; Abbott v. N. W. 272.
Omaha Smelting & Eefining Co., 4 Neb. A claim of corporate existence on
416. the part of a church is not shown by
Pennsylvania. Tonge v. Item Pub. proof that its members held the ordi-
Co.,244 Pa. 417, 91 Atl. 229. nary meetings of a religious society
Washington. Bash v. Culver Gold and elected ofScers. Fredenburg v.
Min. Co., 7 Wash. L22, 34 Pac. 462. Lyon Lake M. E. Church, 37 Mich.
17 Schloss V. Montgomery Trade Co., 476.
688
Ch. 11] COEPOEATIONS BY ESTOPPEL [§334
the attorney for a partnership, in an answer to a proposition to

compromise a claim against it, inadvertently uses language implying
that it has a board of directors estop the partners from denying that
it is a corporation, where they have no actual knowledge that he has
done so.^'
It has been intimated that the fact that a contract is executed
under the seal of an association may be sufficient to show prima facie
that it is a corporation.'^*
§ 334. Estoppel of persons contracting or dealing with corporation

—In general. According to the great weight of authority, a person
who contracts or otherwise deals with a body of men as a corporation
thereby admits that they are a corporation, and is estopped to deny
their incorporation in an action against him based upon or arising
out of such contract or course of dealing.^^
23 Baxter v. Jones, 185 Fed. 900. Fed. 642, application for certiorari
Grand Lodge Brotherhood of
24 denied 176 U. S. 219, 44 L. Ed. 442;
Locomotive Firemen v. Cramer, 60 111 Venner v. Farmers' Loan & Trust Co.,
App. 212, aff'd 164 111. 9, on the 90 Fed. 348, certiorari denied 173 IT.
S. 704, 43 L. Ed. 1185 (mem. dec);
ground that the plea in abatement set
ting up want of incorporation was in
Automatic Phonograph Exhibition Co.
V. North American Phonograph Co.,
sufficient. See also Fitzpatriek v.
45 Fed. 1; Oregonian Ey Co., Ltd. v.
Eutter, 160 III. 282, aff'g 58 111. App.
Oregon Ey. & Nav. Co., 27 Fed. 277,
532.
rev'd on other grounds 145 IT. S. 52,
United States. Wilder Mfg. Co.
26
36 L. Ed. 620; Young v. Township of
V. Corn Products Refining Co., 236 U. Clarendon, 26 Fed. 805; Dundee Mort-
S. 165, 59 L. Ed. 520, Ann. Cas. 1916 A gage & Trust Inv. Co., Ltd. v. Cooper,
118, aflE'g 11 Ga. App. 588, 75 S. E. 26 Fed. 665; Oregonian Ey. Co., Ltd. v.
918; Andes v. Ely, 158 V. S. 312, 39 Oregon Ey. & Nav. Co., 23 Fed. 232,
L. Ed. 996; Close v. Glenwood Ceme- 22 Fed. 245, rev'd on other grounds
tery, 107 U. S. 466, 27 L. Ed. 408; 130 U. S. 32 L. Ed. 837; Gartside
1,
Chubb V. Upton, 95 .U. S. 665, 24 L. Coal Co. Maxwell, 22 Fed. 197;
V.
Ed. 523; Casey v. Galli, 94 U. S. 673, Lewis V. Clarendon, 5 Dill. 329, Fed.
24 L. Ed. 168; Leavenworth County v. Cas. No. 8,320. See also Allen' v.
Barnes, 94 U. S. 70, 24 L. Ed. 63; Ehodes, 230 Fed. 321; In re Sharood
Smith V. Sheeley, 12 Wall. 358, 20 L. Shoe Corporation, 192 Fed. 945, 955;
Ed. 430; Frost's Lessee v. Frostburg Gastonia Cotton Mfg. Co. v. W. L.
Coal Co., 24 How. 278, 16 L. Ed. 637; Wells Co., 128 Fed. 369, rev'g on
Old Colony Trust Co. v. Wichita, 123 other grounds 118 Fed. 190, rev'd on
Fed. 762, aff'd 132 Fed. 641; American other grounds 198 IT. S. 177, 49 L. Ed.
Alkali Co. v. Campbell, 113 Fed. 398; 1003; Cunningham v. Cleveland, 98
Manship v. New South Building & Fed. 657.
Loan Ass'n, 110 Fed. 845; Toledo, St. Alabama. First Nat. Bank of De-
L. & K. C. E. Co. V. Continental Trust catur V. Henry, 159 Ala. 367, 49 So.
Co., 95 Fed. 497, aff'g 86 Fed. 929, 82 97; Owensboro Wagon Co. v. Bliss,
689
§334] Peivate Cokpobations [Oh. 11
In some of the decisions it is said that the courts in this class of
132 Ala. 253, 90 Am. St. Eep. 907, 31 Co. V. Bricker, 3 Cal. App. 190, 85 Pac,
So. 81; Harris v. Gateway Land Co., 665.
128 Ala. 652, 29 So. 611; Greenville v. Colorado. Young v. Plattner Imple-
Greenville Water Works Co., 125 Ala. ment Co., 41 Colo. 65, 91 Pac. 1109;
625, 27 So. 764; Christian & Craft Holmes Fuel & Feed Co. v. Commer-
Grocery Co. v. Pruitdale Lumber Co., cialNat. Bank, 23 Colo. 210, 47 Pae.
121 Ala. 340, 25 So. 566; Bibb v. Hall, 289; Plummer v. Struby-Estabrooke
101 Ala. 79, 14 So. 98; Snider 's Sons' Mercantile Co., 23 Colo. 190, 47 Pac.
Co. V. Troy, 91 Ala. 224, 11 L. E. A. 294; Stuyvesant v. Western Mortg.
515, 24 Am. St. Eep. 887, 8 So. 658; Co., 22 Colo. 28,43 Pac. 144; Co well
Schloss & Kahn Montgomery Trade
v. v. Colorado Springs Co., 3 Colo. 82,
Co., 87 Ala. 411, 13 Am. St. Eep. 51, aff'd 100 TJ. S. 55, 25 L. Ed. 547;
6 So. 360; Sherwood v. Alvis, 83 Ala. Union Gold Min. Co. v. Eocky Moun-
115, 3 Am. St. Eep. 695, 3 So. 307; tain Nat. Bank, 1 Colo. 531; Thompson
Central Agr. & Mech. Ass'n v. Ala- V. Commercial Union Assur. Co. of
bama Gold Life Ins. Co., 70 Ala. 120; London, England, 20 Colo. App. 331,
Lehman, Durr & Co. v. Warner, 61 78 Pac. 1073; First Congregational
Ala. 455; Cahall v. Citizens' Mut. Church of Cripple Creek Grand Eap- v.
Bldg. Ass'n, 61 Ala. 232; Marion Sav. ids School Furniture Co., 15 Colo.App.
Bank v. Dunkin, 54 Ala. 471; Eppes 46, 60 Pac. 948; Grande Eonde Lum-
V. Mississippi, G. & T. E. Co., 35 Ala. ber Co. V. Cotton, 12 Colo. App. 375,
33; Selma & T. E. Co. v. Tipton, 5 55 Pac. 610.
Ala. 787, 39 Am. Dee. 344. See also Connecticut. West Winsted Sav.
Lucas V. Bank of Georgia, 2 Stew. 147. Bank & Bldg. Ass 'n v. Ford, 27 Conn.
Arkansas. Jones v. Dodge, 97 Ark. 282, 71 Am. Dec. 66.
248, L. E. A. 1915 A 472, 133 S. W. Dakota. School Dist. No. 61 v.

828; Town of Searcy v. Yarnell, 47 Alderson, 6 Dak. 145, 41 N. W. 466.
Ark. 269, 1 S. W. 319. See also Steele District of Columbia. Ohio Nat.
v. Hughes, 104 Ark. 517, 149 S. W. Bank v. Central Const. Co., 17 App.
336; rieener v. State, 58 Ark. 98, 23 Cas. 524.
S. W. 1; Gaines v. Bank, 12 Ark. 769.

Florida. Duke v. Taylor, 37 Fla.
California Fruit Ex- 64, 31 L. E. A. 484, 53 Am. St. Eep.

California.
124 232, 19 So. 172; Booske v. Gulf Ice Co.,
change V. Buck, 163 Cal. 223,
24 Fla. 550, 5 So. 247; Jackson Sharp
Pac. 824; California Cured Fruit Ass'n
Co. v. Holland, 14 Fla. 384. See also
V. Stelling, 141 Cal. 713, 75 Pac. 320;
§ 335, infra.
Eaphael Weill & Co. v. Crittenden, 139
Tustin Fruit
Georgia. Brown v. Atlanta Eailway
Cal. 488, 73 Pae. 238;
6 Power Co., 113 Ga. 462, 39 S. E. 71;
Ass'n V. Earl Fruit Co., 53 Pac. 693;
Petty V. Brunswick & W. Ey. Co., 109
Bank of Shasta v. Boyd, 99 Cal. 604, Ga. 666, 35 Imboden v.
E.
S. 82;
34 Pac. 337; Fresno Canal & Irrigation Etowah & B. B. Hydraulic Hose Min.
Co. V. Warner, 72 Cal. 379, 14 Pac. Co., 70 Ga. 86, 107; Wood v. Coosa &
37; Grangers' Business Ass'n v. Clark,
C. E. Co., 32 Ga. 273; Southern Bant
67 Cal. 634, 8 Pac. 445; Pacific Bank of Georgia v. Williams, 25 Ga. 534;
V. 37 Cal. 538; Argenti v. San
De Eo, Cason V. State, 16 Ga. App. 820, 86
Francisco, 16 Cal. 256, 264; Francis S. E. 644; Edenfield v. Bank of Millen,
V. Western Screen Co., 22 Cal. App. 7 Ga. App. 645, 67 S. E. 896. See also
32, 1.13 Pac. 327; Sjerra Land & Cattle §335, infra.
690
eases really proceed upon a rule of evidence rather than upon the
Idaho. Henry Gold Min. Co. v. Lewis, 36 Ind. 288, 10 Am. Eep. 29;
Henry, 25 Idaho 333, 137 Pac. 523; Hartsville University v. Hamilton, 34
Toledo Computing Scale Co. v. Young, Ind. 506; Beaver v. Hartsville Uni-
16 Idaho 187, 101 Pac. 257. versity, 34 Ind. 245; McBrown v. Cor-
UUnois. Winget v. Quincy Building poration of Lebanon, 31 Ind. 268;
& Homestead Ass'n, 128 111. 67, 84, 21 Williams v. Franklin Tp. Academical
N. E. 12, aff'g 29 111. App. 173; Brown Ass'n, 26 Ind. 310; Snyder v. Stude-
V. Scottish American Mortg. Co., 110 baker, 19 Ind. 462, 81 Am. Deo. 415;
111. 235; Lombard v. Chicago Sinai Board Com'rs Bartholomew Co. v.
Congregation, 64 111. 477; Eamsey v. Bright, 18 Ind. 93; Brownlee v. Ohio,
Peoria Marine & Fire Ins. Co., 55 lU. L & I.E. Co., 18 Ind. 68; Meikel v.
311; Mitchell v. Deeds, 49 HI. 416, German Sav. Fund Society, 16 Ind.
95 Am. Dec. 621; United States Exp. 181; State v. Bailey, 16 Ind. 46, 51,
Co. V. Bedbury, 34 HI. 459; Hlinois 79 Am. Dec. 405; Evansville, I. & C.
Grand Trunk R. Co. v. Cook, 29 HI. Straight Line R. Co. v. Evansville, 15
237; Tarbell v. Page, 24 111. 46; Ameri- Ind. 395; Hubbard v. Chappel, 14 Ind.
can Sales Book Co. v. Wemple, 168 111. 601; Jones v. Cincinnati Type Foundry
App. 639; Gilmer Creamery Ass'n v. Co., 14 Ind. 89; Anderson v. Newcastle
Quentin, 142 111. App. 448; Chicago & E. E. Co., 12 Ind. 376, 74 Am. Dec.
City Ey. Employees' Mut. Aid Ass'n 218; Ft. Wayne & B. Turnpike Co. v.
V. Hogan, 124 HI. App. 447; Spreyne Deam, 10 Ind. 563; Ensey v. Cleveland
V. Garfield Lodge No. 1 of United & E. Co., 10 Ind. 178; Stoops v.
St. L.
Slavonian Benev. Society, 117 HI. App. Greensburgh & B. Plank-Eoad Co., 10
253; Eiemann v. Tyroler & Vorarl- Ind. 47; Brookville & G. Turnpike
berger Verein, 104 111. App. 413; Gay Co. V. McCarty, 8 Ind. 392, 65 Am. Dec.
V. Kohlsaat, 80 HI. App. 178; Hickox 768; Eyan Vanlandingham, 7 Ind.
v.
& Eead Pub. Co. v. Dawes Mfg. Co., 416; Judah v. American Live Stock
64 111. App. 630; Payette v. Free Home Ins. Co., 4 Ind. 333; John v. Farmers'
Building, Loan & Homestead Ass'n, & Mechanics' Bank, 2 Blackf. 367, 20
27 111. App. 307; Miami Powder Co. v. Am. Dec. 119; Clark v. American Can-
Hotchkiss, 17 HI. App. 622. nel Coal Co., 35 Ind. App. 65, 73 N.
Indiana. Brickley v. Edwards, J 31 E. 727, 165 Ind. 213, 112 Am. St. Eep.
Ind. 3, 30 N. E. 708; Cravens v. Eagle 217, 73 N. E. 1083.
Cotton Mills Co., 120 Ind. 6, 16 Am. Iowa. Howe Mach. Co.v. Snow, 32
St. Eep. 298, 21 N. E. 981; Smelser v. Iowa 433; Brown v. Phillips, 16 Iowa
Wayne & U. Straight Line Turnpike 210; Washington College v. Duke, 14
Co., 82 Ind. 413; Jones v. Kokomo Iowa 14. See also Cedar Eapids Water
Bldg. Ass'n, 77 Ind. 340; Beatty v. Co. V. Cedar Eapids, 118 Iowa 234,
Bartholomew County Agricultural So- 91 N. W. 1081, and § 335, infra.
ciety, 76 Ind. 91; Baker v. Neff, 73 Kansas, Harris v. Independence
Ind. 68; v. Board of School
Mackenzie Gas Co., 76 Kan. 750, 13 L. E. A. (N.
Trustees, 72 Ind. 189; Mullen v. Beech S.) 1171, 92 Pac. 1123; MeCune Min.
Grove Driving Park, 64 Ind. 202; Mc- Co. v. Adams, 35 Kan. 193, 10 Pac.
Laughlin V. Citizens' Building, Loan 468; Massey v. Citizens Bldg. & Sav.
& Savings Ass'n, 62 Ind. 264; Eansom Ass'n, 22 Kan. 624; Pape v. Capitol
V. Priam Lodge No. 145, F. & A. Bank of Topeka, 20 Kan. 440, 27 Am.
Masons, 51 Ind. 60; Eay v. Indianapo- Eep. 183; McLennan v. Hopkins, 2
lis Ins. Co., 39 Ind. 290; Vater v. Kan. App. 260, 41 Pac. 1061.
691
334] Private Coepoeations [Ch. 11
strict doctrine of estoppel, as it would appear that they have treated
Kentucky. Faulkner v. Farmers' Co., 24 Mich. 389; v. Kala-

Cahill
Produce & Mercantile Co., 170 Ky. 22, mazoo Mut. Doug. 124, 43
Ins. Co., 2
185 S. W. 151; Fruin-Colnon Contract- Am. Dec. 457. See also Chicago & G.
ing Co. V. Chatterson, 146 Ky. 504, T. E. Co. V. Miller, 91 Mich. 166, 51
40 L. E. A. (N. S.) 857, 143 S. "W.6; N. W. 981.
Johnson v. Mason Lodge No. 33, I. O. Minnesota. Richards v. Minnesota
O. F., 106Ky. 838, 51 S. W. 620; "Wood Sav. Bank, 75 Minn. 196, 77 N. W. 822;
V. Friendship Lodge No. 5, I. O. O. F. Continental Ins. Co. v. Eichardson, 69
of Lexington, 106 Ky. 424, 50 S. W. Minn. 433, 72 N. W. 458; Ferine v.
836; Henderson & N. E. Co. v. Leavell, Grand Lodge A. O. IT. W., 48 Minn.
16 B. Mon. 358; Jones v. Bank of Ten- 82, 50 N. W. 1022; Columbia Elec. Co.
nessee, 8 B. Mon. 122, 46 Am. Dee. V. Dixon, 46 Minn. 463, 49 N. W. 244;
540; Bank of Galliopolis v. Trimble, Minnesota Gas Light Economizer Co.
6 B. Mon. 599; Depew v. Bank of V. Denslow, 46 Minn. 171, 48 N. W.
Limestone, 1 J. J. Marsh. 378; Hughes 771; St. Paul Land Co. v. Dayton, 39
V. Bank of Somerset, 5 Litt. 45. See Minn. 315, 40 N.' W. 66; French v.
also Hallam v. Ashford, 24 Ky. L. Donohue, 29 Minn. Ill, 12 N, W. 354.
Eep. 870, 20 S. "W. 197, and §335, Mississippi. Smith v. Mississippi &
infra. A. E. Co., 6 Smedes & M. 179; John-
Louisiana. American Homestead son v. Grumble, 19 So. 100.
Co. V. Linigan, 46 La. Ann. 1118, 15 Missouri. ClifEord Banking Co. v.
So. 369; Latiolais v. Citizens' Bank Donovan Commission Co., 195 Mo. 262,
of Louisiana, 33 La. Ann. 1444; East 94 S. W. 527; West Missouri Land Co.
Paseagoula Hotel Co. v. West, 13 La. V. Kansas City Suburban Belt E. Co.,
Ann. 545; Liverpool & L. Fire & Life 161 Mo. 595, 61 S. W. 847; Bradley v.
Ins. Co. V.Hunt, 11 La. Ann. 623. Eeppell, 133 Mo. 545, 54 Am. St. Eep.
Maine. Seven Star Grange No. 73, 685, 34 S.W. 841, 32 S. W. 645; Eein-
Patrons of Husbandry v. Ferguson, 98 hard Virginia Lead Min. Co., 107
v.
Me. 176; Simpson v. Garland, 76 Me. Mo. 616, 28 Am. St. Eep. 441, 18 8.
203; South Bay Medow Dam Co. v. W. Broadwell v. Merritt, 87 Mo.
17;
Gray, 30 Me. 547. 95; Studebaker Bros. Mfg. Co. v.
Massachusetts. Butchers ' & Montgomery, 74 Mo. 101; Stoutimore
Drovers' Bank of St. Louis v. Mc- V. Clarke, 70 Mo. 471; St. Louis v.
Donald, 130 Mass. 264; Worcester Shields, 62 Mo. 247; National Ins. Co.
Medical Inst. v. Harding, 11 Cush. 285. V. Bowman, 60 Mo. 252; Farmers' &
IWichlgan. Newcomb-Eudieott Co. Merchants' Ins. Co. v. Needles, 52
V. Fee, 167 Mich. 574, 133 N. W. 540; Mo. 17; Camp v. Byrne, 41 Mo. 525;
Calkins v. Bump, 120 Mich. 335, 79 N. Ohio & M. E. Co. V. McPherson, 35
W. 491; Stofflet v. Strome, 101 Mich. Mo. 86 Am. Dec. 128; Hamtramck
13,
197, 59 N. W. 411; Eaton v. Walker, V. Bankof Edwardsville 2 Mo. 169;
76 Mich. 579, 6 L. E. A. 102, 43 N. W. Eialto Co. v. Miner, 183 Mo. App. 119,
638; Estey Mfg. Co. v. Eunnels, 55 166 S. W. 629; Lemp Hunting & Fish-
Mich. 130, 20 N. W. 823; Chapman v. ing Club v. Hackmann, 172 Mo. App.
Colby, 47 Mich. 46, 10 N. W. 74; Mer- 549, 156 S. W. 791; Elliot v. Sullivan,
chants' & Manufacturers' Bank v. 156 Mo. App. 496, 137 S. W. 287;
Stone, 38 Mich. 779; Monroe v. Ft. White v. Bellefontaine Lodge, I. O. O.
Wayne, J. & S. E. Co., 28 Mich. 272; F., 30 Mo. App. 682; Father Matthew
Swartwout v. Michigan Air Line E. Young Men's Total Abstinence &

692
Ch. 11] COKPOBATIONS BY EsTOPPEL [§334
the contract with a party by a name implying a corporation really
Benev. Society v. Pitzwilliam, 12 Mo. U. E. Co. V. Clarke, 25 N. Y. 208,

App. 445, aff'd 84 Mo. 406; St. Louis Methodist Episco-
aff'g 31 Barb. 258;
Gas Light Co. v. St. Louis, 11 Mo. App. pal Union Church v. Pickett, 19 N.
55, aff'd 84 Mo. 202; Lucas Market Y. 482, aff'g 23 Barb. 436; Green v.
Sav. Bank V. Goldsoll, 8 Mo. App. 596; Grigg, 98 App. Div. 445, 90 N. Y. Supp.
Occidental Ins. Co. v. Ganzhorn, 2 Mo. 565; Eagle Savings & Loan Co. v.
App. 205. See also Kansas City Hotel Samuels, 43 App. Div. 386, 60 N. Y.
Co. V. Hunt, 57 Mo. 126. Supp. 91; National Bank v. Phcp.nix
Nebraska. Equitable Building & Warehousing Co., 6 Hun 71; National
Loan Ass'n v. Bidwell, 60 Neb. 169, Society of United States Daughters
82 N. W. 384; Livingston Loan & of 1812 V. American Surety Co. of
Building Ass'n v. Drummond, 49 Neb. New York, 56 Misc. 627, 107 N.
200, 68 N. "W. 375; Nebraska Nat. Y. Supp. 820; Wliite v. Eoss,
Bank of York v. Ferguson, 49 Neb. 15 Abb. Pr. 66; Erie County Sav.
109, 59 Am. St. Eep. 522, 68 N. W. 370; Bank v. Baldwin, 22 Alb. L. J. 134;
Glob€j Pub. Co. V. State Bank of Ne- Sands v. Hill, 42 Barb. 651, rev'd on
braska, 41 Neb. 175, 27 L. E. A. 854, 59 other grounds 55 N. Y. 18; Hyatt v.
N. W. 683; Exchange Nat. Bank v. Esmond, 37 Barb. 601; White v. Cov-
Capps, 32 Neb. 242, 29 Am. St. Eep. entry, 29 Barb. 305; Steam Nav. Co.
433,49 N. W. 223; Holland v. Commer- V. Weed, 17 Barb. 378, .aff'd 7 Abb.
cial Bank, 22 Neb. 571, 36 N. W. 113; Pr. 220, 28 Barb. 228; Gorton Steamer
Platte Valley Bank v. Harding, 1 Neb. Co. V. Spofford, 5 Civ. Proc. Eep. 116;
461; Crete Building & Loan Ass'n v. Dutchess Cotton Manufactory v.
Patz, 1 Neb. (Unof.) 768, 95 N. "W. Davis, 14 Johns. 238, 7 Am. Dec. 459;
793; Otoe County Pair & Driving Park Kuypers v. Eeformed Dutch Church,
Ass'n V. Doman, 1 Neb. (Unof.) 179, 6 Paige 570; Palmer v. Lawrence, 3
95 N. "W. 327. See also § 335, infra. Sandf. 161, aff'd 5 N. Y. 389; Weed
New Hampshire. Nashua Eire Ins. Sewing Mach. Co. v. Kaulback, 3 Su-
Co. V. Moore, 55 N. H. 48; Congrega- per. Ct. (3 Thomps. & C.) 304; All
tional Society in Troy v. Perry, 6 N. Saints Church v. Lovett, 1 Super. Ct.
H. 164, 25 Am. Dec. 455. 213. See also Holmes v. Gilliland, 41
New Jersey. Stout v. Zuliek, 48 N. Barb. 568; Caryl v. McElrath, 5 Super.
J. L. 599, 7 AtL 362; Den v. Van Ct. (3 Sandf.) 176. But see Welland
Houten, 10 N. J. L. 270; Campbell v. Canal Co. v. Hathaway, 8 Wend. 480,
Perth Amboy Shipbuilding & Engi- 24 Am. Dec. 51.
neering Co., 70 N. J. Eq. 40, 62 Atl. North Carolina. Payetteville Water-
319, aff'd 71 N. J. Eq. 302, 71 Atl. works Co. V. Tillinghast, 119 N. C. 343,
1133; St. John the Baptist Greek 25 S. E. 960; Tuckasegee Min. Co. v.
Catholic Church v. Baron (N. J. Ch.), Goodhue, 118 N. C. 981, 24 S. B. 797;
73 Atl. 422. Wadesboro Cotton Mills Co. v. Burns,
New Mexico. Palatine Ins. Co. v. 114 N. C. 353, 19 S. E. 238; Eyan v.
Santa Pe Mercantile Co., 13 N. M. Martin, 91 N. C. 464; Wilmington, C.
241, 82 Pac. 363. & E. E. Co. V. Thompson, 52 N. C. 387;
New York. Commercial Bank of Wilmington & M. E. Co. v. Saunders,
Keokuk 108 N. Y. 242, 15
v. Pfeiffer, 48 N. C. 126; Tar Eiver Nav. Co. v.
N. E. 311, aff'g 22 Hun 327; Whitford Neal, 10 N. C. 520.
V. Laidler, 94 N. Y. 145, 46 Am. Eep. Ohio. Newburg Petroleum Co. v.
131, rev'g 25 Hun 136; Black Eiver & Weare, 27 Ohio St. 343; Hagerman v,
693
as evidence of the existence of a corporation, more than as an estoppel
Ohio Bldg. & Sav. Ass'n, 25 Ohio St. East Tennessee Iron Mfg. Co. v. Gas-
186; Lucas v. Greenville Bldg. & Sav. kell, 2Lea 742. See also § 335, infra.
Ass'n, 22 Ohio St. 339; Shawnee Com- Texas. Keller v. Mitchell, 1 White
mercial & Savings Bank v. Miller, 1 & W. Cir. Cas. Ct. App. § 97. See also
Ohio Cir. Ct. (N. S.) 569; Durrell v. § 335, infra.
Belding, 9 Ohio Cir. Ct. 74; Mansfield Utah. Jackson v. Crown Point Min.
V. Woods, Jenks & Co., 11 Ohio Dee. Co., 21 Utah 1, 81 Am. St. Eep. 651,
761. 59 Pac. 238; Marsh v. Mathias, 19
Oklahoma. Lynch v. Ferryman, 29 Utah 350, 56 Pac. 1074; Kilpatrick-
Okla. 615, Ann. Cas. 1913 A 1065, 119 Koch Dry-Goods Co. v. Box, 13 Utah
Pac. 229. 494, 45 Pac. 629; McCord & Nave Mer-
Oregon. Washington Nat. Building, cantile Co. V. Glenn, 6 Utah 139, 21
Loan & Investment Ass'n v. Stanley, Pac. 500.
38 Ore. 319, 58 L. E. A. 816, 84 Am. Vermont. Bank of Manchester v.
St. Eep. 793, 63 Pac. 489; Jones v. Allen, 11 Vt. 302.
Hale, 32 Ore. 465, 52 Pac. 311. See Washington. Carroll v. Pacific Nat.
also Law Guarantee & Trust Society
Bank, 19 Wash. 639, 54 Pac. 32; Wash-
v. Hogue, 37 Ore. 544, 63 Pac. 690, 62 ington Mill Co. V. Craig, 7 Wash. 556,
Pac. 380. 35 Pac. 413.
Pennsylvania. Hassinger v. Am- West Virginia. Marmet Co. v.
mon, 160 Pa. St. 245, 28 Atl. 679;
Archibald, 37 W. Va. 778, 17 S. E. 299;
Johnston v. Elizabeth Building & Loan
Bon Aqua Imp. Co. v. Standard Fire
Ass'n, 104 Pa. St. 394; Preeland v.
Ins. Co., 34 W. Va. 764, 12 S. E. 771;
Pennsylvania Cent. Ins. Co., 94 Pa. St.
Singer Mfg. Co. v. Bennett, 28 W. Va.
504; Spahr v. Farmers Bank, 94 Pa.
16.
St. 429; Grant v. Henry Clay Coal
Wisconsin. Citizens Bank of Clin-
Co., 80 Pa. St. 208; Cochran v. Arnold,
ton V. Jones, 117 Wis. 446, 94 N. W.
58 Pa. St. 399; Dyer v. Walker, 40 Pa.
329; Whitney v. Eobinson, 53 Wis.
St. 157; Mechanics' Building & Loan
309, 10N. W. 512; Mason v. Nichols, 22
Ass'n v. Minnich, 1 Luz. Leg. Reg.
513.
Wis. 376. See also Farmers' & Mill-
ers' Bank v. Detroit & M. E. Co., 17
Philippines. Chinese Chamber of
Wis. 372.
Commerce v. Pua Te Ching, 14 Philip-
pine Rep. 222.
Canada. Manitoba Mortg. & Inv.
Rhode Island. Slocum Warren, 10
v.
Co. V. Daly, 10 Man. L. Eep. 425.
E. I. 116; Slocum v. Providence Steam This is especially true in the case of
& Gas Pipe Co., 10 E. L 112. a note which recites that the payee
South Carolina. Spartanburg & A. is a corporation duly organized under
E. Co. V. Ezell, 14 S. C. 281. the laws of the state. Young v. Platt-

South Dakota. Building & Loan ner Implement Co., 41 Colo. 65, 91
Ass'n of Dakota v. Chamberlain, 4 S. Pac. 1109.
D. 271, 56 N. W. 897. See also Wright In Law Guarantee & Trust Society
v. Lee, 2 S. D. 596, 51 N. W. 706. v. Hogue, 37 Ore. 544, 63 Pac. 690,
Tennessee. Ingle System Co. v. 62 Pae. 380, was held that the es-
it
Norris & Hall, 132 Tenn. 472, 178 S. toppel, if any was waived by
existed,
W. 1113; Greeneville & P. E. Narrow the failure of the plaintiff to demur
Gauge E. Co. v. Johnson, 8 Baxt. 332; to the answer and plea denying its
Merriman v. Magiveny, 12 Heisk. 494; "corporate existence.
694
:
to disprove such fact,^^ and that it is more correct to say that

the party contracting with the corporation will be considered as
having admitted its corporate existence rather than that he cannot
deny it.^' And a number of courts have held that the making of
the contract with the corporation as such is prima facie evidence of
the existence of the eorporation,^^ and that no further proof of that
fact is necessary in an action thereon until such proof is rebutted,^'
26 Brown Scottish-American
v. don V. Cleveland Stone Co., 53 III.
Mortg. Co., 235; Jones v.
110 111. App. 206.
Cincinnati Type Foundry Co., 14 Ind. Massachusetts. Williamsburg City
89; Eyan v. Martin, 91 N. C. 464. See Fire Ins. Co. v. Frothingham, 122
also § 336, infra. Mass. 391; Topping v. Bickford, 4
ZVHoereth v. Franklin Mill Co., 30 Allen 120; Williams v. Cheney, 3
111. 151. Gray 215.
In the following eases the making IVlissourl. Owens, Lane & Dyer
of the contract is said to be an ad- Mach. Co. V. Pierce, 5 Mo. App. 576.
mission of the incorporation of the North Carolina. New Bern Bank-
association ing & Trust Co. V. Duffy, 156 N. C.
Illinois. West Side Auction House 83, 72 8. E. 96; Eyan v. Martin, 91 N.
Co. V. Connecticut Mut. Life Ins. Co., C. 464.
186 111.N. E. 839, aff'g 85
156, 57 111. The making of a note payable to a
App. 497; Mitchell v. Deeds, 49 111. by name is sufficient
corporation evi-
416, 95 Am. Dec. 621. dence of its existence by that name in
Indlaaia. Blake v. HoUey, 14 Ind. an action thereon. Woodson v. Bank
383. Mon. (Ky.) 203.
of Gallipolis, 4 B.
Missouri. Lane & Dyer
Owens, "The reason for the rule, where the
Mach. Co. V. Pierce, 5 Mo. App. 576. instrument itself does not disclose a
New Hampsliire. Nashua Fire Ins. corporate existence, is that the bur-
Co. V. Moore, 55 N. H. 48. den of proving corporate existence
New Jersey. Den v. Van Houten, when there is a plea of nul tiel corpo-
10 N. J. L. 270. ration is on the plaintiff, since the
North Carolina. New Bern Bank- plea denies the averment of the dec-
ing &
Trust Co. V. DufCy, 156 N. C. laration." American Ins. Co. v. Mc-
83, 72 S. E. 96. Clelland, 184 HI. App. 381.
28Alat)ama. Montgomery E. Co. v. In Woods v. Kingston Coal Co., 48

Hurst, 9 Ala. 513. 111. Am. Dec. 554, which was
356, 95
Illiuois. West Side Auction House an action by a corporation on a cove-

nant in a deed executed to it by the
Co. V. Connecticut Mut. Life Ins. Co.,
defendant, it was held that by selling '
186 111. N. B. 839, aff'g 85 111.

156, 57
and conveying the laud to the plain-
App. 497; Hudson v. Green Hill Semi-
tiff the defendant recognized its cor-
nary Corporation, 113 111. 618; Brown
porate existence, and that this, of
V. Scottish-American Mortgage Co.,
itself, was sufficient evidence from
110 235; American Ins. Co. v. Mc-
111.
which the jury might infer that it
Clelland, 184 HI. App. 381; Nelson was acting as a corporate body. See
Chesman & Co. v. Singers, 183 111. also § 336, infra.
App. 591; American Sales Book Co. 29 West Side Auction House Co. v.
V. Wemple, 168 111. App- 639; Trog- Connecticut Mut. Life Ins. Co.. 186
695
§334] Pbivate Coepokations [Ck 11
although the contrary has been held to be true where there is nothing
in an instrument executed to a company which describes or refers
to it as a corporation or in any way intimates that it is one.^"
The making of the contract has also been held to be "estoppel
evidence" of the allegation of incorporation.^^ In at least one state
the, doctrine under discussion has been entirely repudiated, and it
has been held that a corporation cannot be actually or virtually
created by estoppel, and that a person dealing with an association as
a corporation is not thereby estopped to deny its corporate existence.'*
§ 335. — Statutory provisions.

In some jurisdictions the rule that
a person dealing with an association as a corporation is estopped to
deny its corporate existence has been prescribed .by statute. So it has
been variously provided that no person who has transacted business
with a corporation,^' or -who is sued on a contract with a corpora-
Ill.156, 57 N. E. 839, aff'g 85 111. App. 32 National Shutter Bar Co. v. 6. R

497; Hudson v. Green Hill Seminary S. Zimmerman & Co., 110 Md. 313,
Corporation, 113 111. 618; Brown v. 73 Atl. 19; Maryland Tube & Iron
Scottish-American Mortg. Co., 110 111. Works V. West End Improvement Co.,
235; Nelson Chesman & Co. v. Singers, 87 Md. 207, 39 L. E. A. 810, 39 Atl.
183 111. App. 591. See also §336, 620; Bonaparte v. Baltimore, H. & L.
infra. E. E. Co., 75 Md. 340, 23 Atl. 784;
American Ins. Co. v. McClelland,
30 Boyce v. Towsontown Station of M.
184 HI. App. 381; American Sales E. Church, 46 Md. 359. Compare,
Book Co. V. "Wemple, 168 111. App. 639. however, Bartlett v. Wilbur, 53 Md.
In Hudson v. Green Hill Seminary- 485; Pranz v. Teutonia Bldg. Ass'n,
Corporation, 113 111. 618, the court 24 Md. 259, Hager v. Cleveland & Bas-
states that the execution of a note sett,36 Md. 476, in which a contrary
promising to pay a certain sum to the rule appears to have been adopted.
treasurer of the "Green Hill Semi- See also § 341, infra.
nary" was sufficient prima facie evi- 33
Kentucky. St. 1909, §566; Fruin-
dence of incorporation as against a Colnon Contracting Co. v. Chat-
plea of nul tiel corporation. But in terson, 146 Ky. 504, 40 L. E. A. (N.
American Ins. Co. v. McClelland, 184 S.) 857, 143 S. W. 6; Warden v. Madi-
111. App. 381, it is said that this hold- sonville, H. & E. E. Co., 125 Ky. 644,
ing was not necessary for the decision 101 S. W. 914; Drake v. Herndon, 122
of that case because there was other Ky. 206, 28 Ky. L. Eep. 1106, 91 S.
proof of the existence of a de facto W. 674; Com. v. Licking Valley Bldg.
corporation, and attention is also Ass'n No. 3, 118 Ky. 791, 82 S. W.
called to the fact that in that case 435; Johnson v. Mason Lodge No. 33,
the trial court found for the plaintiff, L O. O. F., 106 Ky. 838, 51 S. W. 620;
and itsjudgment was affirmed. Wood V. Friendship Lodge No. 5, I.
31 The signing of a note payable to O. 0. F. of Lexington, 106 Ky. 424,
a corporation "is estoppel evidence 50 S. W. 836; Walton v. Eiley, 85 Ky.
of the allegation of its incorpora- 413, 3 S. W. 605, overruling Heinig v.
tion." Eyan V. Martin, 91 N. C. '464. Adams & Westlake Mfg. Co., 81 Ky.
696
Ch. 11] COEPOKATIONS BY EsTOPPEL [§335
tion,^* shall set up or be permitted to rely upon its want of legal incor-
poration as a defense, or that all who have dealt with a corporation as
such are estopped from denying its corporate existence ^^ or that no ;
person who assumes an obligation to a corporation as such shall resist

the enforcement of such obligation on the ground that there was in
fact no such corporation, until that fact has been adjudged in a direct
proceeding had for that purpose.'®
It has been held that such a provision applies in the case of in-
effective attempts to amend the corporate charter or articles as well
as to the want of an original legal organization, and that "no defense
* * * which a party contracting with the corporation would be
disqualified to set up, can be made available in connection with an
'''
amendment to the original articles.
'
'
300, 5 Ky. L. Eep. 281, and, by im- the ground that it has not been legally
Eobinson v. Harris, 5 Ky. L.
plication, organized.
Eep. 928. Handley v. Stutz, 139 TJ. Nebraska. Comp. St. 1911, § 2102;
S. 417, 35 L. Ed. 227, rev'g on other Lincoln Butter Co. v. Edwards-Brad-
grounds 41 Fed. 531. Gen. St. 1873, ford Lumber Co., 76 Neb. 477, 107
c. 56, § 18, provided that no person N.,W. 797; Livingston Loan & Build-
sued on a contract made with a cor- ing Ass'n V. Drummond, 49 Neb. 200,
poration should be permitted to rely 68 N. W. 375; Holland v. Commercial
upon its legal organization in his de- Bank, 22 Neb. 571, 36 N. W. 113.
fense. Walton V. Riley, 85 Ky. 413, Tennessee. Shannon's Code, § 20C4;
3 S. W. 605, overruling Heinig v. Pope V. Merchants' Trust Co., 118
Adams & Westlake Mfg. Co., 81 Ky. Tenn. 506, 103 S. W. 792; Bon Aqua
300, 5 Ky. L. Eep. 281, and, by im- Improvement Co. v. Standard Fire
plication, Eobinson v. Harris, 5 Ky. Ins. Co., 34 W. Va. 764, 12 S. E. 771
L. Eep. 928. (construing the Tennessee act).
34 Florida. Gen. St. 1906, §2687. 35 Georgia. Code 1911, §2226; Col-
Iowa. Code 1897, § 1636; Quinn v. lins v. Citizens ' Bank & Trust Co., 121
Shields, 62 Iowa 49 Am. Eep.
129, Ga. 513, 39 S. E. 594.
141, 17 N. "W. 437; Carrothers v. New- 36 Montana. Eev. Codes, §3810;
ton Mineral Spring Co., 61 Iowa 681, Daily v. Marshall, 47 Mont. 377, 133
17 N. W. 43; Courtright v. Deeds, 37 Pac. 681.
Iowa 503; Howe Mach. Co. v. Snow, Texas. Penner v. Britton (Tex. Civ.
32 Iowa 433; Washington College v. App.), 34 S. W. 301. Under this pro-
Duke, 14 Iowa 14; Iowa Lillovet Gold vision, a person who has taken a lease
Min. Co. V. United States Fidelity & from a corporation cannot deny its
Guaranty Co., 146 Fed. 437. In Quinn corporate existence in an action
V. Shields, 62 Iowa 129, 49 Am. Eep. against him to recover rents and for
141, 17 N. W. 437, it was held that a the possession of the leased premises.
bequest is a "contract," within the Lamb v. Beaumont Temperance Hall
meaning of this provision, and that, Co., 2 Tex. Civ. App. 289, 21 S. W,
where a corporation seeks to enforce 713.
a bequest to it in a will duly pro- 37 Handley v. Stutz, 139 U. S.
417,
bated, its claim cannot be resisted on 35 L. Ed. 227, construing the Ken-
697
§ 335 J Private Coeporations [Ch. 11
On the other hand, it has heen held that the effect of such pro-
visions is to permit persons other than those named therein to rely
upon the want of legal organization as a defense to an action brought
by the corporation.^' And it has also been held that where the statute
provides that where an effort has been made in good faith to form,
under the laws of the state, a corporation capable of being formed
thereunder, neither party, to any transaction with it shall deny the
legality of its incorporation, the obvious intent and spirit of the
provision being "to save the incorporation of persons who have in
good faith made an effort to comply with the requisites of the cor-
poration laws of the state, but whose compliance turns out to have
been in some respects irregular or informal," and that "it was not
intended to cover eases where, through indifference or neglect, there
has been no attempt at all to comply with important requirements
of the law, which by its express terms are made conditions precedent
to the possession or use of any corporate franchises."'' And also
that it applies only where the legality of the incorporation is denied,
and not where it is merely claimed that the association had not yet
become incorporated at the 'time of the transaction in question.*"
Under a statute providing that corporations unauthorized by law
cannot appear in court in their corporate names, one sued on a
contract made ^dth an ostensible corporation may set up that it has
not complied with the statutory conditions precedent to a valid in-
corporation.*^
tucky statute, and rev'g on other may set up as a defense to an action

grounds 41 Fed. 531. thereon, brought in the name
of the
38 One whose property is sought to bank, that it has not complied with
be condemned may rely on the want the conditions precedent to a valid
of legal incorporation, since he has not incorporation under the banking act.
transacted business with the corpora- Workingmeu's Accommodation Bank
tion and is not sued for an injury to v. Converse, 29 La. Ann. 369, followed
his property. Warden v. Madison- in Workingmen's Bank v. Converse,,
ville, H. & E. E. Co., 125 Ky. 644, 33 La. Ann. 963; Hincks v. Converse,
101 S. W. 914. 37 La. Ann. 484. But in American
where there has
39 As, for example, Homestead Co. v. Linigan, 46 La.
been a failure to pay the bonus tax. Ann. 1118, 15 So. 369, the foregoing
National Shutter Bar Co. v. 6. F. S. decisions were said not to be abso-
Zimmerman & Co., 110 Md. 313, 73 lutely in line with other decisions on
Atl. 19 (construing Acts 1908, c. 240, the subject, and the rule laid down
§ 6). by them was held not to apply in ac-
40 National Shutter Bar Co. v. G. tions against stockholders to recover
F. S. Zimmerman & Md. 313,
Co., 110 on stock subscriptions, or against a
73 Atl. 19. stockholder in a building association
41 So the principal and sureties on to recover the amount of a loan to
the bond of an employee of a bank him.
698
Ck 11] COKPOEATIONS BY EsTOPPEL [§336
§336. — Oontractingf in name implying corporate existence. In

some of the eases it has been held that making a note to an association,
or taking one from it, or entering into otheri contracts with it, in a
name which is ordinarily, though not necessarilj-, taken as implying
a corporation, does not even prima facie estop one from denying that
the association is a corporation, where there is no recital in the
contract that it is a corporation, since an unincorporated association
may thus do business in a name which would be appropriate to a
eorporation,*^ and contracting with it under such a name merely
42 United States Bank v. Stearns, and that, not having done so, it was
15 Wend. (N. Y.) 314; Welland Canal error to the jury that the
instruct
Co. V. Hathaway, 8 "Wend. (N. Y.) defendant could not deny, the exist-
480, 24 Am. Dec. 51; Williams v. Bank ence of the bank. It was further held
of Michigan, 7 Wend. (N. Y.) 539; that the note was competent evidence
HoUoway v. Memphis, E. P. & P. E. of user.
Co., 23 Tex. 465, 76 Am. Dec. 68; Bank The mere fact that a contract is
of Alabama v. Simonton, 2 Tex. 531. made in the name of the "Pierre &
The court in Welland Canal Co. v. Ft. Pierre Bridge Company" is not
Hathaway, 8 Wend. (N. Y.) 480, 24 notice to the other party that such
Am. Dec. 51, points out that the state- company was conducting the business
ment to the contrary in Dutchess Cot- in question as a corporation so as to
ton Manufactory v. Davis, 14 Johns. preclude him from holding its mem-
(N. Y.) 238, 7 Am. Dec. 459, was bers liable as partners on the
merely dictum, and this fact is also contract, since they could have as-
referred to in Bank of Alabama v. sumed that name by which to transact
Simonton, 2 Tex. 531. So it was held business as a partnership. Eust-Oweu
that a person was not estopped by Lumber Co. v. Wellman, 10 S. D. 122,
selling goods to "The Hot Springs 72 N. W. 89.
Ice Company." (Garnett v. Richard- The name "Walker,, Hopkins &
son, 35 Ark. 144.) The same was held Co." does not indicate that such com-
of a person contracting with "The pany is a corporation so as to pre-
Bone Black Company '
' (Field v. Cook, clude one contracting with it in that
16 La. Ann. 153); and of a person name from contending he be- that
depositing in a bank doing business lieved be a copartnership. Eaton
it to
under the name of "Traders' Bank" V. Walker, 76 Mich. 579, 6 L. E. A.
(Williams v. Hewitt, 47 La. Ann. 102, 43 N. W. 638.
1076, 49 Am. St. Eep. 394, 17 So. The name "Crowell Glass & Cold
496) and of a person contracting with
; Storage Company" signed to a note
"Hughes & Gawthorp Co." (Guckert is not sufficient to put the indorsee
V. Hacke, 159 Pa. St. 303, 28 Atl. 249). upon inquiry as to the incorporation
In Gaines v. Bank, 12 Ark. 769, of the maker so as to prevent him
which was a suit on a note payable to from holding its members liable there-
the "Bank of Mississippi," in which on as partners. New York Nat.
defendant pleaded nul tiel corporation, Exch. Bank of City of New York v.
it was held that even if the execution Crowell, 177 Pa. St. 313, 35 Atl. 613.
of the note was an estoppel, the plain- In Cunyus v. Guenther, 96 Ala. 564,
tiff should have pleaded it in reply. 11 So. 649, it was held that the name
699
336] Private Coeporations [Ck 11
admits the existence of an association acting under that name,** and

thatits members had capacity to transact business as a company.**
On the other hand, a number of courts have held that there is at

least a prima facie admission and estoppel, if the name used is one
which is generally considered as importing a corporation, rather than
a mere unincorporated association.*^ In such eases, "the form of
"The Penn Mutual Insurance

Life tracting with the corporation. Eey-
Company of Philadelphia"
did not nolds v. Skelton, 2 Tex. 516.
give rise to an inference that such 44 United States Bank v. Stearns,
company was incorporated so as to 15 Wend. (N. Y.) 314.
make its failure to comply with the 46 Williams v. Franklin Tp. Aca-
statute relative to foreign insurance demical Ass'n, 26 Ind. 310; Blake v.
companies, a defense to an action by HoUey, 14 Ind. 383; Gainesville & Ala-
it on a premium note. An,d in Clark chua County Hospital Ass'n v. Atlan-
V. Jones, 87 Ala. 474, 6 So. 362, that tic Coast Line E. Co., 157 N. C. 460, 73
the name "Wetumpka Lumber Com- S. E. 242; Eyan v. Martin, 91 N. C.
pany" might import either a corpo- 464.
ration, an unincorporated association, The giving of a note to a corpora-
or a partnership, and that no presumption in its corporate name is an ad-
tion arose from the mere name that mission of due incorporation so
its
it was the one or the other. In this far, at least, as to render proof of that
case it was sought to hold the defend- fact unnecessary in the first instance
ant individually liable as a partner for in an action on the note. Williams v.
goods sold to a company. But in Cheney, 3 Gray (Mass.) 215; New
Montgomery E. Co. v. Hurst, 9 Ala. Bern Banking & Trust Co. v. Duffy,
513, it was held that the making of 156 N. C. 83, 72 S. E. 96.
notes payable to a corporation by its "The execution and delivery of a
corporate name is an admission by promissory note to the payee by its
the maker of its incorporation, and corporate name is such an admission
prima facie evidence of the existence of the incorporation of the payee as
of the charter of the company and to make out a prima facie case on that
user under it. And see Magnolia Shin- point, although the note does not state
gle Co. V. J. Zimmern 's Co., 3 Ala. App. that the payee was incorporated."
578, 58 So. 90. See also McVicker v. Owens, Lane & Dyer Mach. Co. v.
Cone, 21 Ore. 353, 28 Pac. 76; Jack- Pierce, 5 Mo. App. 576.
It is more correct to say that a
son's Adm'x V. Bank of Marietta, 9
party contracting with a corporation
Leigh (Va.) 240.
by name will be considered as having
43 Welland Canal Co. v. Hathaway,
admitted its incorporation rather than
8 Wend. (N. T.) 480, 24 Am. Dec. 51;
that he cannot deny it. Hoereth v.
HoUoway v. Memphis, E. P. & P. E.
Franklin Mill Co., 30 111. 151.
Am. Dec. 68; Bank
Co., 23 Tex. 465, 76
"Ifthe style by which a party
of Alabama v. Simonton, 2 Tex. 531. is contracted with is such as is usual
Where a note is made payable to in creating corporations; viz., nam-
the "Bank of the State of Alabama," ing an ideality, but disclosing that
all presumption is in favor of its legal of no individual, as is usual in the
and true character being such as was case of
simple partnerships, it has
acknowledged by the maker in con- been treated as prima facie, at least,
700
name which would be assumed to be a corporation is said to imply-

that it is a corporation, and the mere introduction of the obligation
indicating a corporate existence. And admission on his part of the right of

such seems to have been the rule at the person or being represented by
common law." Jones v. Cincinnati that name to enforce the contract by
Type Foundry Co., 14 Ind. 89, quoted action." And this language was
in Williams v. Franklin Tp. Aeademi- quoted, in substance, and the rule
ealAss'n 26 Ind. 310; Eyan v. Martin, laid down followed in Continental Ins.
91 N. C. 464. Co. V. Richardson, 69 Minn. 433, 72
'
But, in this class of cases, it would
' N. W. 458.
seem, after all, that the courts have The rule stated in the text has been
proceeded upon a rule of evidence, applied in the case of notes made to
rather than the strict doctrine of es- "The Commercial National Bank"
toppel. They have treated the con- (Joseph Holmes Fuel & Feed Co. v.
tract with a party by a name implying Commercial Nat. Bank, 23 Colo. 210,
a corporation, really as evidence of 47 Pac. 289) ; or to " The Platte Val
the existence of a corporation, more ley Bank" (Platte Valley Bank v,
than as an estoppel to disprove such Harding, 1 Neb. 461); or to the "Con-
fact." Jones v. Cincinnati Type tinental Insurance Company" (Top-
Foundry Co., 14 Ind. 89, quoted in ping V. Bickford, 4 Allen [Mass.] 120:
part in Brown v. Scottish-American Continental Ins. Co. v. Richardson, 69
Mortg. Co., 110 111. 235. Minn. 433, 72 N. W. 458); or to "the
"The doctrine of conclusive estop- President, Directors and company of
pel seems more properly applied to the bank of Galliopolis" (Bank of
cases involving the question of legal- Galliopolis v. Trimble, 6 B. Mon.
ity of organization, where the fact of [Ky.] 599); or to "The German Sav-
an existing statute, authorizing, in the ings Fund Society of Indianapolis"
given ease, such corporation, is known (Meikel v. German Sav. Fund Society,
to the court, either by judicial notice 16 Ind. 181); or to the "Miami Pow-
or evidence in the cause."
actual der Co." (Miami Powder Co. v.
Jones V. Cincinnati Type Foundry Co., Hotehkiss, 17 111. App. 622) or to the
;
14 Ind. 89. "Missouri City Savings Bank"

This rule of estoppel "is subject (Stoutimore v. Clark, 70 Mo. 471); or
however to the qualification that if to "Studebaker Brothers' Manufac-
the plaintiff assumes to be a corpora- turing Co." (Studebaker Bros. Mfg.
tion organized in this state, the name Co. V. Montgomery, 74 Mo. 101); or to
must be such as to imply such a cor- "The Johnston Harvester Company"
poration as some law of the state au- (Johnston Harvester Co. v. Clark, 30
thorizes." Williams v. Franklin Tp. Minn. 308, 15 N. W. 252); or to a
Academical Ass'n, 26 Ind. 310. railroad company (Montgomery E.
In Johnston Harvester Co. v. Clark, Co. V. Hurst, 9 Ala. 513; Mitchell v.
30 Minn. 308, 15 N. W. 252, it is said Deeds, 49 111. 416, 95 Am. Dec. 621);
that by contracting with a company and of bonds executed to "The Den-
by name "the defendant recognized ver Music Company" (Kelleher v.
the existence of some legal entity by Denver Music Co., 48 Colo. 212, 109
that name, and having capacity to Pac. 860); or to the "Cleveland Stone
contract; and the contract was itself Company" (Trogden v. Cleveland
sufficient prima facie proof against Stone App. 206).
Co., 53 111.
the defendant, in the nature of an The description of the trustee in a
701
'
§336] Peivate Coepobations [Ch. 11
as evidence will make out a prima facie ease that the contract is with
a corporation."*^
deed of trust as "The Nebraska Loan promising to pay a certain sum to the
& Trust Company," and recitals that treasurer of the "Green Hill Semi-
the trustee was a corporation in a nary" was sufficient prima facie evi-
deed and the acknowledgment thereof dence of incorporation as against a
executed by the trustee pursuant to plea of nul tiel corporation. But in
the trust, were held to be sufficient American Ins. Co. v. McClelland, 184
prima facie proof in an action to 111. App. 381, it is said that this hold-
quiet title. Lougee v. Wilson, 24 Colo. ing was not necessary for the deci-
App. 70, 131 Pae. 777. sion of that case because there was
A bond running to "the Williams- other proof of the existence of a
burg City Mre Insurance Company de facto corporation, and attention
of Brooklyn, New York," and its is also called to the fact that in that
"successors and assigns," is sufficient case the trial court found for the
prima facie evidence of the incor- plaintiff and that its judgment was
poration of such company in an action affirmed.
by it thereon. Williamsburg City Fire In Mclntire v. Preston, 10 111. (5
Ins. Co. V. Prothingham, 122 Mass. Gilm.) 48, 48 Am. Dec. 321, it is said
391. that the note in suit "being payable
"The name 'Ingle System Com- to the Ocean Insurance Company in
pany' does not indicate that it is a itscorporate capacity, prima facie no
firm of individuals. While it is not other evidence of user was neces-
a conclusive fact, yet it may be fairly sary. '
assumed as a presumption from the A finding that persons dealt with
name of the company that it is a an association as a corporation is
corporation, especially at this time, sustained, in the absence of evidence
when corporations form such a large to the contrary, by evidence that they
part of the concerns engaged in busi- dealt with it as the "M. Savings
ness, and especially among those doing Bank," where there is a statute for-
an interstate business * * *." In- bidding any unincorporated bank to
gle System Co. v. Norria & Hall, 132 solicit deposits as a "savings bank."
Tenn. 472, 178 S. W. 1113. Eichards v. Minnesota Sav. Bank, 75
The name "Tindle Cotton Com- Minn. 196, 77 N. W. 822. See also
pany" is prima facie that of a cor- Grande Eonde Lumber Co. v. Cotton,
poration and not a, firm, and will be 12 Colo. App. 375, 55 Pac. 610; Mcln-
so treated by way of presumption in tire V. Preston, 10 111. (5 Gilm.) 48,
the absence of proof when the basic 48 Am. Dec. 321; Vater v. Lewis, 36
inquiry is whether notice was im- Ind. 288, 10 Am. Eep. 29; Bank of
parted thereby to those who in deal- Galliopolis v. Trimble, 6 B. Mon. (Ky.)
ing with it took exchange issued by 599; Estey Mfg. Co. v. Eunnels, 55
the bank in its behalf under that Mich. 130, 20 N. W. 823; Minnesota
name. Pemiscot County Bank v. Cen- Gas-light Economizer Co. v. Denslow,
tral State Nat. Bank, Tenn. —
,
— 46 Minn. 171, 48 N. W. 771; Exchange
185 S. W. 702. Nat. Bank v. Capps, 32 Neb. 242, 29
In Hudson v. Green Hill Seminary Am. St. Eep. 433, 49 N. W. 223.
Corporation, 113 111. 618, the court 46 Ingle System Co. v. Norris &
states that the execution of a note Hall, 132 Tenn. 472, 178 S. W. 1113.
702
Ch. 11] COEPORATIONS BY EsTOPPEL [§337
The use of such a name is not conclusive, however,*'' and will not
preclude one contracting with the persons assuming it from showing
that he dealt with them as individuals composing a partnership and
not as a corporation ** or that they were not in fact assuming to be
;
a corporation, but only a partnership.*^ The word "company" is

equally applicable to a partnership, and its use does not imply a claim
of corporate existence so as to estop a person contracting with it.*'
has also been held that merely mentioning a bank by its cor-
It
porate name in a note as the place where such note is payable is not
such a recognition of the bank as a corporation as to estop the maker
to deny its corporate existence, where it afterwards acquires title to
the note and brings an action upon it."^
§ 337. —
Conveyances, mortgages and leases. As a general rule,
the taking of a conveyance of land from an association which assumes
to execute the conveyance as a corporation will estop the grantee''''
*7 Ingle System Co. v. Norris & held that one who had accepted, as
Hall, 132 Tenn. 472, 178 S. "W. 1113. payee, a note made payable at a
48 Though it is more appropriate to bank which was styled by the parties
a corporation than to a partnership. to the note a "national bank," and
Christian & Craft Grocery Co. v. Fruit- who sold the note to the bank, could
dale Lumber Co., 121 Ala. 340, 25 So. not put the organization of the bank
566. as a corporation in issue by merely
One who takes a note signed with averring want of knowledge or infor-
the name of a company is not es- mation suf&cient to form a belief as
topped to hold its members liable as to its corporate existence. Huffaker
partners,where he did not deal with V. National Bank of Monticello, 12
them as a corporation, but as indi- Bush (Ky.) 287.
viduals using that name solely as a BSDooleyv. Wolcott, 4 Allen
trade name. Brooke v. Day, 129 Ga. (Mass.) 406; Daniels v. Boanoke Eail-
694, 59 S. E. 769. road & Lumber Co., 158 N. C. 418,
49 Hubbard Chappel, 14 Ind. 601.
v. 74 S. E. 331; Lynch v. Ferryman, 29
60 American Ins. Co. v. McClelland, Okla. 615, Ann. Cas. 1913 A
1065, 119
184 111. App. 381; American Sales Pae. 229.
Book Co. V. Wemple, 168 111. App. The grantee is estopped to deny the
639. corporate existence of the grantor in
Sl.So held of a note made payable an action of ejectment to recover the
at the "Hungerford National Bank," property on breach of a condition.
which became the property of such Cowell V. Colorado Springs Co., 100
bank, and was sued upon by it. Hun- U. S. 55, 25 L. Ed. 547, aff'g 3 Colo.
gerford Nat. Bank v. Van Nostrand, 82. But where a corporation is or-
106 Mass. 559. See also Lucas v. Bank ganized in one state for the sole pur-
of Georgia, 2 Stew. (Ala.) 147; Mix pose of buying and selling land in
V. National Bank, 91 HI. 20, 33 Am. another state, for which purpose it
Eep. 44; Hall v. Harris, 16 Ind. 180. could not be organized under the laws
In a Kentucky case, however, it was of the latter, a conveyance by it in
703
and those claiming under him from attacking the titie of the
^^
association at the time of the conveyance ^* on the ground that it was

not legally inborporated. So one who has taken, a conveyance from
a corporation cannot attack its existence as a corporation for the
purpose of defeating a mortgage previously executed by it.*^
In like manner a person who conveys real property to an associa-

tion as a corporation cannot avoid the conveyance by denying the
corporate existence of the grantee,*^ and this estoppel also extends
the latter state is void, and the gran- Montana. See Morrison v. Clark,
tee, when sued on a note and mort- 24 Mont. 515, 63 Pac. 98.
gage given for the purchase price, New York. Stoker v. Schwab, 1 N.
may defend on the ground of want T. Supp. 425.
of consideration. LafEerty v. Evans, North Carolina. Daniels v. Eoanoke
17 Okla. 247, 21 L. E. A. (N. S.) 363, Eailroad & Lumber Co., 158 N. C. 418,
87 Pae. 304. 74 S. E. 331.
S3 See § 356, infra. Oklahoma. Lynch v. Perryman, 29
64 He may show that the corpora- Okla. 615, Ann. Cas. 1913 A 1065, 119
tion has since legally ceased to exist. Pac. 229; Myatt v. Ponca City Land
See § 331, supra. & Improvement Co., 14 Okla. 189, 68
65
Cowell V. Colorado Springs Co., L. E. A. 810, 78 Pac. 185.
100 U. S. 55, 25 L. Ed. 547, aff'g 3 Oregon. Jones v. Hale, 32 Ore. 465,
Colo. 82; Beekman v. Hudson Eiver 52 Pae. 311.
West Shore E. Co., 35 Fed. 3. Wisconsin. Eicketson v. Galligan,
66 United States. Myers v. Croft, 89 Wis. 394, 62 N. W. 87; Whitney v.
13 Wall. 291, 20 L. Ed. 562; Smith v. Eobinson, 53 Wis. 309, 10 N. W. 512.
Sheeley, 12 Wall., 358, 20 L. Ed. 430; This rule was applied in a suit to
Frost's Lessee v. Frostburg Coal Co., reform the deed. Otoe County Fair
24 How. 278, 16 L. Ed. 637; Eannels & Driving Park Ass'n v. Doman, 1
v. Eowe, 145 Fed. 296, certiorari de- Neb. (Unof.) 179, 95 N. W. 327.
nied 207 U. S. 591, 52 L. Ed. 355 (mem. Also, where the deed recited that
dec). the grantee was a corporation, and
Colorado. Bates v. Wilson, 14 Colo. contained covenants of warranty.
140, 24 Pac. 99. Eagan v. McElroy, 98 Mo. 349, 11 S.
Indiana. Baker v. NefE, 73 Ind. W. 735.
68; Snyder v. Studebaker, 19 Ind. 462, One who sells and conveys land to
81 Am. Dec. 415. a corporation thereby recognizes its

Iowa. See Brown v. Phillips, 16 corporate existence, and the fact that
Iowa 210. euch conveyance was made is of itself
Massachusetts. See Packard v. Old sufficient evidence to warrant, a iind-
Colony E. Co., 168 Mass. 92, 46 N. ing that the grantee was acting as a
E. 433. corporation, as against a plea of nul
Missouri. White Oak Grove Benev. tiel corporation in an action by it on
Society v. Murray, 145 Mo. 622, 47 the covenant of warranty in the deed.
S. W. 501; Eeinhard v. Virginia Lead Wood V. Kingston Coal Co., 48 HI.
Min. Co., 107 Mo. 616, 28 Am. St. Eep. 356, 95 Am. Dec. 554.
441, 18 S. W. 17; Broadwell v. Merritt, A deed made to a corporation before
87 Mo. 95. its organization inures to its use, after
704
to persons who are in privity with the grantor.^'' Similarly, one who
has contracted to purchase land from a corporation as such is estopped
to deny its corporate existence in a suit by him for a specific per-
formance,** and one who takes property in trust for a corporation,
and agrees to convey the same to it, is estopped to allege that the
corporation has not been legally organized in order to avoid the
trust."
The rule of estoppel also extends to persons who execute mortgages
or deeds of trust to the pretended corporation, or who take mort-
gages or trust deeds from it. So one who gives a mortgage to a
corporation cannot deny its corporate existence to defeat the fore-
closure of the same,^" or an action to recover the property by one who
its by way of estoppel

organizatioh, California.California Fruit Ex-
against the grantor.Dyer v. Eich, 1 change Buck, 163 Cal. 223, 124
V.
Mete. (Mass.) 180. See also White Pac. 824; Bank of Shasta v. Boyd, 99
Oak Grove Benev. Society v. Murray, Cal. 604, 34 Pac. 337; Grangers' Busi-
145 Mo. 622, 47 S. W. 501; Broadwell ness Ass'n V. Clark, 67 Cal. 634, 8
V. Merritt, 87 Mo. 95. Pac. 445.
One who and acknowledges
signs Colorado. First Congregational
the charter of a corporation thereby Church of Cripple Creek v. Grand Eap-
admits the truthfulness of the facts ids School Furniture Co., 15 Colo. App.
therein recited, and cannot avoid a 46, 60 Pac. 948.
conveyance made by him to the cor- Connecticut. West Winsted Sav.
poration on the ground that the statu- Bank & Bldg. Ass 'n v. Ford, 27 Conn.
tory requirements as to incorporation 282, 71 Am. Dec. 66; People's Sav.
were not complied with, where the Bank & Bldg. Ass'n v. Collins, 27
recitals show compliance. Sword v. Conn. 142.
Wickersham, 29 Kan. 746. Dakota. School Dist. No. 61 v. Al-
57 See § 356, infra. derson, 6 Dak. 145, 41 N. W. 466.
58 Lombard v. Chicago Sinai Con-

Georgia. '
Pattisou v. Albany Build-
gregation, 64 111. 477.
ing & Loan Ass'n, 63 Ga. 373.
Illinois. Brown v. Scottish-Ameri-
59 Friedman v. Janssen, 23 Ky. L.
can Mortg. Co., 110 111. 235; Illinois
Eep. 2151, 66 S. W. 752; Tuckasegee
Grand Trunk E. Co. v. Cook, 29 111.
Min. Co. V. Goodhue, 118 N. C. 981,
237; Snyder v. State Bank of Illi-
24 8. E. 797.
nois, Breese (1 111.) 161.
United States. Deitch v. Staub,
60
Indiana. Jones v. Kokomo Bldg.
115 Fed. 309; Manship v. New South Ass'n, 77 Ind. 340; McLaughlin v. Cit-
Building & Loan
Ass'n, 110 Fed. 845; izens ' Building, Loan & Savings Ass 'n,
Andrews National Foundry & Pipe
v. 62 Ind. 265; Eay v. Indianapolis Ins.
"Works, 77 Fed. 774, 36 L. R. A. 139, Co., 39 Ind. 290; Beaver v. Hartsville
rev'g 68 Fed. 1006, certiorari denied University, 34 Ind. 245; Hubbard v.
166 U. S. 721, 41 L. Ed. 1188 (mem. Chappel, 14 Ind. 601; John v. Farm-
dec.) Dundee Mortgage & Trust In v.
;
ers ' & Mechanics Bank, 2 Blaekf 367,
' .
Co., Ltd. v. Cooper, 26 Fed. 665. 20 Am. Dec. 119.

Alabama. Montgomery E. Co. v. Iowa. Franklin v. Twogood, 18
Hurst, 9 Ala. 513. Iowa 515.
705
I Priv. Corp. —45
purchases it at the foreclosure sale.** And the same rule applies to

the grantor of a trust deed given to a corporation to secure an indebted-
ness to it.'^,
One who has takena conveyance of land on which there is a mort-

gage to a pretended corporation and has assumed the mortgage debt
cannot avoid the mortgage on the ground that the mortgagee is not
legally a corporation.®^ Nor can a junior mortgagee, or one who
Kansas. Massey v. Citizens' BIdg. St. 339; v. New York,

Union Trust Co.
& Sav. Ass'n, 22 Kan. 624. C. & Ohio Dec 773.
St. L. R. E. Co., 9
Kentucky. See Hallam v. Ashford, Oregon. Washington Nat. Building,
24 Kj. L. Eep. 870, 20 S. "W. 197; Bank Loan & Investment Ass'n v. Stanley,
of Galliopolis v. Trimble, 6 B. Mon. 38 Ore. 319, 58 L. E. A. 816, 84 Am.
599. St. Eep. 793, 63 Pac. 489. See also
Louisiana. American Homestead Co.

Law Guarantee & Urust Society v.
Hogue, 37 Ore. 544, 63 Pac. 690, 62
V. Linigan, 46 La. Ann. 1118, 15 So.
Pac. 380.
369.
Pennsylvania. Johnston v. Eliza-
Maryland. Franz v. Teutonia Bldg. beth Building & Loan Ass'n, 104 Pa.
Ass'n No. 2, 24 Md. 259. St. 394; German Ins. Co. v. Strahl, 13
Father Matthew Young
Missouri. Phila. 512.
Men's Total Abstinence & Benev. So- South Dakota. Building & Loan
ciety V. Mo. 406;
Fitzwilliams, 84 Ass'n of Dakota v. Chamberlain, 4
Stoutimore v. Clark, 70 Ho. 471; S. D. 271, 56 N. W. 897.
Holmes v. Eoyal Loan Ass'n, 128 Mo. Wisconsin. Citizens' Bank of Clin-
App. 329, 107 S. W. 1005. ton V. Jones, 117 Wis. 446, 94 N. W.
Nebraska. Equitable Building & 329.
Loan Ass'n v. Bidwell, 60 Neb. 169, Canada. Manitoba Mtg. & Inv. Co.
82 N. W. 384; Exchange Nat. Bank v. V. Daly, 10 Man. L. Eep. 425.
Capps, 32 Neb. 242, 29 Am. St. Eep. 81 Sherwood v. Alvis, 83 Ala. 115, 3
433, 49 N. "W. 223; Platte Valley Bank Am. St. Eep. 695, 3 So. 307; Jones v.
V. Harding, 1 Neb. 461; Crete Build- Kokomo Bldg. Ass'n, 77 Ind. 340.
62 Camp v. Land, 122 Cal. 167, 54
ing & Loan Ass'n v. Patz, 1 Neb.
(TJnof.) 768, 95 N. W. 793. Pac. 839; Winget v. Quincy Building
New Jersey. v. Van Houten,

Den & Homestead Ass'n, 128 111. 67, 21 N.
E. 12, aff'g 29 111. App. 173; Payette
10 N. J. L. 270; Campbell v. Perth
Araboy Shipbuilding & Engineering
v. Free Home Building, Loan & Home-
stead Ass'n, 27 111. App. 307.
Co., 70 N. J. Eq. 40, 62 Atl. 319, aff'd
Where a deed of trust contains an
71 N. J. Eq. 302, 71 Atl. 1133.
admission that the beneficiary is a
New York. Eagle Savings & Loan corporation, and the latter purchases
Co. V. Samuels, 43 App. Div. 386, 60
the property at a sale by the trustee
N. Y. Supp. 91; Erie County Sav.
thereunder, proof of its incorporation
Bank v. Baldwin, 22 Alb. L. J. 134;
is not necessary in an action by it
Mechanics' Bldg. Ass'n v. Stevens, 5 against the grantor to recover posses-
Duer 76. sion of the property. German Bank
Ohio. Hagerman v. Ohio Bldg. & V. Stumpf , 6 Mo. App. 17, a£E 'd 73 Mo.
Sav. Ass'n, 25 Ohio St. 186; Lucas v. 311.
Greenville Bldg. & Sav. Ass'n, 22 Ohio 63 See § 356, infra.
706
Ch. 11] CoEPOKATioNS BY Estoppel [§337
acquires title through the foreclosure of a junior mortgage, attack

the legal existence of the corporate mortgagor,** nor of a senior cor-
porate mortgagee,^* in order to defeat a senior mortgage. And one to
whom a corporation as such has assigned notes and mortgages exe-
cuted to it as such is estopped to contend that the corporation had
been abandoned when the assignment was made and that he was
dealing with a voluntary association which succeeded it.** Nor can
one who assigns a bond and mortgage to a corporation recover the
same back from the assignee of the latter on the ground that such
corporation was not legally incorporated and hence title did not pass
to it.6'
The who lease land from a corporation

rule also applies to persons
or execute leases to So a person taking a lease from a corporation,
it.
or using its property under circumstances raising an implied obliga-

tion, cannot deny its existence in an action for rent or to recover the
premises,** or to recover compensation for use and occupation.*'
Similarly, one who executes a lease to a corporation as such cannot
recover the premises on the ground that the lessee had no corporate
existence.'"* Nor can the regularity of the incorporation of a company
which at one time held title to a ground rent be inquired into in an
action against a subsequent owner thereof to recover arrears.''^
An estoppel may also arise from recitals in deeds or mortgages that
a certain association, not a party to the instrument, is a corporation.'^
filHasaelman v. United States Missouri. Eialto Co. v. Miner, 183

Mortg. Co., 97 Ind. 365. Mo. App. 119, 166 S. W. 629.
65 See § 356, infra. North Carolina. Fayetteville Water-
66 This principle was applied in a works Co. v. Tillinghast, 119 N. C.
suit to cancel the assignments by the 343, 25 S. E. 960.
corporation of such notes and mort- Oklahoma. Lynch v. Ferryman, 29
gages. Calkins v. Bump, 120 Mich. Okla. 615, Ann. Cas. 1913 A 1065, 119
335, 79 N. W. 491. Pac. 229.
67 Green v. Grigg, 98 N". T. App. Texas. Lamb v. Beaumont Temper-
Div. 445, 90 N. Y. Supp. 565. ance Hall Co., 2 Tex. Civ. App. 289,
68 United States. Oregonian Ey. 21 S. W. 713.
Co., Ltd. V. Oregon Ey. & Nav. Co., 27 West Virginia. Marmet Co. v. Arehi-
Fed. 277, êv'd on other grounds bald, 37 W. Va. 778, 17 S. E. 299.
145 U. S. 52, 36 L. Ed. 620; Oregonian 69 Proprietors of Quiney Canal v.
Ey. Co., Ltd. V. Oregon Ey. & Nav. Newcomb, 7 Mete. (Mass.) 276, 39
Co., 22 Fed. 245, rev'd on other Am. Dec. 778.
grounds 130 V. S. 1, 32 L. Ed. 837. 70 Whitney v. Eobinson, 53 Wis.
lUinois. West Side Auction House 309, 10 N; W. 512.
Co. V. Connecticut Mut. Life Ins. Co., 71 McConnell v. Gates, 4 Pennyp.
186 111. 156, 57 N. E. 839, aff'g 85 111. (Pa.) 377.
App. 497; Gilmer Creamery Ass'n v. 72 Hasenritter v. Kirehhoffer, 79 Mo.
Quentin, 142 111. App. 448. 239. See also Altschul v. Casey, 45
707
1 337] Pbivate Cobpoeations [Ch. 11
So, where a conveyance or mortgage of land recites the existence of

a mortgage in favor of a corporation, the grantee, or any other person
claiming through the deed, is estopped to attack the mortgage on
the ground that the mortgagee is not a corporation.''^
§ 338. —
Bonds. The estoppel to deny legal incorporation also
operates against a person who, as principal or surety, executes and
delivers a bond or recognizance payable to a corporation,''* including
a forthcoming bond in an action of replevin,''^ or an attachment
'bond,''® or a bond for dissolution of an attachment,''"'' or an appeal
bo'nd,''^ or an injunction bond,'" or a bond to secure the performance
of a contract,*" or to secure the faithful performance of his duties

by a corporate officer,'^ or agent.*^
Ore. 182, 76 Pae. 1083. And see In- duction in evidence makes out a prima
dependent Order of Mutual Aid v. facie case on the issue of corporate
Paine, 122 111. 625, 14 N. E. 42, aff'g existence. Campbell & Zell Co. v.
23 111. App. 171, applying this rule American Surety 129 Fed. 491,
Co.,
to recitals in a benefit certificate un- aff'd 138 Fed. 531, certiorari denied
der seal. 199 U. S. 607, 50 L. Ed. 331 (mem.
73 Hasenritter v. Kirchhoffer, 79 Mo. dec).
239. 78 Auburn Cycle Co. v. Foote, 69 111.
74 Father. Matthew Young Men's App. 644; Trogdon v. Cleveland Stone

Total Abstinence & Benev. Society v. Co., 53 111. App. 206; L. Gerlinger Co.
Pitzwilliam, 12 Mo. App. 445, aff'd V. Labadie, 41 111. App. 283.
84 Mo. 406. 79 National Society of United States
The giving of such a bond is prima Daughters of 1812 v. American
facie evidence of incorporation. Wil- Surety Co. of New York, 56 N. Y.
liamsburg City Fire Ins. Co. v. Froth- Misc. 627, 107 N. Y. Supp. 820.
ingham, 122 Mass. 391. SOBooske V. Gulf Ice Co., 24 Fla.
Persons executing a recognizance 550, 5 So. 247; Weed Sewing Mach.
as bail for the defendant in an action Co. V. Kaulback, 3 N. Y. Super. Ct.
on the, case for money lent are so (3 Thomps. & C.) 304; Singer Mfg.
estopped. Henriques v. Dutch West Co. V. Bennett, 28 W. Va. 16.
India Co., 2 Ld. Raym. 1532. See also 8X Riemann v. Tyroler & Vorarl-
Williams v. Bank of Michigan, 7 berger Verein, 104 111. App. 413.
Wend. (N. T.) 539. Where the bond recites that the
7B Kelleher v. Denver Music Co., obligee is a corporation. Spreyne v.
48 Colo. 212, 109 Pac. 860; Loaners' Garfield Lodge No. 1 of United Sla-
Bank of City of New York v. Jacoby, vonian Benev. Society, 117 111. App.
10 Hun (N. Y.) 143. 253.
76 Seattle Crockery Co. v. Haley, 6 82 So where the bond of an insurance
Wash. 302, 36 Am. St. Rep. 156, 33 agent conditioned that he will pay
Pae. 650. over to the company money received
77 Smith v. Burlington & M. R. R. by him on its account. Thompson v.
Co.,55 Mo. 526. Commercial Union Assur. Co. of Lon-
Where the bond sued on describes don, England, 20 Colo. App. 331, 78
the obligee as a corporation, its intro- Pac. 1073.
708
'
Ch. 11] COEPOEATIONS BY EsTOPPEL [§ 339
§339. —
Further illustrations. I>Teitlier the indorser of a note
purporting to be made by a corporation,** nor a banking partnership
which has discounted such a note,** can question its corporate existence.
Nor can the maker of a note question the corporate existence of the
payee in an action thereon by an assignee of the latter.**
"Where the name of the payee and indorser of checks indicates that
it is a corporation, a bank which receives and collects them in that
name is estopped to deny the corporate character of the payee in an
action by it to recover the proceeds.**

One to whom
a corporation has, as a corporation, made a pledge
of property cannot deny the existence of the corporation as such in a
suit for the recovery of the property,*'' or in a suit by the pledgor for
an accounting as to the sale of the pledged property and the cancel-
lation of the notes which it was pledged to secure.**
A person effecting insurance in a mutual insurance company as a
corporation, and thereby becoming a member, is estopped to deny its
incorporation in an action against him on a premium note, or for an
assessment.*^ Nor can an insurance company deny the legal existence
of a corporation whose property it has insured, in an action on the
policy.*"
A municipality or quasi-municipality which issues bonds in pay-
ment of a subscription to the stock of a railroad company caiinot
avoid liability thereon on the ground that such company was not a
corporation de jure, or because of irregularities in its organization.*^
83 Pacific Bank v. De Eo, 37 Gal. an employer 's liability indemnity pol-

538. icy to a subordinate lodge of a
84LockwoodV. Wynkoop, 178 Mich. fraternal beneficial association is es-
388, 144 N. W. 846. topped to deny the legal capacity of
85 Francis v. Western Screen Co., such lodge to sue thereon/ Union Pac.
22 Cal. App. 32, 133 Pac. 327. Lodge No. 17, A. O. U. W. v. Bankers'
86 Craig Medicine Co. v. Merchants Surety Co., 79 Neb. 801, 113 N. W.
Bank, 59 Hun (N. Y.) 561, 14 N. Y. 263.
Supp. 16. 91 Andes v. Ely, 158 TJ. S. 312, 39
87 Blanc v. Germania Nat. Bank, L. Ed. 996; Commissioners of Doug;
114 La. 739, 38 So. 537. 24 L:
las Co. v. Bolles, 94 IT. S. 104,
88 Ohio Nat. Bank v. Central Const. Ed. 46; Leavenworth County, v..
Co., 17 App. Cas. (D. C.) 524. Barnes, 94 V. 8. 70, 24 L. Ed. 63;
89
See § 350, infra. Young v. Township of Clarendon, 26
90 Palatine Ins. Co. v. Santa Fe Mer- Fed. 805; Lewis v. Clarendon, 5 Dill,
eantile Co., 13 N. M. 241, 82 Pao. 329, Fed. Cas. No. 8,320; Darlington
363; Bon Aqua Improvement Co. v. v. La Clede County, 4 Dill. 200, Fed.
Standard Fire Ins. Co., 34 "W. Va. 764, Cas. No. 3,577. See also State v.
12 S. E. 771. Trustees of Union Tp., 8 Ohio St. 394.
An insurance company which issues
709
;
And, as a general rule, a city which has treated a public service com-
pany as a corporation and has granted it a franchise,®^ or otherwise
eontraeted with it by ordinance, cannot question its corporate ex-
istence or object to irregularities in its incorporation in actions in-
volving rights arising under such franchise or ordinance,*' though
there is authority to the contrary.'*
The rule also prevents a person who has contracted with a corpora-
tion attempted to be formed by the consolidation of existing corpora-
tions from denying the validity of the consolidation ;
'^ or a person
who has contracted with a corporation in a name conferred upon it
by an amended charter from denying acceptance of the amendment
or compliance with its provisions '* or one who has contracted with
;
it after an attempted amendment under a general statute, from ques-
tioning its existence because of irregularities in the adoption of such

amendment.'''
§ 340. —
Right to sue members or officers as individuals. By the
weight of authority, the rule that one who has contracted with an
association as a corporation is estopped to deny its corporate existence
92 Thus a city which has granted a that where the breach of contract al-
franchise to a telephone company can- leged the repeal by the legislative
is
not question the validity of its in- body of a municipality of a grant
corporation in a suit to enjoin the of privileges or franchises to a cor-
city from interfering with the exercise poration, the doctrine of estoppel can-
of the rights so granted. Old Colony not be invoked to prevent the
Trust Co. V. Wichita, 123 Fed. 762, municipality from contesting the cor-
aff'd 132 Fed. 641. Nor can a city porate existence of the company
which has treated a gas company as bringing the suit.
a corporation in fact, and has granted 9B Vennerv. Farmers ' Loan & Trust
to it a franchise under which it has Co., 90 Fed. 348, certiorari denied 173
operated and expended a large sum U. S. 704, 43 L. Ed. 1185 (mem. dec.)
of money, object toany irregularity Louisville Trust Co. v. Louisville, N.
in its organization. Kalamazoo v. A. & C. E. Co., 84 Fed. 539, rev'd on
Kalamazoo Heat, Light & Power Co., other grounds 174 XT. S. 674, 43 L.
124 Mich. 74, 82 N. W. 811. Ed. 1130; Young v. Township of Clar-
93 A city which has contracted by endon, 26 Fed. 805; Lewis v. Claren-
ordinance with a waterworks com- don, 5 Dill. 329, Fed. Cas. No. 8,320.
pany, as a corporation, to rent hy- See also Mitchell v. Deeds, 49 111. 416,
drants, and has used the same, is 95 Am. Dee. 621.
estopped to question the corporate 96Eppes V. Mississippi, G. & T. E.
existence of the company in a suit by Co., 35 Ala. 33; Pell v. McHenry, 42
it to recover rentals. Greenville v. Pa. St. 41.
Greenville Water Works Co., 125 Ala. 97Deitch V. Staub, 115 Fed. 309.
625, 27 So. 764. See also In re Western Bank & Trust
94 Aspen Water & Light Co. v. As- Co., 163 Fed. 713.
pen, 5 Colo. App. 12, 37 Pac. 728^ holds
710
Ch. 11] COBPOEATIONS BY EsTOPPBL [§340
applies so as to prevent him from maintaining an action on the con-

making the contract,
tract against the associates, or against the officers
as individuals or partners. Having contracted with the association
as a corporate body, he must sue the associates, if at all, as a cor-
poration, unless there has been some fraud on their part rendering
the doctrine of equitable estoppel inapplicable." In this connection
88 United States. Whitney v. Wy- Louisiana. Tulane Improvement Co.

man, 101 V. S. 392, 25 L. Ed. 1050; V. S. A. Chapman & Co., 129 La. 562,
Harrill v. Davis, 168 Ted. 187, 22 L. 56 So. 509; Bond & Braswell v. Scott
E. A. (N. 8.) 1153, rev'g 7 Indian T. Lumber Co., 128 La. 818, 55 So. 468.
152, 15 Ann. Cas. 1134, 104 S. W. See also Sentell v. Hewitt, 50 La.
573; In re Western Bank & Trust Co., Ann. 3, 22 So. 970.
163 Fed. Gartside
713; Coal Co. v. Massachusetts. See First Nat.
Maxwell, 22 Fed. 197. Bank v. Almy, 117 Mass. 476; Wal-
Alabama. Owensboro Wagon Co. v. worthV. Brackett, 98 Mass. 98.
Bliss, 132 Ala. 253, 90 Am. St. Eep. Michigan. Lockwood v. Wynkoop,
907, 31 So. 81; Cory v. Lee, 93 Ala. 178 Mich. 388, 144 N. W. 846; New-
468, 8 So. 694; Snider 's Sons' Co. v. eomb-Endieott Co. v. Fee, 167 Mich.
Troy, 91 Ala. 224, 11 L. E. A. 515, 574, 133 N. W. 54; Love v. Eamsey,
24 Am. St. Eep. 887, 8 So. 658; Mag- 139 Mich. 47, 102 N. W. 279; Gow v.
nolia Shingle Co. v. J. Zimmern's Co., Collin & Parker Lumber Co., 109 Mich.
3 Ala. App. 578, 58 So. 90. 45, 66 N. W. 676; American Mirror
Colorado. Jones v. Aspen Hardware & Glass-Beveling Co. v. Bulckley, 107
Co., 21 Colo. 263, 29 L. E. A. 143, 52 Mich. 447, 65 N. W. 291; Eaton v.
Am. St. Eep. 220, 40 Pac. 457; Hum- Walker, 76 Mich. 579, 6 L. E. A..
phreys V. Mooney, 5 Colo. 282. 102, 43 N. W. 638; Merchants' &
Connecticut. Canfield v. Gregory, Manufacturers' Bank v. Stone, 38
66 Conn. 33 Atl. 536; Stafford Bank
9, Mich. 779.
V. Palmer, 47 Conn. 443. Minnesota. Eichards v. Minnesota
Georgia. Brooke v. Day, 129 Ga. Sav. Bank, 75 Minn. 196, 77 N. W.
694, 59 S. E. 769; Planters' Miners'& 822. See also Christian v. Bowman,
Bank v. Padgett, 69 Ga. 159; Eozar v. 49 Minn. 99, 51 N. W. 663.
Eoseuheim Shoe Co., 14 Ga. App. 13, Nebraska. ISTebraska Nat. Bank of
80 S. E. 24; Orr v. McLeay, 6 Ga. York v. Ferguson, 49 Neb. 109, 59 Am.
App. 417, 65 S. E. 164. St. Eep. 522, 68 N. W. Hogue
370; v.
Illinois. Bushnell v. Consolidated
Capital Nat. Bank of Lincoln, 47 Neb.
Ice Mach. Co., 138 111. 67, 27 N. E.
929, 66 N. W. 1036; Kleckner v. Turk,
596; Tarbell v. Page, 24 111. 46; Brown
45 Neb. 176, 63 N. W. 469.
V. Melick, 185 111. App. 3; Clinton
Co. V. Schwartz, 175 111. App. 577;
NewHampshire. Lamed v. Beal,
65 N. H. 184, 23 Atl. 149.
Hoyt V. McCallum, 102 111. App. 287;
Edwards v. Cleveland Dryer Co., 83 New Jersey. Stout v. Zulick, 48 N.
J. L. 599, 7 Atl. 362.
111. App. 643.
Indiana. Jennings v. Dark, 175 Ifid. New York. Whitf ord v. Laidler, 94
332, 33 L. E. A. (N. S.) 123, 92 N. E. N. Y. 145, 46 Am. Eep. 131, rev'g 25
778; Bradford v. Frankfort, St. L. & Hun 136; Merchants' Nat. Bank v.
T. E. Co., 142 Ind. 383, 41 N. E. 819, Pendleton, 55 Hun 579, 9 N. Y. Supp.
40 N. E. 741. 46.
711
§340] Peivate Cobpokations [Ch, 11
it has been said that, "Where a person deals with what he supposes
is a corporation, with what all parties think is a corporation, where
he gives his credit to that supposed corporation, he cannot afterwards,
when it turns out that it is not validly incorporated, turn round and
say, 'Well, I dealt with this supposed corporation; I trusted it as a
corporation I sold goods to it as a corporation but it seems when it
; ;
first attempted to become incorporated that there was some defect
or irregularity in its proceedings, so that it did not become legally

incorporated, and therefore you who are stockholders will be held
personally liable. '
" 99
In response to the contention that the stockholders may be held

liable as partners upon the principle that one unknowingly dealing
with an agent may hold the principal when discovered, it has been
Ohio. Second Nat. Bank v. Hall, 35 Wash. 210, 35 L. R. A. (N. S.) 453,
Ohio Medill v. Collier, 16 Ohio
St. 158; 105 Pac. 630.
St. 599; Beebe v. Thomas, 7 Ohio Dee. West Virginia. See Bon Aqua Im-
319. provement Co. V. Standard Fire Ins.
Oklahoma. Swofford Bros. Dry Co.,34 W. Va. 764, 12 S. E. 771.
Goods Co. V. Owen, 37 Okla. 616, 133 Wisconsin. Clausen v. Head, 110
Pac. 193. Wis. 405, 84 Am. St. Eep. 933, 85 N.
Pennsylvania. Guckert v. Hacke, W. 1028; Black Eiver Implement Co.
159 Pa. St. 303, 28 Atl. 249; Cochran V. Holway, 85 Wis. 344, 55 N. W.
v. Arnold, 58 Pa. St. 399, overruling 418.
.Paterson v. Arnold, 45 Pa. St. 410; Persons who deal with an asso-
Pierce v. Hacke, 1 Pa. Dist. 517. And ciation as a corporation are estopped
see Pinkerton v. Pennsylvania Trac- to deny the legal existence of the
tion Co., 193 Pa. St. 229, 44 Atl. 284; corporation, or to hold its members in-
Wentz V. Lowe (Pa.), 3 Atl. 878. dividually liable on the contract, be-
South Dakota. See Mason v. Stev- cause of mere irregularities in its
ens, 16 S. D. 320, 92 N. W. 424. organization, or its failure to elect

Tennessee. Shields v. Clifton Hill officers, hold meetings, etc. Elliott
Land 94 Tenn. 123, 26 L. E. A.
Co., V. Sullivan, 156 Mo. App. 496, 137
509, 45 Am. St. Eep. 700, 28 S. W. S. W. 287. See also Queen City Fur-
668; Shouu v. Armstrong (Tenn. Ch.), niture & Carpet Co. v. Crawford, 127
59 S. W. 790; Tennessee Automatic Mo. 356, 30 S. W. 163.
Lighting Co. v. Massey (Tenn. Ch.), A bank which advises and assists
56 S. "W. 35. in the organization of a limited part-
Texas. American Salt Co. v. Hei- nership cannot hold its members liable
denheimer, 80 Tex. 344, 26 Am. St. as general partners on bonds issued by
Eep. 743, 15 S. W. 1038; Seymour it on the ground that it was not or-
Opera-House Co. v. Wooldridge (Tex. ganized in the manner prescribed by

Civ. App.), 31 S. W. 234. law. Allegheny Nat. Bank v. Bailey,
Utah. Mitchell v. Jensen, 29 Utah 147 Pa. St. Ill, 23 Atl. 439.
346, 81 Pac. 165. 99 Mr. Justice Brewer, in Gartside
Ivy Press v. McKech-
Washington. Coal Co. V. Maxwell, 22 Fed. 197, 198,
nie, Wash. 643, 153 Pac. 1067;
88 quoted with approval in In re Western
American Eadiator Co. v. Kinnear, 56 Bank & Trust Co., 163 Fed. 713.
712
said that the corporators, under such circumstances, "have never

authorized any of the agents or members of the de facto corporation
to bind them personally or transact any business for them as such,
but have merely given authority to deal with and bind their interest
in an organization believed to be incapable of fastening a personal
liability upon any stockholder; there has in such case neither been
represented to be, nor secretly known to be, an agency of or for any
principal save the artificial de facto corporation. " ^ To render this
rule applicable, however, the contracting party must have actual or
constructive knowledge that the persons with whom he is dealing
claim to be a corporation.* Nor can the benefits of the rule be claimed
by one who actively participated in contracting the debt sued on in
the name of the pretended corporation, in which he claimed to be
merely a stockholder, if he knew at the time that the company had
no real existence as a corporation.'
A number of courts have held that one who has contracted or other-
wise dealt with a body of men believing it to be a corporation, when
in factit is not, is not estopped to deny the existence of the corpora-
tion,and may proceed against such persons as individuals, at least

where the supposed corporation has not even a de facto corporate
existence.*
Reasons given for so holding are that the true meaning and legal
effect of the rule of estoppel is that the contracting party is estopped
from denying the existence of the corporation on the ground that it
IHoyt V. McCallum, 102 111. App. 49 Mo. App. 345; Glenn v. Bergmann,
287. 20 Mo. App. 343. See also Martin v.
2 See §325, supra. Fewell, 79 Mo. 401.
3 See § 325, supra. New York. Fuller v. Rowe, 57 N.
4 United States. Harrill v. Davis, Y. 23, rev'g on other grounds 59
168 Fed. 187, 22 L. R. A. (N. S.) 1153, Barb. 344.
rev'g 7 Indian T. 152, 15 Ann. Cas. Persons who purchase at sheriff's
1134, 104 S. W. 573. sale the rights, property and fran-
lowa. Kaiser v. Lawrence Sav. chises of a corporation do not thereby
Bank, 56 Iowa 104, 41 Am. Rep. 85, 8 become a corporation, and, where
N. W. 772. they take no steps to incorporate,
Louisiana. Lehman & Co. v. Knapp, are individually liable on a note exe-
48 La. Ann. 1148,.20 So. 674; Williams cuted by them in the corporate name.
V. Hewitt, 47 La. Ann. 1076, 49 Am. Chaffe & Bro. v. Ludeling, 27 La.
St. Rep. 394, 17 So. 496. Ann. 607.
Minnesota. Johnson v. Corser, 34 As to the necessity for the existence
Minn. 355, 25 N. W. 799. of a de facto corporation as the basis
IVIissouri. Hurt v. Salisbury, 55 Mo. of an estoppel, see generally § 326,
310; Elliott V. Sullivan, 156 Mo. App. supra.
496, 137 S. W. 287; Cleaton v. Emery,
713
§ 340] Pbivate Cokpoeations [Ch. 11
was not legally incorporated,^ and that it is limited in its application

to irregularities in the formation of the corporation.^
"Parties who actively engage in business for profit under the name
and pretense of a corporation which they know neither exists nor
has any color of existence may not escape individual liability because
strangers are led by their pretense to contract with their pretended
entity as a corporation. In such cases they act as the agents of a
principal that they know does not exist, and they are liable, under a
familiar rule, because there is no responsible principal. "'' So it has
been held that persons contracting in the name of a purported cor-
poration before its articles have been filed with the secretary of state,*
or before a certificate of incorporation or charter has been issued by
him,3 are individually liable on the contract. And it has also been
held that there no estoppel where the incorporation was procured
is
by a legal fraud, as, for example, where it was organized under the
statutes of one state for the sole purpose of doing business in another,
and with intent to evade the laws of the latter relative to incorpora-
tion.^" Nor is one who sells goods on credit of an individual who
represents that he is a member of a corporation estopped to set up
that there is in fact no such corporation in an action against such
person for the purchase priee.^^ Of course there is no estoppel where
personal liability is imposed by statute in ease of defective or incom-
plete organization.''' And persons who have been members of a part-
nership may be precluded by their conduct from escaping partnership
liability on the ground that they had become incorporated before the
liability in question was incurred. So, "when partners have dealt as
such with a seller, and after becoming incorporated, continue to deal
BHarrill v. Davis, 168 Fed. 187, 22 Mo. 310; Glenn v. Bergmann, 20 Mo.
L. E. A. (N. S.) 1153, rev'g 7 Indian App. 343.
T. 152, 15 Ann. Cas. 1134, 104 S. W. SEyland v: HoUinger, 117 Fed. 216;
573. Farmers' State Bank v. Kuchs, 163
6Elliott V. Sullivan, 156 Mo. App.
^"^ ^PP- ^06, 147 S. W. 862; Elliott
'
^^' ^
406 1^7 W
^- "• 287
="•
^- Sullivan, 156 Mo. App. 496, 137
^yj 287.
THarrill v. Davis, 168 Fed. 187, 22 lo cieaton v. Emery, 49 Mo. App.
L. B. A. (N. S.) 1153, rev'g 7 Indian g^g
T. 152, 15 Ann. Cas. 1134, 104 S. W. li jj^han Bros. Boiler Mfg. Co. v.
573. Richmond, 14 Mo. App. 595.
SHarrill v. Davis, 168 Fed. 187, 22 IZLoverin v. McLaughlin, 161 111.
L. E. A. (N. S.) 1153, rev'g 7 Indian 417, 44 N. B. 99, afE'g 46 111. App. 373;
T. 152, 15 Ann. Cas. 1134, 104 S. W. Liebold v. Green, 69 111. App. 627;
573; Johnson v. Corser, 34 Minn. 355, Eagland v. Doolittle, 100 Miss. 498,
25 N. "W. 799; Hurt v. Salisbury, 55 56 So. 445.
714
[with him] 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 knowledge thereof derived
from some other source." ^^
§341. — Estoppel in cases other than actions on contract. The

estoppel of one who has dealt with a corporation is not necessarily
limited in its operation to eases in which an action is brought against
him or by him on the contract, but applies in many other cases.^*
Thus it has been held that one who has dealt with a pretended cor-
poration and become its creditor is estopped to deny its incorporation
for the purpose of attacking an assignment made by it for the benefit
of its creditors,^* or for the purpose of attacking bonds and mortgages
previously given by it.^* Similarly, one who intervenes in a suit to
13 Martin v. Fewell, 79 Mo. 401. Where a corporation has had busi-

To the same efEeet: McGowan v. ness dealings with another associa-
American Tan Bark 121 U. S.
Co., tion, treating it as a corporation, for
575, 30 L. Ed. 1027; Bice v. Patter- a considerable length of time, it is
son, 92 Miss. 666, 46 So. 255; Perkins estopped to deny its existence as a
V. Eouss, 78 Miss. 343, 29 So. 92. corporation for the purpose of as-
See Chap. 12, infra. serting that assets in its hands belong
11 The corporate integrity of a to the stockholders individually. It
bank, organized to take the place of isestopped to allege, in an action by
one whose charter has expired, and a receiver of such corporation or as-
to which the assets of the old bank sociation, that it was illegally organ-
have been transferred, cannot be as- ized. Eafferty v. Bank of Jersey City,
sailed by one who is sued by the new 33 N. J. L. 368. See also Estey Mfg.
bank to recover the proceeds of forged Co. V. Runnels, 55 Mich. 130, 20 N. W.
drafts issued by an employee of the 823; Carroll v. Pacific Nat. Bank, 19
old bank. Clifford Banking Co. v. Wash. 639, 54 Pac. 32.
Donovan Commission Co., 195 Mo. 262, One who does business with a bank
94 S. "W. 527. as a corporation, and recognizes its
A corporation which has issued existence in receiving its funds, can-
stock in payment for property trans- not question the legality of its organ-
ferred to it by a corporation de facto ization in a suit against him by its
cannot contend as against the holders receivers. Bank of Circleville v. Ee-
of such stock that it is invalid and nick, 15 Ohio 322.
should be canceled on the ground 16 Andrews v. National Foundry &
that the vendor corporation was not Pipe Works, 77 Fed. 744, 36 L. E. A.
legally incorporated and hence had 139, rev'g 68 Fed. 1006, certiorari
no power to make the sale. Way v. denied 166 U. S. 721, 41 L. Ed. 1188
American Grease Co., 60 N. J. Eq. (mem. dec). Toledo, St. L. & K. C.
263, 47 Atl. 44. See also Pinkerton E. Co. V. Continental Trust Co., 95
V. Pennsylvania Traction Co., 193 Pa. Fed. 497, modifying and affirming 86
St. 229, 44 Atl. 284. Fed. 929, 82 Fed. 642, application for
IB Johnston v. Gumbel (Miss.), 19 certiorari denied 176 XT. S. 219, 44 L.
So. 100. Ed. 442; Louisville Trust Co. v. Louis-
715
foreclose a mortgage given by a corporation and claims a prior lien

cannot question the incorporation.^'' And one who has' attached the
property of a corporation on a claim growing out of dealings with
it is estopped to deny its corporate existence for the purpose of
defeating a prior mortgage.^*
A person is estopped to deny the existence of a corporation when,
by being a holder of its bonds, he acquires a locus standi in a suit
brought to foreclose a mortgage made to secure their payment.^'

Also one who becomes surety for the performance of a contract with
a corporation is estopped to deny its corporate existence in a suit
by it by him as in fraud of its rights and to
to set aside a conveyance
charge him as such surety for moneys due it under the contract.^'
Nor can a person who takes a lease from an association as a cor-
poration deny its legal incorporation in an action by it to recover the
premises.^^ This rule applies also where a person has effected in-
surance with an association as: a corporation, and has received from
it payments made under the supposed obligation growing out of that
contract, and he will not be permitted to deny that the association is

a corporation, when sued by it for the restitution of the money thus
paid.^^ And where a member of a subordinate lodge of a fraternal
benefit association names such lodge as the beneficiary to whom the
proceeds of a certificate or policy of insurance issued by the associa-
tion shaU be paid, his heirs cannot question its legal existence.^'
One to whom a corporation has sold property is estopped to deny
its corporate existence in a proceeding involving the validity of the
sale as against corporate creditors,^* as, for example, in an action
against him by a receiver of the corporation to recover the property
on the ground that it was transferred when the corporation was
ville,N. A. & C. E. Co., 84 Fed. 539, ville & Y. Ey. Co., 1 Ohio Cir. Ct.
rev'd on other grounds 174 TJ. S. 426.
674, 43 L. Ed. 1130; Hasselman v. 19 Wallace v. Loomis, 97 U. S. 146,
United States Mortg. Co., 97 Ind. 365; 24 L. Ed. 895.
Hasbrouck v. Eich, 113 Mo. App. 389, 20 Singer Mfg. Co. v. Bennett, 28
88 S. W. 131. See Powell Bros. v. w. Va. 16.
McMullan Lumber Co., 153 N. C. 52, 21 See § 337, supra.
68 S. E. 926. 22 Liverpool & L. Tire & Life Ins.
17 Tenner v. Farmers Loan & Trust
' Co. v. Hunt, 11 La. Ann. 623.
Co. of New York, 90 Fed. 348, certi- 23 Bacon v. Brotherhood of Railroad
orari denied 173 TJ. S. 704, 43 L. Ed. Brakemen, 46 Minn. 303, 48 N. "W.
1185 (mem. dec). 1127.
Lattimer v. Mosaic Glass Co.,
18 24 Eggert v. Cleveland, 138 111. App.
13 Ohio Cir. Ct. 163; Hatry v. Paines- 434.
716
iiisolvent.25 Similarly, persons who have obtained property from a

corporation as its and have otherwise dealt with and recog-
agents,
nized it as a corporation, are estopped to deny its corporate existence
in an action for the conversion of the property so obtained.^® And
an individual who has received the property of a de facto corporation
under a contract made with it in the corporate name is estopped from
disputing its incorporation in an action to compel him to account for
such property." Nor will one who has negotiated with a corporation
for the purchase from it of personal property in his possession be
permitted to question its corporate existence in an action against
him by the corporation to recover the possession of such property.^*
The levy and collection of taxes against a corporation, as such,
estops a municipality from denying its corporate existence in an action
to recover back the taxes paid.®®
An employee who enters into an agreement with an association
whereby he is to receive certain pecuniary and other benefits in case
he is injured, and which provides that his voluntary acceptance of
any such benefits in case of injury shall release the master from all
liability on account thereof, and who accept such benefits, is estopped
to deny the legality of the existence of the association as a de facto
corporation in an action brought by him against his employer to
recover damages for personal injuries in which such contract is inter-
posed as a defense.'"
Statutes in a number of states specifically provide that a person
who is sued for an injury to the property of a corporation or for a
wrong done to its interests shall not be permitted to set up want of its
legal organization as a defense.'^
In Maryland it is held that a corporation cannot be created by
estoppel, and hence that one is not estopped to deny the corporate
existence of a purported corporation in a suit by it against him for
libel by reason of the fact that he has previously directed letters to
it as a corporation and has sued it as such.'®
The rule of estoppel has also been applied by some courts in
25 Caxroll V. Pacific Nat. Bank, 19 29 Monroe Water Co. v. Frenchtown

Wash. 639, 54 Pac. 32. Tp., 98 Mich. 431, 57 N. W. 268.
26Peckham Iron Co. v. Harper, 41 30 Petty v. Brunswick & W. E. Co.,
Ohio St. 100. 109 Ga. 666, 35 S. E. 82.
27 Commercial Bank of Keokuk v. 31 See § 335, supra.
Pf eifeer, 108 N. Y. 242, 15 N. E. 311, 32 National Shutter Bar Co. v. G. F.
aff'g 22 Hun (N. Y.) 327. g. Zimmerman & Co., 110 Md. 313, 73
28 Kelleher v. Denver Music Co., 48 Atl. 19.
Colo. 212, 109 Pac. 860.
717
§ 341] Pkivate Cobpobations [Ch. 11
criminal prosecutions for offenses committed against corporations.^^

So it has been held that in a criminal prosecution for burning in-
sured property with intent to defraud the insurer, it is sufficient to
show that the insurer would be estopped to deny its corporate ex-
istence in an action on the insurance policy.^* And that in a prose-
cution for obtaining money by false pretenses from a bank, a note
and mortgage given by the accused to the bank for the money so ob-
tained is sufficient proof as against him of the de facto existence of
the bank.^* Nor can a person who has been appointed receiver for
a corporation in an equity suit, which recognized the corporation as
one de facto, at least, and under a decree declaring its ownership of
certain money for the purposes of the suit, deny its de facto existence
in a criminal prosecution against him for embezzling the said
money.'*
§ 342. —
Limitations upon and exceptions to the rule. The rule
prohibiting one who has dealt with a pretended corporation from
denying its corporate existence will not prevent him from denying the
existence of powers or privileges which are not necessarily implied
from corporate which depend upon the franchises actu-
existence, but
ally conferred, or in other words, from contending that its acts and
contracts are ultra vires ''' the distinction between the two cases being
;
"between an entire absence of authority in the organic law itself

and a failure to comply with some prerequisite which the law has
made a condition precedent to the exercise of corporate functions.
In the one case, there is a want of power to act; in the other, only
an abuse of power conferred."®' Nor will the fact that one con-
tracts or deals with an association as a corporation estop him from
enforcing an individual liability for corporate debts imposed by
statute upon stockholders'^ or corporate officers in case of a failure
33 In Cason v. State, 16 6a. App. 37 Sherwood y. Alvis, 83 Ala. 115,

820, -86 S. E. the court passes
644, 3 Am. St. Rep. 695, 3 So. 307; Chap-
upon the question whether the cash- man v. Colby, 47 Mich. 46, 10 N. W.
ier of a bank would be estopped to 74.
question the legality of its incorpora- See chapter on Ultra Vires, infra,
tion in a criminal action against him 38 Sherwood v. Alvis, 83 Ala. 115,
for embezzling its funds. 3 Am. Rep. 695, 3 So. 307.
St.
34Jhons V. People, 25 Mich. 499. 39 Stivers v. Carmiehael, 83 Iowa
See also People v. Jones, 24 Mich. 759, 49 N. W. 983; Heuer v. Car-
215. michael, 82 Iowa 288, 47 N. "W. 1034.
3B Cowan V. State, 22 Neb. 519, 35 See also Kleckner v. Turk, 45 Neb.
N. W. 405. 176, 63 N. W. 469.
36 Fields V. United States, 87 App. This is true even though he sues
Cas. (D. C.) 433. and recovers judgment against the
718
Ch. 11] CORPOEATIONS BY EsTOPPEL [§343
to comply with the statutory requirements as to incorporation and

organization,*" since such action on his part does not involve any
denial of the existence of the corporation. Moreover the estoppel
only extends to matters arising out of the contract.*^ Nor, as a rule,
does it preclude a showing that the corporation has legally ceased
to exist since the contract was entered into.**
As we have seen, there is a conflict of authority as to whether
it applies when there is no valid law authorizing the existence of
the corporation in question,*^ or when, for any reason, it is not even
a corporation de facto,** and as to whether and how far it prevents
one contracting with an association as a corporation from holding its
members individually liable on the contract.**
§ 343. Estoppel of pretended corporation—In gfeneral. The doc-

trine in relation to estoppel to deny corporate existence operates not
only as against persons dealing with a corporation, or pretended cor-
poration, and as against members and officers individually, but also
as against the members collectively, or, in other words, against the
pretended corporation itself.*®
corporation on such contract. Stivers 41 For this reason a contract be-

V. Carmichael, 83 Iowa 759, 49 N. W. tween two railway companies whereby
983; Heuer v. Carmichael, 82 Iowa the first company agrees not
to extend
288, 47 N. "W. 1034. its lines into a certain city will not
See chapter on Stock and Stock- estop the second company from deny-
holders, infra. ing the corporate existence of the first
He is not thereby estopped to en- in a suit to enjoin the first company
force a statutory liability for corpo- from entering such city, based on an
rate debts imposed on stockholders alleged exclusive franchise of the sec-
where the corporation commences ond company. Wilmington City Ey.
business before its letters patent and Co. V. Wilmington & B. S. Ey. Co.
charter and an aflSdavit that ten per (Del. Ch.), 46 Atl. 12.
cent, of its capital stock has been 42 See §331, supra.
subscribed and paid are filed and re- 43 See § 327, supra.
corded. Humphreys v. Drew, 59 Fla. 44 See §326, supra.
295, 52 So. 362; Heinberg Bros. v. 45See § 334, supra.
Thompson, 47 Fla. 163, 37 So. 71. 46Eozar v. Eosenheim Shoe Co., 14
40 Dealing with a corporation or Ga. App. 13, 80 S. E. 24; Forest Glen
proving a claim against it does not Brick & Tile Co. v. Gade, 55 111. App.
estop one to enforce against its offi- 181, appeal dismissed 158 111. 39, 42
cers a statutory liability for debts N. E. 65, aff'd 165 111. 367, 46 N. E.
contracted before recording the cer- 286; Brennan v. Weatherford, 53 Tex.
tificate of incorporation. Gunderscn 330, 37 Am. Eep. 758. See also Smith
V. Illinois Trust & Savings Bank, 199 V. Schoodoc Pond Packing Co., 109
111. 422, 65 N. E. 326, aflf'g 100 HI. Me. 555, 84 Atl. 268.
App. 461; Loverin v. McLaughlin, 161 Though the statute provides that a
111. 417, 44 N. E. 99, afC'g 46 111. App. corporation cannot do business until
373. its capitalstock has been subscribed
719
343] Pbivate Cobpokations [Ch. 11
If a body of men assume to act as a corporation, and enter into

a contract as such, they cannot deny their legal existence as a cor-
poration in an action against them, as such, on the contract.*''
in good faith, where it has in fact Aid V. Paine, 122 111. 625, 14 N. E. 42,
done business, the fact that the stock aflE'g 23 HI. App. 171; Eacine & M. E.
was not subscribed cannot be taken Co. V. Farmers' Loan & Trust Co., 49
advantage of collaterally by the cor- 111. 331, 95 Am. Dee. 595; United
poration or by one dealing with it, to States Exp. Co. v. Bedbury, 34 111.
the injury or loss of other parties. 459; Chadwick v. Dieke Tool Co., 186
Spokane v. Amsterdamsch Trustees 111. App. 376; Eggert v. Cleveland, 138
Kantoor, 22 Wash. 172, 60 Pac. 141; lU. App. 434; Gunderson v. Illinois
Carroll v. Pacific Nat. Bank, 19 Wash. Trust & Savings Bank, 100 HI. App.
639, 54 Pac. 32. 461, aflE'd 199 HI. 422, 65 N. E. 326;
47 United States. Allen v. Bhodes, Crystal White Soap Co. v. Eoseboom,91
•230 Ped. 321; L. D. George Lumber 111. App. 551; Fields v. United Broth-
Co. V. Daugherty, 214 Fed. 958; erhood of Carpenters & Joiners, 60

Toledo, St. L. & K. 0. E. Co. v. 111.App. 258; Grand Lodge Brother-
Continental Trust Co., 95 Fed. 497, hood of Locomotive Firemen v. Cra-
afE'g 86 Fed. 929, 82 Fed. 642, cer- mer, 60 111. App. 212, aff'd 164 111.
tiorari denied 176 U. S. 219, 44 L. Ed. 9, 45 N. E. 165; Clarkson v. Erie & N.
442; Louisville Trust Co. v. Louisville, S. Dispatch, 6 111. App. 284.

N. A. & C. E. Co., 84 Fed. 539, rev'd Where it is shown that the corpo-
on other grounds 174 U. S. 674, 43 ration holds itself out as such by deal-
L. Ed. 1130; Farmers' Loan & Trust ing and purchasing goods as such, this
Co. V. Toledo, A. A. & N. M. Ey. Co., makes out a prima facie case of in-
67 Fed. 49; Phinizy v. Augusta & K. corporation in an action against it.
E. Co., 62 Fed. 678; tlpton v. Hans- Auburn Cycle Co. v. Poote, 69 111.
brough, 3 Biss. 417, Fed. Gas. No. App. 644.

16,801; Blackburn v. Selma, M. & M. Indiana. Cravens v. Eagle Cotton
E. Co., 2 Flip. 525, Fed. Cas. No. Mills Co., 120 Ind. 6, 16 Am. St. Eep.
1,467; Aller v. Town of Cameron, 3 298, 21 N. E. 981; Ewing v. Eobeson,
Dill. 198, Fed. Cas. No. 243. 15 Ind. 26.
Alabama. McCuUough v. Talla- Iowa. Quinn v. Shields, 62 Iowa 129,
dega Ins. Co., 46 Ala. 376. 49 Am. Eep. 141, 17 N. W. 437; Hum-
Colorado. Grand Eiver Bridge Co. phrey v. Patrons' Mercantile Ass'n,
v. EoUins, 13 Colo. 4, 21 Pac. 897. 50 Iowa 607. See also § 344, infra.
Delaware. Brady v. Delaware Mut. Maine. Beal v. Bass, 86 Me. 325,
Life Ins. Co., 2 Pennew. 237, 45 Atl. 29 Atl. 1088.
345. Mstssachusetts. Kelley v. Newbury-
Georgia. Petty v. Brunswick & W. port &
A. H. E. E., 141 Mass. 496,
E. Co., 109 Ga. 666, 35 S. B. 82; Stew- 6 N. E. 745; First Nat. Bank v. Almy,
art Paper Mfg. Co. v. Eau, 92 6a. 511, 117 Mass. 476; Merrick v. Eeynolds
17 S. E. 748; Georgia Ice Co. v. Porter, Engine & Governor Co., 101 Mass. 381;
70 6a. 637; Southern Bank of Georgia Dooley v. Cheshire Glass Co., 15 Gray
V. Williams, 25 Ga. 534; McDougald v. 494; Narragansett Bank v. Atlantic
Lane, 18 Ga. 444; McDougald v. Bel- Silk Co., 3 Mete. 282, 288.
lamy, 18 Ga. 411. MicMgan. Galvin v. Detroit Steer-
niinols. Fitzpatrick v. Butter, 160 ing Wheel & Windshield Co., 176 Mich.
111. 282, 43 N. E. 392, aff'g 58 111. App. 569, 142 N. W. 742; Empire Mfg. Co.
532; Independent Order of Mutual v. Stuart, 46 Mich. 482, 9 N. W. 527;
720
Ch. 11] COBPOBATIONS BY ESTOPPEL [§343
This doctrine of estoppel has not, however, found favor in Maryland,
Jhons V. People, 25 Mich. 499; Swart- Utah. Liter v. Ozokerite Min. Co.,
wout V. Michigan Air Line E. Co., 24 7 Utah 487, 27 Pac. 690.
Mich. 389. Vermont. Reynolds v. Myers, 51
ItUnnesota. Scheufler v. Grand Vt. 444; Stone v. East Berkshire Con-
Lodge, A. O. U. W. of Minnesota, 45 gregational Society, 14 Vt. 86.
Minn. 256, 47 N. W. 799; Jewell v. Virginia. Martin v. South Salem
Grand Lodge, A. O. U. W., 41 Minn. Land Co., 94 Va. 28, 26 S. E. 591.
405, 43 N. W. 88. West Virginia. Bon Aqua Improve-
Missouri. EoU v. St. Louis & 0. ment Co. V. Standard Fire Ins. Co., 34
Smelting & Mining Co., 52 Mo. App. W. Va. 764, 12 S. E. 771; Anderson v.
60; White v. Belief ontaine Lodge, 1. Kanawha Coal Co., 12 W. Va. 526.
O. O. F., 30 Mo. App. 682; Barbaro v. Wisconsin. WiUiams
Stevens'v.
Occidental Grove No. 16, 4 Mo. App. Point Lumber Co., 72 Wis. 487, 40 N.
429. W. 154; Heath v. Silverthorn Lead
Montana. Daily v. Marshall, 47 Mining & Smelting Co., 39 Wis. 146.
Mont. 377, 133 Pac. 681. In Callender v. Painesville & H. R.
New York. Whitf ord v. Laidler, 94 Co., 11 Ohio St. 516, it was held that
N. Y. 145, 46 Am. Eep. 131, rev'g 25 neither the members of an association
Hun 136; Muehlenbeck v. Babylon & who had acted as a corporation, even
N. S. R. Co., 26 Misc. 136, 55 N. Y. though under a belief that they were
Supp. 1023; Abbott v. Aspinwall, 26 incorporated, and entered into a
Barb. 202; Stoddard v. Onondaga An- written contract as such, nor its offi-
nual Conference of Methodist Prot- cers, could deny that it was regularly
estant Church, 12 Barb. 573; Kuypers incorporated, to defeat an action
V. Reformed Dutch Church, 6 Paige against it as a corporation on the con-
570. tract. "Under such circumstances,"
North Carolina.. Dobson v. Simon- said Judge SutlifE, "the members of
ton, 86 N. C. 492; Bank of States ville the company, and especially the offi-
v. Simonton, 86 N. C. 187; Rush v. Hal- cers of the company, are estopped to
cyon Steamboat Co., 84 N. C. 702; deny its existence as a corporation.
State v. Simonton, 78 N. C. 57. However mistaken in fact, no person,
North Dakota. Coler & Co. v. whether artificial or natural, is per-
Dwight School Tp., 3 N. D. 249, 28 mitted to so conduct and represent
L. E. A. 649, 55 N. W. 587. himself as to induce reasonable men,
Ohio. Callender v. Painesville & H. at his instance, to act upon the truth
E. Co., 11 Ohio St. 516; Trumbull of his representations in their con-
County Mut. Tire Ins. Co. v. Horner, tractsand dealings with him, and to
17 Ohio 407; Adelbert College v. To- then deny the truth of such repre-
ledo, W. & W. R. Co., 3 Ohio N. P. 15.
sentation^ to the prejudice of the
Pennsylvania. Hamilton v. Clarion,
party so having relied upon them.
M. & P. R. Co., 144 Pa. St. 34, 13 L. * * * To suffer the defendants to
E. A. 779, 23 Atl 53. See also In re
repudiate their conduct and deny the
Gibbs' Estate, 157 Pa. St. 59, 22 L.
truth of their by
representations,
E. A. 276, 27 Atl. 383.
Bhode Island. Slocum v. Warren, which the had been induced
plaintiffs
10 E. L 116. to contract with them, and upon
South Carolina. Johnston v. South which both parties had acted, would
Western Eailroad Bank, 3 Strobh. Eq. be in contravention of those princi-
263. ples of equity upon which the doctrine
721
I Priv. Corp. —46
§ 344] Pkivate Cokpobations [Ch. 11
and it appears to have been repudiated by the courts of that state.**
§ 344. —
Statutory provisions. Statutes in some states expressly
provide that "it shall not be a defense to any suit against a corpora-
tion that there was a defect or informality in its organization," *' or
that no body of men acting as a corporation shall be permitted to set
of estoppel rests, and its operative ing with the association to inform
effect to prevent fraud depends." themselves, and a circumstance of
48 It was there held that an associa- which most persons, if they knew of it,
tion which held itself out as a cor- would not appreciate the legal effect.
poration, and contracted as such, was In the above case, the defect con-
not estopped, in an action against it sisted merely in the fact that the cer-
on the contract, to deny its corpo- tificate or agreement of incorporation
rate existence on the ground that it was acknowledged before one justice
had failed to comply with the re- of the peace, instead of two justices
quirements of the law in organizing. or a judge, as required by the statute.
"We think," said the court, "it Public policy clearly requires that the
would be extending the doctrine of members of an association shall be
estoppel to an extent not justified by estopped to set up such a defect in
the principles of public policy to allow organization as a corporation as
it to operate through the conduct of against persons contracting with it in
the parties concerned, to create sub- good faith, especially in view of the
stantially a de facto corporation, with fact that the attorney general may at
just such powers as the parties may any time institute proceedings to oust
by their acts give to it. This would them from the exercise of corporate
be substituting the dealings of the powers.
parties for compliance with the In Franklin Fire Ins. Co. v. Hart,
requirements of the law, and giving to 31 Md. 59, it was held that the sub-
them the same effect through the aid scription and payment of a certain
of tbe courts. Thus, virtually, through amount of stock was a condition pre-
the courts, recognizing the existence cedent to the existence of a corpora-
of the corporation, in manifest dis- tion under a special charter and that
regard of the written law." Boyer v. a person appointed secretary of the
Towsontown Station of M. E. Church, company could not recover against the
46 Md. 359. Compare, however, Grape corporation for services rendered in
Sugar & Vinegar Mfg. Co. v. Small, that capacity prior to the perform-
40 Md. 395. ance of said condition.
In this case, the court clearly takes In Hammond v. Straus, 53 Md. 1, it
a wrong view of the requirelnents of was held that the failure to observe
public policy. It is much the better statutory requirements which are not
policy to apply the doctrine of estop- conditions precedent cannot be set up
pel in such cases, and thus prevent by the stockholders or the corporation
fraud upon the part of persons assum- as a defense to an action to enforce
ing to act as a corporation, when they their liabilities.
have failed to comply with the statu- Andsee Lord v. Essex Bldg. Ass'n
tory requirements in their organiza- No. 4,37 Md. 320.
tion, —
a circumstance of which it is 49 Mississippi Code 1906, § 906; Per-
not reasonable to require persons deal- kins V. Eouss, 78 Miss. 343, 29 So. 92.
722
;
Ch. 11] COEPOEATIONS BY EsTOPPEL, [§345
up the want of a legal organization as a defense to an action against

them as a corporation.^" As in other cases, such provisions apply-
only where the evidence shows distinctly and unequivocally an at-
tempt to exercise corporate powers.*^
§ 345. — Use of name importing corporate existence. Some of the

eases lay down the rule that when an association of persons assumes
a name which implies or imports a corporate body, and exercises
corporate powers, they will not be heard to deny that they are a
corporation.*^ So a number of courts have held that if they contract
50 Florida. Gen. St. 1906, § 2687. Friedman v. Janssen, 23 Ky. L. Eep.

Iowa. .Code 1897, §1636; Kirkpat- 2151, 66 S. W. 752; Handley v. Stutz,
riek v. United Presbyterian Church of 139 U. S. 417, 35 L. Ed. 227, rev'g
Keota, 63 Iowa 372, 19 N. W. 272; on other grounds 41 Fed. 531 (con-
Quinn v. Shields, 62 Iowa 129, 49 struing Kentucky statute).
Am. Eep. 141, 17 N. W. 437; Court- The statute applies in an action by
right V. Deeds, 37 Iowa 503. the commonwealth against a corpora-
The estoppel provided for applies tion to collect its organization tax, and
only to a body of men acting as a hence the petition in such an action
corporation. The evidence must show need not allege facts showing compli-
distinctly and unequivocally an at- ance by the corporation with the statu-
tempt to exercise corporate powers, tory requirements as to organization.
and it is not enough to show acts Com. V. Licking Valley Bldg. Ass'n
which might just as well have been No. 3, 118 Ky. 791, 82 S. W. 435.
those of a partnership or unincor- Nebraska. Comp. St. 1911, §2102;
porated association. Kirkpatrick v. Gilligau V. John Gilligan Co., 94 Neb.
United Presbyterian Church of Ke- 437, 143 N. W. 457; Lincoln Butter
ota, 63 Iowa 372, 19 N. "W. 272. Co. V. Edwards-Bradford Lumber Co.,
Kentucky. Stat. 1909, § 566; Eruin- 76 Neb. 477, 107 N. W. 797; Livings-
Colnon Contracting Co. v. Chatterson, ton Loan & Building Ass'n v. Drum-
146 Ky. 504, 40 L. E. A. (N. S.) 857, 143 mond, 49 Neb. 200, 68 N. W. 375.
S. W. 6; Warden v. Madison ville, H. Tennessee. Shannon's Code, § 2064;
& E. E. Co., 125 Ky. 644, 101 S. W. Pope V. Merchants'. Trust Co., 118
914; Drake v Herndon, 122 Ky. 206, Tenn. 506, 103 S. W. 792.
28 Ky. L. Eep. 1106, 91 S. W. 674; 61 See § 333, supra.
Com. V. Licking Valley Bldg. Ass'n 62 Fitzpatriek v. Eutter, 160 111. 282,
No. 3, 118 Ky. 791, 82 S. "W. 435; 43 N. E. 392, aff'g 58 111. App. 532;
Johnson v. Mason Lodge No. 33, I. O. United States Express Co. v. Bedbury,
O. F., 106 Ky. 838, 51 S. W. 620; Wood 34 111. 459; Chicago City Eailway Em-
V. Friendship Lodge No. 5, I. O. O. ployees Mut. Aid Ass'n v. Hogan,
F. of Lexington, 106 Ky. 424, 50 S. 124 App. 447; Fields v. United
111.
W. 836; Gen. St. 1873, c. 56, §18; Brotherhood of Carpenters & Join-
Walton v. Eiley, 85 Ky. 413, 3 S. W. ers, 60 111. App. 258.
605 (overruling Heinig v. Adams & This rule was adopted in Barbaro
Westlake Mfg. Co., 81 Ky. 300, 5 Ky. V. Occidental Grove No. 16, 4 Mo. App.
L. Eep. 281, and, by implication, Eob- 429. But in Atchison v. Crawford

inson v. Harris, 5 Ky. L. Eep. 928) County Farmers' Mut. Fire Ins. Co.,
723
in such a name they will be estopped to deny their incorporation in

Ian action upon or growing out of the contract, or that their action
in so doing will at least be regarded as prima facie evidence that
they are incorporated.^'
Other courts, however, have held that the use of such a name will
not work an estoppel,** or at least that no absolute estoppel will
192 Mo. App. 362, 180 S. W. 438, it is Pac. 750, it is held that, where a bond
said that this holding was not neces- was executed by "The Boyden Ab-
sary to the decision of that case. stract Company" as principal, and
63 Chicago City Eailway Employees was signed with that name and with
Mut. Aid Ass 'n v. Hogan, 124 HI. App. the names of two individuals as presi-
447; Fields v. United Brotherhood dent and secretary, respectively, its
of Carpenters & Joiners, 60 HI. App. character as the bond of a c.orporation
258; Clarkson v. Erie & N. S. Dis- was represented so strongly on its
patch, 6 111. App. 284. face as to amount to a recital of that
"The Switchmen's Mutual Aid As- fact, and that the sureties were there-
sociation of North America" implies fore estopped to deny such incorpora-
a corporation. Fitzpatriek v. Butter, tion in an action on the bond, though
160 111. 282, 48 N. E. 392, aff'g 58 111. the principal was in fact a copartner-
App. 532. ship.
The name "United States Express "The execution of a written con-
Company" imports a corporation. tract by a corporation
in its corporate
United States Express Co. v. Bedbury, name such an admission of incor-
is
34 111. 459. poration as will, in an action by the

A benefit association that issues a other party to the contract, make out
benefit certificate, sealed with the com- a prima facie case on that point."
pany 's seal,and signed by its proper Eeal Estate Sav. Inst. v. Fisher, 9 Mo.
officers, which declares the person to App. 593. And the same is true where
whom it is issued to be a member of a corporation accepts a note payable
the order in a certain subordinate to it in its corporate name. Knapp,
lodge, estopped to deny its cor-
is Stout & Co. V. Joy, 9 Mo. App. 575.
porate existence in an action on such Where they contract in such a name,
certificate. Grand Lodge Brotherhood they are estopped to deny their cor-
of Locomotive Firemen v. Cramer, 60 porate liability. Barbaro v. Occiden-
111. App. 212. tal Grove No. 16, 4 Mo. App. 429. But
In Indiana Millers' Mut. Fire Ins. see Atchison v. Crawford County
Co. V. People, 65 111. App. 355, it was Farmers' Mut. Fire Ins. Co., 192 Mo.
held that the name "Indiana Millers' App. 362, 180 S. W. 438, where it is
Mutual Fire Insurance Company," said that the holding to this effect in
under which a foreign insurance com- the case last cited was not necessary
pany issued policies, imported a corpo- to the decisioii. For further examples
ration, and hence that it could not of particular names which have been
contend, in an action against it for held to imply or not to imply corpo-
a penalty for doing business in the rate existence, see § 336, supra.
state without a license, that there was 64The fact that the Item newspaper
no proof that it was incorporated un- contained a notice that all communi-
der the laws of the foreign state. cations should be addressed to "The
In Allen v. Hopkins, 62 Kan. 175, 61 Item Publishing Company," was held
724
Ch. 11] COBPOEATIONS BY ESTOPPEL [§346
result.^^ And it has also been held that if the business of a company
is such that it might be conducted either as a corporation or as an
unincorporated association, according to the election of its members,
then the mere fact that it assumes a name which might indicate that
itwas la corporation and does business under it is not enough to

work an estoppel, but ihere must be some effort on its part to act as
a corporation or a holding out as such.^*
The absence of the word "incorporated" after the name of a com-
pany advises persons dealing with it that it does not claim to be a
corporation, where the statute requires that word to follow the name
of every corporation on its signs and printed matter.*''
§ 346. —
Applications of the rule. A purported corporation can-
not defeat recovery on a note and mortgage,** nor on an insurance
policy,*' nor on an appeal bond ^^ executed by it, on the ground that
it was not legally incorporated. And recitals in a deed executed by
it to the effect that it is incorporated will estop it from denying that
fact in an action thereon, and will be prima facie evidence of that fact
when the deed is collateral to the purpose of the action.®^
not to estop its stockholders to deny 68 Quinn v. Shields, 62 Iowa 129, 49

its corporate existence in a suit by a Am. Eep. 141, 17 N. W. 437.
judgment creditor to enforce payment Brady v.
69 Delaware Mut. Life Ins.
of stock subscriptions. Tonge v. Item Co., 2Pennew. (Del.) 237; Bon Aqua
Pub. Co., 244 Pa. 417, 91 Atl. 229. Improvement Co. v. Standard Fire Ins.
In Bash v. Culver Gold Min. Co., Co., 34 "W. Va. 764, 12 S. E. 771.
7 Wash. 122, 34 Pac. 462, it was held In an action on an insurance certifi-
that the mere use of the name "Cul- cate issued by a fraternal benefit as-
ver Gold Mining Co.," would not op- sociation signed by the proper officers,
erate as an estoppel where no articles sealed with the company's seal, and
had been filed and no legal steps taken reciting that the deceased is a mem-
to incorporate, especially in favor of ber of the order in a specified lodge,
one of the chief promoters of the the association is estopped by the
company, who was cognizant of all recitals in its deed from alleging that
the facts.
such subordinate lodge was not prop-
See also § 343, supra.
erly organized. Order of Mutual Aid
55 The mere fact that a partnership
V. Paine, 122 111. 625, 14 N. E. 42,
does business under the name of the
aflf'g 23 111. App. 171.
"Newport Pressed Brick Company,"
60 So an association is estopped to
does not work an absolute estoppel on
the part of the partners to deny that
deny its corporate existence to defeat
the partnership is a corporation. Bax- an action on an appeal bond given by
ter V. Jones, 185 Fed. 900. it as a corporation. East Tennessee &
56 Atchison v. Crawford County G. R. Co. v. Evans, 6 Heisk. (Tenn.)
Farmers' Mu't. Fire Ins. Co., 192 Mo. 607.
App. 362, 180 S. W. 438. 61 Anderson v. Kanawha Coal Co.,
57 Baxter v. Jones, 185 Fed. 900 12 "W. Va. 526.
(construing Ky. St. § 576).
725
The rule of estoppel operates to prevent a municipal or quasi

municipal corporation from denying that it is a corporation for the
purpose of escaping liability on its bonds in the hands of bona fide
holders.^2 For this reason, also, it has been held that a corporation
which has fully perfected its organization, and acquired a legal ex-
istence, cannot avoid contracts made by it as a corporation before its
organization.*^
A de facto consolidated corporation and its stockholders are
estopped to deny the validity of the consolidation for the purpose of
avoiding a debt incurred by it in the actual exercise of corporate
franchises and the doing of corporate business,** as, for example, in
a suit to foreclose a mortgage given to secure its bonds,** or in order
to escape liability for the obligations of one of the consolidating cor-
porations.** And the consolidating corporations are also estopped to
deny the validity of the consolidation.*'' Similarly, a corporation
62 Tulare Irrigation Dist. v. Shep- 65 Louisville Trust Co. v. Louisville,

ard, 185 U. 8. 46 L. Ed. 773; Clapp
1, N. A. & C. By. Co., 84 Fed. 539, rev \l
V. Otoe County, Nebraska, 104 Fed. on other grounds 174 U. S. 674, 43 L.
473; Aller v. Cameron, 3 Dill. 198, Ed. 1130; Farmers' Loan & Trust Co.
Fed. Cas. No. 243; Color & Co. v. V. & N. M. Ey. Co., 67
Toledo, A. A.
Dwighfc School Tp., 3 N. D. 249, 28 Fed. 49; Phinizy v. Augusta & K. E.
L. E. A. 649, 55 N. "W. 587. Co., 62 Fed. 678; Eacine & M. E. Co.
See McQuillin on Municipal Corpo-
V. Farmers' Loan & Trust Co., 49 111.
rations, § 2354.
331, 95 Am. Deo. 595. See also Dimp-
63 Grand River Bridge Co. v. Rol-
fel V. Ohio & M. Ey. Co., 9 Biss.
lins, 13 Colo. 21 Pac. 897; Georgia
4,
127, Fed. Cas. No. 3,918, aff'd 110
Ice Co. v. Porter, 70 Ga. 637, 641; Me-
TJ. S. 209, 28 L. Ed. 121; Bissell v.
Dougald V. Bellamy, 18 Ga. 411; In-
Michigan Southern & N. I. E. Co., 22
dependent Order of Mutual Aid v.
N. T. 258.
Paine, 122 HI. 625, 14 N. E. 42, aff'g
23 111. App. 171; Empire Mfg. Co. v.
66 Chicago, S. F. &
Ash-C. E. Co. v.
Stuart, 46 Mich. 482. ling, 160 111. 373, 43 N. E. 373, aff'g

Where a pretended corporation had 56 111. App. 327; Miles v. Benton Har-
carried on business, and held itself out bor-St. Joe Eailway & Light Co., 154
to the public as a corporation, before Mich. 378, 117 N. W. 937; Shadford
it was organized according to law, it v. Detroit, Y. & A. A. E. E., 130 Mich.
was held that its assets should be held 300, 89 N. W. 960.
liable for its debts incurred prior to 67 Bradford v. Frankfort, St. L. & T.
organization, and that judgments for E. Co., 142 Ind. 383, 41 N. E. 819, 40
such debts prior to its organization
N. E. 349.
were superior mortgages executed
to
They cannot do so in order to ex-
by it after organization. Bergen v.
empt their assets from liability for
Porpoise Fishing Co., 41 N. J. Eq. 238,
3 Atl. 404.
tho debts of the consolidated corpora-
64 Farmers Loan & Trust Co. v. To-
'
tion. L. D. George Lumber Co. v.
ledo, A. A. & N. M. Ey. Co., 67 Fed. Daugherty, 214 Fed. 958.

49.
726
which has assumed to make a, contract authorized by an amendment

and has received the consideration, will not be per.
to its articles,
mitted to escape the obligation of the contract by setting up a wani
of record of the amended articles.*'
§ 347. —
Estoppel in actions other than on contract. The estoppel
is not confined to cases where an action is brought directly against
the corporation by the persons with whom it has contracted or dealt.
For example, it also extends to a case where the corporation is gar-
nished as a debtor of the plaintiff's debtor,*^ and the rule has been
applied in mandamus proceedings brought against the corporation
by an expelled member to compel his restoration to membership,'"'
and in actions against it for torts.'^ Nor can the local lodges of a
fraternal benefit association question its due incorporation in pro-
ceedings to compel a judge to punish their officers for contempt for
refusal to obey an order requiring them to turn over certain property
to a receiver of the association.''^ So, too, an association which has
assumed to act as a corporation, and has acquired property, cannot
escape liability for taxes on the ground that it has no legal existence
as a corporate body.''' Thus, in an action against a county treasurer
to recover property seized for taxes assessed against a bank, brought
by one claiming title as vendee of the latter, it is only necessary for
the defendant to show that the bank assumed to organize under the
general banking law and was acting under such organization.''* And
in an action by the state against a corporation to recover its organ-
ization tax, it will not be permitted to plead as a defense, a statute
providing that no corporation shall exercise corporate powers until
such tax is paid, and that, not having paid the tax, it does not exist
as a corporation.''*
68 Humphrey v. Patrons ' Mercantile trol. '

' Pattison v. Gulf Bag Co., 116
Ass'n, 50 Iowa 607. La. 963, 114 Am. St. Eep. 570, 41 So.
69 United States Express Co. v. Bed- 224.
bury, 34 111. 459. 72 Baldwin v. Hosmer, 101 Mich.
70 Meurer Musicians ' Be-
v. Detroit 119, 133, 25 L. E. A. 739, 59 N. W.
nevolent & Protective Ass'n, 95 Mich. 432.
451, 54 N. W. 954. 73 Atlanta & R. Air-Line R. Co. v.
Where the stockholders of a
71 '
' State, 63 6a. 483 ; Ewing v. Robeson,
corporation permit its name to be used 15 Ind. 26.
in the conduct of the same business, 74 Ewing v. Robeson, 15 Ind. 26.
in thesame place, and under the same 76 Cora. v. Licking Valley Bldg.
manager, they are estopped to deny Ass'n No. 3, 118 Ky. 791, 82 8. W.
its continued existence as to the pub- 435. See also Standard Oil Co. v.
lie and employees not aware of any Com., 29 Ky. L. Rep. 5, 91 S. W. 1128.
change in corporate ownership or con-
727
§348J Pbivate Cobpoeatiows [Ch. 11
§ 348. Estoppel of promoters, members and officers of pretended

—
corporation Estoppel of promoters and members. person who A
has participated in promoting, or who has become a stockholder or
member of a pretended corporation, and thus participated in holding
it out to the world as a corporation, is estopped to deny its corporate
existence as against its creditors for the purpose of escaping statutory-

liability for its debts ;
'^ as, for example, a statutory individual lia-
bility for failure to file required certificates or reports,''' or individual

imposed upon stockholders in a bank for the payment of bills
liability
issued it,'"* or for public funds deposited therein which are not
by
paid over on demand,''® or the liability imposed upon members of a
ditch company for labor performed in constructing the ditch.*" Such
a person is also estopped to deny the existence of the corporation as
United States. Casey v. Galli, 94
76 Ohio. Dickason v. Grafton Sav.
U. 24 L. Ed. 168; Wallace v.
S. 673, Bank Co., 6 Ohio Cir. Ct. (N. S.) 329;
Hood, 89 Fed. 11. Eyan v. Miami Valley E. W. Co., 6
Alabama. National Commercial Ohio Dee. 1071.
Bank v. McDonnell, 92 Ala. 387, 9 So. Pennsylvania. McHose & Co. v.
149; McDonnell v. Alabama Gold Lii'e Wheeler, 45 Pa. St. 32.
Ins. Co., 85 Ala. 401, 5 So. 120. Bhode Island. Slocum v. Warren, 10
District of Columbia. Keyser v. E. I. 116; Slocum v. Providence Steam
Maokey 473.
Hitz, 2 & Gas Pipe Co., 10 E. I. 112.
Dows v. Naper, 91 111. 44;
Illinois. The members of a corporation de-
McCarthy v.' Lavasche, 89 111. 270, 31 fectively organized cannot insist that
Am. Eep. 83; Wheelock v. Kost, 77 because of such defective incorpora-
111. 296; Corwith v. Culver, 69 111. 502. tion they are partners only, for the
Seaton v. Grimm, 110 Iowa
lo-wa. purpose of escaping double liability
145, 81 N. W. 225. imposed by a statute on stockhold-
Kansas. Aultman v. Waddle, 40 ers in banks. Elson v. Wright, 134
Kan. 195, 19 Pae. 730. Iowa 634, 112 N. W. 105.
Maine. Maine Trust & Banking Co. See also chapter on Stock and
V. Southern Loan & Trust Co., 92 Me. Stockholders, infra.
444, 43 Atl. 24. 77 This applies as to their statutory
Maryland. Garling v. Baechtel, 41 individual liability on failure to file
Md. 305; Hager v. Cleveland & Bas- annual certificates as to the amount of
sett, 36 Md. 476. assessments voted by the company and
Minnesota. Gardner v. Minneapo- actually paid in and the amount «f
lis & St. L. Ry. Co., 73 Minn. 517, 79 its existing debts. Slocum v. War-
N. W. 282, aff'd 177 U. S. 332, 44 ren, 10 E. I. 116; Slocum v. Providence
L. Ed. 793. Steam & Gas Pipe Co., 10 E. I. 112.
Nebraska. Davis' Estate v. Watkins, 78MeDougald v. Lane, 18 6a. 444;
56 Neb. 288, 76 N., W. 575. McDougald v. Bellamy, 18 Ga. 411.
New Hampshire. Ossipee Hosiery & 79 Bank of Midland v. Harris, 114
Woolen Mfg. Co. v. Canney, 54 N. H. Ark. 344, 170 S. W. 67.
295; Haynes v. Brown, 36 N. H. 545. 80 Shafer v. Moriarty, 46 Ind, S.
New York. Mead v. Keeler, 24
Barb. 20.
738
Ch. 11] COBPOEATIONS BY EsTOPPEL [§ 348
against the holder of bonds of the corporation secured by a mortgage

given by it '^ or in controversies arising between himself and the
;
corporation or its other stockholders or members.*'^ And stockholders

who participate in the action of a corporation in giving a note, and
who execute a bond to secure the same, are estopped to deny the
existence of the corporation in an action on the bond.*' And, as we
have seen, the members collectively are estopped in an action against
them as a corporation.^*
The promoters of a eorporation are estopped to question the
legality of its organization in an action by it to recover illegal profits
made by them in the sale of property to it.^^ And railroads which
are members of a dispatch line and receive its earnings are estopped
£0 deny its corporate existence in a suit against them by a judgment
-ireditor of such line, with whom it has contracted as a corporation, to
charge them as trustees in respect to the earnings so received.'^
But one cannot be estopped on the ground that he is»a stockholder
where he never subscribed for nor owned any stock.*'' Nor will the
fact that one takes part in preliminary proceedings for the formation
of a corporation estop him from denying its corporate existence when
sued by it after the incorporation is completed, provided he severs
his connection with the association before the incorporation takes
place, and takes no further part in the proceedings.**
Farmers Loan & Trust Co. v. To-

81 ' liminary proceedings, and is elected a
ledo, A. A.& N. M. Ey. Co., 67 Fed. director before the articles are filed,
49; Phinizy v. Augusta & K. E. Co., is not estopped, where, before the ar-
62 Fed. 678. tides were filed, he refused to act fur-
They cannot set up fraud in the ther and another person took his
organization of the corporation as a place on the board and he had noth-
defense to a suit to foreclose such a ing further to do with the company
mortgage. Gunderson v. Illinois Trust and never thereafter pretended to be
& Savings Bank, 100 111. App. 461, a member or accepted any privileges or
aff'd 199 111. 422, 65 N. E. 326. benefits as such. Middle Branch Mut.
82 See § 350, infra. Tel. Co. v. Jones, 137 Iowa 396, 115
83 See Fourth Nat. Bank of Grand N. W. 3.
Eapids v. Olney, 63 Mich. 58, 29 N. The fact that one signs an agree-
W. 513. ment looking to the organization of a
84 See § 343, supra. corporation and participates in the
85 Pittsburg Min. Co. v. Spooner, 74 firstproceedings with reference to its
Wis, 307, 17 Am. St. Eep. 149, 42 N. organization, does not estop him from
W. 259. denying that the corporation formed
86 Clarkson v. Erie & N. S. Dispatch, pursuant to such agreement is one de
6 111. App. 284. jure in an action by it against him
87 Byronville Creamery Ass 'n v. Iv- for breach of a contract made by him
ers, 93 Minn. 8, 100 IST. W. 387. with the other promoters for its bene-
88 One who takes part in the pre- fit, where he entirely severed his eon-
729
The estoppel of subscribers to stock to deny the legality of the

incorporation in actions to enforce their subscription contracts will
be fully treated in another chapter.*'
§ 349. — Estoppel of officers. A person who has acted as an officer

of a pretended corporation, either as director or as president, or in
any other and has thus participated in holding out the
capacity,
corporation as having a legal existence, is estopped to deny such
existence.'" Thus, one who has made a contract as an officer of a

corporation is estopped to deny the legal existence of the corporation
in an action to enforce a right growing out of such contract.'^ Nor
can a person who has made a conveyance of land as officer of a pre-
tended corporation set up want of incorporation for the purpose of
nection with the association before aff 'g 62 HI. App. 49; Forest Glen Brick
it was completed and ready for busi- & Tile Co. V. Gade, 55 111. App. 181,
ness, and was in no other way appeal dismissed 158 111. 39, aff'd 165
personally connected with or responsi- 111. 367, 46 N. E. 286; Joliet v. Fran-
ble for its conduct in attempting to ces, 85 111. App. 243.

organize. Byronville Creamery Ass 'n Iowa. Seaton v. Grimm, 110 Iowa
V. Ivors, 93 Minn. 8, 100 N. W. 387. 145, 81 N". W. 225.
Nor will the fact that a person takes Kentucky. Tanner v. Nichols, 25
part in a preliminary meeting look- Ky. L. Eep. 2191, 80 S. W. 225.
ing to incorporation at which he is Maine. Beal v. Bass, 86 Me. 325.
chosen a trustee, and that stock is Missouri. Smith v. Heidecker, 39
subsequently issued to and accepted Mo. 157.
by him, estop him to deny the corpo- Nebraska. Macf arland v. West Side
rate existence in an action to hold him Improvement Ass'n, 53 Neb. 417, 73
personally liable for a debt of the N. W. 736.
corporation as trustee because of a New Hampsbire. Haynes v. Brown,
failure to publish and file the reports 36 N. H. 545, 561.
required by the statute, where the or- New York. See Georgeson v. Caf-
ganization was never completed and frey, 71 Hun 472, 24 N. Y. Supp. 971.
he withdrew from the association and Pennsylvania. Weinman v. Wil-
surrendered his stock on discovering kinsburg & E. L. P. Ey. Co., 118 Pa.
that the patent which the proposed cor- St. 192, 12 Atl. 288.
poration was to be organized to buy 91 Fairbanks-Morse Co. v. Coulson
had been sold to others. Dewitt v. Stock Food Co., 151 Mo. App. 260,
Hastings, 40 N. Y. Super. Ct. 463, afE'd 131 S. W. 894.
69 N. Y. 518. Persons who have held themselves
89 See Chap. 17, infra. out as officers and directors of a cor-
United States.
90 Close v. Glenwood poration and have executed a note in
Cemetery, 107 U. S. 466, 27 L. Ed. its name for money borrowed in its
408. name, are estopped to claim that it
Colorado. Bates v. Wilson, 14 Colo. was not duly incorporated. Central
140, 24 Pac. 99. Nat. Bank of Junction City v. Shel-
Illinois. Curtis v. Tracy, 169 111. don, 86 Kan. 460, 121 Pac. 340.
233, 61 Am. St. Eep. 168, 48 N. E. 399,
730
Ch. 11] COEPOKATIONS BY EsTOPPEL [§349
attacking the title of the grantee or those claiming under him.^^ And
a person who has acted as an officer of a pretended corporation cannot
deny its corporate existence for the purpose of escaping liability on
his subscription to its capital stock,®* or a liability imposed by statute
upon him as officer or stockholder,®* as, for example, a liability im-
posed upon officers for failure to file statements, certificates or reports
as to the condition of the corporation,®^ or a personal liability imposed
upon the president and directors for debts contracted before com-
pliance with statutory conditions precedent to the commencement of
business.®^ Nor can an officer who helped
bank and has to organize a
been connected with it continuously for a series of years set up
irregularities and defects in its organization as a defense to a crim-
inal prosecution against him for making false entries in its books
and false statements and reports to the bank commissioner in respect
to its condition.®''
The rule of estoppel under discussion is especially applicable to
prevent an officer from denying the existence of the corporation as
against the corporation itself or its members,®^ or in actions against
92 Close V. Glenwood Cemetery, 107 91 Corwith V. Culver, 69 111. 502;

V. S. 466, 27 L. Ed. 408. Gay V.Kohlsaat, 126 111. App. 4, aff'd
93 United States. Eoekville & W. 223 111. 260; Priest v. Essex Hat Mfg.
Turnpike Eoad v. Van Ness, 2 Cranch Co., 115 Mass. 380.
C. C. 449. 95 See Jenet v. Mims, 7 Colo. App.
Ulinois. Corwith v. Culver, 69 HI. 88, 43 Pac. 147;Newcomb v. Eeed, 12
502. Allen (Mass.) 362; Daily v. Marshall,
Kentucky. Tanner v. Nichols, 25 47 Mont. 377, 133 Pac. 681; Emery v.
Ky. L. Bep. 2191, 80 S. W. 225. De Peyster, 77 N. T. App. Div. 65, 78
Maine. See Seven Star Grange No. N. Y. Supp. 1056; Meriden Tool Co.
73, Patrons of Husbandry v. Ferguson, V. Morgan, 1 Abb. N. Cas. (N. Y.) 125,
98 Me. 176, 56 Atl. 648. note; Squires v. Brown, 22 How. Pr.
Maiyland. Musgrave v. Morrison, (N. Y.) 35.
54 Md. 161. 96 So one who represents that a pro-
Missouri. Smith v. Heideeker, 39 jected corporation has been legally
Mo. 157. organized and that he is a director in
Nebraska. Macfarland v. West it, is estopped from denying the truth
Side Improvement Ass'n, 56 Neb. 277, of such representation in order to es-

76 N. "W. 584, 53 Neb. 417, 73 N. W. cape liability under such a statute
736. upon notes given for goods sold upon
New York. Euggles v. Broek, 6 the faith of such representations.
Hun 164. Corey v. Morrill, 61 Vt. 598, 17 Atl.
This rule applies to one who partici- 840.
pated in the organization of the cor- 97 State V. Maaon, 61 Kan. 102, 58
poration and became and acted as a Pac. 978.
director. Hunt v. Kansas & M. Bridge 98 See § 350, infra.
Co., 11 Kan. 412.
731
§349] Private Cokpokations [Ch. 11
him by the corporation or its creditors to enforce his subscription to

corporate stock.** One is not estopped as an officer, however, though
elected to an office, -where he does not accept the office or act as an
officer.^ Nor does the estoppel extend to an officer or director who
has severed his connection with the corporation before the acts relied
on to constitute the estoppel oecur.^
§ 350. —
Estoppel of members and officers a,s between themselves
or as against the corporation. The estoppel to deny corporate ex-
istence by reason of recognition, or of participation in holding out a
pretended corporation, may operate as between the members, or be-
tween the members and officers of the pretended corporation, or the
members or officers and the pretended corporation itself.* So it has
been held that directors or officers of a pretended corporation cannot
deny its corporate existence for the purpose of holding its stock-
holders or members liable to contribution as partners,* or for the
purpose of holding them personally liable on contracts made by such
officerswith the corporation,* or for the purpose of holding their
fellow officers and directors to a statutory individual liability on
99 See Chap. 17, infra. original stockholders for leave to file
1 Under such circumstances he may an information in the nature of quo

deny that it is a corporation in an warranto to procure a dissolution of
action by it for breach of a contract the corporation will be denied, where
made by him with the promoters for the he knew the facts on which the dis-
benefit of the corporation when it solution was sought when he purchased
should be organized. Byronville the stock, and thereafter voted at the
Creamery Ass'n v. Ivers, 93 Minn. 8, election of directors. Cole v. Dyer,
100 N. W. 387. 29 Ga. 434.
ZSturges V. Vanderbilt, 73 N. Y. 4 Bushnell v. Consolidated lee Mach.
384. Co., 138 111. 67, 27 N. E. 596; Heald
3 In an action against a corporation V. Owen, 79 Iowa 23, 44 N. W. 210.
and its ofScers and corporators by The contrary has been held to be
persons claiming to be members to true in Missouri, however, in a case
establish their rights as such and to where, by reason of a failure to be-
prevent the misappropriation of cor- come incorporated, the managing mem-
porate property, the corporate exist- bers, who incurred the debts, were
ence is sufficiently established by personally liable therefor. Richard-
proof that the corporation had acted son v. Pitts, 71 Mo. 128.
as such for many years, and that the As to the right of creditors to hold
individual defendants had acted -as the members personally liable under
corporators, and had assumed and rec- such circumstances, see § 340, supra.
ognized the corporate existence. Tip- 6 An officer who loans money to a
ton Fire Co. V. Barnheisel, 92 Ind. corporation and takes its note there-
for, is estopped. Second Nat. Bank
The application of one who pur- v. Lovell, 13 Ohio Dec. 972, 2 Cine.
chased stock in a corporation from the Super. Ct. (Ohio) 397.
732
Ch. 11] C0BPOBATIO2SS BY JiiSTOPPEL [§350
such contract on the ground that it was made before the final cer-
tificate of incorporation was filed.® Similarly a stockholder who has
assisted in the organization of a pretended corporation, or who has
dealt with it as a corporation after its organization, is estopped to
deny its corporate existence for the purpose, of imposing individual
liability upon the other stockholders,' or the corporate officers.* And
for the same reason he cannot maintain a suit to annul the corporate
charter,^ or to have it adjudged that the association is not a corpora-
tion and that its members are the owners of its property as tenants
in common,^" or to have it declared to be a partnership and to have
the same dissolved,^^ or to compel the other stockholders to account
V. Tracy, 169 111. 233, 61

6 Curtis ners, on the ground that the organ-
Am. Eep. 168, 48 N. E. 399, aff'g
St. ization was defective.
Curtis V. Meeker, 62 111. App. 49. 8 One who purchases stock from a
7 A member of a benevolent asso- corporation, paying part of the pur-
ciation pretending to be a corporation chase price in cash and agreeing that
cannot deny its corporate existence the balance is to be paid by applying
for the purpose of holding the other the dividends on the stock to that
members liable as individuals on a purpose, estopped to deny the le-
is
contract made by him with the asso- gality of the

organization of the
ciation. Foster v. Moulton, 35 Minn. corporation, and cannot recover the
458, 29 N. W. 155. amount of the cash payment so made,
Persons who wera among the origi- and of the dividends so declared and
nal stockholders and incorporators, applied from the officers of the com-
and as such joined in executing and pany as individuals, in an action on
filing the articles of incorporation, an account for money had and re-
and who have dealt with the corpora- ceived, on the theory that the cor-
tion and accepted notes and mortgages poration was never legally organized
signed by it as such, are estopped to and that the scheme to incorporate
deny the legality of the corporation, was abandoned and that he received
on the ground that proper notice of nothing for his money. Orr v. Me-
incorporation was not published, for Leay, 6 Ga. App. 417, 65 S. E. 164.
the purpose of imposing individual lia- 9 A stockholder who was one of the
bility upon the other stockholders, original incorporators, and who has
since they are at least equally respon- voted his stock for a number of years,
sible with the latter for such failure, cannot maintain such a suit.' Weil v.
Leopold Weil Building & Improvement
and to hold otherwise would result in
Co., 126 La. 938, 53 So. 56.
permitting them to profit by their own
10 Stockholders who have dealt with
wrong. Seaton v. Grimm, 110 Iowa
the corporation since its organization,
145, 81 N. W. 225. See also Egbert
and have recognized and acquiesced
V. Kimberly, 146 Pa. St. 96, 23 Atl.
in the exercise of its powers for a
437, where it is held that members number of years, cannot maintain such
of a limited partnership who contract an action. Marsh v. Mathias, 19 Utah
with it, and those claiming under 350, 56 Pac. 1074.
them, cannot hold the other members 11 A stockholder in a de
facto cor-
liable on such contract as general part- poration who has participated in a
733
350] Peivate Cobpoeations [Ch. 11
to him as his eopartners,^^ on the ground that it was not legally-

organized. Stockholders who participate in proeeedingsi looking to
the consolidation of the corporation with other corporations are also
estopped to deny the validity of the consolidation, and cannot main-
tain a suit to have it declared invalid.^'
One who has accepted a corporate office and has performed the
functions thereof estopped to deny the validity of the creation of

is
the corporation where suit is brought against him for money or other
property coming into his hands as such officer,^* or in mandamus
proceedings to compel him to turn the same over to his successor in
office,^* or when criminally prosecuted for larceny or embezzlement
of the same,^* or in proceedings to compel a judge to punish him for

contempt for refusal to obey an order requiring him to turn over
property to a receiver.^"
dividend, cannot maintain a bill Knights of Liberty Social & Literary

against it for this purpose. Lincoln Club, 76 Md. 429, 25 AU. 422; All
Park Chapter No. 177, E. A. M. v. Saints' Church v. Lovett, 1 N. Y.
Swatek, 204 Dl. 228, 68 N. B. 429, Super. Ct. 213.
aff'g 105 111. App. 604. Nor can a But he is not estopped to show that
promoter and organizer of the corpo- the association suing him as a corpo-
ration, who also acted as its presi- ration never had a corporate existence
dent, maintain such a suit. Anderson and hence has no right to sue as a
V. Thompson, 51 La. Ann. 727, 25 So. corporation, where none of the acts of
399. the associates were unmistakably cor-
Stockholders who accepted the char- porate acts, but all of them were just
ter and assisted in putting it into op- as consistent with the existence of an
eration, and who have made payments unincorporated association as a cor-
and given notes to it, are estopped to poration. Fredenburg v. Lyon Lake
contend that it is a partnership, and M. E. Church, 37 Mich. 476.
to demand an accounting on that ba- 15 A stockholder who has acted as
sis. Benninger v. Gall, 13 Ohio Dec. secretary of the corporation will not
581, 1 Cine. Super. Ct. (Ohio) 831. be permitted to deny its corporate
12 A
stockholder in a de facto cor- existence in mandamus proceedings,
poration who assisted in its incorpora- brought against him after his resigna-
tion, acted as its general agent and tion, to compel him to surrender the
secretary, and otherwise recognized its books, papers and records of the com-
continued existence, cannot maintain pany to his successor. Coldwater Cop-
such a suit. Bushnell v. Consolidated per Min. Co. V. Gillis, 170 Mich. 126,
Ice Mach. Co., 138 111. 67, 27 N. E. Ann. Cas. 1915 A 410, 135 N. W. 901.
596. leShinn v. Com., 32 Gratt. (Va.)
13 Bradford v. Frankfort, St. L. & 899. See also People v. Leonard, 106
T. E. Co., 142 Ind. 383, 41 N. B. 819, Cal. 302, 39 Pac. 617.
40 N. E. 349. 17 The officers of local lodges of a
"Seven Star Grange No. 73, Pa- fraternal benefit cannot
association
trons of Husbandry v. Ferguson, 98 question due incorporation in such
its
Me. 176, 56 Atl. 648; Haacke v. a proceeding. Baldwin v. Ilosmer, 101
734
Ch. 11] COBPOKATIONS BY EsTOPPEL [§ 350
The same rule of estoppel also applies in an action against an

officerby the corporation to enforce a trust in lands claimed to have
been purchased by him in his own name for its benefit,^' or in an
action by its receiver to recover the amount of an indebtedness in-
curred by the officer to the corporation by withdrawing funds de-
posited as part of and to charge lands' purchased with the
its capital,
money an action of replevin brought by the

so withdrawn,^^ or in
corporation against the sheriff to recover property levied on as
the property of a third person to satisfy an ereeution against the
latter in favor of such officer,^* or in an action brought by stock-
holders against the officer for fraudulently wasting and converting
the corporate assets.^^ Nor can one who assisted in the organization
of a corporation, and has to some extent, at least, directed and eon-
trolled its affairs, and has repeatedly recognized it as a corporation,
deny its corporate existence in an action by it to recover property
alleged to belong to it and of which it is alleged he has wrongfully
taken possession.^^
A member who has contracted with it or incurred
of a corporation
an obligation to cannot plead as a defense to its enforcement the
it
invalidity of the organization of the corporation.*' So a member of

a building and loan association is estopped to deny its corporate ex-
istence in a suit on a note and mortgage or other obligation executed
by him to it as security for a loan.** And a person effecting insurance
Mich. 119, 133, 25 L. E. A. 739, 59 23 One who has been instrumental

N. W. 432. in the formation of a corporation,
and
18 Neither a stockholder and offi- who has contracted with it with full
cer nor those claiming under him can knowledge of its transactions, will not
deny the corporate existence in such he permitted to contest the legality of
an action. Tuckasegee Min. Co. v. its formation in an action against him
Goodhue, 118 N. C. 981, 24 S. E. 797. on the contract. Henry Gold Min. Co.
19 Bank of Statesville v. Simonton, v. Henry, 25 Idaho 333, 137 Pac. 523.
86 N. C. 187. One who signs and acknowledges the
20 The officer cannot deny the ex- charter of a corporation, thereby ad-
istence of the corporation in such an mits the truthfulness of the facts
action. Joliet v. Frances, 85 111. App. therein recited, and cannot avoid a
243. conveyance by him to the corporation
21Trustees of a corporation, who on the ground that the statutory re-
signed the certificate of incorpora- quirements as to incorporation were
tion, are estopped to deny the legality not complied with, where the recitals
of the incorporation in such an action. show compliance. Sword v. Wicker-
Parrott v. Byers, 40 Cal. 614. sham, 29 Kan. 746.
22 Geneva Mineral Spring Co. v. 24 United States. Deitch v. Staub,
Coursey, 45 N. Y. App. Div. 268, 61 N. 115 Fed. 309; Manship v. New South
Y. Supp. 98. Building & Loan Ass'n, 110 Fed. 845.
735
§350] Private Cobpoeations [Oh. 11
in a mutual insurance company as a corporation, and thereby becom-

ing a member, estopped to deny its incorporation in an action
is
against him on a premium note, or for an assessment.^^ And a stock-
Cotmecticut. West Winsted Sav. South Dakota. Building & Loan

Bank & Bldg. Ass'n v. Ford, 27 Conn. Ass'n of Dakota v. Chamberlain, 4 S.
282, 71 Am. Dec. 66. D. 271, 56 N. W. 897.
Georgia. Pattison v. Albany Build- 25 Michigan. Cahill v. Kalamazoo
ing &, Loan Ass 'n, 63 Ga. 373,. Mut. Ins. Co., 2 Dougl. 124, 43 Am.
Ulinqis. Winget v. Quincy Build- Dec. 457.
ing & Homestead Ass'n, 128 ill. 67, New Hampshire. Nashua Fire Ins.
21 N. E. 12, aff'g 29 111. App. 178; Co. V. Moore, 55 N. H. 48.
Payette v. Free Home Building, Loan Unity Ins. Co. v. Cram, 43 N. H.
& Homestead Ass'n 27 111. App. 307. 636, apparently holds to the contrary,
Indiana. Jones v. Kokomo Bldg. but the court in Ossipee Hosiery &
Ass'n, 77 Ind. McLaughlin v.
340; Woolen Mfg. Co. v. Canney, 54 N. H.
dlitizens' Building, Loan & Savings 295, points out that the question of
Ass'n;' 62 Ind. 264. estoppel was not there involved or
Kansas. Massey v. Citizens Bldg. & passed upon.
Sav. Ass'n, 22 Kan. 624. New York. Eaegener v. Hubbard,
Maryland. Franz v. Teutonia Bldg. 167 N. Y. 301, 60 N. E. 633, aff'g 40
Ass'n No. 2, 24 Md. 259. App. Div. 359, 57 N. Y. Supp. 1018,
Missouri. Holmes v. Royal Loan which affirms 56 N. Y. Supp. 173;
Ass'n, 128 Mo. App. 329, 107 S. W. Eockland & H. Town Fire Ins. Co.
1005. V. Buasey, App. Div. 359, 63
48
Ifebraâ. Equitable Building & N. Y. Supp. 86; Eaegener v. Willard,
Loan Ass'n v. Bidwell, 60 Neb. 169, 82 44 App. Div. 41, 60 N. Y. Supp.
N. W. 384; Crete Building & Loan 478; Eaegener v. McDougall, 33 App.
Ass'n V. Patz, 1 Neb. (TJnof.) 768, Div. 231, 53 N. Y. Supp. 484; Eegener
95 N. W. 793. V. Warner, 56 N. Y. Supp. 310; Eege-
New York. Eagle Savings & Loan ner V. Phillips, 26 Misc. 311, 56 N.
Co. V. Samuels," 43 App. Div. 386, 60 Y. Supp. 174; White v. Eoss, 15 Abb.
N. Y. Supp. 91; Erie County Sav. Pr. 66; Sands v. Hill, 42 Barb. 651,
Bank v. Baldwin, 22 Alb. L. J. 134; rev'd on other grounds 55 N. Y.
Mechanics' Bldg. Ass'n v. Stevens, 5 18; Cooper v. Shaver, 41 Barb. 151;
Duer 676. Hyatt V. Esmond, 37 Barb. 601; Hyatt
Ohio. Hagerman v. Ohio Bldg. & V. Whipple, 37 Barb. 595; White v.
âv. Ass'n, 25 Ohio St. 186; Lucas v. Coventry, 29 Barb. 305; Hill v. Eeed,
Greenville Bldg. & Sav. Ass 'n, 22 Ohio 16 Barb. 280. See also Jones v. Dana,
St. 339. 24 Barb. 395.
Oregon. Washington Nat. Building, Trumbull County Mut. Fire
Ohio.
Loan & Investment Ass'n v. Stanley, Ins. Co. V. Horner, 17
Ohio 407; Mans-
38 Ore. 319, 58 L. E. A. 816, 84 Am. field & Hahn v. Woods, Jenks & Co.,
St. Bep. 793, 63 Pac. 489. 11 Ohio Dec. 761.

Pennsylvania. Johnston v. Eliza- Pennsylvania. Freeland v. Penn-
beth Building & Loan Ass'n, 104 Pa. sylvania Cent. Ins. Co., 94 Pa. St.
St. 394; Mechanics' Building,& Loan 504. See also Pennsylvania Milk Pro-
Ass'n v. Minnich, 1 Luz. Leg. Eeg. ducers ' Ass'n V. First Nat. Bank, 20
513, Pa. Co. Ct. 540.
736
Ch. 11] COEPOBATIONS BY ESTOPPEL [§352
holder who participates in a meeting of stockholders at whicli it is
voted to extend the life of the corporation, and in a subsequent meet-

ing at which assessments are levied, and who pays subsequent assess-
ments, is estopped to deny the existence of thie corporation under its
certificate extending its corporate life in an action to collect assess-
ments upon his stock.*^
But one cannot be estopped on the ground that he is a stockholder
where he never subscribed for or owned any stock, or where, though
taking part in the preliminary proceedings looking toward incor-
poration, he vdthdrew before th6 incorporation actually, took place,
and took no further part in the proceedings.*'' The estoppel of sub-
scribers to stock to question the legal existence of the corporation in
actions by it on the contract of subscription will be fully treated in a
subsequent chapter.**
§351. Estoppel of sureties or giiarantorfl for corporation. One

who executes, as surety, a bond purporting to be made by a corporation
as principal,*^ or who executes a bond or makes & contract guarantying
the obligation of an association purportipg to b« a corporation,^" is
estopped to deny its legal incorporation in an action thereon.
§ 352. Estoppel arising from actions by or agaii»5t pretended cor-

—
poration Estoppel of persons suing or sued by corporation. A per-
son who sues a corporation as such thereby admits th''. legality of its
incorporation, and is estopped from denying it in tha^^. «ruit.'^ And
Ithode Island. Providence Pire & 30 City of ^t. Louis v. Shields, 62
Marine Ins. Murphy, 8 R. I.
Co. v. Mo. 247; Hassinger v. Amnari| 160 Pa.
131. See also National Mut. Fire Ins. St. 245,28 Atl. 679; Mason v- Nichols,
Co. V. Yeomana, 8 R. I. 25, 86 Am. 22 Wis. 376. See also Peopj- v. Mc-
Dec. 610. Cumber, 18 N. Y. 315, 72 Am. Dee.
Wisconsin. Oilman v. Druse, 111 515, afE'g 27 Barb. 632.
Wis. 400, 87 N. W. 557. 31 United States. Howard v. La
26 Callahan v. Chilcoot Ditch Co., Crosae & M. R. Co., Woolw. 49, Ped.
37 Colo. 331, 86 Pac. 123. Cas. No. 6,760.
27 See § 348, supra. Colorado. Eaehea v. Johnston, ie
28 See Chap. 17, infra. Colo. 457, 104 Pac. 940.
29 So where a bond is executed un- Georgia. Richmond County v. Rich-
der the provisions of the mechanics' mond County Reformatory Inst., 141
lien law, reciting that the principal 6a. 457, 81 S. E. 232; Etowah Milling
is a corporation; Jeflferson v. Mc- Co. v. Crenshaw, 116 Ga. 406, 42. S.
Carthy, 44 Minn. 26, 46 N. W. 140; E. 709; Lester v. Georgia, 0. & N. Ry.
or where the bond in effect recites Co., 90 Ga. 802, 17 S. E. 113.
that the principal is a corporation. Illinois. Ward v. Minnesota & N.
Allen V. Hopkins, 62 Kan. 175, 61 W. E. Co., 119 111. 287, 10 N. E.' 365;
Pae. 750. Lombard v. Chicago Sinai Congrega-
737'
I Priv. Corp, — 47
the same is true where a person files a cross-bill or petition, or a

counterclaim, against a corporation.^*
A
stockholder who sues in the right of the corporation to recover
damages for a sale of corporate property by the corporate directors
tion, 64 111. 477; Patterson v. North- So by seeking to sustain a suit as

ern Trust Co., 132 111. App. 208, aff'd a proceeding to foreclose a mortgage
230 111. 334, 82 N. B. 837; Nimmo v. given by a corporation, the complain-
Jackman, 21 111. App. 607; Lincoln ant affirms the corporate existence of
Coal Min. Co. v. MeNally, 15 111. App. the mortgagor. Gow v. Collin &
181. Parker Lumber Co., 109 Mich. 45, 66
Indiana. First Nat. Bank of Craw- N. W. 676.
fordsville Dovetail Body & Gear
v. In accordance with this rule, a
Co., 143 Ind. 534, 42 N. B. 924. beneficiary under a deed of trust who
Kansas. Compton v. People's Gas joins in filing a bill against a pur-
Co., 75 Kan. 572, 10 L. E. A. (N. S.) ported corporation, which has leased
787, 89 Pae. 1039. the trust property, to foreclose a land-
Louisiana.. Poehelu v. Kemper, 14 lord's lien for rent, cannot thereafter
La. Ann. 308, 74 Am. Dee. 433. question the legality of the lessee's
Maine. McClinch v. Sturgis, 72 Me. incorporation. Patterson v. Northern
288, 297; Kennebec & P. B. Co. v. Trust Co., 132 111. App. 208, afE'd 230
Portland & K. E. Co., 59 Me. 9. See .111. 334.
also Taylor v. Portsmouth, K. & Y. By appealing from the award of
St. Ey., 91 Me. 193, 64 Am. St. Eep. damages by commissioners in condem-
216, 39 Atl. 560. nation proceedings instituted by a
Massachusetts. Hinsdale v. Lamed, railroad company, the landowner ad-
16 Mass. 65. mits that the company is lawfully or-
Nebraska. Nebraska Nat. Bank of ganized. Miller v. Prairie du Chien
York V. Ferguson, 49 Neb. 109, 59 Am. & M. Ey. Co., 34 "Wis. 533.
St. Eep. 522, 68 N. W. 370. 32 Illinois. Ward v. Minnesota &
New Jersey. Society for Establish- N. W. E. Co., 119 111. 287, 10 N. E.
ing Useful Manufactures v. Morris 365.
Canal & Banking Co., 1 N. J. Eq. 157, Missouri Eialto Co. v. Miner, 183
21 Am. Dee. 41. Mo. App. 119, 166 S. W. 629; St. Louis
New York. People v. Eavenswood, Gas-Light Co. v. St. Louis, 11 Mo.
H. C. & W. Turnpike & Bridge Co., App. 55, aff'd 84 Mo. 202.
20 Barb. 518; Kuypers v. Eeformed Oklahoma. See Swofford Bros. Dry
Dutch Church, 6 Paige 570. Goods Co. v. Owen, 37 Okla. 616, 133
Norti Carolina. See Powell Bros. Pae. 193.
V. McMuUan Lumber Co., 153 N. C, Washington. See Washington Mill
52, 68 S. B. 926. Co. V. Craig, 7 Wash. 556, 35 Pae.
Ohio. Chapman v. Mad Eiver ft 413.
Lake Erie E. Co., 1 Ohio Dec. 565, Wisconsin. Black Eiver Improve-
modifying 1 Ohio Dec. 559. ment Holway, 85 Wis. 344, 55
Co. V.
Oklahoma. Swoflford Bros. Dry N. W. 418; MoKnight v. Town of Min-
Goods Co. V. Owen, 37 Okla. 616, 133 eral Point, 1 Pinney 99.
Pae. 193. The rule stated in the text applies
Tennessee. Shoun v. Armstrong where he interposes an affirmative de-
(Tenn. Ch.), 59 S. W. 790. fense which recognizes the corporate
738
Ch. 11] COBPOBATIONS BY ESIOPPEL [§ 352
in fraud of the corporation, is estopped to question its corporate acts

on the ground that its existence had expired by limitation when they
took place.*' But it has been held that the institution of a suit
against a supposed corporation does not work an estoppel where it is
abandoned on learning that there is no sUch corporation in exist-
ence,3* and that the plaintiff may amend his petition before answer
so as to allege that the defendant company is a copartnership.^' There
is also authority to the effect that one who is about to be damaged by
the acts of a pretended corporation may maintain a suit to enjoin

such acts against the corporation as such, on the ground that it was
defectively organized,'^ this for the reason that if the suit were
brought against those claiming to act under the authority of the
corporation and an injunction obtained, other persons claiming to
act as the ofiScers or agents of the corporation might proceed to do
the same acts, while if the pretended corporation is restrained be-
cause of its no one acting iu its behalf can
defective organization,
do such acts.*'' So it has been held that a property owner may main-
tain a suit against a draining company in its corporate name to enjoin
it from collecting assessments of benefits to his lands resulting from
the construction of its drainage ditch, and from issuing bonds and
proceeding with the construction of the ditch on the ground that it
has never been legally incorporated and is not a corporation de jure."
And it has also been held that there is no real inconsistency in mak-
ing a de facto turnpike company a party defendant in its corporate
name to a suit to enjoin the coimty treasurer from collecting a tax
assessed to aid in the construction of the turnpike, on the ground
that such company was never legally organized in the manner pre-
scribed by the statute. The reason for this view is that such a suit
does not involve an attack on the existence of the corporation any
existence of the plaintiff and demands 36 Newton County Draining Co. v.

affirmative relief. See Stanford Land Nofsinger, 43 Ind. 566.
Co. V. Steidle, 28 Wash. 72, 68 Pac. 37 Newton County Draining Co. v.
178. Nofsinger, 43 Ind. 566.
33 Hoag V. Edwards, 69 N. T. Mise. 38 Newton County Draining Co. v.
237, 124 N. Y. Supp. 1035. Nofsinger, 43 Ind. 566. See also Skel-
34 Under such circumstances it does ton Creek Draining Co. v. Mauck, 43
not prevent one who has sold goods Ind. 300; Seyberger v. Calumet Drain-
on the credit of a person representing ing Co.", 33 Ind. 330; and O'Beiley v.
himself as a member of a corporation Kankakee Valley Draining Co., 32

from thereafter recoverijig against Ind. 169, where similar actions were
him. Bohan Bros. Boiler Mfg. Co. v. brought in this form and sustained,
Eichmond, 14 Mo. App. 595. though in none of them was the ques-
35 Bell V. Dowdy, 13 Ky. L. Bep. 543 tion specifically raised,
(abstract).
739
352] Pbivaie Cobpoeations [Ch.ll
further than to show that the tax which the treasurer is threatening
to cQlleet is illegal because the company had no authority to have
it levied for the purpose of constructing its road.*^
One who e;xpressly alleges the existence of a corporation in his

deplaration bill or complaint cannot thereafter question its existence
in that case ;
**•
and the same is true where he expressly admits it in
an agreed statement of faets,*i or where he expressly** or impliedly
admits it in his answer.** He admits its corporate existence by going
39 Knightv. Flatrock & W. Turn- V. Grand Hotel & Opera House Co.,
pike 45 Ind. 134.
Co.; 11 Wyo. 128, 70 Pac. 838, 72 Pac. 687.
40 Comptou V. People 's Gas Co., 75 See also Eikhoff v. Brown's Eotary
Kan. 572, 10 L. B. A. (N. S.) 787, 89 Shuttle Sewing Mach. Co., 68 Ind.
Pac. 1039; National Mut. Building & 388, holding that an agreement at the
iioan Ass'n v. Ashworth, 91 Va. 706, trial as to the existence of certain
22 8. E. 521; Grand Eapids Furniture facts involved an admission of the full
Co. V. Grand Hotel & Opera House and complete organization of the
Co., 11 Wye. 128, 70 Pae. 838, 72 Pao. plaintiff corporation, and therefore of
687. every fact necessary to such organi-
Thus where the d,eclaration in an zation.
action against the directors and offi- 42 Bristol Bank & Trust Co. v. Jones-
cers of a corporation expressly alleges boro Banking Trust Co., 101 Tenn. 545,
that the defendants and others were 48 S. W. 228; Lillard v. Porter, 2 Bead
incorporated, the plaintiff is estopped (Tenn.) 177; Milwaukee Brick & Ce-
to claim that theyhad no charter, for ment Co. v. Schokneeht, 108 Wis. 457,
the purpose of holding them liable as 84 N. W. 838. See also Swofford Bros.
private associates. Hinsdale v. Lar- Dry Goods Co. v. Owen, 37 Okla. 616,
ned', 16 Mass.- 65. 133 Pac. 193.
Where the plaintiff alleged the in- Where the plea or answer admits
corporation of the intervener in the that the plaintiff had been a corpora-
complaint and in his answer to tion, it willbe presumed that it has
the intervention, but subsequently continued to be and still is one, in the
amended the latter so as to deny such absence of any showing to the con-
incorporation, and the case was tried trary. Darrell v. Hilligoss, M., M. &
under the amended pleadings by di- E. Gravel Eoad Co., 90 Ind. 264.
rection of the court that the answer Such an admission is conclusive,
to the iuteryention sjiould be deemed and^ cannot be controverted either by
denied by both the plaintiff and the the evidence or the findings. McKee
intervener, and the issue pf incorpora- V. Title Insurance & Trust Co., 159
tion was immaterial as between the Cal. 206, 113 Pac. 140.
plaintiff and the defendant, it was Such an admission under oath in an
held that the failure to amend the answer stricken out is admissible in
answer did not, preclude a finding that evidence. Peckham Iron Co. v. Har-
the intervener was not a corporation. per, 41 Ohio St. 100.
Wall V. Mines, 130 Cal. 27, 62 Pae. 43 Denial of indebtedness xo a cor-
386. poration admits, by implication, its

41, National Mut. Building & Loan corporate existence. Saflfo^d v. Barnes,
Ass'n V. Ashworth, 91 Va. 706, 22 S. 39 Miss. 399..
B. 521; Grand Eapids Furniture Co. Where the answer sets up a contract
740
Ch. 11] COEPORATIONS BY EsTOPPEL [§ 352
to trial on the merits or pleading to the merits, instead of pleading

want of incorporation,** as, for example, by pleading the general
with the plaintiff corporation, the de- Co., 4 Blackf. 267, 29 Am. Dee. 372;
fendant is estopped to deny its cor- Guaga Iron Co. v. Dawson, 4 Blackf.
porate existence, and a denial thereof 202.
is a sham. Washington Mill do. v. Kentucky. Woodson v. Bank of
Craig, 7 Wash. 556, 35 Pac. 413. 4 B. Mon." 2()3.
Gallipolis,
An admission of the execution of Maine. Penobscot Boom Corpora-
the notes in suit to the plaintiff bank tion V. L^mson, 16 Me. 224, 33 Am.
in its corporate name
an admission
is Dec. 656. ,
of its corporate existence and power Massachusetts. First Parish in Sut-

to enter into the contract. Holmes ton V. Cole, 3 Pick. 232.
Fuel & Feed Co. v. Commercial Nat. IMissouii. West Missouri Land Co.
Bank, 23 Colo. 210, 47 Pac. 289. V. Kansas City Suburban Belt R. Co.,
Where the answer is amended the 161 Mo. 595, 61 S. W. 847.
original answer containing what New Jersey. Bennington Iron Co.
amounts to an admission of the plain- V. Rutherford, 18 N. J. L. 105,, 35 Am.
tiff's corporate existence is admissible Dec. 5^8. '
in evidence. Kilpatrick-Koch Dry- New York. Loaners' Bank City of

Goods Co. V. Box, 13 Utah 494, 45 New Tork v. Jacoby, 10 Hun 14?.
Pac. 629. North Carolina. See Stanly v. Rich-
44 United States. United States v. mond & D. R. Co., 89 N. C. 331.
Insurance Companies, 22 Wall. 99, 22 Oklahoma. Leader Printing Co. v.
li. Ed. 816; Society for Propagation Lowry, 9 Okla. 89, 59 Pac. 242. See
of Gospel V. Pawlet, 4 Pet. 480, 7 L. also Swofford Bros. Dry Goods Co. v.
Ed. 927; Conard v. Atlantic Ins. Co., Owen, 37 Okla. 616, 133 Pae. 193.
1 Pet. 386, 450, 7 L. Ed. 189; Dental Oregon. See Oregon Cent. R. Co. v.
Vulcanite Co. v. Wetherbee, 2 Cliff. Scoggin, 3, Ore. 161; Oregon Cent. B.
555, 3 Fish Pat. Cas. 87, Fed. Cas. Co. V. Wait,. 3 Ore. 91.
No. 3,810; Hebrew Congregation Benai Pennsylvania. Lehigh Bridge', Co.
Berith Jacob v. United States, 6 Ct. V. Lehigh Coal & Navigation Co., 4
CI. 241. Rawle 9.
Alabama. Prince v. Commercial South Carolina. Liberian Sxodus

Bank of Columbus, 1 Ala. 241, 34 Am. Joint Stock S. S. Co. v. Bodgers, 21 S.
Dec. 773. C. 27.
California. Oroville & V. R. Co. v. West Virginia. See McDonald v^
Supervisors of Plumas Co., 37 Oal. Cole, 46 W. Va. 186, 32 S. E. 1033,
354. Where, in a suit by a corporation on
Connecticut. West Winsted Sav. a bond, the defendant pleads condi-
Bank & Building Ass'n v. Ford, 27 tions performed, the plaintiff is not
Conn. 282, 71 Am. Dec. 66. bound to prove its corporate existenc,e.
District of Columbia. Tyler v. Mu- Central Land Co. v. Camoun, 16 W.
tual Dist. Messenger Co., 17 App. Cas. Va. 36L
85. In an action against an insurance
Georgia. Beaty & Co. v. Atlanta & company on a policy of insurance,
W. P. R. Co., 100 Ga. 123, 28 S. E. where the defendant pleaded to the
32. merits, and the case was then arbi-
Indiana. Hubbard v. Chappel, 14 trated with an award in favor of the
Ind. 601; Harris v. Muskingum Mfg. plaintiff, from which the defendant
741
352] Pbivate Corpokations [Ch. 11
issue or a general denial.** In like manner, one who demurs to a com-
appealed, it was held that a plea in But see Hargrave v. Bank of Illinois,
abatement questioning the plaintiff's Breese (1 111.) 122.
corporate existence filed after a jury- Indiana. Beatty v. Bartholomew
had been called, came too late. Union County Agricultural Society, 76 Ind.
Type Foundry v. Kittanning Ins. Co., 91; Wiles v. Trustees of Philippi
138 Pa. St. 137, 20 Atl. 841. Church, 63 Ind. 206; Indianapolis Fur-
Though in condemnation proceed- nace & Mining Co. v. Herkimer, 46
ings no formal answer is required to Ind. 142; Cicero Hygiene Draining Co.
be made to the petition, the land- V. Craighead, 28 Ind. 274; Board
owner waives the making of proof as Com'rs Bartholomew Co. v. Bright,
to the corporate existence of the peti- 18 Ind. 93; Dunning v. New Albany &
tioner by going to trial on the merits S. B. Co., 2 Ind. 437.
without objection, and thereby admits Kentucky. Taylor v. Bank of Illi-
the capacity in which the petitioner nois, 7 T. B. Mon. 576.

sues. Ward Minnesota & N. W. R.
v. Maine. Penobscot Boom Corpora-
N. E. 365.
Co., 119 111. 287, 10 tion v. Lamson, 16 Me. 224, 33 Am.
46 United States. Pullman v. Upton, Dec. 656.
96 U. S. 328, 24 L. Ed. 818; United Massachusetts. By statute (St.
States V. Insurance Companies, 22 1881, c. 113), it is provided that when
Wall. 99, 22 L. Ed. 816; Society for it appears from the pleadings that
Propagation of Gospel v. Pawlet', 4 the plaintiff or defendant sues or is
Pet. 480, 7 L. Ed. 927; Union Cement sued as a corporation, that fact shall
Co. V. Noble, 15 Fed. 502; Dental Vul- be taken as admitted unless a special
canite Co. V. Wetherbee, 2 Cliff. 555, 3 demand for its proof is filed within a
Fish Pat. Cas. 87, Fed. Cas. No. 3,810. specified time. Goodwin Invalid Bed-
Alabama. Montgomery B. Co. v. stead Co. V. Darling, 133 Mass. 358.
Hurst, 9 Ala. 513; Prince v. Commer- Under the statute in force prior
cial Bank of Columbus, 1 Ala. 241, 34 thereto, a general denial put in is-
Am. Dec. 773. sue the incorporation of the plaintiff
Arkansas, Mississippi, O. & B. B. where the declaration described it as
E. Co. V. Cross, 20 Ark. 443. a corporation. Goodwin Invalid Bed-
OaUfomla. Oroville & V. B. Co. stead Co. V. Darling, 133 Mass. 358;
V. Supervisors of Plumas Co., 37 Cal. Williamsburg City Fire Ins. Co. v.
354. See also Bank of Shasta v. Boyd, Frothingham, 122 Mass. 391; Mosler,
99 Cal. 604, 34 Pac. 337. Bahmann & Co. v. Potter, 121 Mass.
Connecticut. Northrop v. Bushnell, 89 Hungerf ord Nat. Bank v. Van Nos-
;
38 Conn. 498; Litchfield Bank v. trand, 106 Mass. 559. And before the
Church, 29 Conn. 137; West Winsted adoption of the latter statute the gen-
Sav. Bank & Building Ass'n v. Ford, eral issue was held to admit the plain-
27 Conn. 282, 71 Am. Dee. 66. tiff's corporate existence. Proprietors
District of Columbia. Tyler v. Mu- of Kennebeck Purchase v. Call, 1
tual Dist. Messenger Co., 17 App. Cas. Mass. 483; Proprietors of Monumoi
85. ;]
Great Beach v. Eogers,. 1 Mass. 159;
Illinois. Bjdley v. Valley Nat. Bank, Christian Society v. Macomber, 3
127 111. 332, 19 N. E. 695, afC'g 21 111. Mete. 235.
App. 642; Eamsey v. Peoria Marine Michigan. Garton v. Union City
& Fire Ins. Co., 55 HI. 311; Mclntire Nat. Bank, 34 Mich. 279. But see
V. Preston, 10 111. 48, 48 Am. Dec. 321. Owen V. Farmers' Bank, 2 Dougl. 134.
742
Cli. 11] COBPOEATIONS BY ESTOPPEL [§352
plaint on the ground that it does not state a cause of action must be
Finch, Van Slyck & Hc-

Minnesota. Ti. 1033. But see Anderson v. Kana-
Conville v.Le Sueur County Co-opera- wha Coal Co., 12 W. Va. 526, and Hart
tive Creamery Co., 128 Minn. 73, 150 V. Baltimore & O. E. Co., 6 W. Va. 336,
N. W. 226; Crow Eiver Valley Cream- and cases there cited.
ery Co. V. Strande, 104 Minn. 46, 115 Wyoming. See Hecht v. Acme Coal
N. W. 1038. Co., 19 Wyo. 10, 113 Pae. 786.
Montana. Willoburn Banch Co. v. By putting in a general denial the
Yegen, 49 Mont. 101, 140 Pae. 231. defendant waives the right to assail
Nebraska. Dietrichs v. Lincoln & the plaintiff's charter, and the plain-
N. W. E. E., 13 Neb. 43, 13 N. W. 13; not obliged to prove its incor-
tiff is
National Life Ins. Co. v. Eobinaon, 8 poration. Liberian Exodus Joint Stock
Neb. 452, 1 N. W. 124. S. S. Co. V. Eodgers, 21 S. C. 27,
New Hampshire. Nashua Fire Ins. The general denial admits the plain-
Co. V. Moore, 55 N. H. 48; Concord v. tiff's capacity to sue, and a subse-
Mclntyre, 6 N. H. 527; School Dist. quent paragraph of the answer

No. 1 V. Blaisdell, 6. N. H. 197. denying such capacity on the ground
New York. Under Code Civ. Proc. that the plaintiff is not a. corporation
§ 1776, the plaintiff is not obliged to is inconsistent therewith and bad.
prove its corporate existence unless Jones V. Cincinnati Type Foundry Co.,
the answer is verified and contains 14 Ind. 89.
an afSrmative allegation that the Where the complaint alleges that
plaintiff is not a corporation. Lam- the defendant is a corporation, a gen-
son Consol. Stone Service Co, v. Con- eral denial in the answer is qualified
yngham, 11 Mise. 428, 32 N. Y. Supp. by subsequent allegations as to acts
129. done by the defendant without show-
Formerly the rule was otherwise, ing that they were .done otherwise
and a general denial put in issue the than as a corporation, and the de-
corporate existence of the plaintiff fendant's corporate character stands
where it was alleged to be or described admitted. St. Anthony Falls Water
as a corporation the complaint.
in Power Co. v. King Wrought Iron
Kennedy Barb. 59; Bank
v. Cotton, 28 Bridge Co., 23 Minn. 186, 23 Am.
of TJtica V. Smalley, 2 Cow. 770, 14 Dee. 682.
Am. Dec. 526, aff'd 8 Cow. 398; Bank Exceptions to the rule have been
of Auburn v. Weed, 19 Johns. 300. recognized in the ease of foreign cor-
South Carolina. Montgomery v. porations; School Dist. V. Blaisdell, 6
Seaboard Air Line By., 73 S. C. 503, N. H. 197; Holloway v. Memphis, E. P.
53 S. E. 987; Eembert v. South Caro- & P. E. Co., 23 Tex. 465, 76 Am. Dec.
lina E. Co., 31 S. C. 309, 9 S. E. 968; 68; Bank of Alabama Simonton,
v.
Palmetto Lumber Co. v. Eisley, 25 S. 2 Tex. 531; or a domestic corpo-
C. 309; Commercial Insurance & Bank- ration created by a private act. Hol-
ing Co. V. Turner, 8 S. C. 107. loway V. Memphis, E. P. & P. E. Co.,
Vermont. Aetna Ins. Co. v. Wires, 23 Tex. 465, 76 Am. Dec. 68. And in-
28 Vt. 93. stances have also occurred in which a
V/ashlngton. Garneau v. Port corporation has been compelled to
Blakely Mill Co., 8Wash. 467, 36 Pac. show a charter under the general issue
463. in order to show a title to maintain
West Virginia. See dictum in Mc- the action. School Dist. No. 1 v.
Donald V. Cole, 46 W. Va. 186, 32 S. Blaisdell, 6 N. H. 197.
743
§ 352] Private Coepobations [Cla. 11
held to admit the plaintiff's corporate existence.** In some jurisdic-

tions, however, a general denial will put in issue the corporate ex-
istence of the plaintiff where it is alleged to be or is described as a
corporation in the declaration or complaint.*'
Statutes in many states now prescribe the manner in which the
plaintiff's corporate existence may be put in issue, and when such
is the case the provisions of the statute must be followed.**
If the defendant files an affidavit that the plaintiff corporation is
a nonresident and thereby obtains security for costs, he cajinot deny

its corporate existence in a subsequent action on his appeal bond
given in the same action.*'
Where the plaintiff introduces evidence tending to show that an
alleged corporation, as agents for which the defendants claim to have
done the acts complained of, is a de facto corporation, he cannot
thereafter inquire into or dispute its corporate character.^"*
An allegation of incorporation in one action will not estop the
pleader in a subsequent action in which the parties and issues are
different.*^ Nor mere fact that the plaintiff in one suit
will the
recognizes that the defendants are members of a company, which is
administered as such, preclude him from showing in a subsequent
suit that such company has no legal existence as a corporation. In
order to work an estoppel under such circumstances there should, at
least, be an admission that the company was entitled to exercise cor-
porate rights and privileges.^^
46 Wiles V. Trustees of Philippi plea to the merits and not in bar,

Church, 63 Ind. 206; State v. Stout, and hence is not waived by joining it
61 Ind. 143. with a plea to the merits. Law Quar-
Where the suit is brought in a name antee & Trust Society v. Hogue, 37
denoting an ideality, this is equiva- Ore. 544, 63 Pac. 690, 62 Pac. 380.
lent to an averment of the de facto TJnde? Act of 1887, Pub. L. 272, this
existence of the corporation, and a defense will be admitted under the
general demurrer admits its de facto general issue, but notice thereof must
existence, and hence its capacity to be given to the other party if required,
maintain some suits. Cicero Hygiene Susquehanna Mut. Fire Ins. Co. .v.
Draining Co. v. Craighead, 28 Ind. EemoeM & Meily, 4 Pa. Co. Ct. 161.
874. 48 See Chap. 14 and the chapter on
Hartford Fire Ins. Co. v. Central
47 Actions Against Corporations, infra.
E. of Oregon, 74 Ore. 144, 144
E. 49Trogdon v. Cleveland Stone Co.,
Pac. 417; Goodale Lumber Co. v. 53 111.App. 206.
Shaw, 41 Ore. 544, 69 Pac. 546; Jack- BOBondell v. Fay, 32 Cal. 354.
son's Adm'x v. Bank of Marietta, 9 Bl Wall v. Mines, 130 Cal. 27, 62
Leigh (Va.) 240; Henriques v. Dutch Pac. 386.

West India Co., 2Ld. Eaym. 1532. B2 Spencer Field & Co. v. Cooks, 16
The plea of nul tiel corporation is a La. Ann. 153.
744
Ch.ll] COBPOBATIONS BY EsTOPPEL [§353
§ 353. —
Actions and proceedings by the state. The state may not
sue a corporation as such, and, at the same time, deny its existence
as a corporation, though it may be heard as to the rights and immuni-
ties claimed and set up by the corporation.^'
It has been intimated that an allegation in an indictment that the
defendant is an existing corporation, duly chartered by the state, is
such an admission as will preclude the state from attacking the
legality of its incorporation.^*
By the weight of authority, iiling an information in the nature of
quo warranto against an association in its corporate name, either for
the purpose of requiring it to show by what authority it is exercis-
ing corporate franchises, or of forfeiting its charter, or for the pur-
pose of ousting it from the exercise of certain powers, is an admission
of its corporate existence, and will estop the state from afterwards
claiming that it had not been legally incorporated.** Some courts,
however, hold that such a proceeding may properly be brought
against the pretended corporation itself, and that the individual
SS state V. Mercantile Bank, 95 Sup'rs, 41 Mich. 647, 2 N. W. 904.

Tenn. 212, 31 S. W. 989. Mississippi. State v. Commercial
64 Com. V. Philadelphia, H. & P. E. Bank, 33 Miss. 474.
Co., 23 Pa. Super. Ct. 235. Missouri. See State v. Polar Wave
B6 Illinois. People v. Larsen, 265 Ice & Fuel Co., 259 Mo. 578, 169 S.
111. 406, 106 N. E. 947; People v. Cen- W. 126.
tral U. Tel. Co., 192 111. 307, 85 Am. New Hampshire. State v. Barron,
St. Eep. 338, 61 N. E. 428; People v. 57 N. H. 498.
Peoria, 166 111. 517, 46 N. E. 1075; New York. People v. Eavenswood,
Distilling & Cattle-Feeding Co. v. Peo- H. C. & W. Turnpike & Bridge Co.,
ple, 156 111. 448, 47 Am. St. Eep. 200, 20 Barb. 518; People v. Eensselaer &
41 N. E. 188; North & South Eolling- S. E. Co., 15 Wend. 113, 30 Am. Dec.
Stock Co. V. People, 147 111. 234, 24 33.
L. E. A. 462, 35 N. E. 608; People v. Ohio. State v. Cincinnati Gas Light
Spring Valley, 129 111. 169, 21 N. E. & Coke Co., 18 Ohio St. 262.
843; Chesshire v. People, 116 111. 493, The rule of estoppel applies where
6 N. E. 486; People v. Citizens Tel. the information states that the de-
Co. of Pekin, 186 111. App. 260. See fendant is a corporation organized un-
also People v. Anderson, 239 111. 266, der specified laws. State v. Central
87 N. E. 1019. Ohio Mut. Belief Ass'n, 29 Ohio St.
Indiana. Newton County Draining 399.
Co. V. Nof singer, 43 Ind. 566; Mud Texas. See Ewing v. State, 81 Tex.
Creek Draining Co. v. State, 43 Ind. 172, 16 S. W. 872.
236. See also Knight v. Platroek & But the corporation must be made
W. Turnpike 45 Ind. 134.
Co., a party to a proceeding to forfeit
Massachusetts. See Com. v. Tenth its charter for misuser or nonuser.
Massachusetts Turnpike Corporation, State V. Taylor, 25 Ohio St. 279. See
5 Cush. 509. also chapter on Forfeiture, Dissolu-
Michigan. People v. Board of tion, etc., infra.
745
incorporators are not even necessary parties, at least where the cor-
porationis one de facto.**
Eeasons given in support cf this rule are the inconvenience and

practical impossibility of serving all of the stockholders,*'' and that
B6 Kansas. In State v. Inner Belt V. Board Com'rs Crow Wing Co., 66

E. Co., -74 Kan. 413, 87 Pac. 696, a Minn. 519, 529, 35 L. E. A. 745; 73
proceeding in quo warranto, the court N. "W. 631, 69 N. W. 925, 68 N. W.
held it unnecessary to make the offi- 767; State v. Traey, 48 Minn. 497,
cers and members of a purported 51 N. W. 613. See also State v. Vil-
corporation defendants, -where pro- lage of Pridley Park, 61 Minn. 146,
ceedings were brought by the state 63 N. W. 613; State v. Minnetonka
to restrain the organization from act- Village, 57 Minn. 526, 59 N. W. 972.
ing as a corporation on the ground New Jersey. This rule has been ap-
that its incorporation was a nullity. plied in the case of municipal corpo-
Upon rendering the decree, however, rations. State V. Vickera, 51 N. J.
the court stated such order as might L. 180, 14 Am. St. Eep. 675, 17 Atl.
be necessary would be made to re- 153; State v. Atlantic Highlands, 50
strain the officers and members from N. J. L. 457, 14 Atl. 560. See also
exercising corporate powers. See also State V. Eiordan, 75 N. J. L. 16, 69
State v. Ford County, 12 Kan. 441, Atl. 494.
where the defendant was a county. Pennsylvania. In re Consolidated
Louisiana. New Orleans Deben- Stock Exchange of Philadelphia, 31
ture Redemption Co. v. Louisiana, 180 Pa. Co. Ct. 226 (opinion of attorney
U. S. 320, 45 L. Ed. 550, afE'g 51 La. general on application for writ of quo
Ann. 1824, 26 So. 1038; State v. De- warranto); Com. v. Gray's Mineral
benture Guarantee & Loan Co., 51 La. Fountain Co., 8 Dauph. Co. Eep. 47;
Ann. 1874, 26 So. 600. In the above But in Com. v. New York, L. E. & "W.
case it is said that it is better to make C. & E. Co., 10 Pa. Co. Ct. 129, the
the original incorporators parties, court lays down the contrary rule.
though it is held that it is not neces- Vermont. In State v. Bradford, 32
sary to do so. In the course of the Vt. 50, leave was granted to the at-
opinion the court also says, "There is torney general to file an information
no more inconsistency in bringing praying for a writ of quo warranto
defendant into court as a corporation, against a de facto municipal corpora-
to have it declared to be not such, tion on the ground that the election
than there would be to allege in a to determine whether the charter
pleading the existence of a judgment should be accepted was fraudulently
and to pray that it be decreed to have conducted, and the corporation was
been and to be an absolute nullity, dissolved.
nor to bring into court a party as a England.Eex v. Ogden, 10 B. &
husband to have his marriage with the C. 109 Eng. Eeprint 436; Eex
230,
plaintiff decreed never to have legally V. Corporation of Carmarthen, 3 Burr.
existed. The existing status is rec- 869, 97 Eng. Eeprint 607.
ognized temporarily solely for the very 67 State V. Debenture Guarantee &
avowed purpose of having it declared Loan Co., 51 La. Ann. 1874, 26 So.
to be without foundation." 600; Com. v. Gray's Mineral Foun-
niinnesota. This is true in the tain Co., 8 Dauph. Co. Eep. (Pa.)
case of municipal corporations. State 47.
746
Ch. 11] COEPOBAIIONS BY ESTOPPEL [§ 354
if the corporation is the rights of all parties are

made defendant
represented, since the corporation represents its stockholders as well
as itself,** while if the stockholders or incorporators alone are made
defendants, the corporation itself is not represented," and therefore
a judgment declaring it never to have existed would not be res
adjudicata as against it,*" or, if so, its de facto character would be
taken away in proceedings to which it was not a party.*^

In Alabama the statute expressly provides that the corporation
may be joined £is a party defendant, and that such joinder does not
admit its corporate existence, or otherwise prejudice the case of the
plaintiff.*^
In California has been held that while there is an estoppel where
it
it is alleged that the corporation never has been a corporation of any
character,*^ there is no estoppel where the complaint alleges that the

defendant is a corporation de facto, but that it did not become one
de jure because of its failure to comply with the statutory conditions
precedent to incorporation.**
§ 354. — Estoppel of corporation. A defendant sued as a corpora-

tion cannot deny its own existence, either in abatement or in bar.
If it is not a corporation, it cannot, as such, appear and plead.** If
58 Com. V. Gray 'b Mineral Fountain brought against the corporation, and
Co., 8 Dauph. Co. Eep. (Pa.) 47. the court said that while it was ques-
69 Com. V. Gray 's Mineral Fountain tionable whether the action could be
Co., 8 Dauph. Co. Rep. (Pa.) 47. maintained, they would not consider
When the incorporators sign the act the question because no objection had
of incorporation, they cease to have been made.
authority to represent individually the In People v. Stockton & V. E. Co.,
rights or obligations of the corpora- 45 Cal. 306, 13 Am. Eep. 178, the
tion. State v. Debenture Guarantee question was not decided, the court
& Loan Co., 51 La. Ann. 1874, 26 So. holding that the corporation was val-
600. idly organized.
Debenture Guarantee &
60 State v. 64 People v. Montecito Water Co.,
Loan Co., 51 La. Ann. 1874, 26 So. 600. 97 Cal. 276, 33 Am. St. Eep. 172, 32
61 Com. V. Gray 'a Mineral Fountain Pae. 236. See People v. Flint, 64
Co., 8 Dauph. Co. Eep. (Pa.) 47. Cal. 49, holding that the corporation
62 Ala. Civ. Code 1907, §5456; Floyd is a necessary party under such cir-
V. State,177 Ala. 169, 59 So. 280. cumstances. And see also People v.
People V. Montecito Water Co.,
63 Gunn, 85 Cal. 238, 24 Pac. 718.
97 Cal. 276, 33 Am. St. Rep. 172, 33 6B Alabama. McCuUough v. Talla-
Pac. 236; People v. Stanford, 77 Cal. dega Ins. Co., 46 Ala. 376.
360, 2 L. E. A. 92, 19 Pac. 693, 18 Colorado. Western U. Tel. Co. v.
Pac. 85. See also People v. Eeclama- Eyser, 2 Colo. 141, rey'd on other
tion Dist. No. 551, 117 Cal. 114, 48 grounds 91 V. S. 495, 23 L. Ed. 377.
Pac. 1016, where the proceeding waA Indiana. Adams Exp. Co. v. Hill,
747
§354] Peivate Cobpokations [Ch. 11
therefore, an association, sued as a corporation, appears and defends

the action on the merits, it thereby admits of record its corporate
existence, and cannot thereafter deny it in that action.®^ And the
43 Ind. 157; Pilliod v. Angola Railway Dinkle, 32 Ind. App. 273, 69 N. E.

& Power Co., 46 Ind. App. 719, 91 N. 707. See also Ohio Oil Co. v. Deta-
E; 829. more, 165 Ind. 243, 73 N. E. 906.
Kansas. Missouri Eiver, Ft. S. & Kansas. Missouri River, Ft. S. &
G. E. Co. V. Shirley, 20 Kan. 660. G. E. Co. V. Shirley, 20 Kan. 660.
Nebraska. Gilligan v. John Gilli- Louisiana. Jones v. Trustees of
gan Co., 94 Neb. 437, 143 N. W. 457; Mt. Zion Congregation, 30 La. Ann.
Livingston Loan & Building Ass'n v. 711.
Drummond, 49 Neb. 200, 68 N. "W. Missouri. Flynu v. Neosho, 114 Mo.
375.- 567, 21 S. W. 903; Witthouse v. Atlan-
"If a corporation appears to a suit, tic & P. E. Co., 64 Mo. 523; Smith v.
it cannot deny its own existence. It Burlington & M. E. E. Co., 55 Mo. 526;
either exists or isa nonentity, and Seaton v. Chicago, E. I. & P. E. Co.,
if be a nonentity the whole pro-
it 55 Mo. 416; Hudson v. St. Louis, K.
ceedings would be coram, non judioe C. & N. Ey. Co., 53 Mo. 525; Meyer
and utterly void." Seaton v. Chi- Bros. V. Insurance Co. of North Ameri-
cago, R. I. & P. R. Co., 55 Mo. 416. ca, 73 Mo. App. 166; Ludowiski v.
United States. Perris Irrigating
66 Polish Roman Catholic St. Stanislaus
Dist. V. Thompson, 116 Fed. 832. Kostka Benev. Society, 29 Mo. App.
Alabama. McCullough v. Talladega 337; Sappington v. Missouri Pae. R.
Ins. Co., 46 Ala. 376; Oxford Iron Co., 14 Mo. App. 86.
Co. V. Spradley, 46 Ala. 98. New York. Derrenbacker v. Lehigh
Colorado. Western U. Tel. Co-, v. Valley R. Co., 21 Hun 612, rev'd on
Eyser, 2 Colo. 141, rev'd on other other grounds 87 N. Y. 636; Root v.
grounds 91 U. S; 495, 23 L. Ed. Great Western R. Co., 65 Barb. 619,
377; Baldwin Coal Co. v. Davis, 15 aflE'd 55 N. Y. 636; Kuypers v. Re-
Colo. App. 371, 62 Pac. 1041; A. Gau- formed Dutch Church, 6 Paige 570.
thier Decorating Co. v. Ham, 8 Colo. See also Sturges v. Vanderbilt, 73 N.
App. 559, 34 Pac. 684. Y. 384.
Illinois. People v. Strawn, 265 111. North Carolina. Stanly v. Rich-
292, 106 N. E. 840; Chicago & A. R. mond & D. R. Co., 89 N. C. 331; Rush
Co. V. Glenny, 175 111. 238, 51 N. E. V. Halcyon Steamboat Co., 84 N. C.
896, aff'g 70 111. App. 510; United 702. See also GrifSn v. Asheville
States Exp. Co. v. Bedbury, 34 HI. Light Co., Ill N. C. 434, 16 S. E. 423.
459; Auburn Cycle Co. v. Foote, 69 Oklahoma. Herald Shoe Co. v. Okla-
111. App. 644; Fields v. United Broth-
homa Pub. Co., 15 Okla. 29, 79 Pac.
erhood of Carpenters & Joiners, 60
111.
111. App. 258; Legnard v. Crane Co.,
Pennsylvania. Pittsburg Sheet Mfg.
54 111. App. 149; Supreme Lodge A.
Co. V. Beale, 204 Pa. 85, 53 Atl. 540.
O. U. W. V. Zuhlke, 30 El. App. 98,
South Carolina. Faust v. Southern
aff'd 129 111. 298, 21 N. E. 789.
Indiana. Pittsburgh, C, C. & St. R. Co., 74 S. C. 360, 54 S. E. 566;
L. E. Co. V. Lightheiser, 168 Ind. 438, Eembert v. South Carolina E. Co., 31
78 N. E. 1033; Adams Exp. Co. v. Hill, 8. C. 309, 9 S. E. 968.
43 Ind. 157; United Brotherhood of Vermont. Stone v. Congregational

Carpenters & Joiners of America v. Society, 14 Vt. 86.
748
Ch. 11] COBPOBATIONS BY EsTOPPEL t§354
siame is true where it executes an appeal bond and prosecutes an

appeal,®'' or where it expressly or impliedly admits its corporate ex-
istence in its pleas or answer,®* or admits that it entered into the con-
- Washington. Garneau v. Port will not be deemed to have been made.

Blakely Mill Co., 8 Wash. 467, 36 Pae. Stork V. Supreme Lodge Knights of
463; Sengf elder v. Mutual Life Ins. Pythias of the World, 113 Iowa 724,
Co., 5 Wash. 121, 31 Pac. 428; Frost 84 N. W. 721.
V. Ainslie Lumber Co., 3 Wash. 241. A foreign corporation which appears
As against the corporation itself, after leave granted cannot deny its
the fact that it appears and answers corporate existence, since it must be
is conclusive evidence of its legal an existiiig corporation to be entitled
existence for purposes of the
the to apply for leave. Boot v. Great
pending case, and cannot prove that
it Western E. Co., 65 Barb. (N. Y.) 619,
it was dissolved before the action was aff'd 55 N. Y. 636.
commenced. Hammar v. St. Louis "A general denial by a defendant
Motor Carriage Co., 155 Mo. App. 441, sued as a corporation and answering
134 S. W. 1060. to the merits as such, without specific
A corporation which has been dis- denial of corporate capacity, must be
solved before the commencement of regarded as a substantial admission
the action is legally dead. It cannot of the character in which it was sued,
appear and cannot admit anything or and as not putting defendant's exist-
authorize any one else to do so for it, ence as a corporation in issue."
and its stockholders are not bound by Montgomery v. Seaboard Air Line
any unauthorized appearance or ad- By., 73 S. G. 503, 53 S. E. 987.
missions attempted to be made on its If a defendant sued as a corporation
behalf, and may collaterally attack a pleads the general issue and payment,
default judgment rendered against it. with a notice of recoupment and set-
Crossman v. Vivienda Water Co., 150 off, itthereby admits its corporate ex-
Cal. 575, 89 Pac. 335. istence, and the plaintiff is not obliged
Where a consolidated corporation to prove it. Bennett v. Millville
sued as such appears and by its an- Improvement Co., 67 N. J. L. 320, 51
swer makes defense, this puts the fact Atl. 706. But see Anderson Kana-
v.
of consolidation beyond dispute as wha Coal Co., 12 W. Va. 526. For a
against the stockholders of the con- full discussion of the effect of a gen-
solidating companies. Blackburn v. eral denial or a plea of the general
Selma, M. & M. B. Co., 2 Flip. (U. S.) issue under such
circumstances, see
525, Fed. Cas. No. 1,467. the chapter on Actions Against Cor-
Under a statute providing that if porations, infra.
it be alleged that defendant is a cor- 67 Auburn Cycle Co. v. Foote, 69 111.
poration and the allegation be denied, App. 644; Meyer Bros. v. Insurance
the facts relied on must be specifically Co. of North America, 73 Mo. App.
stated,where allegation is made that 166; East Tennessee & G. B. Co. v.
defendant is a life insurance company Evans, 6 Heisk. (Tenn.) 607.
duly incorporated, and defendant 68 Indiana Millers' Mut. Fire Ins.
makes a general denial setting forth Co. V. People, 65 111. App. 355; Wheat-
that the certificate held by plaintiff ley, Buck & Co. V. Chicago Trust &
was obtained by'' fraudulent means, Savings Bank, 64 111. App. 612, aff'd
allegations sufficient to place in issue 167 111. 480, 47 N. E. 711.
the corporate existence of defendant
749
\
tract sued on.*^ Similarly some courts hold where a corporation

indicted for a crime appears and pleads not guilty, it thereby admits
its corporate exisrtence and relieves the state from the necessity of
proving though in other jurisdictions a plea of not guilty puts in
it,"*
issue the defendant's corporate existence.''^ Nor can a corporation

assume its corporate entity for one purpose and deny it for another
in the same suit. So it cannot assume its existence for the purpose
of thwarting the action and at the same time deny it when being sued,
and hence if a corporation defendant makes a counter attack upon
the existence of the corporation plaintiff, it admits its own corporate
existence and relieves the plaintiff of the necessity of proving it."'
But the fact that an association is sued in a name which imports a
legal entity and that it appears and answers does not estop it, where
the complaint expressly alleges that it is a copartnership.'"
Statutes in a number of states now prescribe the manner in which
the defendant's corporate existence must be put in issue, and when
such is the case, it is not put in issue unless such provisions are com-
plied with.'*
§ 355. Estoppel by judgment. Estoppel to deny the existence of

a pretended corporation may from a judgment either for or
arise
against a corporation.'* So a person who has sued and recovered
By statute the existence of the cor- 75 United States.Andrews v. Na-
poration be assumed unless it is
is to tional Foundry & Pipe Works, Ltd.,
put in issue by the pleadings, and this 77 Fed. 774, certiorari denied 166 U. S.
is especially true of a corporation de- 721, 41 L. Ed. 1188 (mem. dec.) ; How-
fendant which appears at the hear- ard v. La Crosse & M. E. Co., Woolw.
ing. Barton v. National Exp. Co., 9 49, Fed. Gas. No. 6,760.
Luz. Leg. Eeg. (Pa.) 212. Georgia. Georgia Ice Co. v. Porter,
69 Williams v. Stevens Point Lum- 70 Ga. 637.
ber Co., 72 Wis. 487, 40 N. W. 154. Illinois. Trogdon v. Cleveland
70 State V. Glucose Sugar Eefining Stone Co., 53 111. App. 206.
Co., 117 Iowa 524, 91 N. W. 794; State Louisiaiia. Pochelu v. Kemper, 14
V. Western North Carolina E. Co., 95 La. Ann. 308, 74 Am. Dec. 433.
N. C. 602. Maine. McClinch v. Sturgis, 72 Me.
71 Standard Oil Co. v. Com., 122 Ky. 288, 297.
440, 91 S. W. 1128. Michigan. Estey Mfg. Co. v. Bun-
72 Hartford Fire Ins. Co. v. Central nels, 55 Mich. 130, 20 N. W. 823.
E. of Oregon, 74 Ore. 144, 144 Pac. Iilissouri. Stoutimore .
Clark, 70
417. Mo. 471.
78 Farmers Mutual v. Eeser, 43 Ind.
' New York. See Loaners Bank '
App. 634, 88 N. E. 349. City of New York v. Jacoby, 10 Hun

74 See the chapter on Actions 143; Williams v. Bank of Michigan, 7
Against Corporations, infra. See also Wend. 539.
Chap. 14, infra.
750
judgment against a company as a corporation cannot thereafter

maintain a second suit against its members individually or as part-
Pennsylvania. Pittsburg Sheet Mfg. garded as the commencement of a new

Co. V. Beale, 204 Pa. 85, 53 Atl. 540; suit, was sued out. The judgment of
Becket v. Uniontown Building & Loan the appellate court in this case sus-
Ass'n, 88Pa. St. 211. taining such plea and dismissing the
Tennessee. Shields v. Clifton Hill writ of error was reversed by the
Land 94 Tenn. 123, 26 L. B. A.
Co., supreme court (176 HI. 48, 51 N. E.
509, 45 Am. St. Bep. 700, 28 S. W. 622) without passing on the question
668. of estoppel.
A creditor who is a party defendant A decree in favor of a de facto cor-
to a suit to foreclose a mortgage in poration cannot be attacked in a sub-
which a decree of foreclosure is ren- sequent suit on the ground that the
dered, cannot thereafter attack the corporation was defectively organ-
corporate existence of the mortgagor. ized. Whipple V. Tuxworth, 81 Ark.
Pilliod v. Angola Railway & Power 391, 99 S. "W. 86.
Co., 46 Ind. App. 719, 91 N. E. 829. In an action for damages for the
A corporation is estopped by a de- continuance of a nuisance it was held
cree pro confesso taken against it on that the plaintiff's certificate of in-
its failure to answer the bill in a suit corporation, together with evidence of
against it and its stockholders to sub- user, and the record of a former
ject unpaid subscriptions to the pay- action growing out of the same nui-
ment of claims against it. Hamilton sance, in which the plaintiff as a cor-
V. Clarion, M. & P. E. Co., 144 Pa. St. poration recovered judgment against
34,13 L. E. A. 779, 23 Atl. 53. the same defendant without any ob-
In Singer & Talcott Stone Co. v. jection being taken as to its capacity
Hutchinson, 72 111. App. 366, it is held to sue, was sufficient, as between them,
that under a statute permitting actions to show that the plaintiff was a de
to be maintained against corpora- facto corporation and hence entitled
tions after their dissolution for liabili- to maintain the action. Baltimore &
ties incurred before dissolution with- P. E. Co. V. Pifth Baptist Church, 137
out limitation as to time, it is not U. S. 568, 34 L. Ed. 784.
essential in order to maintain an An original judgment in favor of a
action against a corporation and to corporation estops the defendant to
recover judgment against it in its deny the existence of the corporation
corporate name that it be a corpora- at the time when the judgment was
tion de jure for the purposes of its rendered, and hence, on motion to
organization, but only that it have quash an execution issued on such a
corporate capacity to be sued, and judgment, he cannot show that the
hence that the recovery of such a corporate charter expired by limita-
judgment will not estop the plaintiff tion before the judgment was ren-
from pleading nul tiel corporation to dered. But this rule does not apply
a writ of error prosecuted to reverse where judgment against a corporation
such judgment, such plea being based is reversed and judgment is rendered
on the fact that the corporate exist- in its favor by an appellate court,
ence and the two years allowed by and an execution issued on such
statute to corporations in which to judgment will be quashed on motion,
collect debts due them, had expired where it is shown that the corporate
before the, writ of error, which is re- charter expired pending the appeal,
751
ners on the same cause of action ;

'* nor can he maintain a suit to
charge itsmemhers as partners with the amount of the judgment,''"'
or for damages for falsely representing that they were a corpora-
tion.'* Nor can persons deny the corporate existence of a de facto
corporation in a proceeding in which they have a standing in court
only upon the assertion that they have recovered and hold unsatis-
fied judgments or decrees against the corporation on contracts made
by them with it.''* Similarly, where a corporation has answered and
judgment has been rendered against it, it cannot deny its corporate
existence on motion for leave to issue execution against it.'"
A judgment recovered by a corporation in its corporate name estops

the judgment defendant from denying its corporate existence on
habeas corpus to procure his release from imprisonment under a body
execution issued thereon,*' or in an action on an appeal bond given
for such expiration eould not operate poration, and obtained the appoint-
to arrest the proceedings in the ap- ment of a receiver, he cannot in the
pellate courtand hence could not pre- same suit deny its corporate existence
vent judgment in favor of the
its for the purpose of holding the stock-
corporation, and therefore such judg- holders liable as partners. First Nat.
ment cannot operate as an estoppel. Bank of Crawfordsville v. Dovetail
May V. State Bank of North Carolina, Body & Gear Co., 143 Ind. 534, 42 N.
2 Rob. (Va.) 56, 60, 40 Am. Dec. 726. E. 924.
A
judgment was recovered by the One who has sold land to a corpo-
'
Webb-Preyschlag Mercantile Com-
' ration estopped to assert personal
is
pany. " The record indicated that liability of the incorporaitors upon the
the judgment was obtained by the ground that the charter was originally
concern as a corporation although invalid, where, after an attempted
there was no disclosure that the con- validation thereof by the legislature,
cern was a corporation by the index he recovered judgment against the
of the judgment. The court held that corporation on notes given by it for
the failure to make a statement there- the purchase price, and bid in the land
of in the index was not fatal. Bradley at a sale thereunder. Shields v. Clif-
V. Janssen (Tex. Civ. App.), 93 S. W. ton Hill Land Co., 94 Tenn. 123, 26
506. L. E. A. 509, 45 Am. St. Eep. 700, 28
venunois. Cresswell v. Oberly, 17 S. W. 668.
ni. App. 281. 77 Pittsburg Sheet Mfg. Co. v. Beale,
Louisiana. Pochelu v. Kemper, 14 204 Pa. 85, 53 Atl. 540.
La. Ann. 308, 74 Am. Dec. 433. 78EOSSOW V. Burke, 52 N. T. Misc.
Nebraska. Nebraska Nat. Bank of 118, 101 N. Y. Supp. 608.
York V. Ferguson, 49 Neb. 109, 59 79 Andrews v. National Foundry &
Am. St. Eep. 522, 68 N. W. 370. Pipe Works, 77 Fed. 774, 36 L. E. A.
Ohio. Beebe v. Thomas, 7 Ohio Dee. 139, rev'g 68 Fed. 1006, certiorari de-
319. nied 166 IT. S. 721, 41 L. Ed. 1188
Tennessee. Shoun v. Armstrong (mem. dec).
(Tenn. Ch.), 59 S. W. 790. 80 Bush V. Halcyon Steamboat Co.,
After a party has recovered a judg- 84 N. C. 702.
ment against an association as a cor- 81 Ex parte Sargea!nt, 17 Vt. 425.
752
Ch. 11] CoBPOBATiONS BY Estoppel [§355
by him on appeal from a judgment in favor of the oorporation.^^

Property owners who fail to avail themselves of the opportunity
given them to question the legal existence of a corporation seeking to
acquire a right of way for the construction of an elevated railroad
in proceedings before commissioners to determine whether the
road ought to be constructed cannot, after a report favoring its
construction has been confirmed by the court, raise such question in
subsequent proceedings for the appointment of commissioners to
determine the compensation to be paid.''
One who intervenes- in a proceeding for the dissolution of a corpora-
tion after the entry of a decree directing a dissolution and appoint-
ing a receiver can do so only on the theory that the proceedings and
decree were regular and valid, and hence cannot be heard to attack
the legality of the organization of the corporation.'* And one who
is a party to a proceeding in which there a decree appointing a
is
corporation as receiver, and who afterwards consents to an order pro-

viding for the advancement of money by it to protect the estate in its
possession as receiver, is estopped to claim that the appointment was
illegal because the statute under which the corporation was- organ-
ized was unconstitutional.'^
"Where an association of persons assumes to be a corporation, and,
as such, makes an assignment for the benefit of its creditors, a creditor
who files his claim against it in such proceedings, which is disallowed
by a judgment of the court, cannot thereafter enforce the same
against the members of the association as partners, and this is true
though the association is thereafter adjudged to be a partnership,
and though the creditor, before filing his claim, was not estopped to
deny that the association was a partnership, and though the claim
which he files recites that he does not admit that it is a corporation
or waive his right to sue its members as partners.'^ Similarly a
creditor who files a claim against a bankrupt corporation, which is
allowed, and who receives and accepts dividends on account thereof,
cannot thereafter maintain an action against its stockholders on the
same indebtedness for the purpose of holding them liable as part-
82 Trogdon v. Cleveland Stone Co., 86 Clausen v. Head, 110 Wis. 405, 84

53 111. App. 206. Am. St. Eep. 933, 85 N. W. 1028. See
83 In re Union El. E. Co. of Brook- also Swofford Bros. Dry Goods Co. v.
lyn, 112 N. Y. 61, 2 L. R. A. 359, 19 N. Owen, 37 Okla. 616, 133 Pac. 193,
E. 664. where the court quotes with approval
84 Stefan v. Brennan, 92 HI. App. a part of the opinion in the foregoing
291. case.
8B Eoby V. Title Guarantee & Trust
Co., 166 111. 336, 46 N. E. 1110.
753
I Priv. Corp.— 48
1 355] Pbivatb Cobporations [Ch. 11
ners.*' And other creditors who become parties to a suit by a creditor

against the corporation in its corporate capacity to have its assets
applied to the payment of its debts, cannot attack the validity of the
corporation on distribution of the proceeds of a sale of corporate
property by a receiver appointed in such suit."
On the other hand, it has been held that the mere filing of a claim
for a mechanic's lien against a company, in which it is asserted under
oath that it is a corporation, will not prevent the claimant from sub-
sequently enforcing the same demand
against its members as part-
ners, if the latter were not induced by such statement to take any
action from which they could suffer any injury by proof of the truth,
because, to constitute an estoppel, the person claiming it must have
been induced to act to his injury by the representations of the party
against whom it is claimed, and, furthermore, because one is not
estopped from pursuing his true legal remedy by a mistaken attempt
to pursue a supposed remedy that does not exist.'^
Suing and recovering a judgment against a corporation does not
estop the creditor from enforcing a liability imposed by statute upon
officers or stockholders for debts contracted before the incorporation
is completed, for this is not inconsistent with the existence of the
corporation."* Nor is the holder of a note executed in the name of a
pretended corporation, by one who assumed to act as president
thereof before the corporation was completed, estopped to hold the
incorporators individually liable thereon by reason of having procured
an adjudication by the referee in bankruptcy proceedings against
the individual signing the note as president, that it was not the note
of the latter, but of the president, since the action to hold the incor-
porators is not on the note but is based upon their fraudulent acts.®^
And the state is not estopped to maintain a suit for the purpose of
having it determined that a street railroad company had no legal
existence as a corporation by reason of the fact that in a former
action, brought by it against the company, but in which the cor-
porate existence of the latter was not in issue, it obtained a judgment
enjoining it from operating a part of its line on the ground that it
was a nuisance and requiring the abatement of the same.'^
flVgwofiford Bros. Dry Goods Co. r. 90Loverin v. McLaughlin, 161 HI.
Owen, 37 Okla. 616, 133 Pac. 193. 417, 44 N. E. App. 373.
99, aflf'g 46 111.
88 Hooven Mercantile Co. v. Evana 91 Central Nat. Bank of Junction
Min. Co., 193 Pa. St. 28, 44 Atl. 277. City v. Sheldon, 86 Kan. 460, 121 Pac.
89 Harrill v. Davis, 168 Fed. 187, 22 340.
L. B. A. (N. S.) 1153, rev'g 7 Indian 92 People v. Stanford, 77 Cal. 360,
T. 152, 15 Ann, Cas. 1134, 104 S. W. 22 L. E. A. 92, 19 Pac. 693, 18 Pac, 85.
573.
754
Ckll] COBPOEATIONS BY EsTOPPEL [§356
A
judgment recovered against a corporation which has been dis-
solved prior to the commencement of the action is a nullity, and its
stockholders, unless estopped by their own acts or omissions, cannot

be held bound by any unauthorized appearance or admission at-
tempted to be made on its behalf, or by an attempted entry of a
default against it, and may attack the validity of such judgment when
it issought to be enforced against them.^'
Persons who have themselves denied the corporate character of an
ostensible corporation and have provoked a judicial determination
sustaining their denial, cannot thereafter assert that its members are
estopped to deny its corporate existence.'*
§ 356. Estoppel as affected by privity of contract or estate Estop- —

pel resulting from privity. The estoppel of a person dealing with
a pretended corporation to deny its legal incorporation also operates
against persons who stand in his shoes, or, in other words, who are
in privity with him.'* Thus, it clearly operates as against his ex-
ecutor or administrator,'^ or hisheirs,''' and against one to whom he
assigns his contract with the pretended corporation," or to whom
93 Grossman v. Vivienda Water Co., Oregon. Law Guarantee &

150 Cal. 575, 89 Pac. 335. Trust Society v. Hogue, 37 Ore. 544,
BiHineks v. Converse, 37 La. Ann. 63 Pac. 690, 62 Pac. 380.
484. 96 Illinois. Curtis v. Meeker, 62 HI.
96 United States. Eannels v. Eowe, App. 49, aff'd sub nom. Curtis v.
145 Fed. 296, certiorari denied 207 U. Tracy, 169 111. 233, 61 Am. St. Eep.
S. 591, 52 L. Ed. 355 (mem. dec). 168, 48 N. E. 399.
Colorado. Stuyvesant v. Western Louisiana. Latiolias v. Citizens'
Mortgage Co., 22 Colo. 28, 43 Pac. 144. Bank of Louisiana, 33 La. Ann. 1444.
Kentucky, See Friedman v. Jans- Nebraska.
Davis' Estate v. Wat-
sen, 23 Ky. L. Eep. 2151, 66 S. W. 752. N. W. 575.
kins, 56 Neb. 288, 76
West Missouri
Missouri. Land Co. New York. Merideu Tool Co. v.
V. Kansas City Suburban Belt E. Co., Morgan, 1 Abb. N. C. 125, note; Kuy-
161 Mo. 595, 61 S. W. 847; Bradley v. pers V. Eeformed Dutch Church, 6
Eeppell, 133 Mo. 545, 54 Am. St. Eep. Paige 570.
685, 34 S. W. 841, 32 S. W. 645; Broad- North Carolina. Bank of Statesville
well V. Merritt, 87 Mo. 95; Stoutimore V. Simonton, 86 N. C. 187.
V. Clark, 70 Mo. 471. 97
Weil V. Leopold Weil Building &
Nebraska, Equitable Building & Improvement Co., 126 La. 938, 53 So.
Loan Ass 'n v. Bidwell, 60 Neb. 169, 82 56; Bacon v. Brotherhood of Eail-
N. W. 384. road Brakemen, 46 Minn. 303, 48 N.
New
York. Erie County Sav. Bank W. 1127; Eagan v. MeElroy, 98 Mo.
V. Baldwin, 22 Alb. L. J. 134; Palmer 349, 11 S. W. 735; Tuckasegee Min.
V. Lawrence, 3 Sandf. 161, aff'd 5 Co. V. Goodhue, 118 N. C. 981, 24 S.
N. Y. 389. E. 797.
North CaroliiUL Bank of States- 98 So the assignee of bonds
of a
ville V. Simonton, 86 N. C. 187. pretended corporation is bound. Wal-
755
§ 356] Private Corpobations [Ch. 11
he and conveys property purchased by him from the corpora-

sells
one to whom he conveys property mortgaged to a corporation,

tion,89 or
and who assumes and agrees to pay the mortgage debt,^ or to whom
he conveys property which he has previously conveyed to a corpora-
tion.''
A junior mortgagee cannot defeat a senior mortgage by attacking

the corporate existence of the senior mortgagee,* or of the mortgagor.*
When a person takes the title to land in trust for a pretended cor-
poration under an agreement to convey to it, the estoppel to deny
the existence of the corporation for the purpose of avoiding the trust
operates against his heirs at law or devisees.^ Nor can the beneficiary
in a deed of trust deny the corporate existence of a judgment creditor
of the grantor where the latter estopped to do so.^ Nor can one
is
who purchases property on execution against a person who

at a sale
has purchased it from a pretended corporation under a conditional
contract of sale deny the existence of the corporation for the purpose
of attacking its retention of the title in the contract.' So too, the
estoppel of a lessor of land to deny the corporate existence of his
lessee extends to a subsequent mortgagee with notice who has acquired
title to the leased premises through foreclosure proceedings.'
Persons claiming under a deed which recites the existence of a
mortgage in favor of a corporation are estopped to question the cor-
porate existence of the mortgagee.^
laee v. Loomis, 97 TJ. S. 146, 24 L. Ed. County Sav. Bank v. Baldwin, 22 Alb.
895. See also Egbert v. Kimberly, 146 L. J. (N. Y.) 134.
Pa. St. 96, 23 Atl. 437. 4 See § 387, supra.
99 Jackson Sharp Co. v. Holland, 14 B Tuckasegee Min. Co. v. Goodhue,
Fla. 384. 118 N. C. 981, 24 S. E. 797.
IDeiteh v. Staub, 115 Fed. 309; 6 Stoutimore v. Clark, 70 Mo. 471.
Dundee Mortgage & Trust Inv. Co., V Jackson Sharp Co. v. Holland, 14
Ltd. V. Cooper, 26 Fed. 665; Stuy- Fla. 384.
vesant v. Western Mortgage Co., 22 And a holder of land by assign-
Colo. 28, 43 Pae. 144; People's Sav. ment of a sheriff's certificate of sale
Bank & Building Ass'n v. Collins, 27 under a mortgage by a corporation is
Conn. 142; Palmer v. Lawrence, 3 estopped to deny the existence of the
Sandf. (N. Y.) 161, aff 'd 5 N. Y. 389. corporation in order to defeat a prior
2Eeinhard v. Virginia Lead Min. mortgage by the same corporation.
Co., 107 Mo. 616, 28 Am. St. Eep. 441, Hasselman v. United States Mortg.
18 S. W. 17; Broadwell v. Merritt, Co., 97 Ind. 365.
87 Mo. 95. See also Packard v. Old 8 Whitney v. Eobinson, 53 Wis. 309,
Colony E. Co., 168 Mass. 92, 46 N. E. 10 N. W. 512.
433. 9 Hasenritter v. Korchhoffer, 79 Mo.
3 Williamson Building &
v. Kokomo 239.
Loan Fund Ass'n, 89 Ind. 389; Erie
756
The estoppel of a person dealing with another in the name of a

corporation to deny the legal existence of the corporation in an action
to enforce some right growing out of that deialing also extends to
such persons as are in privity with him.^" So it extends to a mort-
gagee of personal property bought in the name of a corporation, and
he cannot deny the legalexistence of the corporation in an action by
the vendor to recover the purchase price in which it attaches the
property.î
On the other hand, the estoppel does not extend to persons or cor-
porations not in privity with the person who has dealt with the
corporation.^^ So it does not extend to one who claims title by ad-
verse possesion to property conveyed by a corporation so as to pre-
vent him from attacking the deed, to which he is not a party or
privy, on the ground that the charter of the corporate grantor had
expired when it was executed.^' And except where there is some
privity, as in the eases above mentioned, a person who has in no way
dealt with a pretended corporation, as a corporation, cannot be
estopped to deny its corporate existence;^* though he may be pre-
vented from doing so by the doctrine in relation to de facto corpora-
tions.^*
§ 357. —
Estoppel in favor of persons in privity with corporation
or members. The estoppel of persons who have dealt with a pre-
its
tended corporation to deny its corporate existence operates also in

favor of persons who stand in the shoes of the corporation or its
members, stockholders or oflScera. Thus, the existence of the corpora-
tion cannot be denied as against one to whom it indorses or assigns
a note, bond, or other contract made to or with it,^® nor against the
10 Fairbanks-Morse Co. v. Coulson endon, 5 Dill. 329, Fed. Cas. No. 8,320;
Stock Food Co., 151 Mo. App. 260, 131 Darlington v. La Olede County, 4 Dill.
S. W. 894. ' 200, Fed. Cas. No. 3,577; AUer v. Cam-
Fairbanks-Morse Co. v. C9ulson
11 eron, 3 Dill. 198, Fed. Cas. No. 243.
Stock Food Co., 151 Mo. App. 260, 131 OaJifomia. Francis v. Western
S. W. 894. Screen Co., 22 Cal. App. 32, 133 Pae.
12 Dartmouth Sav. Bank v. School 327.
Dists. Nos. 6 & 31, 6 Dak. 332, 43 N. Florida. Booske v. Gulf Ice Co., 24
W. 822. Fla. 550, 5 So. 247.
13 Bradley v. Eeppell, 133 Mo. 545, Illinois. Goodrich v. Eeynolds, 31
54 Am. St. Eep. 685, 34 S. W. 841, 32 HI. 490, 83 Am. Dec. 240.
S. W. 645. Indiana^ Briekley v. Edwards, 181
14 See I 323, supra. Ind. 3, 30 N. E. 708.
IB See §.274, supra. Iowa. Courtright v. Deeds, 37 Iowa
16 United States. Andes v. Ely, 158 503; Franklin v. Twogood, 18 Iowa
U. 8. 312, 39 L. Ed. 996; Lewis v. Clar- 515.
757
§357] Fbivate Cobpoeations [Ch. 11
assignee of a mortgage,^' or lease,'-' running to the corporation, nor

against one to whom it sells and conveys or mortgages land or goods
sold or conveyed to it,^' nor against its assignee in bankruptcy, or its
assignee for the benefit of creditors, or receiver.^" Nor may the
grantee of a corporation deny its corporate existence as against per-
sons who have acquired prior liens.*^ But one who mortgages prop-
erty to a corporation may deny the corporate existence of the lat-
ter 's assignee.*^
Missouil. West Missouri Land Co. 19 See § 337, supra.

V. Kansas City Suburban Belt E. Co., 20 Chubb V. Upton, 95 U. S. 665, 24
161 Mo. 595, 61 S. W. 847; Camp v. L. Ed. 523; Casey v. Galli, 94 U. S.
Byrne, 41 Mo. 525; Hamtramck v. 673, 24 L. Ed. 168; Sanger v. Upton,
Banlc of Edwardsville, 2 Mo. 169. 91 U. S. 56, 23 L. Ed. 220; Johnston
New Jersey. Den v. Van Houten, v. Gumbel (Miss.), 19 So. 100; Bank
10 N. J. L. 321. of Statesville v.Simonton, 86 N. C.187;
Ohio. Durrell v. Belding, 9 Ohio Carroll v. Pacific Nat. Bank, 19 Wash.
Cir. Ct. 74. 639, 54 Pac. 32.
In an action on a note by one to 21 One who has taken and still re-
whom it has been indorsed and trans- lies upon a conveyance of land from
ferred by the duly authorized agent a corporation, which, in executing the
of a corporation to which it was same, assumed to act as a corporation,
transferred by the corporation payee, cannot deny its legal existence as a
proof of the corporate existence of corporation in gja action against him
such corporations is unnecessary. Ca- to recover possession of the land,
yuga County Nat. Bank v. Dunklin, brought by one who has attached the
29 Mo. App. 442. same in an action against the com-
17 Hubbard v. Chappel, 14 Ind. 601. pany, as a corporation, prior to the
The rule applies in favor of the recording of the deed, and has sub-
bona fide transferee of a bond and sequently levied his execution thereon.
mortgage. Green v. Grigg, 98 N. Y. Dooley v. Wolcott, 4 Allen (Mass.)
App. Div. 445, 90 N. Y. Supp. 565. 406.
18 Lynch v. Ferryman, 29 Okla. 615, 22 Dundee Mortgage & Trust Inv.
Ann. Cas. 1913 A 1065, 119 Pac. 229. Co., Ltd. v. Cooper, 26 Fed. 665.
758
CHAPTER 12
Incorporation of Partnerships, Associations and Tenants in

Common
§ 358. General considerations.
§ 359. Agreement of members to incorporate.
§ 360. Statutory provisionsand compliance therewith.
§ 361. Name of corporation.
§ 362. Effect of formation of corporation on existence of partnership or asso-
ciation.
§ 363. Notice of change from partnership to corporation.

§ —In
364. Conveyance of firm or association property to corporation general.
§ — Transfer of
365. by charter or
title of incorporation.
articles
§366. — Effect of charter restrictions on power.
§367. — acquired by corporation.
Title
i368. — Equitable title.
§369. — Conveyance to corporation not organized.

§370. — Incorporation of association after devise or bequest to it.
§371. — Statute of frauds.

§372. — Estoppel and ratification.
§373. — Praud and fraudulent conveyances.
§ 374. Rights of corporation as to contracts of and debts due to partnership or
association.
§ 375. Liability of corporation on debts or contracts of partnership or association
— In general.
§ — Express assumption of
376. debts.
§ — Assumption
377. express
either implied. or
§ — Presumption where others become
378. stockholders.
§ — Presumption from
379. of of partnership.
receipt assets
§380. — Running accounts; mechanic's lien.
§ — Statute of frauds.
381.
§ — Effect of assumption of debts by corporation.
382.
§ —
383. of
Priorities creditors.
§ 384. Liability of partners or members on contracts and for debts.
§ 385. Rights of partners or members of associations inter se and against the
corporation.
§ 386. Incorporation of tenants in common.
§358. General considerations. When a corporation succeeds a

partnership, as where members of a partnership organize a corpora-
tion to continue the business of the firm, the corporation and the
759
former partnership are distinct in law, and the rights and liabilities
of the one are not the rights and liabilities of the other, even though
the members of the corporation and those of the partnership are the
same.^ This necessarily follows from the nature of a corporation, it
being an entity or legal body separate and distinct from the mem-
bers or individuals composing it, and obviously distinct from the
partnership, which may be considered as another entity.^
The same general rule as to the corporation being distinct applies
when any other unincorporated association becomes incorporated.*
§359. Agreement of members to incorporate. Frequently con-

tracts or arrangements are entered into contemplating the future
creation of a corporation, and the nature of the relation in such cases
must be determined from the contract existing. Thus where two per-
sons entered into a contract providing for the formation of a corpora-
tion after the debts of a business had been
and one person paid,
contributed a certain sum of money and both agreed
to work faith-
fully and diligently for the success of the venture, it was held that
a partnership relation existed. In such ease the court stated that it
could not be held that the contract failed to fix the relation of the
partners during their association together and before the time for
the creation of the corporation arrived.*
Where the organization of the corporation is in the interest of the
partnership, a partner is bound by an agreement of the other part-
ners, within the scope of the partnership business, that the detail
work and expense of forming the corporation will be assumed by the
partnership.^
"Where a voluntary association is formed, and a law exists provid-
ing for the incorporation of such association, it has been held that
members joining such society must be conclusively presumed to
have impliedly agreed that such incorporation might take place,
according to the statutes regulating the matter.^ It must be remem-
bered, however, that members of voluntary organizations have the
right to participate in the affairs of the association, and to have the
1 Georgia Co. v. Castleberry, 43 Ga. 4 Brooke v. Tucker, 149 Ala. 96, 43

187; Schneider v. Sellers, — Tex. Civ. So. 141.
App. —81 S. W. 126.
, And see the 6 v. Sinaloa Land & Fruit
Tanner
other eases more specifically cited in Co.,43 Utah 14, Ann. Cas. 1916 C 100,
notes following. 134 Pac. 586.
2 See § 1 6, supra. 8 Spiritual & Philosophieal Temple
3 See Frank v. Drenkhahu, 76 Mo. v. Vincent, 127 Wis. 93, 105 N. W.
508, 1026.
760
Ch. 12] Incokpoeation of Paktnebships, etc. [§359
property controlled and administered according to the organic plan.

This is a right which the courts will protect.'' Members cannot appro-
priate to themselves the property of an association, contrary to the
desires of other members, by creating a corporation.*
appear that the incorporation is the action of the asso-
It should
ciation,' and in general such important action as the creation of a cor-
poration should be undertaken only after due notice to all members,
at a meeting duly convened. ^°
An agency to incorporate and deliver the imineorp orated associa-
tion over bodily, membership and assets, to the corporation, will not
be implied. Nor will general words be broadly construed to uphold
such action by the officers of the unincorporated association. The
direction of the constitution and by-laws must be clear and express.^^
To charge members as corporators, there must be some act or ex-
pression on their part as individuals, to signify acceptance of the
corporate charter,^^ and the acceptance must be in accordance with
the by-laws of the association.^^ But if a committee is empowered
7 Spiritual & Philosophical Temple ease there was a double giving of

V. Vincent, 127 Wis. 93, 105 N. W. notice, there being a factional divi-
1026. sion of the society, one faction hold-
8 See § 364, infra. ing meetings at a church and the
its
9 Where a certificate of incorpora- other a neighboring schoolhouse.
at
tion did not state that the signers of The notice given at the church was
the certificate and the other members what the case turned on however,
of the association associated to form there being no particular significance
the corporation, but it only appeared given to the notice at the school. See
that three individual members of the West Eoshkonong Congregation v.
association formed such corporation, Ottesen, 80 Wis. 62, 49 N. W. 24. In
there was no merger of the associa- the later case it was held that no dou-
tion in the corporation. First Russian ble giving of notice was required by
Nat. Organization of New England the statute. Spiritual & Philosophical
States V. Zuraw, 89 Conn. 616, 94 Atl. Temple v. Vincent, 127 Wis. 93, 105
976. N. W. 1026.
Each member should be allowed to 11 Koprucki v. Wojoiechowski, 73 N.
participate in bringing about the Y. Misc. 46, 130 N. Y. Supp. 736.

change he so desires. Spiritual &
if The and by-laws of a
constitution
Philosophical Temple v. Vincent, 127 voluntary association held not to con-
Wig. 93, 105 N. W. 1026. See also fer power to the executive board or
Mills V. Hurd, 29 Eed. 410. committee to convert the association
10 Notice should be given in such into a corporation. Eudolph v. South-
a way as to furnish facilities to all ern Beneficial League, 23 Abb. N.
concerned to receive information of Cas. (N. Y.) 199, 7 N. Y. Supp. 135.
the meeting to take action under the IZHaslett's Bx'rs v. Wotherspoon,
statute. Spiritual & Philosophical 1 Strobh. Eq. (8. C.) 209.
Temple v. Vincent, 127 Wis. 93, 105 13 Where by-laws of an association
N. W. 1026. In another Wisconsin provided that local branches could
761
§ 359] Peivate Cokpokations [Cli. 12
to secure incorporation by a resolution adopted hy a unanimous

vote, and members do not complain or question the action taken, such
committee may proceed with the creation of the corporation.^*
is created without authority, it must necessarily
If the corporation
remain a new and separate organization distinct from the associa-
tion.^*
Where certain parties agreed to form an association to build and

run a steamboat, and afterwards a corporation was formed by some
of the members, it was held that the original members who did not
join in the agreement to form the corporation were not bound by the
original agreement.^®
The ratification of the action of an executive committee in procur-
ing incorporation must be established by the clearest evidence that
the society duly convened, with full knowledge of the object for which
the meeting is called, baa given its assent to the action of the com-
mittee.^''
§ 360. Statutory provisions and compliance therewilkh. Not only

is a statute authorizing incorporation necessary to authorize mem-
bers of a firm or association to incorporate,^* but the plain intent,
terms and meaning of the law must be such as to permit the creation
of the corporation.^' Accordingly it has been held that members of.
a rifle club were not authorized to incorporate when a statute provided
only legislate for themselvea, and the IB Mason v. Finch, 28 Mich. 282.
supreme legislative authority of the 16 Southern Steam-Packet Co. v. Ma-
organization was vested in a conven- grath, McMull. Eq. (S. C.) 93, holding
tion consisting of officers of the su- that such members could not be com-
preme assembly and delegates from pelled by a court of equity to pay for
the branches, acceptance of the char- stock subscribed to by them under the
ter of a corporationby a majority of original agreement,
the branches separately was not an iTEudolph v. Southern Beneficial
acceptance by the voluntary associa- League, 23 Abb. N. Gas. (N". Y.) 199,
tion whereby the association became 7 N. T. Supp. 135.
merged in the corporation. First Bus- 18 Pettis v. Atkins, 60 111. 454.
sion Nat. Organization of New Eng- No corporation can exist except by
land States v. Zuraw, 89 Conn.. 616, 94 force of express law. Schuetzen Bund
Atl. 976. V. Agitations Verein, 44 Mich. 313, 38
Alumni General Theo-
14 Associate Am. Eep. 270, 6 N. W. 675. See also
logicalSeminary of Protestant Epis- § 167, supra.
copal Church v. General Theological 19 Vredenburg v. Behan, 33 La. Ann.
Seminary, 26 N. Y. App. Div. 144, 49 627.
N. Y. Supp. 745, aff'd 163 N. Y. 417,
57 N. E. 626. See § 364, infra.
762
Cli. 12] Incokporation of Pabtnekships, etc. [§ 360
for the creation of corporations for "literary, scientific and charitable

since rifle shooting could not be termed a science.^"
'
purposes, '
In the same connection it may be mentioned that the organization

of a corporation to resist the enforcement of particular statutes is
without authority. So a society organized to work against statutes
enacted to regulate the sale of liquors cannot sue in its society name
for the collection of a debt.*^
The rule which prevents a denial of corporate liability, when a
name is assumed implying corporate powers, does not apply, when
an association is organized at a time when there was no law authoriz-
ing incorporation, and where there was no attempt to organize after
such law became effeetive.^^
Elsewhere in this work are discussed the effect of a failure to
comply with statutory regulations as to the creation and organiza-
tion of corporations and the liability resulting atherefrom. The same
principles apply in regard to these matters to corporations succeed-
ing partnerships and associations as to the formation of other cor-
porations, and it is not deemed necessary that they be repeated
here.''^
It has been held that where there is an ineffectual attempt to incor-

porate a partnership, the partnership relation continues,** and simi-
larly the somewhat analogous liability of members of associations also
continues where the corporate existence is not perfected.** But if the
statutes are complied with, the formation of the company as a body
politic is complete and its validity as such cannot thereafter be col-
laterally assailed.*^
It may be stated as a general rule that a substantial compliance
, with the material provisions of an enabling statute is essential to the
creation of a corporation.*'' It has also been held that members of an
20 Vredenburg v. Behan, 33 La. Ann. 27 See §§ 182-185, supra.

627. Where several parties carry on busi-
21 Schuetzen Bund v. Agitations ness of a oommereial partnership in
Verein, 44 Mich. 313, 38 Am. Eep. 270, the name of a limited corporation
6 N. W. 675. which has never had the capital re-
22 Atchison v. Crawford County quired to give existence to such
Farmers' Mut. Fire Ins. Co., 192 Mo. corporation, its liquidator, who was
App. 362, 180 S. W. 438. one of the partners, has no grounds to
23 See §§290-302, supra. complain of a judgment on final liqui-
24 Whipple V. Parker, 29 Mich. 369. dation which merely enforces his lia-
25 See § 385, infra. bility as partner. In re Browne &
26 Shields v. Clifton Hill Land Co., Jenkins Co., 106 La. 486, 31 So. 67.
94 Tenn. 123, 26 L. E. A. 509, 45 Am. Where two partners made a sale of
St. Rep. 700, 28 S. W. 668. their business to a third person and
763
unincorporated association claiming exemption from liability because

of incorporation were bound to show compliance with statutory pro-
visions requiring a statement of the number of shares held by stock-
holders in the act of incorporation, and publication of the act in the
mode prescribed by law.^*
A
partner cannot be heard to say that the corporation organized is
not the corporation contemplated by the paitnership articles, in that
there are five incorporators instead of three, since such a partner who
i
signed the articles of incorporation must be held to have assented to

the alteration.^^
§ 361. Name of corporation. The legal principles relative to the

name of a corporation formed from a partnership, association or
tenants in common do not differ, in the main, from those applicable
to the name of other corporations, and are considered in another
chapter.^"
Whena voluntary association is converted into a corporation, it
isnot material, whether the name chosen is precisely the same as that
borne by the society. Such name may be chcsen as the parties con-
trolling the matter see fit to select.'^ But dissatisfied members can-
not by incorporating themselves deprive the voluntary association of
the right of using its own name,*^ and an action will lie on behalf of
an unincorporated association to enjoin a part of its members from
procuring the incorporation of a society under the name used by the
association.^^
sn arrangemeBt was entered into by v. Vincent, 127 Wis. 93, 105 N. W.

which the third parties were to form 1026.
a corporation, but the statute as to the 32 Eudolph v. Southern Beneficial
payment of fees for incorporation was League, 23 Abb. N. Caa. (N. T.)
not complied with, and the taking of 199, 7 N. Y. Supp. 135; Black Rabbit
title to the property was an exercise Ass'n v. Munday, 21 Abb. N. Cas. (N.
of corporate power prohibited by the T.) 99.
statute, the company organized was 33 Eudolph v. Southern Beneficial
neither a de jure nor a de facto cor- League, 23 Abb. N. Caa. (N. Y.) 199,
poration, but simply a voluntary asso- 7 N. Y. Supp. 135; McGlynn v. Post,
ciation of individuals in the nature of 21 Abb. N. Cas. (N. Y.) 97.
a partnership. Jones v. Aspen Hard- Where a voluntary association ia
ware Co., 21 Colo. 263, 29 L. R. A. 143, incorporated by unanimous assent, and
52 Am. Rep. 220, 40 Pae. 457.
St. the corporation acquires the name of
28 Williams v. Hewitt, 47 La. Ann. such association, it may protect the use
1076, 49 Am. St. Rep. 394, 17 So. 496. of such name, when assumed by
29 Hennessy v. Griggs, 1 N. D. 52, another corporation. Red Polled Cat-
44 N. W. 1010. tie Club of America v. Red Polled
30 See Chap. 18, infra. Cattle Club of America, 108 Iowa 105,
31 Spiritual & Philosophical Temple 78 N. W. 803.
764
Ch. 12] Incoepokation of Pabtneeships, etc. [§362
§ 362. Effect of formation of corporation on existence of partner-

ship or association. The formation of a corporation by the members
of a partnership does not necessarily operate as a dissolution of the
partnership ;
^* nor does the organization of a corporation by the mem-
bers of a partnership to engage in the same business as the partnership
operate as a dissolution of the latter, in the absence of proof of such
dissolution and the assumption of the partnership business by the
corporation,^^ but. whether the partnership is actually dissolved
depends on the circumstances of the case.
If a corporation is organized, and the whole of the real estate and
the partnership stock and property are transferred to the corporation,
such fact standing alone would be strong evidence of the intention
of the partners, as between themselves, to dissolve the partnership.^*
Indeed, it has been held that such acts constitute dissolution, and
that partners who have assisted and acquiesced in the formation
of the corporation cannot be heard to say that it is "not in accordance
34Pearee v. Sutherland, 164 Fed. Where a corporation is organized
609; First Nat. Bank of Wausau v. for the purpose of discontinuing a

Conway, 67 Wis. 210, 30 N. "W. 215. partnership,the conveyance of the
In. Monmouth Inv. Co. v. Means, 151 partnership property to it in ex-
Fed. 159, the court recognized the exchange for stock in the corporation,
istence of a partnership to deal in isa step in the dissolution of the part-
real estate, aided by a corporation nership and settlement of its affairs
organized merely to be a holding com- as between the partners. Coggswell
pany for the partnership adventures. & Boulter Co. v. Coggswell (N. J.
3B Goodwin v. Smith, 23 Ky. L. Eep. Ch.), 40 Atl. 213.
1810, 66 S. "W. 179. When partners agree to form a cor-
In the above case there was no poration, and that all the assets of the
showing that the partnership had partnership shall be assigned to the
ceased to exist, nor that its business corporation, and that the capital stock
was settled nor that an inventory was of the corporation shall be divided
taken of the property of the corpo- among them in the same proportion
ration, nor that the stock of the cor- as the capital of the partnership, the
poration had been paid for. The only organization of the corporation, as
evidence in regard to the succession agreed, dissolves the partnership.
was that the part-
of the corporation Hennessy v. Griggs, 1 N. D. 52, 44 N.
ners had determined to merge the W. 1010.
partnership with its assets and lia- It is not essential in an instruction
bilitiesand the partners holdings into
' upon the question aswhether a
to
a corporation, with the same relative partnership or a corporation which
positions among themselves, and that has succeeded thereto is liable for
a corporation, of the same name as goods sold and delivered, to point out
the partnership, had been formed to specifically the issue of partnership
engage in business of the same kind. dissolution involvedin the case.
SBGoddard v. Pratt, 16 Pick. Weise v. Gray's Harbor Commercial
(Mass.) 412. Co., Ill 111. App. 647.
765
'§362] Private CoKPOEATioNS [Ch. 12
with the agreement.*'' But where a by-law is adopted by the corpora-

tion at the same time to transact business in the name of the already
existing partnership, and the by-law is agreed to, impliedly or ex-
pressly by the members of the firm, this action is strong evidence of
the continuance of the partnership, not only as between the partners
themselves, but also as to the community.'* The question of notice of
the dissolution of the copartnership may also become of importance
in connection with questions arising where a corporation succeeds to
the rights and property of a partnership.*' If there is no formal
dissolution and notice thereof, and no apparent change in the name
or place of business of the firm, the liability as partners must be held
to continue as to persons dealing with them without notice of the
incorporation.*"
Statutory provisions requiring notice of dissolution have been held
to apply where a corporation succeeds a partnership.*^
Usually the formation of a corporation by members of a voluntary
association operates to dissolve the society and substitute the cor-
porate entity in its plaee.*^
Where members of an association attempted to dissolve the same

by the formation of a corporation, and the minority members brought
an action for an accounting and to recover the property of the asso-
ciation, alleging that the other members had withdrawn therefrom
and organized the corporation, which allegation was denied, it was

held that the question whether the members had withdrawn was one
of fact depending on the intention of the parties, and that the burden
37 Hennessy Griggs, 1 N. D. 52,

v. 41 When a mining copartnership
44 N. W. See also Hutchinson
1010. conveys all its property to a corpora-
V. Sperry, 158 N. Y. App. Div. 704, tion, such partnership is necessarily
143 N. Y. Supp. 876, rev'g 79 N. Y. dissolved in the sense of ceasing to
Misc. 523, 140 N. Y. Supp. 220. exist,wherefore notice of dissolution
Where all the assets of a partner- should be given as required by stat-
ship are transferred to a corporation, ute (Cal. Civ. Code § 2453), in order
the partnership is dissolved. Parry to terminate the liability of general
V. Parry, 92 N. Y. Misc. 490, 155 N. partners for the acts of copartners.
Y. Supp. 1072. Dellapizza v. Foley, 112 Cal. 380, 44
38 Goddard v. Pratt, 16 Pick. Pac. 727.
(Mass.) 412. 48 Trusteesv. Ely, 73 N. Y. 323;
39 See § 363, infra. Spiritual &
Philosophical Temple v.
40Weise Gray's Harbor Commer-
v. Vincent, 127 Wis. 93, 105 N. W. 1026;
App. 647; Goddard v.
cial Co., Ill 111. Holm v. Holm, 81 Wis. 374, 51 N. W.
Pratt, 16 Pick. (Mass.) 413. See also 579; West Koshkonong Congregation
Metz V. Commercial Bank, 45 S. C. v. Ottesen, 80 Wis. 62, 49 N. W. 24.
216, 23 S. E. 13.
766
Ch. 12] Incoeporation of Paetneeships, etc. [§363
of proof was on the complainants to establish their allegation of with-

drawal.**
§363. Notice of change from partnership to corporation. Fre-

quently a change from a partnership to a corporation is attended
with such change of name and such other changes as not to require
personal notice to persons dealing with the firm, of the organization
of the corporation.** But if there is no change of name, or place of
business, or other change which might reasonably be presumed to
impart notice, some kind of notice reasonably adapted for that pur-
pose should be given. *^ This is akin to the principle requiring notice
in the case of dissolution of a partnership,*® as dissolution of the
partnership usually results when the corporation is created,*'' and is
also similar to the rule requiring notice where there is a change in

membership of a partnership, and a retiring partner seeks to be
relieved from future debts of the partnership.*^ If no notice is
given, the members of a firm cannot avoid their partnership liability.
A principle similar to equitable estoppel applies,*^ and the partners
must be held liable for debts incurred by the partnership, or cor-
43 strong V. Los Nietos & Eanchito if notice of that fact is not given, it
"Walnut Growers' Ass'n, 137 Cal. 607, cannot be legally deemed to be dis-
70 Pac. 734. solved, as regards others. Goddard v.
44 Overlock v. Hazzard, 12 Ariz. 142, Pratt, 16 Pick. (Mass.) 412.
100 Pac. 447. 47 See § 362, supra.
45 Overlock v. Hazzard, 12 Ariz. 142, 48 Overlock v. Hazzard, 12 Ariz. 142,
100 Pac. 447; Vandyke v. Brown, 8 N. 100 Pac. 447.
J. Eq. 657; Bynum v. Clark, 125 N. C. There is no difference in principle
352, 34 S. E. 438. between the case where a corporation
Actual notice of dissolution of tlie succeeds to the business of a part-
partnership is necessary to affect per- nership, and the case where a change
sons dealing with it. Frankel v. Wa- has been made in the membership of
then, 58 Hun (N. Y.) 543, 12 N. Y. a partnership, with regard to the duty
Supp. 591. of imparting notice of such chango.
If an existing partnership becomes Overlock v. Hazzard, 12 Ariz. 142, 100
incorporated, but continues dealing in Pac. 447.
the old way, the members are liable 49McGowan v. American Pressed
as partners where the change of name Tan Bark 121 U. S. 575, 30 L. Ed.
Co.,
does not convey information. Tobiaa 1027; Overlock v. Hazzard, 12 Ariz.
V. "Wierck, 21 N. Y. Misc. 763, 48 N. 142, 100 Pac. 447. See also Bank of
Y. Supp. 146. Monongahela Valley v. Weston, 159
46 Overlock v. Hazzard, 12 Ariz. N. Y. 201, 45 L. B. A. 547, 54 N. E.
142, 100 Pac. 447; Bynum v. Clark, 125 40.
N. C. 352, 34 S. E. 438. This principle differs, however, in
Whatever may be the intention and that no specific intent to mislead need
the agreement of partners, to effect be shown to exist. Overlock v. Haz-
a dissolution as between themselves, zard, 12 Ariz. 142, 100 Pac. 447.
767
poratJQn, as the case may be, when incurred by reason oi credit hav-
ing been extended through a belief, induced by the conduct of the
partners, that they are still interested in, or carrying on, the busi-
ness.*"
The sufficiency of notice, and the question whether personal notice
is reasonably required, must be determined from the circumstances
of each case.®^
would seem that the mere addition of the word "incorporated"
It
to the partnership sign on its storehouse is not sufficient to charge an
employee of the partnership with notice.®^
The obliteration of the symbol "&" from a business sign and
labels, used upon bottles in a drug store, printed in small letters, has
been held to not be notice that a copartnership had become a corpora-
tion, there being no change in the place of business.*' It has been
held also that published notices by parties who previously conducted
50 Overloek v. Hazzard, 12 Ariz. 142, Where articles of association were

100 Pac. ,447; Guckert v. Hacke, 159 framed with a view to eventual incor-
Pa. St. 303, 28 Atl. 249. poration, but this provision was not
"Where a corporation is formed from known to the plaintiffs who contracted
a partnership and continues doing with such association, and after in-
business for an extended period after corporation, the officers were the same,
incorporation with one with whom the members of the association were
business had been done as a partner- personally liable on the contract and
ship, no notice of incorporation being the receipt of money from the officers
given and the charter not having been of the corporation did not prejudice
recorded, the members may be held to the plaintiffs. Witmer v. Schlatter, 2
a partnership liability to such party. Eawle (Pa.) 359.
Goddard v. Pratt, 16 Pick. (Mass.) If an existing partnership becomes
412; Perkins v. Eouss, 78 Miss. 343, incorporated without any formal dis-
29 So. 92. See also Robinson v. First solution and notice thereof and con-
Nat. Bank, 98 Tex. 184, 82 S. W. 505. tinues dealing in the old way, the
When partners have dealt as such individuals composing such partner-
with a seller of goods, and, after be- ship continue liable as partners where
coming incorporated, continue to deal the change of name does not convey
as before, having their bills made in information of the incorporation and
the same way without giving any no- the persons dealing with them had no
tice of their altered condition, they notice of such incorporation. Weise
will continue to be liable as partners, V. Gray's Harbor Commercial Co., Ill
unless the seller has actual knowledge 111. App. 647.
thereof from some other
derived 61 Overlook v. Hazzard, 12 Ariz. 142,
source. Martin v. Fewell, 79 Mo. 100 Pac. 447.
401. See also Weise v. Gray's Har- B2 Goodwin v. Smith, 23 Ky. L. Bep.
bor Commercial Co., Ill 111. App. 647; 1810, 66 S. W. 179.
Goddard v. Pratt, 16 Pick. (Mass.) 63 Roof V. Morrisson, Plummer &
412; Johns v. Brown, 1 White & W. Co., 37 111. App. 87.
Civ. Oas. Ct. App. (Tex.) § 1016.
768
—
Ch. 12] Incokpoeation of Partnerships, etc. [§ 364
their business as a partnership which refer to the formation of a cor-

poration, are not competent evidence where they do not set forth the
dissolution of the firm, and there is no proof that they are published
as the acts and declarations of the partners and that there had been
an actual dissolution.^*
Evidence of witnesses as to the general reputation of the signature
of the firm being that of the corporation, and that one defendant had
ceased to be a partner, is inadmissible.^*
Communications between the partnership and its customers con-
cerning the status of the former are admissible on the question of
notice.*^
The acceptance of a charter and the organization of the company
has no tendency to give notice to the mercantile community of the
dissolution of a firm.*''
§ 364. Conveyance of firm or association property to corporation

In general. There is no valid reason why a corporation may not be
organized for the purpose of buying specific property, such as that of
a partnership, where it is useful, convenient and suitable for its pur-
poses, and such purposes are legal,** and partners may convey or
assign the assets of a firm to the corporation,*' provided the convey-
BlWeise v. Gray's Harbor Com- it recorded andgave no notice to

mercial Co., Ill 111. App. 647. creditors of the change from a part-
85 Coddard v. Pratt, 16 Pick. nership to a corporation, they were
(Mass.) 412. liable as partners. Perkins v. Eouss,
66 In an action for goods sold and 78 Miss. 343, 29 So. 92.
delivered, where it appeared that the A bill in equity which states that
defendants, as a partnership, estab- defendants were partners, but which
lished a branch office and were sub- states that the suit is against a cor-
sequently incorporated, and an issue poration which succeeded the partner-
was tendered as to the dissolu- ship, and that the plaintiff was
tion of the partnership and notice to informed that defendants were really
the plaintiff company of such disso- doing business as a corporation, is
lution, exhibits consisting of letters insufficientwhere the statute provides
and telegrams concerning the various that the charter be recorded, and the
orders and shipments, and involving plaintiff could by this means ascer-
an inquiry as to whether the part- tain the status of the defendants,
nership had been dissolved and the Pittsburg Sheet Mfg. Co. v. Beale, 204
reply thereto were improperly ex- Pa. 85, 53 Atl. 540.
eluded. Hooper v. Hartwell, 12 Colo. 58 In re Wlaterman's Appejal, -26
App. 161, 54 Pac. 864. Conn. 96; Bristol Bank & Trust Co.
57Goddard v. Pratt, 16 Pick. v. Jonesboro Banking & Trust Co.,
(Mass.) 412. 101 Tenn. 545, 48 S. W. 228.
Where members of a partnership 69 Thorpe v. Peilnoek Mercantile Co.,
procured a charter but did not have 99 Minn. 22, 9 Ann. Cas. 229, 108 N.
769
§364] Pkivate Cokpoeations [Ch. 12
anee is not a fraud upon the firm creditors.^" But the property of
a partnership, real or personal, does not become the property of a cor-
poration merely because of the fact that the members of the corpora-
tion and the partnership are the same, or because the corporation is
formed for the purpose of carrying on the business of the partner-
ship.*^ The facts may be such as to be consistent with the continu-
ance of the existence of the partnership,®^ since, as is stated elsewhere,
dissolution of the partnership does not necessarily result from the
creation of a corporation.®*
Some action is necessary on the part of the partners in divesting
W. 940; Shufeldt v. Smith, 139 Mo. Cruft, 2 Gray (Mass.) 161, 61 Am.
367. 40 S. W. 887; Williams v. Colby, Dec. 448; Leffingwell v. Elliott, 8 Pick.
24 N. Y. St. Eep. 793, 6 N. Y. Supp. (Mass.) 455, 19 Am. Dec. 343.
459; Coaldale Coal Co. v. State Bank, In Prank v. Drenkhahn, 76 Mo. 508,
142 Pa. St. 2S8, 21 Atl. 811, and cases a conveyance was made to certain
cited in notes following. persons as directors of an unincor-
Where the three members of a firm porated joint stock company, and
agree that a corporation shall he their successors in oflB.ce, in special
formed, and that the firm property trust for the use of the shareholders
shall be conveyed to it, and stock is- in the company,and afterwards the
sued to them in proportion to their company was incorporated under the
respective contributions, they are all same name. It was held, in the ab-
necessary parties to a transfer of the sence of any conveyance from the
firm's property to the corporation individuals to whom the property had
when formed, but neither of them can been conveyed, that the corporation
avoid a transfer by the others, in took no title to the property, and
which he has wrongfully refused to that it could not maintain ejectment
join. Hennessy v. Griggs, 1 N. D. 52, therefor.
44 N. W. 1010. 62
In an action for an accounting
60 See § 373, infra. of a partnership agreement to buy
fil Georgia. Rau v. Union Paper a railroad, the conduct of the parties
Mill Co., 95 Ga. 208, 22 S. E. 146. was consistent with the continuance
Massacliusetts. Manahan v. Var- of the partnership and irreconcilable
num, 11 Gray 405. with the claim that it was merged
IVUssourl. Frank v. Drenkhahn, 76 in the corporation, the corporation

Mo. 508. being a mere paper affair, and its
North Dakota. Ruettell v. Green- issue of stocks and bonds nominal.
wich Ins. Co., 16 N. D. 54:6, 113 N. W. Watkins v. Delahunty, 133 N. Y. App.
1029; Hennessy v. Griggs, 1 N. D. 52, Div. 422, 117 N. Y. Supp. 885.
44 N. W. 1010. Where a corporation is formed in
Texas. McLeary v. Dawson, 87 Tex. aid of, and not a substitute for an
524, 29 S. W. 1044; Carothers v. association, there is no merger of the
Alexander, 74 Tex. 327, 12 S. W. 4; association in the corporation. Mc-
Schneider v. Sellers (Tex. Civ. App.), Padden v. Murphy, 149 Mass. 341, 21
81 S. W. 126. N. E. 868.
See also Lane & B. Co. v. Locke, 150 63 See § 362, supra,
U. S. 193, 37 L. Ed. 1049; Holland v.

770
Ch. 12] Incokporation of Paetneeships, etc. [§364
themselves of title and on the part of the corporation in receiving

unless the terms of the act or articles of incorporation are such
title,®*
as to transfer the title without any formal transfer by the parties.^*

Of course a partnership may be terminated by agreement, and
theremay be a merger in the corporation by the distribution of stock
and bonds according to the respective interests of the parties, and in
pursuance of the agreement.®®
Members who form a corporation and convey the partnership's
assets to it have the right to agree upon the price each shall be al-
lowed for his share. Such an agreement does not encroach upon the
rights of third persons and may be valid though the corporation sub-
sequently becomes insolvent.®'
The burden of proving a merger is necessarily on those who seek
to establish it.®*
In the case of voluntary associations, it has also been held that

incorporation does not of itself constitute the corporation the owner
of the property of its predecessor.®^
The transfer of property an important ele-
rights in such cases is
ment of the transaction, and has been recognized by the enactment
this
of statutes prescribing due formalities which must be complied with.'"
64 Euettell V. Greenwich Ins. Co., 67 See Pennsylvania Tack Works v.
16 N. D. 546, 113 N. W. 1029; Schnei- Sowers, 2 Walk. (Pa.) 416; Lottman

der V. Sellers (Tex. Civ. App.), 81 S. Bros. Mfg. Co. V. Kouaton Water-
W. 126. works Co. (Tex. Civ. App.), 38 S. W.
Where partners intended to form a 357.
corporation and such corporation was 68 Mason
v. Finch, 28 Mich. 282;
in fact formed and stock issued to one Watkins Delahunty, 133 N. Y. App.
v.
partner, but the property and busi- Div. 422, 117 N. Y. Supp. 885.
ness of the partnership were never 69Manahan v. Varnum, 11 Gray
transferred to the corporation, such (Mass.) 405; McLeary v. Dawson, 87
property and business remained the Tex. 537, 29 S. W. 1044; Carothers v.
property of the partnership. Whit- Alexander, 74 Tex. 319, 12 S. W. 4;
ley V. Bradley, 13 Cal. App. 720, 110 Edwards v. Old Settlers' Ass'n, —
Pae. 596. Tex. Civ. App. —
, 166 S. W. 423.
A formal conveyance of real prop- Parties lawfully associated in a com-
erty is necessary to a transmission of mon enterprise or purpose have a
title, unless the owner thereof so deal right to continue it until something
with it as to vest an equitable inter- is done to destroy it. Mason v. Pinch,
est in another and raise an estoppel 28 Mich. 282.
against the assertion of titleupon 70 To transfer the property of an
his part. Rau v. TJnion Paper Mill unincorporated association to the same
Co.,95 Ga. 208, 22 S. E. 146. association, incorporated, requires the
65See § 365, infra. unanimous vote of the members pres-
66Watkins v. Delahunty, 33 N. Y. ent at a meeting duly called for that
App. Div. 422, 117 N. Y. Supp. 885. purpose, under the New York Mem-
771
I 364] Private Cokpoeations [Ch. 12
Even an absolute identity of membership will not of itself lead to

a merger of an association in a corporation. The same persons may
be members in the same or different proportionate interests of as many
distinct bodies, incorporated or unincorporated, as they choose to
organize.'^
Of course the facts may be such that incorporation is fully author-
ized, and the corporation eo instanti comes into existence with its
status and membership fully fixed, there being a complete substitu-
tioA of the corporate entity for the association,'"' but the members of
the association cannot be deprived of their property rights without
their consent, and when an association is claimed to have become
incorporated, some action must appear whereby such result has been
fully authorized.'"
If the association's membership is not confined to one state, but
extends throughout several states, and the oflScers of such organiza-
tion organize a corporation in one state, it cannot be held that such
corporation succeeds to the property rights of the entire society.
And this would also be the case even though the constitution granted
general powers to the officers which could be interpreted as authoriz-
ing incorporation. In such case acceptance of the incorporation is
necessary.''*
§ 365. —
Transfer of title by charter or articles of Incorporation.
A formal transfer or conveyance of partnership property to a cor-
bership Corporation Law, § 5 (Laws N'^w England States v. Zuraw, 89

1909, c. 40). Koprueki
Wojcie-v. Conn. 616, 94 Atl. 976.
chowski, 73 N. Y. Misc. 46, 130 N. Y. TS See § 359, supra.
Supp. 736. See also Mason v. Finch, 28 Mich.

71 Mason v. Finch, 28 Mich. 282. 282; Spiritual & Philosophical Temple
See also First Russian Nat. Organiza- v. Vincent, 127 Wis. 93, 105 N. W.
tion New England States v. Zuraw, 1026.
89 Conn. 616, 94 Atl. 976, and eases Where a lot of ground was conveyed
cited in note 61, supra, this section. in trust for the use of the neighbor-
72 Spiritual & Philosophical Temple hood for a school, and a schoolhouse
V. Vincent, 127 Wis. 93, 105 N. W. was buUt, and the property managed
1026. by trustees selected by the neighbors,
Where a voluntary association be- a minority could not by the organiza-
comes incorporated under a special tion of a corporation appropriate to
charter or general laws, it becomes it the property of the association
merged in the corporation, its mem- against the will of the majority. Com.
bers become the constituent members v. Jarret, 7 Serg. & R. (Pa.) 460.
of the corporation, and its property 74 Koprueki v. Wojciechowski, 73

becomes the property of the corpora- N. Y. Misc. 46, 130 N. Y. Supp. 736.
tion. First Russian Nat. Organization
772
Ch. 12] Incorporation of Partnerships, etc. [§365
poration which succeeds it is not necessary when the act of incorpora-

tion operates to vest title in the corporate body and such charter is
accepted by the members.'^

A franchise may also vest in the corporation, immediately when it
is organized, by operation of law, as where it is granted on the express

condition that a corporation be organized.''® But usually title does not
vest in the corporation, even though created by an act of the legis-
lature, unless such legislative body expressly declares such purpose,'"''
and the company cannot as such obtain title to property until it
comes into being as a legal entity. ''^
Property cannot be transferred to the corporation as against sub-
sequent bona fide purchasers from the partners, unless the description
is sufficiently definite and certain to show what particular property
is transferred.''*
7B Colquitt V. Howard, 11 Ga. 556, tion to continue the business as it

as to which see also § 364, supra. was then conducted and to continue
Where the members of a partnership in the partnership agreement which
and others obtained a charter of in- had formerly been entered into. But-
corporation providing that the prop- ler V. American Toy Co., 46 Conn.
erty of the partnership was thereby 136.
declared to be the property of the 76 Spring Valley Water Works v.
corporation upon the partnership exe- San Francisco, 22 Cal. 434.
cuting to the corporation proper re- 77 McCandless v. Inland Acid Co.,
leases, it was held that the charter 112 Ga. 291, 37 S. E. 419.
did not transfer title to the corpora- Under the Illinois act (Act of April
tion without the execution of such 18, 1872; J. & A. 112459) the title to
releases. McLeary v. Dawson, 87 Tex. church property held, conveyed, or
524, 29 S. "W. 1044. devised to trustees, vests in the cor-
Where a corporation was organized poration when formed. Zion Church
to continue the business of a part- Mensch, 178 111. 225, 52 N. E. 858,
V.
nership, it appearing that a member aff'g 74 111. App. 115; Dubs v. Egli,
of the firm had died, and the pre- 167 111. 514, 47 N. E. 766; Andrews v.
amble to the act of the legislature Andrews, 110 111. 223; Happy v. Mor-
granting a charter recited such facts, ton, 33 111. 398.
and provided for incorporation for the Mass. does not'
St. of 1854, e. 454,
purpose of carrying on the business transfer title of voluntary loan fund
of the late firm, and it appeared that association to corporation unless there
the partnership prior to that time isa legal formal conveyance or assign-
had been engaged in the business of ment. Manahan v. Varnum, 11 Gray
making toys, and had entered intO' (Mass.) 405.
an agreement with another partner- 78McCandless v. Inland Acid Co.,
ship for the sale of their goods in 112 Ga. 291, 37 S. E. 419,
another city, it was held that the act 79Bau V. Union Paper Mill Co., 95
of ijicorporation transferred to the Ga. 208, 22 S. E. 146. In this case, a
corporation the property belonging to partnership obtained a charter incor-
the firm and authorized the corpora- porating it under the same name,
773
If statutory enactments exist requiring a formal conveyance to pass

title to real would seem clear that partnership property
property, it
cannot be vested in the corporation by the mere articles or certificate

of incorporation, or by a charter from the court, as distinguished from
a special act of the legislature.*"
§366. —
Effect of charter restrictions on power. "Restrictions
imposed by the charter of a corporation upon the amoimt of property
that it may hold cannot be taken advantage of collaterally by private
persons, but only in direct proceedings by the state which created
it. " '' It has also been held that where a corporation succeeded a
partnership, and it was not authorized by its charter to purchase
land, it could not invoke the defense that it was an innocent pur-
chaser of such land.*^
§ 367. — Title acquired by corporation. A corporation organized

to take over the partnership assets does not acquire any better title to
the property than that possessed by the partnership,*^ but when the
business and property are transferred to the corporation, it takes
such property free from partnership equities.** The partners become
and the petition for the charter re- Thorpe v. Pennock Mercantile Co., 99
ferred to the property of the firm as Minn. 22, 9 Ann. Cas. 229, 108 N. W.
capital stock, describing it generally 940.
as land, machinery, etc. It was held "The argumentthat the corpora-
that a, sale by a member of the firm tion, being the creature of the part-
of a portion of the land passed the ners, was not a bona fide purchaser,
title, and that it could not be sub- and must be considered as having
jected to the debts of the corpora- taken the property subject to all part-
tion. nership equities against it, is not a
80 See Eau v. Union Paper Mill Co., sound one. The constitution of the
95 Ga. 208, 22 S. E. 146. corporation, and the transfer to it of
81 Jones V. Habersham, 107 U. S. the property, were authorized by law,
174, 27 L. Ed. 401; Schneider v. Sellers and were intended to settle and ex-
(Tex. Civ. App.), 81 S. W. 126. See tinguish these equities, and to place
also §§ 274-277, supra. the concern on a new footing; and
82 Schneider v. Sellers (Tex. Civ. the very parties entitled to equities
App.), 81 S.W. 126. were the ones who organized the cor-
83 Woodward v. San Antonio Trac- poration, and made the conveyance to
tion Co. (Tex. Civ. App.), 95 S. W. it. Besides, it is not the corporation
76. See Baker Furniture Co. v. Hall, alone which is concerned in the trans-
76 Neb. 88, 113 N. W. 267, 111 N. W. fer, but the creditors who trusted it
129, 107 N. "W. 117. after it was formed. They, or at least
84 In re Miller Pure Eye Distilling the great mass of them, certainly
Co. of Pennsylvania, 214 Fed. 189; stand in the position of bona fide
Pearce v. Sutherland, 3 Alaska 303; claimants against its property and
774
Ch. 12] Incokpobation of Pabtneeships, etc. [§368
stockholders and the property ceases to be partnership property."

In fact the conveyance of the partnership property in exchange for
stock is a step in the dissolution of the partnership and settlement of
its affairs as between the partners.^*
§ 368. —
Equitable title. The corporation which succeeds a part-
nership or association may acquire an equitable title or right to the
property of its predecessor. Thus, an equitable title to partnership
property may be vested in the corporation, where the specific prop-
erty agreed to be conveyed is peculiarly valuable by reason of its
adaptation to the uses of the corporation.*' And a similar title may

be obtained where a corporation takes possession and makes improve-
ments of property but receives no deed from the partners.** And
in the case of incorporation by members of an association, where
property is paid for with money derived from the sale of stock and
is held in trust for the contemplated corporation, delivery of posses-
sion to the corporation when formed vests it at least with equitable

title to the property.*®
If the property is held in trust for an association which becomes
assets.They may not be able to claim use, in connection with the use of the
any precedency over the former part- realty, for manufacturing purposes, it
ners having debts due to them, but vras held that while the contract did
they stand on an equal footing with not vest a present legal title in the
them." Francklyn v. Sprague, 121 corporation, it vested in it an equita-
V. Ed. 936.
S. 215, 30 L. ble right to the specific property,
86 McGowan v. American Pressed which a court of equity would specifi-
Tan Bark Co., 121 U. S. 575, 30 L. Ed. cally enforce at the instance of the
1027; Francklyn v. Sprague, 121 TJ. S. corporation, it not being in default.
215, 30 L. Ed. 936; In re Miller Pure Singer, Nimick & Co. v. Carpenter,
Eye Distilling Co. of Pennsylvania, 125 III.N. E. 761.
117, 17
214 Fed. 189; Singer, Nimick & Co. v. 88 Cooke V. Watson, 30 N. J. Eq. 345,
Carpenter, 125 111. 117, 17 N. E. 761, holding that where a firm became in-
aff'g 26 111. App. 28. corporated, the partners becoming the
86 Coggswell & Boulter Co. v, Coggs- principal stockholders, and the corpo-
well (N. J. Ch.), 40 Atl. 213. ration purchased the firm property,
87 So where the members of a manu- paid the purchase price, took posses-
facturing company, which was not sion, and made improvements, but re-
incorporated, formed a corporation ceived no deed from the partners, it
with other parties, and agreed to acquired an equitable title, and a
transfer to the corporation the part- mortgage by it was effectual, as be-
nership property, consisting in part tween it and the mortgagee, to charge
of real estate and partly of personal such title.
property, the latter having a peculiar 89 Edwards v. Old Settlers' Ass'n,
value by reason of its adaptation to — • Tex. Civ. App, — , 166 S. W. 423.
775
incorporated, sueli corporation has the right to demand and receive

the title to the land.^"
§ 369. —
Conveyance to corporation not organized. It is apparent
that a corporate existence is essential to the acquirement of real estate.
Title cannot by any possibility pass until the corporation by organiza-
tion has attained an actual entity. Accordingly, if the incorporation
of a partnership is never completed and the land owned by the part-
ners is sold and conveyed to a bona fide purchaser, such land is not
subject to a judgment obtained by a creditor of the alleged corpora-
tion for goods sold.®^
§370. — Incorporation of association after devise or bequest to

it. As a general rule there must be a person, either natural or arti-
80 Organized Labor Hall v. Gebert, recorded, but before the incorporation

48 N. J. Eq. 393, 22 Atl. 578. of the society a judgment was recov-
In an action for an accounting be- ered against the vendor, itwas held
tween subordinate members of a fra- that a trust existed in favor of the
ternal mutual benefit association, it members of the association, and that
appeared that the subordinate lodges when the corporation was organized it
had been divided by the supreme lodge succeeded to the rights of the indi-
and placed in control of certain ter- vidual members, and the judgment ob-
ritory, and that the plaintiff associ- tained was subject to the trust in
ation had been incorporated. It was favor of the association. The view
alleged that the new corporation be- was taken that the purchase wae
came the representative of the mem- made for the common benefit of all
bers of the unincorporated association the persons composing the voluntary
and succeeded to the rights of such association, and when they were trans-
association, and it was held that it formed, by due form of law, from a
could not be urged by the defendant mere voluntary assembly into a body
on demurrer that the plaintiff corpo- corporate, the corporation, as to these
ration was not identical with the vol- lands, took the place of the individual
untary corporation which existed prior members, and, although the vendor
thereto. Other allegations of the com- had already made a deed to the corpo-
plaint showed that all the funds and rate name, if he had been requested
property gathered together by the de- to execute another at the expense of
fendant prior to the separation of the the corporation, and refused, equity
lodges were trust funds in which every would have compelled him to do so,
member had an interest and the plain- because such act, on his part, was nec-
tiffwas held entitled to establish the essary to give legal effect to the in-
equitable ownership of the property. tention of the parties. African
Grand Lodge A. O. U. W. of Connecti- Methodist Church v. Conover, 27 N.
cut V. Grand Lodge A. O. TJ. W. of J. Eq. 157.
Massachusetts, 81 Conn. 189, 70 Atl. 91 Eau V. Union Paper Mill Co., 95
617. 6a. 208, 22 S. E. 146. See also § 404,
Where lands were purchased for the infra.
benefit of an association, and the deed
776
Ch. 12] Incokpokation of Partnerships, etc. [§ 370
ficial, in esse to receive a conveyance of an immediate estate in land,

and an unincorporated association is not competent to purchase or
to take title to land Aeeording-ly, a devise to an unincor-
by deed.'^
porated society is void, has been expressly held that such a
and it
device cannot be rendered valid by subsequent incorporation of the

association.'*
It is only by virtue of the peculiar jurisdiction exercised by courts
of equity in regard to charitable uses that such bequests have ever
been sustained.'* In a leading case on this subject the bequest was to
a religious association, which was subsequently incorporated. It was a
gift in praesenti, to take effect immediately on the death of the testator,
the individuals composing the society being numerous and uncertain
and there being no executory bequest over to the association, if it
should become incorporated. The court, therefore, considered the
bequest void for uncertainty as to devisees, and the property vested in
by the will. The decision
the next of kin, if not otherwise disposed of
of the courtwas unanimous, and Chief Justice Marshall, who delivered
the opinion, stated that "a body corporate afterwards created, had
it even fitted the description of the will, cannot divest this interest
and claim it for their corporation.®^
Similar bequests have been held void because of a violation of the
statute against perpetuities.'® The same rule applies to a devise pro-
viding for incorporation and for conveyance of title to the corpora-
tion which does not prescribe the time for the performance of such
acts.'''. But the validity of a devise or bequest is not impaired by the
fact that the will provides that an act of incorporation be obtained,'*
92 African M. E. Church v. Conover, Hart, 4 Wheat. (IT. S.) 1, 4 L. Ed.

27 N. J. Eq. 157. See generally § 404, 499.
infra. SSBascom v. Albertson, 24 N. Y. 59;
93 Philadelphia Baptist Ass'n v. Phelps v.Pond, 23 N. T. 77; Leonard
Hart, 4 "Wheat. (U. 8.) 1, 4 L. Ed. v. Burr, 18 N. Y. 96, 108.
499; White v. Howard, 46 N. Y. 144, Where a devise to trustees was

aff'g 52 Barb. (N. Y.) 294; Burrill v. void, and the trustees took no title,
Boardman, 43 N. Y. 254, 3 Am. Hep. they could not represent a corporation
694; Beekman v. Bonsor, 23 N. Y. 298, to be created and to take at the de-
80 Am. Dec. 269; Owens v. Missionary cease of the lived of two
longest
Soc. of Methodist Episcopal Church, trustees named, and by the failure of
14 N. Y. 380, 67 Am. Dec. 160; Chit- devises no effect could be given to the
tenden v. Chittenden, 1 Am. L. Reg. testator's will. Holmes v. Mead, 52
(O. S. N. Y.) 538; Lutheran Eeformed N. Y. 332.
Church V. Mook, 4 Redf. Surr. (N. 97 Leonard v. Bell, 1 Thomps. & C.
Y.) 513. (N. Y.) 608, aff'd 58 N. Y. 676.
94 State V. Warren, 28 Md. 338. 98 Jones v. Habersham, 107 IJ. S.
95 Philadelphia Baptist Ass'n v. 174, 27 L. Ed. 401, citing Russell v.
777
370] Private Corporations [Ch. 12
and bequests have been sustained where there was no bequest in

praesenti, but a future bequest ®® limited to a corporation to be estab-
lished within the period allowed for the vesting of future estates.^
The rule that a devise for a public charitable purpose shall not fail
of effect for want of a devisee then capable of taking the legal estate,
and that to protect such charity, the legal estate will be considered
either as remaining in abeyance or as vesting in the heirs of the trust
for the persons beneficially interested, has also been applied, and gifts
have been sustained
to unincorporated voluntary religious associations
though such associations were not incorporated until some time after
the execution of the will.®
Allen, 107 U. S. 163, 27 L. Ed. 397; property cannot be said to be unlaw-

Ould V. Washington Hospital, 95 TJ. ful, although the contemplated action
S. 303,24 L. Ed. 450; Ingles v. Sailor's of the legislature may not be in ac-
Snug Harbor, 3 Pet. (U. S.) 99, 7 L. cordance with any existing law. Bur-
Ed. 617; Field v. Drew Theological rill v. Boardman, 43 N. Y. 254, 3 Am.
Seminary, 41 Fed. 371. Eep. 694. See also Kinnaird v. Mil-

"A devise to a corporation to be ler's Ex'r, 25 Gratt. (Va.) 107.
created by the legislature is good as In Literary Fund v. Dawson, 10
an executory devise." Ould v. Wash- Leigh (Va.) 147, and Literary Fund v.
ington Hospital, 95 U. S. 303, 24 L. Ed. Dawson's Ex'r, 1 Eob. (Va.) 402, the
450. principle is maintained that wherever
A devise to an association for re- a devise or bequest is made to a cor-
ligious purposes is good, and a re- poration to be afterwards, within a
ligious society may take and hold a period not too remote, created by law
bequest or devise for charitable pur- for the purpose of carrying into ef-
poses, though unincorporated at the fect a charitable intention of the tes-
time of the testator's death. Zimmer- tator expressed in his will, the same
man V. Anders, 6 Watts & S. (Pa.) 218, may be good and valid as an execu-
40 Am. Dee. 552, tory devise or bequest, and will be-
99 Sanderson v. White, 18 Pick. come absolute and executed, if and
(Mass.) 328, 29 Am. Dec. 591; Burrill when such a corporation shall be cre-
V. Boardman, 43 N. Y. 254, 3 Am. Eep. ated accordingly. It must of neces-
694. See also Inglis v. Sailor's Snug sity be created, if at all, within the
Harbor, 3 Pet. (IT. S.) 99, 7 L. Ed. period prescribed by law in regard to
617. perpetuities, that is, within the
A legacy was held to vest in the terra of a life or lives in being and
legatees on the death of the testator 's twenty-one years thereafter.
widow, when the beneficiary associa- 2 American Bible Society v. Wet-
tions were incorporated and author- more, 17 Conn. 181.
ized to take, wherefore the bequest A court of equity will not permit a
was valid. Shipman v. Rollins, 33 trust to fail for want of a trustee.
Hun (N. Y.) 89, rev'd 98 N. Y. 311. Grants, devises, or dedications to pub-
1 A limitation contingent upon the lic,pious, or religious uses, from the
competent exercise of legislative necessity of the case, form exceptions
power within the period of the law- to the rule, applicable to private
ful suspension of the ownership of grants, requiring a grantee as well as
778
Ch. 12] Incobpokation of Partnebships, etc. [§ 372
Next of kin are not estopped from claiming that a society was not
regularly incorporated by the fact that the testator has dealt with
such society as a corporation and has deeded property to it for a con-
sideration.^
§ 371. — Statute of frauds.

Creditors of a firm cannot interpose
the statute of frauds to defeat a contract of sale of partnership prop-
erty, when a corporation is organized by the partners, if the mem-
bers of the firm themselves do not choose to interpose such statute.*
§ 372. —
Estoppel and ratificatian. In some cases the corporation
has been held entitled to property of a partnership to which it suc-
ceeded by virtue of the doctrine of estoppel. Thus, if partners by
the terms of their articles of incorporation or of their application to
the court for a charter, so far commit their property as assets of the
corporation that the corporation takes possession and control upon
organization, and incurs debts upon the faith and credit thereof, the
courts will treat the property, as to such debts, as the property of the
corporation, upon the theory that the corporators are estopped to set
up title in themselves as against a bona fide creditor upon the faith of
their apparent dealings with the property.* This cannot be, how-
ever, where the contest is not between the corporators themselves and
a person claiming to be a creditor of the corporation, but between a
creditor of the corporation and a bona fide purchaser, without notice,
from the corporators, since as against him there is no estoppel.®
The question of ratification may be involved, but nothing can tend
a grantor. It is not necessary in such these principles, a grant may be up-

case, that the beneficiary should, at held, and the intention of the grantor
the time of the grant, be clothed with carried out. Miller v. Chittenden, 2
the power or capacity of taking the Iowa 315.
benefit of the donor's bounty; but 3 Lutheran Reformed Church v.
the intention of the donor will be exe- Mook, 4 Redf. Surr. (N. Y.) 513.
cuted, if this capacity arises within a 4 Singer, Nimick & Co. v. Carpenter,
reasonable time thereafter. In the 125 111. 117, 17 N. E. 761, afif'g 26 111.
meantime, where the property is in App. 28.

the hands of a trustee, and the object 6 Rau v. Union Paper Mill Co., 95
and purpose of the grant look to a 6a. 208, 213, 22 S. E. 146; Stewart Pa-
future grantee, it will be held in abey- per Mfg. Co. v. Rau, 92 6a. 511, 17
ance. It is not necessary that the S. E. 748; Georgia Ice Co. v. Porter,
trustee shall have the power to create 70 6a. 637. See also Pearce v. Suther-
the beneficiary, or proceed with the land, 3 Alaska 303.
execution of the trust before such 6 Eau v. Union Paper Mill Co., 95
creation in order to sustain and up- 6a. 208, 213, 22 S. E. 146.
hold such a grant or devise. Upon
779
§ 372] Pbivate Corporations [Ch. 12
to prove an acquiescence in a corporate merger whieh does not show

a complete cessation of the unincorporated society's action. If the
corporation is created without authority, the acquiescence of the
association is that of an existing society in the claims of an existing
corporation. The two bodies are distinct and so remain, at least
luitil an estoppel should arise out of the acquiescence, and the con-
tinued existence of the association would operate as a standing denial

of its nonexistence.'' Furthermore the ratification would have to be
of equal dignity with that of the original authority.'
§ 373. — Fraud and fraudulent conveyances. Where an arrange-

ment is entered into providing for the transfer of the partnership
property to a corporation, and a partner who has charge of the con-
veyancing fraudulently reserves some of the property for his own
benefit, the corporation may obtain the property reserved.®
The sale of partnership property to a coi^joration is voidable, where
the effect of such sale which is' procured by a surviving partner who
is also administrator of the estate of the deceased partner, is to
transfer the partnership property to a corporation controlled by the

surviving partner. In such case the sale is voidable at the election of
those for whom the partner acts as fiduciary, whether or not there
was a conscious purpose to wrong or defraud them.^"
Where some of the partners incorporate the partnership without
the knowledge of one partner and transfer the partnership assets to
it, such partner may
bring an action for an accounting, or if the
transfer to the corporation is fraudulent, he can follow the assets
into the hands of the fraudulent transferees.^^ Similar facts may

justify the appointment of a receiver.^^
1'
Mason v. Finch, 28 Mich. 282. 11 Parry v. Parry, 92 N. Y. Mise.
8 Mason Finch, 28 Mich. 282.
v. 490, 155 N. Y. Supp. 1072.
9 Coggswell & Boulter Co. v. Coggs- Complaint held insufficient to show-
well (N. J. Ch.), 40 Atl. 213. knowledge of corporation of wrong-
Where a corporation was organ- doing of two partners who formed
ized and partners conveyed all their corporation and took over assets of
property to the corporation in fee, partnership, without providing for
but the partner who prepared the stock for plaintiff partner. Parry v.
deed reserved one lot, adjoining his Parry, 92 N. Y. Misc. 490, 155 N. Y.
individual property, such conduct was Supp. 1072.
a fraud upon the other partner who 12 A receiver is properly appointed
joined perfunctorily in the execution where a surviving partner formed a
of the deed. Coggswell & Boulter Co. corporation to which assets of the
v. Coggswell (N. J. Ch.), 40 Atl. 213. partnership were transferred, for an
10 Eowell V. Eowell, 122 Wis. 1, 99 extremely low price, shortly after the
N. W. 473. taking out of letters of administra-
780
Ch. 12] Inoorpobation of Paktneeships, etc. [§373
The principle that the fiction of corporate entity will be disre-

garded by the courts and looked beyond when the ends of justice
require it will be applied when the partners seek to evade and avoid
their individual obligations,^* and this has been held so although
some of the shareholders had not originally incurred the obligation
sought to be enforced.^* In a like manner members of an asBoeiation
cannot organize a corporation so as fraudulently to deprive other
members of their rights.^^
A corporation composed of the same individuals as a firm cannot
seize upon the assets of sueh firm and withdraw them from the
creditors. ^^
Fraud in the formation of a corporation to which the assets of a
firm are transferred for the purpose of hindering, delaying and de-
frauding creditors vitiates the entire transaction.^''
tion,by the widow of the deceased feated by the fact that there was a
partner,and it appeared that a wast- secret understanding between the trus-
ing of the partnership assets would tees adopting the resolution that his
result. Miller v. Miller, 80 N. J. Eq. claim was not to be included. Wil-
47, 82 Atl. 513. liams V. Colby, 53 Hun (N. Y.) 637,
13 In the case of a mere paper cor- '
' 6 IsT. Y. Supp. 459.
poration, " to cover a joint venture in 17 Alabama. Metcalf v. Arnold, 110
which the corporators are partners in Ala. 180, 55 Am. St. Eep. 24, 32 So.
intention, and have resorted to this 763.
form for the purpose of evading and Colorado. Colorado Trading &
avoiding obligations which they had Transfer Co. v. Acres Commission Co.,
taken upon themselves as individuals, 18 Colo. App. 253, 70 Pac. 954.
or for the purpose of evading a prom- District of Columbia. Clark v.
ise relied on, the corporation will be Bradley Co., 6 App. Cas. 437.
held answerable for the individual Illinois. Sammis v. Poole, 188 111.
obligation. Moore & Handley Hard- 396, 58 N. E. 934, afC'g 89 111. App.
ware Co. V. Towers Hardware Co., 87 118.
Ala. 206, 13 Am. St. Eep. 23, 6 So. Michigan. Johnson v. Cook, 179
41. Mich. 117, 146 N. W. 343.
14 Moore & Handley Hardware Co. New Jersey. Mulford v. Doremus,
V. Towers Hardware Co., 87 Ala. 206, 60 Eq. 80, 45 Atl. 688.
N". J.
13 Am. St. Eep. 23, 6 So. 41. New York. Sheffield v. Mitchell, 31
IB Spiritual & Philosophical Temple N. Y. App.' Div.-266, 52 N. Y. Supp.
V. Vincent, 127 "Wis. 93, 105 N. W. 925; Buell v. Eope, 6 N. Y. App. Div.
1026. 113, 39 N. Y. Supp. 475.
16 Williams v. Colby, 53 Hun (N. A partnership, being insolvent, ob-
Y.) 637, 6 N. T. Supp. 459. See also tained new capital from outside par-
Beal V. Chase, 31 Mich. 490. ties,with the understanding that a
Thus, where the corporation adopts corporation would be organized and
a resolution to assume the liabilities
,
the business continued. A corporate
of the partiiership, the claim of a form and name were adopted, stock
partnership creditor cannot be de- were issued to the part-
ce#tificates
781
The fact that the conveyance is fraudulent is not established by

the fact that the name of the corporation is similar to that of the
partnership,^* or that no provision is made for the payment of the
partnership debts, when the firm is solvent,^^ or that stock subscribed
is not actually paid in when the corporation is being formed,^" or that
nera and parties furnishing the new possession ofit after the transfer, re-
capital in proportion to their respec- specting his manner of using or dis-

tive interests, and for a short time the posing of it, tending to show that he
business was carried on under the is using and disposing of it as if it
form of a corporation. Thereafter in- were his own, is admissible upon the
corporation was legally effected, and question of the bona fides of the trans-
the stock already issued was treated fer. Persse & Brooks Paper Works, v.
as the stock of the corporation. The Willett, 19 Abb. Pr. (N. Y.) 416, 24
property of the partnership was trans- N. Y. Super. Ct. 131.
ferred to the corporation without com- Where evidence would have required
pliance with chapter 291, p. 357, Minn. the submission to the jury whether
Gen. Laws 1899, making sales of mer- the plaintiffs had been incorporated
chandise without compliance therewith as a cover and shield to defraud, hin-
presumptively fraudulent as to credi- der or delay the creditors of the firm,
tors. The corporation purchased ad- the question whether this was done,
ditional merchandise, incurred new and the property transferred, with a
debts, and carried on business until fraudulent intent, was one proper to
it became insolvent. The assets were be put on a cross-examination. Persse
by agreement transferred to trustees & Brooks Paper Works v. Willett,
who reduced them to cash. In an ac- 19 Abb. Pr. (N. Y.) 416, 24 N. Y.
tion to determine the respective rights Super. Ct. 131.
of the partnership and corporation iSMcGowan American Pressed
v.
creditors, itwas held that the credi- Tan Bark U. S. 575, 30 L. Ed.
Co., 121
tors of the corporation were entitled 1027; Bristol Bank & Trust Co. v.
to full payment of their claims before Jonesboro Banking Trust Co., 101
the creditors of the partnership are Tenn. 545, 48 S. W. 228.
entitled to participate in the fund. 19 Densmore Commission Co. v.
Thorpe v. Pennock Mercantile Co., Shong, 98 Wis. 380, 74 N. W. 114.
99 Minn. 22, 9 Ann. Cas. 229, 108 N. The transfer by an insolvent firm
"W. 940. of all their tangible property to a
The legal presumption of fraud, aris- corporation formed by the members
ing under the Wisconsin statute in of the partnership for the purpose
favor of a creditor of a vendor out of of acquiring such firm assets, with-
the mere fact that such vendor has out giving any consideration save the
sold property to another and there- issue of stock therefor, and without
after retained possession of the same, assuming any of the debts of the firm,
is rebutted by proof of the payment is a suspicious circumstance and in-
of a full consideration for such prop- dicative of an intent to hinder the

erty to the vendor by such other. firm creditors. Buell v. Rope, 6 N.
Densmore Commission Co. v. Shong, Y. App. Div. 113, 39 N. Y. Supp.
98 Wis. 380, 74 N. W. 114. 475.
Evidence of the act of the assignor 20 Foster v. Hip Lung Ying Kee &
of property, who continues in acti»l Co., 243 111. 163, 90 N. E. 375.
782
Ch. 12] Incoepoeation of Paetneeships, etc. [§373
the transfer was made to a corporation which was organized by the

partners for the purpose of carrying on the partnership business,*^
or that the former members of the partnership ^^ received the stock
21 United States. In re Eobertshaw against existing creditors. To this

Mfg. Co., 133 Fed. 556. proposition we do not assent. The
Illinois. Kingsman v. Mowry, 182 creation of the corporation was au-
111. 256, 74 Am. St. Eep. 169, 55 N. E. thorized by law, and, upon its forma-
330. tion, it became an artificial being
Iowa. Shumaker v. Davidson, 116 distinct from its incorporators. Its
Iowa N. W. 441.
569, 87 stock was a valuable consideration for
Minnesota. Thorpe v. Pennock Mer- property transferred to it, and such
cantile Co., 99 Minn. 22, 108 N. W. transfer was not therefore per se
940. fraudulent, as against existing credi-
Pennsylvania. Coaldale Coal Co. v. tors, even though it had been shown
State Bank, 142 'Pa. St. 288, -21 Atl. that the partnership did not retain
811. sufficient property to satisfy its debts.
Tennessee. Bristol Bank & Trust The stock received by them was not
Co. V. Jonesboro Banking Trust Co., placed beyond the reach of creditors."
101 Tenn. 545, 48 S. W. 228. Where a bankrupt conveyed his
Wisconsin. Densmore Commission goods, in fraud of his creditors, to a
Co. V. Shong, 98 Wis. 380, 74 N. W. partnership having knowledge of the
114. fraud and which transferred the
Such a transaction may be fraudu- goods to a corporation thereafter
lent, but each must be judged by its formed, consisting of the same mem-
own facts. Hinkley v. Eeed, 182 111. bers as the partnership and taking
440, 55 N. E. 337, rev'g 82 IIV. App. over the latter 's assets and liabilities
60; iilleu v. French, 178 Mass. 539, and continuing its business, the cor-
60 N. E. 125; Thorpe v. Pennock Mer- poration is liable to the trustee for
cantile Co., 99 Minn. 22, 108 N. W. the value of the goods and is not
940; Benton v. Minneapolis Tailoring entitled to be credited with the
Co., 73 Minn. 498, 76 N. W. 265. amount paid the bankrupt for the
In Sayers v. Texas Land & Mort- goods nor with the amount of his in-
gage Co., 78 Tex. 244, 14 S. W. 578, debtedness to the partnership. Hollo-
the firm conveyed all their properties way & McEaney v. Brame, 83 Miss.
to a corporation under an agreement 335, 36 So. 1.
among the partners that each should A scheme by which partnership
hold stock in the corporation in property transferred to a corpora-
is
proportion to his interest in the part- tion, the stock therein being divided
nership. There were no other stock- between the partners and their wives
holders, and only one partner ever with the intention of hindering, de-
received a certificate of stock. The laying and defrauding creditors, is
court said: "The
contention of fraudulent as to such creditors. Met-
appellant is because this was
that calf V. Arnold, 132 Ala. 74, 32 So.
a mere conversion of the partnership 763.
into a corporation, and because 22 Bristol Bank & Trust Co. v. Jones-
nothing was paid except the stock boro Banking Trust Co., 101 Tenn. 545,
in the corporation, the conveyance 48 S. W. 228; Sayers v. Texas Land &
of the land is to be deemed Mortgage Co., 78 Tex. 244, 14 S. W.
voluntary and fraudulent in law as 578.
783
of the corporation, or that such stock later decreases in value,^^

or that the corporation subsequently becomes insolvent.**
The question of insolvency has an important bearing on the issue
and the intent of the parties is the controlling element in
of fraud,*^
determining the fraud.*^ The determination of whether such intent
exists may be either a question for the court, or, as is usually the
case, a question for the jury.*''
A device to hinder, delay or defraud property of a partnership commission

creditors appears where partnership company to a corporation was with-
property ia transferred to a person un- out consideration and voluntary, the
der the control of one of the partners commission company being at the time
and is subsequently transferred to the insolvent, such transfer was a fraud
corporation composed of members of upon its creditors. Colorado Trading
the partnership, the property in the & Transfer Co. v. Acres Commission
meantime being in control of the part- Co., 18 Colo. App. 253, 70 Pac. 954.
ners. Vilas Nat. Bank of Plattsburgh 26 The contention that a conveyance
V. Newton, 25 N. Y. App. Div. 62, 48 of partnership lands to a foreign cor-
N. Y. Supp. 1009. poration organized by the partners
23 Where a corporation was organ- was colorable and collusive and for
ized by partners, and they offered the the purpose of bringing suit in a fed-
stock received to firm creditors either eral court concerning certain of the
as payment or collateral security, but land, was held not sustainable, where
the offer was refused, such creditors the evidence showed that the partners
could not subsequently contend that conveyed all of the partnership prop-
the change was fraudulent because erty to the corporation, which assumed
such stock decreased in value and the all of the partnership indebtedness,
evidence was insufficient to show and that the conveyance was uncon-
fraud. Kessler v. Levy, 11 N. Y. ditional and for the purpose of facili-
Misc. 275, 32 N. Y. Supp. 260. tating the handling of the partnership
24 Bristol Bank & Trust Co. v. Jones- assets, and not with intention to
boro Banking Trust Co., 101 Tenn. reconvey, and the validity of the
545, 48 S. W. 228. transaction was upheld. Slaughter v.
25 '
' The fact that the partnership Mallet Land & Cattle Co., 141 Fed.
was insolvent at the time of the trans- 282. See also Irvine Co. v. Bond, 74
fer has an important bearing upon the Fed. 849, in which, though the cor-
issue of fraud. It is not, however, poration was formed to hold the prop-
conclusive, and
does not deprive the
it erty of an individual, somewhat
parties of the right to show, if they similar principles were involved.
are able to do so, that the transfer The organization of a corporation is
was made for a good and adequate not in fraud of creditors where there
consideration. Nor does it create in is no effort or purpose shown by the
itself,a lien for the partnership credi- evidence to simulate a compliance
tors independently of the equity of the with the law or to create a fictitious
partners to have the partnership prop- or deceptive corporation for any
erty applied." Thorpe v. Pennock fraudulent or dishonest purpose. Pos-
Mercantile Co., 99 Minn. 22, 9 Ann. ter V. Staar, 148 111. App. 485, aff'd
Cas. 229, 108 N. W. 940. 243 111. 163, 90N. E. 375.

Where an attempted transfer of the 27 "An insolvent owner of property
784
Ch. 12] Incoepoeation of Paetnbeships, etc. [§373
If a conveyance by partners to a corporation formed by them is

fraudulent as to creditors, they may sue in equity to set the same
aside, or treat the conveyance as a nullity. The transfer is governed
by the same rules as other fraudulent conveyances.^^
Creditors who are alleged to have been parties to an agreement
under which partnership property was conveyed to a corporation are
necessary parties to a suit to set aside the conveyance as fraudulent.*^
And the corporation to which the partnership assets have been trans-
ferred is also properly made a defendant to a bill by creditors.^" '
But
has the same right as one who is sol- property, it was held that the ques-
vent to dispose of it by a sale or tion whether the corporation was
conveyance to secure a present informed by the members of the part-
debtedness, in the absence of an nership, and the partnership property
operating bankrupt act, when done transferred to it, to hinder, delay, and
bona fide and not with the covinous defraud the partnership creditors,
purpose of hindering or defrauding might be raised and submitted to the
creditors, and the presence of such jury upon proper evidence, and that,
purpose alike vitiates and avoids the ifsuch was the ease, the property was
conveyance made by either. When liable tobe taken on execu1;ion as the
the vitiating intent appears in the property of the partnership. Booth v.
instrument itself, the court ascertains Bunco, 33 N. Y. 139, 88 Am. Dec.
and adjudges the fact and no jury 372.
finding is necessary. But when the 28 Skinner v. Southern Grocery Co.,
fraud is to be inferred from surround- 174 Ala. 359, 56 So. 916; Booth v.
ing circumstances, and is not an ele- Bunco, 33 N. Y. 139, 88 Am. Dec. 372.
ment in the transaction, it must be "Where an insolvent partnership
found by a jury, and upon a proper makes a transfer of all of its assets
issue framed to the inquiry."
raise and good-will to a corporation created
National Bank of Maryland v. Hol- by the partners for that purpose, takes
lingsworth, 135 N. C. 556, 47 S. E. its pay in stock of such corporation,
618. assumes control as officers of such cor-
In a leading New York case the poration, and enters into the manage-
members of an embarrassed partner- ment of business, creditors of the
its
ship united in forming a corporation firm may
levy an attachment or execu-
under the general law, and then trans- tion on the property, or reach the
ferred to it all the property of the stock, or file a bill in equity to set
partnership. Afterwards a judgment the transfer aside. Hinkley v. Eeed,
creditor of the partnership issued an 82 111. App. 60.
execution on his judgment, and levied 29 National Broadway Bank v.
the same upon the property as the Yuengling, 58 Hun (N. Y.) 474, 12 N.
property of the firm, becoming the Y. Supp. 762.
purchaser at the sale under the execu- 30 Thus a corporation into which a
tion, and a judgment creditor of. the partnership had been merged is a
corporation afterwards levied his exe- proper party defendant to a bill by
cution upon the property as the prop- a trustee in bankruptcy to reach the
erty of the corporation. In an action value of certain goods alleged to
by the partnership creditor against have been transferred by the bank-
the corporation creditor for taking the rupt to the partnership in fraud of
785
I Priv. Corp. —50
the corporate existence of a de facto corporation cannot be attacked

when it is sought to set aside such a conveyance as fraudulent.'^
§ 374. Bights of corporation as to contracts of and debts due to

partnership or association. As a general rule a corporation does not
acquire any right to enforce contracts made with a partnership or
association, or to sue upon debts due to it, because of the mere fact
that the members of such partnership or association organize the
corporation.'^
There must be a consummated transfer of the partnership assets to
the corporation,'' and the only exception to the rule which exists, if
it may be termed an exception, is where equitable principles, or the
rule of estoppel, operate to give rise to the presumption of an assign-
ment.'*
his creditors and, upon the merger A corporation cannot recover on an

of the partnership and the corpora- agreement made by a partnership
tion, to have been transferred by the where it is not alleged or proved that
partnership to the corporation, which itsucceeded to the business of such
was composed of the same persons as partnership.Candee & Smith v. Ford-
the partnership and took over the as- ham Stone Renovating Co., 126 N.
sets and liabilities of the latter. Hol- Y. App. Div. 15, 110 N. Y. Supp.
loway & McEaney v. Brame, 83 Miss. 355.
335, 36 So. 1. 33 Werner v. Finley, 144 Mo. App.
Foster V. Hip Lung Ying Kee
SI 554, 129 S. W. 73.
& Co., 248 111. 163, 90 N. E. 375, aff'g Evidence held not to show that le-
148 111. App. 485. gal title to a claim for breach of con-
A bill filed by judgment creditors, tract was vested in a corporation,
alleging the formation of a corpora- since, although there was evidence of
tion to hinder, delay and defraud credi- an intention to transfer the partner-
tors, and stating that assets of a firm ship assets to pay up the capital stock
were assigned to said corporation, the of the corporation, there was no evi-
stock of which was parceled out to dence that such intention to transfer
the debtors and their wives, and pray- was actually consummated. Werner
ing that the formation of such cor- V. Fiuley, 144 Mo. App. 554, 129 S.
poration be declared fraudulent and W. 73.
void and that a receiver be appointed Thus it was held that where a
34
to sell and dispose of the assets, is not corporation formed from the members
demurrable as assailing the corporate of a lessee partnership for the pur-
organization, since such relief would pose of carrying on the partnership
be ancillary to the divestiture of the business brought suit in equity on the
title to property liable to the
the lease, the presumption might be in-
debts of the complainants. Metcalf v. dulged in that an assignment of the
Arnold, 110 Ala. 180, 55 Am. St. Eep. lease had been made to the corpora-
24, 20 So. 301. tion. It appeared, though, that the
82 See Werner v. Finley, 144 Mo. corporation had been treated as hav-
App. 554, 129 S. W. 73, and cases cited ing acquired all the rights of the
in notes to this section. firm, and while no express assignment,
786
Ch. 12] Incoepoeation of Paetneeships, etc. [§374
If claims or rights of an assignable nature are properly transferred,

the corporation may then sue thereon like any other assignee ; ^^ if a
contract acquired by a corporation which succeeds a partnership,
is
it is authorized to transfer such contract.^* The general rules per-

taining to assignments apply, and the corporation stands in no better
position than its assignor.*''
If a corporation succeeds to a partnership contract whereby an

inventor is obligated to transfer all patents owned and afterwards
made by him, to the company, such contract is enforceable by the cor-
either written or verbal, was shown conditional sale, combine to create a
in this ease, it was an equitable pro- corporation to hold the property, and
ceeding,and the intention of the origt- to which they transfer it, such asso-
nal lessees to make an assignment ciates being the only persons who
was sufficiently shown. B. Roth Tool have any substantial interest in the
Co. V. Champ Spring Co., 93 Mo. App. corporation, the corporation stands in
530, 67 S. W. 967. no better position than that in which
35 The partnership or association the associates stood. York Mfg. Co.
may assign its rights and claims to V. Brewster, 74 Fed. 566, citing Davis
the corporation, if they are of an Improved Wrought Iron Wagon Wheel
assignable nature, and the corporation Co. V. Davis Wrought Iron Wagon Co.,
may then sue thereon, like any other 20 Fed. 699.
assignee, at common law in the name And if a corporation adopts an
of the assignors, or in equity in its agreement of a partnership by which
own name, or at law in its own name, mortgage loans are to be collected
where there is a statute allowing suits without charge, it cannot subsequently
to be brought in his own name by the assert a right to compensation for
assignee of a chose in action. Grif- such services. North American Loan
fin's Ex'r V. Maeaulay's Adm'rs, 7 & Trust Co. V. Colonial & United
Gratt. (Va.) 476. States Mortgage Co., 83 Fed. 796.
Members of a firm who incorporate Where a corporation formed by and
for the purpose of continuing a busi- composed of the members of a part-
ness can assign a chose in action to nership takes a transfer of a note
such corporation. Lottman Bros. from the partnership, it is not in the
Mfg. Co. V. Houston Waterworks Co. position of a bona fide purchaser, and
(Tex. Civ. App.), 38 S. W. 357. the debtor, in an action thereon by
Where a corporation succeeded a the corporation, may interpose any
partnership, and
such corporation defense or claim which he might have
brought suit on a cause of action as- interposed in an action by the part-
signed to it, the suit was properly nership. McElwee Mfg. Co. v. Trow-
abated as to individuals joined as bridge, 62 Hun (N. Y.) 471, 17 N. Y.
plaintiffs who formerly composed the Supp. 3.
partnership. Lottman Bros. Mfg. Co. Where partners engaged in negoti-

V. Houston Waterworks Co. (Tex. Civ. ating loans formed a corporation to
App.), 38 S. W. 357. continue the business, and transferred
86 Brooks V. Bonner, — Tex. Civ. to it a note given in renewal of a
App. —
, 149 S. W. 564. note given by a borrower for a loan
37 Thus where associates, who hold procured by the partnership, it was
property subject to a lien or under a held, in an action by the corporation
787
poration,^* and when a corporation succeeds a partnership which is

the bailee of personalty, it has been held that such corporation is en-
titled to recover reasonable storage charges.^^
The fact that the partnership which was merged in a corporation
which took over by assignment all the property and rights of the
corporation had failed to comply with a state statute regulating the
use of fictitious names by partnerships, does not defeat the right of
the corporation to bring an action for the breach of one of the part-
nership contracts so assigned to it.*"
The obligations of third persons arising under a contract with a

partnership are not terminated or changed by the incorporation of
the partnership any more than would be the case if the contract had
been assigned to another person.*^
In regard to associations, if the action taken by the association to
create the corporation is sufficient to transfer the rights of members
to the corporation, it may enforce such rights, but not otherwise.**
Under a statute incorporating a voluntary association, and author-
izing the corporation to receive moneys due, and to receipt therefor,
on the note, that it was liable for illustratedby the case where a part-
usurious interest and commissions col- nership purchased a going business to-
lected on the note by the partnership. gether with the good-will, it being
Texas Loan Agency v. Hunter, 13 agreed by the sellers that they would
Tex. Civ. App. 402, 35 S. W. 399. not engage in the same business in
38 Bates V. Bates Maeh. Co., 120 111., the same city for three years. Before
App. 563, rev'd 230 111. 619, 12 Ann. that period elapsed, a corporation was
Cas. 174, 82 N. E. 911. organized and succeeded to the busi-
A contract by which a stockholder ness of the purchasing partnership,
in a corporation becomes an officer the majority of the stock being held
thereof by which he agrees to serve by the former partners. The sellers
as such officer and to assign to it all then entered into the prohibited busi-
inventions made by him in the future, ness, and, when an action was brought,
all for a single consideration, is not contended that they were released
terminated by the voluntary resigna- from their obligations because of the
tion of such stockholder as such of- organization of the corporation. It
ficer, in the absence of a provision in was held, however, that such conten-
the contract providing that such re- tion was untenable, and that they
sult should be accomplished by a resig- were liable for a breach of the con.
nation. Bates V. Bates Mach. Co., tract. Bradford & Carson v. Monfc
120 111. App. 563, rev'd 230 111. 619, gomery Eurniture Co., 115 Tenn. 610,
12 Ann. Cas. 174, 82 N. E. 911. 9 L. E. A. (N. S.) 979, 92 S. W. 1104,
39 Woodward v. San Antonio Trac- 42 Associate Alumni General Theo-
tion Co. (Tex. Civ. App.), 95 S. "W. 76. logicalSeminary of Protestant Epis-
40 Standard Sewing Maoh. Co. v. copal Church V. General Theological
New State Shirt & Overall Mfg. Co., Seminary, 26 N. Y. App. Div. 144, 49
42 Okla. 554, 141 Pac. 1111. N. Y. Supp. 745, aff'd 163 N. Y. 417,
41 This principle may be fittingly 57 N. E. 626.
788
Ch. 12] Incoeporation of Paetneeships, etc. [§ 375
and providing that such receipts might be given in evidence- in any

action to recover the debt, it was held that the receipts given were
valid discharges of such debts. It was not held, however, that the
corporation could maintain actions against the debtors of the asso-
ciation, or that the corporation was not liable to the members of the
association for 'the money collected by it, but the contrary was inti-
mated.*^
Where trustees of an academy erected by subscriptions are incor-
porated under an act providing that all land, money or property
subscribed shall be held in trust by the trustees and their successors
in office for the benefit of the academy, the corporation cannot main-
tain an action on the original subscription paper, since it was not
the promisee recognized by the subscribers, the promise was not ne-
gotiable, and had not been assigned to the corporation.**
§ 375. Liability of corporation on debts or contracts of partner-

—
ship or association In general. Considerable diversity of opinion
exists in the reported cases as to the liability of a corporation on the
debts or contracts of the partnership or association to which it suc-
ceeds. The lines of decision may be divided into three classes : Ac-
cording to one view, there must be an express assumption of the
debts or contracts. A second line of deciaons holds that the assump-
tion may be either express or implied. The doctrine of the third
class is that a presumption exists that the debts and contracts are
assumed, because of the receipt of the partnership assets.*' This di-
versity of opinion probably arises from a number of circumstances,
among which may be mentioned the difference of opinion as to
whether a dissolution of the partnership results from the creation of
the corporation,*® the differences arising out of the facts in the cases
involved, aswhere third persons unite with partners in organizing a
corporation and it is not improper to state that general propositions
;
found both in textbooks and adjudicated cases have also tended to

confusion. Thus, there are to be found in the reports and textbooks
expressions apparently sustaining the proposition that a corporation
which upon its organization succeeds to the business and property
of a partnership is from that fact alone chargeable with the liabilities
or indebtedness of the latter.*'' The strict accuracy of such state-
43 Scots Charitable Society v. Shaw, 46 See § 362, supra.

8 Mass. 532. Eeed Bros. Co. v. First Nat. Bank
47
44 Phillips Limerick Academy v. of Weeping Water, 46 Neb. 168, 64 N.
Davis, 11 Mass. 113, 6 Am. Dec^ 162. W. 701.
46 See §§376-379, infra.
789
ment may, however, be doubted, and, without attempting an exhaust-

ive review of the cases, it may be stated that the cases referred to
deal either with a state of facts in which liability was imposed from
the contract relation existing, or where the circumstances were such
as to warrant the finding that the corporation was a mere continuation
of the former firm.**
§ 376. — Express assumption of debts. According to one line of

authority it is held that since the corporation which succeeds a former
partnership is a distinct legal entity ,*8 the debts and contracts of the
48 See Eeed Bros. Co. v. First Nat. with. It is suflSeient that they may,
Bank of Weeping Water, 46 Neb. in our judgment, be thus classified:
168, 64 N. W. 701. (1) Cases in which the liability of the
'
' We "have not overlooked the class new corporation results, not from the
of cases, including Reed Bros. Co. v. operation of law, but from its con-
First Nat. Bank of Weeping Water, tract relation with {he old; (2) cases,
46 Neb. 168, 64 N. W. 701, holding like Hibernia Ins. Co. v. St. Louis &
newly-organized corporations liable at New Orleans Transp. Co., 13 Fed. 516,
common law for the debts of estab- in which the transfer of the property
lished corporations or firms to whose and franchise amount to a fraud upon
business, and franchises
property, the creditors of the old corporation;
they have succeeded. There are to (3) cases where, as in Eeed v. Bank,
be found in the reports and textbooks supra, the circumstances attending the
expressions apparently sustaining the creation of the new corporation, and
proposition that a corporation which, its succession to the business, fran-
upon its organization, succeeds to the chise, and property of the old, are
business and property of another cor- such as to raise the presumption or
poration or firm, is, from that fact warrant the finding that it is a mere
alone, chargeable with the indebted- continuation of the former, that it —
ness of the latter. It is, for instance, is, in short, the same corporate body
said by Mr. Beach, in his excellent under a different name. And the
work on the Law of Private Corpora- facts upon which such finding or pre-
tions (section 360), that 'where an sumption depends will not be pre-
old established corporation sells out sumed, but should affirmatively appear
to a newly-organized one, and turns from the pleadings and proofs." Aus-
over all of its property, the new com- tin v. Tecumseh Nat. Bank, 49 Neb.
pany becomes liable upon the debts 412, 35 L. E. A. 444, 59 Am. St. Rep.
and contracts of the old.' The strict 543, 68 N. W. 628, quoted in part in
accuracy of that statement may, we Curtis, Jones & Co. v. Smelter Nat.
think, be doubted, in view of the Bank, 43 Colo. 391, 96 Pac. 172.
omission therefrom of any reference 49 Moore & Handley Hardware Co.
to the purpose or character of the V. Towers Hardware Co., 87 Ala. 206,
transaction contemplated, or the con- 13 Am. Rep. 23, 6 So. 41; Pearce
St.
sideration therefor. We shall not at- V. Sutherland, 3 Alaska 303; Georgia
tempt a review of the cases cited in Co. V. Castleberry, 43 Ga. 187; Hait
the note accompanying the foregoing Pioneer Nurseries v. Coryell, 8 Kan.
text, or in the briefs submitted here- App. 496, 55 Pac. 514.
790
Ch, 12] Incokpobation of Pabtneeships, etc. [§376
partnership do not become the debts and contracts of the corporation,

unless they are expressly assumed by it.'"
To make the corporation liable for the debts of the partnership

there must be an assumption thereof by the corporation, and such
assumption must be based upon a sufficient consideration, just as
there must be a consideration for any other promise by one person
A corporation though of the same There are instances in which a cor-

name as a partnership transacting poration has been held liable for debts
the same business prior to the act of contracted before the date of the char-
incorporationis not the same person. ter, but it will, we think, be found
Bludwine Bottling Co. v. Crown Cork that these are where the debts
all cases
& Seal Co., 14 Ga. App. 285, 80 S. B. were contracted in the course of the
853; Schufeldt v. Smith, 139 Mo. 367, organization, as debts forming part
40 S. W. 887. of the expenses, or for the payment
60 United States. Lane & Bodley of the costs arising in procuring the
Co. V. Locke, 150 U. S. 193, 37 L. Ed. charter, or where the company has, in
1049. fact, received the consideration.
AlaiSka. Pearce v. Sutherland, 3 Georgia Co. v. Castleberry, 43 Ga. 187.
Alaska 303. No contract made with individuals,
Georgia. Greenberg-Miller Co. v. exclusively upon individual credit, will
Everett Shoe Co., 138 Ga. 729, 75 S. become the contract of any future
E. 1120; Culberson v. Alabama Const. corporation that may be formed for
Co., 127 Ga. 599, 9 L. R. A. (N. S.) the more convenient management and
411, 9 Ann. Cas. 507, 56 S. E. 765. use of the benefits of it, in the ab-
Kansas.Hart Pioneer Nurseries v. sence of bad faith in the creation of
Coryell, 8 Kan. App. 496, 55 Pac. 514. the corporation. Moore & Handley
Michigan. McLellan v. Detroit Pile Hardware Co. v. Towers Hardware
Works, 56 Mich. 579, 23 N. W. 321. Co., 87 Ala. 206, 13 Am. St. Eep. 23,
Minnesota. Church v. Church 6 So. 41.
Cementico Co., 75 Minn. 85, 77 N. W. Under an arrangement by which a
548. corporation succeeds to a partnership,
Nebraska. Austin v. Tecumaeh Nat. which provides that the creditors re-
Bank, 49 Neb. 412, 35 L. E. A. 444, nounce their claims against the part-
59 Am. St. Eep. 543, 68 N. W. 628. ners and allow the property to pass
Nevada. Paxton v. Bacon Mill & into the hands of the corporation, and
Mining Co., 2 Nev. 257, 260. expressly states that the debts of the
Wyoming. Durlacher v. Prazer, 8 partnership are assumed, it also ap-
Wyo. 58, 80 Am. St. Rep. 918, 55 Pac. pearing that the corporation by its
306. express vote passed in good faith un-
The great weight of authority holds dertakes to apply the earnings to such
that parties who undertake to organ- debts, the corporation is liable for
ize a corporation cannot bind the cor- the debts of the partnership. In re
poration by their contracts and Waterman 'a Appeal, 26 Conn. 96. See
agreements made before the company also Dingeldein v. Third Ave. E. Co.,
is incorporated. Tanner v. Sinola 9 Bosw. (N. T.) 79; National Bank of
Land & Fruit Co., 43 Utah 14, Ann. Maryland v. Hollingsworth, 135 N.
Cas. 1916 100, 134 Pae. 586. C. 556, 47 S. E. 618.
791
376] Pkivate Coepobations [Ch. 12
toanswer for the debt of another.*^ The fact that some of the obliga-
tions of the partnership are assumed does not tend to establish the
assumption of other debts,^^ and the corporation cannot be held
liable for torts, such as the negligence of the partners.^* The cor-
poration is not bound by the promise of its promoters,** and the acts
of its agents in assuming liability must be expressly authorized,**
although liability may be imposed to the extent of the property so
received, if it appears that the transaction is fraudulent as to
creditors.*®
Bl Georgia Co. v. Castleberry, 43 Ga. a directed verdict in favor of the

187; London v. Bynum, 136 N. C. 411, corporation was proper. Stewart v.
48 S. B. 764. See also National Bank Mynatt, 135 Ga. 637, 70 S. B. 325.
of Maryland v.Hollingsworth, 135 N. B4See §§150-156, supra.
C. 556, 47 S. B. 618. Where a voluntary company is
65
In Culberson v. Alabama Const. Co., incorporated, an agent of such cor-
127 Ga. 599, 56 S. E. 765, the court, poration cannot make a promise or
quoting in part from Lindley on Part- substitute a note of the corporation
nership, said: "A
corporation which for the note of the voluntary com-
lawfully acquires the property of a pany, unless expressly authorized by
partnership does not thereby become the vote of the corporation. White
liable for the partnership's -debts. V. Westport Cotton Mfg. Co., 1 Pick.
Partners own the firm property just as (Mass.) 215, 11 Am. Dec. 168.
individuals own their property, and, Bvidence held not to indicate previ-
'as the ordinary creditors of an in- ous authority or subsequent ratifica-
dividual have no lien on his property, tion of payment by an ofiicer of a
and cannot prevent him from dispos- note after a corporation assumed the
ing of it as he pleases, so the ordinary liabilities of a partnership. Hart
creditors of a firm have no lien on Pioneer Nurseries v. Coryell, 8 Kan.
the property of the firm so as to be App. 496, 55 Pac. 514.
able to prevent it from parting with Evidence held to warrant conclu-
that property to whomsoever it sion that oflScer.of corporation was not
chooses.' " authorized to pay all debts of part-
To make the company liable for nership out of earnings and assets of
the debts of the partnership, the same corporation, and was obligated to re-
formalities are required as to make turn excess paid without right. Lee
any individual liable for the debt of V. K. W. Steinhart Lumber Co., 66
another. Georgia Co. v. Castleberry, Wash. 572, 119 Pac. 1117.
43 Ga. 187. B8 Baker Furniture Co. v. Hall, 76
B2 Church v. Church Cementico Co., Neb. 88, 113 N. W. 267, 111 N. W.
75 Minn. 85, 77 N. W. 548. 129, 107 N. W. 117; Austin v. Teeum-
B3 Where a person was injured on a seh Nat. Bank, 49 Neb. 412, 35 L. E.
skating rink conducted by a partner- A. 444, 59 Am. St. Eep. 543, 68 N. W.
ship, and subsequently a corporation 628; National Bank of Maryland v.
was formed to which the property of Hollingsworth, 135 N. C. 556, 47 S. E.
the partnership was transferred, the 618.
corporation was not liable for the in- Where a corporation, organized by
jury, and in an action for negligence. the members of a partnership, passes
792
Ch. 12] Incokpoeation of Paetneeships, etc. [§376
The corporation may assume the contracts and debts of the partner-
ship,*''and there is no legal objection to such a contract.*^ When
the corporation purchases the business and assets of a firm and agrees
to assume its debts and liabilities, the promise to pay such debts is
founded on a sufBeient consideration.*^ It should be noted, however,
that if the corporation does not assume the partnership debts as part
a resolution to purchase the assets of Hun (N. Y.) 637, 6 N. Y. Supp. 459,
the partnership and assumes its in- and cases cited in notes following.
debtedness, it cannot, by a secret un- Where a corporation is formed, and
derstanding between the trustees that purchases the business and assets of
certain claims are not included, pre- a firm, the members of which compose
vent the creditor from following the the corporation in part, which busi-
firm 's assets into the hands of the ness is conducted as before the disso-
corporation. 'Williams v. Colby, 24 N, lution of the partnership, and the
Y. St. Eep. 793, 6 N. Y. Supp. 459. corporation, as a part of the considera-
No title passes by a fraudulent sale tion for the property and assets of
of property to a partnership, where the firm, assumes its debts and liabil-
the vendor is adjudged bankrupt, and ities,the promise to pay such debts
a corporation which succeeded to the is founded on a suflicient considera-
partnership and was composed of the tion, and a creditor of the firm may
same persons, taking the assets with maintain an action for his debt
full knowledge and assuming the against such corporation, especially
liabilities of the firm, was liable to when it still continues him in the
creditors of the bankrupt for the goods same employment out of which the
received. HoUoway & McEaney Co. debt has arisen. Shober & Carque-
V. Brame, 83 Miss. 335, 36 So. 1. ville Lithographing Co. v. Kerting,
B7Schufeldt V. Smith, 139 Mo. 367, 107 111. 344.
40 S. W. 887; Burke v. Lincoln-Val- Where a corporation assumed liabil-
entine Co., 28 N. Y. Misc. 202, 58 N. ities ofa partnership and signed the
Y. Supp. 1124. corporate name to renewals of notes
S8 Where a corporation is organized instead of the partnership name, its
and takes over real and personal prop- assumption of the partnership liability
erty belonging to a partnership in on the original notes was a considera-
payment of subscriptions to its capital tion for its undertaking to become a
stock, part of the consideration being party to the renewals. Johnson v.
an undertaking to pay certain of the Johnson Bros., 108 Me. 272, Ann. Cas.
partnership debts, there is no legal 1913 A 1303, 80 Atl. 741.
objection to such a contract. Lamkin In In re Waterman's Appeal, 26
v. Baldwin & Lamkin Mfg. Co., 72 Conn. 96, a firm which was largely in-
Conn. 57, 44 L. E. A. 786, 43 Atl. 593. debted proposed to convey all their as-
59 In re Waterman's Appeal, 26 sets, which exceeded their liabilities,
Conn. 96. See also Schufeldt v. Smith, to a corporation to be formed, which
139 Mo. 367, 40 S. W. 887; Bremen should assume their indebtedness, and
Sav. Bank v. Branch-Crookes Saw Co., pay the same from the earnings of
104 Mo. 425, 16 S. W. 209; Hall v. the property after paying certain
Herter Bros., 90 Hun (N. Y.) 280, 35 preferred stock for new capital.
N. Y. Supp. 769, afe'd 157 N. Y. 694, A was formed and the
corporation
51 N. E. 1091; Williams v. Colby, 53 property transferred, and at its first
793
377] Pbivate Cobpoeations [CL 12
of the purchase of the assets, such an assumption made subsequently

is a mere voluntary act, and is without consideration.^"
§377. — Assumption either express or implied. In some states

the rule has been established that if a solvent going business is trans
formed into a corporation, to which the partnership property i;;
transferred in exchange for shares of stock, there may be either an

^^
express or implied assumption by the corporation of the prior debts ;
and such agreement may be proven like any other fact by any com-
petent evidence which will establish the agreement.*^ Under this rule
the corporation has been held liable on the contracts of the partnership
meeting the corporation passed a vote forceable against the corporation, as

accepting the property and assuming there was evidence of intention on the
the debts of the firm, in accordance part of both parties that the contract
with the agreement with the firm's should be assumed, and that no formal
creditors. It was held that the cor- resolution or vote was required to
poration,having the power to as- make a binding obligation. But see
it
sume, on a valid consideration, the Dingeldein v. Third Ave. E. Co., 9
debts of the firm, did so by its votes Bosw. (N. Y.) 79, rev'd 37 N. Y. 575.
and the acceptance of the property, 82 Hall v. Herter Bros., 90 Hun (N.
and was liable for their payment. Y.) 280, 35 N. Y. Supp. 769, aff'd 157
60 Smith V. Bowker Torrey Co., 207 N. Y. 694, 51 N. E. 1091; Ziemer v.
Fed. 967. C. G. Bretting Mfg. Co., 147 Wis. 252,
61 v. Dean & Co., 85 N.
Brantigam Ann. Cas. 1912 D 1275, 135 N. W. 139;
J. L. 549,89 Atl. 760; Hall v. Herter Pratt V. Oshkosh Match Co., 89 Wis.
Bros., 90 Hun (N. Y.) 280, 35 N. Y. 406, 62 N. W. 84.
Supp. 769, aff'd 157 N. Y. 694, 51 N. In Schufeldt v. Smith, 139 Mo. 367,
E. 1091; id., 83 Hun (N. Y.) 19, 31 40 S. W. 887, a partnership of three
N. Y. Supp. 692; Burke v. Lincoln- members converted the partnership
Valentine Co., 28 N. Y. Misc. 202, 58 into a corporation. Later the cor-
N. Y. Supp. 1077; Ziemer v. C. G. poration made a deed of trust prefer-
Bretting Mfg. Co., 147 Wis. 252, Ann. ring certain creditors of the former
Cas. 1912 D 1275, 135 N. W. 139; partnership. In a suit by creditors of
Pratt V. Oshkosh Match Co., 89 Wis. the corporation to have this deed set
406, 62 N. W. 84. aside, the deed was upheld, but upon
In Hall Herter Bros., 83 Hun (N.
V. the ground that the evidence, estab-
Y.) 19, 31 N. Y. Supp. 692, a corpora- lished an agreement by the corpora-
tion succeeded a copartnership of the tion to take the firm property and
same name, the parties interested and assume its liabilities. The fact that
the nature and methods of conducting the corporation is distinct from the
the business being substantially iden- partnership to the business of which it
tical before and after incorporation. succeeds was recognized however. The
In reversing a dismissal of the com- question is a mixed question of law
plaint, the court held that under the and fact. Brantigam v. Dean & Co.,
circumstances of the case a contract 85 N. J. L. 549, 89 Atl. 760.
made with the copartnership was en-
794
Ch. 12] Incorpoeation of Partnerships, etc. [§378
with its employees,^' even where such corporation subsequently passed

into the hands of a receiver,^* and the rule has also been held
applicable where a corporation succeeds a voluntary association.®*
§ 378. — Presumption where others become stockholders. Where

the circumstances are such that the corporation is not a mere eqn-
tinuation of the partnership, and where there are other bona fide
stockholders than the original partners, there is no implied or pre-
sumptive assumption of the partnership debts.®® The general rule
that equity will not permit a corporation to receive all of the assets
eSBrantigam v. Dean & Co., 85 N. queville Lithographing Co. v. Kerting,

J. L. 549, 89 Atl. 760. 107 111. 344.
Where a corporation succeeded a 84 Where a corporation succeeding
partnership, but no notice was given a partnership passed into the hands of
to an employee, he could recover for a receiver who discharged an em-
services rendered the corporation. ployee, the corporationwas chargeable
Frankel v. Wathen, 58 Hun (N. Y.) with knowledge of the contract made
543, 12 N. Y. Supp. 591. Evidence held by a partner with the employee, and
to show assumption of contract with the corporation being substituted for
employee by corporation. Hall v. the firm under the agreement entered
Herter Bros., 90 Hun (N. Y.) 280, 35 into was bound by the contract with
N. Y. Supp. 769, aff'd 157 N. Y. 694, the employee. Baker v. D. Appleton
51 N. E. 1091. See also Burke v. Lin- & Co., 107 N. Y. App. Div. 358, 95
coln-Valentine Co., 28 N. Y. Misc. N. Y. Supp. 125.
202, 58 N. Y. Supp. 1076. 6B In an action for coal sold and
Where one employed by a firm to so- delivered, where the defendant, a cor-
licit orders continued in the employ- poration, had succeeded a charitable
ment until the firm ceased and was society, the formality of a resolution
organized as a corporation and after- by the defendant to pay the bills was
wards continued in the same busi- unnecessary, the parties to the cor-
ness for it without any new special poration being practically the same
contract, and there was evidence tend- parties to the negotiations which led
ing to show that the corporation, in to its formation. Thorn v. Volunteer
consideration of the business and as- St. Gregory Hospital, 59 N. Y. Mise.
sets of the firm being transferred to 442, 110 N. Y. Supp. 931.
it,assumed the debts of the firm, and 66 Byrne & Hammer Dry Goods Co.
promised the employee to pay him for V. Willis-Dunn Co., 23 S. D. 221, 229,
his services rendered to the firm, it 29 L. R. A. (N. S.) 589, 121 N. W.
was held, in an action by the em- 620; Swing v. Taylor & Crate, 68 W.
ployee against the corporation, that a Va. 621, 70 S. E. 373.
motion to strike out all the items in Paxton V. Bacon Mill & Mining
his bill of particulars for services Co., 2 Nev. 257. In this case, the pro-
rendered before the organization of prietors of a mine contracted an in-
the corporation was properly over- debtedness for the purpose of devel-
ruled, as he had a right to submit the oping it. Afterwards, with others,
question of the liability of the cor- they formed a corporation in which
poration for those services to a jury, they owned three-fourths of the stock,
upon the evidence. Shober & Car- and conveyed the mine to it for a
795
378] Peivate Coepoeations [Ch. 12
of an insolvent partnership in consideration of the corporate stock,

and hold such assets free from the claims of the partnership creditors,
does not apply where a corporation is formed by such partners, and a
third person, who, in good faith and in the well-grounded belief that
the partnership debts are satisfied, invests a large sum of money in
such reorganization and receives corporate stock therefor; but the
creditors will be permitted to seize only the partners' interest in
said corporation to satisfy such debts.^''
§ 379. — Fresumpjiion from receipt of assets of partnership. Ac-

cording to another line of cases, no express agreejnent need be shown,
but a corporation formed by and consisting of the members of a
partnership, which takes a conveyance or assignment of all the assets
of the partnership for the purpose of continuing the business, is
presumed to have assumed the partnership debts and is prima facie

liable therefor.^' Thus, the corporation is liable for the debts, if it
appears that it succeeds to a partnership which is in failing cireum-

valuable consideration. It was held by Co., 199 Fed. 344; York Mfg. Co.
that the corporation was not liable V. Brewster, 174 Fed. 566; Du Vivier
for the indebtedness without a prom- & Co. v. Galilee, 149 Fed. 118.
ise to pay it. See also Durlacher v. Colorado. Curtis, Jones & Co. v.
Frazer, 8 Wyo. 58, 80 Am. St. Eep. Smelter Nat. Bank, 43 Colo. 391, 96
918, 55 Pac. 306. Pac. 172.
In Dingeldein v. Third Avenue E. Missouri. Bremen Sav. Bank v.
Co., 9 Bosw. (N. Y.) 79, rev'd 37 N. Y. Branch-Crookes Saw Co., 104 Mo. 425,
575, a corporation was created to op- 16 S. "W. 209.
erate a railroad which had been car- Nebraska. Baker Furniture Co. v.
ried on by an unincorporated associa- Hall, 76 Neb. 88, 113 N. "W. 267, 111
tion, and received a conveyance of N. W. 129, 107 N. W. 117; Reed Bros.
the property of the association which Co. V. First Nat. Bank of Weeping
was subject to a payment which the Water, 46 Neb. 168, 64 N. W. 701.
association had agreed to make to North Dakota. Hennessy v. Griggs,
plaintiff for building a sewer, but 1 N. r>. 52, 44 N. W. 1010.
which contained no covenant to pay Ohio. Andres v. Morgan, 62 Ohio
it. The plaintiff continued the work St. 236, 243, 78 Am. St. Eep. 712, 56
with the knowledge of the corpora- N. E. 875.
tion, and without any objection on its South Carolina. Haslett's Ex'rs v.
part. It was held that this was not Wotherspoon, 1 Strobh. Eq. 209.
alone enough to make the corporation South Dakota. Byrne & Hammer
liable for the work, but that there Dry Goods Co. v. Willis-Dunn Co., 23
must have been a novation of the S. D. 221, 29 L. E. A. (N. S.) 589, 121
contract, or a new promise by the N. W. 620.
corporation. See cases cited in Texas. Modern Dairy & Creamery
§§375, 377, supra, Co. V. Blanke & Hauk Supply Co.
67 Hall V. Baker Furniture Co., 86 (Tex. Civ. App.), 116 S. W. 153; Texas
Neb. 389, 125 N. W. 628. Loan Agency v. Hunter, 13 Tex. Civ.
88 United States. In re A. G. Cros- App. 402, 35 S. W. 399.
796
Ch. 12] Incokpokation of Pabtnekships, etc. [§379
stances,^^ or where the facts are such as to justify a finding that it is

a mere continuation of the partnership,'''* but the facts upon which
such finding depends will not be presumed, but should afSrmatively
appear from the pleadings and proof.''^ The rule is in accordance
West Virginia. Swing v. Taylor & show that there had been an aban-
Crate, 68 W. Va. 621, 70 S. E. 373. donment of its voluntary character.
"A partnership is a quasi legal en- The of&cers, membership, name, seal,
tity. It owns property and has liabili- by-laws and constitution remained the
ties as such. Its creditors have a same, but all the funds, books, records
right to the payment of their claims and other assets were taken over by
from the partnership assets in prefer- the corporation. The corporation
ence to individual creditors, and have then sought to escape liability for all
in equity a lien on the assets of the death claims which had matured at
firm, that may be worked out through the time of the change, but it was
the partners. So that, when the part- held that such a position was not
ners transferred all the property of founded in equity and fair dealing,
the firm to the company, the partner- and was not a defense to be allowed,
ship was and the rights of
dissolved, unless the strict rules of the law com-
its followed the partners
creditors pelled its allowance. Chicago City
and the property into the corporation, Ey. Employees' Mut. Aid Ass'n v.
and it was bound, to discharge the Hogan, 124 111. App. 447.
debts of the partnership, having re- 69 Eeed Bros Co. v. First Nat. Bank
ceived the property of the partner- of Weeping Water, 46 Neb. 168, 64
ship on which it had obtained credit. N. W. 701.
It could not retain the property and 70 Curtis, Jones & Co. v. Smelter
repudiate the liability." Andres v. Nat. Bank, 43 Colo. 391, 96 Pac. 172;
Morgan, 62 Ohio St. 236, 78 Am. St. Hall v. Baker Furniture Co., 86 Neb.
Rep. 712, 56 N. B. 875. 389, 125 N. W. 628; id., 76 Neb. 88, 93,
It should be noted in the case of 113 N. W.
267, 111 N. W. 129, 107 N.
Andres v. Morgan, 62 Ohio St. 236, W, Austin v. Tecumseh Nat.
117;
78 Am. St. Eep. 712, 56 N. E. 875, that Bank, 49 Neb. 412, 35 L. E. A. 444,
the facts found were only consistent 59 Am. St. Eep. 543, 68 N. W. 628;
with an express understanding that Eeed Bros. Co. v. First Nat. Bank of
the debts of the partnership were to Weeping Water, 46 Neb. 168, 64 N.
be assumed and paid by the corpora- W. 701.
tion. In Austin v. Tecumseh Nat. Bank,
Where a corporation succeeded a 49 Neb. 412, 35 L. E. A. 444, 59 Am.
partnership and had the same name, St. Rep. 543, 68 N. W. 628, a creditor
the partners being the principal stock- failed to recover judgment against
holders and managers of the corpora- the new corporation, but the decision
tion, it was chargeable with interest was based upon the ground that the
and commissions collected by the part- petition failed to state a cause of
ners on a usurious note. Texas Loan action, there being a failure to recite
Agency v. Hunter, 13 Tex. Civ. App. certain necessary allegations as to the
402, 35 S. W. 399. interests acquired by the new cor-
A voluntary association engaged in poration.
the life insurance business became in- 71 Curtis, Jones & Co. v. Smelter
corporated, but nothing was done to Nat. Bank, 43 Colo. 391, 96 Pac. 172;
797
—
with the tendency of decisions to disregard the mental conception

that a corporation is an entity separate from its corporators, as in
many instances it is simply a "stumbling block" in the way of doing
justicebetween real persons.'*
In some of the decisions which sustain the doctrine that the assump-
tion of liability by the corporation will be presumed from the receipt
of the partnership assets, it is pointed out that in a strict sense a
sale of the partnership assets does not take place,'^ and that if there is
a purchase in fact by a new company from an old one, there is no lia-
bility of the new corporation for the debts of its predecessor unless
assumed as part of the consideration.''*
The rule of conclusive presumption of liability has been held not
to obtain where the purchase of the partnership assets does not in-
clude all but only a part of the assets, even though the partners
formed the corporation to continue the partnership business.'* In
Austin V. Teeumseh Nat. Bank, 49 same property and rights, he con-

Neb. 412, 35 L. R. A. 444, 59 Am. St. tracted with in the first instance;
Eep. 543, 68 N. W. 628; Reed Bros. Co. and to construe the transaction, as
V. First Nat. Bank of Weeping Water, to creditors, as a purchase, tends to
46 Neb. 168, 64 N. W. 701. operate a fraud on their rights. Every
72 Andres v. Morgan, 62 Ohio St. purchase implies tw^ distinct per-
236, 78 Am. St. Rep. 712, 56 N. E. 875; sons, — a buyer and [a] seller. It is a
Swing V. Taylor & Crate, 68 W. Va. moral impossibility for one person to
621, 70 S. B. 373. buy of, or sell to himself." Andres
73 Andres v. Morgan, 62 Ohio St. V. Morgan, 62 Ohio St. 236, 78 Am.
236, 78 Am. St. Rep. 712, 56 N. E. St. Eep. 712, 56 N. E. 875.

875; Swing v. Taylor & Crate, 68 W. 74 Andres v. Morgan, 62 Ohio St.
Va. 621, 70 S. E. 373. 236, 78 Am. St. Eep. 712, 56 N. E.
"Where a mere transformation is 875; Swing v. Taylor & Crate, 68 W.
—
had, parties remaining the same, Va. 621, 70 S. E. 373.
and the property is transferred by 7B Campbell v. Farmers & Mer- '
the members of the old company chants ' Nat. Bank, 49 Neb. 143, 68
transferring their interest in it for N. W. 344, in which case the court
an equal interest in it as property of said: "There are authorities which
the new, the transaction does not hold that where the stockholders of a
constitute a sale by the one and a corporation organize a new one, and
purchase by the other. It is simply appropriate all the assets of the old
a change in the manner and form of corporation, and continue its business,
carrying on the same business by the such acts afford conclusive evidence
same persons; and, brushing aside the that the new corporation, by its con-
fiction of a legal entity, it is seen that duct, assumed the liabilities of the
no real change has taken place, and old one. Such are Hibernia Ins. Co.
that, in looking to the new formation V. St. Louis & New Orleans Transp.
for payment, the creditor looks to Co., 13 Fed. 516; Brum v. Merchants'
the same persons, possessed of the Mut. Ins. Co., 16 Fed. 140; Slattery
798
Ch. 12] iNCOBPOKATIOlf OF PaBTNEESHIPS, ETC. [§380
such case, the facts at most merely raise a rebuttable presumption

that the new corporation assumed the liabilities.''^
§ 380. — Running accounts ; mechanic's lien. Under the rule that

there must be an express assumption of partnership debts to render a
corporation liable, the mere introduction of books of account of the
corporation, which were also used by the partnership prior to the act
of incorporation, showing the partnership account continued therein
without more, is not sufficient proof of the account to render the
corporation liable for that part of the account which was contracted
prior to incorporation.''"'' The question of dissolution of the partner-
ship and notice to firm creditors arises in this connection. Thus, if
the corporation uses the books of the partnership, and bills are made
out to it as before, and no notice of the changed relation is given, the
corporation will be estopped from denying its liability.''* But there
V. St. Louis & New Orleans Trahsp. it appears that a corporation took the
Co., 91Mo. 217, 4 S. W. 79. But we assets of a partnership and continued
have not been cited to any authority, to pay the debts of the latter and to
nor have we been able to find a case, conduct the business just as before,
which holds that the purchase of part using the books of the partnership
of the assets of a copartnership or and continuing the various running
corporation by a new corporation or- accounts without a break, such cor-
ganized by the members of the old poration was estopped from setting up
corporation or copartnership raises a defense founded on the change from
a conclusive presumption against the a partnership to a corporation. Beid
new corporation that by its purchase V. F. W. Kreling's Sons' Co., 125 Cal.
it assumed, and became liable for, the 117, 57 Pac. 773.
debts of the old corporation or co- When partners have dealt as such
partnership, notwithstanding the fact with a seller, and, after becoming in-
that the new corporation engaged in, corporated, continue to deal as before,
and continued to carry on, the busi- having their bills made in the same
ness in which the old corporation or way, without giving any notice of
copartnership had been engaged." their altered condition, they will con-
76 Campbell v. Farmers & Mer- ' tinue to be liable as partners, unless
chants Bank, 49 Neb. 143, 68 N. "W.
' the seller haveknowledge of the
344, citing Eeed Bros. Co. v. First Nat. change derived from some other
Bank of Weeping Water, 46 Neb. 168, source. Whether the plaintiff had
64 N. W. 701. In this case the tes- such notice or knowledge is a question
timony was overwhelming that only of fact for the jury. Martin v. Fewell,
a portion of the liabilities of an old 79 Mo. 401.
bank was assumed by the new cor- In an action for goods sold and de,-
poration. livered, where it appeared that a part-
77Bludwine Bottling Co. v. Crown nership established a branch ofllce,
Cork & Seal Co., 14 Ga. App. 285, 80 and such partnership was subsequent-
S. B. 853. ly incorporated, and the corporation
78 In an action for goods sold, where sought to escape liability on the
799
§ 380] Peivate Cobpobations [Ch. 12
isno corporate liability where there is no plea or proof of an estoppel,

even though the accounts stated refer to the indebtedness of the
partnership, when there is nothing in such accounts as rendered nor
in the manner in which they are rendered to call the corporation's
attention to any claim against if'
When by the members of a partnership as-
a corporation formed
sumes liability under a contract made by the partnership, under which
work has been done or materials furnished to the partnership and
under which work is continued or further materials furnished to the
corporation, and makes a general payment on account, the creditor
may apply the payment to such items as he may choose; and it can
make no difference that a person who was not a member of the firm
is a stockholder in the corporation."* It has been held, however, that
in such a case there not a continuing account beginning with the
is
firm and ending with the corporation, so as to allow the creditor to file
a single statement for a mechanic's lien, but that separate liens must
be filed.*^ Where a corporation is the assignee of a lease and has
possession of a building when improvements are made by a sub-
contractor who claims a mechanic's lien, such corporation must be
made a party to the lien proceedings. If there is no holding out as
a partnership, or deception, the subcontractor is notexcT:ised from
making the corporation a party by the fact that there was no apparent
change of possession or ownership of the property.'^
§381. —
Statute of frauds. According to some authorities, the
promise by the corporation to pay the debts of a partnership, to which
it succeeds, is a promise to answer for the debts of another, and under
the statute of frauds a memorandum thereof must be in writing and

signed by the party to be charged, or by agent expressly authorized,
its
or it must be shown that the corporation has received the considera-

tion for which the indebtedness was incurred.*^ The vote of the
ground that a partner having charge 79 Stimson Mill Co. v. Hughes Mfg.
of a branch office was alone respon- Co., 8 Cal. App. 559, 97 Pac. 322.
sible, it was proper to show the history 80 Allen v. Frumet Mining & Smelt-
of the entire accounts, the transfer ing Co., 73 Mo. 688.
to the corporation, and whether there 81 Allen v. Frumet Mining & Smelt-
waa any agreement which would re- ing Co., 73 Mo. 688.
lease partnership for debts in-
the 82 Eees v. Wilson, 50 Wash. 339, 97
curred. In such ease, an inquiry to Pae. 245.

a' witness who was familiar with the 83 Georgia Co. v. Castleberry, 43 Ga.
business which concerned to whom 187; Bludwine Bottling Co. v. Crown
the goods were sold, was proper. Hoop- Cork & Seal Co., 14 6a. App. 285, 80
er V. Hartwell, 12 Colo. App. 161, 54 S. E. 853.
Pac. 864.
800
Ch. 12] Incoepokation of Paetneeships, etc. t§382
directors duly recorded is a sufficient memorandum, and the signature

of the recording officer in attestation of the minutes is a sufficient
signing by the party to be charged,^* precluding the use of the statute
as a defense.** Other authorities hold that the promise of the cor-
poration is not a promise to pay the debt of another within the statute,
but is a promise to pay its own debt to the partnership, by assuming
to pay the debts of the partnership owed to others.*®
It has also been held that the statute does not apply where there is
a novation and the liability of the original debtor is extinguished,*''
or where the promisor receives property of the original debtor out of

which to pay the debt, since in such case the promise is original,
based upon the receipt of the property. This rule has been held to
apply where a corporation assumes the payment of all the debts of
a partnership, ajid has received The matter of the
its property.**
applicability of the statute of frauds however, a subject somewhat
is,
without the scope of this work, and need not be further discussed.**
§ 382. —
Effect of assumption of debts by corporation. The as-
sumption of the partnership debts operates to make the corporation
the debtor, subject to an action by creditors,*" and if the corporation
!4Lamkin v. Baldwin & Lamkin 14 Ga. App. 285, 80 S. E. 853; Mc-

Mfg. Co., 72 Conn. 57, 44 L. E. A. 786, Craith v. National Mohawk Valley
43 Atl. 593. Bank, 104 N. Y. 414, 10 N. E. 862;
Where a corporation succeeds a
85 Ackley v. Parmenter, 98 N. Y. 425, 50
partnership and by a vote in writing Am. Rep. 693; Wait v. Wait's Ex'r,
agrees to pay the debts of the part- 28 Vt. 350.
nership, such debts being assumed up- In a suit for damages against a
on a new and original consideration, partnership and the corporation which
the statute of frauds cannot be urged succeeded it, where such partnership
by the corporation as an objection to was guilty of fraud in selling goods
the assumption of the debts. In re for the plaintiff, and the corporation
Waterman's Appeal, 26 Conn. 96. had expressly assumed all liabilities
86Schufeldt V. Smith, 139 Mo. 367, of the partners, the statute of frauds
40 S. W. 887; Leckie v. Bennett, 160 was not available as a defense, since
Mo. App. 145, 141 S. W. 706. the corporation accepted and held the
87 Curtis V. Brown, 5 Cush. (Mass.) property, conveyed upon condition.
488; Meriden Britannia Co. v. Zingsen, Forbes v. Thorpe, 209 Mass. 570, 95
48 N. Y. 247, 8 Am. Eep. 549; Teeters N. E. 955.
V. Lamborn, 43 Ohio St. 144, 1 N. E. 89 See works on contracts, and on
513; Goodman v. Chase, 1 Barn. & the statute of frauds.
Aid. 297. 90 Leckie v. Bennett, 160
Mo. App.
88 Calumet Paper Co. v. Stotts In- 145, 41 S. W. Paxton v. Bacon
706;
vestment Co., 96 Iowa 147, 59 Am. St. Mill & Mining Co., 2 Nev. 257.
Eep. 362, 64 N. W. 782. See Bludwine Where a conveyance of property to
Bottling Co. V. Crown Cork & Seal Co., a corporation was upon the express
801
I Priv. Corp. —51
§382] Pbivate Corporations [Ch. 12
assumes the payment of partnership debts when it is organized, it

cannot thereafter repudiate its agreement.'^ The obligations of the
corporation in this regard must be fulfilled, even when it passes into
the hands of a receiver.'^
§ 383, — Priorities of creditors. A creditor of a partnership, as

such, has no lien on the partnership assets, nor any equity therein
independent of the equity of the partners,^^ and the transfer of part-
nership property to the corporation operates to terminate the interests
of the partners.'* It follows that the right of firm creditors to have
the property or the proceeds of the sale applied first to the payment
of their demands is also terminated, and the proceeds will be the
individual property of the partners.®* Where the members of a part-
nership entered into an agreement to transfer the firm property to a
corporation for shares of stock to be issued to the partners in certain
proportions, but before the contract was fully consummiited one of
the partners died and a debt of the firm was proved against his
estate, it was held that the stock issued to the deceased partner was
not partnership property, and the creditor of the firm was not entitled
condition that it assume and pay all fulfil the obligations of the corpora-
incurred by partners, and it
liabilities tion so far as he has assets which are
appeared that such partners had de- equitably applicable to the purpose.
frauded another, the contract being Lamkin v. Baldwin & Lamkin Mfg.
for the benefit of creditors, the lat- Co., 72 Conn. 57, 44 L. K. A. 786, 43
ter might enforce in equity the rights Atl. 593.
of the partners to compel the cor- 93 Culberson v. Alabama Const. Co.,
poration to perform its agreement. 127 Ga. 599, 9 L. E. A. (N. S.) 411, 9
Forbes v. Thorpe, 209 Mass. 570, 95 Ann. Cas. 507, 56 S. E. 765; Deusmore
N. E. 955. Commission Co. v. Shong, 98 Wis. 380,
91 Schuf eldt V. Smith, 139 Mo. 367, 74 N. W. 114.
40 S. W. 887. 94McGowan v. American Pressed
A corporation which has agreed to Tan Bark Co., 121 U. S. 575, 30 L. Ed.
pay the partnership debts and which 1027.
has received the partnership property A transfer of the partnership prop-
cannot avoid payment because the erty free from fraud cuts off such
amount of debts was misrepresented. equity of the partners, and the equity
Forbes v. Thorpe, 209 Mass. 570, 95 of the creditors, which depends upon
N. E. 955. it, falls at thesame time by the same
92 A receiver of a corporation which act. Densmore Commission Co. v.
took over property of a partnership Shong, 98 Wis. 380, 74 N. W. 114. See
in payment of subscription to its capi- §367, supra.
tal stock, part of the consideration 9B Singer, Nimick & Co. v. Carpen-
being an undertaking to pay certain ter, 125 111. 117, 17 N. B. 761, aff'g 26
of the partnership debts, is bound to 111. App. 28.
802
Ch. 12] Incobpokation of Paetnebships, etc. [§ 384
to \\&\e the proceeds of such stock applied in payment of his claim,

to the exclusion of individual creditors of the deceased partner."
It has been held that where partnership debts are assumed upon
sufficient consideration, upon corporate insolvency the corporate debts
*''
are not entitled to preference over debts of the partnership ; but
in another case it was held that the corporate debts should be paid
before the partnership debts, since the transfer of the partnership
property created no specific charge in terms upon the property con-
veyed.^^ And if the corporation has not agreed to pay the partner-
ship debts, creditors of such corporation are entitled to full payment
of their claims before creditors of the partnership can be paid."
Where a corporation assumes the debts of a partnership theretofore
carrying on the business, the fact that the partners afterwards give
their notes for the indebtedness does not relieve the corporation from
liability, by the corporation.^
so as to prevent a preference thereof
Where a corporation succeeds a partnership, and subsequently an
assignment for the benefit of creditors is made by the partnership,
and the result of the proceedings is such as to place the entire prop-
erty of the firm in the hands of a receiver for equal distribution, it
has been held that the court will not disturb the arrangement in
order to work out a preference for a judgment creditor, the trans-
action not being fraudulent.^
§ 384. Liability of partners or members on contracts and for debts.

Members of a partnership which becomes incorporated remain liable as
96 Singer, Nimick & Co. v. Carpen- 99 Thorpe v. Pennock Mercantile

ter, 125 111. 117, 17 N. E. 761, aff'g 26 Co., 99 Min. 22, 9 Ann. Cas. 229, 108
111. App. 28. . N. W. 940.
97 London v. Bynum, 136 N. C. 411, 1 Johnston v. Gumbel (Miss.), 19
48 S. E. 764. So. 100.
98 Where a corporation took over Under a statute authorizing pref-
the property of a partnership in pay- erence to creditors on the part of a
ment of subscriptions to its capital debtor, it has been held competent for
stock, also undertaking to pay certain one who owed debts to organize a
of its partnership debts, and such cor- corporation and transfer to it his
poration afterwards contracted debts property in exchange for the stock,
of its own, such debts were to be satis- and then liquidate a^ particular claim
fied in full before anything could be by transfer of stock of the corpora-
paid on the partnership debts, it ap- tion, the
transaction being in good
pearing that the transfer created no faith. Gardner v. Haines, 19 S. D.
specific charge in terms upon the prop- 514, 104 N. W. 244.
erty conveyed. Lamkin v. Baldwin & 2 Tradesmen 's Nat. Bank of City of
Lamkin Mfg. Co., 72 Conn. 57, 44 h. New York v. Young, 15 N. Y. App.
B. A. 786, 43 Atl- 593. Div. 109, 44 N. Y. Supp. 297.
803
§384] Pkivate Coepobations [Oh. 12
partners on all contracts and for all debts made or incurred by them
while they were doing business as partners, unless they are released
from liability,^ and this is true although the other party to the con-
tract may have known that the partnership articles provided for incor-
poration.* If third persons associate in good faith with partners
and invest money in the corporation which is being organized, believ-
ing that the partnership debts are paid, creditors will not be per-
mitted to seize the interests of such third persons, but will be limited
to the partners' interests.'*
By the weight of authority, partners who, intending to form a
corporation, subscribe for stocTi, establish the business and appoint a
superintendent, are liable as partners on a contract made by him
before they signed articles of association,^ unless the other party is
estopped by reason of contracting with them as a corporation.' If
there is a bona fide transfer of the partnership property to the cor-
poration and a merger of such partnership in the corporation, and all
parties concerned act on the faith of such merger, the creditors cannot
subsequently revive their claim against the partners.*
Where partners guaranty a promissory note transferred as part
SMcLellan v. Detroit File Works, the latter cannot afterwards be held
56 Mich. 579, 23 N. W. 321; Schufeldt liable. See Whitwell v. Warner, 20
V. Smith, 139 Mo. 367, 40 S. "W. 887; Vt. 425, where a creditor of a part-
Haslett's Ex'rs v. Wotherspoon, 2 nership allowed his account to be
Eich. Eq. (S. C.) 395; Broyles v. transferred to the corporation, and
McCoy, 5 Sneed (Tenn.) 602. then continued a long running account
"It does not change the case, that with the corporation.
the members of the company had it 4 Witmer v. Schlatter, 2 Eawle (Pa.)
in view to procure a future act of in- 359.
corporation, when it was first «Hall V. Baker Furniture Co., 86
formed." Broyles v. McCoy, 5 Sneed Neb. 389, 125 N. W. 628.
(Tenn.) 602. See also Baker Furni- 6 Martin v. Fewellj 79 Mo. 401.
ture Co. V. Hall, 76 Neb. 88, 113 N. W. 7 See § 334, supra.
267, 111 N. "W. 129, 107 N. "W. 117; 8 Whitwell v. Warner, 20 Vt. 425, in
Paxton V. Bacon Mill & Mining Co., 2 which case the court said: "It is
Nev. 257. claimed, that the defendants are liable
After the assumption by the corpo- for the balance, which was due from
ration of the partnership indebtedness, the old partnership, which was pro-
a creditor can hold the corporation as fessedly merged in the corporation.
well as the members of the partner- If this be so, confessedly con-
it is
ship and enforce his debt against trary to the expectation of all parties
either of them, unless a contract of concerned, for many years, during
novation has been formed. Leckie v. which time the members of the old
Bennett, 160 Mo. App. 145, 141 S. "W. firm, some of whom never became
706. members of the corporation in any
If the debt is assumed by the cor- other sense than by having been mem-
poration and the partners released, bers of the former partnership, con-
804
'
Ch. 12] Incoepoeation of Paetnerships, etc. [§ 384
of the partnership assets, they remain liableeven though the note

has been renewed by the corporation.^ In such case, a compromise
and settlement of the liability of the partnership by the managing
officers of the corporation who were formerly the partners would not
be binding upon the corporation so as to discharge the guaranty,
unless the settlement was authorized or ratified by the other stock-
holders, or unless under the settlement the guarantors paid the full
amount due the corporation under the guaranty.^" Excessive
amounts paid to partners by the corporation, or withdrawn by them,
may be recovered by a receiver for the corporation for the benefit of
creditors.^^
A person who seeks relief from liability as a member of an associa-
tion on the ground that such association is a corporation has the
burden of showing the existence of the corporation.^''
Members of an incorporated religious society are not personally
liable on an execution against the society itself,^* and when an ecclesi-
astical corporation is formed by a voluntary association of individuals,
the property of members of the voluntary incorporated company is
not liable for the debts of the corporation.^*
Elsewhere in this work is discussed the difference as to the effect
of irregularitiesand omissions between the case where a corporation
is created by special charter, and there have been acts of user, and
the case where individuals seek to form themselves into a corporation

under the provisions of a general law.^*
tinued to act in the faith of the lOLeonhardt v. Citizens' Bank of

merger of all their property and lia- Ulysses, 56 Neb. 38, 76 N. W. 452.
billties in the corporation, and of the 11 Hoey Fechtenberg, 56 N. T.
v.
utter extinction of the partnership Misc. 576, 106 N. Y. Supp. 1090.
and the final settlement of all its con- 12 Abbott v. Omaha Smelting & Ee-
cerns. This was in fact known to the fining Co., 4 Neb. 416.
plaintiffs, or might have been aseer- Defendants who act together for
tained upon the slightest inquiry; and, the benefit of a society cannot con-
in addition, there is not the most re- tend that they are a corporation,
mote ground of belief, that the plain- where such fact does not appear from
tiffs have ever acted upon the faith the declaration or pleadings, and
of any such balance against the part- where the covenant sued on has their
nership still remaining unpaid. Their private seals affixed to it. Ernst v.
whole conduct, from the first to the Bartle, 1 Johns. Cas. (N. Y.) 319.
last, gives a positive denial to the See generally Chap. 14, infra,
belief in the existence of any such 13 Eichardson v. Butterfield, 6 Cush.
liability on the part of the defendants, (Mass.) 191.
as partners, as is now claimed. '
14 Jewett v. Thames Bank, 16 Conn.
9Leonhardt v. Citizens' Bant of 511.
Ulysses, 56 Neb. 38, 76 N. W. 452. IB See Chap. 10, supra.
805
§ 385. Rights of partners or members of associations inter se and

against the corporation. It is fundamental that the corporation is
a separate and distinct entity from the partnership.'*
No mere intention on the part of in interest to be independent of statu-

the members of an unincorporated tory control, cannot be recognized,
association, to be a corporation, will enforced, or perpetuated by the court
suffice to restrict their individual of chancery in this state. It is funda-
liability to that imposed by the stat- mental that, no matter how the shares
ute upon corporation shareholders. of stock are held, the corporation itself
Martin v. Fewell, 79 Mo. 401. is an entity wholly separate and dis-
If they were already a partnership tinct from the individuals who com-
before the attempt to form a corpora- pose and control it. The complainant
tion, they would not, by the failure of and the defendant, though owning the
this attempt, cease to be a partner- entire capital stock of the two cor-
ship; but the attempt failing, the porations, are not, as expressed by
partnership continued; and, so far at Chief Justice Waite in the leading
least as any question of the owner- case of Pullman's Palace Car Co. v.
ship of property acquired is involved, Missouri Pacific Ey. Co., 115 U. S. 587,
they must still be considered as part- 6 Sup. Ct. 194, 29 L. Ed. 499, 'the cor-
ners without the additional rights poration, in the sense of that term as
which an act of incorporation would applied to the management of the
give. Whipple v. Parker, 29 Mich. corporate business or the control of
369. the corporate property.' The law
18 Sternberg v. Wolff, 56 N. J. Eq. never contemplated that persons en-
389, 39 L. R. A. 762, 67 Am. St. Eep. gaged in business as partners may
494, 39 Atl. 397; Einstein v. Eosen- incorporate, with intent to obtain the
feld, 38 N. J. Eq. 309. Thus in Jack- advantages and immunities of a cor-
son V. Hooper, 76 N. J. Eq. 592, 27 porate form, and then, Proteus-like,
L. E. A. (N. S.) 658, 75 Atl. 568, it was become at will a copartnership or a
said: "It is claimed, however, that corporation, as the exigencies or pur-
these owners of all the stock were poses of their joint enterprise may
really copartners, doing business in from time to time require. The policy
corporate form for their own conven- of the law is to the contrary. If the
ience, and that a court of equity has parties have the rights of partners,
the power to control the property and they have the duties and liabilities
affairs of the companies even to the imposed by law, and are responsible
extent of eliminating the corporate in solido to all creditors. If they
functions and powers as mere inci- adopt the corporate form, with the
dents, and wholly disregarding the corporate shield extended over them
substantive law governing the crea- to protect them against personal lia-
tion, supervision, and dissolution of bility,they cease to be partners, and
corporations. We cannot subscribe to have only the rights, duties, and obli-
any such doctrine. An agreement or gations of stockholders. They cannot
course of dealing by which corpora- be partners inter sese and a corpora-
tions are organized for the purpose of tion as to the rest of the world.
using them merely as agencies or Furthermore, upon grounds of public
instrumentalities or forms in the con- policy, the doctrine contended for can-
duet of a copartnership or joint busi- not be tolerated, as it renders nuga-
ness,and by the consent of the parties tory and void the authority of the
806
'
Ch. 12] Incoepokation of Paktneeships, etc. [§385
When organization of a corporation operates as a dissolution

tlie
of the partnership, there no longer exist any rights or obligations
legislature —
a co-ordinate branch of an awkward approximation to, than
the —
government established by the an exact copy of the well-known lia-
constitution, in respect to the crea- bility of partners. The corporator
tion, supervision, and winding up of may transfer his shares at his pleas-
corporations. '
ure, and the purchaser becomes a
In Eussell McLellan, 14 Pick.
v. member; partners cannot introduce
(Mass.) 63, where it appeared that new members into the firm, without
plaintiff and defendant, who were the consent of all concerned. Cor-
partners, purchased in equal portions porators have no legal interest in the
the entire stock of a manufacturing corporate property. It could not be
company, pursuant to a written agree- levied on or taken by execution for
ment that they should thereby become the particular debt of the corporator.
partners in the business thus carried The real and the personal estate of
on, the court said: "The question is, partners is held by themselves.
whether corporators in a manufactur- * * * It was argued that the pro-
ing corporation are partners, joint posal of the defendant to the plaintiff
tenants or tenants in common, within to become jointly interested in this
the meaning of the St. 1823, c. 140. concern, each taking eight shares,
The same question was considered and made them partners or joint tenants
determined in the negative, in the or tenants in common ipso facto, upon
case of Pratt v. Bacon, 10 Pick. 123. its adoption. But we cannot perceive
We have, after hearing the ingenious that inference; for the corporation
argument of the counsel for the plain- continued. The parties did not, by
tiff, revised the former decision, and the new arrangement, acquire a legal
cannot perceive any fallacy in the title to the corporate property. They
reasoning or conclusion. In many had indeed joint and equal control
things there is a similarity between over it, but their acts and doings must
corporators and partners. Corporators appear through the proceedings of the
are interested in the profit and loss of corporation in the due forms of the
the business, and so are partners. law. The legal title in the corporation
* * * The differences are very ob- remains, notwithstanding the indi-
vious. Partners may change the vidual members change. The stock,
name of the firm when they please; if every individual member should
the name of the corporation remains decease at same moment, would be
until the legislature, upon the appli- distributed according to the statute of
cation of the corporators, shall alter distributions or according to the wills
it. Suits in favor of or against a of the individuals deceased. The legal
partnership, must be carried on in representatives of the deceased mem-
the names of the partners; the cor- bers would have authority, by law, to
porators are notnamed in suits for manage the corporation, and no dis-
or against the corporation. There is solution would such case take
in
no such joint and several liability be- place. It is said that the parties held
tween corporators as between part- for two years without doing any cor-
ners. The responsibility created by porate act. If it were so, we cannot
St. 1808, e. 65, subjecting the prop- perceive that they would become part-
erty of corporators to the payment of ners instead of corporators. If the
the debts of the corporationj is rather shares of the corporation should all
807
which the partners as such can enforce, the one against the other.''
But where the owners of a partnership business form a corporation
and transfer to it the partnership, the former partners being prac-
tically the only stockholders therein and the business being conducted
in practically the same way as during the partnership, the relation
of confidence which existed between them as partners is presumed
prima facie to continue.^'
The fact that an agreement to form a corporation and turn over
to it partnership property was improvident on the part of one of the
parties is not, in the absence of fraud, ground for relieving him from
the agreement, where it has been executed and acted under for several
years. '^
The partner as a stockholder is still entitled to exercise control of
the business in proportion to his interestj^" and the facts may be such
that a corporation apparently under the control of an existing part-
nership does not represent the interests of the partners.^'
center in one person, and the forms of inter sese did not exist, especially
proceeding or by-laws should pre- where one of the partners testified
scribe acts to be done by two or more, there had been no partnership trans-
we do not perceive any dif&culty in actions for a period of ten years.
the sole owner 's making sale of shares, Waring v. National Marine Bank of
so as to conform to the letter of the Baltimore, 74 Md. 278, 22 Atl. 140.
rule. There is, we think, no evidence 18 Sullivan v. Pierce, 125 Fed. 104,
of a dissolution of this corporation. in which the court held, however, that
Upon the whole, we are of opinion the evidence was not sufficient to war-
that these parties are not partners, rant the rescission of the sale by one
tenants in Qommon or joint tenants, partner to the other of his stock in
and that the bill must be dismissed." the corporation on the ground that the
See § 16, supra. sale had been induced by false state-
17 Hennessy v. Griggs, 1 N. D. 52, ments and representations of the buy-
44 N. W. 1010. See McGowan v. er, but that it showed that in the
American Pressed Tan Bark Co., 121 transaction the parties dealt at arm's
U. S. 575, SO L. Ed. 1027. length. See also Monmouth Invest-
Where a firm discontinued doing ment Co. V. Means, 151 Fed. 159.
business as partners, and transferred 19 Bowker v. Torrey, 211 Mass. 282,
to a corporation their brands, trade
97 N. E. 770.
marks and good-will, and agreed to
give to the company their labor, skill
20 Hennessy v. Griggs, 1 N. D. 52,
and knowledge in the conduct and

44 N. W. 1010.
management of the business of manu- 21 A corporation organized as a hold-
facturing fertilizers, in consideration ing company for the enterprises of a

of which they were to receive a pro- partnership of two persons was
portion of the net profits of the deemed not to represent the interests
business and were to bear their proof the two persons where one of the
portion of losses sustained in the two manipulated the affairs of the cor-
purchase of real estate, a partnership poration through a subservient board
808
Ch. 12] Inookpokation of Pabtneeships, etc. [§385
Of course there may be rights and remedies of the partners inter se

and against the corporation, depending upon the terms of the agree-
ment entered into in forming the corporation. A partner who per-
forms his agreement in such case is entitled to his proportionate
share of the corporate stock,''^ and if the corporation excludes a mem-
ber from any share in its management in violation of his rights, after
having received his share of the partnership assets, he may maintain
an action against it for damages or for an accounting.^*
But an action for an accounting does not lie where partner.?
acquiesce in the formation of a corporation and receive dividends and
stated accounts for several years without objection. In such case, the
acquiescence operates to bar a bill in equity for an accounting.^* The
right to an accounting is not an "asset" of the partnership.^*
of directors. Monmouth Investment after another partner has absconded,

Co. V. Means, 151 Fed. 159. the object of the transfer to the cor-
ZZBowker 211 Mass. 218;
v. Torrey, poration being to defraud the plain-
Hennessy v. Griggs, 1 N". D. 52, 44 N. tiff, who has loaned money to the
W. 1010; Bannen v. Kindling, 142 Wis. partners under an agreement by which
613. partnership assets were to be trans-
23 In Crosby Lumber Co. v. Smith, ferred to the plaintiff after dissolu-
51 Fed. 63, the plaintiff and others tion. Lovejoy v. Bailey, 214 Mass.
formed a partnership, to which the 134, 101 N. E. 63.
plaintiff contributed a large part of 24Hoyt V. Sprague, 103 U. S. 613,
the capital in the form of real and 26 L. Ed. 585. In this case minors
personal property. Afterwards it was were interested in a manufacturing
agreed to form a corporation, the part- establishment as beneficiaries under
ners to take stock therein to the full a deceased partner, and allowed the
amount of their interest in the firm, business to be conducted by the sur-
as such_ interest should appear on a viving partners, and subsequently a
certain date. A
dispute afterwards corporation was created and the min-
arose as to the amount of the plain- ors made no objection to the change
tiff's interest, and the corporation for more than seven years, in one case
declared his interest in the concern nearly nine years, after becoming
forfeited,and excluded him from any sui juris, and the transactions were
share in its management. He then in good faith and knowledge was
brought an action for damages, which, given of the affairs of the firm. It
on the trial, took the form of an was held that tlêir plea for relief was
accounting as to his interest. It was too late.
held that he was entitled to recover 25McMahonv. Brown, 219 Mass.
the value of his interest at the time 23, 106 N. E. 26.
it was taken from him, and that, in The "assets" of a partnership or-
computing the same, there should be dinarily mean the property of the
included, not only the technical profits, partnership originally contributed or
but also the increase in value of the which has been subsequently acquired
assets of -the concern. on account of the firm for the pur-
An accounting is proper where a cor- poses of their business. McMahon v.
poration is organized by one partner, Brown, 219 Mass. 23, 106 N. E. 26,
809
There is no equitable right to reimbursement at the expense of the

creditors of the corporation, if a partner pays a debt of the part-
nership.**^ In such case the doctrine of subrogation cannot be in-
voked,^'' and the payment made must be presumed to have been made
with knowledge of all the facts relating to the transaction.^*
Where a partnership became incorporated but continued doing
business in the partnership name, there being no notice of dissolution,
and a judgment was recovered by a creditor and was paid by a sur-
viving partner, it was held that such judgment was conclusive evi-
dence that the estate of the other partner was equally liable, but the
claim of the surviving partner against the estate of the deceased
partner could not be allowed, since there had been an assignment for
the benefit of creditors, and the amount paid should have been charged
to a trust fund which had been provided and which was ample.^'
86 Smith V. Bowker Torrey Co., 207 27 Where a partnership was incor-

Fed. 967. porated and one of the partners be-
Where the real intention of the co- came a stockholder in the corporation,
partners was to set aside their real receiving nearly half of the paid up
estate, to go on in business under a stock, and the corporation assumed
corporate form with their personal the debts of the partnership, which
estate as capital, and to satisfy the under the circumstances amounted to a
creditors out of that personal estate drawing out of nearly the same sum
or from the profits of the business, as had been paid by the partners, to
and the transaction was not in fraud pay the individual debts, such part-
of creditors, since sufSeient assets ner or stockholder could not invoke
were withheld for the full payment of the doctrine of subrogation so as to
the copartnership debts, there was stand in the place of a bank which
nothing in the division by the copart- had been paid by the foreclosure of a
ners of their property into two parts, mortgage given by such stockholder
real and personal, and their agreement or partner on his private property for
to pay these debts out of their person- the benefit of the corporation, since
al assets, which gave them an equity, the capital stock of the corporation
to resort to the corporate funds for re- constituted a trust fund for the benefit
imbursement at the expense of credi- of its creditors, and the corporation
tors of the corporation. Smith v. being insolvent, other creditors would
Bowker Torrey Co., 207 Ted. 967. be defrauded. In re Warner, 82 Mich.
Where there is no agreement on the 624, 47 N. W. 102.
part of the corporation to pay the 28 Adams v. Empire Laundry Ma-
debts of a partnership, and such cor- chinery Co., 52 Hun (N. Y.) 610, 4 N.
poration is organized after the dissolu- Y. Supp. 738.
tion of partnership, a partner
the Z9Winey V. Thompson, 9 Mete.
who pays a debt cannot recover the (Mass.) 329.
amount paid from the corporation. His authority as surviving partner
Adams v. Empire Laundry Machinery was to pay only the debts of- the firm,
Co., 52 Fun (N. Y.) 610, 4 N. Y. Supp. and he had no authority to speculate
738. upon the chance of escaping some
810
Ch. 12] Incokpobation of Paetneeships, etc. [§ 385
The mere fact that a partner proposes to form a corporation to take

over the partnership properties at an agreed price does not make
him the agent or trustee of his partnersto the extent of rendering
him liable for the compensation which he received from the corpora-
tion for his services as a promoter thereof.^"
It has been held that if the corporation becomes insolvent, the
equities of the partners should be respected.*^
As a partnership cannot pursuance of an express
exist except in
or implied agreement to which the minds of the parties have assented,
a corporation formed under and by virtue of a state statute and set
going cannot be changed into a copartnership by a court of equity
at the suit of any of the incorporators.'^ So where partners owning
the entire stock of a corporation sought its dissolution in the same
manner as if the corporation did not exist, it being, claimed that the
stockholders were virtually partners, doing business in a corporate
form for their own convenience, it was held that a bill for dissolution
of the copartnership would not lie, as the corporate existence cannot
be ignored and it cannot be held that the persons are either partners,
tenants in common or joint tenants.''
Where a voluntary association is incorporated and the association
merged in the corporation, a member of the association who united
in the application for a charter cannot restrain the operation of
by charging the firm

possible liability Shorb v. Beaudry, 56 Gal. 446, on the
with a debt for which it appears that ground that in the latter decision the
another ample fund was provided and corporation was organized as a mere
in his power. Willey v. Thompson, 9 agency to carry out agreements into
Mete. (Mass.) 329. which three of the corporators had
30 Carter v. Tucker, 138 Ky. 34, entered. It also appeared, as a fur-
127 S. W. 498. See § 133, supra. ther ground of distinction, that the
31 London v. Bynum, 136 N. C. 411, corporation paid nothing, incurred
48 S. B. 764. no liability and was .3 receive no part
32 Nightingale v. Milwaukee Fur- of the proceeds of the land held by
niture Co., 71 Fed. 234, in which case it, except for the purpose of improv-
it was held that an agreement to ing and developing the property; that
form a partnership was not shown by no certificates of stock were issued or
the fact that the books of the cor- contemplated; that all the profits were
poration, which were kept under the to be distributed among the three
direction and supervision of the com- principal incorporators in the propor-
plainant, were kept as though the con- tion fixed by their contract.
oern were a partnership, nor by the 33 Eussell McLellan, 14 Pick,
v.
fact that the members of the corpora- (Mass.) 63; Jackson v. Hooper, 76 N
tion signed individually an instrument J. Eq. 592, 27 L. E. A. (N. S.) 658, 75
guarantying notes of the concern in Atl. 568; Einstein v. Eosenfeld, 38
which they referred to it as a firm. N. J. Bq. (11 Stew.) 309.
The above decision distinguished
811
§ 386] Pbivate Cokpokations [Ch. 12
the corporation or have the affairs wound up, except upon some of the
grounds specified Oy statute.**
§386. Incorporation of tenants in common. The matter of the

incorporation of tenants in common arises most frequently in Massa-
chusetts and other of the original thirteen states where grants were
made for the purposes of settlement to "commoners." The word
"commoners," as generally used in the real estate law of the colonial
and provincial period, has been held to refer to persons who owned
undivided tracts of land as tenants in common by virtue of a grant
from the government.'^
From early times, such commoners have been enabled to act as cor-
porations.*®
This isa species of corporation different from corporations in
general, and the relation between the tenants and the corporation
is peculiar. The statutes have been held not to take away any of the
rights of the individuals forming the corporation, but on the contrary
to give them new powers. The corporation exists for the benefit of
all and cannot act adversely to any of the tenants in common, being
bound to protect the interests of all. In many respects the incor-
porators continue as tenants in common and the parties do not act at
arm's length and independently of each other.*''
While the tenants have the right to organize themselves as a cor-
poration,** the mere act of incorporation does not vest the title to the
individual property in the corporation.*' The title must be conveyed
34 Ferris v. Strong, 3 Edw. Ch. (N. infer from equivocal acts

is difficult to
T.) 127, 128. a purpose to violate the duties arising
35 Inhabitants of Ipswich v. Pro- out of that relationship and to disseise
prietors of Jeffries Neck Pasture, 218 or oust the right owner." See also
Mass. 487, 106 N. E. 169. See also Monumoi Great Beach v. Rogers, 1
Attorney General v. Tarr, 148 Mass. Mass. 159.
309, 2 L. E. A. 87, 19 N. E. 358; Hig- 38 Monumoi Great Beach v. Eogers,
bee V. Eice, 5 Mass. 344, 4 Am. Dec. 63. j Mass. 159
36 Inhabitants of Ipswich v. Pro-
Owners in common of a meeting-
prietors of Jeffries Neck Pasture, 218 jj^^gg j^^^g ^^^ ,.j
,
^ ô organizethem-
Mass. 487, 106 N. E. 169. ^^^^^^ ^^ ^ corporation under the
37 Inhabitants of Ipswich V. Pro-
^^^^^^_ ^^^^^^ ^_ Hayward, 10
prietors of Jeffries Neck Pasture, 218 ,,
Second, „
,-.
Mete. (Mass.) 408; „
. ,.^. .
Xr ,c^ ,n/,-NT T, non Cong. Soc.

Mass. 487, 106 N. E. 169. T
In ii,-
this case .„.,„.,
^"'^^ Bridgewater
,„
v. Waring, 24
it was said: "The relation of the ^'^.
^^''^^- (^^^s.) 304.

corporation, known as the proprietors,
to the owners in common of the land, *' Holland v. Cruf t, 3 Gray (Mass.)
if not that of trustee to cestui que 162; Leffingwell v. Elliott, 8 Pick.
trust, is akin to that relation and it (Mass.) 455, 19 Am. Dec. 343. And
812
Ch. 12] Incoepoeation of Pabtneeships, etc. [§386
by proper deeds from the individuals to the corporation,*" and the

corporation may by proper vote of the members.*^
then convey title
The terms of the act may be such, however, as to vest the property
in the corporation without any formal transfer from the corporators.*''
Thus it has been held that where persons owning lands as tenants in
common were incorporated by a special act for the express purpose
of improving and selling the lands, and the charter was accepted, the
title to the lands vested in the corporation by virtue of the charter
and its the corporation was created for the purpose
acceptance. As
of selling the lands,and was authorized by the act to sell the same,
and as it could not do so without title thereto, it was considered that
the intention was to vest the title in it without any other transfer.*^
In such case, where a corporation has succeeded to the title to land by
virtue of the granting of a charter and its acceptance, it alone can
sue for injuries to the property, such as a trespass,** and the indi-
viduals who have formed the corporation cannot obstruct its regular
proceedings as to the management and improvement of the common
property.**
see Manahan v. Varnum, 11 Gray that other Massachusetts cases hold-

(Mass.) 405. ing similarly to the Georgia court
40Leffingwell v. Elliott, 8 Pick. call attention to the fact that the
(Mass.) 455, 19 Am. Dec. 343. Leffingwell case (as well as the eases
41 Inhabitants of Ipswich v. Pro- of Mitchell v. Starbuok, 10 Mass. 5,
prietors of Jeffries Neck Pasture, 218 and Holland v. Cruft, 2 Gray [Mass.]
Mass. 487, 106 N. E. 169. 161, 61 Am. Dec. 448) was decided
Deed from proprietors held void as under a different statute. See Pro-
not authorized by two-thirds of right prietors of Jeffries Neck Pasture v.
owners. Inhabitants of Ipswich v. Inhabitants of Ipswich, 153 Mass. 42,
Proprietors of Jeffries Neck Pasture, 26 N. E. 239.
218 Mass. 487, 106 N. E. 169. See also 44 Colquitt V. Howard, 11 Ga. 556;
Rogers v. Goodwin, 2 Mass. 475; Lef- Second Congregational Soc. in North
fingwell V. Elliott, 8 Pick. (Mass.) 455, Bridgewater v. Waring, 24 Pick.
19 Am. Dec. 343. (Mass.) 304.
Howard, 11 Ga. 556;
42 Colquitt V. One of the original tenants in com-
Monumoi Great Beach v. Eogers, 1 mon who has covenanted to build and
Mass. 159; Second Congregational Soe. keep a dam across the river, the prop-
in North Bridgewater v. Waring, 24 erty being made liable for the re-
Pick. (Mass.) 304. sult of the breach of the covenant,
43 Colquitt V. Howard, 11 6a. 556. is not personally chargeable on his
In Colquitt v.Howard, 11 Ga. 556, covenant, but the property is charge-
the court distinguished the case of able in the hands of the corporation.
Leffingwell v. Elliott, 8 Pick. (Mass.) Colquitt v. Howard, 11 Ga. 556.
455, 457, 19 Am. Dec. 343, because 45 Second Congregational Soc. in
of the fact that the corporation North Bridgewater v. Waring, 24 Pick.
formed was for manufacturing pur- (Mass.) 304.
poses. It should be noted, however,
813
When a long period of time has elapsed since the act of incorpora-
tion, neither the individual proprietors nor their heirs or assigns, nor
strangers can attack the validity of the organization.**
46 Proprietors of Jeffries Neck Pas- loff v. Hardy, 26 Me. 228; Chamber-

ture V. Inhabitants of Ipswich, 153 lain v. Bussey, 5 Greenl. (Me.) 164.
Mass. 42, 26 N. E. 239. See also Col-
814
'
CHAPTER 13
Citizenship, Domicile, Residence and Habitanct
§ 387. In general.
§ 388. Clause of Fourteenth Amendment of Federal Constitution defining citizen-
ship.
§ 389. Equal privileges and immunities clause of Federal Constitution.
§ 390. For purposes of federal jurisdiction —Diversity of citizenship.
§ 391. — Suits for infringement of patents, and for wrongful use of trade-
marks.
§ 392. — Court of Claims.
§ 393. For purpose of holding corporate meetings and transacting corporate
business.
§ 394. Within acknowledging and recording statutes.
§ 395. For purposes of taxation.
§ 396. For purposes of venue —
Suits in federal courts.
§ 397. — Suits in state courts.
§ 398. Within statutes of limitations.
§ 399. For purposes of attachment and garnishment.
§ 400. Statute relating to judgment on filing afBdavit of claim.
§ —
401. Corporations created by congress In general.
S 402. — National banks.
§403. "Principal place of business" and "residence" within bankruptcy acts.
§ 387. In general. The present chapter deals with the question

of the citizenship, domicile, residence and habitancy of corporations
and not those of corporators, such being discussed elsewhere.^
Except that "citizenship," "domicile," "residence"^ and "habi-
tancy"^ are commonly associated only with naturjil persons, there
would seem to be no good reason at this late day for denying that,
See § 104, supra.

1 residents or nonresidents of a state. '
2' Eesidenee
'
is an attribute of a 3 "A a mere ideal ex-
corporation is
natural person and can be predicated istence, subsisting only in contempla-
of an artificial being only by a more or tion of law; an invisible being, which
less imperfect analogy." Kimmerle v. can have, in fact, no locality, and can
Topeka, 88 Kan. 370, 43 L. E. A. (N. occupy no space; and therefore, can-
S.) 272, 128 Pae. 367. not have a dwelling place." Wood v.
See, however, Marshall v. R. M. Hartford Fire Ins. Co., 13 Conn. 202,
Owen & Co., 171 Mich. 232, 137 N. W. 209, 33 Am. Dec. 395. See also Kim-
204, in which the court said: "Cor- merle v. Topeka, 88 Kan. 370, 43 L.
porations, like individuals, are either E. A. (N. S.) 272, 128 Pac. 367.
815
for certain purposes, any one or all of the four may be imputed to
a corporation. More than a century ago, Chief Justice Marshall
established the rule, M'hich has ever since been followed,* that a cor-
poration is to be regarded as a "citizen" for purposes of suit in the
federal courts on the ground of diversity of citizenship.^
While this greatest of American jurists took the view that "that
invisible, intangible, and artificial being, that mere legal entity, a
corporation aggregate, is certainly not a citizen; and, consequently,
cannot sue or be sued in the courts of the United States, unless the
rights of the members in this respect can be exercised in their cor-
porate name," and that "if the corporation be considered as a mere
faculty, and not as a company of individuals, who, in transacting
their joint concerns,may use a legal name, they must be excluded
from the courts of the Union," he held it proper to look beyond the
corporation to the individuals who compose it, and, so doing, to
attach to the incorporeal being necessary corporeal qualities, among
them —and for purposes of jurisdiction—the one of citizenship, which
citizenship would be that of its members.®
4 See § 390, infra. be the one or the other; and the con-
6 Bank of United States v. Deveaux, troversy is, in fact and in law, be-
5 Granch (U. S.) 61, 3 L. Ed. 38. tween those persons suing in their
That a corporation cannot be corporate character, by their corporate
deemed a "citizen" within the mean- name, for a corporate right, and the
ing of the Federal Constitution when individual against whom the suit may
testing the sufficiency of jurisdictional be instituted. Substantially and es-
averments, see Muller v. Dows, 94 U. sentially, the parties in such a case,
S. 444, 24 L. Ed. .207; Ohio & M. E. where the members of the corporation
Co. V. Wheeler, 66 TJ. S. 286, 17 L. Ed. are aliens, or citizens of a different
130; Lafayette Ins. Co. v. French, 18 state from the opposite party, come
How. (U. S.) 404, 15 L. Ed. 451; Mar- within the spirit and terms of the
shall V. Baltimore & O. E. Co., 16 How. jurisdiction conferred by the consti-
(U. S.) 314, 14 L. Ed. 953; Winkler v. tution on the national tribunals. Such
Chicago & E. I. E. Co., 108 Fed. 305. has been the universal understanding
The conclusion, in an indictment on the subject. Eepeatedly has this
returned against a corporation for court decided causes between a cor-
maintaining a public nuisance, that poration and an individual without
the alleged acts were to the damage of feeling a doubt respecting its juris-
divers "other citizens" of the state, diction. Those decisions are not cited
was held unauthorized, a corporation as authority; for they were made with-
not being a "citizen" in the ordinary out considering this particular point;
meaning of the term. United States but they have much weight, as they
Board & Paper Co. v. State, 174 Ind. show that this point neither occurred
460, 91 N. E. 953. to the bar nor the bench; and that
6 ' That [corporate] name, indeed,
' the common understanding of intelli-
cannot be an alien or a citizen; but gent men is in favor of the right of
the persons whom it represents may incorporated aliens, or citizens of a
816
'
Ch. 13] Citizenship, Domicile and Eesidence [§387
Chief Justice Marshall's rule that a corporation is to be deemed a

"citizen" for purposes of federal jurisdiction stands to-day undis-
puted, although the reasoning which resulted in its formulation and
his rule for determining where the imputed citizenship, lay have been
supplanted. In a case decided by the Supreme Court of the United
States some thirty-five years later, the court said: "A corporation
created by a state functions under the authority of
to perform its
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, in-

habiting and belonging to that state, and therefore entitled, for the
purpose of suing and being sued, to be deemed a citizen of that
state."''
It be true, as has been said, that "corporate personality and
may
existence are themselves fictions, and the citizenship or locality of
a corporation is the fiction of a fiction"* but the fact remains that
this "fiction of a fiction" will be indulged when necessary to the
different state from the defendant, to Curtis, [3 Cranch (IT. S.) 267, 2 L.
sue in the national courts. by
It is Ed. 435 (not in point)] and The Bank
a course of acute, metaphysical and V. Deveaux [supra] have never been
abstruse reasoning, 'which has been satisfactory to the bar, and that they
most ably employed on this occasion, were not, especially the last, entirely
that this opinion is shaken. As our satisfactory to the court that made
ideas of a corporation, its privileges them. They have been followed
and its disabilities, are derived en- always most reluctantly and with dis-
tirely from the English books, we re- satisfaction. By no one was the cor-
sort to them for aid in ascertaining rectness of them more questioned than
its character. It is defined as a mer© by the late Chief Justice who gave
creature of the law, invisible, intangi- them. It is within the knowledge of
ble and incorporeal. Yet, when we several of us, that he repeatedly ex-
examine the subject further, we find pressed regret that those decisions had
that corporations have been included been made, adding, whenever the sub-
within terms of description appro- ject was mentioned, that if the point
* * »
priated to real persons. of jurisdiction was an Original one,
These opinions [Coke's Insts. pt. 2, the conclusion would be different. We
vol. 2 (1797) p. 703, and Eex Gard-
v. think we may safely assert, that a ma-
ner, 1 Cowp. 79, infra] are not pre- jority of the members of this court
cisely in point; but they serve to show have at all times partaken of the same
that, for the general purposes and regret, and that whenever a case has
objects of a law, this invisible, incor- occurred on the circuit, involving the
poreal creature of the law may be con- application of the case of The Bank
sidered as having corporeal qualities. V. Deveaux, it was yielded to, because
'
Bank of United States v. Deveaux, 5 the decision had been made, and- not
Cranch (U. S.) Ed. 38.
61, 3 L. because it was thought to be right."
7 Louisville, G. & C. E. Co. v. Letson, See also St. Louis & S. F. E. Co. v.
2 How. (U. S.) 497, 11 L. Ed. 353. Con- James, 161 U. S. 545, 40 L. Ed. 802.
tinuing, the court said: "We remark, 8 Goodwin v. New York, N. H. & H,
too, that the cases of Strawbridge v. E. Co., 124 Fed. 358.
817
I Priv. Corp. —52
maintenance of the rights or the enforcement of the liabilities of

corporations.^
In England, it has been held that a corporation of Great Britain
was a British subject, within the meaning of a statute permitting the
registry of a vessel when owned by a British subject, and, further,
that it made no difference in this connection that some or even all of
the stockholders were foreigners.^"
According to Lord Coke "every corporation and body politicke
residing in any county, riding, citie, or towne corporate, or having
lands or tenements in any shire, riding, city, or town corporate, quae
propriis manihus et sumptibus possident et habent, are said to be
9 See §§22-41, supra. acter as such, because on the outbreak

Citizenship is possible only as the of war all of its shareholders (except
corporation has a de jure existence, one) and directors were residing in
a de facto existence is not suflScient. and were subjects of the enemy coun-
Gastonia Cotton Mfg. Co. v. W. L. try and therefore became alien ene-
"Wells Co., 128 Fed. 369. mies, and hence that payment to the
10 Beg. V. Arnaud, 16 L. J. Q. B. (N. corporation was not illegal as pay-
S.) 50. ment to an alien enemy. This judg-
In this case, the customhouse of- ment was concurJed in by all of the
ficersrefused to register a vessel be- members of the court except Buckley,
longing to a British corporation, on L. J. In the course of the dissenting
the ground that some of the members judgment of the latter, he said: "The
of the corporation were foreigners, corporation, if it be a British cor-
and the statute allowed the registry poration, stands in the same position
of such vessels only as belonging whol- for most purposes as a British sub-
ly to British subjects. On mandamus ject. For instance, as regards rights
proceedings to compel the officers to of ownership of property and the
register the vessel, it was held that, right to protection and assistance by
as it belonged to a British corpora- the law. But while it stands for most
tion, and, not the members thereof, it purposes in the position of a British
was entitled to registry. "The in- subject, it cannot, I think, be cor-
dividual members of a corporation, no rectly described as a British subject.
doubt," said Lord Denman, "are in- A subject must, I conceive, be one
terested in one sense in the property who can owe and pay allegiance to the
of the corporation, as they may de- King, who can serve the King physi-
rive individual benefit from its in- cally; for instance, if he be a male,
crease, or loss from its destruction; by wearing weapons and serving in
but in no legal sense are the indi- the wars, who has a mind and can
vidual members the owners. ' Beg. v. '
be either loyal or disloyal to the King.
Arnaud, 16 L. J. Q. B. (N. S.) 50. None of these can be predicated of
See also Janson v. Driefontein the abstract legal entity. It has no
Consol. Mines, [1902] A. C. 484. existence at all except in contempla-
In Continental Tyre & Bubber Co., tion of law." See also Fritz Schulz,
Ltd. V. Daimler Co., Ltd., [1915] 1 Jr., Co. V. Raines & Co., 164 N. Y.
K. B. 893, it was held that an English Supp. 454.
corporation did not change its char-
818
Ch. 13] Citizenship, Domicile and Residence [§387
inhabitants there within the purview of" the statute of Henry VIII
(22 Hen. VIII, c. 5) concerning the repair of bridges.^^
Not only is the fact of the citizenship, habitancy and residence of

a corporation settled beyond the point of refutation, but the courts,
with but few dissenting voices, assent to the proposition, only occa-
sionally attempted to be qualified, that such citizenship, domicile,
residence, or habitancy as the case may be, can be only of or in the
state or country by which the corporation was created.^^
The Supreme Court of the United States said, in an early ease:
"A corporation can have no legal existence out of the boundaries of
the sovereignty by which it is created. It exists only in contempla-
tion 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 cannot
'
migrate to another sovereignty. ^' This statement has been fre-
'
quently repeated by the supreme court in slightly different phrase-

ology perhaps, but always to the point that the legal existence, the
home, the domicile, the habitat, the residence, the citizenship of the
corporation can only be in the state by which it was created not-
withstanding it may lawfully do business in other states.^* Other
courts, federal and state, of vddely separated jurisdictions have, time
and again, approvingly quoted such statement or at least enunciated,
in different words, the same doctrine and cited thereto the case in
which the statement was originally made. It is therefore safe to say
that the law on the subject, as it is generally accepted to-day, is laid
down in the words quoted.^"
n Coke's Insts. pt. 2, vol. 2 (1797) (U. S.) 227, 15 L. Ed. 896; Marshall
p. 703. V. Baltimore & O. E. Co., 16 How. (U.
In Rex Gardner, 1 Cowp. 79, a
V. S.) 314, 14 L. Ed. 953.
college corporation seised of lands in 18 "The law of the state creating a
fee for its own profit was held to lie corporation the breath of its life,
is
the "inhabitant" and "occupier" of Such I understand to be the doctrine

such lands within the meaning of a announced in the cases cited * » *
statute providing for poor rates or and it has generally been laid down
assessments. with reference to the citizenship of
12 See §§ 390-392, infra. corporations. The supreme court have,
13 Bank of Augusta v. Earle, 13 Pet. we know, by a legal fiction, endowed
(TJ. S.) 519, 10 L. Ed. 274. corporations with citizenship in the
14 Shaw v. Quincy Min. Co., 145 U. states by which they are created, and
S. 444, 36 Ii. Ed. 768. See also Ger- they cannot transfer this citizenship
mania Fire Ins. Co. v. Francis, 11 from a state where the law alone gives
Wall. (IT. S.) 210, 20 L. Ed. 77; Ohio them life to a state in which no law
& M. E. Co. V. Wheeler, 1 Black (XJ. exists to keep them alive. As a natu-
S.) 17 L. Ed. 130; Covington
286, ral person passing from vital air into
Drawbridge Co. v. Shepherd, 20 How. vacuum dies, so a corporation trans-
819
387] Pkivate Cobpoeations [Ch. 13
A corporation is incapable of passing personally beyond the juris-

diction of the sovereignty which created it.^® It may do business
and maintain agencies in another state ;
^''
its officers, directors and
ferred from its state of life giving transact business where
its charter
law to a place where it has no law does not operate, does not on that
it
ceases to live." McCabe v. Illinois account acquire a residence there.
Cent. R. Co., 13 Fed. 827. Germauia Fire Ins. Co. v. Francis, 11
tinder a statute requiring one claim- Wall. (IT. 8.) 210, 20 L. Ed. 77; Block
ing a lien on funds due a public con- V. & Distributing
Standard Distilling
tractor to state his residence, the Fed. 978.
Co., 95
residence of a corporation lienor is A cqrporation obtains a residence
sufficiently stated where the state of not by its own act but by legal au-
incorporation of the claimant is given, thority which fixes the requisites of
the residence of a corporation, strictly residence. Newport & C. Bridge Co.
speaking, being the state in which it V. Woolley, 78 Ky. 523, 525.
was incorporated. National Fire A corporation does not become a
Proofing Co. v. Daly, 76 N. J. Eq. 35, nonresident of the state by which it
74 Atl. 152; Hall Incorporated Co. v. was created merely because it has its
Jersey City, 62 N. J. Eq. 489, 50 Atl. real and active place of business else-
603. where than in such state during cer-
16 Plimpton v. Bigelow, 93 N. Y. tain seasons of the year. Hastings v.
592, 598. Anacortes Packing Co., 29 Wash. 224,
The fact that a railroad corporation 69 Pac. 776.
is by its charter authorized to own The domicile of a corporation with
and manage property in a state other respect to debts due by it is in the
than that of its creation confers no state of its creation. Equitable Life
authority upon it to change its domi- Assur. Society v. Vogel 'a Ex 'r, 76 Ala.
cile to such state. Aspinwall v. Ohio 441, 52 Am. Eep. 344.
& M. E. Co., 20 Ind. 492, 83 Am. Dec. The fact that an insurance company,
329. organized under the laws of New
17 "A corporation created and or- York, appointed an agent in another
ganized under the laws of a particular state on whom service of process
state has its legal residence in that might be made, so as to enable it to
state, and * * * cannot change its do business in such other state under
citizenship by doing business in an- it's laws, in no sense changed the domi-
other state." Eailroad v. Barnhillj cile of the corporation, so as to make

91 Tenn. 395, 397, 30 Am. St. Eep. 889, a debt owing by it to a resident of
19 S. W. 21. This applies also to the New York for a loss under a policy,
residence of a corporation allowed to occurring in the other state, an in-
do business, through its officers and debtedness existing in that state.
agents, in other jurisdictions. Chafee Douglass V. Phenix Ins. Co. of Brook-
V. Fourth Nat. Bank, 71 Me. 514, 36 lyn, 138 N. Y. 209, 20 L. E. A. 118, 34
Am. Eep. 345; Ireland v. Globe Milling Am. St. Eep. 448, 33 N. E. 938, afif'g
& Eeduction Co., 19 E. I. 180, 29 L. 63 Hun (N. Y.) 393, 18 N. Y. Supp.
E. A. 429, 61 Am. St. Eep. 756, 32 259.
Atl. 921. A corporation created by the laws
Unlike a natural person, a corpora- of a certain state for purposes to be
tion cannot change its domicile at will, carried on and executed within its
and although it may be permitted to jurisdiction is not a nonresident withia
820
Ch. 13 ] Citizenship, Domicile and Residence [§387
stockholders may reside therein ;

*' it may be denominated a domestic
corporation, be vested with citizenship and be given a local residence
by the statutes of such state, yet it continues to be a citizen, inhabitant
and resident only of the state by which it was created except so far
as the operation of local laws requires that it be regarded as having
a local citizenship, habitancy, or residence, as the case may be.^^
"While this additional fiction, if be so regarded, must be acknowl-
it
edged to have first been indulged in cases involving the question of

the jurisdiction of the federal courts, the occasions upon and the cir-
cumstances under which has since been invoked have been so many
it
and so varied that it must be recognized as existing generally for ordi-

nary purposes 20
the meaning of the statute relating by statute the stockholders are the
to security for costs. Pennsylvania corporation and the directors merely
& N. J. Steamboat Co. v. Andrews, 8 the corporation's agents. "Wright v.
N. J. L. 177. Bundy, 11 Ind.398. See also Merrick
"A corporation is deemed to be a V. Van
Santvoord, 34 N. Y. 208, 220.
resident of that state by the laws of But a domestic corporation may
which it was created; but, as the ar- "depart from the state" by the re-
tificial being may
send agents into moval therefrom of all of its officers
other states to transact any business and managing agents within the mean-
that is not ultra vires, the state to ing of a statute providing for service
which such representatives are dis- of process by publication, when the
patched may by proper legislation person against whom suit is brought
make the corporation liable to its citi- has departed from the' state, a cor-
zens in actions and suits."Cunning- poration being a "person" within the
ham V. Klamath Lake E. Co., 54 Ore. meaning of such statute. McKendriok
13, 101 Pac. 213, rehearing denied V. "Western Zinc Min. Co., 165 Cal. 24,
101 Pac. 1099. 130 Pac. 865.
18 A corporation is regarded as hav- 19 "Whether a corporation can be con-
ing a legal residence in the state of sidered a resident of a particular place
its creation although it may do no by reason of its doing business there
business within such state and all of depends wholly on the connection in
its ofScers, agents, and stockholders which the question arises. Kimmerle
may reside without its borders. Mc- V. Topeka, 88 Kan. 370, 43 L. E. A.
Kendrick v. Western Zinc Min. Co., (N. S.) 272, 128 Pac. 367.
165 Cal. 24, 130 Pac. 865. And see §§ 396-399, infra.
"It is true that corporations can- 20 In a bankruptcy proceeding, the
not migrate from one sovereignty into court remarked, arguendo, and refer-
another, so as to become legal local ring to the state in which the bank-
existences within the latter sov- rupt company was incorporated, that
ereignty; but it is also true that the it could not "have inhabitancy or
migration of the directors of a cor- residence elsewhere." Eoszell Bros,
poration from one sovereignty into v. Continental Coal Corporation, 235
another does not terminate the exist- Fed. 343.
ence of such corporation within the "While it has been said that "it is
sovereignty which created it," where not true without qualification that a
821
§ 387] Peivate Cokpobations [Ch. 13
"In the jurisprudence of the United States a corporation is re-
garded as in effect a citizen of the state which created it. It has no

faculty to emigrate. It can exercise its franchises extraterritorially
only so far as may he permitted hy the policy or comity of other
sovereignties. By the consent, express or implied, of the local gov-
ernment, it may transact there any business not ultra vires, and, 'like
a natural person, may have a special or constructive residence, so as
to be charged with taxes and duties or be subjected to a special juris-
diction.' "î
Holmes of the Supreme Court of the United States said, on
Justice
one occasion, while a member of the Supreme Court of Massachusetts,
that "there are even greater objections to a double domicile than
there are to double citizenship. Under the law as it has been, a man
might find himself owning a double allegiance without any choice of
his own. But domicile, at least for any given purpose, is single by
its essence * * *. A corporation does not differ from a natural
person in this respect. If any person, natural or artificial, as a result
of choice, or on technical grounds of birth or creation, has a domicile
in one place, it cannot have one elsewhere, because what the law
means by domicile is the one technically pre-eminent headquarters,
which, as a result either of fact or fiction, every person is compelled
to have in order that by aid of it certain rights and duties which
have been attached to it by the law may be determined. It is settled
that a corporation has its domicile in the jurisdiction of the state
which created it, and as a consequence, that it has not a domicile any-
where else. ^^
'
'
"While a corporation must dwell in the state by which it was created,
corporation created by one state has its property may be located or its
no existence outside that state," the business may be transacted, but on
court's illustration, namely, that the theory that, as a corporation must
"corporations created outside Massa- act by agents, it may through its
ehusetts sue and are sued in the state agents subject itself to the jurisdic-
and federal courts of Massachusetts tion of a foreign tribunal. Plimpton
every day, and their existence is thus v. Bigelow, 93 N. Y. 592, 598.
recognized ' ' (Goodwin v. New Tort, See also Douglass v. Pheuix Ins. Co.,
N. H. & H. R. Co., 124 Fed. 358), does 138 N. Y. 209, 20 L. E. A. 118, 34 Am.
not bear out the point made, since St. Eep. 448, 33 N. E. 938, aff'g 63
suits by or against foreign corpora- Hun (N. Y.) 393; Gibbs v. Queen Ins.
tions are not maintained on the theory Co., 63 N. Y. 114, 20 Am. Rep. 513.
that the corporation litigant is present 21 St. Louis v. Wiggins Ferry Co.,
in person, or that the corporate entity 11 Wall. (IT. S.) 423, 20 L. Ed. 192.
attends the corporate oflicers in their 22Bergner & Engel Brewing Co. v.
migrations from one state to another, Dreyfus, 172 Mass. 154, 70 Am. St.
or that it is itself present wherever Rep. 251, 51 N. B. 531.
822
Ck. 13] Citizenship, Domicile and Residence [§ 388
and cannot migrate to another sovereignty, "yet different flharters

for the same general business may be granted by different states to
the same incorporators, and when that is done and organization is
properly effected under each charter, in succession, the corporation
becomes a citizen of each state, and as such has the protection of and
is amenable to her laws."*'
§388. Clause of Fourteenth Amendment

of Federal Constitution
defining citizenship. A railroad
company, incorporated under acts of
congress, whose activities and operations were not intended to be, and,
in fact, are not confined to a single state hut are carried on in dif-
ferent states, is a citizen of the United States in the same sense that
a corporation organized under the laws of a particular state is a citi-
zen of such state, but it is not within that clause of section 1 of the
Fourteenth Amendment to the Federal Constitution which provides
that "all persons born or naturalized in the United States, and subject
23 Mobile & O. E. Co. v. BarnMll, corporation created by a single state,

91 Tenn. 395, 30 Am. St. Eep. 889, 19 which cannot migrate or legally exist
S. W. 21, citing Memphis & 0. E. Co. outside of the territorial limits of the
V. Alabama, 107 U. S. 581, 27 L, Ed. state of its creation, the consolidated
518. corporation, having a, capital stock
In considering the status of a which a unit, and only one set of
is
consolidated corporation, authorized stockholders who have an interest, by
by the laws of the states creating virtue of their ownership of shares
the constituent corporations, against of such stock, in all of its property
which an information in the nature of everywhere, and a single board of di-
a quo warranto had been filed, the Su- rectors, will have its domicile in each
preme Court of Illinois has said: state, and the stockholders, directors
"The new corporation will, as was and the absence of any
officers can, in
said in Minot v. Philadelphia, Wil- statutory provision to the contrary,
mington and Baltimore Eailroad Co., hold meetings and transact corporate
18 Wall. 206, become vested with 'the business in either of the states, though
rightsand privileges which the origi- in its relation to either state the con-
nal companies had previously pos- solidated company will be a sepa-
sessed under their respective charters, rate corporation, governed by the
—the rights and privileges in Mary- laws of that state as to its property
land which the Maryland company had therein, and subject to taxation in
enjoyed, and the rights and privileges conformity with the laws of such
in Delaware which the Delaware com- state, and to all the police power of
pany had there enjoyed, not to — the state in respect to its property
transfer to either state, and enforce and franchise within such state. Gra-
therein the legislation of the other. ham v. Boston, H. & E. E. Co., 118 IT.
* * * The new company stood, in S. 161, 30 L. Ed. 196;Covington &
each state, as the original company Cincinnati Bridge Co. v. Mayer, 31
had previously stood in that state, in- Ohio St. 317; Spragûe v. Hartford,
vested with the same rights and sub- Providence and Pishkill Eailroad Co.,
ject to the same liabilities.' Unlike a 5 E. I. 233; Pierce on Eailways, 20;
823
to the jurisidietion thereof, are citizens of the United States and of

the state wherein they reside.
'
^*
'
§ 389. Equal privilegfes and immunities clause of Federal Consti-

tution. That a corporation is not a "citizen" of any state within
the meaning of section 2 of article 4 of the Federal Constitution which
provides that "the citizens of each state shall be entitled to all priv-
ileges and immunities of citizens in the several states" is a proposition
that has long been established.^^ Indeed, it is by reason of this being
Minot V. Philadelphia, Wilmington artificial persons; for a corporation
and Baltimore Eailroad Co., supra. cannot be said to be born, nor can it
And the same rule, as to domicile, be naturalized. I am clear, therefore,
seems to apply to a case where two that a corporate body is not a citizen
corporations are created by adjoining of the United States as that term is
states for the improvement of a river
used in the 14th amendment. ' ' Insur-
ance Co. V. New Orleans, Fed. Cas. No.
forming the common state boundary."
7,052.
Ohio & M. E. Co. V. People, 123 111.
26 United States. Western Turf
467, 14 N. E. 874, citing Culbertson v.
Ass'n V. Greenberg, 204 U. S. 359, 51
Wabash Nav. Co., 4 McLean 544, Fed.
L. Ed. 520; Orient Ins. Co. v. Daggs,
Cas. No. 3,464.
172 U. S. 557, 561, 43 L. Ed. 552; Blake
See also § 390, infra.
V. McOlung, 172 U. S. 2?9, 43 L. Ed.
24 Bankers ' Trust Co. v. Texas & P. 432; Pembina Consol. Silver Mining &
E. Co., 241 U. 8. 295, 60 L. Ed. 1010. Milling Co. v. Commonwealth of Penn-
"It is claimed in argument that, sylvania, 125 U. S. 181, 31 L. Ed. 650;
before the adoption of the 14th Philadelphia Fire Ass'n v. New York,
amendment, to be a citizen of the 119 U. S. 110, 117, 30 L. Ed. 342;
United States, it was necessary to be- Liverpool Ins. Co. v. Massachusetts,
come a citizen of one of the states, 10 Wall. 566, 573, 19 L. Ed. 1029;
but that since the 14th amendment Ducat V. Chicago, 10 Wall. 410, 414,
this is reversed, and that citizenship 19 L. Ed. 972; Paul v. Commonwealth
in a state is the result and consequence of Virginia, 8 Wall. 168, 19 L. Ed. 357;
of the condition of citizenship of the Insurance Co. v. New Orleans, Fed.
United States. Admitting this view Cas. No. 7,052.
to be correct, we do not see its bear- Maine. Chafee v. Fourth Nat. Bank,
ing upon the question in issue. Who 71 Me. 514, 526, 36 Am. Eep. 345.
are citizens of the United States, [Massachusetts. Attorney General
within the meaning of the 14th amend- V. Electric Storage Battery Co., 188
ment, we think is clearly settled by Mass. 239, 3 Ann. Cas. 631, 74 N. E.
the terms of the amendment itself. 467.
'AH persons born or naturalized in New Jersey. Tatem v. Wright, 23
the United States, and subject to the N. J. L. 429, 441.
jurisdiction thereof, are citizens of New York. See Fire Department of
the United States and of the state City of New York v. Stanton, 28 N.
wherein they reside.' No words could Y. App. Div. 334, 51 N. Y. Supp. 242.
make it clearer that citizens of the Ohio. Humphreys v. State, 70 Ohio
United States, within the meaning of N. E. 957.
St. 67, 70
this article, must be natural, and not West Virginia. Floyd v. National
824
'
Ch. 13] Citizenship, Domicile akd Residence [§389
true that a state may prescribe the conditions on which a foreign

corporation may do business within its borders or may exclude it
Loan & Investment Co., 49 W. Va. poration; and if it appeared that they
327, 54 L. E. A. 536, 87 Am. St. Eep. were citizens of another state, and the
805, 38 S. E. 653. fact was set forth by proper aver-
The quaere by Petitt, C. J., in his ments, the corporation might sue in
note to Western U. Tel. Co. v. Dickin- its corporate name in the courts of the
son, 40 Ind. 444, 13 Am. Eep. '
' as
295, United States. But in that case the
a corporation is a citizen of the state court confined its decision, in express
in which why is it not en-
it is created, terms, to a question of jurisdiction;
titled the privileges and im-
to all to a right to sue; and evidently went
munities of the citizens of the several even so far with some hesitation. We
states to trade and transact busi- fully assent to the propriety of that
ness?", is answered by Bank of Au- decision, and it has ever since been
gusta V. Earle, 13 Pet. (U. S.) 519, 10 recognized as authority in this court.
L. Ed. 274, in which the court said: But the principle has never been ex-
"On the part of the plaintiff in error, tended any farther than it was car-
it has been contended that a corpora- ried in that case, and has never been
tion composed of citizens of other supposed to extend to contracts made
states is entitled to the benefit of by a corporation, especially in another
that provision in the Constitution of sovereignty. If it were held to embrace
the United States which declares that contracts, and that the members of
'The citizens of each state shall be a corporation were to be regarded
and immuni-
entitled to all privileges as individuals carrying on busi-
ties of citizens in the several states; ness in their corporate name, and
that the court should look behind the therefore entitled to the privileges of
act of incorporation, and see who are citizens in matters of contract, it is
the members of it; and, if in this case very clear that they must at the same
it should appear that the corporation time take upon themselves the liabili-
of the Bank of Augusta consists alties of and be bound by
citizens,
together of citizens of the state of their contracts in like manner. The
Georgia, that such citizens are entitled result of this would be to make a cor-
to the privileges and immunities of poration a mere partnership in busi-
citizens in the state of Alabama; and ness, in which each stockholder would
as the citizens of Alabama may un- be liable to the whole extent of his
questionably purchase bills of ex- property for the debts of the corpora-
change in that state, it is insisted that tion; and he might be sued for them
the members of this corporation are in any state in which he might hap-
entitled to the same privilege, and pen to be found. The clause of the
cannot be deprived of it even by ex- Constitution referred to certainly
press provisions in the constitution never intended to give to the citizens
or laws of the state. The case of The of each state the privileges of citizens
Bank of the United States v. Deveaux, in the several states, and at the same
5 Cranch 61, 3 L. Ed. 194, is relied on time to exempt them from the liabili-
to support this position. It is true, ties which the exercise of such privi-
that in the case referred to, this court leges would bring upon individuals
decided that in a question of jurisdic- who were citizens of the state. This
tion they might look to the character would be to give the citizens of other
of the person composing a cor- states far higher and greater privi-
825
§390] Private Cobporations [Ch. 13
altogether therefrom ** when it is not engaged in interstate or foreign

commerce and is not in the employ of the federal government.^'
§ 390. For purposes of federal jurisdiction —Diversity of citizen-

ship. A corporation, for purposes of federal jurisdiction on the
ground of diversity of citizenship, is a citizen of the state or country
which created it, only, although, by comity, it may be allowed to do
business through its agents elsewhere.*'
leges than are enjoyed by the citizens The other limitation on the power of
of the state itself. Besides, it would the stateis, where the corporation is
deprive every state of all control over in the employ of the general govern-
the extent of corporate franchises ment, an obvious exception, first
proper to be granted in the state; and stated,we think by the late Mr. Justice
corporations would be chartered in
Bradley in Stockton v. Baltimore &
one, to carry on their operations in an-
N. Y. E. Co., 32 Fed. 9, 14. As that
other. It is impossible upon any sound
learned Justice said: 'If congress
principle to give such a construction
should employ a corporation of ship-
to the article in question. Whenever
builders to construct a man-of-war,
a corporation makes a contract it is
they would have the right to purchase
the contract of the legal entity; of
the necessary timber and iron in any
the being created by the
artificial
state of the Union.' And this court,
charter; and not the contract of the
in citing this passage, added, '
without
individual members. The only rights
the permission and against the pro-
it can claim are the rights which are
hibition of the state.' Pembina Con.
given to it in that character, and not
S. Min. & Mill Co. v. Pennsylvania,"
the rights which belong to its mem-
bers as citizens of a state."
supra. Horn Silver Min. Co. v. New
26 See chapter ori Foreign Corpora-
York, 143 U. S. 305, 36 L. Ed. 164.
tions, infra. See alô Cooper Mfg. Co. v. Fergu-
27 "Only two exceptions [to] or son, 113 U. S. 727, 734, 28 L. Ed. 1137;
qualifications [of the doctrine that a Huflfman v. Western Mortgage & In-
state may prescribe the conditions on vestment Co., 13 Tex. Civ. App. 169,
which foreign corporations may do 36 S. W. 306; Floyd v. National Loan
business within its borders] have been & Investment Co., 49 W. Va. 327, 54
attached to it in all the numerous ad- L. E. A. 536, 87 Am. St. Eep. 805, 38
judications in which the subject has S. E. 653.
been considered, since the judgment 28 See St. Louis & S. F. R. Co. v.
of this court was announced more James, 161 V. S. 545, 40 L. Ed. 802;
than a half century ago in Bank of In re Keasbey & Mattison Co., 160
Augusta V. Earl, 13 Pet. (N. S.) 519, U. S. 221, 40 L. Ed. 402; In re Hohorst,
10 L. Ed. 274. One of these qualifica- 150 U. S. 653, 37 L. Ed. 1211; South-
tions is that the state cannot exclude ern Pac. Co. V. Denton, 146 U. S. 202,
from its limits a corporation engaged 36 L. Ed. 943; Shaw v. Quincy Min.
in interstate or foreign commerce, es- Co., 145 U. S. 444, 36 L. Ed. 768; Can.
tablished by the decision in Pensacola Southern E. Co. v. Gebhard, 109 XJ. S.
Tel. Co. V. W. U. Tel. Co., 96 U. S. 1, 527, 537,' 27 L. Ed. 1020; Eailroad Co.
12 [24 L. Ed. 708, implied recognition V. Koontz, 104 II. S. 5, 26 L. Ed. 643;
of which qualification the court found Ex parte Schollenberger, 96 TJ. S. 369,
even in Paul v. Commonwealth, supra]. 24 L. Ed. 853; Tioga E. Co. v. Bloss-
826
"By doing business away from their legal residence they do not
change their citizenship, but simply extend the field of their opera-
tions. They reside at home, but do business abroad. ^' '
'
burg & C. E. Co., 20 Wall. (U. S.) 137, Corporation, 136 U. S. 356, 34 L. Ed.
22 L. Ed. 331 (by Hunt, J., concurring 363.
in judgment) ; Baltimore
O. E. Co.& A corporation created and organ-
V. Harris, 12 Wall. (U. S.) 65, 20 L. ized under the laws of a particular
Ed. 265; Paul v. Virginia, 8 Wall. state and having its principal ofBee
(U. S.) 168, 181, 19 L. Ed. 357; Ohio there, is, for the purpose of suing and
& M. R. Co. V. Wheeler, 1 Black (U. being sued, a citizen of that state, and
S.) 286, 17 L. Ed. 130; Lafayette Ins. although it may transact business
Co. V. French, 18 How. (TJ. S.) 404, wherever its charter allows, unless pro-
15 L. Ed. 451; Tombigbee E. Co. v. hibited by local laws, it cannot mi-
Kneelaud, 4 How. (U. S.) 16, 1 L. Ed. grate or change its residence without
855; Euuyau v. Coster, 14 Pet. (TJ. S.) the consent, express or implied, of its
122, 10 L. Ed. 382; Bank of Augusta state. Baltimore & O. E. Co. v.
V. Earle, 13 Pet. (XT. S.) 519, 10 L. Ed. Koontz, 104 U. S. 5, 26 L. Ed. 643.
274; Baumgarten v. Alliance Assur. See also § 387, supra.
Co., Ltd., of London, England, 153 For purposes of jurisdiction, state
Fed. 301; United States v. Northern as well as federal, a corporation is
Pac. E. Co., 134 Fed. 715, rev'g 120 regarded as a resident of the state
Fed. 546; A. L. Wolff & Co. v. Choc- by which it was created and as a non-
taw, O. & G. E. Co., 133 Fed. 601; resident of other states. Boyer v.
Olson V. Buffalo Hump Min. Co., 130 Northern Pac. E. Co., 8 Idaho 74, 70
Fed. 1017; Eust v. United Waterworks L. E. A. 691, 66 Pac. 826.
Co., 70 Fed. 129; Missouri Pac. Ey. Eule applied to joint-stock company.
Co. V. Meeh, 69 Fed. 753, 30 L. E. A. Fargo V. Louisville, etc., Ey. Co., 6
250; American Sugar-Eefining Co. v. Fed. 787.
Johnson, 60 Fed. 503; St. Louis, L M. 29 Baltimore & O. E. Co. v. Koontz,
& S. Ey. Co. V. Newcom, 56 Fed. 951; 104 U. S. 5, 26 L. Ed. 643.
Fales Adm'x v. Chicago, M. & St. P. A corporation created by the laws
Ey. Co., 32 Fed. 673; Oregonian Ey. of a foreign country does not become
Co., Ltd. V. Oregon Ey. & Nav. Co., a citizen or resident of a state of the
27 Fed. 277; Pacific E. E. v. Missouri United States for purposes of fed-
Pac. E. Co., 23 Fed. 565; Day v. eral jurisdiction by doing business in
Newark India-Eubber Mfg. Co., 1 such state and having an office there-
Blatchf. 628, Fed. Cas. No. 3,685. in. Notwithstanding such acts, its
"Although a corporation is not a residence and citizenship remain in
citizen of a state within the meaning the country by the laws of which it
of many provisions of the national was created. Baumgarten v. Alliance
Constitution, it is settled that where Assur. Co., Ltd. of London, England,
rights of property or of action are 153 Fed. 301, disapproving Miller v.
sought to be enforced, it will be treat- Eastern Oregon Gold Min. Co., 45 Fed.
ed as a citizen of the state where 345, 348, and Gilbert v. New Zealand
created within the clause extending Ins. Co., 49 Fed. 884, 15 L. E. A. 125;
the judicial power of the United Howard v. Gold Eeefs of Georgia,
States to controversies between citi- 102 Fed. 657; Shattuck v. North Brit-
zens of different states." Nashua & ish & Mercantile Ins. Co. of London
L. E. Corporation v. Boston & L. E. & Edinburgh, 58 Fed. 609.
827
Originally, the holding that a corporation is a citizen, for purposes

of federal jurisdiction on this ground, followed upon allegation and
proof that all of its stockholders were citizens of a certain state.^"
Subsequently, however, there was established the rule, which obtains
to-day, that a suit by or against a corporation in its corporate name
will, forsuch purposes, be conclusively presumed to be a suit by or
against citizens of the state which created the corporation, and that
neither averment nor evidence tending to show that one or more of
the corporators are not citizens of such state will be permitted.'^
"Acorporation created lay the laws 24 Ore. 32, 41 Am. St. Eep. 831, 32
of a foreign country does not become Pac. 756.
a citizen or resident of a state of this 30 Bank of United States v. De-
Union by merely opening an ofSoe in veaux, 5 Cranch (U. S.) 61, 3 L. Ed.
the and transacting business
state, 38; Hope Ins. Co. v. Boardman, 5
there; and a petition for removal Cranch (U. S.) 57, 3 L. Ed. 36. See
which shows that the defendant is a also § 387, supra.
corporation chartered by the laws of 31 Louisville, C. & C. E. Co. v. Let-
another state or a foreign country does son, 2 How. (U. S.) 497, 11 L. Ed. 353.
not have to allege negatively that That for purposes of federal juris-
it is not a citizen or resident of the diction the members of a corporation
state in which suit is brought against are conclusively presumed to be citi-
it, because in legal contemplation its zens of the state by which the cor-
residence and citizenship can only be poration was created is a proposition
in the state or country by the laws "so firmly established that further
of which it was created, although it discussion of""would be both use-
it
may have an office and do business in less and inappropriate." Thomas v.

other states whose laws permit it." Ohio State University, 195 U. S. 207,
Shattuck V. North British & Mercan- 49 L. Ed. 160.
tile Ins Co. of London & Edinburgh, See also Barrow Steamship Co. v.
58 Fed. 609. See also Baumgarten v. Kane, 170 U. S. 100, 42 L. Ed. 964;
Alliance Assur. Co., 153 Fed. 301. United States v. Northwestern Ex-
In the absence of any statute regu- press, Stage & Transportation Co., 164
lating the matter, a corporation main- U. S. 686, 689, 41 L. Ed. 599; St.
taining an agency in a state other Louis & S. F. E. Co. v. James, 161 U.
than that of its creation and doing S. 545, 40 L. Ed. 802; National Steam-
business therein, is deemed a resident ship Co. V. Tugman, 106 U. S. 118, 27
thereof, and subject to the jurisdiction L. Ed. 87; MuUer v. Dows, 94 U. S.
of its courts in all matters growing 444, 24 L. Ed. 207; Baltimore & O. E.
out of contracts made in such state, Co. V. Harris, 12 Wall. (U. S.) 65, 20
or causes of action arising therein, L. Ed. 354; Ohio & M. E. Co. v. Whee-
and service of process can be made ler, 1 Black (U. 286, 17 L. Ed.
S.)
on it in the same manner as in case 130; Smith v. New
York, N. H. & H.
of a domestic corporation. Cunning- E. Co., 96 Fed. 504; Taylor v. Illinois
ham V. Klamath Lake E. Co., 54 Ore. Cent. E. Co., 89 Fed. 119; Hollings-
13, 101 Pac. 213, rehearing denied worth V. Southern Ey. Co., 86 Fed.
101 Pac. 1099; Farrell v. Oregon Gold 353; Philippine Sugar Estates Devel-
Co., 31 Ore. 463, 49 Pac. 876; Aldrich opment Co. V. United States, 39 Ct.
V. Anchor Coal & Development Co., CI. (U. S.) 225, 241; Thorn v. Central
828
A corporation is a citizen of a particular state for purposes of

R. Co., 26 N. J. L. 121j Eeee v. New- The legal presumptions, for pur-
port News & M. v. Co., 32 W. Va. 164, poses of federal jurisdiction, that the
171, 3 L. E. A. 572, 9 g. E. 212. members of a corporation are citizens
'
' Strictly speaking, corporations of the state which created it and that
cannot be citizens; and therefore, in a suit by or against a corporation in
order to hold them amenable to the its corporate name is a suit by or
federal jurisdiction on the ground of against citizens of the state which
citizenship, it has been found neces- brought the corporation into being,
sary to assume, often contrary to the will not defeat federal jurisdiction,
fact, that all the stockholders are citi- on the ground of diversity of citizen-
zens of the state by which the cor- ship, of a suit against a corporation by
poration was eieated. It is only by a stockholder therein, there being no
virtue of this assumption that a legal presumption in such a case that
corporation can be said to be a citi- the complainant by reason of his re-
zen of any state. The presumption lation to the corporation is a citizen
that all the stockholders are citizens of the same state as the latter. Han-
of the state under whose laws they chett v. Blair, 100 Fed. 817.
incorporate is a conclusive presump- See also TJtah-Nevada Co. v. De
tion, and the fact will not be inquired Lamar, 133 Fed. 113.
into. The fact may be that not one Since the provisions of the Consti-
of the stockholders is a citizen of such tution of the United States cannot be
state; but if so, it cannot be made nullified by presumptions of law or
to appear. The place of transacting legal fictions, the jurisdiction of the
business cuts no figure. The corpora- federal courts, on the ground of di-
tion, for judicial purposes, is a citizen versity of citizenship, of a suit against
of the state by which it was created, a corporation, created by one state,
even if all its business is transacted by certain of its stockholders, who
elsewhere, and all of its offices and are citizens of another state, cannot
places of business are outside of the be defeated by invoking the presump-
'
state. ' Pacific R. E. v. Missouri Pac. tion that the stockholders of a corpo-
Ey. Co., 23 Fed. 565. ration are citizens of the state by
The legal presumption that a cor- which the corporation was created.
poration is composed of citizens of Doctor V. Harrington, 196 IT. S. 579,
the state accompanies it when it does 49 L. Ed. 606, wherein Mr. Justice
business in another state. St. Louis McKenna said: "The reason of the
& S. F. K. Co. v. James, 161 U. S. presumption (we will so denominate
545, 40 L. Ed. 802. it) was to establish the citizenship of
The members of an alien corpora- the legal entity for the purpose of
tion will, for purposes of federal jur- jurisdiction in the federal' courts. Be-
isdiction,be conclusively presumed to fore its adoption difficulties had been
be citizens or subjects of the coun- encountered on account of the condi-
try or government by whose laws the tions under which jurisdiction was
corporation was created, and the cor- given to those courts. A corporation
poration itselfis for such purposes is constituted, it is true, of all its
to be deemed constructively a citizen stockholders, but it has a legal exist-
or subject of such country or gov- ence separate from them —rights and
ernment. National Steamship Co. v. obligations separate from them; and
Tugman, 106 U. S. 118, 27 L. Ed. may have obligations to them. It can
87. sue and be sued. At first this could
829
§390] Peivate Cobpoeations [Ch. 1!.
federal jurisdiction only when it is created out of natural persons,^''

and hence the fact that one state licenses or permits a corporation
created by another state to operate and transact business within its
borders, and adopts or naturalizes it and makes it a domestic cor-
poration for local purposes does not make it a citizen of the latter
state for the purpose of suing or being sued in the courts of the
United States.^s
be done in the Circuit Court of the 32 St. Louis & S. F. R. Co. v. James,
ITnited States only when the corpora- 161 U. S. 545, 40 L. Ed. 802.
tion was composed of citizens of the S3 Domestication of a corporation by
State which created it. Bank of a foreign state for local purposes does
United States Deveaux, 5 Cranch
v. not make it a citizen of such state
(U. S.) 61; Hope Ins. Co. v. Board- for the purpose of removing to the
man, 5 Cranch (U. S.) 57. But the federal courts a suit brought against
limitation came to be seen as almost it in the courts of such state; South-
a denial of jurisdiction to or against ern Ey. Co. V. Allison, 190 U. S. 326,

corporations in the federal courts, and 47 L. Ed. 1078, rev'g 129 N. C. 336,
in Louisville, C. & C. E. Co. v. Letson, 40 S. E. 91; Louisville, N. A. & C.
2 How.(U. S.) 497, prior cases were R. Co. V. Louisville Trust Co., 174
reviewed; and this doctrine laid down: V. S. 552, 43 L. Ed. 1081; nor for the
'That a corporation created by and purpose of defeating the jurisdiction
doing business in a particular State of the federal court in which the ac-
ia to be deemed to all intents and tion was originally brought. See Mis-
purposes as a person, although an arti- souri Pac. E. Co. v. Castle, 224 U. S.
ficial person, * * *
capable of be- 541, 56 L. Ed. 875.
ing treated as a citizen of that State, Although a railroad company own-
as much as a natural person.' And ing and operating a line of road
'when the corporation exercises its through several states may for many
powers in the State which chartered purposes be regarded as a corporation
it, that is its residence, and such an of each, the enabling legislation of
averment is sufficient to give the cir- such states does not make it a citizen
cuit courts jurisdiction.' The pre- of each so as to permit it to sue a
sumption that the citizenship of the citizen of one of such states in a fed-
corporators should be that of the domi- eral court on the ground of diversity
cile of the corporation was not then of citizenship. St. Joseph & G. I. R.
formulated. That came afterwards, Co. V. Steele, 167 U. S. 659, 42 L. Ed.
and overcame the difficulty and objec- 315.
tion that the legal creation, the cor- Nor does a mere license granted by
poration, could not be a citizen within a state to a foreign railroad company
the meaning of the Constitution. Mar- to do business within its borders make
shall V. Baltimore & O. E. Co., 16 How. such company a citizen of the state
(TJ. S.) 314. This, then, was its granting the license, so as to prevent
purpose, and to stretch beyond this the removal to the federal courts
is to stretch it to wrong. It is one by the company on the ground
thing to give to a corporation a sta- of diversity of citizenship, of a
tus, and another thing to take from a suit brought against it by a citi-
citizen the right given him by the zen of the state in the courts thereof
Constitution of the United States." Gerling v. Baltimore & O. E. Co., 151
830
Ch. 13] Citizenship, Domioilk and Residence [§ 390
In this connection it may be stated that the application and opera-
XT. S. 673, 38 L. Ed. 311. In this case, a mere license to the

poration, but
in holding that the Baltimore & Ohio Maryland corporation.
Railroad Company was not a citizen A railroad company granted a right
of West Virginia so far as federal of way, etc., in a foreign state, does
jurisdiction was concerned, the court not in consequence become a domestic
said: "There does not appear, there- corporation and hence a citizen of
fore, to be such a settled course of such state so as to prevent its removal
adjudication in the courts of West to the federal courts of a suit brought
Virginia that the Baltimore & Ohio against it in the state courts by a
Eailroad Company has been made by citizen of the state. Hubble v. Nash-
the statutes of Virginia a corporation ville, C. & St. L. Ey. Co., 185 Fed.
of that state and of the state of West 535.
Virginia, as should induce this court, A
corporation transacting business
when the question arises under an in a foreign state, the statutes of
act of congress defining the jurisdic- which in terms fix its domicile within
tion of the courts of the United the state by the very fact of its de-
States, to surrender its own opinion, ing business therein, remains a foreign
and to reverse the conclusion at which corporation nevertheless as far as the
it deliberately arrived in Baltimore & jurisdiction of the federal courts on
O. E. Co. V. Harris [12 Wall. (U. S.) the ground of diversity of citizenship
65, 20 L. Ed. 354], and which it has is concerned. St. Louis & S. F. E.
since repeatedly approved." Co. V. Cross, 171 Fed. 480.
See also Willson v. Winchester & A railroad company chartered by a
P. E. Co., 99 Fed. 642, aff'g 82 Fed. foreign state as a domestic corpora-
15; County Court of Taylor County, tion for local purposes does not there-
V.Baltimore & O. E. Co., 35 Fed. 161. by become a citizen of such state
In Baltimore & O. E. Co. v. Harris, for purposes of federal jurisdiction.
12 Wall. (IT. S.) 65, 20 L. Ed. 354, it Atlantic Coast Line E. Co. v. Dun-
was held that the Baltimore & Ohio ning, 166 Fed. 850. (This case ia
Eailroad Company, created by the notable because it was not the com-
laws of Maryland, was not a citizen pany as such that was created a cor-
or resident of Virginia by reason of a poration, but merely individuals
statute of the latter state which designated by its stockholders upon
provided that "the same rights and its having "merged, united and con-
privileges shall be, and are hereby, solidated" with a company in such
granted to the aforesaid company foreign state.)
within the territory of Virginia, and The fact that a corporation is trans-
the said company shall be subject to acting business in a foreign state

under the laws thereof does not make
the same pains, penalties, and obli-
it a citizen of such state so as to
gations as are imposed by said act
prevent one who is a citizen from
[the act of Maryland], and the same
suing it in acourt of the
federal
rights, privileges, and immunities
state. Haight &
Freese Co. v. Weiss,
which are reserved to the state of 156 Fed. 328, in which the court said
Maryland or to the citizens thereof that "after the Supreme Court has
are hereby reserved to the state of rendered decision on decision that a
Virginia and her citizens," as this corporation cannot migrate, and that
was not the creation of a new cor- the fact that it is doing business in
831
;§390j Private Cobpokations [Ch. 13
tion of this rule are the same, regardless of whether tne suit be
a state other than that of its organ- local purposes, is still a citizen for
ization does not create it a citizen purposes of federal jurisdiction, on the
thereof, it seems quite inconceivable ground of diversity of citizenship, of
that a proposition of this character a suit brought against it by a citizen
[namely, one to the contrary of that of such foreign state in the courts
stated above] should be urged on thereof, only of the state by which it
us." was created. Wilson v. Southern R.

An insurance company doing busi- Co., 64 S. 0. 162, 36 S. E. 701 (over-
ness in a foreign state under a permit ruling Mathis V. Southern Ey. Co., 53
from such state is not on that account S. C. 246, 257, 31 S. E. 240), aff'd on
a citizen thereof for purposes of fed- rehearing 64 S. C. 162, 41 S. E. 971;
eral jurisdiction on the ground of Calvert v. Southern R. Co., 64 S. C.
diversity of citizenship. Koshland v. 139, 41 S. E. 963, aff 'g on rehearing 64
National Tire Ins. Co. of Hartford, S. 0. 139, 36 S. E. 750.
31 Ore. 597, 49 Pac. 850; id., 31 Ore. A statute by which a foreign cor-
205, 49 Pac. 845. poration adopted or naturalized
is
The leasing by a foreign railroad without its being chartered or required

company of the line of road of a to obtain a charter and organize un-
domestic company does not ipso facto der the general law, does not make
make the lessee a domestic company it a domestic corporation so far as the
so far as federal jurisdiction, on the jurisdiction of the federal courts is
ground of diversity of citizenship, of concerned. Rece v. Newport News
a ûit against it is concerned. Hyder & M. Val. Co., 32 W. Va. 164, 172, 3 L.
V. Southern E. Co., 167 N. C. 584, 83 E. A. 572, 9 S. E. 212.
S. E. 689. The constitutional privilege of a
A
corporation becoming under the corporation which is a citizen of one
statutes of a foreign state a "citizen state to sue a citizen of another state
and resident" of the latter for local in the federal courts cannot be taken
purposes does not thereby lose its citi- away by the simple declaration of
zenship in the state by which it was the latter state that the corporation
created so as to prevent its removal is one of its citizens. Eece v. New-
to the federal courts of a suit brought port News & M. Val. Co., 32 W. Va.
against it by a citizen of the foreign 164, 171, 3 L. E. A. 572, 9 S. E. 212.
state in the courts thereof, on the See also St. Louis & S. E. E. Co.
ground of diversity of citizenship. V. Cross, 171 Fed. 480, aff'd Harrison
Davis' Adm'r v. Chesapeake & O. R. V. St. Louis & S. E. E. Co., 232 U. S.
Co., 116 Ky. 144, 75 S. W. 275 (opin- 318, 58 L. Ed. 621, distinguished in
ion 24 Ky. L. Eep. 1125, 70 S. W. 857, Cox V. Atlantic Coast Line E. Co., 166
withdrawn). N. C. 652, 82 S. E. 979, which in-
See also Lewis v. Maysville & B. S. volved an act of the legislature, au-
E. Co., 25 Ky. L. Rep. 948, 76 S. "W. thorizing the consolidation of railroad
526; Swice's Adm'x v. Maysville & companies but providing that "this
B. S. R. Co., 25 Ky. L. Rep. 436, 75 act shall not have the effect of oust-
S. "W. 278; Illinois Cent. E. Co. v. ing the jurisdiction of the courts of
Hibbs, 25 Ky. L. Eep. 1899, 78 S. W. this state over causes of action aris-
1116. ing within this state, ' and ' ' that any'
A
railroad corporation, although it and all corporations consolidated,
is domesticated by a foreign state for leased or organized under the provi-
832
'
Ch. 13] Citizenship, Domicile and Eesidenoe [§ 390
originally brought in a federal or a state eourt.^* Thus although a

corporation of one state is authorized by another state to do busi-
ness within its borders, and is endowed, for local purposes, with
all of the powers aJid privileges of a domestic corporation, it will
not be deemed to be composed of citizens of the adopting state.
sions of this act shall be domestic A railroad company, incorporated by

corporations of * * * [the state] one state, which purchases, at fore-
and shall be subject to the laws and closure sale, the property of a rail-
jurisdiction thereof. '
road company incorporated by another
The evident purpose of a statute state, cannot remove to the fe^^
declaring that a foreign railroad cor- eral courts, on the ground of diversity
poration operating in the state shall of citizenship, a suit brought against
be a domestic corporation "and so it in the courts of the latter state by
held and treated in all suits and legal a citizen of such st^te, when the stat'
proceedings which may be commenced utes thereof provide that upon a con-
or carried on by or against it," being veyance at a foreclosure sale being
to prevent such a corporation from made to a corporation, such "corpora-
removing to the federal courts suits tion shall ipso facto be dissolved and
brought by or against it in the state the said purchaser shall forthwith be a
courts, such statute is in conflict with new corporation, by any name which
the Constitution and laws of the may be set forth in the conveyance,"
United States and hence inoperative etc. Hurst v. Southern E. Co., 162
imd void. Rece v. Newport News & N. C. 368, 78 S. E. 434, following Caro-
M. Val. Co., 32 W. Va. 164, 173, 3 L. lina Coal & Ice Co. v. Southern E.
E. A. 572, 9 S. E. 212, on the author- Co., 144 N. C. 732, 57 S. E. 444.
ity of Insurance Co. v. Morse, 20 34 ' We do not subscribe to the doe-
'
Wall. (U. S.) 445, 22 L. Ed. 365. But trine that, if a corporation files its
compare Memphis & C. E. Co. v. Ala- charter in one state, after having been
bama, 107 U. S. 581, 27 L. Ed. 518. first chartered in another state, and
(The defendant in this case was origi- is sued by a citizen of the state in
nally incorporated in Tennessee and which it filed its charter^ in the state
was subsequently granted a right of courts of that state, the right of re-
way, etc., in Alabama by an act of moval to the federal courts will be
the legislature of the latter state denied, while, at the same time, if
which, although not specific on the such a corporation is sued by a citizen
subject,was held to make it an Ala- of the state in which it filed its char-
bama corporation.) See also, in con- ter, in the United States courts, the
nection with the casQ last cited, , jurisdiction of the United States
Thompson v. Southern Ey. Co., 130 N. courts will be sustained upon the
C. 140, 41 S. E. 9; Mowery v. Southern ground that in the federal courts the
Ey. Co., 129 N. C. 351, 40 S. E. 88; corporation is domestic in the state
Allison V. Southern Ey. Co., 129 N. C. where it was originally created and
336, 40 S. E. 91, rev'd 190 TJ. S. 326, where its original incorporators are
47 L. Ed. 1078; Lay den v. Endowment citizens, andbe conclusively
it will
Eank K. P. of World, 128 N. C. 546, presumed, as a matter of law, that
39 S. E. 47; Debnam v. Southern Bell they are citizens of the state origi-
Telephone & Telegraph Co., 126 N. C. nally chartering it. If there be jur-
831, 86 S. E. 269. isdiction in the United States courts
833
1 Priv. Corp.— 53
and hence a federal court of the latter state has no jurisdiction of a

suit against by a citizen of the state of its original creation,'* but
it
does have jurisdiction of a suit against it by a citizen of the state

adopting it.'^
A statute providing that every foreign railroad corporation which
has leased or purchased any railroad in the state shall file a certified
copy of its articles of incorporation or charter with the secretary of
state and shall thereupon become a corporation of the state, anything
in its articles of incorporation or charter to the contrary notwith-
standing, does not make a corporation, coming within the purview of
the statute and complying therewith, a citizen of the state in such a
sense that a suit against it by a citizen of the state of its origin may
be brought in the federal court of the state of its adoption on the
ground of diversity of citizenship.*'' So also, it has been held that
in the latter case, on the ground that of the state creating it, so as to pre-
it isA corporation and citizen of the sume in like manner that corporators
state in which it was created, that of an adopted corporation are citizens
fact gives jurisdiction to the federal of the state adopting it." Hollings-
court to remove the case from the worth V. Southern Ey. Co., 86 Fed.
state court when the corporation is 353.
sued by a citizen of the state in which 86 St. Louis & S. F. R. Co. v. James,
it filed its charter, because such cor- 161 U. S. 545, 40 L. Ed. 802.
poration is a citizen of another state, 36 Goodlett V. Louisville & N. E. Co.,
namely, the state in which it was origi- 122 U. S. 391, 30 L. Ed. 1230.
nally created. The citizenship of 37 St. Louia & S. F. E. Co. v. James,
the corporation not changed be-
is 161 U. S. 545, 40 L. Ed. 802.
cause of the particular court in which In Louisville Trust Co. v. Louis-
the action is commenced. If it be a ville, N. A. & C. E. Co., 75 Fed. 433,
citizen of another state in the ono it was held that the Louisville, New
case, it is ûch citizen also in the Albany & Chicago E. Co., which was
other, and, if the other party to the organized under the laws of Indiana,
action be a citizen of a state other might sue a citizen of Kentucky in
than the one which created the cor- the federal court of the latter state
poration, the jurisdiction of the fed- notwithstanding an act of the Ken-
eral courts exists, and the right of the tucky legislature providing that such
corporation complying with
(upon company was thereby constituted a
the statute) to remove the case from corporation, ptc. This holding the
the state court when it is sued by a court based on St. Louis & S. F. E. Co.
citizen of the state where its charter V. James, supra, considering which it
may have been subsequently filed, is said: "The St. Louis & San Francisco
granted by the laws of the United Eailway Company was a corporation
States." Southern R. Co. v. Allison, organized under the laws of Missouri.
190 U. S. 326, 47 L. Ed. 1078, rev'g It owned and operated a railway in
129 N. C. 336, 40 S. E. 91. Arkansas. By virtue of the laws of
The courts will not "extend the the latter state, it was required to
doctrine that the corporators of a file a copy of charter and a cer-
its
corporation are indisputably citizens tificate of its incorporation with the
834
diversity of citizenship exists between a railroad company incor-

porated in one state and a citizen of another state in which the
company operates a line of road, although such company has com-
plied with the statutes of the latter state which provide that no
foreign company shall operate any railway in the state imtil by incor-
poration under the laws of the state it shall have become a citizen
thereof; that a violation of this provision shall constitute a misde-
meanor and be punishable by a fine, and that a foreign company may
become a corporation and citizen of the state by filing in the office
secretary of state. It was declared to that state. It follows that, whether
become thereby a domestic corpora- the complainant in the bill below must
tion of the state of Arkansas. The be regarded as a corporation of In-
action was for a personal injury indiana or a corporation created by the
flicted in Missouri. The plaintiff was acts of the Kentucky legislature » • »
a citizen of Missouri, and sued the in either case it was a citizen of
corporation in the federal court in Indiana for the purposes of federal
Arkansas as a corporation of Arkan- jurisdiction. The cause was therefore
sas. The Supreme Court decided that one arising between citizens of dif-
the indisputable presumption that the ferent states, and the court below had
incorporators of the company were full jurisdiction."
citizens of the state granting incor- See also Walters v. Chicago, B. & Q.
poration, applied only when the i -cor- E. Co., 104 Fed. 377, afl'd 186 U. S.
porators were individuals, and that, 479, 46 L. Ed. 1266; Smith v. New
when the act of incorporation pur- York, N. H. & H. E. Co., 96 Fed. 504.
ported to create a new corporation In Baltimore & O. E. Co. v. Koontz,
out of the corporation of another state, 104 XJ. S. 5, 26 L. Ed. 643, it was held
the new corporation, for purposes of that the Baltimore & Ohio Eailroad
federal jurisdiction, must be regarded Company, created under the laws of
as a citizen of the same state as that Maryland, had the right to remove
of the constituent corporation. It into the federal court, on the ground
was therefore held that though the St. of diverse citizenship, a suit brought
Louis & San Francisco Eailway Com- against it in a Virginia court by a
pany might be a corporation of Ar- citizen of Virginia, although it had
kansas, by virtue of the statute leased and was operating a railroad in
making it such, nevertheless, because Virginia.
the law professed to make the new A railroad corporation created by
corporation out of a corporation of one state does not become a citizen
Missouri, the citizenship of the new of another state for purposes of fed-
corporation must be the same as that eral jurisdiction, by reason of the
of the old, and there was conse- fact that a railway corporation cre-
quently no jurisdiction. So, in the ated by the latter state becomes
case at bar, as the Kentucky acts merged in it under legal authority,
professed to incorporate a corporation notwithstanding it subsequently is
of Indiana, there is no presumption domesticated for local purposes. Lee
that the corporators are citizens of V. Atlantic Coast Line E. Co., 150 Fed.
Kentucky, which will make, for pur- 775. See also Morgan v. East Ten-
poses of federal jurisdiction, the new nessee & V. E. Co., 48 Fed. 705.
Kentucky corporation a citizen of A railroad company purchasing the
835
of the secretary of state and in the office of the railroad commission,

a copy of its charter or articles of incorporation, etc,"
A constitutional provision that no railroad company organized
under the laws of a foreign state shall be entitled to exercise the
right of eminent domain or have the power to acquire a right of way
or real estate for depot or other purposes until it shall have become
a body corporate pursuant to and in accordance with the laws of the
state, requires such a company to become a domestic corporation in
order to act in the particulars referred to, but does not affect the
citizenship, so far as federal jurisdiction on the ground of diversity
of citizenship is concerned, of a foreign corporation becoming a
domestic one as required.'^
.
-A' consolidated railroad company, one of the component companies
of which was incorporated under the laws of the state in which suit
is brought against the consolidated company by a citizen of such state,
will, for purposes of federal jurisdiction, be deemed a citizen of the
same state, without regard to its corporate existence elsewhere.*"
"Whenever a corporation of one state, by legislative sanction, be-
comes also a corporation of another state, either by the process of
consolidation or otherwise, whatever acts it subsequently does or per-
forms in the latter state it does and performs as a domestic, and not
as a foreign corporation. It derives all of its powers to act as a cor-
property and franchises and operat- R. Co., 127 Fed. 986; Goodwin v. New
ing the line of a railroad company York, N. H. & H. R. Co., 124 Fed. 358
located in a foreign state does not (reviewing a large number of cases
thereby become a citizen of such state bearing on the subject),
so far as federal jurisdiction of a suit A
railroad company created out of
against it is concerned, and it is im- natural persons has its citizenship^ for
material that the constitution of such purposes of federal jurisdiction on the
state provides that no domestic rail- ground of diversity of citizenship, in
road company shall become a foreign the state by which it was created,
corporation through consolidation notwithstanding its purpose was to
with or by sale to a railroad com- take over among others, railroad prop-
pany of a foreign state. Cummins v. erties belonging to foreign corpora-
Chicago, B. & Q. R. Co., 193 Fed. 238. tions and lying in foreign states,
38 Taylor v. Illinois Cent. R. Co., 89 under an authorized consolidation
Fed. 119. agi-eement entered into by all of the
39 Walters v. Chicago, B. & Q. R. corporations interested. Westheider
Co., 104 Fed. 377, afE'd 186 IT. S. 479, v. Wabash R. Co., 115 Fed. 840. Com-
46 L. Ed. 1266. pare, however, Winn v. Wabash R. Co.,
40 Case V. Atlanta & C. A. R. Co., 118 Fed. 55, wherein the same trans-
225 Fed. 862; Baldwin v. Chicago & N. actions were involved, but a different
W. Ry. Co., 86 Fed. 167. See also state of facts was found and a differ-
Wasley V. Chicago, R. I. & P. Ry. Co., ent conclusion on such state of facts
147 Fed. 608; Goodwin v. Boston & M. was reached.
836
Ch. 13] Citizenship, Domicile and Eesidence [^ 390
poration in the state of adoption from local laws. If it is there

its
sued for an act done within the state, it is sued and must answer as
a domestic, and not as a foreign, corporation."*^ citizen of one A
state, however, may sue a consolidated railway and bridge corpora-
tion in the federal court of the state in which one of its component
companies was incorporated, notwithstanding the fact that its other
component company was incorporated in the plaintiff 's own state.*^
Moreover, a consolidated railroad company may sue a citizen of the
41 Missouri Pac. Ey. Co. v. Meeh, 69 of jurisdiction. Business enterprises

Fed. 753, 758, 30 L. R. A. 250, in in which a combination of such corpo-
which it was held tha-t the circuit ration may engage, create common
court of the United States for the dis- rights, and entail joint liabilities.
trict of Kansas had no jurisdiction, on These, however, concern the activities

the ground of diversity of citizenship, of the corporations, and not their es-
of an action by a citizen of Kansas sential character. When the idea is
against the Missouri Pacific Kailway grasped that whenever a corporation

Company which was made up of com- is sued in a state by whose laws it
panies incorporated under the laws of has been created and the question of
the states of Kansas, Nebraska, and its citizenship is involved, the court
Missouri. See also Bradley v. Ohio, will regard the corporation intended
E. & C. Ey. Co., 78 Fed. 387; Cox v. as defendant as the one created and
Atlantic Coast Line E. Co., 166 N. C. existing by the laws of that state, we
652, 82 S. E. 979; Staton v. Atlantic have the key to the solution of the
Coast Line E. Co., 144 N. C. 135, 56 inquiry. The laws of the state are
S. B. 794, distinguishing Southern E. the mould in which the corporation is
Co. V. Allison, 190 V. S. 326, 47 L. east and continues to exist. It de-
Ed. 1078. rives its faculties from those laws;
42 Williamson v. Krohn, 66 Fed. 655. and the fact that it may be allowed
See also Chicago & N. W. Ey. Co. v. to exercise those faculties in another
Whitton, 13 Wall. (TJ. S.) 270, 20 L. state, however freely or with what-
Ed. 571, followed in Muller v. Dows, ever limitations, does not alter its es-
94 U. S. 444, 24 L. Ed. 207. sential character in the state of
"Although for some purposes a its creation. It is a citizen of that
body incorporated in several states state and of no other, whatever privi-
may be regarded as an entity, it is leges it may there be permitted td
not so for all. It is likely to have enjoy, even though they be identical
different attributes in each state aris- with those it enjoys at its home."
ing from different laws which affect Lake Shore & M. S. Ey. Co. v. Eder,
"^
it. It might acquire franchise in one 174 Fed. '944.
state which it does not possess in oth- A corporation "incorporated by the
ers. An incorporation by one state of concurrent action" of different states
the same individuals is not the adop- may be sued in the federal circuit
tion of the corporation of another court of one of such states by a citi-
state. These considerations furnish a zen of another on the ground of 'di-
reason why it is that, where a corpora- versity of citizenship. Boston f; M.
tion of a state sued in its own
is E. Co. V. Kurd, 108 Fed. 116, 56 L.
courts, regard is had to it only as a E. A. 193.
creation of that state for all purposes
837
' a
§390] Peivate Cokpokations [Ch, 13
state in which one of its component companies was incorporated in

the federal court in such state, its other component company being
incorporated under the laws of a foreign state.*^
But corporations of the same name, composed of the same natural

persons, and intended to accomplish the same purposes, but chartered
by different states cannot, as a single corporation "created by the
laws of the states" named, sue a citizen of one of such states in the
43 Nashua & L. B. Corporation v. difference in principle. It seems to me

Boston & L. E. Corporation, 136 U. S. that when the plaintiff comes into the
356, 34 L. Ed. 363. See also St. Louis, federal court, if a corporation of an-
A. & T. H. E. Co. V. Indianapolis, St. other state, it is clothed with all
L. E. Co., 9 Bias. 144, Fed. Cas. No. the attributes of citizenship which the
12,237 (afE'd Pennsylvania E. Co. v. laws of that state confer, and the
St. Louis, A. & T. H. E. Co., 118 U. S. shareholders of that corporation must
290, 30 L. Ed. 83), wherein it was be conclusively regarded as citizens
said: "The law upon this
state of the of the state which created the corpora-
subject, as decided by the Supreme tion, precisely the same as if it were a
Court of the United States, appears to defendant. '
be this: that the fact that there are "Identity of name, powers and pur-
railroad corporations created by dif- poses does not create an identity of
ferent states, which have been con- origin or existence, any more than any
solidated under the laws of those other statutes, alike in language,
states, and the railroad operated by passed by different legislative bodies,
virtue of that consolidation as one can properly be said to owe their ex-
entire line of road, will not prevent istence to both. To each statute and
the corporation from being sued in to the corporation created by it there
one of those states as a corporation can be but one legislative paternity."
created by the laws of that state, pro- Nashua & L. E. Corporation v. Boston
vided the plaintiff is a citizen of a state & L. E. Corporation, 136 XJ. S. 356, 34
other than that of the state which cre- L. Ed. 363.
ates the corporation. The only law that A corporation can neither divest it-
operates upon it is the law of its own self of its paternity nor ever lose it,
state. If the corporation is a defend- nor can the subsequent act of any
ant, that is expressly decided by the state or sovereign change it. Hol-
court in the two cases last cited [Chi- lingsworth v. Southern Ey. Co., 86
cago & N. W. Ey. Co. v. Whitton, 13 Fed. 353.
Wall. (TJ. S.) 270, 20 L. Ed. 571, and For dictum that a railroad corpora-
MuUer v. Dows, 94 TJ. S. 444, 24 L. Ed. tion created by one state and consoli-
207]. Now, if that is so as to the dated with a like corporation cre-
defendant, why is there any difference ated by an adjoining state —
where the plaintiff as a corporation continuous line of road being operated
brings the suit? If the defendant cor- by the two corporations —^may sue the
poration, though consolidated with latter in a federal court on the ground
another of a different state, can be of diversity of citizenship, see Rt.
sued in the federal court, in the state Louis, A. & T. H. E. Co. v. Indian-
of its creation, as a citizen thereofj apolis & St. L. E. Co., 9 Hiss. 144, 156,
why can it not sue as a citizen of the Fed. Cas. No. 12,237.
etate which created it? I can see no
838
federal courts thereof on the ground of diversity of citizenship.**

Moreover, a railroad company incorporated in more than one state
44 "It follows that this corporate existence in the other, nor

suit in the corporate name is, in con- add to or diminish the powers to be
templation of law, the suit of the there exercised. It may, indeed, be
individual persons who compose it, composed of and represent, under the
and must, therefore, be regarded and corporate name, the same natural per-
treated as a suit in which citizens sons. But the legal entity or person,
of Ohio and Indiana are joined as which ixists by force of law, can have
plaintiffs in an action against a citi- no existence beyond the limits of the
zen of the last mentioned state. Such statt or sovereignty which brings it
an action cannot be maintained in a into Me and endues it with its facul-
court of the United States, where ties anO powers. The President and
jurisdiction of the case depends al- Directors of the Ohio and Mississippi
together on the citizenship of the Eailroad Company is, therefore a dis-
parties. And in such a suit it can tinct and separate corporate body in
make no difference whether the plain- Indiana from the corporate body of
tiffs sue in their own proper name3, the same name in Ohio, and they can-
or by the corporate name and style by not be joined in a suit as one and the
which they are described. The aver- same plaintiff, nor maintain a suit in
ments in the declaration would seem that character against a citizen of
to imply that the plaintiffs claim to Ohio or Indiana in a circuit court of
have been created a corporate body, the United States. Ohio & M. R. Co.
'
'
and to have been endued with the V. Wheeler, 1 Black (U. S.) 286, 17 L.
capacities and faculties it possesses Ed. 130. See also St. Joseph & G. I.
by the co-operating legislation of the E. Co. V. Steele, 167 U. S. 659, 42 L.
two states, and to be one and the Ed. 315 (one of the jurisdictional
same legal being in both states. If points in which was decided on the
this were the case, it would not affect authority of Ohio '& M. B. Co. v.
the question of jurisdiction in this Wheeler, supra) ; Missouri Pao. Ey. Co.
suit. But such a corporation can have v. Meeh, 69 Fed. 753, 30 L. E. A.
no legal existence upon the principles 250.
of the common law, or under the deci- In Baltimore & 0. E. Co. v. Harris,
sion of this court in the case of 12 Wall. (U. S.) 65, 20 L. Ed. 354,
The Bank of Augusta v. Earle, 13 Pet. which involved the question of the
519 * * *. It is true, that a cor- venue of an action against a corpo-
poration by the name and
style of the ration, the court said, however, that
plaintiffsappears to have been char- it saw "no reason why several states
tered by the states of Indiana and cannot, by competent legislation, unite
Ohio, clothed with the same capacities in creating the same corporation or
and powers, and intended to accom- in combining several pre-existing cor-
plish the same objects, and it is spo- porations into a single one," and,
ken of laws of the states as
in the further, that "so far as there is any-
one corporate body, exercising the thing in the language of the court in
same powers and fulfilling the same the case of O. & M. E. Co. v. Wheeler
duties in both states. Yet it has no I
supra] in conflict with what has been
legal existence in either state, ex- here said, it is intended to be re-
cept by the law of the state. And strained and qualified by this opin-
neither state could confer on it a ion," adding "that as the case [Ohio
839
cannot remove to the federal courts a suit brought against it in the

courts of one of the states in which it was incorporated by a citizen
of such state, on the ground that it is a citizen of another state.*"
§ 391. — Suits for infringement of patents, and for wrongful use

of trade-marks. By a federal statute, it is provided "that in suits
brought for the infringement of letters patent the circuit courts of
the United States shall have jurisdiction, in law or in equity, in .the
district of which the defendant is an inhabitant, or in any district in
which the defendant, whether a person, partnership, or corporation,
shall have committed acts of infringement and have a regular and
established place of business."** Applying this provision, it has
been held that a corporation is not an inhabitant of a district located
in a state in which it is not incorporated,*^ and it has been stated
& M. E. Co. V. Wheeler, supra] ap- the purpose of removing the cause
pears in the report, we think the judg- to the federal courts on the ground
ment of the court was correctly of diversity of citizenship. Home v.
given." And see, in connection with Boston & M. E. Fed. 50.
E., 18
this ease just quoted, St. Louis, A. & A railroad company sued by a citi-
T. H. E. Co. V. Indianapolis & St. L. zen of the state in which it was first
E. Co., 9 Biss. 144, 149, Fed. Cas. No. incorporated and in which it has its
12,237 (afC'd Pennsylvania E. Co. v. principal business will, for purposes of
St. Louis, A. & T. H. E. Co., 118 XJ. S. federal jurisdiction, be deemed a citi-
290, 30 L. Ed. 83) wherein it is said: zen of such state although it has
"It must be conceded I think, that also been incorporated in another
in principle, at least, this case [Ohio state. Fairfield v. Great Falls Mfg.
& M. E. Co. V. Wheeler, supra] has Co., 175 Fed. 305.
not been strictly followed in subse- 46 Act of March 3, 1897, 5 Fed. St.
quent decisions of the Supreme Court Ann. p. 566.
of the United States, and so it is not The provision of the Judiciary Act
the duty of the court to follow it of 1911 (Act of March 3, 1911, § 48)
unless in a case within its terms." is identicalwith the above provision in
A corporation created by one state the Patent Act of 1897, except for the
may be sued as a nonresident in the substitution of the word "district"
courts of a state creating a corpora- for "circuit" before the word
tion by the same name and for the "courts." (The circuit courts of the
same purpose, namely, the building of United States were abolished by § 289
a bridge across the river which con- of the Act of 1911.)
stituted the boundary between the iTWeller v. Pennsylvania E. Co.,
two states. Newport & C. Bridge Co. 113 Fed. 502.
v. Wooley, 78 Ky. 523. A corporation, manufacturing the
« Patch V. Wabash
E. Co., 207 IT. articles claimed to infringe letters
S. 277, 12 Ann. Cas. 518, 52 L. Ed. 204. patent and controlling and participat-
When a railroad company chartered ing in sales made by its corporate
in several states is sued in one of Bales agent for a certain territory, in
them by a citizen thereof, it cannot which territory such agent maintains
set up its citizenship in another for held to have had a "regular
offices,
840
Ch. 13] Citizenship, Domicile and Residence [§ 391
that "what is meant by a regular and established place of business

isone in which some substantial part of the business of the company
or corporation shall be carried on and this, in the case of any kind
;
of business, would seem to me to be, in a general way, the sale of the

commodities which the defendant may offer to the public. In the
case of a manufacturer it would be the sale of the product of his works.
In the case cf a railroad company I suppose it would be the sale of
something which the defendant does for the public. Its business is
and passengers, and the making of contracts for that
to carry freight
purpose would be the transaction of some substantial part of its
business."*^
In keeping with this quoted view, it has been held that a corpora-
tion,temporarily occupying space in an exposition in a foreign state
as an exhibitor of merchandise, does not have, as a result thereof, "a
regular and established place of biisiness" in the federal district in
which the site of the exposition is located.*' Moreover, it has been
held that this provision is inapplicable when the corporation sued
is an alien, and that suit against such a corporation may be main-
tained in any district in which service can be had upon the defend-
ant.so
and established place of business" in, the situation. Its sales agent chose
the district in which such offices are for his own purposes to have an office
located. Thomson-Houston Elec. Co. in the business section of the city
V. Bullock Elec. Co., 101 Fed. 587. and pay the rent therefor out of his
For a case wherein it was held that own pocket. If he had chosen to dis-
the maintenance of an office in a cer- pense with such an office, he might
tain district by the corporation-de- have transacted such business at his
fendant's sales agent did not give the own private residence without in any
corporation a "regular and estab- way breaking any contract that he
lished place of business" therein, see had with the defendant." See also
General Elee. Co. v. Best Elec. Co., 220 W. S. Tyler Co. v. Ludlow-Saylor Wire
Fed. 347, in which it was said: "Those Co., 236 IT. S. 723, 59 L. Ed. 808.
words and
[regularestablished 48Weller v. Pennsylvania E. Co.,
place of business] imply something 113 Fed. 502, holding that a railroad
more than a mere doing of busi- company does not have a "regular
ness in the district. I do not think and established place of business" in
the statement in its advertising liter-
a certain district by reason of the
ature that it had offices in all the
fact that it therein maintains offices
principal cities, without specifying
in charge of advertising and soliciting
any office in any city, suffices to make
agents who have no authority to con-
the office at which its sales agent
tract for the carriage of passengers
chooses to make his personal head-
quarters its regular and established or freight by it.
place of business. Nor does the fact 49 L. E. Waterman Co. v. Parker
that it referred prospective customers Pen Co., 100 Fed. 544.
to him in any wise necessarily change 60 United Shoe Machinery Co. v. Du-
841
Prior to the passage of this Act of 1897, it was necessary to look

to the Act of 1888'^ to determine the jurisdiction of the federal
courts of suits for the infringement of patents,** and, applying such,
act, it was held, in accordance with the general rule,*' that a corpora-
tion created by the state of Connecticut and having its principal
office in the state of Massachusetts but doing business in a certain
federal district of Illinois and sued in such district was not an
"inhabitant" thereof within the meaning of the first section of the
act which, after defining the jurisdiction of the circuit and district
courts of the United States, provided that "no civil suit shall be
brought before either of said courts against any person by original
process or proceeding in any other district than that whereof he is
an inhabitant," and hence the cause was required to he dismissed
for want of jurisdiction.**
In a ease decided by the Supreme Ck)urt of the United States, how-
plessis Independent Shoe Machinery 53 See § 396, infra.

Co., 133 Fed. 930. 64Gormully & Jeffrey Mfg. Co. v.
BlAet of Aug. 13, 1888, §1, cor- Pope Mfg. Co., 34 Fed. 818. See also
recting Act of Mar. 3, 1887, § 1 (4 Miller V. Wheeler & Wilson Mfg. Co.,
Fed. St. Ann., p. 266), which provided, 46 Fed. 882, a suit for the infringe-
inter alia, that "no civil suit shall be ment of letters patent, wherein the
brought before either of said [circuit court said: "I understand the doc-
or district] courts against any person trine to be settled, for the present,
by any original process or proceeding at least, in this circuit, that a corpo-
in any other district than that where- ration can only be a resident and
of he is an inhabitant, but where the inhabitant of the state which cre-
jurisdiction is founded only on the ates it, and that it cannot change
fact that the action is between citizens its residence or inhabitance by doing
of different states, suit shall be business or maintaining an office and
brought only in the district of the agency in a foreign state, although
residence of either the plaintiff or the it may be found there for the purpose
defendant." Section 1 of the Act of of the service of process. And the

1888 was expressly repealed by section same doctrine is adhered to in other
297 of the Act of Mar. 3, 1911 (Fed. circuits. * * * I am aware that the
St. Ann., 1 Supp. of 1912, p. 251), but question has been decided differently
section 51 of such Act of 1911 (Fed. in other circuits (Riddle v. New York,
St. Ann., 1 Supp. of 1912, p. 153) L. E. & W. E. Co., 39 Fed. 290 [see
contains a provision, practically iden- § 396, infra] Zambrino v. Galveston,
;
tical with the one quoted, which H. & S. A. Ey. Co., 38 Fed. 449 [see
is made to apply subject to certain § 396, infra] ; Miller v. Mining Co.,
exceptions therein indicated. See also 45 Fed. 345 [see §396, infra]); but
§ 396, infra. I must adhere to the rule that has
B2 See, however, on this point. thus far been followed in this cir-
United Shoe Machinery Co. v. Duples- cuit."
sig Independent Shoe Machinery Co.,
133 Fed. 930.
842
Ch. 13] Citizenship, Domicile and Eesidence [§ 393
ever, was held that this clause, if applicable at all to patent suits,
it
at least had no application when the defendant was an alien corpora-

tion, and, further, that such a corporation might be sued by a citizen
of one of the states of the Union in any district in which valid service
could be made upon it.**
Applying the Act of 1888 ^^ to a suit for the wrongful Tise of a
trade-mark, the Supreme Court of the United States has held that
a corporation cannot be held to answer in a district in a foreign state
although its principal office and place of business be located in such
district.*'
§ 392. —
Court of Claims. Under the federal act conferring upon
the federal court of claims jurisdiction to inquire into and finally
adjudicate "all claims for property of citizens of the United States"
taken and destroyed by Indians under circumstances specified in the
act,*' a state corporation is embraced within the designation "citizens
of the United States. "*»
§ 393. For purpose of holding corporate meetings and transacting

corporate business. A
corporation created by the concurrent legis-
lation of different states has a legal domicile in each one of such
states, and can hold meetings and transact business in any one
thereof.*" So also, it has been held that a consolidated railroad com-
S5In re Hohorst, 150 U. S. 653, 37 329, followed in McCord v. Aspin-

L. Ed. 1211. wall, 20 Ind. 498.
See note 51, supra, this section.
56 In Eel River E. Co. v. State, 155 Ind.
re Keasbey & Mattison Co.,
67 In 433, 57 N. E. 388, a proceeding by in-
160 V. S. 221, 40 L. Ed. 402. See also formation in the nature of a quo
§ 390, supra, and § 396, infra. warranto, the court said: "It is indis-
B8 Act of March 3, 1891, 26 Stat. L. pensably necessary to the exercise of
851, c. 538, 2 Fed. St. Ann. p. 91. the supervisory authority of the state
B9 United States v. Northwestern over railroad corporations created by
Express, Stage & Transportation Co., it, and owning property and enjoying
164 U. S. 686, 41 L. Ed. 599. See also corporate franchises within its terri-
Philippine Sugar Estates Development tory, that every such corporation
Co. v. United States, 39 Ct. CI. (U. 8.) should be regarded as having a domi-
225, 241. cile or place of residence within the
60 Covington & C. Bridge Co. v. state for the purposes of jurisdiction,
Mayer, 31 Ohio St. 317. See Chap. litigation affecting its rights and du-
40, infra. ties, and the taxation of personal
its
That stockholders will not be bound property. When questions arise
by corporate acts performed in a touching the domicile or residence of
state other than that of the corpora- a domestic corporation, for the pur-
tion's creation, see Aspinwall v. Ohio pose of determining the same, resort
& M. R. Co., 20 Ind. 492, 83 Am. Dee. may be had to those principles which
843
393] Peivate Cokpoeations [Ch. 13
pany, composed of corporations created by adjoining states, has its

domicile in each of such states for the purpose of holding meetings
and transacting corporate business. ^^
are applied in case of natural person;a. everywhere." Graham v. Boston, H.

Among the most familiar of these are & E. E. Co., 118 U. S. 161, 169, 30 L.
the rules that every citizen of the Ed. 196.
state has a residence somewhere in After an insurance company with
one of the counties of the state, in the name "Grangers' Life and Health
.which alone he can claim certain po- Insurance Company" had been incor-
litical and civil rights, and in which he porated in Alabama, the legislature of
must be sued in transitory actions in Mississippi passed an act entitled
which he is the ôle resident defend- "An act to authorize the Grangers'
ant; that a legal residence once estab- Life and Health Insurance Company
lished remains until a new one is to create and establish branch de-
acquired; and that a purpose to partments in this state," and provid-
change such residence unaccompanied ing that said company, "incorporated
by actual removal or change of abode, by, and under the laws of the state
does not constitute a change of domi- of Alabama, be and the same is hereby
cile. * * * The place of the princi- authorized and empowered to create
pal office of a railroad corporation and establish in this state, one or
where its business is transacted, and more branch departments thereof
where its books and records are kept, whenever there shall be subscribed to,
is generally considered the residence and paid into said company, * * *
of such corporation." one hundred thousand dollars as capi-
61 Ohio & M. E. Co. V. People, 123 tal stock for such branch department,
111. N. E. 874.
467, 14 so created and established, the said
"The Boston, Hartford & Erie Com- stock to be subscribed for, and owned
pany, therefore, though made up of by, and the directors of any such
distinct corporations, charteredby the branch department to be, citizens of
had a
legislatures of different states, the state of Mississippi," and further
capital stock which was a unit, and providing that, whenever any such
only one set of shareholders, who had branch department or departments
an interest, by virtue of their owner- should be created and established, the
ship of shares of such stock, in all of said company "shall be regarded as
its property everywhere. In its or- a home company, and shall be en-
ganization and action, and the prac- titled to, and may exercise and enjoy
tical management of its property, -it all the rights, privileges, immunities
was one corporation, having one board and exemptions of life insurance com-
of directors, though, in its relations to panies incorporated by the laws of
any state, it was a separate corpora- the state of Mississippi," and making
tion, governed by the laws of that it the duty of the auditor of Missis-
state as to its property therein. It, sippi, on the creation and establish-
therefore, had a domicile in each state, ment of any such branch department,
and the corporators or shareholders to give to the officers or agents of
could, in the absence of any stalutcry said company a certificate "stating
provision to the contrary, hold meet- the same, and authorizing it to do
ings and transact corporate business business as a domestic life insurance
in any one state, so as to bind the company of Mississippi. " It was hefe^
corporation in respect to its property in a suit for the cancellation of stoclf
844,
§394. Within acknowledging' and recording statutes. Where

the articles of incorporation of a domestic corporation locate the cor-
poration's principal office in a certain city and no change of location
is afterwards made in the manner prescribed by statute, such city
a chattel mort-
will be the residence of the corporation, in executing
gage, within the meaning of a statute providing that where a chattel
mortgagor is a resident of the state, the mortgage must be acknowl-
edged before a designated officer in the town, precinct, district or
county wherein the mortgagor resides.*^ Likewise, where a domestic
corporation fixes its principal place of business by its articles of
incorporation as required by statute, the county designated as such
is that of its residence within the meaning of a statute providing that
all conditional sales of property shall be absolute as to subsequent
creditors in good faith unless a memorandum of the sale shall be

filed in the auditor's office of the county wherein the vendee resides
at the time of the taking of possession of the property purchased.^'
§395. For purposes of taxation. The location or residence

of a corporation for purposes of taxation is generally regarded
as being in the state by whose laws the corporation was created,
and in the tax district of such state wherein its principal office or
place of business is located,^* notwithstanding the fact that its
notes, etc., that the efEect of this act Sangamon & M. E. Co.
64 Illinois.
was not merely to license or to en- v. Morgan County, 14 111. 163, 56 Am.
able the Alabama corporation to trans- Dec. 497.
act business and exercise its powers Maryland. Baltimore v. Baltimore
in Mississippi, but to create a dis- City Passenger E. Co., 57 Md. 31.
tinct corporation in Mississippi having Michigan. Detroit Transp. Co. v.
the same name and like franchises as Board of Assessors City of Detroit, 91
the Alabama corporation. Grangers' Mich. 382, 51 N. W. 978.
Life & Health Ins. Co. v. Kamper, 73 New York. Western Transp. Co. v.
Ala. 325. See also Copeland v. Mem- Scheu, 19 N. T. 408; People v. Me-
phis & C. R. Co., 3 "Woods 651, Fed. Lean, 17 Hun 204; Peter Cooper's
Cas. No. 3,209; Blackburn v. Selma, M. Glue Factory v. McMahon, 15 Abb. N.
& M. E. Co., 2 Flip. 525, Fed. Cas. Cas. 314.
No. 1,467; Bachmann v. Supreme Ohio. Pelton v. Northern Transp.
Lodge Knights & Ladies of Honor, Co., 37 Ohio St. 450.
44 111. App. 188. Virginia. State Bank v. Richmond,
62 In re Federal Contracting Co., 79 Va. 113.
212 Fed. 688. Wisconsin. Milwaukee Steamship
63 First Nat. Bank of Everett v. Co. v. Milwaukee, 83 Wis. 590, 18 L.
Wilcox, 72 Wash. 473, 130 Pac. 756, E. A. 353, 53 N. W. 839.
rehearing denied 131 Pae. 203. See A corporation occupying, in the
also Malmo v. Washington Rendering conduct of its business, an ofSee or
& Fertilizing Co., 79 Wash. 534, 140 building in a town, ward or village
Pao. 569, , is deemed an "inhabitant" of such
845
I 395] Peivate Coepoeations [Ch. 13
principal officers have their places of residence outside of the state.**

While it has been held that the fact that a foreign corporation has
a place of business and a chief office in the state does not make it a
resident of the state, or the place where its chief office is located, its
residence in the state in the sense that all of its personal property in
the state is to be deemed to be located there for purposes of taxation
within the rule that the personal property of a resident is taxable
it has also been held that where a cor-
at the place where he resides,*'
town, ward or village for the pur- domiciled in the latter state to the
pose of taxation. Ontario Bank v. extent that all of its property, whic]i
Bunnell, 10 Wend. (N. T.) 186, 192. was of such nature as to be taxable
65 Sangamon & M. E. Co. v. Morgan at the residence of the owner, was
County, 14 111. 163, 56 Am. Dec. 497. taxable in Compare, how-
Illinois.
66 Ayer & Lord Tie Co. v. Keown, ever, Chicago & N. W. Ey. Co. v. Audi-
122 Ky. 580, 93 S. W. 588. tor General, 53 Mich. 79, 91, 18 N.
A corporation does not become domi- W. 586. See also, in connection with
ciled in a foreign state, so as to give the case last cited, Duncan v. St.
such state the right to tax all of its Louis, I. M. & S. E. Co., 49 La. Ann.
capital stock, merely by reason of 1700, 22 So. 924.
its doing business therein. Foster- Boards and societies and auxiliaries
Cherry Commission Co. v. Caskey, 66 thereof, which are incorporated and
Kan. 600, 72 Pac. 268; Com. v. Stand- organized under the laws of other
ard Oil Co., 101 Pa. St. 119, 146. See states for "purposes of purely public
also Gloucester Ferry Co. v. Pennsyl- charity or other exclusively public
vania, 114 U. S. 196, 209, 29 L. Ed. purposes," are not "institutions" of
158. that class in Ohio within the mean-
That ferryboats, operated by an ing of the exemption clause of section
Illinois not "prop-
corporation, are 2731-1, Ohio Eev. St.; and where
erty within the city" of St. Louis, they are entitled to receive property
Missouri, for purposes of taxation by within the jurisdiction of such state
such city, although one of the ter- by gift, bequest, or devise, the gift,
mini of such boats, and the residence bequest or devise is subject to the
of the corporation's officers and stock- collateral inheritance tax provided by
holders are in the city, and much of such section 2731-1, notwithstanding
the corporate business is transacted, certain of the charitable work,
and some of the corporate acts are operations and enterprise of the in-
performed therein, see St. Louis v. stitutions are carried on within the
Wiggins Ferry Co., 11 Wall. (TJ. S.) state. Humphreys v. State, 70 Ohio
423, 20 L. Ed. 192. St. 67, 70 N. E. 957. In this case the
In Quincy Railroad Bridge Co. v. court said: "It is not a new proposi-
Adams County, 88 111. 615, it was held tion that thehome of the corporation
that a consolidated corporation, com- isthe state of its incorporation, and
posed of corporations created by the when so incorporated under the laws
states of niinois and Missouri, for of a state selected for that purpose it
the purpose of constructing a railroad has also selected its abiding place,
bridge across the Mississippi river, and no longer can be recognized as
whose consolidation was legalized by homeless, or as abiding in every state
the general assembly of Illinois, was where they have agencies carrying
846
,Ch, 13] Citizenship, Domicile and Residence [§395
poration is doing business in a foreign state, its principal place of

business and the situs of its governing office therein is its domicile
for the purpose of taxing such of its property as is taxable at its
domicile.*''
But it would seem that a foreign corporation is not a "resident
owner" within the meaning of a statute barring resident owners who
have failed to list their property from making application for an
abatement of taxes, nor an "inhabitant" within the meaning of a
statute requiring the tax assessors to give notice to the inhabitants to
make tax returns, where the word "inhabitant" is defined by statute
as a person having an established residence in the state."
For purposes of taxation, domestic corporations generally have
their domicile where their principal office®' or place of business is
forward their work of benevolence depend upon the action of such of the
and charity." owners of abutting property as are
67McDaniel v. Texarkana Cooper- residents of the city, by reason of the
age & Manufacturing Co., 94 Ark. 235, location such city of the offices,
in
126 S. W. 727. from which are controlled the opera-

tions of the road throughout a district
The residence or domicile of a for-
which includes the state, notwith-
eign corporation for purposes of tax-
standing such company has been
ation is, under the Tennessee statutes,
granted all of the privileges conferred
the county where the charter is reg-
by the laws of the state on domestic
istered in compliance with such stat-
and
railroad companies. Kimmerle v. To-
utes; it is the place where the
peka, 88 Kan. 370, 43 L. E. A. (N. S.)
governing power of the corporation re-
272, 128 Pac. 367.
sides and is exercised rather than the
69McCandle3s v. Inland Acid Co.,
place where its ordinary business is
115 Ga. 968, 42 S. E. 449; Union
conducted. Southern Exp. Co. v. Pat-
Steamboat Co. v. Buffalo, 82 N. T.
terson, 122 Tenn. 279, 123 S. W. 353.
351 (under statute); Oswego Starch
See also Grundy County v. Tennessee
Factory Co. v. Dolloway, 21 N. Y. 449
Coal, Iron & Eailroad Co., 94 Tenn.
(under statute); Western Transp. Co.
295, 308, 29 S. "W. 116.
V. Scheu, 19 N. Y. 408 (under stat-
South African corporation "re-
ute); People V. Marens, 62 N. Y. Misc.
sides" in England, within meaning
317, 116 N. Y. Supp. 189; Pelton v.
of Income Tax Act. De Beers Con- Northern Transp. Co., 37 Ohio St. 450;
sol. Mines, Ltd. v. Howe, L. E. [1905]
Loyd's Executorial Trustee v. Lynch-
2 K. B. 612.
burg, 113 Va. 627, 75 S. E. 233; Atlan-
68 John P. Squire & Co. v. Portland,
tic & D. E. Co. V. Lyons, 101 Va. 1, 42
106 Me. 234, 30 L. E. A. (N. S.) 576,
S. E. 932; Orange & A. E. Co. v. City
20 Ann. Cas. 603, 76 Atl. 679.
Council of Alexandria, 58 Va. 176.
A railroad company having its prin- In considering the location of the
cipal offices in one of the states in domicile of a corporation for the pur-
which it was incorporated cannot be pose of taxation, the Tennessee court
regarded as a resident of a certain said: "The charter itself does not
city in a foreign state, for the pur- fix the domicile or home
but office,
poses of a statute of such state mak- an amendment to the same adopted
ing the improvement of a street July 16, 1889, provides that the bi-
847
located.''" It has been held, however, that a railroad company passing

through and occupying lands in several counties for the carrying
on of its corporate business is, for the purposes of taxation, to be
regarded as a resident of each town and county through which it
passes, and its real estate, therefore, is properly assessed in personam
as the land of a resident, and not as the land of a nonresident.'^
Where the statute authorizing the formation of corporations re-
quires the corporation to state the place where its principal office is
to be located, such statement in the certificate is frequently regarded
as conclusive of the fact required to be stated.'^
ennial meetings of the stockholders not where the labor is performed in

shall be held at Tracy •City. The by- executing the requirements of the cor-
laws in force in 1889, and up to April poration in transacting its business.
10, 1893, provide that the company In order to determine the legal resi-
shall have ofSees at Tracy City, South dence of a corporation, reference must
Pittsburgh, Nashville, Cowan, Pratt be had to the place where its will is
Mines, Ensley, Birmingham, New declared and made known, and not to
York, and such other places as the the place where its mandates are
board may establish; and on the 10th obeyed, or the business of labor trans-
of April, 1893, this provision was so acted or performed which it author-
amended as to provide that the offices izes or requires. It will be seen that
of the company shall be at Tracy City this, too, is a question of fact, to be
and at such other places as the board determined by the assessor, as in the
of directors may establish. Under case of natural persons.' " Grundy
this proof, we think the domicile of County V. Tennessee Coal, Iron & Rail-
the company must be held to be in road Co., 94 Tenn. 295, 29 S. W. 116.
Tracy City, Grundy county, Tenn.; 70 San Joaquin & K. E. Canal & Ir-
that its primary controlling power rigation Co. V. Merced County, 2 Cal.
is exercised under its charter as App. 593, 84 Pac. 285.
amended at that and that
place; The domicile of a cemetery corpo-
it is so recognized by the company. ration of a nonprofit, nonstock char-
'The principal office or place of busi- acter is where its cemetery is located
ness of a corporation,' says Desty on and not to be an "inhabitant"
it is
Taxation (volume 1, p. 341), 'is the of a certain city merely by reason of
residence of the corporation, within the fact that such city is the meet-
the meaning of the tax law in its pro- ing place of its corporators and trus-
visions for taxation of the personal tees and the place where its trust
property of the company.' Welty, funds are kept. Collector of Taxes of
Assessm. p. 106, defines the 'resi- Boston V. Proprietors of Mt. Auburn
dence' of a corporation as follows:' Cemetery, 217 Mass. 286, 104 N. E.
'
The ' ' residence " or " domicile " of a 750.
corporation has been defined to be Tl Buffalo & State Line E. Co. v.
where the governing power of the Erie County Sup 'rs, 48 N. Y. 93. See
corporation is exercised; where also Hoyle v. Plattsburg & M. E. Co.,
those meet in council who have 54 N. Y. 314, 13 Am. Eep. 595.
a right to control' its affairs, 72 Union Steamboat Co. v. Buffalo,
and prescribe what policy of the 82 N. Y. 351; Oswego Starch Factory
e^rnoration shall be pursued; and v. Dolloway, 21 N. Y. 449; Western
848
Where, however, the statute does not require the location of the
principal or place of business to be designated in the corpora/-
office
tion's certificate or articles of incorporation, a designation so made

is not conclusive of the fact for the purposes of taxationJ^
Although the statute permits the fixing of a certain county as that
in which the principal office shall be located, a particular locality in
such county cannot be designated as the locus of the principal office
for the purpose of evading taxation by a municipality located in such
county.''*
Transp. Co. v. Scheu, 19 N. Y. 408; cated shall be deemed its residence,

Pelton V. Northern Transp. Co., 37 provided its business is actually
Ohio St. 450. transacted at such office, but if the
That the domicile of a domestic corporation establishes its principal
corporation, for purposes of taxation, officeat a place elsewhere than at the
is not conclusively determined by its place designated, then the place where
designation as required by statute in it transacts its principal business
the certificate of incorporation, pee shall be deemed its residence for pur-
Home Fire Ins. Co. v. Benton, 106 poses of the act. See Teagan Transp.
Ark. 552, 153 S.W. 830. Co. V. Board of Assessors City of De-
A statute providing that all of the troit, 139 Mich. 1, 69 L. E. A. 431, 111
personal property of domestic corpo- A.m. St. Eep. 391, 102 N. W. 273.
rations organized for the purpose of A statute providing that the arti-
engaging in maritime commerce or cles of incorporation shall state the
navigation shall be assessed only in "location" of the corporation does
the place designated in the articles not authorize the fixing by such arti-
of association as that in which their cles of the corporation's "principal
general ofiSce is to be located, ha^ office" for purposes of taxation, and
been held violative of the constitu- a provision thereof attempting so to
tional requirement of a uniform rule do is void. Milwaukee Steamship Co.
of taxation. Teagan Transp. Co. v. V. Milwaukee, 83 Wis. 590, 596, 18 L.
Board of Assessors of City of Detroit, E. A. 353, 53 N. W. 839.
139 Mich. 1, 69 L. E. A. 431, 111 Am. 74 Georgia Fire Ins. Co. v. Cedar-
St. Eep. 391, 102N. "W. 273. See also town, 134 Ga. 87, 19 Ann. Cas. 954,
Portsmouth Tp. v. Cranage S. S. Co., 67 S. E. 410.
148 Mich. 230, 118 Am. St. Eep. 578, "It was stated in the application
111 N. W. 749. for a charter for an insurance com-
T3 Georgia Fire Ins. Co. v. Cedar- pany that its principal office would
town, 134 Ga. 87, 19 Ann. Gas. 954, be located in a named county of this
67 S. E. 410; Teagan Transp. Co. v. state. It established an office in a
Board of Assessors City of Detroit, municipal corporation of that county,
139 Mich. 1, 69 L. E. A. 431, 111 Am. where its president and secretary and
St.Eep. 391, 102 N. "W. 273; Milwau- treasurer had their offices, where the
kee Steamship Co. v. Milwaukee, 83 executive committee of the directors
Wis. 590, 18 L. R. A. 353, 53 N. W. met, and where all the business of the
839. company was transacted, except as
In Michigan the taxation statute stated below.In a by-law it was
provides that the place where the declared that an annual meeting of
principal ofBce of a corporation is lo- the stockholders should be held 'at
849
I Priv. Corp. —54
395] Pbivate Coepobations [Cli. 13
Where a corporation, for the purpose of evading taxation, states

in its articles of association or certificate of incorporation that its
principal place of business is in a certain place, when in reality it is
located and does its business in another place, the latter place may
be treated as its place of business for the purpose of taxation.'*
their home office in Polk county, ship Co. V. Milwaukee, 83 Wis. 590,
Georgia, at the home of W. S. Cole- 18 L. E. A. 353, 53 N. W. 839.
man, one and one-quarter miles south "A corporation may establish its
of the courthouse, or with branch of- principal office at a place within the
fices at Cedartown, or at other places county, inside of a municipality or out-
in Georgia, as may be determined by side of it. So an individual may live
the directors.' There was a similar without the limits of an incorporated
rule as to the places of meetings of town, although he may transact busi-
directors. Meetings of directors and ness therein. If his residence is out-
stockholders were held at the resi- side of the personal
incorporation,
dence of Coleman, who furnished a property which would be considered
room for the purpose free of rent. as located at the place of his resi-
The minutes indicated that the di- dence would not be subject to munici-
rectors held one or more meetings at pal taxation. But, if an individual
the Cedartown office. An iron safe actually lives in the city all the year
was bought later and placed at Cole- round, he cannot escape municipal tax-
man's house when he was elected ation on personalty by renting a room
treasurer, and the company's securi- outside of the city, declaring it to be
ties were kept in it, except when there his homefor the purpose of evading
was occasion to bring them to the city taxes, and going there and transact-
office for the purpose of transfer. The ing business for an hour or two at a
company returned for municipal tax- time two or three times a year.
ation its furniture in the city offices, Neither can a corporation avoid mu-
but declined to return or pay munici- nicipal taxation, if its actual prin-
pal tax on its other personal property. cipal office is in a town or city in
It was held that the presiding judge the county of its incorporation, where
did not err in denying an injunction all of its business is transacted and
to restrain the municipal authorities its officers have their offices, by claim-
from collecting the tax on the personal ing as its principal office a place just
property of the corporation, because it outside the city or town, where valu-
was claimed that its principal or home able papers are kept in an iron safe,
office was not within the limits of the and meetings of stockholders or direc-
city." Georgia Fire Ins. Co. v. Ce- tors are held (though the by-laws per-
dartown, 134 Ga. 87, 19 Ann. Cas. 954, mit them to be held elsewhere), but
67 S. E. 410. where no other business is trans-
76 Georgia Fire Ins. Co. v. Cedar- acted, and no agency is maintained,
town, 134 Ga. 87, 19 Ann. Cas. 954, this being done with a view to non-
67 S. E. 410; Detroit, Y., A. A. & J. payment to the municipality of taxes
E. Co. V. Detroit, 141 Mich. 5, 104 N. on pej'sonal property." Georgia Fire
W. 327; Detroit Transp. Co. v. Board Ins. Co. V. Cedartown, 134 Ga. 87, 19
of Assessors City of Detroit, 91 Mich. Ann. Cas. 954, 67 S- E, 410.
382, 51 N. W. 978; Milwaukee Steam-
850
§396. For purposes of venue— Suits in federal courts. The

Federal Judiciary Act of 1911''* provides that "where the jurisdic-
tion 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.
'
'*
'
Applying been held that a corporation, al-

this provision, it has
though it has a usual place of business in a certain district in a foreign
state, will not be deemed to reside in such district so as to be suable
therein.''^ Nor will it have any effect upon this holding that a statute
76 Aet of March 3, 1911, § 51 (Fed. certain federal district (see infra, this
St. Ann., 1 Supp. of 1912, p. 153). Al- section) and being an "inhabitant"
though the bulk of the cases cited thereof, see Miller v. Eastern Oregon
infra this section were decided under Gold Min. Co., 45 Fed. 345.
the Judiciary Act of 1888 (correcting 78 Shaw V. Quincy Min.
Co., 145 XT.
the Act of 1887), they are equally in S. 444, 36 L. Ed. 768. See also In re
point under the Act of 1911, since Keasbey & Mattison Co., 160 XT. S.
the clause quoted from the latter is 221, 228, 40 L. Ed. 402; Adzenoska v.
identical with the clause, dealing with Erie E. Co., 210 Fed. 571; Colosino v.
the same subject-matter, in the Act Pittsburgh & L. E. E. Co., 210 Fed.
of 1888 (Act of Aug. 13, 1888, § 1). 550; Eevett v. Clise, 207 Fed. 673;
See also § 391, supra. Baldwin v. Pacific Power & Light Co.,
77 That the question of the district 199 Fed. 291; Stone v. Chicago, B. & Q.
in which suit must be brought is one of E. Co., 195 Fed. 832; Consolidated
venue rather than one of jurisdic- Eubber Tire Co. v. Ferguson, 183 Fed.
tion, see Fribourg v. Pullman Co., 176 756; FribSurg v. Pullman Co., 176
Fed. 981. Fed. 981; United States v. Northern
78 An alien corporation is not an Pac. E. Co., 134 Fed. 715; A. L. Wolff
"inhabitant" within the meaning of & Co. v. Choctaw, O. & G. E. Co., 133
that clause of § 1 of the Judiciary Fed. 601; Freeman v. American
Act of 1888 (see also § 51 of the Act Surety Co. of New York, 116 Fed.
of 1911) which provides that "no 548; United States v. S. P. Shotter
civil suit shall be brought against any Co., 110 Fed. 1; Booth v. St. Louis
person * * * in any other district Fire-Engine Mfg. Co., 40 Fed. 1.
than that whereof he is an inhabi- The fact that a corporation has its
tant." In re Hohorst, 150 IT. S. 653, principal place of business in a cer-
37 L. Ed. 1211, distinguished in In tain federal district in a foreign state
re Keasbey & Mattison Co., 160 U. does not make it a resident of such
S. 221, 229, 40 L. Ed. 402. Contra, district for purposes of federal juris-
Miller v. Eastern Oregon Gold Min. diction. Peale v. Marian Coal Co., 172
Co., 45 Fed. 345, wherein it was held Fed. 639.
that an English corporation may be A circuit court of the United States
an "inhabitant" of the state of Ore- has no jurisdiction of an action by
gon for purposes of federal jurisdic- one who is confessedly a nonresident,
tion of a suit against it, on the ground against a foreign corporation, a part
of diversity of citizenship, within the or even all of whose officers are resi-
meaning of the Judiciary Act of 1888. dent, and a part or even all of whose
That there is no substantial differ- business is transacted in the state
ence between being found " in a
'
' • in which the circuit court district is
851
of such foreign state requires a foreign corporation, desiring to trans-

act business in the state, to file a certified copy of its articles of incor-
poration, accompanied by a resolution of its board of directors or
stockholders authorizing service of process to be made on any of its
officers or agents in the state who are engaged in transacting its 'busi-
ness, and to agree to be subject to each of the provisions of the statute,

one of which is that if it removes to a federal court, on the ground of
its nonresidence, a suit brought against it in the state courts, it shall
forfeit and render null and void its permit to transact business, such
statute being invalid as in contravention of the Constitution and laws
of the United States.s"
On the question of the particular district, within the state, in which
a domestic corporation resides for the purposes of this provision, it
has been held that a domestic railroad company whose public office,
which by statute is its domicile, is in one federal district in the state
cannot for jurisdictional purposes be deemed an inhabitant of another
such district in the state through which it operates its road and in
which it maintains a ticket and freight office and depot in charge of
an agent on whom under the statutes of the state process may be
served, notwithstanding the further provision of the state statutes
that it may be sued in any county through or into which its road is
operated or extends.*^
"In the case of a corporation the question of inhabitancy must be
determined, not by the residence of any particular officer, but by the
principal offices of the corporation, where its books are kept and its
located, since a corporation ia a resi- cases all of the property of the eor-
dent of the state by which it was poration, to work which it was ineor-
created and cannot even for the pur- porated, was in Michigan. It had
poses of such act acquire a residence only an agency in New York where
elsewhere. Booth v. St. Louis Fire- it was sued. And the Keasbey case
Engine Mfg. Co., 40 Fed. 1. See also depended' on like facts," while in this
Henning v. Western XT. Tel. Co., 43 case the defendant railroad company
Fed. 97; Bensinger Self -Adding Cash was "an Illinois corporation, but
Eegister Co. v. National Cash Eegis- with a line of road (through this
ter Co., 42 Fed. 81; Filli v. Delaware, [Iowa] district."
L. & W.R. Co., 37 Fed. 65. Contra, 80 Southern Pac. Co. v. Denton, 146
United States v. Southern Pac. E. Co., U. S. 202, 36 L. Ed. 943. See also
49 Fed. 297; Eiddle v. New York, L. Piatt v. Massachusetts Eeal-Estate
B. & W. E. Co., 39 Fed. 290; Co., 103 Fed. 705.
Bogue V. Chicago, B. & Q. E. Co., 193 81 Galveston, H. & A. E. Co. v.
S.
Fed. 728, distinguishing Shaw v. Gonzales, 151 IT. S. 38 L. Ed.
496,
Quincy Min. Co., supra, and In re 248. Contra, Zambrino v. Galveston,
Keasbey & Mattison Co., supra, on H. & S. A. Ey. Co., 38 Fed. 449.
the ground that "in the first of those

852
corporate business is transacted, even though it may transact its most

important business in another place. * * * There are doubtless
reasons of convenience for saying that a corporation should be con-
sidered an inhabitant of every district in which it does business, and
so the statutes of the several states generally provide; but the law
contemplates that every person or corporation shall have but one
domicile, and in the case of the latter, it shall be in that state by
whose laws it was created, and. in that district where its general
'
*^
offices are located. '
Eegarding a corporation created by act of congress, it has been

held that it is a resident of the federal district wherein its general
82 Galveston, H. & S. A. E. Co. v. must fix residence, within the

the
Gonzales, 151 V. S. 496, 504, 506, 38 state, domestic corporation by
of a
L. Ed. 248. See also Eoszell Bros. v. artificial considerations, such as the lo-
Continental Coal Corporation, 235 Fed. cation of its principal place of busi-
343; Kimmerle v. Topeka, 88 Kan. 370, ness or the personal residence of its
43 L. E. A. (N. S.) 272, 128 Pac. duty appointed attorney in fact.
367. When the statutes of the state require
The fact that a domestic street rail- each nonresident domestic corporation
way company also operates its road (defined as one whose principal place
in a district other than the one in of business or chief works are located
which it has its legal and actual resi- without the state) to appoint some
dence does not make it a resident of person resident in the state upon
the former for purposes of federal whom service of process directed to
jurisdiction of a suit against it by a it may be made, and to record the
citizen of another state. Weed v. Cen- power of attorney, by which the per-
tre & C. St. Ey. Co., 132 Fed. 151. son is appointed, county in
in the
Where the charter of a domestic which he resides, the appointment and
corporation locates it in one federal recordation fix the county of the at-
district in the state, it cannot be torney's residence as that of the
deemed a resident of another district corporation for the purpose of deter-
even though it maintains offices for mining the federal district in which
the transaction of business in the the corporation may be sued. Where
latter. Grabsky v. Belmont Coal Min. such statutes also provide that in
Co., 210 Fed. 553. addition to such person the state au-
A domestic corporation, the certifi- ditor shall be the attorney in fact of
cate of incorporation of which locates every nonresident domestic corpora-
its principal office at a place within tion for the purpose of accepting serv-
a particular federal district, will be ice of processand notice directed to
deemed to have its residence in such it,a corporation of such character
district contrary is shown,
until the which has not appointed a private
or it attempts deny the jurisdic-
to person as its attorney has its residence
tion of the federal courts in such dis- for purposes of suit against it in each
trict. Firestone Tire & Eubber Co. v. and every county and federal district
Vehicle Equipment Co., 155 Fed. 676. of the state, the auditor being a pub-
Contrary to the rule obtaining in lic official whose functions as defined
the case of a natural person, the law and fiied by law relate to every
853
office is located, one of its principal officers resides, and in which its
board of directors ratifies action taken by it elsewhere.**

It is one thing, however, for the venue of an action in the federal
' '
courts to he laid in the district in which the defendant resides, '* and ' '
quite another thing *^ for it to be laid, as in the Judiciary Act of

1875, in the district in which the defendant is "found," '* and on the
question of venue under section 1 of the Act of 1875, it was held that
a corporation, created by one state was "found" in a federal district
in another state when it was doing business, by its officers or agents,
therein, under a local law making possible the serving of process on
it within the state.'''
county of the state equally and alike transactions." Ex parte Schollenber-

regardless of his residence official or ger, 96 U. S. 369, 24 L. Ed. 853. See
private. Lemon v. Imperial Window also, generally, cases cited in notes,
Glass Co., 199 Fed. 927. supra, this section. And compare
83 In re Dunn, 212 U. S. 374, 53 L. Miller v. Eastern Oregon Gold Min.
Ed. 558. Co., 45 Fed. 345.
The fact that a corporation is a 86 "No civil suit brought shall be
resident and has its general office in * * * in any otherthan district
a certain city, and is, therefore, within that whereof he [defendant] is an in-
a certain one of two federal districts habitant, or in which he shall be found
in the state, cannot be implied from at the time of serving such process or
the mere circumstance that the name commencing such proceeding, except
of such city is used in its corporate as hereinafter provided." Act of
name. Harvey v. Richmond & M. Ey. IVTarch 3, 1875, (4 Fed. St. Ann. p.
Co., 64 Fed. 19. 266n).
That the "principal place of busi- 87 A
corporation doing business in a
ness" of a corporation is no test of foreign state under a statute requir-
its residence, in determining the par- ing it, as a condition thereto, to agree
ticular division, of a federal district, to be bound by service of process
in which a suit against a corporation made in such state on a designated
will be properly brought, see Guinn individual therein is "found" in the
V. Iowa Cent. Ey. Co., 14 Fed. 323. state within the meaning of section 1
84 See supra, this section. of the Act of 1875. Ex parte Schol-
86 "A corporation cannot change its lenberger, 96 U. 8. 369, 24 L. Ed. 853.
residence or its citizenship. It can See also In re Louisville Underwrit-
have its legal home only at the place ers, 134 U. S. 488, 33 L. Ed. 991; New
where it is located by or under the England Mut. Life Ins. Co. v. Wood-
authority of its charter; but it may worth, 111 U. S. 138, 28 L. Ed. 379.
by agents transact business any-
its "Without undertaking to review
where, unless prohibited by its char- the authorities on the subject of a cor-
ter or excluded by local laws. Under poration's liability to suit in a state
such circumstances, it seema felear or district other than that of its cre-
that it may, for the purpose of secur- ation, we think the decisions of the
ing business, consent to be 'found' supreme court have settled and estab-
away from home, for the purposes of lished the proposition that, in the
suit as to matters growing out of its absence of a voluntary appearance.
854
Somewhat conversely, it was held that a foreign corporation wao

not "found" in a federal district, where it had no offlce nor place of
business and was not engaged in business except as it occasionally
made a purchase through a specially dispatched £igent, merely by
reason of the temporary presence therein of its president, who came
into the district to adjust a controversy growing out of a purchase
made.'*
§397. — Suits in state courts. The fact that a corporation

created by one state is permitted by another state to do business within
three conditions must concur or co- V. Grand Trunk Ey Co., 13 Fed. 358;
exist in order to give tlie federal Mohr & Mohr Distilling Co. v. Insur-
courts jurisdiction in personam over ance Companies, 12 Fed. 474; Knott
a corporation created without the ter- v. Southern Life Ins. Co., 2 Woods
ritorial limits of the state in which 479, Fed. Cas. No. 7,894; Fonda v.
the court is held, viz.: (1) It must British American Assur. Co., 2 Cent.
appear as a matter of fact that the L. J. 305, Fed. Cas. No. 4,904; Black-
corporation is carrying on its busi- burn V. Selma, M. & M. E. Co., 2 Flip.
ness in such foreign state or district; 525, Fed. Cas. No. 1,467.
(2) that such business is transacted When a corporation, in obedience to
or managed by some agent or officer a statute of the foreign state in which
appointed by and representing the it is doing business, keeps and main-
corporation in such state; and (3) tains in such state an agent on which
the existence of some local law mak- service of process may be had, it is
ing such corporation, or foreign cor- "found" therein within the meaning
porations generally, amenable to suit of section 8 of the Act of March 3,
there as a condition, express or im- 1875 (4 Fed. St. Ann. p. 380), continued
plied, of doing business in the state. by section 5 of the Act of Aug. 13,
When the local law, expressly or by 1888 (4 Fed. St. Ann. p. 389), which
comity, permits foreign corporations provides for service by publication, in
to do business in the state; when it certain cases, when the defendant
them in
also provides for suit against shall not be found within the district.
a reasonable and proper manner, and Spencer v. Kansas City Stock- Yards
within the just limits of the state's Co., 56 Fed. 741.
power and authority; and when a for- One corporation sued by another un-j
eign corporation thereafter enters the der the Sherman Anti-Trust Act is
state, and transacts its corporate busi- "found," for the purpose of service
ness by means of resident agents of process, where it is doing business.
coming within the terms of the local Michigan Aluminum Foundry Co. v.
statute, — it may be 'found,' and is Aluminum Castings Co., 190 Fed. 879.
liable to suit there in either the state On the question as to when a cor-
or federal courts, by service of process poration, originally of foreign cre-
on such agent." United States v. ation, may be sued in the District of
American Bell Tel. Co., 29 Fed. 17. Columbia, jurisdiction depending on
See also Elk Garden Co. v. T. W. Thay- acts of congress local to the district,
er Co., 179 Fed. 556; Boston Elec. Co. see Baltimore & 0. R. Co. v. Harris,
V. Electric Gas-Lighting Co., 23 Fed. 12 Wall. (U. S.) 65, 20 L. Ed. 354.
839; Block v. Atchison, T. & S. F. E. 88 Good Hope Co. v. Railway Barb
Co., 21 Fed. 529; Merchants' Mfg. Co. Fencing Co., 22 Fed. 635.
855
397] Pbivate Cobporations [Ch. 13
iteborders does not per se make

it a resident of the latter state for pur-
poses of venue." Thus has been held that although a corpora-

it
tion is lawfully doing business in a foreign state, it is a nonresident
thereof within the meaning of a statute providing that if the defend-
ant in an action is a nonresident of the state, the action may be tried
in any county in which the defendant may be found or in the county
designated in the complaint.'"
SSEemington & Sherman Co. v. Ni- senting). See also Newley v. Colt's
agara County Nat. Bank, 54 N. T. Patent Firearms Mfg. Co., 7 Q. B. 293,
App. Div. 358, 66 N. Y. Supp. 560. 295.
Where it is provided by statute 90 New York Life Ins. Co. v. Pike,
that a foreign, corporation doing busi- 51 Colo. 238, 117 Pac. 899. Said the
ness in the state may be sued in any court: "The authorities, both court
county of the state where it has an and text-writers, announce as settled
agency, that where there are two or doctrine that a corporation organized
more defendants residing in different under the law3 of one state is a resi-
counties, suit may be brought in any dent of the state under whose laws
county where any one of the defend- it was created; that it cannot be a
ants resides, and that the "public of- resident of any other state; and
fice of a railroad shall be considered though such a corporation be per-
the domicile of such corporation," the mitted by another state, upon compli-
word "domicile" must be understood ance with its laws, to carry on its
as having been used in its general business there, such permission and
and popular sense as denoting "resi- compliance does not make it a resi-
dence," and as synonymous with dent of such other state."
"residence," for the purposes of the Although a foreign corporation do-
provision relating to a case where the ing business in the state is required
two or more defendants are residing by statute to designate an agent on
in different counties. Texas & P. Ey. whom process may be served, such a
Co. V. Bdmisson (Tex. Civ. App.), 52 corporation does not by complying
S. W. 635. therewith acquire a fixed residence in
A company incorporated by
railroad the county in the state in which the
act of congress is not a "foreign" agent designated resides, so far as
corporation within the meaning of the venue of actions against it is con-
the venue statute of a state in which cerned. Boyer v. Northern Pac. R.
it operates its road. Texas & P. R. Co., 8 Idaho 74, 70 L. E. A. 691, 66
Co. V. Weatherby, 41 Tex. Civ. App. Pac. 826, overruling Easley v. New
409, 92 S. W. 58. Zealand Ins. Co., 4 Idaho 205, 38 Pac.
For purposes of jurisdiction, a cor- 405.
poration may be deemed to have a And a foreign corporation has been
domicile as well in a country in which held to be a "nonresident" within
it is carrying on business and in the meaning of a statute providing
which it has both real and personal that suit against a nonresident of the
property as in the country under the state may be brought in the county in
laws of which it was created and in which he may be found may have
or
which it has its manufactories. Car- estate or debts due him. Queensberry
ron Iron Co. v. Maclaren, 5 H. L. Cas. v. People's Building, Loan & Savings
416, 449 (by Lord St. Leonardo, dis- Ass'n, 44 W. Va. 512, 30 S. E. 73. Se«
856
Domestic corporations, however, are, for such purposes, deemed to

have, equally with natural persons, a residence at some place in the
state,'^ and that place is generally regarded as being the one at which
the principal office ^^ or principal place of business is located.^^ But
also Savage v. People's Building, Loan but had in another county an office
& Savings Ass'n, 45 W. Va. 275, 31 "for the purpose of electing its of-
S. E. 991. ficers and conducting its financial
A a nonresident of a
corporation is operations," it was within the juris-
foreign state in which it has estab- diction of the courts of the latter
lished an office within the meaning county.
of a statute of such state providing In Georgia, the courts take judicial
that a nonresident defendant may be notice of the principal office or legal
sued in any county in the state. New residence of railroad corporations or-
York, L. E. & "W. E. Co. v. Estill, 147 ganized under the laws of that state.
U. S. 591, 37 L. Ed. 292. White v. Atlanta, B. & A. Ey. Co., 5
Under the peculiar provisions of an- Ga. App. 308, 63 S. E. 234.
other statute it was held that a SSTrezevant v, W. E. Strong Co.,
foreign insurance company doing busi- 102 Cal. 47, 48, 36 Pae. 395; Mc-
ness in the state was a resident of Sherry v. Pennsylvania Consol. Gold
every county and township therein for Min. Co., 97 Cal. 637, 641, 32 Pae. 711;
purposes of local jurisdiction. Meyer Buck v. Eureka, 97 Cal. 135, 31 Pae.
V. Phoenix Ins. Co., 184 Mo. 481, 83 845; Cohn v. Central Pae. E. Co., 71
S. "W. 479. Cal. 489, 12 Pae. 498; Jenkins v. Cali-
81 Greacen v. Buckley & Douglas fornia Stage Co., 22 Cal. 538; Krogh
Lumber Co., 167 Mich. 569, 133 N. W. V. Pacific Gateway & Development
538. Co., 11 App. 237, 104 Pao. 698;
Cal.
98 Etowah Milling Co. v. Crenshaw, Bloom Michigan Salmon Min. Co.,
V.
116 Ga. 406, 42 S. E. 709; Watson v. 11, Cal. App. 122, 104 Pae. 324; Mul-
Richmond & D. E. Co., 91 Ga. 222, 223, len V. Northern Ace. Ins. Co., 26 S. D.
18 S. E. 306; Thorn v. Central E. Co., 402, 128 N. W. 483. See also Finch
26 N. J. L. 121; Eoff Oil & Cotton Co. School V. Finch, 144 N. Y. App. Div.
V. King, —
Okla. —
, 148 Pae. 90. See 687, 129 N. Y. Supp. 1.
also v. Pinch, 144 N. Y.
Finch School A corporation may be situated in
App. Div. 687, 129 N. Y. Supp. 1. one county, its principal office or place
Where a religious corporation main- of business may be in another, and
tained a treasurer 's office in one place, its chief officer may reside in a third,
and transacted its business there, and within the meaning of a statute pro-
conducted its religious exercises in an- viding that an action against a do-
other place, its residence was at the mestic corporation may be brought
former place for purposes of venue. in the county in which it is situated,
St. Michael's Protestant Episcopal or has its principal office or place of
Church V. Behrens, 10 N. Y. Civ. Proe. businegs, orwhich its chief of-
in
181. ficer resides.Spratley v. Louisiana
'
In Dade Coal Co. v. Haslett, 83 Ga. & A. E. Co., 77 Ark. 412, 95 S. W.

549, was held that
10 S. E. 435, it 776, modifying former opinion in
where a mining company was author- which it was held that a corporation
ized by law to carry on business in is situated within the meaning of this
any county, and it conducted its prin- statute where it has its principal of-
cipal mining business in one county, fice or place of business.
857
if in the above statement there is any one word which must be empha-
' '
sized more than another, it is the word principal.
' Thus it has been
'
held that a domestic corporation has its residence for purposes of

venue in the county designated in its certificate of incorporation as
that in which its principal place of business was to be located, not-
withstanding the fact that it actually has places of business in one or
more other counties.'*
"Where the certificate of incorporation provides that the principal
office of the corporation shall be in a certain county and its principal
business shall be carried on in another county, the county in which
it is provided that the principal office shall be located is the "resri-
denee" of the corporation within the meaning of a statute providing
that acts shall be tried in the county where the defendant resides.'*
A domestic railroad company has a cases it was held that a domestic cor-
residence for purposes of venue in a poration had no residence, within the
county in which it exercises corpo- meaning of section 424, Eevisal (Code,
rate functions although no portion of § 192), although it had a principal
its line of road is in such county. ofSce or place of business in the state,
Bristol V. Chicago & A. E. Co., 15 and, being without a legal residence in
111. 436. any particular county in the state, it
The fact that an agent of an insur- could be sued, to its great inconven-
ance company resides in a county ience and loss, by a nonresident in any
other than that in which the com- county designated in the summons.
pany's principal place of business is This defect was remedied, and a do-
located does not necessarily justify mestic corporation can be sued in the
the inference that the company is same venue as an individual, except
"situated" in such county for pur- railroads, under the proviso of section
poses of venue. Security Mut. Life 424, Eevisal," which must be sued
Ins. Co. V. Eess, 76 Neb. 141, 106 N. "either in the county where the
W. 1037. cause of action arose or in the county
Under the express provisions of sec- where the plaintiff resided at the time
tion 422 of the North Carolina statutes the cause of action arose, or in some
(Eevisal 1905), the principal place of county adjoining the county in which
business of a domestic corporation is the cause of action arose, subject,
its residence for the purpose of suing however, to the power of the court to
and being sued. See Eackley v. Eow- change the place of trial in the cases
land Lumber Co., 70 N. C. 171, 69 S. E. provided by statute."
56; Eoberson v. Greenleaf Johnson 84Eossie Iron-Works v. Westbrook,
Lumber Co., 153 N. C. 120, 68 S. E. 59 Hun (N. Y.) 345, 13 N. Y. Supp.
1064, in the latter of which cases it 141. See also Eemington & Sherman
was said that "the sole purpose of Co. V. Niagara County Nat. Bank, 54
this section was to remedy a defect N. Y. App. Div. 358, 66 N. Y. Supp.
in our statute law, as construed in 560; Speare v. Troy Laundry Machin-
Cline v. Bryson City Kfg Co 116 N. , ery Co., 44 N. Y. App. Div. 390, 60
C. 837, 21 S. E. 791, and Parmer? State ' N. Y. Supp. 1080.
Alliance of North Carolina v. Mur.-fill, 95 Woods Gold Min. Co. v. Boyston,
119 N. C. 124, 25 S. E. 785, in which 46 Colo. 191, 103 Pac. 291.
858
A railroad company, however, has been held to be a resident, for pur-

poses of venue, of a county in which it operates its road and carries
on a large part of its business although it has its principal office in
another county. "When the defending company is other than a rail-
road company, and has named its principal place of business in its
articles of association, it is well settled that the place so fixed is to
be deemed its *
place of residence. * *
But it seems also to be
company, its place of residence
settled that, in the case of a railroad
must be ascertained by its place of business; and, if it have several
places of business, it must also be deemed to have several places of
residence. * * * Although its principal office may be located in
a specified, county, the principal business of a railroad company can
hardly be said to be located in any particular place. It owns prop-
erty in, and operates its road through, many counties, and there are
various reasons why its place of residence should not be limited to the
' '^
place where its main office is located. '
§398. Within statutes of limitations. The rule adopted by a

number of courts, although disapproved by some, is that a foreign
corporation is not to be deemed "out of the state" or a "nonresident"
thereof within the saving clause of the statute of limitations when it
is doing business, through agents, therein and can be reached by
process, the ability to obtain service upon it within the state being
sufficient to make the statute available to it as a defense.^'
98 Poland V. United Traction Co., the residence of a railroad company,

88 N. Y. App. Div. 281, 85 N. Y. Supp. for the purpose of bringing actions,
7, aff'd 177 N. Y. 557, 69 N. E. 1129. is in the county on the line of its
In Georgia it has been held that the road where its principal ofice is situ-
county in which a railroad company ated. Connecticut & P. Rivers E. Co.
conducts its business is the county of v. Cooper, 30 Vt. 476, 73 Am. Dee.
its residence, within a constitutional 319.
provision that no person shall be sued 97 A corporation may be a resident
elsewhere than in the county in which of more than one state as far as stat-
he resides. Davis v. Central Railroad utes of limitations are concerned.
& Banking Co., 17 Ga. 323. Louisville & N. R. Co. v. Pool, 72 Miss.
That, for purposes of venue, a do- 487, 16 So. 753. See also Use v. .iEtna
mestic railroad company is a resident Indemnity Co., 69 Wash. 484, 125 Pac.
of the place where it has its principal 780.
place of business, but that the state- Thus when a corporation has a man-
ment in its special charter as to where aging agent in a foreign state, exer-
such principal place of business is lo- cising his authority as such openly
cated is not conclusive on that ques- and without fraudulent concealment,
tion, see Boyd v. Blue Ridge R. Co., such corporation is within the state
65 S. C. 326, 43 S. E. 817. within the intent of the statute of
It has been held in Vermont that limitations. Lawrence v. Ballou, 59
859
"Absence from the state and residence out of the state, in the sense
of the statute, means such absence and such nonresidence as renders
it impracticable at all times to obtain service of process so that, while
;
a corporation's technical legal residence may be where it was created,

its residence and status for purposes of suit will be where it can,
through its officers and agents, be reached with process. '* '
'
Cal. 258, 264. See also United States Fed. 689; Tiller v. St. Louis & S. F.
Exp. Co. V. Ware, 20 Wall. (U. S.) 543, E. Co., 189 Fed. 994; Southern Ey. Co.
22 L. Ed. 422; King v. National Min- V. Mayes, 113 Fed. 84.
ing & Exploring Co., 4 Mont. 1, 1 Pae. An alien corporation, doing business
727. in one of the states of the Union un-
In like manner, a corporation doing der the laws thereof, which had two
business in and amenable to the courts oflB-cers who were resident citizens
of a foreign state must be deemed a of the state and upon which service
resident of such state as far as its could be and was obtained, is a
being entitled to plead the statute resident of the state so far as being
of limitations is concerned, and not a entitled to plead the statute of limi-
nonresident within the meaning of a tations is concerned. Thompson v.
statute providing that "the time dur- Texas Land & Cattle Co. (Tex. Civ.
ing which a defendant is a nonresi- App.), 24 S. W. 856, in which the court
dent of the state shall not be included said: "The only reason that can be
in computing any of the periods of assigned for the provision in the stat-
limitations prescribed." Wall v. Chi- ute causing the running of limitation
cago & N. W. B. Co., 69 Iowa 498, 29 to cease during absence from the state
N. W. 427. See also Taylor v. Union is because the party is beyond the
Pac. E. Co., 123 Fed. 155. reach of the courts, and whenever the
Nor is a corporation doing business person or corporation can be reached
in a foreign state and subject to the by personal service the reason of the
jurisdiction of the courts thereof, a. rule ceases, and not more so in the
person "out of the state" within the case of an individual than in that of
meaning of a statute which prevents a corporation."
the running of limitations in favor of The appointment by a federal court
such a person. Pennsylvania Co. v. of a receiver for a resident corpora-
Sloan, 1 111. App. 364. tion does not make such corporation
And a corporation, doing business a nonresident so as to prevent the
in a foreign state, under the laws running of limitations in its favor.
thereof which make it suable in any Fowler v. Des Moines & K. C. Ey.
c'ounty where one of its agents carry- Co., 91 Iowa 533, 60 N. W. 116.
ing on its business may be found, is 98Turcott V. Yazoo & M. V. E. Co.,
not a nonresident of the state within 101 Tenn. 102, 45 S. W. 1067. See
the meaning of the provision in the also Bennett v. Western U. Tel. Co.,
statute of limitations that "the time 152 N. C. 671, 68 S. E. 202; Volivar v.
during which the defendant is a non- Eichmond Cedar Works, 152 N. C. 656,
resident of the state shall not be in- 68 S. B. 200 (rev'g on rehearing 152
cluded in computing any of the N. C. 34, 67 S. E. 42), which held
periods of limitation." McCabe v. Illi- Green v. Hartford Life Ins. Co., 139
nois Cent. E. Co., 13 Fed. 827. See N. C. 309, 51 S. E. 887, to have been
also Baltimore & 0. E. Co. v. Eeed, 223 not well decided and approved; Wil-
860
'
Other courts, however, would hold a foreign corporation to be

immune from the penalty attached to being "out of the state" or
"residing out of the state" only when it has complied with the require-
ments of the statute relative to its doing business in the state," espe-
cially when noncompliance therewith precludes its being reached by
process.^
Moreover, taking the view that the statute of limitations is not
available to a foreign corporation,it has been held that such a cor-
poration, although transacting business in the state, is "out of the

state" within the meaning of the statutory provision that "if when
a cause of action accrues against a person Ije be out of the state, the
period limited for the commencement of the action shall not begin
to run until he comes into the state."*
Hams V. Iron Belt Building & Loan Where the statute requires a for-
Ass'n, 131 N. C. 267, 42 S. B. 607. eign corporation, doing business in the
99 St. Louis & S. F. Ey. Co. v. Keif- state, to keep therein an office and
fer, — Okla. — , 150 Pac. 1026; Okla- an agent on whom service may be
homa Nat. Bank v. Chicago, E. I. & obtained, a foreign corporation, per-
P. E. Co., 45 Okla. 707, 146 Pac. 716; mitted to do business in the state and
Hale V. St. Louis & S. F. E. Co., 39 complying with such statute is not a
Okla. 192, 134 Pac. 949. nonresident within the meaning of
In O'Brien v. Big Casino Gold Min. the statute of limitations. Sidwayv.
Co., 9 Cal. App. 283, 99 Pac. 209, the Missouri Land & Live Stock Co., 187
court said: "Foreign corporations, Mo. 649, 86 S. W. 150.
when attempting to claim the benefit 1 Johnson & Larimer Dry Goods Co.
of our statute of limitations, are re- V. Cornell, 4 Okla. 412, 46 Pac. 860.
quired, as a necessary prerequisite to 2 Williams Metropolitan St. E.
v.
the exercise of that right, to not only Co., 68 Kan. 74 Pac. 600, said in
17,
meet the demands of the law by vir- Tiller v. St. Louis & S. F. E. Co., 189
tue of which alone they may avail Fed. 994, to be "not only opposed to
themselves of the privilege of trans- the great weight of authority in this
acting business in this state, but must country, but also to the very reason
prove the fact at the trial. Omission of the matter itself." But see, as sup-
to make such proof is * * * fatal to porting the doctrine of Williams v.
their right to claim the benefit of the Metropolitan St. E. Co., supra. Ball
statute. '
Engine Co. v. Bennett Co., 98 Neb.
Contra, see Turoott v. Yazoo & M. 290, 152 N. W. 550, wherein, although
Val. E. Co., 101 Tenn. 102, 45 S. W. the facts involved
are not similar,
1067, wherein it was held that the the court approvingly from
quotes
failure of a corporation to file and reg- Williams v. Metropolitan St. E. Co.,
ister its charter in a foreign estate as supra; Sutro Tunnel Co. v. Segregated
required by the statutes of such state Belcher Min. Co., 19 Nev. 121, 7 Pac.
as a condition to its enjoying all of 271; Olcott V. Tioga E. Co., 20 N. Y.
the rights of a domestic corporation 210, rev'g 26 Barb. (N. Y.) 147;
does not affect its status as a resident Thompson v. Tioga E. Co., 36 Barb.
of such state for the purpose of plead- (N. Y.) 79; Hale v. St. Louis & S. F.
ing the statute of limitations. E. Co., 39 Okla. 192, 134 Pae. 949;
861
§399. For purposes of attadunent and gamisliment. It is not

proposed to discuss herein the question of jurisdiction generally in
attachment and garnishment proceedings, but only so much of the
question as turns upon residence or domicile.^
The place of its creation ordinarily determines the residence of a
corporation within the meaning of an attachment statute.* Thus it
has been held that a corporation created by an act of the legislature
of a certain state and having, by law, its place of business in such
state cannot be deemed "absent" or "residing out of the state"
within a statute regulating the procedure in attachment when the
Larson v. Aultman & Taylor Co., 86 resident of the state within the mean-
Wis. 281, 56 N. W. 915. ing of the limitation exemption act."
Although the court in Travelers' A corporation "resides beyond the
Ins. Co. of Hartford, Conneotieut v. limits" of a foreign state within the
Fricke, 99 Wis. 367, 78 N. W. 407, meaning of a statute of such state sav-
in denying a motion for a rehearing, ing causes of action in favor of per-
makes the statement that "a foreign sons residing beyond the limits of the
corporation which has acquired a domi- state when the statute was enacted.
cile in this state for the purposes of Clarke v. Bank of Mississippi, 10 Ark.
litigation is not a nonresident, in such 516, 52 Am. Dec. 248.
sense as to suspend the operation of A holding by a state court that a
the statute of limitations against it," foreign corporation is "out of the
thus apparently overruling its origi- state" so far as pleading the statute
nal opinion (74 N. W. 372, 374) in of limitations is concerned is conclu-
which it cites, with approval, Larson sive on the Supreme Court of the
V. Aultman & Taylor Co., supra, it is United States on writ of error from
said by the same court in a later case that court. Tioga E. Co. v. Blossburg
(State V. National Aec. Society, 103 & C. E. Co., 20 Wall. (TJ. S.)
137, 22
Wis. 208, 79 N. W. 220, 223) that L. Ed. 331. See also Hanchett v.
"notwithstanding the suggestion of Blair, 100 Fed. 817.
counsel for appellant to the contrary, 3 For a complete treatment of the
it isconsidered that in Travelers' Ins. subject of attachment and garnish-
Co. of Hartford, Connecticut v. Fricke, ment of corporations, see the chapter
99 Wis. 367, 74 N. W. 372, and 78 N. treating thereof, infra.
W. 407, it was held by this court that 4 Barbour v. Paige Hotel Co., 2 App.
a foreign corporation is not entitled to Cas. (D. C.) 174; Harley v. Charleston
the benefit of our statutes of limita- Steam-Packet Co., 2 Miles (Pa.) 249.
tions. Such benefit was insisted upon See also Title Insurance & Trust Co. v.
in that case, the right in that regard California Development Co., 171 Cal.
was considered as one of the material 173, 152 Pac. 542. And compare Brand
points for decision upon one theory of V. Auto Service Co., 75 N. J. L. 230,
the case, and the proposition was de- 67 Atl. 19, in which the court said:
cided adversely to the corporation, "We conclude that a corporation is a
though it is on another theory,
true, resident, irrespective of its domicile,
the court held that judgment should when it does business in this state and
go against the corporation, independ- its officers reside here, upon whom
ent of whether it was or was not a process may be served at their nomes.
862
'
Ch. 13] Citizenship, Domicile and Eesidence [§39Q
creditor is "absent or resides out of the state." ' Again it has been
held that a railroad company, although operating a line of road in £i
foreign state resides in the state of its creation, and may be garnished
therein for a debt incurred in, and owing to a resident of, such for-
eign state, the defendant having voluntarily gone into the state of
the corporation's creation.^ Indeed, it has been said that a domestic
corporation has its exclusive residence and domicile at all times in
the jurisdiction of its origin, and cannot be garnished in another
jurisdiction for debts owing by it to home creditors, so as to make
the attachment effectual against its creditor, in the absence of juris-
diction acquired over the person of such creditor.'
Conversely it has been held that a foreign corporation doing
business in the state under the laws thereof will be deemed a "nonresi-
dent" within a statute making nonresidence a ground for attach-
ment.* Even the fact that the alien insurance company, garnished,
has filed the stipulation, required by statute, whereby it agreed that
any legal process affecting it which shall be served on the insurance
commissioner shall have the same effect as if personally served on it,
itself, does not give it a domicile within the state for all purposes.
Conversely, a corporation, no matter Eep. 448, 33 N. E. 938, aff'g 63 Hun

where incorporated, which does not do (N. Y.) 393, 18 N. Y. Supp. 259;
business in this state and does not considered in National Fire Ins.
have officers residing here upon whom Co. of Hartford v. Chambers, 53 N.
process may be served, is nonresident. J. Eq. 468, 32 Atl. 663, and repudiated
It maywell be, and in practice fre- to the extent that it is authority for
quently does happen, that a corpora- the proposition that a corporation can
tion created by the laws of this state have but one domicile or "business
is nonresident, as where a domestic residence. '
corporation does not transact any 8 JenningsIdaho Eailway, Light

v.
business in this state, and has no offi- & Power E. A.
Co., 26 -Idaho 703, L.
cer or director resident here, and has 1915 D 115, Ann. Cas. 1916 B 359, 146
no resident agent or principal office Pac. 101, wherein the court said: "To
for the service of process. On the grant to a foreign corporation the
other hand, it may well be that a right to hold property, to do business,
foreign corporation may be recognized maintain actions, enjoy the benefits
as a corporation of this state, and of eminent domain, does not make it
still be a nonresident." a domestic corporation; and notwith-
6 Trenton Banking Co. v. Haver- standing the right to the enjoyment
stick, 11 N. J. L. 171. of all of these privileges, and such
6 East Tennessee, V. & G. E. Co. v. others as the legislature may from
Kennedy, 83 Ala. 462, 3 Am. St. Eep. time to time provide, the residence
755, 3 So. 852, distinguished in Ala- or citizenship of a foreign corpora-
bama Gr. S. E. Co. V. Chumley, 92 Ala. tion would not be changed, and it
317, 9 So. 286. would still, under the great weight of
7 Douglass V. Phenix Ins. Co., 138 authority, be subject to attachment as
N. T. 209, 20 L. E. A. 118, 34 Am. St. a foreign corporation. * * • The au-
863
§ 399] Pbivatb Cobpoeations [Ch. 15
nor bring therein the situs of a debt which it owes in another state
by reason of business transacted therein.^
On the other hand, it has been held that where a railroad com- .
pany doing business in a foreign state is, by the statutes of such

state, made a domestic corporation and required to be treated as
such in all cases, such company maintains a status equivalent to that
of a resident of the state, and may be proceeded against as a garnishee
to the same extent, and in respect to the same classes of debts, as
natural persons residing in the state.^"
Where a railroad corporation exists and performs its functions
within the limits of a state, as a domestic corporation, by virtue of a
charter granted by such state, the fact that the same incorporators
obtained earlier charters from other states, and effected organization
and still do business thereunder, does not render the corporation any
lessa resident of the state for purposes of garnishment, and the fact
that the indebtedness for which the process is sought arose in one of
such other states under a contract made therein with a resident
thereof is not material.**
thoritiea are uniform that the domi- Minneapolis v. Bleecker, 72 Minn. 383,
cile, and citizenship of a
residence, 42 L. E. A. 283, 71 Am. St. Eep. 492,
corporation are in the state where it 75 N. W. 740.
is created, and that, where the cor- 10 Baltimore & O. E. Co. v. Allen,
poration is not domesticated (that is, 58 W. Va. 388, 3 L. E. A. (N. S.)
reincorporated in other states where 608, 112 Am. St. Eep. 975, 52 S. B.
it does business), it can have but 465, in which the court, distinguish-
one domicile, one residence, and one ing Pennsylvania E. Co. v. Eogers,
citizenship,and that is in the state 52 W. Va. 450, 62 L. E. A. 178, 44 S.
is3uing its charter and maintaining E. 300, and declaring the use of the
supervision and control over the cor- word "domicile" in such case to be
poration. * * * These general prin- inaccurate, said: "Though a corpora-
ciples respectingresidency or tion is incapable ofhaving a residence
inhabitancy of corporations cannot be in the sense in which that term is
denied or questioned. • * * We applied to an individual, just as it is
do not think that the legislature ever not in fact a citizen, it may be, and
intended that a foreign corporation, is often, deemed to have a residence
by complying with the Constitution or the equivalent thereof in a gtate
and laws of this state permitting it to other than that of which it is a citi-
do business, should be regarded as a zen. See also Hannibal & St. J. E.
'
'
resident of this state, within the mean- Co. V. Crane, 102 111. 249, 40 Am. Eep.
ing of our attE^chment laws, and that 581.
its property should be exempt from U
Mobile & O. E. Co. v. Barnhill,
attachment. ' ' See also Voss v. Evans 91 Tenn. 395, 30 Am. St. Eep. 889, 19
Marble Co., 101 111. App. 373. Contra, S. W. 21 (adhering to the ruling in
Burr V. Co-operative Const. Co., 162 Holland v. Mobile & O. E. Co., 16 Lea
111. App. 512. [Tenn.] 414). Caldwell, J., said:
9 Swedish-American Nat. Bank of "The fact that the indebtedness of
864
Ch, 13] Citizenship, Domicile and Residence [§ 401
§ 400. Statute relating to judgment on filing affidavit of claim.

An affidavit of claim filed with a declaration in a suit against a cor-
poration, stating the amount due and that the principal office of the
defendant is in the county where the suit is brought, is sufficient to
show that the defendant is a resident of that county, within the mean-
ing of a statute thatif the plaintiff shall file such an affidavit he shall
be entitled to judgment as in ease of default, unless the defendant,

or his agent or attorney, if the defendant is a resident of the county
in which the suit is brought, shall file an affidavit that he has a good
defense to the suit on the merits.^*
§ 401. Corporations created by congress —In general. A cor-

poration created by congress in the exercise of its powers as the local
legislature for the District of Columbia is a citizen and resident of the
district, and is a foreign corporation in so far as the states are con-
the railroad company to Joyner arose where it obtained its first charter.
in Mississippi, under a contract made The Mobile & Ohio Eailroad Company,
in tliat state, does not render the rail- as already stated, was chartered and
road company a nonresident of Ten- is doing business in Alabama, Missis-
nessee as to that indebtedness. The sippi, and Tennessee. It is therefore,
contention to the contrary, and that in fact and in law, a citizen of each
the railroad company is a nonresi- of the three states." See also
dent of the state as to that debt, is not Georgia & A. Ey. Co. v. Stollenwerck,
sustained by the case of Memphis & 122 Ala. 539, 25 So. 258, citing Mem-
C. E. Co. V. State of Alabama, 107 phis& C. E. Co. v. Alabama, supra,
TJ. S. 581, 2 Sup. Ct. Eep. 432. The and Central Eailroad & Banking Co.
decision in that case was that the rail- V. Carr, 76 Ala. 388, 52 Am. Eep. 339,
road company was a citizen of both in —
which the court said ^but merely
Tennessee and Alabama, having been —
arguendo "It is also sometimes the
chartered in each state; and that, be- case, that a railroad, extending
ing a citizen of Alabama, it could through two or more states, obtains a
not upon the grounds of citizenship charter, identical in the powers and
in Tennessee, remove into the circuit the privileges it confers, from each of
court of the United States a suit the states through which it runs; thus
brought against it in a state court constittiting it one corporation. In
of Alabama by another citizen of the latter class of cases, the corpora-
Alabama. It was not there decided tion is a unit, and whetlier sued in
as here contended, that for the pur- one of the jurisdictions or another, it
poses of that litigation the corpora- cannot raise the question as to its resi-
tion was to be treated as not a citizen dence, or claim that it is nonresident.
of Tennessee because the matters in- It has a common residence in each of
volved arose in Alabama. The ground the states which gave its concurring
of that decision was corporate citizen- assent to its common charter of in-
ship in Alabama, the court holding corporation."
that the corporationwas a citizen of 12 Chicago, D. & V. E. Co. v. Bank
that state as well as of Tennessee, of North America, 82 111. 493.
865
I Priv. Corp. —55
cemed.^' A —
^that is, a corporation
national corporation, however,
created by congress powers as the legislature of
in the exercise of its
—
the United States is not regarded as a foreign corporation, but as
a domestic corporation, in any state or territory in which it may do
business, or in which it may have an office.^*
A corporation created by an act of congress in the exercise of its
powers as the legislature of the United States may sue in the federal
courts, or remove into the federal courts suits brought against it in
the state courts, on the ground that such suits arise under the laws of
the United States."
But a railroad company, incorporated under acts of congress, whose
activities and operations were not intended to be, and are not in fact,
confined to a single state but are carried on in different states, is not a
citizen of any state for the purpose of federal jurisdiction on the
ground of diversity of citizenship.^®
13 Daly V. National Life Ins. Co., 64 tached. But it is, if anything, the
Ind. 1; Williams v. Creswell, 51 Miss. reasoning in this case, as distinguished
817; Hadley v. Freedmau's Savings from the conclusion reached, that
& Trust Co., 2 Tenn. Ch. 122. would justify a statement to the effect
14 Com. V. Texas & P. E. Co., 98 that, in every ease and under all cir-
Pa. St. 90, wherein it was held that cumstances, a national corporation can
a railroad company created by con- be deemed a citizen of one particular
gress to construct and operate a rail- state only, namely, the one in which
road from a point in Texas to a point its corporators reside, and since such
in California was not a foreign cor- reasoning was afterwards disapproved
poration in Pennsylvania, where it by the Supreme Court of the United
had an oMee and also did business, States (see Louisville, C. & C. E. Co.
within a, revenue law of that state. V. Letsou, 2 How. [U. S.] 497, 11 L.
But compare Bank v. Deveaux, 5 Ed. 353, and, generally, § 387, supra),
Cranch (U. S.) 61 (decided in 1809), the case fails as authority for such a
wherein one of the questions was as proposition.
to whether a corporation could sue in a In this connection, attention may
federal court on the ground of diver- be called to the fact that under the
sity of citizenship (see § 390, supra). act incorporating the second Bank of
The plaintiffs in this case were the the United States, the latter might
president, directors and company of "sue and be sued * * * in all state
the Bank of the United States, which courts having competent jurisdiction,
had been incorporated by an act of and in any circuit court of the United
congress and was doing business in States." See Claflin v. Houseman, 93
various of the states, and the court U. S. 130, 135, 23 L. Ed. 833; Bank of
held, by Chief Justice Marshall, that United States v. Planters' Bank, 9
it would regard the suit as one brought "Wheat. (U. S.) 904, 6 L. Ed. 244;
by the natural persons composing the Osborn v. Bank of United States, 9
corporation, and that, upon their citi- Wheat. (U. S.) 738, 817, 6 L. Ed. 204.
zenship being laid, by the declaration, IB Pacific Eailroad Eemoval Cases,
in Pennsylvania and that of the de- 115 U. S. 2, 29 L. Ed. 319.
fendants in Georgia, jurisdiction at- 16 Bankers' Trust Co. v. Texas &
866
The power exercised by the legislature oJ a territory of

legislative
the United States is the legislative power of the territory, and not
of the United States and a corporation created by or under an act of
;
a territorial legislature is a corporation of the territory, and not a

federal or national corporation, and therefore it cannot, as such, sue
in the federal courts, even though be conceded that corporations
it
created under the laws of the United States have the right to sue in
such courts.^'
But where a corporation created by a territorial legislature and
is
the territory subsequently admitted to the Union as a state, the cor-

is
poration becomes a citizen of the state for purposes of federal juris-

diction.^*
§ 402. —
National banks. Under Act of Congress of June 3, 1864,
the circuit courts of the United States were given jurisdiction of all
suits by or against a national bank established within the district for
which the court should be held, and such jurisdiction was not in any
way affected by the citizenship of the parties or the amount in con-
troversy.^® This provision, however, was held to have no application
to suits brought by or against a national bank outside of the district
in which it was established. As to such suits a national bank, for the
purpose of determining the jurisdiction of the federal courts, was
regarded as a citizen or resident of the state in which it was estab-
lished.*"
By Act of Congress of July was provided that the juris-
12, 1882, it
diction for suits thereafter brought by or against any national bank-
ing associations, except suits between them and the United States, or
its officers and agents, should be the same as, and not other than, the
jurisdiction for suits by or against banks not organized under any
P. E. Co., 241 U. S. 295, 60 L. Ed. New Orleans v. Bohue, 8 Fed. IVi.

1010. This provision did not apply to suits
17 Adams Exp. Co. v. Denver & R. in relation to land, or other local ac-
G. By. Co., 16 Fed. 712. tions. Casey v. Adams, 102 U. S. 66,
18 Kansas Pac. R. Co. v. Atchison, 26 L. Ed. 52.
T. & 112 U. 8. 414, 28
S. P. R. Co., 20 St. Louis Nat. Bank v. Allen, 5
L. Ed. 794. See also'shulthis v. Mc- Fed. 551; National Park Bank v. Nieh-
Dougal, 225 U. S. 561, 56 L. Ed. 1205 ols, 4 Biss. 315, Fed. Cas. No. 10,048;
19 V. S. Rev. St. § 5198, 5 Fed. St. Manufacturers' Nat. Bank v. Baack,
Ann. p. 194n. See Wilson County v, 8 Blatchf. 137, Fed. Cas. No. 9,052.
National Bank of Nashville, Tennes- See also Orange Nat. Bank v. Traver,
see, 103 V. S. 770, 26 L. Ed. 488 7 Fed. 146; Cooke v. State Nat. Bank
Third Nat. Bank of St. Louis v. Har of Boston, 52 N. Y. 96, 11 Am. Rep.
rison, 8 Fed. 7gl; First Nat. Bank of 667.
867
'
law of the United States., which might be doing business where such
national bank might be doing business when such suits might be
commenced and all laws or parts of laws of the United States incon-
;
sistent with this provision were repealed. And by the Act of August
13, 1888, it was provided that "all national banking associations
established under the laws of the United States shall, for the purposes
of all actions by or against them, real, personal, or mixed, and all
suits in equity, be deemed citizens of the states in which they are
respectively located. And in such eases the circuit and district courts
shall not have jurisdiction other than such as they would have in
cases between individual citizens of the same state." But it was also
stipulated therein that these provisions should "not be held to affect
the jurisdiction of the courts 9f the United States in eases commenced
hy the United States or by direction of any ofificer thereof, or cases
for winding up the affairs of any such bank. ^^
'
'
"The necessary effect of this legislation [Act of 1888] was to make

national banks, for purposes of suing and being sued in the circuit
courts of the United States, citizens of the states in which they were
respectively located, and to withdraw from them the right to invoke
the jurisdiction of the circuit courts of the United States simply upon
the ground that they were created by, and exercised their powers
' ^'^
under, acts of congress. '
21 1v. S. Eev. St. Supp. pp. 354, and all suits in equity, be deemed
614. See Union Nat. Bank of Gin- citizens of the states in which they
cinnati v. Miller, 15 Fed. 703. are respectively located.' If the
22 Continental Nat. Bank v. Buf ord, intent had been, as is claimed, to de-
191 U. S. 119, 48 L. Ed. 119. prive the United States courts of jur-
"In support of the motion to dis- isdictiou of suits by or against
miss this cause for want of jurisdic- national banks, it would have been
tion, it is contended that, under the easy to have so declared. Instead of
provisions of section 4 of the Act of so doing, it is enacted by the first
Congress approved August 13, 1888, clause that, for the purpose of suing
courts of the United States cannot and being sued, the banks shall be
take jurisdiction of suits in which a deemed to be citizens of the states in
national bank is a party. It cannot which they are respectively located;
be questioned that the language of thus clothing them with the rights,
the last clause of the section is sus- in matters of suits, possessed by indi-
ceptible of the construction claimed vidual citizens tf the state of their
for it by defendant, yet, if this is the location. And then follows the sec-
meaning of the latter clause, it wholly ond clause, which declares that the
destroys the force of the first clause circuit and district courts of the
of the section, which declares that United States shall not have, in such
national banking associations shall, cases, 'jurisdiction other than such
'for the purpose of all actions by or as they would have in cases between
against them, real, personal, or mixed, individual citizens of the same state.
868
In the Judiciary Act of March 3, 1911, it is provided that the dis-

trict courts of the United States shall have original jurisdiction "of
all cases commenced by the United States, or by direction of any'
officer thereof, against any national banking association, and eases for
winding up the affairs of any such bank and of all suits brought by
;
any banking association established in the district for which the court
is held, under the provisions of title 'National Banks,' Revised Stat-
utes, to enjoin the Comptroller of the Currency, or any receiver act-

ing under his direction, as provided by said title. And all national
be construed as is claimed
If this is to other or different jurisdiction in suits
by defendant, it, in effect, nullifies brought by or against national banks
the clear meaning of the first clause, than they would have in case the given
for in that itdeclared that the
is suits were pending between individu-
banks shall stand on a parity with al citizens. If, according to the
individual citizen^, and it is the right literal construction sought to be put
of the individual citizen to sue a citi- upon the last clause of the section,
zen of another state in the United national banks cannot sue or be sued
States court. If the last clause had in the federal courts, except in cases
not been added to section 4 of the act involving a question arising under the
of 1888, is it not entirely clear that, Constitution or laws of the United
by the provisions of .the first clause, States, then the enactment of the first
national banks would, in the matter clause was wholly superfluous; for,
of suits, have had just the rights, no if jurisdiction exists only when a fed-
more and no less, of an individual eral question is involved, then it is
citizen of the state in which it was immaterial whether the bank i^ or
located, which would have included is not to be deemed a citizen of the
the right to sue a citizen of another state of its location. To give any
state in the federal court? This is force, therefore, to the first clause, it
clearly the intent of the first clause, must be held that it was the legisla-
and could it have been the intent of tive intent by the first clause to place
congress to confer this right upon, national banks on the same footing
banks in the first clause of the sec- with corporations created under state
tion, and then in the latter clause to laws, and by the second clause to
take it away? It is a fundamental negative the claim that might be made
rule of construction that, if possible, to federal jurisdiction by reason of
all portions of the act shall be given the fact that national banks are cre-
force and effect, and one part shall ated under a law of congress. Thus
not be so construed as to nullify other construed, force given to both parts
is
portions of the act, unless it clearly of the section. is not the con-
If this
appears that such was the legislative struction, then we would be forced
intent. While the language used in to the conclusion that congress in-
the second clause is not happily chosen tended to deprive national banks of
for the purpose, yet it seems reason- rights enjoyed by the individual citi-
ably clear that it was not the intent zens,and by corporations created un-
to nullify one clause by the other, der the laws of the states." First
but to secure the general purpose of Nat. Bank v. Forest, 40 Fed. 705. See
the section by further declaring that also Petri v. Commercial Nat. Bank,
the federal courts should have no 142 U. S. 644, 35 L. Ed. 1144.
869
banking associations established under the laws of the United States

shall, for the purposes of all other actions by or against them, real,
personal, or mixed, and all suits in equity, be deemed citizens of the
'
^*
states in which they are respectively located. '
§403. "Principal place of business" and "residence" within

bankruptcy acts. Section 2 of the Federal Bankruptcy Act of 1898,
provides that the courts of bankruptcy shall have original juris-
diction to adjudge bankrupt, persons who have had their principal
place of business, have resided or have had their domicile within the
courts' respective territorial jurisdictions for the preceding six
months or the greater portion thereof.^* Under this provision, it has
been held, in effect, that neither the place of incorporation nor the
statement in the charter or articles of incorporation as to where the
principal office of the corporation is to be located determines its prin-
cipal place of business, but that the question is one of fact to be
determined from all of the circumstances.*^ In other words, it is the
23 Act of March 3, 1911, c. 2, § 24, held to have had its principal place
cl. 16, (Fed. St. Ann., 1912 Supp. vol. of business in New York) ; Tiffany v.
1, p. 140). La Plume Condensed Milk Co., 141
For a recent construction of this Fed. 444 (New Jersey corporation held
provision, see Herrmann v. Edwards, to have had its principal place of busi-
238 U. S. 107, 59 L. Ed. 1224. ness in Pennsylvania) ; In re Magid-
24 Since the amendment of the Act Hope Silk Mfg. Co., 110 Fed. 352;
of 1898 in 1910 (Act of June 25, 1910, Dressel v. North State Lumber Co.,
c. 412), any corporation, excepting a 107 Fed. 255 (Michigan corporation
municipal, railroad, insurance or bank- held to have had its principal place
ing corporation, may become a volun- of business in North Carolina).
tary as well as an involuntary The charter of a corporation provid-
bankrupt. See section 4 of the Act ing that its principal place of busi-
of 1898 as amended. ness shall be at a certain place, but
25 In re Perry Aldrich Co., 165 Fed. that it may have such other offices,
249 (Maine corporation held not to principal and branch, as may be es-
have had its principal place of busi- tablished by its board of directors,
ness in Massachusetts) ; In re Penn- is not conclusive on the question as
sylvania Conaol. Coal Co., 163 Fed. to where its principal place of busi-
579 (West Virginia corporation held ness was within the meaning of the
to have had its principal place of .
Bankruptcy Act. In re Guanacevi
business in Pennsylvania); In re Tunnel Co., 201 Fed. 316.
Alaska American Fish Co., 162 Fed. Where the charter of a consolidated
498; In re' Matthews Consol. Slate railroad company designated a certain
Co., 144 Fed. 724 (New Jersey cor- and the
city as the place of its office,
poration held to have had its princi- company represented the same to the
pal place of business in Massachu- railroad commissioners as the place of
setts) In re Duplex Eadiator Co., 142
;
its general office, being the place
Fed. 906 (New Jersey corporation where its transfer and stock books
870
facts,not recitals in the charter nor the intent of the corporate officers
which determine the question of where the corporation has its princi-
pal "place of business." ^® Thus it has been held that the "principal
place of business" of a corporation, which was engaged in mining
and selling coal and whose land is located and mining operations
and its accounts of receipts and dis- R. Co., 71 Cal. 488, 12 Pac. 498, the
bursements were kept, and where its principal place of business of a cor-
officer,s were elected, it was held that poration, as stated in its articles, ifi
such city was the place of its prin- its residence; but, as in the case of
cipal ofS^ce for the purpose of the an individual, its actual place of busi-
appointment of a receiver, although ness, its scene of operations, the place
the operation of its road was con- where it buys and sells, may be a
ducted in another city. Olmstead v. county entirely different from its
Rochester & P. R. Co., 8 N. Y. St. place of residence. Sander-
Justice
Eep. 856. son said in Harris v. McGregor, 29
26 In re San Antonio Land & Irri- Cal. 128: 'But the operations of a
gation Co., 228 Fed. 984; In re Beier- corporation may be carried on in one
meister Bros. Co., 208 Fed. 945. See county, and its principal place of
also In re E. H. Pennington & Co., business, within the meaning of the
228 Fed. 388. statute, may be in another and dis-
The actual existence of the princi- tinct county.' In the present case,
pal place business in a certain
of conceding the residence, viz., the prin-
place, rather than the declaration in cipal place of business of the appel-
the articles of incorporation that it lant, to be in the city and county of
shall be located at another place, is San Francisco, its mill was located in
controlling. In re Wenatchee-Strat- Humboldt county; it carried on all
ford Orchard Co., 205 Fed. 964. its operations there; it contracted its
Under a state insolvency statute liabilities there; and there its credi-
requiring the petition in insolvency tors lived. Under the statute, it had
to be filed in the county in which its place of business Humboldt
in
the "debtor resides or has his place county, as contradistinguished from
of business," it has been held that its residence, and it follows that the
the petitioners in a proceeding against petition by the creditors was filed in
a corporation may prove by parol the proper county. Under this con-
evidence in what county the corpora- struction of the statute, it becomes
tion has its place of business. Credi- immaterial to examine the ruling of
tors V. Consumers' Lumber Co., 98 the court as to the rejection, as evi-
Cal. 318, 33 Pae. 196. The court said: dence, of a certified copy of the origi-
','A tradesman's residence and his nal articles of incorporation.
- The
place of business are often in different certified copy was offered to prove
counties, and his creditors, under the residence, but as we have seen, resi;
foregoing provision, would be author- dence is an immaterial element in the
ized, to force him into insolvency in present case. We might suggest that,
the county of his residence, or in the as a certified copy of the original
county where he has his place of busi- articles would not prove the existence
ness. A corporation occupies no bet- of a corporation, it is not plain that
ter or different position. As has been such evidence would establish resi-
held in Jenkins v. California Stage Co., dence for a corporation."
22 Cal. 538, and Cohn v. Central Pac,
871
are conducted wholly in the state by which it was created, was in

such state rather than in a city in an adjoining state where it had
what it had designated its principal ofifiee.''''
27"! am not ignorant of the fact destroy the rights of creditors; never-
that some of the federal courts have theless, for a court in bankruptcy sit-
construed this phrase 'principal place ting in a city far distant from where
of business' to be the place where its the corporation's property is situate
chief ofScers reside and maintain an and its practical operations are con-
office; but in my judgment the deter- ducted to assume jurisdiction is, in
mination of the question of where every caê, calculated to accomplish
the principal place of business is, that very thing. To illustrate: Let
depends upon where the actual us assume that the alleged bankrupt
business of the concern is trans- here has acquired its coal holdings
acted. It is a question of fact to be by purchase, as is generally the case,
determined in each particular caae from numerous farmers. Coal in place
largely on the character of the cor- in West Virginia is real estate, and
poration, its purposes, and the kind title in fee thereto can be acquired
of business it is engaged in. As re- only by deed. These deeds are of
gards a coal mining corporation like record in the county in West Virginia
this, it is very evident that the basic wherein the coal purchased is situ-
necessity for its doing business at ate, not in the city of Philadelphia.
all is to have somewhere a body of Assume that the company has not paid
coal, owned or leased, from which it in full for the coal, and that vendors'
may mine and ship coal. It is not liens have been retained by the farm-
sufficient for the officers of such a ers upon the several tracts of coal
corporation to gather together in a sold by them to the company, to secure
city office and call it 'the principal unpaid purchase money. In some
place of business' of the concern be- companies 40 to 100 different convey-
cause it better suits their conven- ances may have been made under such
ience to live and meet in such city. conditions; each vendor having such
Unless the coal exists in place some- lien. Finally let us assume, what
where else to be mined and shipped would be entirely true in many cases,
to consumers, such city organization that the company in bankrupt con-
cannot exist. It is purely incident dition had suffered judgments to be
to and dependent upon the practical recovered and docketed against it and
mining operations, 'the doing of busi- was indebted to many local people at
ness' elsewhere. The fact that such its mines for labor, material, and mer-
city organization may

control the com- chandise. All these farmers, mer-
pany's sale of the coal cannot avoid chants, laborers, and lienors would
the inevitable conclusion. In such have to go to Philadelphia (it could
ease the city office becomes only the be as well to San Francisco) to have
agent of the corporation for a limited their claims and liens adjudicated,
purpose, that of selling what cannot solely because the officers of the cor-
be sold until it has first been else- poration saw fit for their convenience
where mined, prepared for, and to establish an office in such distant
shipped to, market for sale. It is city, and call it the company's 'prin-
very clear that it was not the cipal place of business.' I cannot for
purpose of the bankrupt law to either a moment believe that congress ever
discriminate against, suppress, or contemplated such a construction of
872
Ch, 13] Citizenship, Domicile and Residence [§403
While it has been held that an inactive foreign corporation whose

principal business during the six months' period has been to try to
work out a reorganization scheme has not had its "principal place of
business" within the state merely by reason of the fact that the re-
organization work has been done therein when it was required by the
laws of the state by which it was created to have and keep a general
office for the transaction of business within the state and its assets
and most of its creditors are in such state,^^ it has also been held
nor can I for a moment believe

its act, of business is located, within the
the language of the act itself can be meaning of a statute giving jurisdic-
warped by construction so as to cretion of insolvency proceedings to the

ate or justify such a condition of af- probate court of such county, although
fairs. I therefore decline to entertain in another county it has the office of
the receivers' petition in ancillary its clerk, where nothing is done ex-
proceeding, and I decline, until my cept the holding of stockholders'
conclusion^ herein are by a higher meetings, the making and preserving
court held to be erroneous, to recog- of records of their proceedings, and
nize that the District Court for the making its sales and collections in
Eastern District of Pennsylvania has another state. Kennett v. Wood-
any jurisdiction in the premises." In worth-Mason Co., 68 N. H. 432, 39 Atl.
re Tygarts Eiver Coal Co., 203 Fed. 585.
178. See also Home Powder Co. v. A corporation doing business in a
Geis, 204 Fed. 568, wherein a corpo- foreign state was held, by the su-
ration which was incorporated in Ari- preme court of the latter, to have had
zona, had acquired and worked a lead its domicile in the state of its cre-
and zinc mine in Missouri, and ation as far as its being affected by the
claimed its principal place of business discharge of its debtor under the in-
was in Illinois was held to have actu- solvency statutes of the foreign state
ally had such principal place of busi- was concerned. Bergner & Engel
ness in Missouri; and Boszell Bros. v. Brewing Co. v. Dreyfus, 172 Mass.
Continental Coal Corporation, 235 Fed. 154, 51 N. E. 531, 70 Am. St. Eep.
343, distinguishing Burdick v. Dillon, 251.
144 Fed. 737, writ of certiorari 28 In re Tennessee Const. Co., 207
denied, 202 IT. S. 624, 50 L. Ed. Fed. 203, aff'd 213 Fed. 33.
1176 (mem. dec), in which it was A manufacturing corporation which
held that when a corporation op- was incorporated under the laws of
erating factories, mills or mines in one state and acquired land and
various states has a principal office buildings in a certain city in such
where the supreme direction and con- state where it conducted the manu-
trol of its business and finances is facturing branch of its business, but
exercised and the bulk of its sales is had its general office, where its offi-
negotiated, such principal office is its cers were to be found, its books were
"principal place of business" within kept, its purchases and sales were
the meaning of the Bankruptcy Act. mainly effected, all of its banking
The county in which the manufac- business was transacted, and all of
tory of a corporation is located, and the meetings of its directors, exclud-
where it conducts its business, is the ing the first one, were held, in a
county in which its principal place city in another state, and which, on
873
that the "principal place of business" of a corporation, which was

organized to carry on the theatrical business and which, in accord-
ance with the statutory requirement, maintained a nominal office in
the state of its creation,some if not all of its officers
in which state
resided and the meetings of and directors were held,
its stockholders
but in which no substantial property had ever been owned by it, was in
a foreign state in which it had operated a theater and maintained an
office until dispossessed thereof and in which it was engeiged in liti-
gation whereby it was attempting to establish certain property

rights.*'
There is, however, authority for the proposition that the fact that
a manufacturing corporation which has its mills and principal place
of business in the state of its creation does not transfer such principal
place of business to a foreign state by continuing to make sales
therein, through an agent, after it has ceased manufacturing, of
products which it has on hand.'"
That a corporation has not filed ®^ or obtained, as the case may be,
the certificate prescribed by a foreign state in the case of foreign cor-
porations, has been held to be immaterial on the question whether the
corporation has had its principal place of business in such foreign
state.''^
The mere fact that a foreign corporation has filed a certificate in a

public office designating a certain place as its principal place of busi-
ness does not bring such place within the description made, unless
business is actually done, there, it being necessary to the "principal
place of business" that business not only can be but is done there.*'
Moreover, it has been held that the statement in a voluntary petition
in bankruptcy by a corporation, the filing of which was authorized by
the board of directors, that the corporation's principal place of busi-
becoming financially embarrassed, Marine Machine & Conveyor Co., 91

closed manufacturing plant and
its Fed. 630.
discharged all of its employees with 29 In re E. & G. Theatre Co., 223
the exception of two who were re- Fed. 657.

tained to preserve the property but 30 In re Elmira Steel Co., 109 Fed.
retained its general office where the 456.
meetings of its directors were contin- 31 In rePerry Aldrich Co., 165 Fed.
ued to be held and its business in 250. Compare, however, In re El-
liquidation was transacted, was held mira Steel Co,, 109 Fed. 456.
to have had its principal place of busi- 32 In re Duplex Eadiator
Co., 142
ness in the city in which such office Fed. 906.
was located during most of the six 33 In re Thomas MeNally Co., 208
months preceding the filing against it Fed. 291.
of a petition in bankruptcy. In re
674
'
ness was at a certain place, prima facie evidence that it was actually
is
located there, and burden of showing the contrary on the

casts the
creditor seeking to vacate the resultant adjudication on the ground
of want of jurisdiction.'*
So far as the territorial jurisdiction of a bankruptcy court, when
the alleged bankrupt has "resided" within its district for the re-
quired time, is concerned, it has been held that a corporation does
not "reside" in a foreign state, although it has its principal place
of business therein."
S4Iii re Guanacevi Tunnel Co., 201 another district deprives such court
Fed. 316. See also In re Beiermeister of jurisdiction, or of the power to de-
Bros. Co., 208 Fed. 945, wherein it termine its own jurisdiction over the
was said that ' the corporation ip pre-
' corporation filing a voluntary peti-
sumed to know where it has had its tion therein and alleging such district
principal place of business, and when to be the one in which It has and has
the corporation itself files its petition, had its principal place of business
jurisdiction is conferred on the court for the preceding six months and
where filed, subject to a showing in more. '
that court that the principal place SB In re Mathews Consol. Slate Co.,
of business was or had been elsewhere. 144 Fed. 724.
No prior creditors' petition filed in
g75
CHAPTER 14
CoEPORATE Existence
I. NECESSITY rOB EXISTENCE
§ 404. Existence essential to corporate acts.
II. COMMENCEMENT, DURATION AND EXTENSION OP EXISTENCE

§ 405. Commencement of existence —Âcceptance of charter.
§ 406. — Performance of conditions precedent.
§ 407. Duration and termination of existence.
§ 408. Extension —
and revival of charters ^Definitions and distinctions,
§ 409. — The power and its exercise in general.
§i410. — Eight as against nonconsenting stockholders.
§ 411. — Extension by special act.
§ 412. — Extension under general laws.
§ 413. — Effect of extension.
§ 414. — Eevival of charters.
§ 415. — Acceptance of extension or revival.
III. PBOOP OP EXISTENCE
§ 416. Necessity to prove incorporation.

§ 417. What must be proved — În general.
§ 418. — De jure corporate existence.
§ 419. — De facto corporate existence.
§ 420. — Estoppel deny corporate
to existence.
§ 421. Burden of proof.
§ 422. Presumptions and prima facie proof În — general.
§ 423. — Use of name importing a corporation.
:
§ 424. — Presumption of continued existence.

§ —In general.
425. Parol evidence of incorporation ; reputation
§ 426. — In criminal actions.
§ 427. — Direct testimony that a company a corporation. is
iS 428. Proof and judicial notice of charters and general laws —Public acts
special
§ 429. — Private and foreign acts.
§ 430. Acceptance of charter.

§ 431. Organization of corporation and performance of conditions precedent-^
Corporate books and records.
g 432. — Articles, certificates, letters patent, etc.
§ 433. — National banks.
I 434. — Confirmatory act.
J 435. — parol evidence.

Affidavits;
876
Ch. 14] CoBPOKATE Existence [§404
5 436. — Presumptions.
i 437. — Foreign corporations.
I 438. — Conclusiveness of certificates, etc.
§ 439. Proof of user.

{ 440. Statutory provisions.
I. NECESSITY FOR EXISTENCE
§404. Existence essential to corporate acts. "A corporation is

' ^
not a person in law until after the grant of its charter. '
"It is an artificial person, and necessarily can have no legal being

has been fully created. ^ And until it comes into existence
'
until it '
it cannot, in the nature of things, legally act as a corporation.^ So,

until that time, it cannot enter into contracts,* or acquire title to real
1 Bartram, Hendrix & Co. v. Collins 4 Missouri. See Queen City Furni-
Mfg. Co., 69 Ga. 751, quoted with ap- ture & Carpet Co. v. Crawford, 127
proval in Michael Bros. Co. v. David- Mo. 356, 30 S. W. 163.
son & Coleman, 3 Ga. App. 752, 60 S, New Jersey.African M. E. Church
E. 362. V. Conover, 27 N. J. Eq. 157, 158.
"Without a charter and organiza- Ohio. Society Perun v. Cleveland,
tion it do no corporate act,
could
43 Ohio St. 481, 3 N. E. 357.
could receive no corpprate property,
Oregon. MoVieker v. Cone, 21 Ore.
could incur no corporate liability, and
353, 28 Pac. 76.
against it no corporate judgment
could be legally rendered." Michael Rhode Island. Ireland v. Globe
Bros. Co. V. Davidson Coleman, 3 & Milling &
Eeduction Co., 20 E. I. 190,
Ga. App. 752, 60 S. E. 362. See also 38 L. E. A. 299, 38 Atl. 116.
Eau V. Union Paper Mill Co., 95 Ga. Texas. Ennis Cotton-Oil Co. v.
208, 22 S. E. 146. Burks (Tex. Civ. App.), 39 S. W. 966.
2 Merges v. Altenbrand, 45 Mont. A corporation cannot be a party
355, 123 Pac. 21. to a contract made before its cre-
3W. L. Wells Co. V. Gastonia Cot- ation. Holyoke Envelope Co. v. United
ton Mfg. Co., 198 U. S. 177, 49 L. Ed. States Envelope Co., 182 Mass. 171,
1003, rev'g 128 Fed. 369, which rev'd 65 N. E. 54; Abbott v. Hapgood, 150
118 Fed. 190; Perkins v. Sanders, 56 Mass. 248, 5 L. E. A. 586, 15 Am. St.
Miss. 733. Eep. 193, 22 N. E. 907; Penn Match
Prior to that time it cannot Co. V. Hapgood, 141 Mass. 145, 7 N.
perform any act, nor can any one per- E. 22.
form any act for it, as agent or other- A
person cannot recover against a
wise. Utah Optical Co. v. Keith, 18 corporation for services rendered as
Utah 464, 56 Pac. 155. And until then its secretary before it acquired legal
it is incapable of authorizing any one existence, or under an appointment to

to act in its behalf. Ennis Cotton- that ofBee made prior to that time.
Oil Co. V. Burks (Tex. Civ. App.), 39 Franklin Fire Ins. Co. v. Hart, 31 Md.
S. W. 966. 59.
As to the rights, duties and liabili- As to the liability of a corporation

ties arising from the acts of promo- on contracts made for its benefit by
ters, see Chap. 5, supra. promoters and the personal liability
877
'
§404] Pkivate Corpobations [Ch. 14
estate,* or maintain an action for a tort.*
"That Supreme Court, "should

a corporation," said the Illinois
have a full and complete organization and existence as an entity
before it can enter into any kind of a contract or transact any busi-
ness, would seem to be self-evident. * * * A corporation, until
organized, has no being, franchises, or faculties. Nor do those en-
gaged 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. '
As we have seen, however, a de facto corporate existence is ordi-

narily sufficient, since, as a rule, a de facto corporation has all the
rights and is subject to all of the liabilities of a corporation de jure
except as against the state, and its existence cannot be questioned col-
laterally, but only in a direct proceeding instituted for that purpose
by the state.' And, as we have also seen, both persons who hold them-
selves out as being a corporation and those who contract with or other-
of the promoters on such contracts, see "If a man grant an estate to an

Chap. 5, supra. imaginary corporation, which exists
That a corporation may become only in his own mind, no title passes
bound to fulfil a contract made in its * * *." Eussell v. Topping, 5 Mc-
name and behalf in anticipation of its Lean (U. S.) 194, 202, quoted in Har-
existence, by afterwards accepting the riman V. Southam, 16 Ind. 190.
benefits of the contract, and may ac- That a deed to a corporation made
quire a right to enforce such a con- before the grantee comes into exist-
tract against the other party by his ence is valid if not delivered until
acceptance of performance by the cor- after such existence is acquired, see
poration, see Chap. 5, supra. § 29, infra.
B Eau Union-Paper Mill Co., 95
V. It cannot take or hold a leasehold
Ga. 208, 22 S. E. 146; African M. B. estate. Utah Optical Co. v. Keith, 18
Church V. Conover, 27 N. J. Eq. 157, Utah 464, 56 Pac. 155.
158. 6 National Shutter Bar Co. v. 6. F.
A deed to a corporation not in ex- S. Zimmerman & Co., 110 Md. 313,
istence and never created or organ- 73 Atl. 19.
ized would be void. Cumberland Land 7 Gent V. Manufacturers ' & Mer-
Co. V. Daniel (Tenn. Ch.), 52 S. W. chants ' Mut. Ins. Co., 107 111. 652,
446; Spring Garden Bank v. Hurlings afe'giia 111. App. 308, quoted with ap-
Lumber Co., 32 W. Va. 357, 3 L. B. A. proval in Ireland v. Globe, Milling &
583, 9 S. E. 243. Eeduetion Co., 20 E. I. 190, 38 L. E.
A deed to a corporation does not A. 299, 38 Atl. 116. And see to the
divest the grantee of his title where same effect McVicker v. Cone, 21 Ore.
there is no such corporation in exist- 353, 28 Pac. 76.
ence, acting under color of authority. 8 See Chap. 10, supra.
Harriman v. Southam, 16 Ind. 190.
S78
Ch. 14] CoKPOBATE Existence [§405
wise recognize an association as a corporation may be estopped to deny

that it is one, even though in fact it is not.^
n. COMMENCEMENT, DURATION AND EXTENSION OF EXISTENCE
§ 405. Commencement of existence Âcceptance of charter. Since, —
in the case of a private corporation, an acceptance of the charter,
express or implied, is necessary,^" an association of persons to whom
a charter is granted by the legislature does not become a corporation
until such acceptance.^^
On the other hand, if the act requires nothing to be done by the
corporators named therein as a condition precedent to their acquiring
corporate existence, they become a corporation immediately upon the
passage of the act and its acceptance by them.^* And if the charter
is granted unconditionally upon application therefor, it takes effect at
onee,^* for under such circumstances the application is deemed an

acceptance in advance.^*
9 See Chap. 11, supra. Mississippi. Perkins v. Sanders, 56

10 See § 239, supra. Miss. 733.
11 Hudson V. Carman, 41 Me. 84; Missouri. St. Joseph & I. B. Co. v.
Glymont Improvement & Excursion Shambaugh, 106 Mo. 557, 17 S. W.
Co. v. Toler, 80 Md. 278, 30 Atl. 651. 581.
"The mere enactment of a charter New Jersey. Union Water Co. v.

Keau, 52 N. J. Eq. Ill, 27 Atl. 1015.
for a corporation does not create the
corporation without an act of accep-
New York. Brouwer v. Appleby, 1
Sandf. 158.
tance on the part of the persons named
South Carolina. Cheraw & C. B. Co.
in the act as corporators." Eieh-
V. White, 14 S. C. 51.
mond Factory Ass'n v. Clarke, 61 1
1 If * * * tjjg charter confers
Me. 351. corporate capacity without any condi-
12 United States. W. L. Wells Co. tions precedent,
acceptance of the
v. Gastonia Cotton Mfg. Co., 198 IT. charter that need be shown. In
is all
S. 177, 49 L. Ed. 1003, rev'g 128 Fed. such eases the act of incorporatioil
369, which rev'd 118 Fed. 190. brings the corporate body into exist-
Arkansas. Blackwell v. State, 36 ence." St. Joseph & I. E. Co. v.
Ark. 178. Shambaugh, 106 Mo. 557, 566, 17 S.
Coimectlcut. Goshen & S. Turnpike W. 581, quoted in Boatmen's Bank v.
Co. V. Sears, 7 Conn. 86. Gillespie, 209 Mo. 217, 108 S. W. 74;
Indiana. Stoops v. Greenburgh & First Nat. Bank of Deadwood, South
B Plank-Road Co., 16 Ind. 46, 79 Am. Dakota v. Eoekefeller, 195 Mo. 15,
Dec. 405. 44, 93 S. W. 761.
Maine. Hudson v. Carman, 41 Me. If the act prescribes conditions
84. precedent, must be performed
they
Massachusetts. Eiddle v. Propri- before the corporation will come into
etors of Locks & Canals, 7 Mass. 169, existence. See § 406, infra.
5 Am. Dec. See also Com.
35. v. 13 Logan V. McAllister, 2. Del. Ch,
Worcester Turnpike Corporation, 3 176; Perkins v. Sanders, 56 Miss. 733.
Pick. 327. 14 See § 245, supra.
879
In the case of corporations formed under general laws, no accept-

ance is necessary. Under such circumstances, compliance by the cor-
porators with the statutory conditions precedent to incorporation
takes the place of an acceptance and is all that is required.^^
§406. — Performance of conditions precedent. The valid ac-

ceptance of a charter includes the performance of all conditions prece-
dent prescribed by the legislature. •
Therefore, when a corporation is
organized under a general law, it does not come into existence until
all the conditions precedent prescribed by the statute have been com-
plied with.^* And the same is true when the corporation is formed
15 See § 227, supra. 229; Crocker v. Crane, 21 Wend. 211,

Thatcompliance with conditions 34 Am. Dec. 228.
precedent is necessary to the exist- Oregon. McVicker v. Cone, 21 Ore.
ence of a corporation, see § 182, supra. 353, 28 Pac. 76.
16 California. Mokelumne Hill Canal Pennsylvania. Borough of Brad-
& Mining Co. v. Woodbury, 14 Cal. dock V. Penn Water Co., 189 Pa. St.
424, 73 Am. Dec. 658.
379, 42 Atl. 15.
Colorado. Jones v. Aspen Hard- Rhode Island. Ireland v. Globe
ware Co., 21 Colo. 263, 29 L. E. A.
Milling &
Eeduction Co., 20 E. I. 190,
143, 52 Am. St. Eep. 220, 40 Pae. 457;
38 L. E. A. 299, 38 Atl. 116.
Ajspen Water & Light Co. v. Aspen,
Texas. Bank of De Soto v. Eeed,
5 Colo. App. 12, 37 Pac. 728.
50 Tex. Civ. App. 102, 109 S. W. 256.
Illinois. Gent v. Manufacturers' &
Merchants' Mut. Ins. Co., 107 111. 652, Wisconsin. Bergeron v. Hobbs, 96
aff'g 13 HI. App. 308; Bigelow v. Wis. 641, 65 Am. St. Eep. 85, 71 N. W.
Gregory, 73 111. 197; Stowe v. Flagg, 1056.
72 111. 397. If acts are required to be per-
Chicago, K. & W. E. Co. v.
Kansas. formed before the corporation comes
Stafford County Com'rs, 36 Kan. 121, into existence, no corporatioa is cre-
12 Pac. 593; Hunt v. Kansas & M. ated or can exist until those acts are
Bridge Co., 11 Kan. 412. performed. W. L. Wells Co. v. Gas-
Kentucky. Cincinnati Cooperage Co. tonia Cotton Mfg. Co., 198 IT. S. 177,
V. Bate, 16 Ky. L. Eep. 626, 26 S. W. 49 L. Ed. 1003.
538. "Where a corporation is created by
Massachusetts. Utley v. Union Tool statute, under a general statute,
or
Co., 11 Gray 139. * * * which requires certain acts
Boatmen's Bank v. Gil-
Missouri. to be done before it can be considered
lespie, 209 Mo. 217, 108 S. W. 74; in esse, there those acts must appear
Fir3t Nat. Bank of Deadwood, South to have been done, in order to estab-
Dakota v. Eockefeller, 195 Mo. 15, 44, lish the corporate existence." Lord
93 S. W. 761. V. Kssex Bldg. Ass'n No. 4, 37 Md.
Montana. Merges v. Altenbrand, 320, quoted with approval in National
45 Mont. 355, 123 Pac. 21. Shutter Bar Co. v. G. F. S. Zimmerman
New York. Chase v. Lord, 77 N. & Co., 110 Md. 313, 73 Atl. 19; Mary-
y. 1; Walker v. Devereaux, 4 Paige land Tube & Iron Works v. West End
880
under a special law prescribing: conditions precedent to its existence,^'

'
In charters which are mere propositions for the organization of a
'
corporation, and which require certain acts to be performed precedent

no corporation can exist * * *
to the existence of the corporation,
'
these conditions have been complied with.
till ^' And, as a necessary- '
consequence, no corporate act can be performed until such compliance,

except such as may be expressly permitted by the charter; "and aa
to those acts, it would be considered that the corporation had an
existence before its full investiture with its corporate franchises."^®
Improvement Co., 87 Md. 207, 39 L. ment Co., 87 Md. 207, 39 L. E. A. 810,

E. A. 810, 39 Atl. 620. 39 Atl. 620; Lord v. Essex Bldg. Ass'n
"There is a manifest difference, as No. 4, 37 Md. 320; Franklin Fire Ins.
Co. V. Hart, 31 Md. 59; Boatmen's
to the effect o£ omission of the re-
quirements of the law in the organi-
Bank v. Gillespie, 209 Mo. 217, 108
S. W. 74; First Nat. Bank of Dead-
zation of corporations, between a case
wood, South Dakota v. Eoekefeller,
where the corporation is created by
195 Mo. 15, 44, 93 S. W. 761; St.
special charter and there have been
Joseph & I. E. Co. V. Shambaugh, 106
acts of user, and a case where in-
Mo. 557, 566, 17 S. W. 581.
dividuals seek to form themselves into
"Where the
incorporation
act of
a corporation under provisions of the
does not in and of itself confer cor-
general law. In the latter case
porate capacity, but provides for the
* * * it is only in pursuance of
doing of certain things, upon the
the provisions of the statutes for such
doing of which the company shall
purposes that corporate existence can
become a body corporate, the perform-
be acquired." Ireland v. Globe Mill-
ance of these things constitute condi-
ing & Reduction Co., 20 E. I. 190, 38
tions precedent, and until performed
L. E. A. 299, 38 Atl. 116. To the same
the company has no corporate exist-
effect, see Bigelow v. Gregory, 73 ence." St. Joseph & I. E. Co. v.
111. 197.
Shambaugh, 106 Mo. 557, 566, 17 S. W.
Where the articles of association 581, quoted in Boatmen's Bank v. Gil-
are signed upon the understanding lespie, 209 Mo. 217, 108 S. W. 74;
that they shall not take effect until First Nat. Bank of Deadwood, South
the happening of a certain contin- Dakota v. Eoekefeller, 195 Mo. 15,
gency, they do not become effective
44, 93 S. W. 761.
and no corporation exists until such 18 Perkins v. Sanders, 56 Miss. 733.
contingency happens. CoBey v. Mor- See also W.
L. Wells Co. v. Gastonia
rill, 61 Vt. 598, 17 Atl. 840. Cotton Mfg. Co., 198 U. S. 177, 49 L.
17 W.
L. Wells Co. V. Gastonia Cot- Ed. 1003, rev'g 128 Fed. 369, which
ton Mfg. Co., 198 U. S. 177, 49 L. Ed. rev'd 118 Fed. 190.
1003, rev'g 128 Fed. 369, which rev'd 19 Perkins v. Sanders, 56 Miss. 733,
118 Fed. 190; National Shutter Bar quoted in W. L. Wells Co. v. Gastonia
Co. V. G. S. F. Zimmerman & Co., 110 Cotton Mfg. Co., 198 V. S. 177, 49
Md. 313, 73 Atl. 19; Maryland Tube L. Ed. 1003, rev'g 128 Fed, 369, which
& Iron Works v. West End Improve- rev'd 118 Fed. 190.
881
I Priv. Corp.— 56
§ 406] Pkivatb Cobpobations [Ch. 14
As soon as all conditions precedent are performed, corporate existence

attaches.*"
What are to be construed as conditions precedent, what constitutes
a compliance with them, and the effect of failure to comply with them,
are fully considered in other seotions,^^
When organization is necessary to give an association a corporate
existence, its corporate life dates from its organization, and not from
the time it begins to do business.** And its existence is in no way
affectedby its failure to comply with conditions subsequent pre-
scribedby such law, unless it is specifically provided therein that such
noncompliance shall ipso facto work a forfeiture of its charter or dis-
solve it.*'
A corporation may acquire its corporate existence under a special
or general law, although it has not yet complied with conditions prece-
dent to its right to commence business or to exercise the powers con-
ferred.**
§ 407. Duration and termination of existence. Though a corpora-

tion, unless the period for which it may
by statute, has
exist is limited
the capacity of perpetual succession,*^ the period for which a cor-
poration may exist is now very generally limited by the special or
general laws by or under which it is created.** A corporation, as is
the case with a natural person, may cease to exist,*'' and this cessation
of existence may be accomplished in any one of several ways. So it
may be dissolved, and thus cease to exist, by the expiration of the
20 Indiana. Atherton v. Sugar 24 Wechselberg v. Plour City Nat.
Creek & P. Turnpike Co., 67 Ind. 334. Bank, 64 Fed. 90, 26 L. E. A. 470;
Kansas. Hunt v. Kansas & M. Scholfield Gear & Pulley Co. v. Schol-
Bridge Co., 11 Kan. 412. 71 Conn. 1, 40 Atl. 1046; Mueh-
field,
Maryland. Hager v. Cleveland, 36 lenbeck v. Babylon & N. S. E. Co., 26

Md. 476. N. Y. Misc. 136, 55 N. Y. Supp. 1023.
Missouri. Columbia Bottom Levee "^^^^ ^* commences business before
Co. V. Meier, 39 Mo. 53. conditions precedent to the right to
Montana. Merges v. Altenbrand, ^° ^° ^^"^ ^^^'^ performed does not

45 Mont. 355, 123 Pac. 21.
^^^'^^ '*^ existence in law as a corpo-
•nw„„«„-4_ TD r. y.r--i ,
ration. W. L. "Wells Co. v. "''°''""*°'
Gastonia
Wisconsin. Burhop v. Milwaukee, „ .. ,,„ „ -,,.„..„
*^°"°" ^*S- ^°-> ^^^ ^- ®- 1^^' ^^
21 Wis 257
^- ^^- ^°°^' '^'^ 'S 128 Fed. 369, which
21 C5»l §§ 189
See SB 1 ««
182-186, supra.
^^^.^ j^g j,^^ ^gg^
22Hanna v. International Petroleum gge also Chap. 10, supra.
Co., 23 Ohio St. 622. See also Mc- 25 See § 6, supra.
Vicker V. Cone, 21 Ore. 353, 28 Pac. 26 See § 199, supra.
^^- *7 Bredell v. Kerr, 242 Mo. 317, 147
See Chap. 9, supra. S. W. 105.
83 See § 186, supra.
882
Ch. 14] CoEPOEATE Existence [§408
period fixed for its duration by its charter or the general law under
which it was formed,^* unless such period is subsequently extended
in some lawful way ^' or by the happening of some other contingency
;
prescribed by its charter ;8'' or by the repeal or withdrawal of its

charter under a power of repeal reserved by the legislature ^^ or by ;
the failure or loss of some integral part of the corporation, without

which it cannot exist ®^ or by a surrender of its charter, authorized
;
or accepted by the state ;'^ or by a forfeiture of its charter for

misuser, or nonuser, or a failure to perform conditions subsequent,
in a proceeding instituted for that purpose by the state ^* or in such ;
other ways as the statute may prescribe.'*

It has been held that under a general power to amend its articles a
corporation may, by amendment, shorten the term of its existence,
even though the effect is to terminate its existence almost imme-
diately.'^
A municipal corporation cannot abridge the life of a public service
corporation by limiting the existence of a license to use its streets,
which the corporation is required to obtain, to a period shorter than

the term of its existence as fixed by its charter.'''
Where it is shown that a company was at one time a corporation,
that status is presumed to continue until the contrary is proven, at
least during the period for which it might have been chartered.. But
there is no presumption that its charter has been renewed."
If the date of the incorporation of a company is not shown, it must
be presumed that it is subject to the laws of the state passed pursuant
to the existing constitution.'^
§ 408. Extension and revival of charters —Definitions and distinc-

tions. To renew a charter is to revive a charter which has ex-
28 See chapter on Forfeiture, Dis- 33 See chapter on Forfeiture, Dis-

solution, etc., infra. solution, etc., infra.
As to whether it can be regarded as Si See chapter on Forfeiture, Dis-
a de facto corporation after that time, solution, etc., infra,
see § 285, supra. 35 See chapter on Forfeiture, Dis-
As to estoppel to deny the existence solution, etc., infra,
of the corporation notwithstanding 36 Tognazzini v. Jordan, 165 Cal. 19,
the expiration of the time limited for Ann. Gas. 1914 C 655, 130 Pac. 879.
its existence, see § 330, supra. 37 In re Consolidated Gas Co., 56
29 See § 413, infra. N. Y. Misc. 49, 106 N. Y. Supp. 407,
SO See § 409, infra. afE'd 124 N. Y. App. Div. 401, 108 N.
31 See chapter on Forfeiture, Disso- Y. Supp. 823.
lution, etc., infra. 38 See § 422, infra.
32 See chapter on Forfeiture, Disso- 39 San Antonio Traction Co. v. Alt-
lution, etc., infra. gelt (Tex. Civ. App.), 81 S. W. 106.
883
pired,*" or, in other words, "to give a new existence to one which has
been forfeited, or which has lost its vitality by lapse of time."" To
"extend" a charter is "to increase the time for the existeiiee of one
which would otherwise reach its limit at an earlier period."*^
"There is a broad distinction between the extension of a charter
and the grant of a new one. ** '
'
Whether a charter creates a new corporation or merely continues

the existence of the old one is to be determined from its terms, con-
strued in accordance with the legislative intent and the intent of the
corporators.**
a public officer, who is authorized
It has been held that the act of
an existing corporation by
to grant charters, in granting a charter to
the same name and with the same powers as it already has, and before
the expiration of its original charter, is, in effect, but the renewal
of its charter, though such officer is not given authority to renew

charters.**
§ 409. — The power and its exercise in general. Since corpora-

tions can be created by or under legislative authority only,*® it is
only by or under such authority that the charter of a corporation can

be extended beyond the period for which it was created.*'' Congress
has power to extend the existence of corporations deriving their ex-
istence from the federal laws.** And the states, acting through their
40 Cleveland, P. & A. E. Co. v. Erie, 44 Bellows v. Hallowell & Augusta

27- Pa. St. 380. Bank, 2 Mason (U. S.) 31, 44; Prost-
41 Moers v. Beading, 21 Pa. St. 188, burg Min. Co. v. Cumberland & P. E.
201. Co., 81 Md. 28, 31 Atl. 698. See also
42 Cleveland, P. & A. E. Co. v. Erie, § 413, infra.
27 Pa. St. 380. 45 St. Phillips Churoli v. Zion Pres-
"To extend a charter is to give byterian Church, 23 S. C. 297, 315.
one which now exists greater or longer ^ g^^ ^ jg^ ' ^^
time to operate in than that to which
it was originally limited." Moers v.
*T Boca Mill Co. v. Curry, 154 Cal.
Beading, 21 Pa. St. 188, 201. ^^^' ^^°- m^-

^'^
"^^^^ *^« existence of a corpora-

"An act which continues the life
of a charter to a period beyond the
*""' '=^''"°* ^^ extended by the grant
time fixed in the charter for its ex- *° '* ^^ * municipality of privileges
^""^ franchises for a longer period
piration, and reserves the corporate
than the term of its existence as fixed
organization, privileges, powers, du-
ties, and rights, is an extension of ^^ ^*^ ''^''^^^'' ^ê Augusta & S. E.
the charter." Franklin County Court ^°- ^- ^'^^ C'°"°"l °^ Augusta, 100
^^- ''°^' ^^ ^- ^- ^^C.
V. Deposit Bank of Erankf ort, 87 Ky.
370, 9 S. W. 212. See also § 413, infra. *' National Exch. Bank v. Gay, 57-
Franklin County Court v. Deposit

43 Conn. 224, 4 L. E. A. 343, 17 Atl. 555.
Bank of Frankfort, 87 Ky. 370, 9 S. As to the right of congress to cre-
W. 212. ate corporations, see § 175, supra.
884
have power to extend the existence of corporations created

legislatures,
under their authority.*^ The power of the legislature in this regard
is absolute,*" except in so far as it is limited by the constitution.*^
Among the most common limitations upon its power are constitutional
provisions fixing the maximum period for which corporations may be
created,*^ provisions containing express prohibitions against exten-
49 Miner v. New York Cent. & H. As to constitutional limitations on

Eiver R. Co., 123 N. Y. 242, 25 N. E. the power to create corporations gen-
339; In re Consolidated Gas Co. of erally, see §§ 169-174, supra.
New York, 56 N. Y. Misc. 49, 106 N. 62 In Mason v. Perkins, 73. Mich.
Y. Supp. 407, aff'd Attorney-General 303, 41 N. W. 426, it was held that a
V. Consolidated Gas Co. of New York, constitutional provision to the effect
124 N. Y. App. Div. 401, 108 N. Y. that no corporation should be created
Supp. 823. for a longer time than thirty years
The state has power at any time prohibited the extension of corporate
to extend the existence of a corpora- existence beyond that time, and hence
tion. New Orleans & C. E. Co. v. New that a statute providing for renewing
Orleans, 34 La. Ann. 429. the incorporation of existing compa-
50 Boca Mill Co. v. Curry, 154 Cal. nies would be construed as applying
326, 97 Pac. 1117; People v. Marshall, only to corporations whose period- of
6 111. 672; Mason v. Perkins, 73 Mich. existence was fixed by their articles
303, 41 N. "W. 426. at less than thirty years. This hold-
61 The power is possessed by the ing was followed in Attorney General
legislature unless extension is clearly V. Gay, 162 Mich. 612, 17 Det. L. N.
inhibited by the constitution. Peo- 664, 127 N. W. 814, where it was
ple V. Marshall, 6 111. 672, 685. further held that, as against the
"The power to extend corporate state, no right to exercise corporate
existence beyond the time limited by franchises under an attempted exten-
charter, either before or after the limi- sion beyond the period of thirty years
tation has expired, is possessed by the could be acquired by laches, estoppel
legislature as a prerogative o:^ sover- or acquiescence. See also Ovid Eleva-
eignty, and is not conferred by con- tor Co. v. Secretary of State, 90 Mich.
stitutional provisions. If there is no 466, 51 N. W. 536, where it was held
express denial, or denial by necessary that the corporate existence might be
implication by other limitationa extended by amendment of the arti-
placed upon legislative power, con- cles of incorporation under the gen-
tained in the constitution, the power eral law authorizing amendments. In
exists and may be exercised at the this case, the total term of existence
pleasure of the law-making power." as extended was less than thirty years,
Mason v. Perkins, 73 Mich. 303, 41 and no question as to the constitu-
N. W. 426. tionality of the extension was raised
In Grey v. Newark Plank Eoad Co., or considered. This constitutional
65 N. J. L. 51, 46 Atl. 606, modified provision was amended in 1889, so as
65 N. J. L. 603, 48 Atl. 557, an act to permit the legislature to provide
providing for the extension of the by general laws for one or more ex-
existence of a certain class of corpora- tensions, not exceed thirty years
to
tions was held to be unconstitutional each. Seneca Min. Co. v. Osmun, 82
because its title was misleading. Mich. 573, 9 L. E. A. 770, 47 N. W.
885
sions,^' prohibitions against the granting of special privileges or im-

munities,®* and provisions as to local or special legislation.*®
Whether an act operates as an extension is a question of legislative
intention.*®
Extensions by implication or the repeal of existing limitations
by implication are not favored.*''
The repeal of an act limiting the existence of corporations will not
necessarily extend the existence of a corporation subject to its pro-
visions.*' Nor will an amendment to a general law striking out a
25. But this amendment did not op- which upon the same terms shaU not
erate to validate an invalid attempted equally belong to all is violated by
extension made prior to its adoption. either a special or a general law ex-
Attorney General v. Gay, 162 Mich. tending the existence of corporations
612, 17 Det. L. N. 664, 127 N. W. created by special laws prior to the
814. adoption of the constitution. In re
63 The Constitution of California Application of Bank of Commerce,
(Const. 1879, art. 12, §7) originally- 153 Ind. 460, 47 L. E. A. 489, 55 N.
provided that "the legislature shall E. 224, followed in Clark v. American
not extend any franchise or charter, Cannel Coal Co., 165 Ind. 213, 112 Am.
nor remit the forfeiture of any fran- St. Eep. 217, 73 N. E. 1083.
chise or charter, of any corporation As to limits on power to create cor-
now existing, or which shall hereafter porations having exclusive franchises,
exist, under the laws of this state." see § 173, supra. See also Chap. 8,
In Boca Mill Co. v. Curry, 154 Cal. supra.
326, 97 Pac. 1117, it was held that B6See Chap. 8, supra.
this provision prohibited the legisla- As to the effect of such limitations
ture not only from enacting any law, on the right to create corporations,
general or special, extending the term see § 173, supra.
of existence of any or all corporations, B6In New Orleans & C. R. Co. v.
but also from enacting any general New Orleans, 34 La. Ann. 429, it was
law under which corporations could held that the existence of a railroad
themselves extend such period, and company, which was fixed by its char-
hence that a statute of the latter ter at fifty years, was not extended
character was void. This provision of by an amending act providing for the
the Constitution was amended in 1908 construction of another line of road,
80 as to make the prohibition apply and that the latter should become the
only to quasi-public corporations, and property of the state at the expiration
so as to permit any other corporation of seventy-five years.
to extend its existence for a period 87 New Orleans & C. R. Co. v. New
of not exceeding fifty years by pro- Orleans, 34 La. Ann. 429.
ceeding in the manner prescribed in 68 Where a corporation formed un-
the amendment. See Treadwell'e Ann. der a special act was subject to the
Const. 1916, p. 487. provisions of a general law limiting
I>41n Indiana it has been held that the existence of corporations to ten
a constitutional prohibition against years, and both the act creating the
the grant to any citizen or class of corporation and the general law were
citizens of privileges or immunities subsequently repealed, it was held
886
Ch. 14] CoBPORAtE Existence [§ 410
provision limiting the life of corporations formed thereunder be given

a retroactive effect so as to extend the existence of a corporation so
formed before the amendment takes effect, unless such an intent is
clearly expressed or necessarily implied.*^
Since an act providing for the renewal of charters previously
granted can only apply to corporations whose charters have expired
or are about to expire at the time it takes effect, it cannot apply to
a corporation whose life was extended by a special act passed and
accepted by it prior to that time, even though the period of its ex-
istence as originally fixed does not expire until after that time.^* A
statute providing a method for the extension of "an existing corpora-
tion" cannot be given a retroactive effect so as to apply to corpora-
tions which expired by limitation before it went into effect, although
the legislature may by a curative act validate an attempted extension
thereunder by such a corporation.*^
§410. — Right as nonconsenting stockholders. "The

against
period of corporate existence a matter which prima facie concerns
is
the state only, and the limitation to a definite period is an exercise of
control in the interest of the public. Stockholders may perhaps,
under the laws which authorize special restrictions in charters, ex-
clude the power of continuing corporate existence beyond a fixed
period; but, unless this power is excluded, the corporation may, as
between itself and the stockholders, extend its corporate existence
under the laws for that purpose which existed at the time of the
incorporation (provided these laws still remain in force at the time
of the proceedings for continuance) or under subsequent laws, by
which the state, as it has a right to do, in its control over corporations,
restricts, rather than enlarges, the power of continuing the ex-
istence."**
Statutes in some states provide for the purchase of the stock of
that even if such repeals did not abol- 62 Smith v. Eastwood Wire Mfg. Co.,
ish the corporation, they did not np- 58 N. J. Eq. 331, 43 Atl. 567.
erate to extend its existence beyond It may extend its existence under a
the period of ten years. Krutz v. subsequent law which requires a two-
Paola Town Co., 20 Kan. 397. thirds vote of the stockholders in-
B9 Knights of Pythias v. Weller, 93 stead of a majority vote required by
Va. 605, 25 S. E. 891. the law in force when the corporation
60 Augusta & S. K. Co. v. City Coun- was organized. Smith v. Eastwood
cil of Augusta, 100 Ga. 701, 28 S. E. Wire Mfg. Co., 58 N. J. Eq. 331, 43
126. . Atl. 567.
61 People V. Newburgh & S. Plank
Eoad Co., 86 N. T. 1, rev'g on other
grounds 23 Hun (N. Y.) 173.
887
§411] PeIVATE CoEPOBATIONa [Gh. 14
nonconsenting stockholders by the other stockholders'' or by the

corporation.®*
§ 411. — Extension by special act. In the absence of a constitu-

tional provision to the contrary, when a corporation is about to expire,
or at any time before its expiration, the legislature may pass a special
act extending its existence.®* As we shall see in a subsequent section,
an extension of corporate existence does not create a new corporation,
in contemplation of the law, but merely continues the existence of the
old one ®® and for this reason it has been held that a special act
;
extending the existence of a corporation does not violate a constitu-

tional provision that there shall be no other corporations of a
particular class except those already provided for by law,®' or prohibi-
tions against the creation of corporations by special act.®' But there
63 This is true in Iowa. See C. 372; Exeter Bank v. Eogers, 7 N. H.

Lamb & Sons v. Dobson, 117 Iowa 124, 21.
90 N; W. 607, where reference is made A company was incorporated under
to the statute to this effect. a general law, and the incorporation
64 Such a provision is contained in papers provided that it should ter-
the federal statute providing for the minate on a certain date. In the year
extension of charters of national following its incorporation, the legis-
banks. (Act July 12, 1882, c. 290, lature passed a special act to extend,
§5, 22 Stat. 163.) Under it a non- amend and increase its powers, which
consenting stockholder ceases to be a provided that it should no longer be
stockholder immediately on giving no- bound, controlled or in any way af-
tice of withdrawal and appointing an fected by the provisions of the general
appraiser to act for him in ascertain- law under which it was incorporated
ing the value of the stock, as therein except as prescribed in the special
provided, and he is not liable for as- act. It waa. held that the special act
sessments subsequent insol-
on the operated to' continue the existence of
vency of the bank even though, the corporation indefinitely, and that
through no fault of his own, the fur- it did not expire on the date originally
ther steps prescribed by the statute fixed. Eubber & Celluloid Harness
as to the appraisal and surrender of Trimming Co. v. Eubber-Bound Brush
his shares are not taken, and his name Co., 83 N. J. Eq. 510, 91 Atl. 641.
remains on the books of the bank as a 66
See § 413, infra.
stockholder. Apsey v. Kimball, 221 67 People V. Marshall, 6 111. 672.
U. S. 514, 55 L. Ed. 834, aff'g 164 68 Cotton V. Mississippi & E. Eiver
Fed. 30; Apsey v. Whittemore, 221 U. Boom Co., 22 Minn. 372; Black Eiver
S. 514, 55 Ii. Ed. 834, afE'g 199 Mass. Improvement Co. v. Holway, 87 Wis.
65, 85 N. E. 91. 584, 59 N. W. 126.
Augusta & S. E. Co. v. City Coun-
66 As to the effect of such provi-
cil of Augusta, 100 Ga. 701, 28 S. E. sions generally,and for a discussion
126; Foster v. Essex Bank, 16 Mass. of what are special and what general
245, 8 Am. Dee. 135; Cotton v. Mis- laws, see Chap. 8, supra.
sissippi & E. Eiver Boom Co., 22 Minn.
888
Ch. 14] CoBPOEATE Existence [§411
is authority to the effect that a prohibition of the latter character is

violated by a special act extending the existence of a corporation
created by a special act prior to the adoption of the constitution.*^
It has been held that an act extending the existence of a corporation
is a grant of corporate power, and hence is within a constitutional
prohibition against the passage of special acts conferring corporate
powers,'"' but there is authority to the contrary, especially where the
power to alter or repeal corporate charters is reserved by the legis-
latureJ^
Of course to be valid, such an act must conform to a constitutional
requirement that every law shall embrace but one subject, which
must be expressed in its title.'''
69 In re Bank of Commerce, 153 Ind. the judgment in this case on other

460, 47 L. E. A. 489, 55 N. E. 224, grounds, holding that it was not neces-
followed in Clark v. American Cannel sary to decide whether the act re-
Coal Co., 165 Ind. 213, 112 Am. St. ferred to was constitutional. Jersey
Eep. 217, 73 N. E. 1083. See also City V. North Jersey St. E. Co., 74 N.
Chap. 8, supra. J. L. 774, 67 Atl. 113.
70 Jersey City v. North Jersey St. In State v. Lawrence Bridge Co., 22
K. Co., 73 N. J. L. 175, 63 Atl. 906, Kan. 438, it was held that a statute
aff'd on other grounds 74 N. J. L. purporting, among other things, to
774, 67 Atl. 113. continue indefinitely corporations pre-
In Grey v. Newark Plank Eoad Co., viously created under special char-
65 N. J. L. 51, 46 Atl. 606, modified ters) was void as an attempted
65 N. J. L. 603, 48 Atl. 557, an act invasion of such a constitutional pro-
providing for the extension of the vision, though it was general in
existence of corporations organized form.
under special acts, which had been As to the effect of such provisionjs
empowered by any supplement to con- generally, see Chap. 8, supra.
struct and operate horse railroads, and 71 Black Eiver Improvement Co. v.
whose time limited for commencing Holway, 87 "Wis. 584, 59 N. W. 126.
and completing the work had expired, See also Chap. 8, supra.
was held to be special, though gen- 72 A statute providing a method for
eral in form. extending the existence of plank-road
In Jersey City v. North Jersey St. companies is not made a local act by
E. Co., 73 N. J. L. 175, 63 Atl. 906, the fact that two countiejS are ex-
itwas held that a, statute general in empted from its operation; nor is an
form providing a method whereby amendment extending the provisions
any corporation may extend its ex- of one of said counties a local act.
istence will not be held to be special People V. Newburgh & S. Plank Eoad
on the theory that it extends the Co., 86 N. Y. 1, rev'g on other
period of enjoyment of the powers grounds 23 Hun (N. Y.) 173.
and franchises granted to specially In Eubber & Celluloid Harness Trim-
chartered corporations, and so recon- ming Co. V. Eubber-Bound Brush Co.,
fers on them the peculiar powers and 83 N. J. Eq. 510, 91 Atl. 641, it was
franchises invested in them. The held that "an act to extend, amend
Court of Errors and Appeals affirmed and increase the corporate powers
The constitutions of some of the states now specifically prohibit the

extension of corporate existence by special laws.''^
A constitutional provision that no law shall "renew, or extend the
charter of more than one corporation is not violated by an act which
'
'
merely increases the privileges of several existing corporations,''* or

which does not revive or extend the duration of the charter of more
than one corporation though it confers additional authority upon
severaU^
If the legislature passes an unconstitutional act extending the char-
ter of a corporation, the state may institute a proceeding in. the
nature of quo warranto to oust it from the exercise of powers under
the act, but such a proceeding cannot be instituted until the expira-
tion of the time limited by its original charter.''*
§ 412. — Extension tinder general laws. The general laws author-

izing the formation of corporations, and limiting, as they generally do,
the period for which they shall exist, very often contain provisions
under which the members of a corporation may, by taking certain
steps, extend the existence of the corporation for an additional period,
and thus continue business without interruption or change.''"'
and privileges of" a corporation did 77 C. Lamb & Sons v. Dobson, 117
not violate such a provision because Iowa W. 607; Ohio Valley
124, 90 N.
containing a provision that the com- Tie Co. V. Bruner, 148 Ky. 358, 146
pany should no longer be bound or S. W. 749; Merges v. Altenbrand, 45
affected by the provisions of the gen- Mont. 355, 123 Pae. 21; State v.
eral law under which it was incorpo- Toder, 39 Mont. 202, 203, 103 Pac.
rated. 499; Coal Creek Min. & Mfg. Co. v.
A3 to the effect of such provisions Tennessee Coal, Iron & Bailroad Co.,
generally, see § 171 and Chap. 8, 106 Teun. 651, 62 S. W. 162.
supra. In California the constitution for-
73 Boca Mill Co. 154 Cal.
v. Curry, merly prohibited the legislature from
326, 97 Pac. 1117. See also the con- extending corporate charters, and in
stitutions of the various states. Boca Mill Co. v. Curry, 154 Cal. 326,
74Moers v. Beading, 21 Pa. St. 188. 97 Pac. 1117, it was held that a gen-
76 Cleveland, P. & A. B. Go. v. Erie, eral law permitting corporations to
27 Pa. St. 380. themselves extend their existence by
76 The constitutionality of an act complying with its provisions was
extending the existence of a corpora- void. This constitutional provision
tion will not be determined before tho was amended in 1908, however, so as
expiration of the time of its existence to make the prohibition apply only
as originally fixed, and hence before to quasi-public corporations, and so
the act goes into effect, and where it as to permit other corporations to ex-
is not alleged that it is interfering tend their existence for a period not
with any person's rights. State v. exceeding fifty years by complying
New Orleans Gaslight Co., 25 La. Ann. with certain prescribed requirements.
398. See Treadwell's Ann. Const. 1916, p.
890
The procedure for effecting the extension varies in the different

states.''* Under some must first be a vote of a specified
statutes there
majority of the stockholders in favor of the extension at a meeting
called for that purpose in the manner prescribed." Then provision
is made for the preparation and execution of a certificate showing the
proceedings had,*" and this certificate is required to be filed or

recorded.*^
In some jurisdictions the extension is effected by an amendment
of the articles of incorporation adopted in the manner prescribed for
making amendments generally.*^
Since the privilege of extension is purely statutory, all of the statu-
tory conditions precedent must be complied with in order that the
487. In People v. Pfister, 57 Cal. 532, was incorporated in the state where
itwas held that a corporation which it was created has not expired.
was formed prior to the adoption of 78 See the corporation laws of the
the code and had elected to continue various states.
its existence under the provisions of 79 In Montana the extension must
the code might subsequently extend be authorized by a vote of at least
its existence in the manner pre- two-thirds of all the shares of stock
scribed by the code. at a meeting of stockholders called in
Where a corporation amended its the manner prescribed by the statutp.
articles, extending the period of its Merges v. Altenbrand, 45 Mont. 355,
existence, at a time when it had no 123 Pac. 21.
legal authority to make such an 80 Merges v. Altenbrand, 45 Mont.
amendment, but after a statute was 355, 123 Pac. 21.
enacted conferring such authority, 81 Campbell v. Watson, 62 N. J. Eq.
adopted amended articles, the pream- 396, 421, 50 Atl. 120.
ble of which made no reference to the In Montana the certificate is re-
period of existence, the former article quired to be filed with the clerk and
of amendment in reference thereto, recorder of the proper county, and a
however, being retained with the ar- certified copy thereof to be filed with
ticles as last amended and filed, it the secretary of state. In that state
was held that the amendment was suf- "the extension is effectuated, not by
ficient to extend the period of the cor- the favorable vote at the stockhold-
poration 's existence. People v. Green, ers' meeting, nor by the preparation
of the certificate, nor by the filing of
116 Mich. 505, 74 N. W. 714.
it with the clerk of the county, but
In Iron Silver Man. Co. v. Cowie, 31
by filing the copy with the secretary
Colo. 450, 72 Pae. 1067, it was held
of state after all the prerequisite steps
that the term of existence of a for-
have been taken." Merges v. Alten-
eign mining corporation in Colorado
brand, 45 Mont. 355, 123 Pac. 21.
will expire in twenty years from the 82 Ohio Valley Tie Co. v. Bruner,
time when it fllciS its certificate of 148 Ky. 358, 146 S. W. 749; Home
incorporation with the secretary of Bldg. Ass'n v. Bruner, 134 Ky. 361,
state, unless it complies with the stat- 120 S. W. 306; Ovid Elevator Co. v.
utes of that state relative to exten- Secretary of State, 90 Mich. 466, 51
sions, though the term for which it N. W. 536.
891
I 412] Pbivate Cobpobations [Ch. 14
extension may be effectuated.*' And generally these conditions must

be complied with, and the steps necessary to effect the extension must
be taken during the life of the corporation, and before the expiration
of its term of existence as originally fixed by its charter or the general
law,** since, as a rule, the corporation is ipso facto dissolved as soon
as that time expires.** So where the extension is by amendment of
the articles of incorporation, the amendment must be adopted before
that time.*® And, similarly, the filing and recording of a certificate
of extension after that time cannot relate back to the date of the pas-
sage of a resolution by the stockholders in favor of the extension so
as to save the life of the corporation.*'' The contrary is true, however,
and the doctrine of relation will apply, where the delay is due to the
neglect of the officer with whom the certificate is required to be filed,
or to a wrongful refusal on his part to receive it.** And statutes in

some states specifically provide that a renewal may be had within a
specified time before or after the time fixed for the termination of the
corporate existence.*®
Since, as we shall see, the effect of the extension is not to create a
In Iowa it has been held that un- 87 Merges v. Altenbrand, 45 Mont.

der a statute providing for renewal 355, 123 Pac. 21.
without prescribing a method of ef- 88 Merges v. Altenbrand, 45 Mont.
fecting the proper method was by
it, 355, 123 Pac. 21.
amending the articles. C. Lamb & So where the failure to issue a new
Sons V. Dobson, 117 Iowa 124, 90 charter before the expiration of the
N. "W. 607. old one is solely the fault of the clerk,
As to amendments generally, see to whom application therefor is sea-
chapter on Amendment, infra. sonably made, the new charter, when
83 Merges v. Altenbrand, 45 Mont. issued, will relate back, and will be
355, 123 Pae. 21. treated as taking effect from the day
In Montana the general statutes when the corporation was entitled to
relative to extension do not apply to have the charter issued. St. Phillip's
state bankS) they being governed by Church V. Zion Presbyterian Church,
the special statutory provisions rela- 23 S. C. 297. See also State v. Toder,
tive to the extension of the existence 39 Mont. 202, 203, 103 Pac. 499, where,
of banking corporations. State v. although this principle was not re-
Yoder, 39 Mont. 202, 203, 103 Pac. ferred to, a writ of mandamus was
499. issued after the expiration of the time
84 Statutory steps looking to an ex- fixed for the existence of the corpo-
tension which are taken after that ration to compel the secretary of state
time are ineffectual for any purpose. to file a certificate seasonably ten-
Merges v. Altenbrand, 45 Mont. 355, dered for filing which he wrongfully

123 Pac. 21. refused to file.
85 See chapter on Forfeiture, Dis- 89 C. Lamb & Sons v. Dobson, 117
solution, etc., infra. Iowa 124, 90 N. "W. 607.
88 Home Bldg. Ass'n v. Bruner, 134
Ky. 361, 120 S. "W. 306.
892
Ch. 14] CoEPOKATB Existence [§412
new corporation, but merely to continue the existence of the old one,"
statutory provisions relative to the payment of fees on the formation
of new corporations do not apply where the corporate existence is
merely extended,^^ unless the statute specifically so provides.'^

A certificate of the comptroller of the currency that a national bank
has complied with all of the statutory provisions governing the exten-
sion of its corporate existence, and that it is authorized to have suc-
cession until a specified date, is conclusive evidence, in a criminal
prosecution of an officer of the bank foi" a violation of the national
banking act, that the bank has complied with all the conditions pre-
cedent to an extension of its existence.®'
Mandamus will lie to compel the secretary of state to file a certificate

of extension or amended articles where all the statutory requirements
have been complied with.'*
90 See § 413, infra. payment of a fee by corporations ap-

91 C. Lamb & Sons v. Dobson, 117 plying for renewals or extensions is
Iowa 124, 90 N. W. 607. expressly made retroactive, it will not
In Kentucky, payment of a new or- apply to a corporation which did all
ganization tax is not required of a that was required of it to effect an
corporation organized under the pres- extension before such act went into
ent general incorporation law which effect, and this though the secretary of
has once paid the organization tax state wrongfully refused to file the
therein provided for, at least where amendment making such extension.
there is no change in the scope of the C. Lajub & Sons v. Dobson, 117 Iowa
corporation or its rights and powers. 124, 90 N. W. 607.
Ohio Valley Tie Co. v. Bruner, 148 Ky. 93 Clement v. United States, 149
358, 146 S. VP. 749. But if a corpo- Fed. 305.
ration organized under Gen. St. c. 56, immaterial that the certificate
It is
seeks the benefits of the present gen- is signed by a deputy and acting comp-
eral law by organizing or amending troller, and not by the comptroller
under must pay the organization
it,_ it himself. Clement v. United States,
tax once; but it will be obliged to pay 149 Fed. 305. See also Keyser v. Hitz,
it only once. Ohio Valley Tie Co. v. 133 U. S. 138, 33 L. Ed. 531.
Bruner, 148 Ky. 358, 146 S. "W. 749; The seal of the comptroller, of
Com. V. Licking Valley Bldg. Ass'n which the court will take judicial no-
No. 3, 118 Ky. 791, 82 S. W. 435. tice, isa sufficient authentication of
92 In New
Jersey the corporation is the certificate, particularly when ac-
required to pay the same fees as are companied by proof that the bank per-
required for the original certificate of formed the functions of a national
organization, and this though the ex- bank for many years after the certifi-
tension is effected by filing a so-called cate of extension was given. Clement
amended certificate of organization. V. United States, 149 Fed. 305.
National Lead Co. v. Dickinson, 72 94 C. Lamb & Sons v. Dobson, 117

N. J. L. 313, 62 Atl. 1135, aff'g 70 N. Iowa 124, 90 N. W. 607; Ohio Valley
J. L. 596, 57 Atl. 138. Tie Co. V. Bruner, 148 Ky. 358, 146 8.
Even though a statute requiring tho W. 749; Ovid Elevator Co. v. Secre-
893
413] Pkivatb Coepoeations [Ch. 14
The contrary is true where the law permitting the extension is
unconstitutional.^*
§ 413. — Effect of extension. An extension of the existence of a

corporation, either by a special act ^^ or under a general law,*'' does
not create a new corporation, in contemplation of the law, but merely
continues the existence of the corporation under its original charter,
and therefore it does not in any way affect the identity of the corpora-
tion, or its property, or contract rights, or liabilities. "The act of
extension relates back to the date of the charter.
'
'
'* And there is no
tary of State, 90 Mich. 466, 51 N. "W. generally different. Its effect is in
536; Seneca Min. Co. v. Osnum, 82 most cases to create a new and dis-
Mich. 573, 9 L. R. A. 770, 47 N. W. tinct corporation, and not merely to
25; State v. Yoder, 39 Mont. 202, 203, continue the existence of the old cor-
103 Pae. 499. poration. See § 414, infra.
As to the remedy by mandamus gen- 97 Connecticut. National Exch.
erally to compel an officer to issue a Bank v. Gay, 57 Conn. 224, 4 L. R. A.
certificate of incorporation, or to file 343, 17 Atl. 555.
certificates or articles of incorporation Iowa. C. Lamb & Sons v. Dobson,
or amendments thereto, see § 213, 117 Iowa 124, 90 N. W. 607.
supra. Kentucky. Ohio VaUey Tie Co. v.
95 Boca Mill Co. v. Curry, 154 Cal. Bruner, 148 Ky. 358, 146 S. W. 749.
326, 97 Pac. 1117. Michigan. Mason v. Perkins, 73
96 Connecticut. National Exch. Mich. 303, 41 N. "W. 426.
Bank v. Gay, 57 Conn. 224, 4 L. B. A. New York. People v. Backus, 117
343, 17 Atl. 554. N. Y. 196, 22 N. E. 759.
Illinois. People v. Marshall, 6 111. "By the extension of its term of
672. being, the legal identity of the defend-
Kentucky. Franklin County Court ant corporation remained unchanged.
V. Deposit Bank of Frankfort, 87 Ky. It was not a new life that it received.
370, 9 S. W. 212. It was simply the power to continue
Maine. Lincoln & Kennebec Bank the old life beyond the period first
V. Richardson, 1 Greenl. 79, 10 Am. fixed for its expiration." First Pres-
Dec. 34. byterian Church V. National State
Maryland. Frostburg Min. Co. v. Bank, 57 N. J. L. 27, 29 Atl. 320, aff'd
Cumberland & P. B. Co., 81 Md. 28, 31 58 N. J. L. 406, 36 Atl. 1129. See also
Atl. 698. Mason v. Perkins, 73 Mich. 303, 41 N.
Mississippi. Port Gibson v. Moore, W. 426.
13 Smedes & M. 157. 98 Franklin County Court v. Depo-
South Carolina. St. Phillip 's Church sit Bank of Frankfort, 87 Ky. 370, 9
V. Zion Presbyterian Church, 23 S. C. S. W. 212.
297, 315. "The legislature and the company
Such an act does not create a new are presumed to have contracted for
corporation in any sense, but merely the extension with reference to that
prolongs the life of an existing one. period of time, when the respective
Black River Improvement Co. v. Hol- rights of the contracting parties were
way, 87 Wis. 584, 59 N. W. 126. agreed on; which agreement, in consid-
Reincorporation, as we shall see, is eration of the continuous discharge of
894
'
Ch. 14] CoEPORATE Existence [§ 413
alteration or break in the continued existence of the corporation origi-

nally formed." "Its affairs are not wound up or liquidated; there
is no distribution of no change in the personnel of
its assets ; there is
the stockholders or their liability." The charter, as thus extended,

^
"is the same charter, with a continued lease of life, under which the
organization must be kept up to which the company must look for
;
its powers, privileges and rights; by which it is to be governed and
controlled."^
But if the act granting the extension continues the charter in force
upon certain conditions and subject to certain restrictions, it becomes
the corporate charter when accepted, and thereafter the corporation's
rights, powers and privileges are to be measured and limited by its
provisions.'
Since the extension does not create a new corporation, constitutional
limitations on the right to create corporations by special laws are gen-
erally held not to apply to acts extending the existence of corpora-
tions.* And, for the same reason, statutes requiring the payment of
certain fees on the formation of new corporations do not apply where
the corporation is merely renewed or extended."
By-laws adopted before the expiration of the original charter con-

tinue in force notwithstanding the extension.^
The corporation cannot claim, by virtue of the extension, the benefit
of a statute, enacted before the extension took place, granting privi-
leges or immunities to such corporations as might afterwards be
;
created '' nor does it come within the terms of a statute enacted before
the obligations therein expressed, is bell v. Watson, 62 N. J. Eq. 396, 421,

to be continued beyond the time first 50 Atl. 120.
agreed on. ' ' Franklin County Court 1 Ohio Valley Tie Co. v. Bruner, 148
V. Deposit Bank of Frankfort, 87 Ky. Ky. 358, 146 S. W. 749. To the same
370, 9 S. W. 212. effect, see Mason v. Perkins, 73 Mich.
99 Ohio Valley Tie Co. v. Bruner, 303, 41 N. "W. 426.
148 Ky. 358, 146 S. W. 749. 2 Franklin County Court v. Deposit
In New Jersey it is expressly pro- Bank of Frankfort, 87 Ky. 370, 9 S.
vided that upon the making and filing W. 212.- See also People v. Marshall,
of the required certificate of exteu- 6 111. 672.
sion, ' the period of the existence of
' 3 Augusta & S. E. Co. v. City Coun-
such corporation shall be extended as cil of Augusta, 100 Ga. 701, 28 S. E.
declared in such certificate as fully 126.
as if the said period had been named i See § 233, supra,
in the original charter or certificate 6 See § 225, supra,
of organization of such corporation. ' 6 Campbell v. Watson, 62 N. J. Eq.
Campbell v. Watson, 62 N. J. Eq. 396, 396, 420, 50 Atl. 120.
421, 50 Atl. 120. There is no hiatus TFrostburg Min. Co. v. Cumberland
in the corporate existence. Camp- & P. E. Co., 81 Md. 28, 31 Atl. 698.
895
§413] Pkivate Gobpoeations [Oh. 14
the extension providing that charters "hereafter" grantea shall be

subject to amendment or repeal at the will of the legislature.'
The extension does not cancel the existing obligations of the cor-
poratipn, and cannot be pleaded in repudiation of any of its outstand-
ing lia,bili,ties ^ nor will it discharge guarantors of its contracts ^" nor,
; ;
under such circumstances, is its power to enforce payment by its

debtor affected by the expiration of the time first fixed for its existence,
nor does its title to real estate need re-enforcement by additional
conveyances.^^
.^, An act extending the charter of a corporation, the rights and
franchises of which have been assigned under legislative authority
to another company, should be construed as conferring the additional
privilege upon named in the act, if in existence,
either the corporation
or upon, any other company which has succeeded to its rights.^^
§ 414. — Revival of charters. The power to create a corporation

includes the power to revive a corporation, and the legislature there-
fore! may revive and continue a charter which has expired,^* unless
prevented by some constitutional prohibition.^* It has been held that
8 Franklin County Court v. Deposit there in question it had not attempted

Bank of Frankfort, 87 Ky. 370, 9 S. to exercise any such power.
W. 212. 14 A constitutional prohibition a-
Presbyterian Chureli v. Na-
9 Fii-st gainst reviving charters in certain
tional State Bank, 57 N. J. L. 27, 29 cases implies that the charter to be
Atl. 320, aff'd 58 N. J. L. 406, 36 Atl. revived is lifeless, and hence does not
1129; prevent the amendment of the charter
10 People V. Backus, 117 N. Y. 196, of an existing corporation. St. Jo-
22 N. E. 759. seph & I. E. Co. V. Shambaugh, 106
11 National Exeh. Bank v. Gay, 57 Mo. 557, 17 S. W. 581.
Conn. 224, 4 L. R. A. 343, 17 Atl. An
act reviving a corporation will
555. be presumed not to be violative of a
12 Washington, A. & G. E. Co. v. constitutional prohibition against the
Martin, 7 D. 0. 120. passage of laws reviving or re-enact-
13 Lincoln & Kennefeec Bank v. ing acts creating private corporations
Bichardson, 1 Greenl. (Me.) 79, 10 which have not been organized and
Am. Dec. 34; St. Joseph & I. R. Co. v. commenced businessi within a pre-
Shambaugh, 106 Mo. 557, 17 S. "W. scribed time after the passage of the
581. See also Frostburg Min. Co. v. act creating them, where it does not
Cumberland & P. E. Co., 81 Md. 28, 31 appear that the corporation in ques-
Atl. 698. tion was not organized and did not
In Port Gibson v. Moore, 13 Smedes commence business within such time.
& M. (Miss.) 157, the court declined It is a general rule that an act of
to deteKmine whether the legislature the legislature will be presumed to be
had power to revive an extinct cor- constitutional until its unconstitution-
poration, but held that by the act ality is made to appear. St. Joseph
896
Ch. 14] CoKPOEATE Existence [§414
the effect of such, an act is, in contemplation of law, not to create a

new corporation, but merely to revive and continue the old one,^^ jiast
as in a case where the charter is extended before its expiratioii.^' In
this respect the revival of a charter must be distinguished from rein-
corporation, the effect of which is to create a new and distinct cor-
poration.^''
Whether an act operates as a revival or a reincorporation is a ques-
tion of construction.^' To this point. Judge Story,! in an early federal
case, said : "To ascertain whether a charter creates a new corporation
or merely continues the existence of the old one, we must look to its
terms, and give them a construction consistent with the le^slative

intent and the intent of the corporators. ^®
'
'
& I. E. Co. V. Shambaugh, 106 Mo. charter of which had previously ex-
557, 17 S. W. 581. pired.
15 Lincoln & Kennebec Bank v. A
town was incorporated by special
Eichardson, 1 Greenl. (Me.) 79, 10 act and its charter was thereafter
Am. Dec. 34; Frostburg Min. Co. v. amended by various acts. Subse-
Cumberland & P. E. Co., 81 Md. 28, 31 quently an act was parsed repealing
Atl. 698. the act of incorporation and all acts
Where an act created a corpora- amending the same. Later this re-
tion for a limited period and granted pealing act was repealed, and the
to it all property escheated to the original act of incorporation, and all
state in a certain district, and, after acts amending the same, were "re-
expiration of said period, an, act was vived and declared to be" in full
passed reviving the former act, and force." It was held that this latter
continuing it in force for a certain act created a new corporation and did
ttme, it was held that on its revival not revive the old one. Port Gibson
the corporation became entitled to the V. Moore, 13 Smedes & M. (Miss.)
escheated property, the same as be- 157.
fore. Brown v. Chesterville Academy In Fitz V. Minnesota Cent. Ey. Co.,
Society, 3 Eich. Eq. (S. C.) 362.
11 Minn. 414, and Huff v. Winona &
In Phillips Albany, 28 Wis. 340,
V.
St. P. E. Co., 11 Minn. 180, it was held
it was held that an act reviving a
that acts transferring the rights,
charter which had, by its termSj
properties and franchises of certain
been forfeited for nonuser, but as to
railroad companies, which had been
which there had. been na^- decree of -
de acquired by the state, to certain per-

forfeiture, continued, the existing
facto organization. sons under a new corporate name did
16 See § 412, supra. . ,
.;,
not operate to revive the old corppra-
,, ,
17 See chapter on Eeorganization, tions, but created new ones.

infra. 19 V. Hallowell & Augusta
Bellows
18 See American, A. & P.
Lea v. Bank, 2 Mason (U. S.) 31, 44, quoted
Canal Co., 3 Abb. Pr. N. S. (N. Y.) 1. with approval in Frostburg Min. Co.
In Knights ctf Pythias v. Weller, 93 V. Cumberland & P. E. pQ., 81 Md. 28,
Va. 605, 25 S. E. 891, it was held that 31 Atl. 698j Huff V. Winona & St. P.
a charter created a new corporation E. Co., 11. Minn. 180; Port, Gibson v^
and did not revive an old one the Moore, 13 Smedes & M. (Miss.) 157,
897
I Priv. Corp.— 57
I 415] Private Cobpobations [Ch. 14
§ 415. —
Aoceptance of extension or revival. An act of the legis-
lature extending a charter, like an original charterj^" and like any
other amendment of a charter,^^ must be accepted before it can become
operative. And this is true, whether the extending act is passed before
or after expiration of the original charter.^^ The acceptance of the
act, however, may be implied, as in the case of any other amendment.*'
Thus, it may be implied from the bringing of an action in the name
of the incorporation after expiration of the original charter, and after
passage of the reviving act ; ** or from the fact that the corporation
applies ft)r, obtains and uses franchises and privileges in its corporate
capacity under and by virtue of the provisions of the act extending its
existence.*^ And this has been held to be true even where the act pro-
vides for a surrender of the old charter and a formal acceptance of the
new one.**
Where a national bank continues its existence and the performance
of its functions as a national bank after the expiration of its original
corporate existence, be presumed to have accepted the benefit
it will
conferred by the certificate of extension in its favor, and to have acted

under authority thereof, and it is not necessary to show that such
certificate was physically accepted or received by the bank.*''
III. PROOF OP EXISTENCE

§416. Necessity to prove incorporation. Whenever an action is
brought by or against a corporation, the corporate existence of the
plaintiff or defendant, as the case may be, must be alleged, and if it is
denied or otherwise put in issue, it must be proved,** unless, as is else-
20 See § 239, supra. 26 Augusta & S. E. Co. v. City Coun-

21 See chapter on Amendment, eil of Augusta, 100 Ga. 701, 28 S. E.
infra. 126.
22 Augusta &E. Co. v. City Coun-
S.
27 Clement v. United States, 149
cil of Augusta, 100 Ga. 701, 28 S. E.
Fed. 305.
126; Lincoln & Kennebec Bank v.
Richardson, 1 Greenl. (Me.) 79, 10 28 Alabama. Snider 's Sons* Co. v.
Am. Dec. 34. Troy, 91 Ala. 224, 11 L. E. A. 515, 24
23 See chapter on Amendment, Am. St. Eep. 887, 8 So. 658; Schloss
infra. V. Montgomery Trade Co., 87 Ala. 411,
24 Lincoln & Kennebec Bank v. 13 Am. St. Eep. 51, 6 So. 360.
Eiehardson, 1 Greenl. (Me.) 79, 10 Am.
CaUfomia. Wall v. Mines, 130 Cal.
^^"^ ^^"
27, 62 Pac. 386.
25 Under such circumstances, the
company is estopped to say that it Illinois. People v. Krittenbrink,
did not accept the act and is not bound 269 111. 109 N. E. 1005; Bush-
244,
by its provisions. Augusta & S. E. "«11 v. Consolidated Ice Mach. Co., 138
Co. V. City Council of Augusta, 100 HI. 67, 27 N. E. 596; Mix v. National
Ga. 701, 28 S. E. 126. Bank of Bloomington, 91 111. 20, 33
898
where explained, there are circumstances operating as an estoppel.^'

And this is equally true
where a corporation is prosecuted criminally,^'
or in a criminal prosecution for offenses against the property of a
corporation.*^
Am. Rep. 44; American Ins. Co. of swer denies that it was unincorporated
Newark, New Jersey v. McClelland, and alleges that it was incorporated
184 111.App. 381; American Sales Book on a certain date under a different
Co. V. Wemple, 168 111. App. 639; Fish name, and the names and objects of
V. Kanawha Dispatch, 118 111. App. the two societies are not the same,
£84, rev'don other grounds 219 and no proof is made by the defend-
111. 236; Spreyne v. Garfield Lodge, ant of their identity, or even of the
117 111. App. 253. certificate of incorporation. Pirios v.
Indiana. Morrison v. Indianapolis First Eussian Slavonic Greek Catholic
& W. E. Co., 166 Ind. 511, 9 Ann. Cas. Benev. Society, 83 N. J. Eq. 29, 89
587, 77 N. E. 744, 76 N. E. 961. Atl. 1036.
Kentucky. Pike, Morgan & Co. v. Such proof isnot necessary unless
Wathen, 25 Ky. L. Eep. 1264, 78 S. W. corporate existence is properly put
137. in issue. Brady v. National Supply

Elorsheim & Co. v. Fry,
Missouri. Co., 64 Ohio St. 267, 83 Am. St. Eep.
109 Mo. App. 487, 84 S. W. 1023. 753, 60 N. E. 218.
New York. Methodist Episcopal In an action in the municipal court
Union Church v. Pickett, 19 N. Y. 482. where the pleadings are oral, aflrma-
Oregon. Goodale Lumber Co. v. tive proof that the plaintiff is a cor-
Shaw, 41 Ore. 544, 69 Pac. 546. poration is conclusive, in the absence
South Dakota. Yankton Nat. Bank of evidence to the contrary. Gillin
V. Benson, 33 S. D. 399, Ann. Cas. Printing Co. v. Traphagen, 36 N. Y.
1916 B 1011, 146 N. W. 582. Misc. 774, 74 N. Y. Supp. 900.
Texas. HoUoway v. Memphis, E. P. As to the burden of proof under
& P. E. Co., 23 Tex. 465, 76 Am. Dec. such circumstances, see § 421, infra.
68. As to the necessity for pleading cor-
Vermont. Lord v. Bigelow, 8 Vt. porate existence, the sufficiency of a
445. plea or answer to put the matter in
See other cases cited in the sections issue, and admissions of corporate ex-
following. istence by failure to deny it, see
A foreign corporation seeking to §§352-354, supra.
exercise the right of eminent domain 29 See Chap. 11, supra.
must prove that it is legally incor- 30 Madisonville, H. & E. E. Co. v.
porated where that fact is denied. Com., 140 Ky. 255, 130 S. W. 1084;
Cumberland Telephone & Telegraph Standard Oil Co. v. Com., 29 Ky. L.
Co. V. St. Louis, L M. & S. E. Co., 117 Eep. 91 S. W. 1128.
5,
La. 199, 41 So. 492; Cumberland Tele- As the burden of proof under
to
phone & Telegraph Co. v. Morgan's such circumstances, see § 421, infra.
Louisiana & T. E. & S. S. Co., 112 La. Alabama. West v. State, 168 Ala.
81
287, 36 So. 352. 1, 53 So. 277; Johnson v. State, 73
A society cannot be treated as an Ala. 483; Barr v. State, 7 Ala. App.
incorporated one where the bill al- 96, 61 So. 40.
leges that was constituted as an
it Colorado. Miller v. People, 13 Colo.
unincorporated society, and the an- 166, 21 Pac. 1025.
899
§416] Private CoEPOEATioifs [Ch. 14
Similarly, action is brought by or against persons as in-

when an
dividuals, and claimed that they are incorporated, and that the
it is
action should have been brought by or against the corporation, and

the fact of incorporation is put in issue, it must be proved.*^ So, when
proceedings are instituted against persons by the state, or by the
attorney general on behalf of the state, to oust them from the exercise
of corporate powers on the ground that they are not incorporated, they
must allege and prove their corporate existence.*' The same is true in
any other case in which the existence of a corporation is a material
fact in the case, and is properly put in issue by the pleadings.
As is seen in another chapter, however, proof of corporate exis1>
ence may be rendered unnecessary by admissions in the pleadings in
an action, or by the appearance of an association sued as a corpora-
tion, or the like.**
§417. What must be proved —In general. The facts necessary

to be proved in order to establish corporate existence depend largely
upon the nature and object of the particular proceeding, and upon
the circumstances upon which it is based. In some cases it is necessary
to prove a corporation de jure, while in others to prove it is sufficient
a corporation de facto, and in others, by reason of facts operating as

an estoppel to deny corporate existence, it is enough to show that the
association was acting as a corporation, and it is not necessary to
establish its existence as a corporation, either de jure or de facto.
Georgia. Eoberson v. State, 12 Ga. Louisiana. Williams v. Hewitt, 47

App. 102, 76 S. E. 752. La. Ann. 1076, 49 Am. St. Eep. 394, 17
Illinois. People v. Struble, 275 III. So. 496.
162, 113 N. E. 938. Maine. McKenney v. Bowie, 94
Utah. State v. Brown, 33 Utah Me. 397, 47 Atl. 918.
109, 93 Pac. 52. New Jersey. Vanneman v. Young,
The state must prove the organiza- 52 N. J. L. 403, 20 Atl. 53; Stout v.
tion of the corporation under its char- Zulick, 48 N. J. L. 599, 7 Atl. 362.
ter. State v. Murphy, 17 E. I. 698, As to the burden of proof in such
16 E. A. 550, 24 Atl. 473.
L.- case, see § 421, infra.
;Aa to the burden of proof under 33 State v. Webb, 97 Ala. Ill, 38
such circumstances, see § 421, infra. Am. St. Eep. 151, 12 So. 377; People v.
That such proof is not necessary Lowden (Cal.), 8 Pac. 66; People v.
where the name of the association Self ridge, 52 Cal. 331; Attorney Gen-
imports a corporation, see § 423, infra. era! v. Lorman, 59 Mich. 157, 60 Am.
-32 United States. Owen v. Shepard, Eep. 287, 26 N. W. 311; State v. Crit-
59 Fed. 746. chett, 37 Minn. 13, 32 N. W. 787. And
Florida. Duke v. Taylor, 37 Fla. see §421, infra.
64, 31 L. E. A. 484, 53 Am. St. Eep. 34 See Chap. 11, supra.
232, 19 So. 172.
900
Ch. 14] Corporate Existence [§420
§ 418. — De jure corporate existence.

In a direct proceeding by
the state in the nature of quo warranto to oust persons from the exer-
cise of corporate powers, on the ground that they; are not Ifegally incor-
porated, it is necessary for the defendants to allege in their answer
that they are a corporation, and to sustain the allegation by proof that
they are legally incorporated —a corporation de jure,^* and in order
to this they must prove a valid special act of incorporation or
show
charter, an application therefor or acceptance thereof, and, when it is
required by the act, an organization thereunder and substantial com-
pliance with all conditions precedent; or they must show a valid
general law authorizing them to form such a corporation as they claim
to be, an organization thereunder in compliance with its terms, and a
substantial compliance with all conditions precedent.*^
According to some of the decisions, though not all, a de jure cor-
porate existence must also be shown in condemnation proceedings by a
corporation claiming the right to take private property undfer thei
power of eminent domain, and in some other cases.^''
§ 419. —
De facto corporate existence. Generally, however, in
an action by or against a corporation on a contract, in an action
against individuals on a contract, in whicb they defend on the ground
that they were a corporation and contracted as such, in an action by
a corporation to recover property, in actions by or against a corpora-
tion for a tort, and on indictments for offenses against corporations,
and in other cases, it is only necessary to show a de facto corporate
existence, as distinguished from a de jure corporate existence.^* And
according to the weight of authority, as is shown in another chapter,
all that is necessary in order to prove a de facto corporate existence is
to show a valid law ^^ under M^hich such a corporation might have been
organized, a bona fide attempt to organize under the law, a colorable,
although not a substantial, compliance with the provisions of the law,
and the exercise of corporate powers thereunder.*"
§ 420. — Estoppel to deny corporate existence. By the weight

of authority, as has been shown at some length in a preceding chapter,*;
if an association assumes to act as a corporation, even without any
authority at all from the legislature, a person who recognizes'its exist-
35 See chapter on Forfeiture, Dis- 39 Some courts, as has been noted,

solution, etc., infra. hold that a valid law is not essential
36 See § 182, supra. to the existence of a corporation de
37 See §310, supra. facto. See § 280, supra.
38 See §§ 312-315, supra. 40 See § 290, supra.
901
I 420] Private Cobpokations [Ch. 14
ence as a corporation by contracting or otherwise dealing with it as

such is estopped to deny its incorporation in an action based upon such
contract or dealing, whether the action is brought by the association

as a corporation against him, or by him against the association to
charge them as partners. And in like manner, persons who hold them-
selves out as a corporate body, and contract or otherwise deal in that
capacity, are estopped to deny their incorporation in an action against
them as a corporation based upon such contract or dealing.*^ In such
cases,, the estoppel renders it unnecessary, according to the weight of
authority, to prove either a de jure or de facto corporate existence. It
is only necessary to prove that the association was s,cting as a corpora-

tion, and that it dealt or was dealt with as sueh.*^
§ 421. Burden of proof. The burden of proving the existence of

a corporation de jure or de facto, according to the circumstances, is
upon the party who alleges it, though, as we shall see in the sections
following, the burden sometimes be sustained by proof of facts
will
from which incorporation may be presumed. Thus, in quo warranto
proceedings by the state to oust persons from the exercise of corporate
powers, on the ground that they are not legally incorporated, the
burden is upon the defendants to show legal incorporation.**
Where persons doing business under a company name are sued
individually as partners, and they deny individual liability, averring
that they were incorporated and that the contract was made hy the
corporation, the burden upon them to prove their incorporation, or
is
to show an estoppel to deny incorporation.** On the other hand, when

an association is sued as a corporation and an allegation in the com-
plaint that it is a corporation is denied, the burden of proving that it
41 See Chap. 11, supra. Where the "plaintiffs declare

42 See §§334-347, supra. against defendant individually,
the
People V. Lowden (Cal.), 8 Pae.
43 and yet seek to charge him as a part-
66. See § 422, infra. ner, it is incumbent on them, in the
44Harrill v. Davis, 168 Fed. 187, first instance, to show a partnership;
22 L. E. A. (N. S.) 1153; Owen v. but when they have introduced evi-
Shepard, 59 Fed. 746; Bell v. Dowdy, dence which prima facie establishes
13 Ky. L. Eep. 543 (abstract) ; Louisi- a partnership, or from which it may
ana Nat. Bank v. Henderson, 116 La. be reasonably inferred, the burden
413, 40 So. 779; Williams v. Hewitt, is cast on the defendant to show ineor-
47 La. Ann. 1076, 49 Am. St. Eep. 394, poration, when he seeks to avoid' in-
17 So. 496; Abbott v. Omaha Smelt- dividual liability on the ground that
ing & Eefining Co., 4 Neb. 416. See the company is a corporation. ' ' Clark
also Provident Bank & Trust Co. v. v. Jones, 87 Ala. 474, 6 So. 362.
Saxon, 116 La. 408, 40 So. 778.
902
Ch. 14] CoKPOKATE Existence [§421
is one is on the plaintiff.** And on trial of an information against an

alleged corporation for maintaining a nuisance, the burden is on the
state to prove that the defendant is a corporation, since the allegation
that it is one is a part of the description of the offense.** And the
same is true on trial of a third person for a crime committed against
the property of a corporation.*''
When an association sues as a corporation and its incorporation is
denied, it has the burden of proving its corporate existence.** But it
is only obliged to make out a prima facie case that it is a corporation
4B Pike, Morgan & Co. v. Wathen, & W. E. Co., 166 Ind. 511, 9 Ann. Cas.
25 Ky. L. Eep. 1264, 78 S. W. 137. 587, 77 N. E. 744, 76 N. E. 961.
46 Acme Fertilizer Co. v. State, 34 Louisiana. Cumberland Telephone
Ind. App. 346, 107 Am. St. Eep. 190, & Telegraph Co. v. St. Loui^, I. M. &
72 N. E. 1037. S. E. Co., 117 La. 199, 41 So. 492;
47Barr v. State, 7 Ala. App. 96, 61 Cumberland Telephone & Telegraph
50. 40; Eoberson v. State, 12 Ga. App. Co. V. Morgan's Louisiana & T. E.
102, 76 S. E. 752; State v. Murphy, 6 S. S. Co., 112 La. 287, 36 So. 352.
17 E. I. 698, 16 L. E. A. 550, 24 Atl. New York. Methodist Episcopal
473. Union Church v. Pickett, 19 N. Y.
That such proof is not necessary 482; Williams v. Bank of Michigan,
where the name of the association im- 7 Wend. 539.
ports a corporation, see § 423, infra. Ohio. Queen City Tel. Co. v. Cin-
United States. Campbell & Zell
48 cinnati, 73 Ohio St. 64, 76 N. E.
Co. V. American Surety Co., 129 Fed. 392.
491, aff'd 138 Fed. 531. Oklahoma. J. P. Bledsoe & Son v.
Alabama. Sehloss v. Montgomery Keystone Steel & Wire Co., 41 Okla.
Trade Co., 87 Ala. 411, 13 Am. St. Eep. 586, 139 Pac. 257.
51, 6 So. 360; Selma & T. E. Co. v. Oregon. Goodale Lumber Co. v.
Tipton, 5 Ala. 787, 39 Am. Dec. 344. Shaw, 41 Ore. 544, 69 Pac. 546; Law
Ckilorado. Jones v. Aspen Hard- Guarantee Trust Society v. Hogue,
ware Co., 21 Colo. 263, 29 L. E. A. 37 Ore. 544, 63 Pac. 690.
143, 52 Am. St. Eep. 220, 40 Pac. South Dakota. Yankton Nat. Bank
457. V. Benson, 33 S. D. 399, Ann. Cas.
Illinois. Bailey v. Valley Nat. Bank, 1916 B 1011, 146 N. W. 582.
127 111. 332, 19 N. E. 695, afE'g 21 111. Vermont. Lord v. Bigelow, 8 Vt.
App. 642; American Ins. Co. of New- 445.
ark, New Jersey v. McClelland, 184 Where the jurisdiction of a federal
111. App. 381; Dean & Son v. W. B. court depends upon whether the plain-
Conkey Co., 180 111. App. 162; Ameri- tiff isa corporation of a certain state,
can Sales Book Co. v. Wemple, 168 and allegation that it is such a
its
ni. App. 639; Fish v. Kanawha Dis- corporation is properly put in issue,
patch, 118 111. App. 284, rev'd on the burden is on it to prove that such
other grounds 219 111. 236; Spreyne is the case. W. L. Wells Go. v.
V. Garfield Lodge, 117 111. App. 253; Gastonia Cotton Mfg. Co.,, 198 U.
Concord Apartment House Co. v. Alas- S. 177, 49 L. Ed. 1003, rev'g on other
ka Eefrigerator Co., 78 111. App. 682. grounds 128 Fed. 369, which rev'd
Indiana. Morrison y. Indianapolis 118 Fed. 190.
90i>
422] Pkivate Cobpoeations [Ch. 14
de facto, and when it does so, the burden of proof is shifted to the
defendant.*®
§422. Presumptions and prima facie proof În general. Proof —

of certain facts may often raise a presumption of due incorporation,
which, in the absence of evidence tending to show want of incorpora-
tion, will make out a prima facie case. For example, it has repeatedly
been held that if it is shown that an association has exercised corporate
powers for a long period of time under a claim of corporate existence,
the grant of a charter will be presumed, in the absence of evidence to
the contrary,^"
Incorporation will not be presumed, however, fram acts, or from a
mode of conducting business, which might just as well have been done
or adopted by an unincorporated association as by a corporation.^^
Thus, the fact that the business of an association was conducted, or
contracts made, by a president and secretary, raises no presumption
of incorporation, for an unincorporated association may appoint a
president and secretary.®^ And the corporate existence of a church is
49 Hudson Green Hill Seminary

V. New Jersey. Den v. Helmes, 3 N. J.
Corporation, 113
111. 618; Concord L. 600.
Apartment House Co. v. Alaska Ee- New York. Eobie v. Sedgwick, 35
frigerator Co., 78 111. App. 682. See Barb. 319; All Saints' Church v. Lov-
also Van Winkle Gin & Machine ett, 1 Hall 213.
Works V. Mathews, 2 Ga. App. 249, Ohio. Sasser v. State, 13 Ohio 453.
58 S. E. 396. Vermont. Methodist Episcopal So-
As what is
to sufficient to make out ciety V. Lake, 51 Vt. 353.
a prima facie case, see §§ 422-424, Wisconsin. Eioketsou v. Galligan,
infra. 89 Wis. 394, 62 N. W. 87.
As to de facto corporations, see England. Crafts of Mercers v. Hart,
Chap. 10, supra. 1 Car. & P. 113; Kingston upon Hull
V. Horner, 1 Cowp. 102.
50 United States. United States v.
See also § 167, supra. Douthitt v.
Amedy, 11 Wheat. 392, 6 L. Ed. 502.
Stinson, 63 Mo. 268.
Contra, Griffin v. Clinton Line Ex-
51
Clark V. Jones, 87 Ala. 474, 6 So.
tension E. Co., Fed. Cas. No. 5816.
362; Greene v. Dennis, 6 Conn. 293, 16
Connecticut. Greene v. Dennis, 6
Am. Dec. 58; Abbott v. Omaha Smelt-
Conn. 293, 16 Am. Dec. 58.
ing & Eefining Co., 4 Neb. 416.
Illinois. Eose Hill & E. Road Co. v. 52 Clark V. Jones, 87 Ala. 474, 6 So.
People, 115 111. 133, 3 N. B. 725.
362; Duke v. Taylor, 37 Fla. 64, 31 L.
Maine. Trott v. Warren, 11 Me.
E. A. 484, 53 Am. St. Eep. 232, 19 So.
227.
172.
Maryland. Hager's Town Turnpike That it has a president, secretary
Eoad Co. V. Creeger, 5 Har. & J. 122, and treasurer, is not sufficient to show
9 Am. Dec. 495. that the body is incorporated. Cun-
New Hampsliire. Bow v. Aliens- yus V. Guenther, 96 Ala. 564, 11 So.
town, 34 N. H. 351, 69 Am. Dec. 489. 649.
904
not shown by proof that the members held the ordinary meetings of a
religious society, and elected ofScers, for these acts are entirely con-
sistent an unincorporated association.^^
with the existence of
The execution and delivery of an instrument to a corporation as
such is prima facie evidence of its corporate existence in a suit on such
instrument, and no further proof of that fact is necessary until such
proof is rebutted.^* But this rule has been held to have no application
B3 Fredenburg v. Lyon Lake M. E. plaintiff as a corporation is competent

Chureli, 37 Mich. 476. against the defendant as evidence of
64 West Side Auction House Co. v. corporate existence in an action for
Connecticut Mut. Life Ins. Co., 186 work performed and material fur-
III. 156, 57 N. E. 839, aff'g 85 nished under such contract. Otis Ele-
HI. App. 497; American Ins. Co. of vator Co. V. Cape Fear Hotel Co., —
Newark, New Jersey v. McClelland, N. C. —
, 90 S. E. 253.
184 App. 381; Nelson Cheamau &

111. It has been held that it appeared
Co. Singers, 183 111. App. 591;
V. prima facie that the plaintiff in an
American Sales Book Co. v. Wemple, action was a corporation where the
168 111. App. 639. defendant made with it the contract
In an action by a corporation on a sued on, negotiated with it as to
bond executed to it by the defendant, the discontinuance of a former suit on
the production of the bond, which the same contract and agreed to pay
describes the plaintiff as a corpora- a balance then due, and went to trial
tion, makes out a prima facie case that without notifying the plaintiff, by
it is a de facto corporation, and is plea or otherwise, that its corporate
sufficient. Campbell & Zell Co. v. existence would be disputed. MacMil-
American Surety Co., 129 Fed. 491, lan Co. V. Stewart, 69 N. J. L. 212,
aff'd 138 Fed. 531. 54 Atl. 240, aff'd 69 N. J. L. 676, 56
The fact that a contract on which Atl. 1132.
a corporation has recovered judgment Under a statute providing that the
recites that a corporation under
it is maker of a negotiable instrument ad-
a particular name and that it has mits the existence of the payee and
recovered judgment under that name his capacity at the time to indorse,
is sufficient proof of its corporate ca- the maker of a note payableto a rail-
pacity in an action by it on such way company not in a position to
is
judgment. Cellulose Package Mfg. deny the corporate existence of said
Co. V. Calhoun, 166 Cal. 513, 137 Pac. company, and an indorsee of the note
238. need not prove it in an action thereon.
A written receipt from which it ap- Grover v. Muralt, 23 N. D. 576, 137
pears that the defendant contracted N. W. 830.
with the plaintiff in its corporate As to the effect of the use of a
name and received money thereby ad- name which imports a corporation, see
mitted to have been money of the § 423, infra.
evidence of the incorpo-
plaintiff, is That the maker of the contract is
ration of the plaintiff. Sierra Land estopped to deny the existence of the
& Cattle Co. V. Bricker, 3 Cal. App. corporation under such circumstances,
190, 85 Pac. 665. see § 334, supra.
A written contract evidencing that That a de facto corporation isbouhd
the defendant was dealing with the by its contracts and that persons con-
905
where the contract itself in no way describes or refers to the plaintiff
as a corporation, either directly or indirectly.*^

Proof that land has been conveyed to or by a company as a corpora-
tion is sufficientprima facie evidence that it is a corporation, in an
action involving title to such land.*® And a patent to a mine issued by
the federal government to a corporation sufficiently establishes the fact
that the grantee is a corporation, in a suit to determine conflicting
claims to the property covered by such patent.*'' Proof that the de-
fendant represented in a letter to the plaintiff's assignors that it was
a corporation is sufficient to support a finding of its corporate
character.**
There is authority to the effect that it will be presumed that a rail-
road company is a corporation unless the contrary appears.*'
§ 423. —
Use of name importing a corporation. Some courts have
held that there is no presumption of incorporation from the fact that
an association has used a name appropriate to a corporate body,*" while
traeting with it cannot attack its ex- to land were taken in the name of the
istence in an action on such contract, company instead of in the names of
Bee §§ 274 et seq., supra. individuals as partners, furnish some
65 American Ins. Co. of Newark, evidence, as against such persons, that
New Jersey v. McClelland, 184 111. it is a corporation. Forbis v. Pied-
App. 381; American Sales Book Co. mont Lumber Co., 165 N. C. 403, 81 8.
V. Wemple, 168 111. App. 639. E. 599.
66 In an action of ejectment, proof That the purported corporation is
that the state donated the land in con- estopped to deny its corporate exist-
troversy to a company by an act of ence under such circumstances, see
the legislature, that the United States § 306, supra.
conveyed the land to it by patent, and That a de facto corporation may
that the company assumed to convey convey or accept conveyances of land,
the same land as a corporation, are Bee § 306, supra.
sufficient, prima facie at least, to es- 57 Galbraith v. Shasta Iron Co., 143
tablish its legal entity as a corpora- Cal. 94, 76 Pac. 901.
tion. Altschul V. Casey, 45 Ore. 182, 68 Marx v. Ealey & Co., 6 Cal. App.
76 Pac. 1083. 479, 92 Pac. 519.
A
deed by a purported corporation That persons representing that they
is proof of the existence of the cor- are a corporation are estopped to deny
poration in a suit involving the title that fact, see § 343, supra.
to the property conveyed. Galbraith 69 Louisville & N. R. Co. v. Com.,
V. Shasta Iron Co., 143 Cal. 94, 76 154 Ky. 293, 157 S. W. 369; Madison-
Pac. 901. ville, H. & E. E. Co. v. Com., 140 Ky.
Admissions of persons intervening 255, 130 S. "W. 1084.
in an action that a company is a cor- 60 Briggs V. McCullough, 36 Cal. 542,
poration, the fact that one of them 550; Duke v. Taylor, 37 Fla. 64, 31 L.
refers to it as a corporation in his R. A. 484, 53 Am. St. Rep. 232, 19
testimony, and the fact that deeds So. 172; Welland Canal Co. v. Hatha-
906
;
Ch. 14] CoBPOEATE Existence [§ 423
other courts have held that the use of a name -which ordinarily imports
a corporate existence is prima facie evidence of incorporation.'^
"Whether a particular name imports a corporation should, as a rule, be
way, 8 Wend. (N. T.) 480, 24 Am. of Millen, 7 Ga. App. 645, 67 S. B.
Dec. 51; Williams v. Bank of Michi- 896.
gan, 7 Wend. (N. Y.) 539; Holloway Where a complaint states the name
V. Memphis, E. P. & P. E. Co., 23 of the plaintiff or defendant in such
Tex. 465, 76 Am. Dec. 68. See also words as to imply a corporation, it
Ingle System Co. v. Norris & Hall, -132 will be presumed that the party so
Tenn. 472, 178 S. W. 1113, citing cases referred to is a corporation until that
to this effect, but holding to the con- fact is put in issue by a denial. Ohio
trary, Oil Co. V. Detamore, 165 Ind. 243, 73
61 Georgia. Van Winkle Gin & N. E. 906.
Machine Works v. Mathews, 2 6a. "Where, in an indictment for lar-
App. 249, 58 S. E. 396. ceny, the ownership of the goods al-
Indiana. Stein y. Indianapolis leged to have been stolen is laid in
Building Loan Pund & Savings Ass'n, a name which imports a corporation,
18 Ind. 237, 81 Am. Dec. 353; Jones v. the presumption is that it is the name
Cincinnati Type Foundry Co., 14 Ind. of a corporation, and it is not neces-
89. sary, even as against a special
Massachusetts. Williamsburg City demurrer, to allege the fact of incor-
Pire Ins. Co. v. Prothingham, 122 poration." Mattox V. State, 115 Ga.
Mass. 391. 212, 41 S. E. 709.
Mlfsourl. Stoutimore v. Clark, 70 On prosecution for embezzlement
Mo. 471. from a corporation, if its name im-
Nebraska. Valley Bank v. Harding, ports a corporation, it will be pre-
1 Neb. 461. sumed that it is one, and the state
North Carolina. See State v. Grant, need not prove that such is the case,
104 N. C. 908, 10 S. E. 554. where the indictment does not allege
Ohio. See Wild v. Oregon Short that it is a corporation and in the ab-
Line & U. N. Ey. Co., 21 Ore. 159, sence of affirmative evidence by the
27 Pac. 954. accused that no such corporation ex-
"When the name of a party to a isted. A final judgment under such
euit is such as to import that the circumstances is not void or voidable
party is a. corporation, there is a for want of such proof. Vaughn v.
presumption to this effect, which pre- State, 17 Ga. App. 268, 86 S. E. 461.
vails until the contrary is shown." The following names have been held
Georgia Co-operative Pire Ass'n v. to import a corporation: "Anglo-Cali-
Borchardt & Co., 123 Ga. 181, 3 Ann. fornia Bank, Limited" (Anglo-Cali-
Cas. 472, 51 S. E. 429; Turner's Chapel fornia Bank v. Field, 146 Cal. 644, 80
A. M. E. Church v. Lord Lumber Co., Pac. 1080) ; "P. A. Lord Lumber Com-
121 Ga. 376, 49 S. E. 272; Holcomb pany" (Turner Chapel A. M. E.
V. Cable Co., 119 Ga. 466, 46 S. E. 671; Church V. Lord Lumber Co., 121 Ga.
Mattox V. State, 115 Ga. 212, 41 S. 376, 49 S. E. 272); "The
Cable Com-
E. 709. pany" (Holcomb Cable Co., 119
V.
It is not necessary for a, corporation, Ga. 466, 46 S. E. 671); "C. H. Per-
in bringing suit, to aver that it is a kins Co." (Perkins Co. v. Shewmake
corporation, where its name imports & Murphey, 119 Ga. 617, 46 S. E. 832)
a corporate body. Edenfield v. Bank "Acme Brewing Company" (Mattox
907
;
left to judicial knowledge.^* If the name manifestly indicates a re-

ligious, charitable, educational, or other similar beneficence for the
public good, or if it indicates a financial, commercial or manufacturing,
or other kindred purpose, the usual subjects of incorporation, it should
be held to import a corporation.^^ "There is a difference between
such names and those indicating partnerships, joint contractors, or
«*
other natural persons not the usual subjects of incorporations. "
But if a name "may fairly import either a corporation, an unincor-
V. State, 115 Ga. 212, 41 S. E. 709) action was brought, and that it issued
"Foley & Willianis Mfg. Co." (Foley the insurance policies in suit, imported
& Williams Mfg. Co. v. Bell & Har- a corporation; and that it was not nec-
rell, 4 Ga. App. 447, 61 S. E. 856); essary, even as against a special
'
Kanawha Dispatch (Fish v. Kana-
'
'
' demurrer, to allege that it was a cor-
wha Dispatch, 118 111. App. 284, rev'd poration.

The name ' The Dry Fork Eailroad
'
on other grounds, 219 111. 236); "In-
diana Millers' Mut. Fire Insurance Company" imports a corporation, and
Company" (Indiana Millers' Mut. is a sufBcient averment that a defend-
Fire Ins. Co. v. People, 65 111. App., ant indicted under that name is a cor-
355, aff'g 170 111. 474); "Huntington- poration. State V. Dry Fork E. Co.,
Light & Fuel Company" and "Ohio 50 W. Va. 235, 40 S. E. 447.
Oil Company" (Ohio Oil Co. v. Deta- The name "Americus Furniture &
more, 165 Ind. 243, 73 N. E. 906); Undertaking Company" connotes a
"Oregon Eailroad & Navigation Com- corporation, and an allegation in a
pany" Oregon E. & Nav. Co.,
(EllifE V. criminal case that a company having
"Ingle System
53 Ore. 66, 99 Pac. 76) ; that name is a corporation is surplus-
Company" (Ingle System Co. v. Nor- age and need not be proved. Ager v.
ris & Hall, 132 Tenn. 472, 178 S. W. State, 2 Ga. App. 158, 58 S. E. 374.
1113). "Tindle Cotton Company" It has been frequently held that one
(Pemiscot County Bank v. Central who contracts with an association in
State Nat. Bank, 135 Tenn. 13, 185 a name which imports a corporation,
S. "W. 702). is thereby estopped to deny that it is
The fact that notes sued on were one in an action on the contract. For
made payable to "Goldberg, Bowen a discussion of this doctrine and of
& Inc.," the plaintiff, and that
Co., whether the rule preventing him from
the plaintiff's cashier testified that it questioning the existence of the corpo-
was a corporation, was held to be suflS- ration under such circumstances, is
cient proof of its corporate existence based on the doctrine of estoppel or is
in Goldberg, Bowen & Co. v. Dimick, a rule of evidence, see Chap. XI,
169 Cal. 187, 146 Pac. 672. supra.
In Georgia Co-operative Fire Ass'n 62Mattox v. State, 115 Ga. 212, 41
V. Borchardt & Co., 123 Ga. 181, 3 Ann» S. E. 709; St. Cecilia's Academy v.
Cas. 472, 51 S. E. 429, it was held that Hardin, 78 Ga. 39, 3 S. E. 305.
the name "The Georgia Co-operative 63Mattox V. State, 115 Ga. 212, 41
by which the de-
Fire Association," S. E. 709; St. Cecilia's Academy v.
fendant was sued, when taken in Hardin, 78 Ga. 39, 3 S. E. 305.
connection with allegations of the pe- 64Mattox V. State, 115 Ga. 212, 41
tition that it had an agent and a place S. E. 709; St. Cecilia's Academy v.
of business in the county in which the Hardin, 78 Ga. 39, 3 S. E. 305.
908
'
Ch.l4'] CoEPOEATE Existence [§424
porated association, or a partnership, no presumption arises from the

mere name that the company is either the one or the other. "®^
It has been held that the use of the word "company" does not im-
port a corporate existence, since it is equally applicable to a partner-
ship,^® although there are some cases which apparently hold to the
contrary So it has been held that "^the word 'association,' when
.8'''
used with descriptive adjectives as the name of a business entity, is as

much indicative of a corporation as the word 'company' when so
68
used."
§ 424. — Presumption of continued existence. Where it is shown

that a company was at one time a corporation, that status is presumed
to continue until the contrary is proven,®^ at least during the period
for which it might have been chartered.'''*' But such presumption will
6Bln Clark v. Jones, 87 Ala. 474, 6 N. W. 582, the court says in reference
So. 362, this was held to be true of the to People V. Manhattan Co., supra:
name "Wetumpka Lumber Com- "In that case, however, the charter
pany." of the corporation provided for its per-
66 Its use in a contract with the petual existence, and the matter arose
company does not import that the under the question as to whether it
company is a'eorporation so as to make had performed certain things which
the contract an instrument executed by its charter should have been per-
to a corporation as such, and hence formed within a certain period after
sufficientprima facie evidence of its the charter was granted as a condi-
de facto existence. American Ins. Co. tion for the continued existence of the
of Newark, New Jersey v. McClelland, corporation. '
184 HI. App. 381; American Sales Book In Humphry v. Powell, 145 Ga. 458,
Co. V. Wemple, 168 111. App. 639. 89 S. E. 427, it was held that there
67 See Georgia Co-operative Fire was no merit in the contention that a
Ass'n V. Borehardt & Co., 123 Ga. 181, bank was not in existence as a corpo-
3 Ann. Cas. 472, 51 S. E. 429; Mattox ration so as to be a necessary party
V. State, 115 Ga. 212, 41 S. B. 709. defendant to the bill of exceptions,
68Georgia Co-operative Fire Ass 'n where it had been made a party de-
V. Borehardt & Co., 123 Ga. 181, 3 Ann. -feudant in the court below two year^
Cas. 472, 51 S. E. 429. previously, and there was nothing to
69 Anglo-Calif ornian Bank v. Field, show that it had ceased to be a cor-
146, Cal. 644, 80 Pac. 1080. poration.
The corporation having been 70 " A national banking corporation
'
'
shown to have been legally created once shown to exist will be presumed
and organized, is in judgment of law to be a corporation during the period
supposed to continue to exist until the of twe'nty years thereafter " • *."
contrary is shown * * *." People The court will take judicial notice
V. Manhattan Co., 9 Wend. (N. Y.) that such a bank is chartered for
351. twenty years. The presumption of
In Yankton Nat. Bank v. Benson, 33 continued existence is annihilated
S. D. 399, Ann. Cas. 1916 B 1011, 146 after that length of time. Yankton
909
be subject to be overthrown by slighter evidence as the length of time

increases after the existence of the corporation is shown.'^ And it will
not be presumed that its charter has been renewed, although a renewal
may be obtained almost as a matter of form.'^
§425. Parol evidence of incorporation; reputation — În general.

As we shall see in the sections following, facts necessary to be shown
in order to establish corporate existence may be proved by parol evi-
dence, if better evidence is not available ;
" and parol evidence may be
both competent and sufficient to prove incorporation, if no objection
or exception is taken to its admission.''*
As a general rule, when it is necessary to prove the existence of a

corporation in a civil action, parol evidence is not competent for that
purpose, if objected to, when better evidence exists and can be pro-
duced by the party.'* Thus, the articles or certificates of association
or incorporation, or a duly-certified or authenticated copy thereof, are
the best evidence of their execution or issuance and of their contents,
and failure to produce them must be accounted for before the admis-
Nat. Bank v. Benson, 33 S. D. 399, Land Co. v. Steidle, 28 Wash. 72, 68

Ann. Cas. 1916 B 1011, 146 N. W. 582. Pac. 178.
71 Yankton Nat. Bank v. Benson, 33 This equally true where the ob-
is
S. D. 399, Ann. Ca^. 1916 B 1011, 146 jection not seasonably made. Dick
is
N. W. 582. V. State, 107 Md. 11, 68 Atl. 286, 576;
72Tankton Nat. Bank v. Benson, 33 State V. Pittam, 32 Wash. 137, 72 Pac.
S. D. 399, Ann. Cas. 1916 B 1011, 146 1042.
N. W. 582. 76 Owen V. Shepard, 59 Fed. 746;
See Rose Hill & E. Road Co. v.
73 Warner v. Daniels, 1 Woodb. & M. 90,
People, 115 111. 133, 3 N. E. 725; Weber Fed. Cas. No. 17,181; A. Gauthier
V. Fickey, 52 Md. 500. And see the Decorating Co. v. Ham, 3 Colo. App.
eectious following. 559, 34 Pae. 484; Nicoll v. Clark, 13
74 Colorado. Tollifson v. People, 49 N. Y. Misc. 128, 34 N. Y. Supp. 159;
Colo. 219, 112 Pac. 794. Hallett V. narrower, 33 Barb. (N. Y.)
Illinois. People v. Noviek, 265 111.

537.
436, 107 N. E. 138; People v. Burger,

Where no attempt is made to intro-
259 111. 284, 102 N. E. 751; Doyle v. duce the charter or general law under
Frank Douglas Machinery Co., 73 HI. which an association claims to be in-
273. corporated, oral testimony that it is in
Missouri. State v. Decker, 217 Mo. fact a corporation and that it has a
315, 116 S. W. 1096. corporate seal and transacts business
Rhode Island. State v. Habib, 18 under such seal is properly excluded i.a
R. I. 558, 30 Atl. 462. not the best evidence. American Ins.

Washington. State v. Pittam, 32 Co. of Newark, New Jersey v. McClel-
Wash. 137, 72 Pae. 1042; Stanford land, 184 111. App. 381.
910
'
Ch. 14] CoBPORATE Existence [§ 425
sion of parol evidence of their existence and contents.'® If they have

been lost or destroyed, parol evidence is admissible.''"'
Ordinarily, the proper method of proving the nonexistence of a

record by testimony of the lawful custodian of such record.''* Hence,
is
on an issue as to the existence of a corporation under a particular

name, testimony of a witness that he had examined the files in the
office of the secretary of state and failed to find any record of a charter
incorporating an association by that name is inadmissible. Proof as to

what is or is not shown by the records in the office of the secretary
should be made by that officer.''^ But a witness may testify that he has
never heard of a corporation, partnership or association of any kind
doing business under the name stated.'"
By the weight of authority, when an association contracts with a
person as a corporation, it is estopped to deny its incorporation in an
action on the contract and if a person contracts with an association
;
as a corporation, he is estopped to deny its incorporation in an action

by it as a corporation on the contract, or in an action by him against
the associates as partners.*^ It follows that in such cases it is only
necessary to prove by parol evidence or reputation that the associa-
tion was acting as a corporation £ind was dealt with as such, for
incorporation in fact need not be proved.*^
76 Owen Shepard, 59 Fed. 746;

V. 78 Cobb v. Bryan, 37 Tex. Ciy.
Creditors' Union
v. Lundy, 16 Cal. App. 339, 83 S. W. 887.
App. 567, 117 Pae. 624; Bell v. Dowdy, 79 Cobb v. Bryan, 37 Tex. Civ. App.
13 Ky. L. Eep. 543 (abstract) Hal- ; 339, 83 S. W. 887.
lett V. narrower, 33 Barb. (N. Y.) Cobb v. Bryan, 37
80 Tex. Civ.
537. App. 339, 83 S. "W. 887.
In an action against individuals as 81 See Chap. 11, supra,
partners, their testimony that th^ com- United States. Eoekville & W.
82
pany which they represented was in- Turnpike Road v. Van Ness, 2 Cranch
corporated under the laws of another C. C. 449, Fed. Cas. No. 11,986.
state, without producing the articles niluois. Walker Paint Co. v. Bug-
of incorporation, is insufficient to show gles, 48 111. App. 406.
such incorporation. Bell v. Dowdy, 13 Indiana. Ewing v. Robeson, 15 Ind.
Ky. L. Eep. 543 (abstract). 26.
Kentucky. Woodson v. Bank of
77 Creditors' Union Lundy, 16
v.
Cal. App. 567, 117 Pac. 624; Eose Hill
Gallipolis, 4 B. Mon. 203.
^^^^-""^ ^^ '^'"*°"'^ ^^'^^•
& E. Eoad Co. V. People, 115 111. 133, , ^/T.
3N.
A
E. 725.
copy which
, . , . ,
properly proven
.
""'^r
Minnesota. ,'fV'-T.
French v. Donohue, 29
IS
admissible, where the original article^
is
-^^^^^ ^j^j^ ^^ j^_ ^ 35^
^^^ york. United States Vinegar
have been lost. Dan vers Farmers Co. v. Schlegel, 143 N. Y. 537, 38 N. E.
Elevator Co. v. Johnson, 93 Minn. 323, 729; Eoberts v. National Ice Co 6
101 N, W. 492. Daly 426.
911
Parol evidence is also admissible to show user for the purpose of

proving the existence of a corporation de facto. *^
§ 426. —
In criminal actions. A
de facto corporation may be prose-
cuted criminally,** and hence in criminal prosecutions of a corporation
it is not necessary to offer in evidence its articles of incorporation, but
its de facto existence may be established by evidence tending to show
that it acted and was accepted in the community as a corporation
under the name alleged.** And it has been said that under such cir-
West Virginia. Bon Aqua Improve- eient, in connection with the other evi-
ment Co. V. Standard Fire Ins. Co., 34 dence, to show prima facie at least,
W. Va. 764, 12 S. E. 771. its incorporation, a person claiming
Thus parol evidence that plaintiff to be an officer of the intervener hav-
was known and transacted business as it was a corporation,
ing testified that
a corporation has been held sufficient and an allegation of the intervener's
to meet the plea of nul tiel corpora- answer that it was a corporation hav-
tion. Patton & Gibson Co. v. Shreve ing been, in effect, admitted by the
& Kelso, 134 111. App. 271. reply.
In an action by a national bank Where it was claimed that a part-
against the maker of a note indorsed nership was dissolved by the forma-
to it by the payee, it is competent for tion of a corporation to succeed it,
the plaintiff to prove by parol that it but the attempted incorporation was
iscarrying on a general banking busi- so defective that not even a corpora-
ness as a national bank authorized by tion de facto resulted, it was held that
the general laws of the United States mere uncontradicted testimony that
under the name by which it sues, in the plaintiff dealt with the company
view of the fact that the court will as a corporation would not prevent
take judicial of such laws.
notice him from enforcing the company's
Yakima Nat. Bank Knipe, 6 Wash.
v. notes against its members as partners.
348, 6 Pae. 348, followed in National Ward-Truitt Co. Bryan & Lamb, 144
v.
Bank of Commerce v. Galland, 14 Ga. 769, 87 S. B. 1037.
Wash. 502, 45 Pac. 35. 83 See § 303, supra.
In an action of ejectment by the 84 See § 316, supra.
assignee of a mortgagee against the 85 Louisville & N. R. Co. v. Com.,
mortgagor upon a mortgage given to a 154 Ky. 293, 157 S. W. 369; Madison
corporation, it is not necessary to pro- ville, H. & E. E. Co. v. Com., 140 Ky.
duce the charter of the corporation. 255, 130 S. W. 1084; George H.
Good
The admission by the defendant in the man Ky. L. Eep. 519
Co. v. Com., 30
deed of mortgage is, as against him, 99 S. W. 252; Standard Oil Co. v. Com
sufficient proof, when uncontradicted, 122 Ky. 440, 29 Ky. L. Eep. 5, 91 S. W
of the existence of the corporation. 1128. See also Morse v. Com., 129
Den V. Van Houten, 10 N. J. L. 270. Ky. 294, 311, 111 S. W. 714.
In Smathers & Co. v. Toxaway Hotel Corporate existence is sufficiently
Co., 167 N. C. 469, 83 S. E. 844, it was proved by the introduction of its char-
held that proof that the defendant ter, and proof that it had officers and
had recognized and dealt with the a place of business, operated a rail-
intervener as a corporation was suffl.- road, and held itself out to the world
912
cumstances any evidence tending to show that it is a corporation is
sufficient.^®
In criminal prosecutions for offenses alleged to have been committed
against the property of a corporation, some of the courts have held
that only necessary to show the existence of the alleged corpora-
it is
tion by parol evidence, or by reputation.^' And this rule has been
as a corporation by the name alleged. Georgia. See dictum in Mattox v.

State V. Western N. C. E. Co., 95 N. 0. State, 115 Ga. 212, 41 S. E. 709.
602. See also Acme Fertilizer Co. v. Illinois. Kossakowski v. People,
State, 34 Ind. App. 346, 107 Am. St. 177 111. 563, 53 N. E. 115.
Eep. 190, 72 N. E. 1037, where it is Indiana. Norton v. State, 74 Ind.
said that there was sufficient evidence 337.
from which the inference that the de- Iowa. State v. Eozeboom, 145 Iowa
fendant was a duly organized corpora- 620, 29 L. E. A. (N. S.) 37, 124 N. W.
tion was deducible. 783.
86 George H. Goodman Co. v. Com., Kansas. State v. Thompson, 23
80 Ky. L. Eep. 519, 99 S. W. 252; Kan. 338, 33 Am. Eep. 165.
Standard Oil Co. v. Com., 122 Ky. 440, Kentucky. Swann v. Com., 169 Ky.
29 Ky. L. Eep. 5, 91 S. W. 1128. 565, 184 S. W. 868; Morrow v. Com.,
In a prosecution of a corporation for 157 Ky. 486, 489, 163 S. W. 452; Morse
selling oil without a license, a receipt V. Com., 129 Ky. 294, 311, 111 S. W.
given by it in payment for oil so sold 714.

reciting that it is a corporation is Mississippi. Davis v. State, 67 So.
competent. Standard Oil Co. v. Com., 662, 108 Miss. 710, 67 So. 178.
122 Ky. 440, 29 Ky. L. Eep. 5, 91 S. W. Missouri. State v. 'Williams, 152
1128. Mo. 115, 75 Am. St. Rep. 441, 53 S. W.
87 Arkansas. Turner v. State, 109 424.
Ark. 332, 158 S. W. 1072; Brown v. Ohio. Burke v. State, 34 Ohio St.
State, 108 Ark. 336, 157 S. W. 934; 79; Calkins v. State, 18 Ohio St. 366,
Hears v. State, 84 Ark. 136, 104 S. W. 98 Am. Dec. 121; Reed v. State, 15
1095; Fleener v. State, 58 Ark. 98, 23 Ohio 217.
S. W. 1. Rhode Island. State v. Habib, 18
People
California. v. Dole, 122 Cal. R. I. 558, 30 Atl. 462.
486, 68 Am. St. Eep. 50, 55 Pac. 581; South Carolina. State v. Sowell, 85
People V. Ah Sam, 41 Cal. 645; People
S. C. 278, 67 S. B. 316.
V. Hughes, 29 Cal. 257; People v.
Washington. State v. Pittam, 32
Frank, 28 Cal. 507.
"Wash. 137, 72 Pac. 1042.
Colorado. Tollifson v. People, 49
The fact may be established prima
Colo. 219, 112 Pac. 794; Perry v.
facieby showing that the company
People, 38 Colo. 23, 87 Pae. 796; Miller
was doing business as a corporation.
V. People, 13 Colo. 166, 21 Pac. 1025.
Miller v. People, 13 Colo. 166, 21 Pac.
District of Columbia. Fields v.
1025..
United States, 27 App. Cas. 433, certi- Its existence may be proved by evi-
orari denied 205 TJ. S. 292, 51 L. Ed. dence that it has carried on business
807. as such and is publicly and universally
Florida. Talheim v. State, 38 Fla. known by thename set out in the in-
169, 20 So. 938. dictment. State v. Grant, 104 N. C.
913
I Priv. Corp.—58
§426] Pbivate Coepobations [CL 14
adopted by statute in some states.*^ But it has been held that when
the existence of the corporation an essential element of the crime, it
is
cannot be proved by oral testimony but must be shown by the records

as the best evidence.*®
"Reputation is what is generally said of a person by the people of
the community where he is known. And, when the subject of inquiry
is a corporation, the same rule governs that controls in the introduction
908, 10 S. B. 554. See also State v. be sufficient, on the ground that in

Turner, 119 N. C. 841, 25 S. B. 810. those cases it was necessary to prove
In such cases "corporate existence the charters of the banks in order to
may be shown either by the record, or show that they had power to issue
by evidence of persons who are able notes.
to state that the concern in question In Trice v. State, 2 Head (Tenn.)
is a corporation, or by other facts or 591, which was a prosecution for hav-
circumstances showing that it i^ a cor- ing possession of a counterfeit bank
poration." Morse v. Com., 129 Ky. note, it was held that parol evidence
294, 311, 111 S. W. 714. was not admissible to prove the cor-
"The best evidence, doubtless, of porate existence of the alleged bank,
the existence of a corporation, would but that it was necessary to introduce
be the production of its charter, or the written memorandum required by

certificate of incorporation, though the statute to be made and filed as a
secondary evidence of general reputa- condition precedent to corporate ex-
tion is admissible for that purpose." istence, or a certified copy thereof.
Dick V. State, 107 Md, 11, 68 Atl. 286, In State v. Murphy, 17 B. I. 698, 16
576. L. E. A. 550, 24 Atl. 478, which was a
The admission of secondary evi- prosecution for obtaining goods from
dence to prove an allegation that a a corporation by means of a forged
named company i^ a corporation is order, it was held that evidence that
harmless where such allegation is certain persons were doing business
surplusage because the name used con- under the name alleged, that this con-
notes a corporation, and the corporate cern owned the goods in question, and
entity has not been put in issue. Ager that an act had been passed by the
V. State, 2 Ga. App. 158, 58 S. E. 374. general assembly incorporating the
In State v. Missio, 105 Tenn. 218, 58 said company, was insufficient to sus-
S. "W. 216, which was a prosecution for tain a conviction, in the absence of
receiving goods stolen from a foreign any proof that any organization waa
railroad company, it was held that the ever effected under such act.
existence of the company might be For the admissibility and sufficiency
shown by proof that it was carrying of such evidence to prove the existence
on business as a common carrier under of a foreign corporation, see chapter
a corporate name. In this case the on Foreign Corporations, infra.
court distinguishes Jones v. State, 5 88 See § 440, infra.
Sneed (Tenn.) 346, and Owen v. State, 89 Such is the ease in a prosecution
5 Sneed (Tenn.) 493, which were of a corporate officer for making »
prosecutions for counterfeiting the fraudulent report or statement as to
notes of foreign banking corporations, the operations, etc., of the corporation.
and in which evidence of the character State v. Merchant, 48 Wash. 69, 92
under consideration was held not to Pac. 890.
914
Ch. 14] Corporate Existence [§427
of evidence respecting the reputation of a natural person.

'
' '" And
it show the existence of a corporation by repu-
follows that in order to
tation it must be shown that the company in question was generally
reputed to be a corporation in the community where it is known.'^
There is a conflict of authority as to whether a witness having knowl-
edge of the facts may testify directly that a particular company is a
corporation.^^
§ 427. —
Direct testimony that a company is a corporation. There
seems to be considerable conflict of authority as to whether a witness
may testify directly that a particular company is a corporation. In
some jurisdictions it has been held that persons familiar with the
facts may so testify in civil cases,^^ and that such testimony, either in
connection with other evidence,'* or standing alone,'^ is sufSeient to
show the fact of incorporation and a number of courts have held that
;
such evidence is admissible and sufficient in criminal prosecutions for

offenses against the property of corporations,'* or for crimes com-
mitted by corporations.'''
90 state V. Brown, 33 Utah 109, 93 mony of the plaintiff's cashier that it

Pac. 52. was a corporation, together with the
91 State V. Brown, 33 Utah 109, 93 fact that the notes in suit were pay-
Pae. 52. able to "G. B. & Co., Inc.," was held
92 See § 427, infra. to be sufficient proof that it was a
Smathers & Co. v. Toxaway
93 J. L. corporation.
Hotel Co., 167 N. C. 469, 83 S. E. 844; 95 Pacific Drug Co. v. Hamilton, 71
Locke V. Leonard Silk Co., 37 Mich. Wash. 469, 128 Pae. 1069.
479. (It is to be noted that in this 96Eeed v. State, 15 Ohio 217; State
case the defendant apparently pleaded V. Pittam, 32 Wash. 137, 72 Pae. 1042.
the general issue, thereby admitting Oral evidence by one of the com-
that the plaintiff had capacity to sue pany's agents that it is a corporation
as a corporation.) is enough to take the case to the jury.
Thus testimony of the cashier that State V. Eozeboom, 145 Iowa 620, 29
it was a corporation existing under L. E. A. (N. S.) 37, 124 N. W. 783.
the laws of the state of California waa Testimony of a member that the
admitted on the question of corporate company is incorporated is alone suffi-
existence. Goldberg, Bowen & Co. v. cient proof of incorporation. Swann
Dimick, 169 Cal. 187, 146 Pae. 672. V. Com., 169 Ky. 565, 184 S. W. 868.
Testimony of the president of the Testimony of a witness that a bank
company that it was a Washington was a corporation, and proof that the
corporation was held admissible. Pa- business in question was conducted
cific Drug Co. V. Hamilton, 71 Wash. under the name of the Bluff City Sav-
469, 128 Pae. 1069. ings Bank, is sufficient in a prosecu-
94 J. L. Smathers & Co. v. Toxaway tion for embezzling its funds. Davis
Hotel Co., 167 N. C. 469, 83 S. E. 844. v. State (Miss.), 67 So. 662, 108 Miss.
In Goldberg, Bowen & Co. v. Dimick, 710, 67 So. 178.
169 Cal. 187, 146 Pac. 672, the testi- 97 Testimony of a witness that a
915
Other courts have held such evidence to be incompetent, both in

and criminal ^' cases. So it has been held that testimony of a
civil ^*
witness that a company is a corporation organized under the laws of
a certain state has no tendency to prove the existence of the corpora-
tion by reputation, and is incompetent for that purpose.^ And also
that testimony that a company did business as a corporation affords
no proof of user within the meaning of a statutory provision that the
legal existence of a corporation may be proven prima facie in criminal
casesby proof of user.^
But if direct testimony that a company is a corporation is received
without objection, it is generally held that it may be considered and
will be sufficient, even in those jurisdictions where it would otherwise
be incompetent.'
§ 428,Proof and judicial notice of special charters and general

laws —Publicacts. If the act of the legislature granting a special
charter is a public as distinguished from a private law, no proof
thereof is necessary in the courts of the state, for the courts must take
railroad company is a corporation is of insurance stated that the insurer

competent. This holding is apparently was a corporation, and testimony of a
based on the theory that such evidence witness that he was in the employ of
tend^ to show that it acted and was the Eoyal Insurance Company, a cor-
accepted in the community as a corporation, were sufficient to establish
poration. Louisville & N. E. Co. v. its de facto character.
Com., 154 Ky. 293, 157 S. W. 369. State v. Brown, 33 Utah 109, 93
1
98 In an action against certain in- Pae. 52.
dividuals as partners, their testimony 2 People V. Struble, 275 111. 162, 113
that the company which they repre- N. E. 938; People v. Krittenbrink, 269
sented was incorporated under the HI. 244, 109 N. E. 1005.
laws of another state, without produc- Such a statement is a mere opinion
ing the articles of incorporation, ia of the witness. Nor is it a statement
insufficient to show such incorporation. that the company was a corporation,
Bell V. Dowdy, 13 Ky. L. Eep. 543 since it is a matter of common knowl-
(abstract). edge that partnerships frequently do

99 People V. Struble, 275 111. 162, 113 business "as a corporation"; that is,
N. E. 938; People v. Burger, 259 111. like a corporation, through directors
284, 102 N. E. 751. and persons selected as officers and
In People v. Dole, 122 Cal. 486, 68 managers. People v. Struble, 275 111.
Am. St. Eep. 50, 55 Pac. 581, it wa^ 162, 113 N. E. 938.
teld to be technically erroneous to per- SToUifson V. People, 49 Colo. 219,
mit a witness to testify that the com- 112 Pac. 794; People v. Burger, 259
pany in question was a corporation. 111. 284, 102 N. E. 751; State v. Habib,
But in People v. Morley, 8 Cal. App. 18 E. I. 558, 30 Atl. 462; State v. Pit-
372, 97 Pac. 84, which was a prosecu- tam, 32 Wash. 137, 72 Pac. 1042; Stan-
tion for burning insured property, it ford Land Co. v. Steidle, 28 Wash. 72,
was held that the fact that the policy 68 Pac. 178.
916
Ch. 14] CoEPOBATE Existence [§428
judicial notice of all public laws* This is true, for example, where
the legislature expressly declares the act creating the corporation to
be a public one ;
* or where the constitution or a general law declares
that all acts of incorporation shall be deemed to be public acts ;
^ or
This is equally true where the objec- Gokey, 49 Vt. 282; Buell v. Warner,
tion is not made until after the tes- 33 Vt. 570; Briggs v. Whipple, 7 Vt.
timony has been given, and therefore 15.
comes too late. Dick v. State, 107 Md. Virginia. Hays v. Northwestern
11, 68 Atl. 286, 576; State v. Pittam, Bank of Virginia, 9 Gratt. 127; Strib-
32 Wash. 137, 72 Pae. 1042. bling V. Bank of the Valley, 5 Band.
4 Alabama. City Council of Mont- 132, 138.
gomery V. Wright, 72 Ala. 411, 47 Am. West Virginia. Beasley v. Beckley,
Eep. 422. 28 W. Va. 81.
Arkansas. Hammett v. Little Eock As to the distinction between public
& N. E. Co., 20 Ark. 204; McKiel v. and private acts, see Village of
Eeal Estate Bank, 4 Ark. 592. Winooski Gokey, 49 Vt. 282; Strib-
v.
Connecticut. National Circle, bling v. Bank of the Valley, 5 Band.
Daughters of Isabella v. Hines, 88 (Va.) 132, 138. See also Chap. 8,
Conn. 676, 92 Atl. 401; General Hospi- Bupra.
tal Society v. New Haven Eendering That a charter of a private corpora-
Co., 79 Conn. 581, 118 Am. St. Eep. 173, tion may be a public law, although not
9 Ann. Cas. 168, 65 Atl. 1065. expressly declared to be so, because
Delaware. State v. Briscoe, 6 Pen- of the public character of its under-
new. 401, 67 Atl. 154. taking, see Hammett v. Little Eock &
Georgia. Atlanta & W. P. E. Co. v. N. E. Co., 20 Ark. 204; McKiel v. Eeal
Atlanta, B. & A. E. Co., 124 Ga. 125, Estate Bank, 4 Ark. 592 ; State v. Viu-
52 S. E. 320. cennes ITniyersity, 5 Ind. 77; Eussell v.
Illinois. McArdle v. Chicago City Branham, 8 Blackf. (Ind.) 277; Tow-
Ey. Co., 141 111. App. 59. son V. Havre-de-Grace Bank, 6 Har. &
Indiana. Eussell v. Branhan, 8 J. (Md.) 47, 14 Am. Dee. 254.
Blackf. 277. B United States. Covington Draw-
Maryland, State 4 v. Greenwell, bridge Co. V. Shepherd, 20 How. 227,
Gill & J. 407; Towson v. Havre-de- 15 L. Ed. 374.
Grace Bank, 6 Harr. & J. 47, 14 Am. Arkansas. Hammett v. Little Eock
Dee. 254. & N. E. Co., 20 Ark. 204.
New York. Bank of Utica v. Indiana. Eel Eiver Draining Ass 'n
Magher, 18 Joins. 341, 345. V. Topp, 16 Ind. 242; Herod v. Eod-
South Carolina. Eoach v. Farmers' man, 16 Ind. 241; Brookville Ins. Co.
Mut. Ins. Ass 'n of Oconee County, 102 V. Eecords, 5 Blackf. 170.
S. C. 478, 86 S. E. 950; Parker v. Caro- Missouri. Bowie v. Kansas City, 51
lina Sav. Bank, 53 S. C. 583, 69 Am. Mo. 454.
St.Eep. 888, 31 S. B. 673. Vermont. Buell v. Warner, 33 Vt.-
Tennessee. State v. Missio, 105 570.
Tenn. 218, 58 S. W. 216; Trice v. State, 6 In some states the constitution de-
2 Head 591; Williams v. Union Bank, clares that every statute siall be
2 Humph. 339; Owen v. State, 5 Sneed deemed public, unless otherwise de-
463. clared in the statute itself, and in,
Vermont. Village of Winooski v. these states all statutes not declared
917
§428] Pkivate Coepokations rCh. 14
expressly requires the courts to take judicial notice of all acts of the
legislature.' A
charter will also be judicially noticed as a public law,
if ithas been recognized in a public law, as in a law extending it, or
a law extending the powers of the corporation, or the like.*
The general incorporation laws now in force in the different states,
authorizing the formation of corporations, are public laws which must
be judicially noticed.^
to be private must be judicially port, L. & A. Turnpike Co., 30 Ky. L.

noticed. Eep. 1235, 100 S. W. 871; Chicago, St.
In Massachusetts, a statute declares L. & N. O. E. Co. V. Liebel, 27 Ky. L.
that all acts of incorporation shall be Eep. 716, 86 S. W. 549.
deemed public acts, and be judicially- In Michigan there is also such a
noticed. See American Steel & Wire statute. Chapman v. Colby, 47 Mich.
Co. V. Bearse, 194 Mass. 596, 80 N. E. 46, 10 N. W. 74; People v. De Mill, 15
623; Boynton v. Middlesex Mut. Fire Mich. 164, 93 Am. Dec. 179; People v.
Ins. Co., 4 Mete. (Mass.) 212. Eiver Eaisin & L. E. E. Co., 12 Mich.
The court will therefore take judi- 389, 86 Am. Dee. 64.
cial notice of the fact that a street S Young V. Bank of Alexandria, 4
railway company was not organized Cranch (U. S.) 384, 388, 2 L. Ed. 655;
under a special charter before the tak- Beaty v. Knowler, 4 Pet. (IT. S.) 152,
ing effect of a general law authorizing 167, 7 L. Ed. 813; Bank of XJtica v.
the incorporation of such companies. Magher, 18 Johns. (N. Y.) 341; Strib-
American Steel & Wire Co. v. Bearse, bling V. Bank of the Valley, 5 Band.
194 Mass. 596, 80 N. E. 623. (Va.) 132, 139.
In Maine there is a similar statute. Where an act to amend and renew
State V. Webb's River Improvement the charter of a defendant is a public
Co., 97 Me. 559, 55 Atl. 495; State v. act, and its validity is not in question,
McAllister, 24 Me. 139. the court will take judicial notice of
And so of bank charters in Georgia. the defendant's corporate existence,
Terry v. Merchants' & Planters' and that fact need not be alleged in
Bank, 66 Ga. 177; Davis v. Bank of the complaint. Parker v. Carolina
Fullerton, 31 Ga. 69. Sav. Bank, 53 S. C. 583, 69 Am. St.
In Rhode Island, every act of in- Eep. 888, 31 S. E. 673.
corporation is deemed to be a public 9 Kelly V. Alabama & C. E. Co., 58
act, and hence the court will take Ala. 489; Danville & W. L. Plank-
judicial notice of the provisions of the Road Co. v. State, 16 Ind. 456; Ewing
same for the purposes of construction. V. Eobeson, 15 Ind. 26; Methodist
Foley v. Bay, 27 E. I. 127, 61 Atl. 50; Episcopal Union Church v. Pickett, 19
Gorham Mfg. Co. v. New York, N. H. N. Y. 482; Dutchess Cotton Manu-
& H. E. Co., 27 E. I. 35, 60 Atl. 638. factory v. Davis, 14 Johns. (N. Y.)
7 There is such a statute in Ken- 238, 245, 7 Am. Dec. 459; Trice v.
tucky. Swann v. Com., 169 Ky. 565, State, 2 Head (Tenn.) 591.
184 S. W. 868; Louisville & N. E. Co. The court will take judicial notice
V. Com., 154 Ky. 293, 157 S. W. 369; that an incorporated trust company
Madisonville, H. & E. E. Co. v. Com., under the laws of the state is such
140 Ky. 255, 130 S. W. 1084; Com. v. only as is provided for in the general
Kinniconick & F. S. E. Co., 31 Ky. L. (Statutes of the state relative to the
Eep. 859, 104 S. W. 290; Com. v. New- incorporation of such companies. Wy-
918
Ch. 14] GoBPOBATE Existence [§428
State courts will take judicial notice of the federal statutes relative
to the incorporation of national banks/" and of special acts of congress
creating other corporations.^^
If the corporation is formed under a special charter, of which the
court required to take judicial notice, the court is thus informed of
is
its actual corporate existence.^* So the federal courts will take judi-/
a particular company is a federal corporation.^^ As a
cial notice that
rule this not true of corporations formed under general laws. Under
is
such circumstances the court merely takes notice of the law, and not
of the steps taken by the corporators to comply with it.^* So it has
been held that judicial notice will not be taken of articles or certificates
coff V. Epworth Hotel Construction & Vermont. Briggs v. "Whipple, 7 Vt.

Eeal Estate Co., 146 Mo. App. 554, 125 15.
S. W. 550. In State v. Briscoe, 6 Pennew. (Del.)
Nat. Bank of Iowa, City v.
10 First 401, 67 Atl. 154, a prosecution for ob-
Walker, 27 Idaho 199, 148 Pac. 46; taining money from a corporation by
Yakima Nat. Bank v. Knipe, 6 Wash. false pretenses, it was held that since
348, 33 Pac. 834, followed in National the complaining company was a do-
Bank of Commerce v. Galland, 14 mestic corporation created by a public
Wash. 502, 45 Pac. 35. act of the legislature, it was not neces-
The court will take judicial notice sary for the ^tate to prove that it was
that a national bank is chartered for a corporation.
twenty years. Yankton Nat. Bank v. 13 In determining questions as to
Benson, 33 S. D. 399, Ann. Cas. 1916 B their jurisdiction, they will take judi-
1011, 146 N. W. 582. cial notice of the fact that a party
11 So a state court will take judicial to a suit is a federal corporation,
notice of the act of congress creating although that fact is not alleged, or
the Northern Paeifle Bailroad Com- though it is erroneously alleged that
pany. Northern Pac. E. Co. v. Wade- it is a state corporation. In re
kamper, 70 Wash. 392, 126 Pac. 909. Dunn, 212 II. S. 374, 53 L. Ed. 558;
12 United States. United States v. Texas & P. E. Co. v. Cody, 166 U. S.
Williams, 4 Bias. 302, Fed. Cas. No. 606, 41 L. Ed. 1132; Hefeelflnger v.
16,706. Choctaw, O. & G. E. Co., 140 Fed. 75.
Georgia. Davis v. Bank of Fulton, 14 People V. De Mill, 15 Mich. 164,
31 Ga. 69. 93 Am. Dec. 179; Trice v. State, 2
Kentucky. Swann v. Com., 169 Ky. Head (Tenn.) 591.
565, 184 S. W. 868; Louisville & N. B. In a criminal prosecution for keep-
Co. V. Com., 154 Ky. 293, 157 S. W. ing a bucket shop for the pretended
369; Madisonville, H. &
E. E. Co. v. buying or selling of the securities of
Com., 140 Ky. 255, 130 S. W. 1084; any corporation, the court will not
Com. V. Kinniconick & F. S. E. Co., 31 take judicial notice that a railroad
Ky. L. Eep. 859, 104 S. W. 290. company, the shares of which are
People v. De Mill, 15
IMlchigan. shown to have been traded in at the
Mich. 164, 93 Am. Dec. 179. alleged bucket shop, is a corporation.
South Carolina. Parker v. Carolina People V. Wirsching, 239 HI. 522, 88
Sav. Bank, 53 S. C. 583, 69 Am. St. N. E. 169, rev'g 145 HI. App. 121.
Eep. 888, 31 S. E. 673. An appellate court will not take
919
428] Pbivate Cobpobations [Ch. 14
of incorporation filed in the office of the secretary of state. ^^ On the

other hand, it has been held that a federal court will take judicial
notice of the existence of a particular national bank.^^ And it has also
been held that a state court will judicially notice charters granted by
the secretaiy of state pursuant to a general law.^'
"Where a corporation might have been formed under any one of
it is not the duty nor
several general laws enacted from time to time,
is it in the power of the court to judicially know under which
of them
it was in under one, it has subse-
fact created, nor whether, if created
quently accepted the provisions of another, if it might have done so.^*
A certified list of domestic corporations required to be published with
the session laws, and which is placed on the same status as such laws,
will be judicially noticed.^^
§ 429. —
Private and foreign acts. Except where there is a statu-
tory provision requiring them to do so,^" the courts do not teike judicial
notice of private acts of the legislature, and therefore, if a corpora-
tion is created by a private act, its charter must be proved by intro-
judicial notice of the fact that there United States v. Williams, 4 Biss.
18
was in existence a corporation of a, 302, Fed. Cas. No. 16,706.
particular name at a time when the 17 Atlanta & W. P. E. Co. v. Atlanta,
complaint was amended by correcting B. & A. E. Co., 124 Ga. 125, 52 S. E.
the name of the defendant corpora- 320.
tion, where its existence is not shown A corporation bringing suit need
by the record. King Land & Improve- not allege that it is a corporation
ment Co. v. Bowen, 7 Ala. App. 462, 61 where the fact of its incorporation is
So. 22. a matter of judicial knowledge. Eden-
IB Louisville & N. E. Co. v. Com., field v. Bank Of Millen, 7 Ga. App. 645,
154 Ky. 293, 157 S. W. 369; Madison- 67 S. E. 896.
ville, H. & E. E. Co. v. Com., 140 Ky. 18 Danville & W. L. Plank-Eoad Co.
255, 130 S. "W. 1084. V. State, 16 Ind. 456.
'
We
can take judicial notice of the
' 19 Coal Creek Consol. Coal Co. v.
statute authorizing * * * banks East Tennessee Iron & Coal Co., 105
to be established, but we cannot take Tenn. 563, 59 S. W. 634.
judicial notice of the books of the 20 There is such a statute in Ken-
county register, or of private papers tucky. Collier v. Baptist Education
lodged in the oflce of the secretary Society, 8 B. Mon. (Ky.) 68.
of state, and only from one of these Under the
statutes of Oregon, pri-
sources can it be judicially known vate acts of the legislature are re-
that such a corporation legally quired to be judicially noticed, and
exists." Trice v. State, 2 Head hence where a university is incorpo-
(Tenn.) 591. rated under a special act, its incorpora-
But see Dutchess Cotton Manufac- tion need not be proved. Hill v.
.tory V. Davis, 14 Johns. (N. T.) 238, Tualatin Academy & Pacific Univer-
7 Am. Dec. 459. sity, 61 Ore. 190, 121 Pac. 901.
920
,
'Ch. 14] CoBPOBATE Existence [§429
ducing competent evidence of the aet.^^ Nor, unless required by

statute to do so,^^ do the courts of a state take judicial notice of foreign
laws, and the laws of a sister state are foreign, within this rule. It is
necessary, therefore, in order to prove the charter of a foreign cor-
poration, to prove the act by or under which it was created.*' Strictly,
such an act must be proved by the production of a copy of the act,
81 Alabama. Kelly v. Alabama & C. Vermont. Western U. Tel. Co. v.

E. 58 Ala. 489; Perry v. New
Co., Burlington Traction Co., —
Vt. —
Orleans, M. & C. E. Co., 55 Ala. 413, 99 Atl. 4; Village of Winooski v.
28 Am. Eep. 740; City Council of Gokey, 49 Vt. 282; Briggs v. Whipple,
Montgomery v. Montgomery & W. 7 Vt. 15.
Plauk-Eoad Co., 31 Ala. 76. In Commercial Trust Co. of New
Ooimecticut. Goshen & S. Turnpike Jersey v. Hudson County Board of
Co. V. Sears, 7 Conn. 86. Taxation, 86 N. J. L. 424, 92 Atl. 263,
Indiana. Ohio & I. E. Co. v. Bidge, afe'd —
N. J. L. —
, 99 Atl. 799, it is
5 Blaekf. 78. said that ' ' the court is not required to
Kansas. Atchison, T. & S. F. Ey. take judicial notice without proof of
Co. V. Blackshire, 10 Kan. 477. the provisions of charters of private
Louisiana. Mandere v. Bonsignore, corporations." See sJso Jersey City
28 La. Ann. 415. V. Jersey City & B. E. Co., 70 N. J. L.
Maryland. Agnew v. Bank of Get- 360, 57 Atl. 445, where it is held that
tysburg, 2 Har. & G. 478. the court cannot notice the provisions
Blissouri. Bailey v. Lincoln Acad- of such a charter on demurrer unless
emy, 12 Mo. 174; Kirby v. Wabash they appear on the face of the plead-
Ey. Co., 85 Mo. App. 345. ing.
New Hampshire. Haven v. New 22 In West Virginia there is such a
Hampshire Insane Asylum, 13 N. H. statute. Singer Mfg. Co. v, Bennett,
532, 38 Am. Dec. 512. 28 W. ya.,16,,22.
New Jersey.Warren Abbett, 65 v. In Miller Johnston, 71 Ark. 174,
v.
N. J. L. 99, 46 Atl. 575; Perdicaria y. 72 S. W. it is held that the
371,
Trenton City Bridge Co., 29 N. J. L. Arkansas statute requiring the courts
367. of that state to take judicial notice of
New York. Methodist
Episcopal the laws of other states does not apply
Union Church 19 N. Y. 482,
v. Pickett, to the private statutes of those states.
afe'g 23 Barb. 436; Williams v. Sher- 23 Alabama. Savage v. Eussell, 84
man, 7 Wend. 109. Ala. 103, 4 So. 235; Johnson v. State,
North Carolina. Carrow v. Wash- 73 Ala. 483.
ington Toll Bridge Co., 61 N. C. 118. Arkansas. Hammett v. Little Eock
Ohio. Pittsburgh, C. & St. L. E. & N. E. Co., 20 Ark. 204, 207; Gaines
Co. V. Moore, 33 Ohio St. 384, 31 Am. V. Bank of Mississippi, 12 Ark. 769.
Eep. 543. Bliuois. Cozzens v. Chicago Hy-
Pennsylvaiiia. Timlow v. Philadel- draulic Press Brick Cp., 166 III. 213,
phia & E. E. Co., 99 Pa. St. 284; First 46 N. E. 788, afE'g 64 HI. App. 569;
Nat. Bank of Clarion v. Gruber, 87 Hahnemannian Life Ins. Co. v. Beebe,
Pa. St. 468, 30 Am. Eep. 378. 48 111. 87, 95 Am. Dee. 519; Interna-
Texas. Holloway v. Memphis, E. tional Text Book Co. v. Galligan, 185
P & P. E. Co., 23 Tez. 465, 467, 76 App. 80; Dean & Son v. W. B.
111.
Am. Pec. 68. Conkey Co., 180 111. App. 162.

921
authenticated as required by the act of congress relating to the authen-

tication of records to be used in the courts of other states, or by the
production of a sworn copy.** But, as a rule, printed statutes of
Iowa.Petty v. Hayden, 115 Iowa under which the plaintiff claims to be

212, 88 N. W. 339. incorporated, though such statutes
Louisiana. Cumberland Telephone were proved in another condemnation
& Telegraph Co. v. St. Louis, I. M. & proceeding instituted in another court
S. E. Co., 117 La. 199, 41 So. 492. of first instance by the same ],laintiflf
Maryland. Chesapeake & O. Canal against a different defendant. Cum-
Co. V. Baltimore & O. E. Co., 4 Gill & berland Telephone & Telegraph Co. v.
J. 1, 63. St. Louis, L M. & S. E. Co., 117 La.
Massachusetts. Portsmouth Livery 199, 41 So. 492.
Co. V. Watson, 10 Mass. 91. It is necessary to plead and prove a
Michigan. Chapman v. Colby Bros. statute authorizing the formation of
& Co., 47 Mich. 46, 10 N. W. 74. such a corporation. International
Missouri. Eialto Co. v. Miner, 183 Text Book Co. v. Galligan, 185 111.
Mo. App. 119, 166 S. W. 629; Plors- App. 80; Eialto Co. v. Miner, 183 Mo.
heim & Co. v. Fry, 109 Mo. App. 487, App. 119, 166 S. W. 629.
84 S. W. 1023. "There must be evidence to show
Montana. Milwaukee Gold Extrac- the laws of the foreign state author-
tion Co. V. Gordon, 37 Mont. 209, 95 izing the organization of guch a cor-
Pae. 995. poration, providing the mode of its
New Hampshire. State v. Carr, 5 incorporation and the proper custo-
N. H. 367. dians of paper offered in evi-
the
New Jersey. Stone v. State, 20 N. dence." Milwaukee Gold Extraction
J. L. 401. Co. v. Gordon, 37 Mont. 209, 95 Pac.
New York. United States Bank v. 995.
Stearns, 15 Wend. 314. That the court will not take judicial
Ohio. Lewis v. Bank of Kentucky, notice of foreign laws, but that they
12 Ohio 132, 40 Am. Dec. 469. must be proven as facts, see § 437,
Oregon. Law Guarantee & Trust infra.
Society v. Hogue, 37 Ore. 544, 63 Pac. 24 Stone V. State, 20 N. J. L. 401.
690; State v. Savage, 36 Ore. 191, 61 See also United States v. Johns, 4
Pac. 1128, 60 Pac. 610. Dall. (U. S.) 412, 1 Wash. C. C. 363,
Tennessee. Owen v. State, 5 Sneed Fed. Cas. No. 15,481; State v. Carr,
493. 5 N. H. 367, 369; United States Bank
Texas. Holloway v. Memphis, E. V. Stearns, 15 Wend. (N. Y.) 314.
P. & P. E. Co., 23 Tex. 465, 407, 76 A copy of an act of incorporation
Am. Dec. 68. is duly authenticated by affixing
Vermont. See Western TJ. Tel. Co. thereto the seal of the state, without
V. Burlington Traction Co., Vt. ,
— — other proof. United States v. Johns,
99 Atl. 4. 4 Dall. (U. S.) 412, 1 Wash. C. C. 363,
In Arkansas this is true where the Fed. Cas. No. 15,481.
act of incorporation is a private In Wellersburg & W. N. Plank-Eoad
statute. Miller v. Johnston, 71 Ark. Co. V. Young, 12 Md. 476, letters pat-
174, 72 S. W. 371. ent from the governor of Pennsyl-
The appellate court in condemnation vania, reciting the passage of an act
proceedings will not take judicial no- creating a corporation, organization
tice of the statutes of a foreign state thereunder, and assumption of the
922
Ch. 14] CoBPOEATE Existence t§429
other states *^ or of foreign countries ^® are now held to be admissible

for that purpose, if shown to have been published under authority ot
such state or country. And it has been held that they may be identi-
fied as authoritative editions by persons who are sufSeiently familia??
with them.'^'' Where a by the
special act of incorporation passed
legislature of another state is proved by producing a duly authentic'
cated copy thereof, it is not necessary to show that the constitution of
that state permits special acts of incorporation, even though such an
act would be unconstitutional in the state of the forum. Under such
circumstances it will not be presumed that the constitution of the
powers conferred, was held sufficient indicating by what authority, is not

evidence of incorporation to enable enough. Johnson v. State, 73 Ala.
the corporation to sue a subscriber in 483.
Maryland. See also Hudson v. Green The statute must also have been
Hill Seminary Corporation, 113 HI. properly pleaded. Bialto Co. v. Miner,
618. 183 Mo. App. 119, 166 S. W. 629.
See J. P. Bledsoe & Son v. Keystone 26 Dean & Son v. W. B. Conkey Co.,
Steel & Wire 41 Okla. 586, 139
Co., 180 App. 162; Law Guarantee &
111.
Pac. 257, where the foreign law was Trust Society v. Hogue, 37 Ore. 544,
proved by introducing a certified copy 63 Pac. 690.
thereof. 27 Copies of the statutes of England
25 Johnson v. State, 73 Ala. 483; are admissible where they are identi-
Miller v. Johnston, 71 Ark. 174, 73 fied by the deposition of an English
S. W. 371; Hudson v. Green Hill Semi- attorney, who testifies that they were
nary Corporation, 113 HI. 618; Singer "issued by authority, being printed
Mfg. Co. V. Bennett, 28 "W. Va. 16, 22. by Her Majesty's printer, and are as
In Missouri, the statute provides such by law receivable in evidence
for the introduction and receipt in without further proof. Nashua Sav.
'
'
evidence of the printed statutes and Bank v. Anglo-American Land, Mort-

decisions of other states. Rialto Co. gage & Agency Co., 189 U. S. 221, 47
V. Miner, 183 Mo. App. 119, 166 S. W. L. Ed. 782.
629. Books purporting to contain the
By statute in Oregon, books printed corporation acts of England may be
and published under the authority qf admitted where they are identified as
a sister state, and purporting to con- authoritative and accepted editions of
tain the statutes of such state, are such statutes by an English chartered
admissible as evidence of such law. public accountant, who testifies that
State v. Savage, 36 Ore. 191, 61 Pac. he is familiar with the English cor-
1128, 60 Pac. 610. See also Law poration laws and with the authorita-
Guarantee & Trust Society v. Hogue, tive editions of the English statutes
37 Ore. 544, 63 Pac. 690. containing them. Dean & Son v. W.
To render a volume of printed stat- B. Conkey Co., 180 111. App. 162.
utes admissible, it must purport upon A copy is admissible when it is
its face to have been printed by the proved to be a true copy by one who
authority of the state. A mere decla- has compared it with the original,
ration on the title page that it was and it is not necessary that it be
"published by authority," without authenticated under such cireum-
923
429] Peivatk Coepokations [Ch. 14
foreign state is the same as that of the forum and hence that the act
is unconstitutional, but rather that it is constitutional and is a valid
and existing law.^*
The federal courts are governed by the practice in the courts of the
state in which they are sitting in regard to the proof of statutes of
another state or country.^^
§ 430. Acceptance of charter. It is not necessary that the accept-

ance of a charter by the corporators shall be proved by or appear upon
the books or records of the corporation.^® It may be so proved if it
appears thereon, and they are properly identified and authenticated ^^ ;
and it has been held that, if it does so appear, the books or records are
the best evidence of the fact, and they must be produced, if it is within
the power of the party to do so.'^ But if he cannot do so, or if the
fact of acceptance does not appear thereon, it may be proved by parol
evidence of a formal vote of acceptance, or by evidence of the exercise
of corporate powers under the charter, from which an acceptance may
be inferred.^'
stances. Anglo-American Land, Mort- Maryland. Hammond v. Straus, 53

gage & Agency Co. v. Dyer, 181 Maas. Md. 1.
593, 92 Am. St. Eep. 437, 64 N. E. 416. Massachusetts. Society of Middle-

28 Fidelity Insurance, Trust & Safe sex Husbandmen & Manufacturers v.
Deposit Co. V. Nelson, 30 Wash. 340, Davis, 3 Mete. 133.
70 Pac. 961. Missouri. Sumrall v. Sun Mut. Ins.
29 Nashua Sav. Bank v. Anglo- Co., 40 Mo. 27.
American Land, Mortgage & Agency New Hampshire. Woods v. Banks,
Co., 189 U. S. 221, 47 L. Ed. 782. 14 N. H. 101; Ameriscoggin Bridge
30 See § 246, supra. V. Bragg, 11 N. H. 102.
31 Golder v. Bressler, 105 HI. 419; Ohio. Owen v. Purdy, 12 Ohio St.
Dows V. Naper, 91 111. 44; Hudson v. 73.
Carman, 41 Me. 84; CoiSu v. Collins, Ehode Island. State v. Habib, 18 E.
17 Me. 440; Lancaster Sav. Bank v. I. 558, 30 Atl. 462.
Elwell, 17 Wash. 446, 49 Pac. 1070. South Carolina. McKay v. Beard,
32 Hudson V. Carman, 41 Me. 84; 20 S. C. 156.
Coffin V. Collins, 17 Me. 440. Tennessee. Gleaves v. Brick Church
33 United States. Bank of United Turnpike Co., 1 Sneed 491.
States V. Dandridge, 12 Wheat. 64, And
the question whether there has
6 L. Ed. 552; Dorsey Harvester Be- been an acceptance or not is a ques-
volving Eake Co. v. Mar^h, 6 Pish. tion of fact for the jury. Hammond
Pat. Cas. 387, Fed. Cas. No. 4,014. V. Straus, 53 Md. 1.
Alabama. Talladega Ins. Co. v. In Newton v. Carbery, 5 Cranch C.
Landers, 43 Ala. 115. C. 632, Fed. Cas. No. 10,190, it was
Delaware. Logan v. McAllister, 2 held that a charter granted to certain
Del. Ch. 176. persons therein named was to be pre-
Kentucky. Sinking Fund Com 'rs v. sumed, prima facie, to have been
Northern Bank, 1 Mete. 174. granted at their instance, and to have
924
Parol evidence or the corporate books and records are in like manner
admissible to show the acceptance by the members of a corporation, by
vote or otherwise, of an act amending its charter, unless there is some
requirement in the charter or amendatory act excluding such evi-
dence.'* In the absence of evidence to the contrary, the courts will
presume acceptance of a charter, without any evidence at all of accept-
ance, if the chai*ter is beneficial to the corporators.^'
§ 431. Organization of corporation and performance of conditions

—
precedent Corporate books and records. Unless other evidence
isrequired by the statute, the records and books of a corporation, when
properly identified and authenticated, but not otherwise,'^ are compe-
been accepted by them, but that such That organization under the char-
presumption was rebutted by evidence ter or the exercise of the powers
that no proceedings were ever had conferred by it may constitute an
under the charter, although seven acceptance, see § 246, supra.
years had elapsed since its date. 34 City of Covington v. Covington
"It is not necessary, even when & C. Bridge Co., 10 Bush (Ky.) 69.
the charter is granted by special act
And see the cases cited in the pre-
of the legislature, to prove such ac-
ceding notes and also § 415, supra.
ceptance by a formal vote of the cor-
35 Maine. Bangor, O. & M. E. Co. v.
porators; on the contrary, it may be
Smith, 47 Me. 34.
inferred from the exercise of cor-
Massachusetts. Proprietors of
porate by them under the
acts
Charles Eiver Bridge v. Proprietors of
charter." Glymont Improvement &
Warren Bridge, 7 Pick. 344.
Excursion Co. v. Toler, 80 Md. 278,
NewYork. Astor v. New York Ar-
289, 30 Atl. 651.
cade Ey. Co., 48 Hun 562, 568, 1 N. Y.
Acceptancemay be shown either by
Supp. 174, aff'd 113 N. Y. 93, 20 N. E.
the books or by user. Acceptance is
594, 2 L. E. A. 789.
sufficiently shown by the purchase and
North Carolina. Taylor v. New-
acceptance of the note and mortgage
berue Com'rp, 2 Jones Eq. 141, 146,
sued on and the bringing of the ac-
64 Am. Dec. 566.
tion thereon. Lancaster Sav. Bank v.
Texas. City of Antonio v. Jones, 28
Elwell, 17 Wash. 446, 49 Pac. 1070.
Tex. 19.
Where the charter prescribes no
The presumption is that the corpo-
mode or time of acceptance, proof of
ration is created at the instance and
acceptance may be inferred from use
on the request of the parties to be
of corporate powers under the charter.
benefited thereby, and consequently
Boatmen's Bank v. Gillespie, 209 Mo.
that the charter has been accepted by
217, 108 S. W. 74.
them, and hence if they are found
"According to the authorities, it
exercising the privileges granted it
requires stronger proof of an ac-
will be almost conclusive evidence of
ceptance when the corporation is cre-
the fact of acceptance. Talladega
ated by a special act of the legislature
than when brought into being under Ins. Co. V. Landers, 43 Ala. 115, 136.
the general law * * *. " Boat- See also § 246, supra.

men's Bank v. Gillespie, 209 Mo. 217, 36
Highland Turnpike Co. v. Mc-
108 8. W. 74. Kean, 10 Johns. (N. Y.) 154, 6 Am,
925
§431] Pkivate Cobpokations [Ch. 14
tent evidence,prima facie, to prove the organization of the corpora-

tion,and performance of conditions precedent.*''
The minutes of the meetings of corporators for the purpose of
organizing a corporation are prima facie evidence of the proceedings
at such meeting.**
§ 432. —
Articles, certificates, letters patent, etc. The organiza-
tion and existence of a corporation organized under a general law may
be proved, prima facie, by producing the original articles or memoran-
dum of association or certificate of incorporation, according to the
Dec. 324; Glenn v. Orr, 96 N. C. 413, Washington. State v. Superior

2 S. E. 538. Court Clarke Co., 44 Wash. 108, 87
37 United States. Glenn v; Liggett, Pac. 40.
47 Fed. 472. "Thegeneral rule is (and it is a
Alaliama. Semple v. Glenn, 91 Ala. rule of evidence essential to public
245, 24 Am. St. Eep. 894, 9 So. 265, •conveniences) that corporation books
6 So. 46; Duke v. Cahawba Nav. Co., are evidence of the proceedings of
10 Ala. 82, 44 Am. Dec. 472. the corporation, but then it must ap-
Connecticut. Lane v. Brainerd, 30 pear that they are the corporation
Conn. 565. books, and that they have been kept
Illinois. McCoy v. World's Colum- as such,and the entries made by the
bian Exposition, 186 111. 356, 78 Am. proper or some other person in
officer,
St. Rep. 288, 57 N. E. 1043, aSE'g 87 his necessary absence." Highland
111. App. 605. See Culver v. Third Turnpike Co. v. McKean, 10 Johns.
Nat. Bank of CMcago, 64 111. 528. (N. Y.) 154, 6 Am. Dec. 324..
Indiana. Vawter v. Franklin Col- As to the admissibility and suffi-
lege, 53 Ind. 88. ciency of corporate books and records
Maine. Hudson v. Carman, 41 Me. to show compliance with conditions
84; Coffin v. Collins, 17 Me. 440. and
relative to subscriptions to stock
Michigan. People v. Oakland County payment of a part of the capital, see
Bank, 1 Doug. 282. § 432, infra.
Missouri. Foster v. White Cloud As to the admissibility and suffi-
City Co., 32 Mo. 505. ciency of corporate books and records,
New York. Wood v. Jefferson see generally Chap. 45, infra.
County Bank, 9 Cow. 194; McFar-
lan V. Triton Ins. Co., 4 Denio 392;
38 Illinois. Eyder v. Alton & S. B.
Co., 13 111. 516.
Highland Turnpike Co. v. MeKean, 10
Indiana. Vawter v. Franklin Col-
Johns. 154, 6 Am. Dec. 324.
lege, 53 Ind. 88.
North CaroUniU Glenn v. Orr, 96
N. C. 413, 2 S. E. 538; Buncombe Iowa. Sweney v. Taleott, 85 Iowa
Turnpike Co. v. McCarson, 18 N. C. 103, 52 N. W. 106.
306. North Carolina. Glenn v. Orr, 96
Vermont. Eeyuolds v. Myers, 51 N. C. 413, 2 S. E. 538.
Vt. 444. Virginia. Crump v. United States
Virginia. Crump V. United States Min. Co., 7 Gratt. 352, 56 Am. Dee.
Min. Co., 7 Gratt. 352, 56 Am. Dec. 116.
116.
926
particular statute, filed or recorded ia the office of the secretary of

state, or other office, as required by the statute, or by a duly certified
copy thereof, if the original cannot be produced, —as where it remains
in the office, or is in the p Dssession of the corporation, and it has failed
to produce it on notice to do so.^^ The original charter duly certified
39 California. Fresno Canal & Irri- and of the due incorporation of a pur-
gation Co. V. Warner, 72 Cal. 379, 14 ported corporation. Sierra Land ft
Pac. 37; Spring Valley Water Works Cattle Co. v: Bricker, 3 Cal. App. 190,
V. San Francisco, 22 Cal. 434. 85 Pae. 665.
Colorado. Eeno v. Beno & Juchem The incorporation of the plaintiff in
Ditch Co., 51 Colo. 588, 119 Pae. 473. an action is sufSciently proved where
District Columbia.
of Fields v. it introduces in evidence a properly
United States, 27 App. Cas. 433, cer- certified copy of its charter, which is
tiorari denied 205 U. S. 292, 51 L. Ed. regular on its face, and shows a
807. compliance with the statutory require-
Georgia. Hall v. Carey, 5 Ga. 239; ments. Calor Oil & Gas Co. v. Fran-
Collins V. Armour Fertilizer Works, zell, 33 Ky. L. Rep. 98, 109 S. W. 328.
— Ga. App. — , 89 S. E. 1054. A copy of the articles which the
Illinois. McCoy v. World's Colum- law requires to be retained in the
bian Exposition, 186 111. 356, 78 Am. possession of the corporation, oral
St. Rep. 288, 57 N. E. 1043, afE'g 87 proof that the other copies were filed
111. App. 605; Jewell v. Rock River as required by statute, a certificate of
Paper Co., 101 111. 57; Fortin v. the secretary of state showing that
United States Wind Engine & Pump the articles had been filed in hU of-
Co., 48 111. 95 Am. Dec. 560;
451, fice, and his receipt showing payment
Smith V. Mayfield, 60 111. App. 266, of the statutory license and fees, are
aff'd 163 111. 447. sufficient prima facie proof of the
Indiana. Washer v. Allensville, C. existence of the corporation.State v.
S. & v. Turnpike Co., 81 Ind. 78; Superior Court Clallam Co., 62 Wash.
Walker v. Shelbyville & E. Turnpike 612, 114 Pac. 444.
Co., 80 Ind. 452; Heaston v. Cincin- In a criminal prosecution of a cor-
nati & Ft. W. R. Co., 16 Ind. 275, 79 poration, its charter or articles may
Am. Dec. 430. be shown to establish that it is a cor-
Maryland. Laflin & Rand Powder poration. Standard Oil Co. v. Com.,
Co. V. Sinsheiraer, 46 Md. 315, 24 122 Ky. 440, 29 Ky. L. Rep. 5, 91 S. W.
Am. Rep. 522. 1128.
Massachusetts. Chamberlain v. A contention that a deed to a pur-
Huguenot Mfg. Co., 118 Mass. 532. ported corporation is inadmissible for
Missouri. Thomas v. Walnut Land the reason that the grantee has not
& Coal Co., 43 Mo. App. 653. been shown to be a corporation is un-
South Dakota, Dowagiac Mfg. Co. tenable, where a duly certified copy
V. Higinbotham, 15 S. D. 547, 91 N. of its articles was admitted in evi-
W. 330. dence, from which it appears that
Wyoming. Heeht v. Acme Coal Co., such a company was incorporated, had
113 Pac. 786. complied with the statute in reference
The articles of incorporation with thereto, had accepted its articles of
the filing marks thereon are evidence and had organized
ih'corporation,
of the proper filing of such articles and transacted business thereunder.
927
is the highest evidence of incorporation.*" Where the copies are not

made competent evidence hy statute, the originals are the best evi-
dence.*^ And the originals are not rendered inadmissible because the
statute provides for the admission of certified copies.**
Letters patent of incorporation, apparently issued by authority and
under seal of the state, are prima facie proof of due incorporation.*^
Thrmas v. Wiloox, 18 S. D. 625, 101 not evidence of incorporation, where

A' W. 1072. nonproduction of the certificate itself
The delivery of articles of associa- was not accounted for.
tion to the officer by whom they are In an action by a turnpike company,
required to be filed may be proved it was held that the appointment of
by other evidence than his indorse- inspectors by the governor, and the
ment. Johnson v. Crawfordsville, ¥. certificate of the inspectors that the
K. & Ft. "W. E. Co., 11 Ind. 280. road was completed, and that gates
The articles will not be excluded be- were erected, was not sufficient evi-
cause they do not bear a revenue dence of corporate existence. Bill v.
stamp, unless it appears that the fail- Fourth Great Western Turnpike Co.,
ure to af&x the stamp was with intent 14 Johns. (N. Y.) 416.
to defraud the revenue. State v. Glu- A a particular officer
certificate of
cose Sugar Eefining Co., 117 Iowa 524, or judge that the provisions of an
91 N. "W. 794. incorporation law have been complied
40Sumpter Tobacco Warehouse Co. with is no evidence of that fact, if
V. Phoenix Assur. Co., 76 S. C. 76, 10 the statute gives him no authority to
L. E. A. (N. S.) 736, 121 Am. St. Eep. determine the question. Boyee v.
941, 11 Ann. Cas. 780, 56 S. E. 654. Towsontown Station of M. E. Church,
41 Evans v. Southern Turnpike Co., 46 Md. 359.
18 Ind. 101. As to such statutes, see In many states, statutes make a
§ 440, infra. copy of a certificate, duly certified,
Certified copies of certificates filed primary evidence. See § 440, infra.
in compliance with the law in the Where the statute does not provide
office of the secretary of state, or other for the recording of the charters of
office, on the organization of a cor- consolidated corporations, and pro-
poration, in connection with proof of vides for the admission in evidence of
corporate acts, are competent evidence certified copies of records, a certified
to prove organization of the corpora- copy of the charter of a consolidated
tion, in an action against it, after corporation is inadmissible unless the
notice to it to produce its book of corporation has faileJ to produce the
records, and its failure to do so. originalon notice. Montgomery v.
Dooley v. Cheshire Glass Co., 15 Gray Seaboard Air Line Ey., 73 S. C. 503,
(Mass.) 494. 53 S. E. 987.
When a corporation refuses, on no- 42Sumpter Tobacco Warehouse Co.
tice, to produce the certificate of its V. Phoenix Assur. Co., 76 S. C. 76, 10
organization, office copies of the same L. E. A. (N. S.) 736, 121 Am. St. Rep.
are admiseible. Chamberlain v. Hug- 941, 11 Ann. Cas. 780, 56 S E. 654.
uenot Mfg. Co., 118 Mass. 532. 43 Dorsey Harvester Eevolving Eake
In Jackson v. Leggett, 7 Wend. (N. Co. V. Marsh, 6 Fish. Pat. Cas, 387,
T.) 377, it was held that the record Fed. Cas. No. 4,014.
of a certificate of incorporation was
928
Ch. 14] CoBPOBATE Existence [§ 435
A charter granted to a corporation under a certain name does not

prove or tend to prove the corporate existence of an association having
a different name, where the two names are not idem sonans.**
§ 433. —
National banks. A
certifieart« of the comptroller of the
currency that an association has complied with the act of congress
authorizing the incorporation of national banks, and that it is author-
ized to do and proof that it has in
business, fact been doing business
as a national bank, is prima facie proof of its corporate existence.**
And such a certificate is generally held to be conclusive evidence of all
facts which he is required to ascertain before making it.*®
§434. — Confinuatory act. An act of the legislature ratifying

and confirming the organization of a corporation originally made
under an act of incorporation or a general law, and expressly declar-
ing it to be a legal corporation, is competent and sufficient evidence
of its corporate existence.*'' The same is true of an act impliedly
ratifying the organization of a corporation by recognizing it as a
legally existing body.*'
§435. — Affidavits; parol evidence. Organization of a corpora-

tion cannot be proved by an ex parte affidavit.*' Nor is it competent,
unless there is no better evidence available, to prove the organization
and existence of a corporation by the testimony of persons claiming to

have organized it, that they complied with the law and received a
charter.^* Parol evidence is admissible, however, when the better evi-
44 Spreyne v. Garfield Lodge, 117 4« See | 438, infra.

111. App. 253. 47 West v. State, 168 Ala. 1, 53 So.
45 Mix V. Bloomington Nat. Bank, 277; Boykin v. State, 96 Ala. 16, 11
91 111. 20, 33 Am. Kep. 44. So. 66; Hudson v. Green Hill Semi-
And see Merchants' Nat. Bank of nary Corporation, 113 111. 618.
Bangor v. Glendon Co., 120 Mass. 97; That irregularities and defects in
Tapley v. Martin,, 116 Mass. 275; the proceedings to incorporate are
Washington County Nat. Bank v. Lee, cured by such an act, see § 190, supra.
112 Mass. 521; First Nat. Bank of 48 Williams v. Union Bank 2
Memphis v. Kidd, 20 Minn. 234; Mer- Humph. (Tenn.) 339.
chants' Exch. Nat. Bank of Memphis That irregularities or defects in the
V. Cardozo, 3 Jones & S. (N. Y.) 162. proceedings to incorporate are cured
The certificate is competent evi- by such an act, see § 190, supra,
dence tending to show the incorpo- 49 Bowyer 's Adm 'r v. Giles P. & K.
ration of the bank. And in any event Turnpike Co., 9 Gratt. (Va.) 109.
its admission is harmless where the BO Owen v. Shepard, 59 Fed.
746.
undisputed facts are sufficient to show See also Warner v. Daniels, 1 Woodb.
its organization without the certifi- & M. 90, Fed. Cas. No. 17,181- A. Gau-
cate. National Bank of Commerce v. thier Decorating Co. v. Ham 3 Colo.
Galland, 14 Wash. 502, 45 Pac. 35. App. 559, 34 Pae. 484; Bell v.' Dowdyj
929
I Priv. Corp. — ^^59
dence has been destroyed, or when, for any other reason, it cannot be
produced. Upon an information in the nature of quo warranto to
oust an association from the exercise of corporate powers, it was held
that, where the certificate of incorporation and the record thereof had
been destroyed by fire, parol evidence was admissible to prove com-
pliance with the law in organizing as a corporation, and to prove the
contents of the certificate, and that it was not necessary that such
evidence should be so minute as to permit of the reproduction of the
certificate in all its details.^^ Parol evidence is also admissible to show
user of corporate powers for the purpose of establishing the existence
of a corporation de facto.^^
As we have seen, there is a conflict of authority as to whether a
witnessmay testify directly that a company is a corporation.^^
§ 436. —
Presumptions. When an association has assumed to or-
ganize as a corporation under a valid law and has exercised corporate
powers, it will be presumed, in the absence of evidence to the contrary,
that all conditions precedent have been complied with in its organiza-
tionand that it has been legally incorporated.^* Thus, it will be pre-
sumed that the articles of association were duly recorded as required
13 Ky. L. Rep. 543 (abstract) ; NiooU Turnpike Road Co. v. Creeger, 5 Har.
V. Clark, 13 N. Y. Misc. 128, 34 N. T. & J. 122, 9 Am. Dec. 495.
Supp. 159; Hallett v. Harrower, 33 Massachusetts. Packard v. Old Col-
Barb. (N. T.) 537. ony R. Co., 168 Mass. 92, 46 N. E. 433;
81 Rose Hill & E. Road Co. v. Peo- Society of Middlesex Husbandmen &
ple, 115 111. 133, 3 N. E. 725; Weber Manufacturers v. Davis, 3 Mete. 133.
V. Piekey, 52 Md. 500.
New York. Welch v. Importers' &
M See § 425, supra. Traders Nat. Bank, 122 N. Y. 177, 25
'
»3 See § 427, supra. N. E. 269; Lorillard v. Clyde, 86 N.

64 United States. Bank of TJnited
Y. 384.
States V. Lyman, 1 Blatchf. 297, Fed.
North Carolina. Tar River Nav. Co.
Cas. No. 924, afl'd 12 How. 225, 13 L.
v. Neal, 3 Hawks 520.
Ed. 965.
Rhode Island.National Mut. Fire
Ins. Co. V. Yeomans, 8 R. I. 25, 86 Am,
Arkansas. Memphis & St. F. Plank
Dec. 610.
Road Co. V. Rives, 21 Ark. 302.
Texas. San Antonio & G. S. Ry. Co.
Connecticut. Wood v. Wiley Const. V. San Antonio & G. R. Co. (Tex. Civ,
Co., 56 Conn. 87, 13 Atl. 137. App.), 76 S. W. 782.
Indiana. Dunning v. New Albany Vermont. Bank of Manchester 'f.
& S. R. Co., 2 Ind. 437. Allen, 11 Vt. 302.

Iowa. Sweuey v. Talcott, 85 Iowa Washington. Puget Sound & C. R
103, 52 N. W. 106; Bank of Monroe Co. V. Ouellette, 7 Wa^h. 265, 34 Pao.
V. Gifford, 72 Iowa 750, 32 N. W. 669. 929.
Maryland. Keene v. Van Reuth, Wisconsin. Ricketson v. Galligan,
48 Md. 184; Busey v. Hooper, 35 Md. 89 Wis. 394, 62 N. W. 87; Whitney v.
15, 6 Am. Rep. 350; Hagers Town Robinson, 53 Wis. 309, 10 N. W. 512.
930
Ch. 14] CoBPOEATB Existence [§436
by the statute *^ that they were duly published *^ that the required
; ;
^'
fees were paid ^^ that the requisite amount of stock was subscribed
;
and paid in,^" and that an affidavit to this effect, made to procure the
charter, was true ^^ that notice of organization was given within the
;
time prescribed by the statute,®^ and that the corporators or officers
"When an organization has gone 56 Bank of Monroe v. Gifford, 72
into operation as a corporation and Iowa 750, 32 N. W. 669.

rights have been acquired under it, Where the articles are sworn to
every presumptien should be indulged before an officer who, in the jurat, de-
in favor of the legality of its corpo- scribeshimself a^ the county clerk,
rate existence." Hasselman v. United and the statement as to the record-
States Mortg. Co., 97 Ind. 365. See ing of the articles is signed by the
also Duke v. Cahawba Nav. Co., 10 same person as recorder, it will be
Ala. 82, 44 Am. Dee. 472; Selma & T. presumed that the articles were filed
E. Co. V. Tipton, 5 Ala. 787, 39 Am. with the county clerk as provided by
Dec. 344. statute, in the ab3ence of proof that
It is not error to refuse to give an they were in fact filed with the re-
instruction requiring the jury to find corder. Marsh v. Mathias, 19 Utah
that all the formalities of law were 350, 56 Pac. 1074.
complied with in regard to the or- It will be presumed that a foreign
ganization of the plaintiff corporation, corporation doing business in a certain
where its articles of incorporation are county has filed in the office of the
introduced in evidence and the plead- county recorder an authenticated copy
ings do not put in issue the publica- of its certificate or act of incorpo-
tion of the articles and return of proof ration, with a duly certified list of
to the secretary of state. Riverside its officers appended, as required by
Sand & Cement Mfg. Co. v. Hard- law. Evans v. Lee, 11 Nav. 194.
wick, 16 N. M. 479, 120 Pae. 323. SB Wood V. Wiley Const. Co., 56
Where a charter provided that the Conn. 87, 13 Atl. 137.
person^ named therein as corporators B7 It will be presumed that the sec-
or subscribers to stock should be a cor- retary of state did his duty and did
poration upon doing certain acts, and not file the articles of a foreign cor-
the existence of the corporation de poration until the statutory fee was
facto appeared, it was held that it paid. State v. Superior Court Pierce
would be presumed that it was organ- Co., 42 Wash. 675, 85 Pac. 669.
ized immediately after the passage of 68 Duke V. Cahawba Nav. Co., 10
the charter. Attorney General v. Chi- Ala. 82, 44 Am. Dec. 472; Sweney v.
cago & N. W. R. Co., 35 Wis. 425. Taleott, 85 Iowa 103, 52 N. W. 106;
In Raccoon River Nav. Co. v. Eagle, Ashtabula & N. L. E. Co. v. Smith,
29 Ohio St. 238, it was held that on 15 Ohio St. 328.
the trial of an issue nul tiel corpora- 69 Sweney v. Taleott, 85 Iowa 103,
tion, where a condition precedent to 52 N. W. 106.
the right of incorporation is pre- 60 Cherry v. First Texas Chemical
scribed by law, it is not error to re- Mfg. Co., — Tex. Civ. App. — , 115 S.
ject as evidence the certificate of W. 81.
incorporation in form as prescribed 61 Bank of United States v. Lyman,
by the statute, in the absence of tes- 1 Blatchf. 297, Fed. Cas. No. 924, aff'd
timony tending to show that the con- 12 How. (U. S.) 225, 13 L. Ed- 965.
dition had been fulfilled.
931
436] Pkivate Cokpobations [Ch. 14
chosen were shareholders ^* or citizens,*^ as required by the statute.
But has been held that the presumption that actual duty has been
it
regularly performed cannot dispense with proof that a certificate of

incorporation was issued by the secretary of state, or proof as to its
contents.^*
Generally to prove the existence of a corporation under a special
charter, when its existence is in issue collaterally, it is sufBcient, prima
facie, to prove the charter and acts of user under the same.*^ And the
62 In Welch V. Importers' & Trad- Chicago, M. & St. P. E. Co., 76 Minn.

ers' Nat. Bank, 122 N. Y. 177, 25 N. E. 334, 79 N. W. 315.
269, under a statute which authorized 61 Wall V. Mines, 130 Cal. 27, 62
the incorporation of manufacturing Pac. 386.
companies, and provided that "the es Arkansas. Gaines v. Bank of
stock, property and concerns of such Mississippi, 12 Ark. 769.
company should be managed by not less Illinois. Marshall v. Keach, 227
than three,inormore than thirteen trus- 111. 35, 118 Am.
Dec. 247, 10 Ann. Cas.
tees, who shall respectively be stock- 164, 81 N. E. 29; East St. Louis & C.
holders in such company," where it R. Co. v. Belleville City E. Co., 159
appeared that two of the persons 111. 544, 42 N. E. 974; Peoria & P. U.
named in the certificate of incorpora- Ey. Co. Peoria & F. E. Co., 105 111.
V.
tion as trustees for the fir^t year 110; Eamseyv. Peoria Marine & Eire
were shareholders, and it did not ap- Ins. Co., 55 111. 311; Hamilton v.
pear that the third was not, and it Carthage, 24 111. 22; Town of Men-
was not alleged that the corporation dota V. Thompson, 20 111. 197; Ameri-
was not legally organized, it was held can Ins. Co. of Newark, New Jersey
that it must be assumed that its or- V. McClelland, 184 111. App. 381; Dean
ganization was legal. k Son V. W. B. Conkey Co., 180 111.
63 In a Kansas ease, where corpo- App. 162. See also Imperial Bldg.
rators had signed and acknowledged Co. V. Chicago Open Board of Trade,
their articles as "citizens" of a cer- 238 111. 100, 87 N. E. 167.
tain county in theand de-
state, Kansas. Pape v. Capitol Bank, 20
scribed themselves in the body thereof Kan. 440, 27 Am. Eep. 183.
as "all of" such county, it was held Maine. Came v. Brigham, 39 Me.
that it should be presumed that they 35; Penobscot Boom Corporation v.
were citizens of Kansas, and, all else Lamson, 16 Me. 224, 33 Am. Dec. 656.
appearing regular, that the corpora- Massachusetts. Provident Inst, for
Savings v. Burnham, 128 Mass. 458;
tion was duly incorporated. Sword
Com. V. Bakeman, 105 Mass. 53; Nar-
y. Wickersham, 29 Kan. 746.
ragansett Bank v. Atlantic Silk Co.,
Where the statute provides that
3 Mete. 282.
no corporation shall own oi- hold any
Michigan. Way v. Billings, 2 Mich.
real estate in the state, if more than
397; Kalamazoo Mut. Ins.
Cahill v.
twenty per cent, of its is owned
stock
Co., 2 Doug. 124, 43 Am. Dec. 457.
by aliens, it will be presumed that
Minnesota. St. Paul Eire & Marine
the required percentage of the stock- Ins. Co. V. Allis, 24
Minn. 75.
holders of a domestic corporation are Mississippi.
Henderson v. Missis-
citizens in a suit by it to condemn sippi Union Bank, 6 Smedes & M.
land. Northwestern Tel. Exch. Co. v. 314.
932
Ch. 14] CoBPoEATE Existence t§436
same principle has been held to obtain in respect to corporations

formed under general laws, it being prima facie sufSeient under such
circumstances to show the existence of a law under which incorpora-
tion could be had and user.®*
In a suit to enjoin a public service corporation from using certain
streets, which is decided in favor of the defendant on a hearing on the
petition alone, in determining whether the defendant is a de facto

corporation, an effort in good faith to incorporate and user will be
presumed, where the petition does not negative either of those facts.*''
Where the articles of incorporation of a company are not in evi-

dence and no special charter is shown, it will be presumed that it was
organized under the general corporation law permitting the incorpora-
tion of such companies.** This presumption is a rebuttable one, but
Missouri. Merchants' Bank v. Har- Sons, 187 Mo. App. 496, 174 S. W.
rison, 39 Mo. 433, 93 Am. Dec. 285. 159.
New York. Bank of Toledo v. In- In an action by a national bank on
ternational Bank, 21 N. Y. 542; Utica a note indorsed to it by the payee,
Ins. Co. V. Caldwell, 3 Wend. 296. its corporate existence i^ prima facie
North Carolina. Wilmington & M. established by proof that it is carry-
E. Co. V. Saunders, 3 Jones L. (48 N. ing on a general banking business as
C.) 126. a national bank authorized by the
Oregon. United States Mortg. Co. general laws of the United States un-
V. MeClure, 42 Ore. 190, 70 Pao. 543. der the name by which it sues, in
Vermont. Lopmis v. Wainwright, view of the fact that the court will
21 Vt. 520; Bank of Manchester v. take judicial notice of such laws.
Allen, 11 Vt. 302. First Nat. Bank v. Walker, 27 Idaho
Virginia. Grays v. Lynchburg & S. 199, 148 Pac. 46; Yakima Nat. Bank
Turnpike Co., 4 Hand. 578. V. Knipe, 6 Wash. 348, 33 Pac. 834,
66 Imperial Bldg. Co. v. Chicago followed in National Bank of Com-
Open Board of Trade, 238 111. 100, 87 merce V. Galland, 14 Wash. 502, 45
N. E. 167; American Ins. Co. of New- Pac. 35.
ark, New Jersey v. McClelland, 184 67 Roaring Springs Townsite Co. v,
III. App. 381; Dean &
Son v. W. B. Padueah Tel. Co., — Tex. Civ. App
Gonkey Co., 180 111. App. 162; Pape — , 164 S. W. 50.
V. Capitol Bank, 20 Kan. 440, 27 Am. 68Wisconsin Eiver Improvement Co
Eep. 183. V. Pier, 137 Wis. 325, 21 L. E. A. (N
In an action by a subcontractor to S.) 538, 118 N. W. 857.
enforce a mechanic's lien, it was held Thus where there is but one gen
that there wa^ sufficient evidence of eral statute providing for the organ
the incorporation of the company ization of banks of discount and
which was the principal contractor, deposit, it will be presumed that a
where it was shown to have been bank of that character was organized
duly incorporated, and it made such under that statute. Brighton v.
contract as a corporation by its presi- White, 128 Ind. 320, 27 N. E. 620.
dent or vice president, or both. Henry Where it is alleged that a street
Weis Cornice Co. v. J. B. Neevel & railway company is a corporation or-
933
it is sufficient for the purpose of making out a prima facie ease.*^

It will bepresumed that a bank using the term "national bank" in
its title was organized under the national banking act, since otherwise
it would be liable to the penalty imposed by that act for the wrongful
use of that term.''*
§ 437. — Foreign corporations. The proper mode of proving the

existence of a foreign corporation is to introduce proper evidence of
the act by or under which it was created or organized,'^ and then, for
the purpose of showing organization under the law, where an organ-
ization was necessary, to introduce the articles or certificate of incor-
poration, or the record or a copy thereof, authenticated in the mode
prescribed by the laws of the state, or by section 906 of the Eevised
Statutes of the United States (3 Fed. St. Ann. p. 39).''2
ganized under the laws of the state, relative to authentication have been
it willbe presumed that it was organ- complied with. Milwaukee Gold Ex-
ized under the general act for the traction Co. V. Gordon, 37 Mont. 209,
incorporation of such companies. 95 Pac. 995.
Smith V. Indianapolis St. B. Co., 158 U. S. Eev. St. §906 (3 Fed. St.
Ind. 425, 63 N. B. 849. Ann. p. 39), does not provide an ex-
69 Brighton v. White, 128 Ind. 320, clusive method of authentication.
27 N. E. 620. Petty V. Hayden, 115 Iowa 212, 88 N.
70 Slaughter v. First Nat. Bank, 109 W. 339.
Ala. 157, 19 So. 430. If there is no state statute de-
71 See § 429, supra. fining the evidentiary value or effect
72 United. States. Owen v. Shepard, of a copy of a record from another
59 Fed. 746. state, the federal statute controls. Mil-
Arkansas. See Fleener v. State, 58 waukee Gold Extraction Co. v. Gor-
Ark. 98, 23 S. W. 1. don, 37 Mont. 209, 95 Pac. 995;
Cozzens v. Chicago Hy-
Illinois. Parchen v. Peck, 2 Mont. 567.
draulic Press Brick Co., 166 111. 213, Under the federal statute the
46 N. E. 788, aff'g 64 111. App. 569. attestation of the custodian of the rec-
Iowa. Petty v. Hayden, 115 Iowa ord must be accompanied by a certifi-
212, 88 N. W. 339. cate of the presiding justice of the
Montana. Milwaukee Gold Extrac- court of the county, parish or district
tion Co. V. Gordon, 37 Mont. 209, 95 in which the office of such custodian
Pac. 995; Parcheu v. Peck, 2 Mont. is kept, or of the governor or secre-
567. tary of state, the chancellor or keeper
Nortli Carolina. State v. Turner, of the great seal of the state, terri-
119 N. C. 841, 25 S. E. 810. tory or country, that said attestation
Oregon. State v. Savage, 36 Ore. is in due form and by the proper offi-
191, 61 Pac.-rll28, 60 Pac. 610. See cers. If the certificate is given by the
also Law Guarantee & Trust Society v. governor, secretary of state, chan-
Hogue, 37 Ore. 544, 63 Pac. 690, 62 cellor or keeper of the great seal, it
Pac. 380. must be under the great seal. The
It must be made to appear affirm- provisions in relation to the certificate,
atively that the statutory provisions and the attaching of the great seal of
934
Ch. 14] CoEPOKATE Existence [§437
A certified copy of the articles of incorporation is inadmissible un-

less it is shown that the laws where the corporation was
of the state
formed require the paper to be kept or recorded by the officer making
the state, territory or country mu^t be states that the signers of such arti-
complied with in order to make the cles, "their associates and successors,
copy admissible. Milwaukee Gold Ex- were legally organized and established
traction Co. V. Gordon, 37 Mont. 209, as, and were thereby made,, an exist-
95 Pac. 995; Parchen v. Peek, 2 Mont. ing corporation," is a mere narr£tt-\ve
567. of past events and an expression of an
A certificate of the secretary of a opinion as to their legal effect, and
territory concluding: "In witness is inadmissible in another state re-
whereof I have hereunto set my hand gardless of whether it is admissible
and affixed my official seal," followed in the state where it is made. Fish
by the word "seal," but not bearing V. Smith, 73 Oonn. 377, 84 Am. St.
the impression of the seal of the ter- Eep. 161, 47 Atl. 711.
ritory or indicating what it is, is In West Virginia it is provided that
insufficient. Milwaukee Gold Extrac- "whenever in any case it becomes
tion Co. V. Gordon, 37 Mont. 209, 95 material to ascertain what the law,
Pac. 995. statutory or other, of another state
The introduction of a registrar's or county or of the United States is,
certificate of incorporation ofan Eng- or was at any time, the court, judge
lish company, the signature of the reg- or magistrate shall take judicial no-
istrar being attested by an English tice thereof and may consult any
notary, and a certified copy of its printed books purporting to contain,
articles of association is sufficient. state or explain the same, and con-
Dean & Son v. W. B. Conkey Co., 180 sider any information or argument
111. App. 162. that is offered on the subject." And
A copy of the articles of
certified it was held under this provision that
incorporation with proof of user the corporate existence of a corpora-
makes out a prima facie case of the tion created under a general law of
existence of a de facto corporation New York might be proved in West
and is sufficient. Concord Apartment Virginia by the production of a copy
House Co. V. Alaska Eefrigerator Co., of the certificate of its incorporation,
78 111. App. 682. attested by the secretary of state of
A certified copy of the charter of a New York under the seal of his of-,
bank with the deposition of its cash- fice, authenticated by the governor
ier that it had been duly organized under the seal of the state, or by a
under such charter and had been and copy of such certificate made by the
still was doing business under it, and clerk of the county in which the busi-
that it had regularly paid taxes as a, ness of the corporation was carried
bank, together with a certified copy on, under the seal of his office, and
of the minutes of the meeting at ~ certified by
the presiding justice of
which it was organized, is sufficient to the supreme court of said county, and
make out a prima facie case of corpo- further authenticated by the clerk of
rate existence. State Bank v. Cavr, such court under the seal of the court,
130 N. C. 479, 41 S. B. 876. the certificates and attestations being
A certificate of the secretary of in the form prescribed by statute.
state of another state which refers to Singer Mfg. Co. v. Bennett, 28 W. Va.
articles filed some years before, and 16, 22.
935
the certificate.'' And, since there is no common-law rule in respect

to the granting of charters to private business corporations,''* there
can be no presumption as to the requirements of the statutes of other
states in this regard^* Moreover, since the federal statute provides
that the authenticated copies of the records shall be given such faith
and credit as they have in the state from vrhich they come, they cannot
be given any effect whatever in the absence of evidence as to the laws
of the latter state respecting the use of certified copies of public records
there.''^
There are numerous decisions in which proof other than that of the
kind just considered has been held sufficient.''' For example, it has
been held that a certificate of the secretary of state or other state officer
authorizing a foreign corporation to do business in the state is suffi-
cient, either alone or in connection with other evidence, to show its
corporate existence; ''*

and in at least one state the statute makes such
a certificate issued by the secretary of state prima facie evidence of
The corporation must show a com- because there was other evidence
pliance with the provisions of the tending to show that the intervener
statute under which it was organized. was a corporation de facto.
Cumberland Telephone & Telegraph 78 In Eafferty v. State, 91 Tenn.
Co. V. Morgan's Louisiana & T. E. & 655, 16 S. W. 728, it was held that a
S. S. Co., 112 La. 287, 36 So. 352. certificate of the state insurance com-
In J. P. Bledsoe & Son v. Keystone missioner attached to a pamphlet copy
Steel & Wire Co., 41 Okla. 586, 139 of the charter of incorporation of a
Pac. 257, the evidence was held suffi- foreign insurance company, that it
cient to 3how the existence of a con- had complied with the law and was
solidated foreign corporation. authorized to transact business in the
73Florsheim & Co. v. Fry, 109 Mo. state, was sufficient proof of its in-
App. 487, 84 S. W. 1023; Milwaukee corporation in a criminal prosecution

Gold Extraction Co. v. Gordon, 37 of a person insured by it for attempt
Mont. 209, 95 Pac. 995. to obtain money from it by false
pretenses.
In Federal Betterment Co. v.
7BFlorsheim & Co. v. Fry, 109 Mo.
Reeves, 77 Kan. Ill, 15 Ann. Cas.
App. 487, 84 S. W. 1023. See also
796, 93 Pac. 627, it was held that a
Milwaukee Gold Extraction Co. v.
ruling admitting a certificate of the
Gordon, 37 Mont. 209, 95 Pac. 995.
secretary of state that the defendant,
76 Milwaukee Gold Extraction Co. v.
a foreign corporation, was authorized
Gordon, 37 Mont. 209, 95 Pac. 995. to do business in the state was imma-
77 In Petty v. Hayden, 115 Iowa 212, terial, where the defendant had pre-
88 N. W. 339, it was held that even if viously proved that it was duly
a certificate of the secretary of state incorporated by filing a copy of its
to the effect that an intervener was charter on a motion to set aside the
duly incorporated was improperly ad- service of summons in the same e-i-
mitted, its admission was harmless tion.
936
the legal existence of the corporation.™ But it has been held that such
a certificate does not tend to prove corporate existence, and is inad-
missible for that purpose, where the statute under authority of which
it is issued applies to partnerships and associations as well as to
corporations.*"
A certificate or statement, filed by the corporation pursuant to law,
in which it designates an agent on whom process may be served in
actions against it, is competent and sufficient evidence of incorporation
in some jurisdictions.*^ And it has been held that a certified copy of

a copy of its charter filed by a foreign corporation with the commis-
sioner of coiT)orations pursuant to law is admissible to show its
incorporation.'^
Certificates of incorporation or certified copies thereof which are
prima facie evidence in the state where the corporation is formed have
been held to be admissible in other states.'*
79 Northwestern Elee. Co. v. Zim- ments which it contains are true, but
merman, 67 Ore. 150, Ann. Caa. 1915 G that they were in fact officially made.
927, 135 Pae. 330. Fish V. Smith, 73 Conn. 377, 84 Am.
80 American lua. of Newark,
Co. St. Eep. 161, 47 Atl. 711.
New Jersey v. McClelland, 184 111. In Bartlett v. Wilbur, 53 Md. 485,
App. 381. it was held that since a statute of
81 Standard Oil Co. v. Com., 122 Ky. New York provided that a certified
440, 29 Ky. L. Eep. 5, 91 S. W. 1128. copy of any certificate of incorpora-
Such a certificate is competent evi- tion filed in a particular public of-
dence to show incorporation, and is fice should be received in all courts
sufficient for when not
that purpose as prima facie evidence of the facts
contradicted. Anglo-Calif ornian Bank stated therein, such a copy was ad-
V. Field, 146 Cal. 644, 80 Pae. 1080. missible in evidence in the courts of
The existence of a foreign corpora- Maryland. See also Laflin & Band
tion may be proved prima facie, in I'owder Co. v. Sinsheimer, 46 Md. 315,
an action by or against it, by the in- 24 Am. Eep. 522.
troduction of a copy of its articles of In a Texas case it was held that
incorporation and of the appointment the existence of a corporation of an-
of an agent in the state, certified by other state may be proved prima fa-
the secretary of state as being of rec- cie by producing a copy of a general
ord in his office. Knapp, Burrell & law authorizing the formation of such
Co. V. Strand, 4 Wash. 686, 30 Pae. corporations, properly certified by
1063. the secretary of such under
state,
82 Com. V. Corkery, 175 Mass. 460, the seal of the state, to be a true
56 N. E. 711. copy of an enrolled law of the state,
83 A certificate of incorporation is- giving title and date of approval, and
sued by the secretary of state of an- by producing a properly authenticated
other state in the form prescribed by certificate of the organization of the
its laws, and which is there prima company under the law. Western
facie evidence of incorporation, is ad- Elec.Mfg. Co. V. Curtis, 1 White &
missible to show, not that the state- W. Civ. Cas. Ct. App. (Tex.) § 729.
937
§437] Peivate Cobpokations [Oh. 14
The rule that in criminal prosecutions for offenses alleged to have

been committed against the property of a corporation it is only neces-
sary to show the existence of the alleged corporation by parol evidence,
or by reputation,** has often been applied in the case of foreign cor-
porations.^* And the same is true of the rules prevailing in some
states that a person familiar with the facts may testify directly that a
company is a corporation ;
*^ that the use of a name which ordinarily
imports a corporation is prima facie evidence of corporate existence '^ ;
that the execution and delivery of an instrument to a corporation as

84 See § 426, supra. But in Bell v. Dowdy, 13 Ky. L.
Arkansas. Turner v. State, 109
85 Eep. 543 (abstract), it was held that
Ark. 332, 158 S. W. 1072; Fleener v. in an action against certain individu-
State, 58 Ark. 98, 23 S. W. 1. als as partners, their testimony that
California. People v. Ah Sam, 41 the company for which they acted
Cal. 645; People v. Hughes, 29 Cal. was incorporated under the laws of
257. another state, without producing the
Illinois. Kossakowski v. People, articles of incorporation, is insuffi-
177 111. 563, 53 N. E. 115. cient to show that fact.
ITortli Carolina. See State v. For a discussion of the admissibil-
Turner, 119 N. C. 841, 25 S. E. 810. ity of such evidence generally, see
Oregon. See State v. Savage, 36 § 427, supra.
Ore. 191, 61 Pac. 1128, 60 Pac. 610. 87 In Anglo-Calif orniau Bank v.
Tennessee. State v. Mi^sio, 105 Field, 146 Cal. 644, 80 Pac. 1080, the
Tenn, 218, 58 S. "W. 216, distinguishing name by which the plaintiff was des-
Owen V. State, 5 Sneed 493, and Jones ignated in recitals in a deed to a
V. State, 5Sneed 346, 347. third person was held to import that
In Locke v. Leonard Silk Co., 37
86 it was a corporation, and to furnish
Mich. 479, according to the syllabus, prima facie evidence of its corporate
it was held that the fact of the cor- character.
porate existence of a company might In Indiana Millers' Mut. Fire Ins.
be found from the testimony of a wit- Co. V. People, 65 111. App. 355, aff'd
ness that, from information derived 170 HI. 474, 49 N. E. 364, it was held
from the company in doing business that the name of the appellant, under
for it, and from an examination of which it had issued policies of insur-
what purported to be its articles of ance, imported
a corporation. The
it was an incorporated
incorporation, fact that it was incorporated was also
company under the laws of another expressly averred in appellee's plea,
Btate. however. See also Turner 's Chapel A.
In State v. Pittam, 32 Wash. 137, M. E. Church v. Lord Lumber Co., 121
72 Pac. 1042, which was a criminal Ga. 376, 49 S. E. 272, where it was
prosecution for embezzlement, it was held that the name of a foreign cor-
held that oral testimony that the com- poration imported a corporation. Here
pany whose money was converted was the question was whether a motion
a corporation existing under the laws showed that the defendant was a for-
of Illinois and was doing business in eign corporation so as to give it the
Washington was material, relevant right to dissolve a garnishment.
and competent, especially where there For a discussion of this rule, see
was no proper objection to it. § 423, supra.
938
Ch. 14] CoBPOBATE Existence [§437
such is prima facie evidence of its corporate existence,** and that the
existence of a corporation created by a special law may be established
by proof of the charter and user.*^
Acceptance of its charter by a foreign corporation may be shown
by proof of user."*
Statutes providing that proof that a company is doing business un-
der a certain name shall be prima facie proof of its due incorporation,®^
or providing that corporate existence may be proved in criminal cases
by general reputation, or by the printed statutes of the state or
government by which such corporation was created,'* or making user
prima facie evidence of corporate existence in all criminal prosecutions
involving proof of the legal existence of a corporation,®' have been
held to apply to foreign as well as to domestic corporations. But the
contrary has been held to be true of a statute making a certified list
of corporations published in the session laws prima facie evidence of
the existence of such corporations.®*
88 In MacMillan Co. v. Stewart, 69 and user was applied in the ease of
N. 54 Atl. 240, aff'd 69 N. J.
J. L. 212, a foreign corporation.
L. 676, 56 Atl. 1132, it was held that For a discussion of this rule, see
it appeared prima facie that the plain- § 429, supra.
tiff was a corporation where the 90 Lancaster Sav. Bank v. Elwell,
defendant made a contract with it, ne- 17 Wash. 446, 49 Pao. 1070.
gotiated with it as to the discontinu- For proof of acceptance generally,
ance of a former suit on the same see §§ 227, 246, supra.
contract and agreed to pay the bal- 91 The Michigan statute to this ef-
ance then due and went to trial with- fect in terms applies to foreign cor-
out notifying the plaintiff, by plea porations. Imperial Curtain Co. v.
or otherwise, that its corporate exist- Jacob, 163 Mich. 72, 17 Det. L. N. 751,
ence would be disputed. 127 N. "W. 772.
In an action by a foreign corpora- For cases applying and construing
tion on a foreign judgment, that the such statutes generally, see § 423,
contract on which the judgment was supra.
based recited the fact that the plain- 92 State V. Moreaux, 254 Mo. 398,
tiffwas a corporation under a certain 162 S. W. 158; State v. Brown, 33
name, and that the foreign judgment Utah 109, 93 Pac. 52.
was recovered by it under that name, For cases applying and constru-
was held to be sufficient proof of its ing such statutes generally, see § 429,
corporate capacity. Cellulose Pack- supra.
age Mfg. Co. V. Calhoun, 166 Cal. 513, 93Graflf V. People, 208 111. 312, 70
137 Pac. 238. N. E. 299, aff'g 108 111. App. 168;
For a discussion of this rule, see Kincaid v. People, 139 HI. 213, 28 N.
§ 422, supra. E. 1060.
In United States Mortg. Co. v.
89 For cases applying and construing
McCIure, 42 Ore. 190, 70 Pac. 543, such statutes generally, see § 423, su-
the rule that the existence of a cor- pra.
poration created by a special law may 94 The Tennessee statute to this ef-
be established by proof of the charter fect is by its terms limited to domes-
939
Lawyers of a foreign country, duly qualified as experts, may testify

that certain acts, documents and records which have been produced
are competent to make a corporation in that country.^^
The facts that deeds to a company described it as being a corpora-
tion of a certain other state, and that the word "the" was not a part
of its name as required of domestic corporations by the statute of the
forum, were held to be sufficient to show that it was a foreign rather
than a domestic corporation, on appeal in a suit to quiet title, where,
in objecting to the decree in the lower court, no contention was made
that it was or was not a foreign corporation.^^
§ 438, —
Conclusiveness of certificates, etc. Certificates of incor-
poration and other formal documents required to be filed or issued
upon the organization of a corporation are not generally conclusive
evidence of due organization unless made so by statute. It has been
held, however, that if the charter of a corporation appoints commis-
sioners, and directs them to ascertain and certify the performance of a
—such as the subscription of the
condition precedent to incorporation,
amount of capital stock prescribed by the charter,— ^their certificates
that the condition has been complied with, and that the corporation is
duly organized, are conclusive as against every person except the

state.*'' And this has been held to be equally true of recitals in the
tic corporations, and does not apply 96 Austin v. King, 25 Colo. App. 363,
to foreign ones. State v. Missio, 105 138 Pac. 57.
Tenn. 218, 58 S. W. 216. 97 Tar Eiver Nav. Co.
v. Neal, 3
For cases applying and construing Hawks (N. C.) 520.
such statutes generally, see § 429, Where the charter of a bank pro-
supra. vided that a board of commissioners
95 In Badisehe Anilin & Soda Fa- named therein should receive sub-
brik V. A. Klipstein & Co., 125 Fed. scriptions to its capital stock, and
543, it was held that where the Ger- apportion the same among the sub-
man Code under which a corporation scribers, holding a public meeting for
was formed was set forth, and exem- the purpose, and certifying the result
plified or sworn copies of its articles in a manner specially provided, it was
of association, its application for reg- held that the decision and certificate
istry and entries in the register as t» of the commissioners that the whole
it were produced, and two German amount of stock had been legally
lawyers, duly qualified as experts, taken were final on the question
documents and
testified that such acts, whether the bank was in that respect
records were competent to make of legally organized. Litchfield Bank v.
the associates a corporation under the Church, 29 Conn. 137.
German law, this was prima facie evi- In Connecticut & P. E. R. Co. v.
dence of incorporation, which must be Bailey, 24 Vt. 465, 58 Am. Dec. 181,
taken as conclusive in the absence of the same rule was applied in the case
any evidence to the contrary. of a railroad company. See also Lou-
940
articles of incorporation made by the incorporators pursuant to law.®*

In some jurisdictions a certificate of incorporation issued by the
secretary of stateis conclusive evidence of the organization and exist-
ence of the corporation as against all persons except the state.'®
A certificate of the comptroller of the currency that an association
has complied with the federal statute relative to the incorporation of
national banks and is authorized to do business as such a bank, is
conclusive evidence of all facts which he is required to ascertain before
the issuance thereof; that is, of all that is essential to authorize the
bank to begin and go forward with the character and functions it is
allowed to assume.^ "The purposes and

of the act in providing for
making necessary the comptroller's certificate are that he shall make
inquiry, and determine the existence of these essential facts and make ;
record evidence, upon which the public may rely, that the required
conditions do in fact exist. " ^ So such a certificate has been held to
be conclusive in proceedings to enforce the individual liability of the
stockholders of such a bank,^ or in a criminal prosecution of an officer
of the bank for a violation of the national banking act,* or in an action
on a contract made by the defendant with the bank.^
isiana Purchase Expos. Co. v. Kuen- to collect tolls as soon as the gov-
zel, 108 Mo. App. 105, 82 S. W. 1099. ernor, after receiving the certificate
98 Louisiana Purchase Expos. Go. v. of certain commissioners to the effect
Kuenzel, 108 Mo. App. 105, 82 S. W. that the river was in sufficient repair
1099. to entitle the company to take tolls,
99Pirst Nat. Bank v. Almy, 117 should proclaim its right to do so,
Mass. 476. it was held that such certificate and
In Missouri, such a certificate is a proclamation were not of themselves
final determination of the right of the conclusive evidence of the organiza-
corporation to do business as such, tion of the company. Duke v. Ca-
and thereafter its corporate existence hawba Nav. Co., 10 Ala. 82, 44 Am.
cannot be challenged except in a di- Dec. 472.
rect proceeding instituted for that 1 Bailey v.. Tillinghast, 99 Fed. 801,
purpose by the state. Boatmen's afe'g 86 Fed. 46; Citizens' Nat. Bank
Bank v. Gillespie, 209 Mo. 217, 108 S. V. Great Western Elevator Co., 13
W. 74. S. D. 1, 82 N. W. 186. See also Brown
In Dollbear v. American Bell Tel. V. Tillinghast, 93 Fed. 326; Colum-
Co., 126 U. S. 1, 31 L. Ed. 863, proof bia Nat. Bank of Tacoma v. Mathews,
of a, special act of incorporation of 85 Fed. 934.
Massachusetts, authorizing persons to 2 Bailey v. Tillinghast, 99 Fed. 801,
organize as a corporation, and a cer- aff'g 86 Fed. 46.
tificate of the secretary of the com- 8 Casey v. Galli, 94 U. S. 673, 24 L.
monwealth in the form required by Ed. 168; Bailey v. Tillinghast, 99 Fed.
law, were held conclusive evidence of 801, aff'g 86 Fed. 46.
incorporation. 4 Clement v. United States, 149 Fed.
But where a clause in the charter of 305.
a navigation company authorized it 5 Citizens ' Nat. Bank v. Great West-
941
In England, a certificate of incorporation issued by the registrar of

companies is conclusive evidence that all the statutory requirements
in respect to registration or matters' precedent or incidental thereto
have been complied with.^
§ 439. Proof of user. User of corporate powers may be shown

by proof that the association elected officers or held meetings as a cor-
porate body, that it maintained an office, or that it transacted business
in away which imports that it was acting as a corporation.'
"The proof of user," said Judge Felch in an early Michigan case,
"must necessarily consist of evidence of the acts of the corporation,
showing that they are doing business under their charter. Any acts
tending to show this, are admissible for that purpose as keeping open ;
an office having officers acting in the name, and as the agents of the
;
company, etc. The receiving of applications and issuing policies' of
ern Elevator Co., 13 S. D. 1, 82 N. W, Mut. In^. Co., 2 Doug. 124, 43 Am. Dee.
186. 457.
In Thatcher v. West Eiver Nat. Missouri. Merchants' Bank of St.
Bank, 19 Mich. 196, it is said: "The Louis V. Harrison, 39 Mo. 433, 93 Am.
objection that the organization cer- Dee. 285.
appears to have been acknowl-
tificate New York. Williams v. Bank of
edged before a notary, who by the Michigan, 7 Wend. 539; Utica Ins.
same document is shown to have been Co. V. Tilman, 1 Wend. 555.
a shareholder in the bank, is one Oregon. Brown v. Webb, 60 Ore.
which might have been raided by, 526, Ann. Cas. 1914 A 148, 120 Pac.
or before, the comptroller, but of 387.
which we can take no cognizance here. Virginia. Crump v. United States
It was for him to decide upon the suf- Min. Co., 7 (Jratt. 352, 56 Am. Dee.
ficiency of the evidence of compli- 116.
ance with the act of congress, and "User" means the exercise of cor-
we cannot review his decision. His porate powers and functions. Peo-
certificate of compliance removes any ple v. Struble, 275 111. 162, 113 N. E.
objection which might otherwise have 938.
been made to the evidence upon which In a condemnation suit by a railroad
he acted." See also Casey v. Galli, company, instruments and deeds pur-
94 U. S. 673, 24 L. Ed. 168. porting to convey land and to grant
8 Lindenberger Cold Storage & Can- franchises to it, plana and specifica-
ning Co. V. Lindenberger, 235 Eed. tions adopted by it for work done
542. on it| line of road, and judgments in
7 Illinois. Eamsey v. Peoria Marine its favor condemning land for its use
& Fire Ins. Co., 55 111. 311. in building and operating such road,
Indiana. Tipton Eire Co. v. Barn- are admissible as tending to show
heisel, 92 Ind. 82, 47 Am. Eep. 135. that it is a. corporation de facto. Val-
Maine, Sampson v. Bowdoinham lejo & N. E. Co. V. Eeed Orchard Co.,
Steam Mill Corporation, 36 Me. 78. 169 Cal. 545, 147 Pac. 238.
Michigan. Cahill v. Kalamazoo See also § 303, supra.
942
Ch. 14] CoEPORATE Existence [§440
insurance — în other words, doing the very business, and in the very
manner pointed out by the statute, and in the name of the corpora-
tion —^WQuld be direct evidence of user.
'
'
' User may be proved either
by the production of written instruments executed by the corporation,
or its records and books showing corporate meetings, or other corporate
acts,8 or by parol evidence of the exercise of corporate powers.^" So,
for the purpose of establishing a corporation de facto, oral testimony
tending to show that, after an attempt to organize a corporation by
the execution of articles of incorporation, the supposed corporation
held meetings, adopted by-laws, issued stock and did business as a
corporation, and which does not purport to give the contents of
corporate records or documents, is admissible without producing such
records or accounting for their loss.^^
§440. Statutory provisions. The legislature may regulate the

mode of proving the fact of incorporation,^* and may make such
changes in the rules of evidence in this regard as it sees fit, provided
8 Cahill V. Kalamazoo Mut. Ins. Co., Illinois. See People v. Struble, 275
2 Doug. (Mich.) 124, 135, 43 Am. Dec. 111. N. B. 938.
162, 113
457. Indiana. Tipton Fire Co. v. Barn-
9 Alabama. Duke v. Cahawba Nav. heisel, 92 Ind. 88.
Co., 10 Ala. 82, 44 Am. Dec. 472. Michigan. Cahill v. Kalamazoo

Illinois. Eamsey v. Peoria Marine Mut. Ins. Co., 2 Doug. 124, 43 Am.
& Kre Ins. Co., 55 111. 311; Eyder v. Dec. 457.
Alton & S. E. Co., 13 111. 516.
Minnesota, Finnegan v. Noeren-
berg, 52 Minn. 239, 18 L. E. A. 778,
Indiana. Vawter v. Franklin Col-
38 Am. St. Eep. 552, 53 N. W. 1150.
lege, 53 Ind. 88.
Massachusetts. Provident Inst, for
New York. Whitford v. Laidler,
94 N. Y. 145, 46 Am. Eep. 131.
Savings v. Burnham, 128 Mass. 458;
Vermont.- Stone v. Congregational
Narragansett Bank v. Atlantic Silk
Society, 14 Vt. 86.
Co., 3 Mete. 282.
Where it is sought to hold the mem-
New York. Highland Turnpike Co.
bers of an association liable 83 part-
V. McKean, 10 Johns. 154, 6 Am. Dec.
ners, testimony of its members that
324.
the association claimed to be a cor-
Vermont. Reynolds v. Myers, 51
poration and that they never claimed
Vt. 444.
or informed the plaintiffs that it was
Virginia. Crump v. United States
a partnership is competent on the
Min. Co., 7 Gratt. 352, 56 Am. Dec. question of user. Johnson v. Oker-
116.
strom, 70 Minn. 303, 73 N. W. 147.
West Virginia. Anderson v. Kana- 11Johnson V. Okerstrom, 70 Minn.'
wha Coal Co., 12 W. Va. 526, 537. 303, 73 N. W. 147; Brown v. Webb,'
10 Alabama. Lucas v. Bank of 60 Ore. 526, Ann. Cas. 1914 A 148, 120
Georgia, 2 Stew. 147. Pac. 387.
California. Lakeside Ditch Co. v. 12 Tillery v. State, 10 Lea (Tenn )
Crane, 80 Cal. 181, 22 Pac. 76. 35.
943
—
itdoes not thereby preclude a party from freely presenting the facts
which tend to support his theory of the issues involved.^^ So it may
declare documentary evidence to be prima facie evidence of the facts
thereby shown, and impose on the adverse party the burden of over-
coming the prima facie case thereby made.^*
In many jurisdictions, the mode and sufSeiency of proof of incor-
poration has been made the subject of express statutory provision.
For example, in Michigan there is a statute declaring that proof that
a company is doing business under a certain name shall be prima facie
proof of its due incorporation and existence pursuant to law, and of
its name.'* And in a number of states, statutes have been enacted
making a duly certified copy of the articles of association or certificate
of incorporation filed in pursuance of the law creating or authorizing
the formation of a corporation,'® or a certificate of incorporation issued
13 Columbia
Valley Trust Co. v. tam, 32 Wash. 137, 72 Pac. 1042; Spo-
Smith, 56 Ore. 6, 107 Pac. 465. & I. Lumber Co. v. Loy, 21 Wash.
kane
14 Columbia Valley Trust Co. v. 501, 58 Pac. 672.
Smith, 56 Ore. 6, 107 Pac. 465. Under the Michigan statute making
15 Imperial Curtain Co. v. Jacob, 163 a copy of any articles of association
Mich. 72, 127 N. W. 772; Canal St. filed pursuant to law, with the re-
Gravel-Eoad Co. v. Paas, 95 Mich. 372, quired affidavit annexed thereto, cer-
54 N. W. 907; Lake Superior Bldg. Co. tified by the secretary of jatate to be
V. Thompson, 32 Mich. 293. a true copy, prima facie evidence of
If there is no countervailing evi- incorporation, etc., the fact that the
dence, such proof is sufS.cient. Im- certificate of the secretary of state

perial Curtain Co. v. Jacob, 163 Mich. calls the articles a "certificate" is
72, 127N. W. 772. immaterial. Canal St. Gravel-Eoad
But not enough to prove acts
it is Co. V. Paas, 95 Mich. 372, 54 N. W.
holding meetings and electing ofS- 907.
—
cers which are entirely consistent '
There is a statute to this effect in
with the existence of an unincorpo- Illinois. Owen v. Shepard, 59 Ted.
rated association. Fredenburg v. 746.
Lyon Lake M. E. Church, 37 Mich. In East St. Louis C. Ey. Co. v. Wa-
476. bash, St. L. & P. Ey. Co., 24 111. App.
16 See New Tork
Car Oil Co. v. 279, rev 'd on other points, 123 111. 594,
Bichmond, Bosw. (N. T.) 213, 19
6 15 N. E. 45, it was held under the
How. Pr. 505; Eassbeck v. Desterrei- statute of that state that a copy of
cher, 55 How. Pr. (N. Y.) 516; Squires the articles of consolidation of two
v. Brown, 22 How. Pr. (N. Y.) 35; corporations, duly certified under the
Weed Sewing Maeh. Co. v. Kaulback, seal of the secretary of state, was
3 Thomp. & C. (N. Y.) 304; Marshall prima facie evidence of the existence
V. Macon County Sav. Bank, 108 N. of the consolidated corporation.
C. 639, 13 S. E. 182; Pacific Drug Co. In Oregon, B. & C. Comp. §5054,
V. Hamilton, 71 Wash. 469, 128 provided that: "The articles of in-
Pac. 1069; State v. Superior Court corporation or a certified copy of the
(Wash.), 114 Pac. 444; State v. Pit- one filed with the secretary of state
944
by the secretary of state,^' prima facie evidence, of incorporation. It

is also sometimes provided that a certificate by the secretary of state,
under the seal of the state, that a corporation has become duly organ-
ized shall be taken by all the courts of the state as evidence of the
corporate existence of such corporation ;
^* or that a certified copy of
the certificate or charter issued by the secretary of staite shall be evi-
dence of the due organization and existence of the corporation and of
the matters specified in such certificate ;
^' or that the articles of in-
corporation, or a duly certified copy thereof, may be used in evidence
in any action for or against the corporation.^"
General statutes making copies of all papers legally deposited in the
oiHce of the secretary of state, duly certified by him and authenticated
by the seal of his office, evidence in the same manner and withi like
effect as the originals,^^ or providing that documents may be proved
or the county clerk is evidence of the for the issuance of certificates of in-
existence of such corporation." It corporation, and there is no provision
was held that this provision was not since that time for the issuance of
to be construed as permitting the ex- certificates to corporations formed
istence of a de jure corporation to prior thereto. Billings Realty Co. v.
be established hj the introduction Big Ditch Co., 43 Mont. 251, 115 Pac.
in evidence of the articles of incor- 828.
poration, or a certified copy thereof, 18 Mo. Eev. St. 1899, §955; Boat-
without other proof except that men's Bank v. Gillespie, 209 Mo. 217,
of a subscribing witness, but, in 108 S. "W. 74.
addition thereto, performance of the 19Sumpter Tobacco Warehouse Oo.
statutory conditions precedent must v. Phoenix Assur. Co., 76 S. C. 76,
be shown. Goodale Lumber Co. 10 L. E. A. (N. S.) 736, 121 Am. St.
V. Shaw, 41 Ore. 544, 69 Pae. 546. Eep. 941, 11 Ann. Cas. 780, 56 S. B.
Since that decision the statute has 654.
been amended by Laws 1905, p. Ill, 20 Calor Oil & Gas Co. v. Franzell,
so as to make the articles or a cer- 33 Ky. L. Eep. 98, 109 S. W. 328.

tified copy of them prima facie evi- 81 Kern v. Chicago Co-operative
dence of the existence of the Brewing Ass'n, 40 111. App. 356, aff'g
corporation and of its right to do the 140 HI. 371.

business mentioned in the articles In South Carolina it is provided
without any other evidence thereof, that attested copies of all records,
and neither the testimony of a sub- signed by the keeper of such records
scribing witness nor proof of compli- respectively, shall be
deemed and al-
ance with the statutory conditions is lowed as good evidence in the same
now necessary in the first instance. manner as the original documents.
Columbia Valley Trust Co. v. Smith, Montgomery v. Seaboard Air Line
56 Ore. 6, 107 Pac. 465. Ey., 73 S. C. 503, 53 S. E. 987.
17 Mont. Laws 1909, c. 94, does not Where the statute provides for the
apply to corporations organized prior admission of certified copies of rec-
to July 1, 1895, since prior to that ords, a certified copy of a charter
time there was no provision of law which the law requires to be recorded
945
I Priv. Corp.— 60
ay the original or by a copy, certified by the legal keeper thereof,*'

apply to certificates or articles of incorporation or other papers which
are required to be filed or recorded on the organization of a cor-
poration.
In at least one state, provision is made for the publication with the
session laws of a certified list of all corporations organized since the
last publication, and it is provided that such publication shall be legal
evidence of the existence of such corporations.^* And it has been held
that such publication is prima facie evidence of the existence or legal
incorporation of such corporations, which may, however, be rebutted
by proof that the corporate charter was not registered as required by
law.**
In another state, provision is made for printing certificates of incor-
poration with the acts of the legislature, and it is further provided
that the copy so printed shall, as evidence, be equivalent to the
original.*^
sometimes provided that in criminal prosecutions corporate
It is
existence may be proved by general reputation, or by the printed stat-
utes of the state or country by which such corporation was created,**
is admissible. Montgomery v. Sea- V. East Tennessee Iron & Coal Co.,

board Air Line Ey., 73 S. C. 503, 53 S. 105 Tenn. 563, 59 S. W. 634; State v.
E. 987. Missio, 105 Tenn. 218, 58 S. W. 216;
22 Acertified copy of the records of Tennessee Automatic Lighting Co. v.
the oflSee of the secretary of state is Massey (Tenn. Ch.), 56 S. W. 35;
admissible to show that he issued the Tillery v. State, 10 Lea (Tenn.) 35;
certificate of incorporation required Brewer v. State, 7 Lea (Tenn.) 682.
by the statute. But his certificate See also Bon Aqua Improvement Co.
reciting that articles of incorporation V. Standard Fire Ins. Co., 34 W. Va.
were filed in his office on a certain 764, 12 S. E. 771, where the Tennes-
day and that a certificate of incorpo- see statute is referred to.
ration was issued on that day, is in- 24 Coal Creek Consol. Coal Co. v.
admissible for that purpose. Wall East Tennessee Iron & Coal Co., 105
V. Mines, 130 Cal. 27, 62 Pac. 386. Tenn. 563, 59 S. W. 634; State v. Mis-
Under a statute providing that a sio, 105 Tenn. 218, 58 S. W. 216; Til-
public record of a private writing may lery V. State, 10 Lea (Tenn.) 35;
be proved by the original record, or Brewer v. State, 7 Lea (Tenn.) 682.
by a copy thereof certified by the 25 Bon Aqua Improvement Co. v.
legal keeper of the record, a certificate Standard Fire Ins. Co., 34 W. Va. 764,
of incorporation which is of record in 12 S. E. 771.
the office of the secretary of state 26 State V. Thompson, 23 Kan. 338,
is properly proved by a copy thereof 33 Am. Eep. 165; State v. Moreaux,
certified by that officer. Western Iron 254 Mo. 398, 162 S. W. 158; State v.
Works V. Montana Pulp & Paper Co., Decker, 217 Mo. 315, 116 S. W. 1096;
30 Mont. 550, 77 Pac. 413. State v. Knowles, 185 Mo. 141, 168,
23 There is such a statute in Ten- 83 S. W. 1083; State v. Jackson, 90
nessee. Coal Creek Consol. Coal Co. Mo. 156, 2 S. W. 128; State v. Tucker,
946
Ch. 14] CoKPOKATE Existence [§440
or that user shall be prima facie evidence of corporate existence.^'

Statutory provisions as to the manner of proving corporate exist-
ence will not be construed as impliedly excluding other evidence of
that fact, which would be competent in the absence of the statute,*'
unless such an intention on the part of the legislature clearly appears.*^
And a statute allowing a certified copy of the charter to be received in
evidence does not render the original charter duly certified inad-
missible.^"
84 Mo. 23; State v. Cheek, 63 Mo. V. Big Ditch Co., 43 Mont. 251, 115
364; State v. Phelan, 66 Mo. App. Pac. 828.
548; State v. Reese, 44 Utah 256, 140 NewYork. New York Car Oil Co.
Pac. 126; State v. Brown, 33 Utah 109, V. Richmond, 6 Bosw. 213, 19 How. Pr.
93 Pac. 52, 36 Utah 46, 24 L. R. A. 505. Compare Hallett v. Harrower, 33
(N. S.) 545, 102 Pae. 641. Barb. 537.
In Arkansas provided that
it is North Carolina. Glenn v. Orr, 96
the existence of banking companies N. C. 413, 2 S. E. 538; State v. Shaw,
may be proved in this manner in 92 N. C. 768.
criminal cases. Kirby's Dig. 1904, WaiShington. Pacific Drug Co. v.
§3084; Mears v. State, 84 Ark. 136, Hamilton, 71 Wash. 469, 128 Pac.
104 S. "W. 1095. 1069; State v. Superior Court Clal-
As to proof by reputation in the lam Co., 62 Wash.
612, 114 Pae. 444;
absence of such a statute, see § 425, State V. Pittam, 32 Wash. 137, 72 Pae.
supra, 1042.
2T People V. Struble, 275 111. 162, 113 Wyoming., Edelhoff v. State, 5
N. E. 938; Graff v. People, 208 111. Wyo. 19, 36 Pac. 627.
312, 70 N. E. 299, aff'g 108 111. App. The original record of incorporation
168; Kincaid v. People, 139 111. 213, is admissible to prove the fact of in-
28 N. E. 1060. corporation, as well as the letters of
Proof of user means proof of the incorporation. State v. Abernathy,
exercise of corporate powers and func- 94 N. C. 545.
tions. People V. Struble, 275 111. 162, 29 In Porter v. State, 141 Ind. 488,
113 N. E. 938. 40 N". E. 1061, it was held that the
If there is no countervailing proof, admission of a person questioning the
proof of user sufficiently supports an validity of the organization of a cor-
allegation of corporate existence in poration, that the original articles
an indictment; as, for example, in a were filed in the county recorder 's of-
prosecution for a conspiracy to de- fice, did not render it unnecessary to

fraud certain insurance companies, produce either such articles or the
which are alleged to be corporations. record thereof, or
a certified copy,
Graff V. People, 208 111. 312, 70 N. E. where a statute made such record or
299, aff'g 108 111. App. 168.
a certified copy conclusive evidence of
the recitals therein. See also State v.
As to whether such statutes apply
Brown, 33 Utah 109, 93 Pac. 52.
where the corporation is a foreign
SOSumpter Tobacco Warehouse Co.
one, see § 437, supra.
V. Phoenix Assur. Co., 76 S. C. 76,
28Iadlaiia. See Green v. Indian- 10 L. R. A. (N. S.) 736, 121 Am. St.
apolis, 25 Ind. 490. Rep. 941, 11 Ann. Cas. 780, 56 S. E
Montana. See Billings Realty Co. 654.
94'
CHAPTER 15
Underwriting Agreements
5 441. Introductory statement.

i 442. Definition.
S
443. Distinctions — general.
În
j 444. — Subscription agreements.

i
445. Form of agreement.
5 446. Eelation of underwriter to corporation.
} 447. Corporations as underwriters or guarantors.
! 448. Acceptance of agreement —Necessity of acceptance ; notice.
I 449. — What acceptance.
constitutes
j 450. — Time of acceptance.
451. — Estoppel deny acceptance.
to
452. Consideration for underwriting—^Payment in general; nature; right to pay
i
commission.
I 453. — Construction of particular words as consideration.
to
; 454. — Actions for consideration.
i 455. Conditions in agreements— As place of business of corporation,
to
456. — As other
to subscriptions,
457. — Parol evidence.
i
) 458. Application for shares of stock— Necessity of formal application,

459. — Application by agent,
460. — Extent of agent
i
authority.
's
461. — Calling upon underwriter

i
i performto contract,
462. Extent of obligation take to stock.
463. Breach of contract—
i
) of remedies,
Êlection
i 464. — Parties,
465. — Breach of covenants,
466. — Delivery of
i
j stock,
i 467. — Insolvency as defense.
5 468. — Measure of damages,
i
469. — Effect of indemnity agreement.
5 470. Specific performance.
S 471. Discharge or release of underwriter —Lapse of time.
! 472. Alterations or variations of underwriting agreements.
] 473. Fraud in procuring underwriting —In general.
1 474. — Eemedies.
) 475. Underwriter 's liabilities to third persons.
5 476. Eights of underwriters to interest on bonds.
5 477. Pledges of underwriting agreements.
i 478. Assignment of underwriting agreements —Assignability and negotiability.
J 479. — Eights of assignee.
948
Ch. 15] Under WKiTiNG Agbeements [§441
§ 441. Introductory statement. One^ of the important problems

presented to the organizers and promoters of corporations, as well
as the stockholders, is that of securing a ready market for the shares
of stock, or the bonds and securities which are issued by the corpora-
tion. Lawyers and laymen, more particularly business m€n, are usually
familiar with the methods of stock or bond salesmen in effecting the
disposal of their securities.Not only is the sound financial basis of
the corporation discussed,and the alluring arguments as to the profits
of the business presented, but usually, and as a climax, the pros-
pective buyer is shown the list of subscribers to the desirable invest-
ment. The potency of the last argument is well known, especially
where the subscribers are men well known in the financial world, and
respected for their judgment as to business eiffairs. Of equal efficacy
is the argument presented by the subscription to the new corporation
made by some well known bank, or trust company, or some large

financial institution.
Accordingly, the practice has grown up, and is now well established,
by which the success of an issue of stock either by a new or old cor-
poration, or the issue of bonds, is assured, and the "backing" of
reputable financiers or financial institutions is obtained prior to the
offering for sale of the securities which it is desired to sell. An agree-
ment entered into with such persons by which they are paid a
is
stated commission, or a certain compensation for lending their aid to

the flotation of securities. And
they are required to become sub-
scribers and to take the stock and bonds sought to be
sold, but only
on the contingency or condition that the public at large does not
become the purchasers of such securities. In other words they become
the "underwriters" or insurers of the success of the new venture.
The advantages of such schemes are obvious. A large corporation,
such as a public service company, may desire to extend its business,
already well established and of unimpeachable integrity, by the cre-
ation of a new or subsidiary corporation. In such ease if the issue of
stock of the new company is underwritten by the old company, a
ready sale to the public may be easily imagined.
A where a reputable financial institu-
like effect is almost certain
tion an underwriter. And in this manner a means may be put
is
forth to combat those unforeseen events such as "panics," or sudden

depressions in the business world, which frequently operate to
seriously hinder, if not to actually destroy, both new and old cor-
porations.
Having thus stated the general reasons for the existence of under-
writers, rather from the standpoint of the business man, than the
949
lawyer, it be proper to consider the definition, nature and

may now
form of such agreements, as well as the obligations of the various par-
ties concerned.
As applied to corporate stock, an underwrit-

§ 442. Defmition.
ing agreement is an agreement made before such stock is offered to
the public whereby the signer, or "underwriter" âgrees for a cer-
tain compensation to take a stipulated number of shares of stock, or
a portion thereof, if the public does not subscribe for or take all of
such stock.^
The same definition applies to the underwriting of corporate bonds
and it is termed an agreement by the subscribers, based on a con-
sideration, to insure the sale of the bonds subscribed at a stipulated
price, and, if they are not sold to others, that the subscribers will
purchase and pay for them at the price fixed therein.*
It has been held that an underwriting in this sense is a purchase
together with a guaranty of a sale of the bonds.^
§443. Distinctions —In general. To "underwrite" means some-

thing more than an agreement to "place" a number of shares. It is
an agreement to take the number of shares specified in the under-
writing in the event that the public does not subscribe for them.*
And an agreement to underwrite must be treated not merely as a
guaranty, but as an application for the shares not applied for by
the public.^
In some cases, the word "guarantee" is used in underwriting
lln re Licensed Victuallers' Mut. ZBusch v. Stromberg-Carlson Tel.

Trading Ass'n, 58 L. J. Ch. 467, 42 Mfg. Co., 217 Fed. 328, rehearing de-
L. E. Ch. D. 1, 60 L. T. E. 684, 37 W. nied 226 Fed. 200.
E. 674. See also Busch v. Stromberg- 3 Bone v. Hayes, 154 Cal. 759, 99
Carlson Tel. Mfg. Co., 217 Fed. 328, re- Pae. 172; Fraser v. Home Telephone
hearing denied 226 Fed. 200; Bone v. & Telegraph Co., 91 Wash. 253, 157
Hayes, 154 Cal. 759, 99 Pae. 172; Pae. 692.
White V. Eohinson, 145 N. T. App. 4 In re Licensed Victuallers' Mut.
Div. 751, 130 N. Y. Supp. 388; Fraser Trading Ass'n, 58 L. J. Ch. 467, 42
V. Home Telephone & Telegraph Co., L. E. Ch. D. 1, 60 L. T. E. 684, 37 W.
91 Wa^h. 253, 157 Pae. 692. E. 674.
"The word 'underwriting' simply See Gorrissen's Case, L. E. 8 Ch.
means that the persons joining in 507.
the scheme agree to furnish the neoes- Bin re Licensed Victuallers' Mut.
sary money and to take the shares Trading Ass 'n, 58 L. J. Ch. 467, 42 L.
which cannot be sold to outsiders." E. Ch. D. 1, 60 L. T. E. 684, 37 W. E.
Minot V. Burroughs, 223 Mass. 595, 674.
112 N. E. 620.
950
CIi. 15] Underwbiting Agkeembnts [§ 444
agreements, but the use of such word is not conclusive of the obliga-
tions entered into by the parties. Upon examination of the
agreement, and after a consideration of the objects of the business
enterprise which is contemplated, it may develop that the subscribers
are not merely "guarantors" but principals, as to the scheme entered
into, or more properly "subscribers" to the stock.* In other cases, the
underwriters may in fact be guarantors.''
§444. — Subscription
agreements. An underwriting agreement
is from a subscription agreement whereby the
to be distinguished
subscribers themselves become the owners of the stock. This is a
question not entirely free from difficulty as it sometimes happens
that a corporation intrusts the entire sale of its stock to certain agents,
or to a syndicate or another corporation. have arisen where And cases
such agents have been designated in the subscription agreement as
"underwriters" when a careful investigation of the facts showed
that they were subscribers. But since the signers of an underwriting
agreement merely agree to take so much of the stock as is not taken
by the public, it would seem that if the agreement disposes of all of
the stock, leaving none to be offered at public subscription, a straight
subscription agreement is entered into. An additional fact of import'
6 Where a corporation was about to to the general purpose of the enter-

increaê its capital stock and to take prise, its character and scope, and the
over certain other corporations and interests of the parties. Since the
properties, was decided to ob-
and it subscribers, by the agreement entered
tain the necessary capital by the into,conferred upon the syndicate
marketing of stock, and the rights and manager authority in respect to the
limitations of the parties were set general purpose sought to be accom-
forth an "underwriting agree-
in plished, such subscribers were in ef-
ment," to which the promoters, the feet principals. Knickerbocker Trust
corporation, the subscribers, and syn- Co. v. Evans, 188 Fed. 549.
dieate managers were parties, and it I' Guardian Trust Co. v. Peabody,
was provided that the promoters and 122 N. Y. App. Div. 648, 107 N. Y.
managers might borrow money by Supp. 515, afE'd 195 N. Y. 544, 88 N.
pledging the subscriptions and stock E. 1120.
as security, and the agreement stipu- Where underwriters act as guaran-
lated that the subscribers "guarantors of a loan to a corporation, their
tee" the payment of the amount contract should be fairly construed;
loaned, the subscribers were not aim- they have the right to specify the
ply guarantors of the enterprise, and thing guaranteed and the courts can-
the use of such words as "guaran- not make a new contract for them,
tees," "undertakes," and the like, Guardian Trust Co. v. Peabody, 122
were not conclusive of the relation N. Y. App. Div. 648, 107 N. Y. Supp.
of the subscribers, but in determining 515, afE'd 195 N. Y. 544, 88 N. E.
such relation, reference was to be had 1120.
951
"
ance in determining this question is the profit, remuneration or eom-

pensation which is to by the subscribers or underwriters.
be received
If the facts are such that bonus stock is received by the signers,
as where preferred stock is subscribed for and additional shares of
common stock are allotted as .a bonus, such profit would tend to estab-
lish a subscription agreement as distinguished from an underwriting
agreement where the underwriters are usually allowed a commis-
sion.*
Cases have also arisen where a subscription agreement has been
modified or changed by the practical construction placed upon it by
the parties, so that the subscribers were held to be underwriters. Thus
if itappears that the obligation of the signers is merely to take stock
not disposed of to the public, and if such construction is acquiesced
in, the corporation will be estopped from claiming that the signers
are liable as subscribers, whatever the original agreement.^

In respect to the obligations assumed, there is, of course, considerable
distinction between an underwriting agreement and a subscription
contract. where a pure underwriting agreement
In the former case,
is entered into the signer can refuse to become a member of the com-
pany in pursuance of his contract with the promoter. This will sub-
ject him to liability for the damages which the promoter sustains,
but the underwriter may prefer paying such damages to becoming a
member and so liable to paying the amount due on the stock.^"
§ 445. Form of agreement. A search of the reported cases reveals,

especially in the United States, a wide variety of underwriting agree-
ments. As has been seen in a preceding section, in some cases the
word "underwriter" used as a synonym for "guarantor," or in
is
connection with the usual subscription agreement.^^ In connection

with subscription agreements, it may be stated as a general propo-
8 White V. Robinson, 145 N. Y. App. (N. S.) wiere the distinction is

18,
Div. 751, 130 N. Y. Supp. 388. and where the fact that
considered,
In this case the referee held that an underwriter's commission was to
an underwriting agreement was en- be paid in shares, was referred to as
tered into, but the opinion of the insufficient, to cause such underwriter
court tended to indicate a subscrip- to be regarded as a "careful in-
tiou agreement. The point involved vestor.
however was as to the liability of the 9 Banker's Money Order Ass'n v.
subscribers or underwriter^ to a per- Nachod, 128 N. Y. App. Div. 281, 112
son who had bought stock in reliance N. Y. Supp. 721.
on the representations as to subscrip- 10 Elefftrie Welding Co. v. Prince,
tion. White v. Eobinson, 145 N. Y. 195 Mass. 242, 81 N. E. 306. See also
App. Div. 751, 130 N. Y. Supp. 388. Gorrissen's Case, L. K. 8 Ch. 507.
See alô Baty v. Keswick, 85 L. T. E. 11 See § 443, supra.
952
Ch. 15] Undebwbitikg Ageeements [§ 445
sition that underwriting agreements are a species of conditional sub-

scription agreements. Statutes have been enacted in many states
requiring corporations to have subscribed a certain amount of their
capital stock before they will be allowed to do business. In such case,
it is not improper for the corporation to agree with its subscribers
that their obligation to take stock shall be reduced if sufScient sub-
scribers are procured to warrant such reduction. Here we have an
underwriting agreement which is in effect a conditional subscription
agreement.'^
While, according to the definition noted above, an underwriting
agreement, in the strict sense of the term, antedates the existence of
the corporation to which it relates,^^ in the United States, the agree-
ment often takes the form of a tripartite agreement, the parties being
the promoters, or promoting corporation, the new corporation and the
persons undertaking to do the underwriting.^* But more elaborate
schemes are also entered into, and trust companies, or syndicates,
become parties, either in one of the capacities mentioned or as agents
for the performance of certain duties usually performed by one of
such parties. Thus a syndicate may be formed to which the pro-
moters and underwriters are parties, and syndicate managers may
be appointed to carry through the enterprise.^* "A syndicate in this
connection means an association of persons with a community of
interest in the fund raised for the purpose of carrying to the particu-
lar undertaking. The members share the profits and bear the losses
in proportion to their respective interests." ^®
A further type of agreement which has been styled "underwriting"

is found in one ease where an "underwriting certificate" was referred
to. This was merely an agreement by which the signer agreed to pay
a certain sum
money to a named person, "or order," in consider-
of
ation of which he was to receive certain bonds and stock. Later, the
agreement was involved in a suit by an indorsee, who sought to recover
the money, and it was held that such indorsee was bound to prove
performance before the amount named was recoverable.^'' Here the
12 Burke V. Smith, 16 Wall. (U. S.) Pa. St. 350, 72 Atl. 695 (where an
390, 21 L. Ed. 361 (where the sub- underwriting agreement was held tri-
scribers' agreement to take stock in a partite).
railroad wag reduced when a city ex- 16 See Knickerbocker Trust Co. v.
tended aid to the corporation and took Evans, 188 Fed. 549.
acme of the stock). ISMinot v. Burroughs, 223 Mass.
IS See § 442, supra. 595, 112 N. E. 620.
14 See Real Estate Trust Co. of Phila- 17 Litchfield Sav. Society v. Dibble,
delphia v. Eiter-Conley Mfg. Co., 223 80 Conn. 128, 67 Atl. 47L
953
§ 445] Pbivate Coeporations [Ch. 15
underwriting agreement might be described as a species of negotiable

paper.
In England, the nature of an underwriting agreement is well
defined. The plan in vogue there is the execution of a letter by which
the signer applies for a certain number of shares of stock, agreeing to
take less if the public subscription warrants a reduction of the amount.
Various other conditions are usually inserted in the letter, and the pro-
moter is appointed as the signer's agent to' apply for the stock, if the
underwriter neglects or fails to act. In this way the obligation is
made secure, as regards the taking of stock.^*
§ 446. Relation of underwriter to corporation. contract to get A

shares subscribed has been held not to be in any sense a contract of
personal service. Such a contract can be equally well fulfilled by
the contracting party procuring some one else to obtain the subscrip-
tions for the shares, and in the case of the death of the contracting
party, the executors could obtain subscriptions to the same extent as
the individual.^'
While the facts might be such as to make an underwriter an agent
of a corporation, this is not usually the case. And the fact that a
corporation advertises a person as an underwriter of its stocks and
bonds does not as a matter of law make such underwriter an agent
of the corporation. On the contrary he is an ultimate purchaser of
so much of the stock which he agrees to take and which' he does not
sell. And in selling stock or bonds the underwriter is obviously acting
solely in his own interest, and to relieve himself of the necessity of
taking such stoek.^" Of course, the evidence may he such as to estab-
lish the relation of principal and and the doctrine of estoppel
agent,*^
may be invoked if the facts are such as to show a holding out of an
18 For
examples of underwriting 20 Fraser v. Home Telephone & Tele-
lettere, In re Bultfontein Sun
see graph Co., 91 Wash. 253, 157 Pac. 692.
Diamond Mines, Ltd., 75 L. T. E. 669, 21 In an action where it was con-
13 T. L. E. 156. tended that an underwriter was an

In re Harvey's Oyster Co., Ltd., 63 ^S^"* °* ^^^ corporation, evidence
L. J. Ch. 578, 2 Ch. 474, 8 E. 715, 70
^^"^"^^showed merely that a friend of
L. T. E. 795, 42 W. E. 701, 1 Manson ^^^ plaintiff told him that he was sell-
ing the stocks and bonds of the cor-
253
Brussels Palaee of Varieties, Ltd.
''^°^'^""; '^' °'
Zf°"' f""^'
V. Prockter, 10 T. L. E. 72, and cases "fpresident, ^"d,,^"*^°^"ff .'^^ }°
-.-,...
referred to,' infra.
t"e '""^rT'and
4.,„j„„ j v
that such friend in-
troduced him ito î.
the underwriter, who
19 In re Worthington, [1914] 2 K. had an office in the building with a
B. 299, 83 L. J. K. B. 885, 110 L. T. sign thereon stating his business as
B. 599, 31 Manson 119. "underwriter," and by whom the
954
Ch. 15] Underwriting Agrkbments [§ 448
underwriter as an agent. But obviously the doctrine of estoppel

cannot be invoked by a person who purchases stock from an under-
writer, not knowing what the term means. Such a person ea«inot
claim that the underwriter is held out as an agent and represented to
be such.2*
§ 447. Corporations as underwriters or guarantors. Unless such

authority is expressly conferred,^* a corporation frequently has no
power to act as guarantor or surety.^*
By a parity of reasoning the existence of the power to underwrite

securities would seem to be denied to a corporation. But this rule
would not operate as to those banking or finance companies which
are engaged in this kind of business. And in many cases underwriting
is done by a trust company, a syndicate or some other corporation of
this nature. Other instances may be found, as where one corporation

engaged in some large business, which wishes to promote a sub-
sidiary corporation, in order to insure the success of the second or
new company, enters into agreements for the underwriting of the
stock, or even the bonds.^^
The fact that a corporation is the owner of a large amount of stock
of a new company and is largely interested in its success, and that it
offers a bonus of stock to induce subscriptions cannot destroy its right
to join with other subscribers in creating an underwriting syndicate
to take bonds.^^
—
§448. Acceptance of agreement Necessity of acceptance; notice.
In reference to underwriting letters, it may be stated that ordinarily
plaintiff was shown a prospectus of 23 Mine & Smelter Supply Co. v.

the corporation, was held insufficient Stoekgrowers ' Bank, 173 Fed. 859.
to show that the underwriter was an 24 Mapes v. German Bank of Tilden,
agent though the plaintiff purchased 176 Fed. 89; Simmons Nat. Bank v.
his bonds and stock from such under- Dilley Foundry Co., 95 Ark. 368, 130
writer. Fraser v. Home Telephone & S. W. 162; Gause v. Commonwealth
Telegraph Co., 91 Wash. 253, 157 Pac. Trust Co., 196 N. Y. 134, 24 L. E. A.
692. (N. S.) 967, 89 N. E. 476; Gaston &
The fact that an underwriter issues Ayres v. J. I. Campbell Co. (Tex. Civ.
a prospectus to aid him in selling App.), 130 S. W. 222.
stock and bonds, does not tend to 2B See Fraser v. Home Telephone &
prove agency. Fraser v. Home Tele- Telegraph Co., 91 Wash. 253, 157 Pac.
phone & Telegraph Co., 91 Wash. 253, 692.
157 Pac. 692. 26 Eastern Tube Co. v. Harrison,
22 Fraser v. Home Telephone & Tele- 140 Fed. 519.
graph Co., 91 Wash. 253, 157 Pac. 692.
955
to constitute a contract by correspondence there must first be a pro-

posal, then an acceptance, and thirdly a communication of the accept-
ance of the agreement.^'' And the mere acceptance of an offer, unless
it is brought to the knowledge of the person making it, does not, as
a rule, convert the offer into a contract.*^ Of course, attention must

be paid to the terms of the underwriting letter or agreement in each
particular case.^' Thus, if an underwriting letter constitutes a mere
offer, an acceptance is necessary.^" And where an applicant signs
an underwriting letter agreeing to take a certain number of shares
or "such less number as may be accepted by you," there is no bind-
ing agreement until the underwriter has notice of how much of his
proposal is aecepted.^^
But where the underwriting agreement is in the usual form and
is not worded so as to be an offer, no acceptance is necessary, or, if
necessary, it may be implied from the conduct of the promoter in

retaining the letter.'^
It has been said thatan underwriting agreement was "not like a
bet that must be accepted before the event on which it became
operative was known." In that ease it was pointed out that in the
usual course of business, where an underwriter agrees to take an
indefinite number of shares, in order to make up the amount required
by a new corporation to do business, the corporation could not accept
the underwriter's agreement until it was able to determine how many
shares it wished him to take.^^
Under the same rules, notice of acceptance need not be communi-
cated to the underwriter by the promoter or corporation, unless he
expressly stipulates that such notice be eriven.^*
§ 449. — What constitutes a,cceptance. Acceptance of an under-

writing agreement may be implied from the conduct of the promoter
27 In re Bultfontein Sun Diamond Ch. 297, 76 L. T. E. 300, 45 W. E. 420.

Mines, Ltd., 75 L. T. E. 669, 13 T. L. 32 See § 449.
E. 156. 33 In re Consort Deep Level Gold
28 In re Consort Deep Level Gold Mines, Ltd., [1897] 1 Ch. 575, 66 L. J.
Mines, Ltd., [1897] 1 Ch. 575, 66 L. J. Ch. 297, 76 L. T. E. 300, 45 W. E. 420.
Ch. 297, 76 L. T. E. 300, 45 "W. E. 420. 34 Under the usual underwriting
29 In re Consort Deep Level Gold agreement whereby the underwriter
Mines, Ltd., [1897] 1 Ch. 575, 66 L. J. applies for certain shares and signs
Ch. 297, 76 L. T. E. 300, 45 W. E. 420. an irrevocable authority whereby the
30 In re Consort Deep Level Gold agent may
apply for shares if he fails
Mines, Ltd., [1897] 1 Ch. 575, 66 L. J. to act, the
underwriter is bound
Ch. 297, 76 L. T. E. 300, 45 W. E. 420. though he has no notice of the accep-
31 In re Consort Deep Level Gold tance of the agreement. Shaw v.
Mines, Ltd., [1897] 1 Ch. 575, 66 L. J. Bentley & Co., 68 L. T. E. 812.
956
Ch. 15] Undeeweiting Agebements [§ 451
or person who takes the agreement. Such conduct may consist in

the mere retention of the underwriting letter or agreement,^* or in the
acts of the agent in acting in conformity with the provisions of
the contract, as by applying for stock.^*
§450. —
Time of acceptance. Where an underwriting letter to
an agent authorizes him to apply for shares in the writer's name, and
such agreement contains the stipulation that the "engagement is
binding for two months" on the writer, the agreement must be con-
sidered as being ambiguous, and must be interpreted according to the
intention of the parties.*'' In such case, it has been held that the
words "this engagement" do not mean an offer consummated by
acceptance but must be interpreted as an offer binding for two
months and no longer.^*
§451. — Estoppel to deny acceptance. In some cases an appli-

cant may be estopped from denying that his application for shares by
his agent is binding although he was not notified of the acceptance of
his agreement."^ And where an underwriter, regardless of whether
his offer is accepted, takes the shares allotted to him and acts for some
time as a shareholder, he cannot consequently repudiate his agree-
86 Where an underwriting letter is within a reasonable time and when

retained by promoters without objee- completed was to be in force for two
tion, such retention may be inferred months. Decision of Vaughan Wil-
to constitute an acceptance, since if liams. In re Hemp, Yarn & Cordage
the promoters did not wish to accept Co., Ltd., 65 L. J. Ch. 322, rev'd
the agreement they would naturally In re Hemp, Yarn & Cordage Co.,
return the rejected letter. In re Bult- Ltd., [1896] 2 Ch. 121, 65 L. J. Ch.
fontein Sun Diamond Mines, Ltd., 75 591, 74 L. T. E. 627, 44 W. B. 630, 3
L. T. E. 669, 13 T. L. E. 156. Manson 187.
36 Where an underwriting letter au- 38 In re Hemp, Yarn & Cordage Co.,
thorizes secretaries of the corporation Ltd., [1896] 2 Ch. 121, 65 L. J. Ch.
addressed to apply for shares, an ac- 591, 74 L. T. E. 627, 44 W. R. 630, 3
ceptance may be implied from the con- Manson 187.
duct of the secretary in placing the 39 In Henry Bentley & Co. &
re
form on the list as agent of the com- Yorkshire Breweries, Ltd., 69 L. T. K.
pany. North Charterland Exploration 204.
Co. V. Eiordan, 13 T. L. E. 80, 281. Doctrine of estoppel held not to
37 In re Hemp, Yarn & Cordage Co., apply where underwriter had not so
Ltd., [1896] 2 Ch. 121, 65 L. J. Ch. conducted himself as to be precluded
591, 74 L. T. R. 627, 44 W. R. 630, 3 from denying agent's authority. In
Manson 187. re Consort Deep Level Gold Mines,
Such an agreement has been eon- Ltd., [1897] 1 Ch. 575, 66 L. J. Ch.
strued as being an offer to be accepted 297, 76 L. T. R. 300, 45 W. R. 420.
957
§451] PbIVATE COBPOKATIONS [Ch. 15
ment and claim that he was entitled to acceptance of the underwrit-

ing agreement.*"
If an underwriter stipulates that his agreement is to be accepted
within a certain time, and such condition is included in the agree-
ment, the corporation would be bound to give him notice of accept-
ance. But if the stipulation as to acceptance before a certain time
is contained in a separate letter, which is handed to an agent together
with the underwriting agreement, and passes through the hands of
various other agents, there being no receipt of the condition by the
corporation, the doctrine of estoppel may be invoked. There being
nothing to put the corporation on inquiry, and the underwriting
agreement having been executed with the intention that it should be
acted upon, the underwriter will be estopped from denying the
authority of his agent, contained in the agreement, to apply for
shares.*^
§452. Consideration for underwriting' Payment in general; —

nature; right to pay commission. Under an underwriting agree-
ment a commission is usually paid on all shares to which the
agreement applies, whether taken by the public or by the under-
writer himself.**
This commission is usually, and especially in England, stated to
be a certain per centum of the par value of the stock referred to in
the underwriting agreement. The agreement may, however, provide
other methods of compensation. Thus there may be a provision en-
titling the underwriter to a certain number of shares of stock, and
to a contingent cash commission only in the event that the under-
writers succeed in disposing of the stock to the public.*^
As to the right to pay commissions, it would seem that there should
be no legal objection to such payment provided that the company
does not misapply its capital. There are few decisions on this sub-
ject.
40 In re Hemp, Tarn & Cordage Co., 43 Philadelphia Const. Co. v. Cramp,

Ltd., [1896] 2 Ch. 121, 65 L. J. Ch. 138 Ted. 999.
591, 74 L. T. B. 627, 44 W. K. 630, 3 In the above case the contract was
Manson 187. construed and held to provide that
41 In re Henry Bentley & Co. & the corporation was to receive 95 per
Yorkshire Breweries, Ltd., 69 L. T, E. cent, of par value of the bonds,
204. whether sold by the underwriters or
42 In re Licensed Victuallers' Mut. taken by subscribers. Philadelphia
Trading Ass 'n, 58 L. J. Ch. 467, 42 L. Const. Co. v. Cramp, 138 Fed. 999.
E. Ch. D. 1, 60 L. T. E. 684, 37 W. E.
674.
958
Ch. 15] Undebwkiting Agbeements [§452
In one case, where a promoter was held liable for secret profits,
and in determining the amount due, the promoter contended that he
was entitled to a certain sum paid to his partner for underwriting
shares, it was held that to allow such sum would be to make the com-
pany misapply its capital.** This is submitted as being rather un-
usual and no other case has been found with a like holding.
Some other English cases deal with the construction of the "Com-
panies Act" whereby provided that it is lawful to
it is specifically
pay a commission to persons subscribing, agreeing to subscribe, 'Or

procuring or agreeing to procure subscriptions, if the payment of
such commission is authorized by the articles, and, where the shares
are offered to the public for subscription, if the amount of the com-
mission is disclosed in the prospectus.*^ Such a statute does not apply
where a corporation gives an individual an option of taking shares,
and there is no prospectus or offer of shares to the public.*®
44Lydney & Wigpool Iron Ore Co. company, or procuring or agreeing to

V. Bird, 33 Ch. Div. 85. procure subscriptions, whether abso-
45 The text of the Companies (Con- lute or conditional, for any shares in
Edw. VII, c.
solidation) Act, 1908 (8 the company, whether the shares or
"(1) It shall
69), §,89, is as follows: money be so applied by being added
be lawful for a company to pay a to the purchase money of any property
commission to any person in consid- acquired by the company or to the
eration of his subscribing or agreeing contract price of any work to be exe-
to whether absolutely or
subscribe, cuted for the company, or the money
conditionally, for any shares in the be paid out of the nominal purchase
company, or procuring or agreeing to money or contract price, or otherwise.
procure subscriptions, whether abso- (3)Nothing in this section shall af-
lute or conditional, for any shares in fect the power of any company to pay
the company, if the payment of the such brokerage as it has heretofore
commission is authorized by the arti- been lawful for a company to pay, and
cles, and the commission paid or a vendor to, promoter of, or other
agreed to be paid does not exceed the person who receives payment in money
amount or rate so authorized, and if or shares from, a company shall have
the amount or rate per cent, of the and sharll be deemed always to have
commission paid or agreed to be paid had power to apply any part of the
is — (a) In the case of shares offered money or shares so received in pay-
to the public for subscription, dis- ment of any commission, the pa,yment
closed in the prospectus; * * * (2) of which, if made directly by the xiom-
Save as aforesaid, no company shall pany, would have been legal under
apply any of its shares or capital this section."
money either directly or indirectly in 48 linger Companies Ac* 1900 (63 &
payment of any commission, discount, 64 Viet. c. 48), §8 providing that it
or allowance, to any person in consid- shall be lawful for a company to pay a
eration of his subscribing or agreeing commission to any person subscribing
to Subscribe, whether absolutely or or agreeing to 'subscribe absolutely or.
oonditionaJly, for any shares of the conditionally for shares in the com-
959
'
And the payment of commissions is illegal except as autnorized by

the statute. It will be noted that the statute operates as a permissive,
as well as a prohibitory, enactment. In the second portion the pay-
ment of commissions is, prohibited, except in the cases mentioned in
the first portion, or subsection. This prohibition has been held to
apply to private as well as public companies.*''
Where an underwriting agreement provides for a stated commis-
sion to be paid, and another agreement is entered into prior to the
formation of the corporation, by which an existing company is to be
paid a per centum on thershares subscribed to the new company, in
consideration of the transfer of certain trading rights to such new
company, it would seem that the statute is not violated, even though
the commission of the promoter added to the per centum agreed to
be paid the existing corporation would exceed the limit allowed by
the articles of the new company. There is a dictum to this effect in
one case and the court was inclined to hold that the amount paid as
a per centum was merely stated as an indirect way of fixing the amount
of the purchase money of the stock. In any event, regardless of
misstatements in the prospectus, there was no intention to break the
law.«
§453. — Oonstruction of particular words as to consideration.

Where an agreement provides for the underwriting of shares at a
"discount" of a certain per cent., the word "discount" is to be con-
strued as equivalent to the term "commission."*^
pany, or procuring or agreeing to pro- L. S. Ch. D. 1, 60 L. T. B. 684, 37 W.

cur© subscriptions, etc., if tlie pay- E. 674.
ment of commission and the amount This construction was based upon
or rate is disclosed in the pros- the phrasing of an underwriting let-
pectus, does not apply where the ter reading as follows: "In consider-
company gives an individual an option ation of your underwriting 10,000 £
of taking shares and there is no " of - •
Ashares in the Licensed Victuallers
'
fer to the public for subscription," Mutual Trading Association, Limi-

and where there is no "prospectus." ted, at fifteen per cent, discount, I,
Shorto V. Cblwill, 101 L. T. E. 598. acting on behalf of the company,
47 ^Dominion of Canada Gen. Trad- undertake that all applications which
ing & Investment Syndicate v. Brig- have been received up to the present
9tocke, [1911] 2 K. B. 648, 80 L. J. K. time, or may be received within one
B. 1344, 105 L. T. E. 894, 18 Manson week of the closing of the lists, shall
369, 55 Sol, J. 633, 27 T. L. E. 508. be allotted in full from the said 10,000
48 In re Wprthington, [1914] 2 K. shares underwritten by you." In
B. 299, 83 L. J. K. B. 885, 110 L. T. reaching this conclusion the court ad-
E, 599, 21 Manson 119, verted to the fact that the term, when
. 49 In re Licensed Victuallers' Mut. not explained by the context, was {im-
irading Ass'n, 58 L. J. Ch. 467, 42 biguous.
960
Ch. 15] Undeeweiting Ageeements [§ 456
§ 454. — Actions for consideration. Where an underwriting ton-

tract provides f er a stipulated commission to be paid the underwriter,
and also gives the promoter authority on default of the underwriter
to apply for the shares which the underwriter agrees to take, an ap-
plication for the shares is not a condition precedent to a right of
action for the commission.^"
§ 455. Conditions in —
agreements Âs to place of business of cor-
poration. an underwriter wishes to condition his signature or his
If
covenant to sell or purchase bonds or securities by a stipulation that
the corporation is to erect its plant at a named place, it is his duty ifi
express that condition in the contract.*^
If the underwriting agreement contains no stipulation as to the
place of business of the corporation, and the underwriter continues
with the performance of his agreement, he cannot subsequently con-
tend that his subscription was conditional.^^
A
condition as to the place of business may be contained in a sepa-
rate covenant, but such a covenant does not operate to condition the
remainder of the agreement. The breach of such covenant does not
operate as a defense to an action for the breach of the remainder of
the agreement.^*
§ 456. — As to other subscriptions. In some underwriting agree-

ments it is stipulated that the signer is not, to be called upon to take
the shares underw;ritten unless a certain amount of stock is subscribed
for. But it has been held that a contract contains no condition
if
that underwriting certificates shall be unenforceable unless sub-
scriptions to bonds shall aggregate a certain amount, such a condition
will not be implied.**
An express stipulation that an underwriter is not to be called upon
to accept his allotment until a specified number of shares are sub-
scribed for by the residents of a foreign country has been held to
constitute a condition precedent to the Underwriter's liability,** and
such condition not fulfilled by obtaining the underwriting of such
is
a number of shares by such residents. The contract having provided
60 gangster v. Netter, 9 T. L. E. 63Busch v. Stromberg-Carlson Tel.

4dl. Mfg. Co., 217 Fed. 328.
61 Buseh V. Stromberg-Carlson Tel. 64 Knickerbocker Trust Co. v. Daîs,
Mfg. 217 Fed. 328.
Co., 143 Fed. 587.
62Buscli V. Stromberg-Carlson Tel. 55 Paul Boyer, Ltd. v. Edwarois, 17
Mfg. Co., 217 Fed. 328. T. L. E. 16.
961
IPrir. Corp.— 61
for the sale of the stock, or its subscription, it was necessary to per-
form suclf condition.*®
§ 457. — Parol evidence. The general rule prohibiting the admis-

sibility of parol evidence to vary the terms of a written contract
applies to underwriting agreements. And in the same manner the
exceptions to stich rule apply. Not only can ambiguities be explained
by parol, but the agreement may in the same manner be varied, added
to, or even contradicted where it is shown that but for the oral stipu-
lations made at the time, the party affected would not have executed
it. In accordance with this rule a conditional agreement was held to
exist in one case where an issue of bonds was underwritten. And the
subscriber was held entitled to be relieved from liability since he in-
troduced strong evidence showing the existence of the conditional
agreement and since his release did not operate to injure the co-
subscribers. Also the corporation was bound by the stipulation of its
agent though it was contended that he exceeded his authority.*''

It cannot be contended that an underwriting agreement is avoided
by an oral promise that the subscription will not be collected, where
it is not alleged that such oral agreement has been omitted from the
written agreement by fraiid, accident or mistake.*^
—
§458. Application for shares of stock Necessity of formal ap-
plication. Ordinarily, and in the usual course of business, a formal
application should be made for the allotment of the shares of stock
which are underwritten.*® But this is a matter which is governed by
the contract entered into. The terms may be such that the agreement
operates as an application for the stock, in addition to the
guaranty.*"
B6 Where an underwriting agree- shares, as such agreement by the

ment provided that the signer was French underwriter could not be eon-
to Aake a certain number of prefer- sidered as a fulfillment of the eondi-
ence shares, but it stipulated that the tion. Paul Boyer, Ltd. v. Edwardes,
signer was not to be called upon to 17 T. L. E. 16.
accept his allotment unless 8,000 pref- 67 Eeal Estate Trust Co. of Phila-
erence shares were irrevocably ap- delphia v. Riter-Conley Mfg. Co., 223
plied for by persons residing in Pa. St. 350, 72 Atl. 695.
France, it being also stipulated that 88 "Warburton v. Trust Co. of Ameri-
the application money should be duly ca, 158 Fed. 969.
paid on each of such shares, such 69 In re Licensed Victuallers' Mut.
stipulation constituted a condition Trading Ass'n, 58 L. J. Ch. 467, 42 L.
precedent and the underwriter was E. Ch. D. 1, 60 L. T. R. 684, 37 W. E.
not liable, and was not required to 674.
take shares when another underwriter 60 In re Licensed Victuallers ' Mut.
residing in France applied for 8,000 Trading A^s'n, 58 L. J. Ch. 467, 42
962
Ch, 15] Under WBiTiNG Agbeements [§ 460
§459 —
Application by agent. It is customary, particularly in
England, for the underwriter to authorize the promoter as his agent
to apply for the shares in his name, it being also stipulated, usually,
that the authority given is irrevocable. Under such an agreement the
underwriter cannot contend that he has the power to revoke the
agent's authority, this being the case of an authority coupled with
an interest.^^
This manifestly of distinct advantage, not only as a means of
is
securing performance of the underwrite 's agreement, but also as

giving the corporation something of value which can be relied upon.
Frequently, the underwriting agreement is pledged, as where a loan
is contemplated, and in such cases it is necessary that the underwrit-
ing agreement should be of the value of a subscription contract. To

allow the revocation of the agreement would be to admit the under-
writer to the position of a mere broker or agent.
If the underwriting agreement is intended to be shown to the cor-
poration and acted upon, the doctrine of estoppel may be invoked
to prevent the underwriter from denying the authority of his agent
(the promoter) to apply for the shares. Such doctrine was applied
in one case where there was nothing in the agreement to put the cor-
poration on inquiry as to the agent's authority. And such authority
was not limited by a letter which contained a stipulation as to accept-
ance of the agreement, but which letter did not reach the corpora-
tion.62
The agent's authority is subject to revocation, or is in fact termi-
nated, where there is a substantial alteration of the underwriter's
risk.®^ This is a matter M'hieh is treated in another section,^* but it
is apparent that an underwriter who gives a person a power of at-
torney to apply for a certain number of shares is entitled to rely on
the original agreement or scheme entered into.
§ 460. —
Extent of agent's authority. The extent of authority of
an agent of the under\s'riter to apply for shares, is governed by the
terms of the underwriting agreement. If such a contract contains
L. E. Ch. D. 1, 60 L. T. R. 684, 37 W. 63 Warner International & Overseas

R. 674. Engineering Ltd. v. Kilburn,
Co.,
61 In re Hannan 's Empress Gold- Brown & 84 L. J. K. B. 365, 110
Co.,
Mining & Development Co., Ltd., L. T. E. 456, 30 T. L. R. 284, revers-
[1896] 2 Oh. 643, 65 L. J. Ch. 902, 75 ing decision of Pickford, J., 29 T. L.
L. T. R. 45. R. 322, See also Electric Welding Co.
62 In re Henry Bentley & Co. & v. Prince, 195 Mass. 242, 81 N. E. •
Yorkshire Breweries, Ltd., 69 L. T. R. 306.

204. 64 See § 472, infra-
963
§460] PbIVATE COKPOEATIONS [Ch. 15
the usual irrevocable authprity allowing the aênt to apply for shares,
and the underwriter agrees to take a certain number of shares, or a
portion of suchnumber if the public subscribes, the contract is bind-
ing,and the underwriter is bound by the agent's application.®^ In
such case the agreement operates to give the underwriter an option
to find subscribers for the stock until the time mentioned in the agree-
ment when he is bound to take the shares.®*
.Under an agreement for a number of shares, where the underwriter
gives authority to "hand in my application form to the company as
my agent," has been held that the agent, who applied for a less
it
number of shares than that mentioned in the agreement, had no

authority to do so. If any authority was conferred, it was to be con-
strued strictly, and the agent had no power to apply for the lesser
number of shares though some of the stock was subscribed for by the
public.®''
§461. — Calling upon underwriter to perform contract. In a

number of eases the underwriting letter or agreement has contained
the statement that the underwriter agreed to send in his application
or to find subscribers for the shares underwritten, "when called
upon," or "if and upon."
There were also the usual stipu-
as called
lations that the agent was authorized irrevocably to apply for the
shares, and the like.
It has been uniformly held that the stipulation as to calling upon

the underwriter or notifying him to perform the contract, was a
condition precedent to an application by the agent, even though the
contract was binding.®' The agreement was not to be used until
the underwriter was called upon to perform, and an application by the
qgent in disregard of the stipulation was unauthorized.®'
§462. Extent of obligation to take stock. The underwriting

agreement entered into is, as has already been noted, a distinct agree-
ment from a subscription to take stock.'® But there is no objection
65 Shaw V. Bentley & Co., 68 L. T. 68 In re Bultf ontein Sun Diamond
E. 812 (where the agent applied for Mines, Ltd., 75 L. T. E. 669, 13 T. L.

164 shares and the underwriter who ^- 156; In re Harvey's Oyster Co., 63
had. agreed to take 200, could not re- ^- J- ^h. 578, L. E. (1894) 2 Ch. 474,
pudiate the application). ^0 L. T. E. 795, 42 W. E. 701, 1 Man-

^0" 153; Brussels Palace of Varieties
Co., CO
68 T
,
rn
66 Shaw V. Bentley & L. T. ^_ prockter, 10 T. L. E. 72.
^- ^^^- 69 Electric "Welding Co. v. Prince,
67Holophane v. Hesseltine, 13 T. 195 Mass. 242, 81 N. E. 306.
L. E. 7. 70 See § 444, supra.
964
'
Ch. 15] Undbkwbiting Agbeements [§465
to an underwriter becoming a subscriber in addition to Ms btber obli-

gations. This is rather an advantage, as Operating to decrease the
other underwriters' liabilities.
Accordingly where certain underwriters indorsed a note agreeing

to take SD many shares "firm," it has been held that an independent
contract was entered into by which the underwriters mentioned agreed
to become shareholders unconditionally.''^
Cases have also arisen where there was doubt whether the original
agreement made the signers subscribers, or mere underwriters with
the obligation to take stock not disposed of to the public. In such case
the practical construction adopted by the parties may be conclusive,
and signers of an original subscriptioii agreement may be bound only
as underwriters.'''
§ 463. Breach of contract —Election of remedies. Where there is
a breach of contract by an underwriter, the plaintiff, has the option

to retain the bonds and stock which the underwriter agreed to take,
and to sue for damages for the failure of siieh underwriter to take
and pay for them. Or he may deliver the securities to the under-
writer, and if he refuses to receive them, bring them into court and
sue to recover the contract price.'^
§ 464. —
Parties. The usual underwriting agreement is made,
with a promoter, at least this is one of the common forms in England.;
The corporation is not a party to such a,greement, and accordingly it
may be stated as a general rule that the promoter must sue, where;
there is a breach of contract by the underwriter.''* But where under-
writers agree to pay a portion of their subscription on demand to a
certain trust company, and the agreement provides for the enforce-
ment of the obligations by such trust company, it is a proper party
to sue on the agreement.''^
§ 465. — Breach of covenants. If an underwriting agreement

contains a covenant stipulating that certain acts are to be done at
71 Sydney Harbour Collieries Co. v. action at law for breach of contrsact/

Grey, 14 T. L. B. 373, aff'g 13 T. L. Gilbert v. Bunnell, 92 N. Y. App. Div.
R. 564. 284, 86 N. Y. Supp. 1123.
Bankers' Money Order Ass'n v.
72 74 Brussels Palace of Varieties v.
Naehod, 128 N. Y. App. Div. 281, 112 Prockter, 10 T. L. E. 72. See also
N. Y. Supp. 721. Electric Welding Co. v. Prince, 195
TSBusch V. Stromberg-Carlson Tel. Mass. 242, 81 N. E. 306.
Mfg. Co., 226 Fed. 200. 76 Warburton v. Trust Co. cf Aineri-
Complaint held to state cause of ca, 158 Fed. 969. ^
965
certain times, and another covenant refers to the performance of other

acts at other times, the latter covenant does not condition the former,
but is independent of it, and a breach of the latter covenant, while
it may raise a cause of action, is no defense to an action for the breach
of the former covenant."
§ 466. —
Delivery of stock. Under the usual underwriting agree-
ment the production and tender of the stock or bonds underwritten
is a prerequisite to demand upon the underwriters for performance of
their agreement." Underwriters who pay the contract price are

entitled to the delivery of the property contracted to be sold. Payment
is only the final act necessary to make the contract complete.
If parties agree upon the delivery of a particular security, delivery
ia essential, regardless of whether such security becomes worthless or
not."
§467. — Insolvency Where ah underwriting agree-

as defense.
ment is complete in and there are mutual covenants, there being
itself
an agreement on the part of the corporation or the promoter or some
other person to furnish certain stock and bonds and there being the
usual agreement of the underwriter to insure the sale of such securities
at par, it is no defense to an action against one of the underwriters
for breach of his contract that the corporation became insolvent and
the bonds worthless after he made his contract.'" This is especially
true where the underwriter is largely interes.ted in the venture and
nearly completes the performance of his undertaking and receives the
benefit therefrom.^"
76 Bnsch V. Stromberg-Carlson Tel. Biinply a provision for the payment of

Mfg. Co., 217 Fed. 328. In this case a certain sum of money to a named
the underwriter contended that his person or order, in consideration of
agreement was void because the cove- which the underwriter was to receive
nant as to location of the corpora.- certain bonds and stock. In a suit
tion's plant at a certain city was for the money by an it was
indorsee,
broken. held that such indorsee was bound to
77Kirkpatriekv. Eastern Milling & Vôve performance or an offer to
Export Co., 135 Fed. 146; Hudson P"form before he could recover the
consideration. The parties having
Valley E. Co. v. O'Connor, 95 N. Y.
^reed upon the delivery of a particu-
88 N. Y. Supp. 742.
^^ Div. 6,
App.
' ,
f
^^^ security, such delivery was
78 Litchfield Sav. Society v. Dibble, essential, regardless of whether the
80 Conn. 128, 67 Atl. 476. In the security named was worthless or not.
above case the contract which was 79Busch v. Stromberg-Carlson Tel.
termed an "underwriting certificate," Mfg. Co., 217 Fed. 328.
was radically different from the usual 80 Busch v. Stromberg Carlson -
underTrriting agreement, there being Tel. Mfg. Co., 217 Fed. 328.
966
Ch, 15] Underwkiting Agreements [§ 471
§ 468. — Measure of damages. The measure of damages for the

breach of an agreement to insure the sale of subscribed bonds and
stock at par, and to buy at par the subscribed securities not sold, is
the difference between the agreed price and the value at and after
the breach of the contract of such bonds and stock with interest on
that difference.*^
There is no more difficulty in establishing the value of an under-
writing contract by proof, than there is in other cases where the value
of the contract depends upon the profits to be made from a given
venture.*®
§ 469. — Effect of indemnity agreement. The fact that the trust

company requires another person for whose benefit the bonds of the
corporation are issued, to indemnify it still further by advancing
money in anticipation of the payment by underwriters and as an
indemnity against their nonpayment, in no wise affects its right to
collect, nor the obligation of the underwriter to pay his subscription.*^
§470. Specific performance. It is well settled that courts of

equity have jurisdiction to entertain a suit for, and to decree specific
performance of a contract for the sale of a chattel or of a chose in
action agreed to be transferred.** This rule applies to underwriting
agreements, but parties cannot as a matter of absolute right demand
the specific performance of such a contract. Whether it will be
allowed in a given case, rests in the sound discretion of the court.
Such discretion will be favorably exercised when it is made to appear
that compensation in damages is difficult or impossible of establish-
ment, and the law will then be inadequate in remedy.*^
—
§ 471. Discharge or release of underwriter Lapse of time. When
an underwriter enters into an agreement to underwrite shares, it
would seem that he will not be bound to keep his money ready to
81 Buseh V. StromlDerg-Carlson Tel. 83 Warburton v. Trust Co. of

Mfg. Co., 217 Fed. 328. America, 158 Fed. 969.
Where the plaintiff suing for a 84 Gilbert v. Bunnell, 92 N. T. App.
breach of contract brings into court Div. 284, 86 N. Y. Supp. 1123.
and tenders the bonds and stock 85 Gilbert v. Bunnell, 92 N. Y. App.
which the underwriter was to receive, Div. 284, 86 N. Y. Supp. 1123.

the rule of damages mentioned does Where a complaint states a con-
not apply. Buach v. Stroraberg-Carl- tract,a breach of it, and that plain-
son Tel. Mfg. Co., 217 Fed. 328. tiffs have sustained damages, and
82 Gilbert v. Bunnell, 92 N. Y. App. prays for relief to the extent of the
Div. 284, 86 N. Y. Supp. 1123. money damages suffered, it states the
967
answer to that investment for an indefinite time, but that the new
corporation should be launched, within a reasonable time.^® On the
other hand, the state of the financial market and other conditions may
be such that it is impossible to bring out the new company with any
hope of success, and consequently delay is necessary. If an adven-
ture underwritten cannot be carried through within, the time stipu-
lated, the agreement will be ended.*'' Cases may arise, however, where
the underwriter has paid a certain portion of money to the promoter
or corporation and acquiesces in the retention of such money. In
such case it would be difficult to see how the lapse of time would
operate to terminate the agreement.**
§472. Alterations or variations of underwriting agreements. A

substantial alteration or variation of the agreement entered into by
the underwriter will operate to discharge him from his obligation,
and accordingly stipulations are usually inserted in such agreements
as to what changes may be made. This becomes important where
the matter of underwriting is taken up at such an early stage of the
proceedings that the amount of stock or bonds or other securities
which is to be issued has not been determined, except tentatively.
It is apparent that any radical change in the amount of stock or other
securities, either by increasing the same or reducing them, may
seriously affect the risk assumed by the underwriter. On the other
hand, the necessity of such changes is equally apparent.
If there is acquiescence in a change of the agreement, or if a
change is contemplated to which the underwriters agree, there can
be no discharge of the underwriters. Accordingly, where underwriters
agree that a promoting corporation is to settle the amount of shares,
and such corporation is also an underwriter with interests identical
with those of the other underwriters, a reduction in the amount of
capital stock cannot be contended to operate as a release of the under-
writers.*® But the promoting corporation has no right to change the
basis on which the underwriters have agreed with it to furnish the
underwriting.®"
It may also be said that a slight "variation" of the agreement does
existence of an adequate remedy at 88 Electric Welding Co. V. Prince,

law. Gilbert v. Bunnell, 92 N. Y. App. 195 Mass. 242, 81 N. E. 306.
Div. 284, 86 N. Y. Supp. 1123. 89 See Electric Welding Co. V;
86 Electric Welding Co. v. Prince, Prince, 195 Mass. 242, 81 N. E. 306.
195 Mass. 242, 81 N. E. 306. 90 Electric Welding Co. v. Prince,
87 Electric Welding Co. v. 195 Mass. 242, 81 N. E. 306.
Prince, 195 Mass. 242, 81 N. E. 306.
968
Ch. 15] Underwriting Agreements [§ 473
not affect the underwriter's liability, while an "alteration" has that
effect. And what constitutes a "variation" or "alter-

the question of
ation" was taken up in an English case, where* the underwriters '
agreed that their obligation was to hold good notwithstanding any

"variation" between the draft prospectus submitted to the under-
writers and the prospectus as finally settled and published. It was
originally provided that the minimum subscription on which the
directors could proceed to the allotment of shares was 15,000 pounds,
but as finally settled the amount was placed at the nominal sum of
100 pounds, and since the amount of stock subscribed for was con-
siderably in excess of that sum, it was decided to proceed to allot-
ment. It was held that this was a strong instance of an alteration
of the risk of the underwriter, that in fact an essentially different risk
was submitted, and the underwriters were not liable.*^
§ 473. Fraud in procuring underwriting — În general. The usual

rules as to fraud in procuring the execution of contracts apply to
underwriting agreements, and such fraud may consist in misrepre-
sentations which are material, and which are relied upon as well as
the concealment of material facts.®^
A statute providing that any prospectus issued, not specifying a
material contract, shall be deemed fraudulent, does not apply where
an underwriter signs an agreement before the prospectus is issued
and does not rely upon it.''
91 Warner International & Overseas tails of transaction for issuing

bonds.
Engineering Co., Ltd. v. Kilburn, his statements being supported by
Brown & Co., 84 L. J. K. B. 365, 110 other documentary evidence. War-
L. T. R. 456, 30 T. L. R. 284, reversing burton v. Trust Co. of America, 158
decision of Pickford, J., 29 T. L. R. Fed. 969.
322. 93 Baty v. Keswick, 85 L. T. R. (N.
The concealment of the fact of a
92 S.) 18.
pledge and the statement that the Companies Act 1867 (30 & 31 "Vict,
proceeds of an issue of bonds are to If131), § 38, does not apply to specula-
be used for the corporation's benefit tors or their friends not members of
and false representations as to the the public, where the prospectus is
culmination of a sale of bonds may be being settled preparatory to issuance
BufScient to authorize rescission. to the public. Baty v. Keswick, 85 L.
Rose v. Merchants' Trust Co., 96 N. T. R. (N. S.) 18.
Y. Supp. 946. Evidence held to show that the
Evidence held not to show fraud in underwriter did not read the contract
obtaining signature in underwriting but acted on the faith of two names
agreement, it appearing that the per- thereon. Baty v. Keswick, 85 L. 1'.
son accused of fraud took the stand R. (N. S.) 18.

and frankly and fully stated all de-
969
§ 473] Pkivate Cobpokations [Ch. 15
Where an underwriter is induced to enter into his agreement by

fraud, he has a right upon discovery of the what tort, either to restore
he has received, and claim restoration to the position occupied before

the agreement, or keep what he has received and prosecute the de-
fendant for the damages alleged to have been sustained. He cannot
prosecute both remedies, as they are inconsistent.®*
§474. — Bemedies. If fraud is shown to exist, the agreement

entered into may be avoided at the election of the defrauded party.'*
Also an underwriter entitled to rescind the agreement for fraud must
act promptly on discovering the fraud, since his delay may operate
to deprive him of the remedy.'* If, after knowledge of the fraud,
a party, so situated, proceeds in recognition or affirmance of his con-
tract, he, as a general rule, is deemed to have ratified it, and is denied
such remedy or relief, and his right of action resting in the fraud for
its support is only for the damages occasioned by it.''
If a suit is brought in equity to declare void an underwriting agree-

ment on the ground that it was obtained by fraud, and the defendant
contends that an adequate remedy at law for deceit exists, it has been
held that such a defense is not available unless pleaded in the answer.'*
§475. Underwriter's liabilities to third persons. To hold a sub-

scriber to the capital stock of an unsuccessful company liable over to
a purchaser upon a public subscription, it seems necessary that there
should be fraud, misrepresentation or deceit personally brought home
to and chargeable upon him." And where the stock is not purchased
of the underwriters, neither underwriters nor subscribers can be held
liable to future purchasers of stock or subscribers, because of the
mere fact that the purchasers or subscribers acted in reliance upon an
advertisement as to underwriters having underwritten such stock.^
94Eose V. Merchants' Trust Co., 96 raising the question. If he delays

N. Y. Supp. 946. action and retains the securities be-
95 An agreement induced by fraud is yond a reasonable time, or accepts
not void but only voidable. Eose v. performance after discovery of the
Merchants' Trust Co., 96 N. Y. Supp. fraud, he is held to have ratified the
946. contract and to have waived his ob-
86 Eose V. Merchants ' Trust Co., jections. Eose v. Merchants Trust
'
96 N. Y. Supp. 946. Co., 96 N. Y. Supp. 946.
97 Eose V. Merchants' Trust Co., 96 98 Eose v. Merchants' Trust Co., 96

N. Y. Supp. 946. N. Y. Supp. 946.
The alleged fraud must be proved 99 "White v. Robinson, 145 N. Y.
and the underwriter may be required App. Div. 751, 130 N. Y. Supp. 388.
to explain why the acceptance of the 1 White v. Eobinson, 145 N. Y. App.
securities does not preclude him from Div. 751, 130 N. Y. Supp. 388.
970
Ch. 15] Underwriting Agreements [§ 478
There being no privity, there can be no implied contract to the

subsequent subscribers, and an action does not lie for money had and
received.'^
§ 476. Rights of underwriters to interest on bonds. Coupons are

part of a bond and are affected by its infirmities as well as endowed
with its strength, and their character is not changed by detaching
them from the bonds. Accordingly, where an issue of bonds is under-
written and there is no agreement stipulating that the bonds shall not
be deemed issued until taken up by the subscribers, or that the bonds

shall not bear interest, it would seem that the underwriters are en-
titled to recover the interest evidenced by the coupon and are entitled
to sell such coupons.'
§477. Pledges of underwriting agreements. Where an under-

writing agreement authorizes syndicate managers to borrow money
of a trust company and to pledge the stock, bonds and underwriting
certificates as security, the subscriber guarantying the repayment of
the loan to the extent of his subscription, such agreement is enforce-
able even though the entire issue of bonds is not sold. In such case
it cannot be contended that there is an implied condition that all the
bonds shall be subscribed for, in the same manner as the conditions
referred to in stock subscription cases where a corporation is held
unable to enforce assessments against subscribers until the business
of the corporation is commenced and all the stock is disposed of. A
condition of this sort if desired in an underwriting agreement, should
be expressly included,'*
§ 478. Assignment of underwriting agreements —Âssignability and

negotiability. and choses in ac-
It is a general rule that contracts
tion are assignable, and an underwriting agreement is no exception
to that rule,^ though it has been contended that underwriting agree-
ments are not assignable, and that they have a distinct personal
character, especially when made with a corporation which alone is com-
2 White V. Eobinson, 145 N. T. App. B Buseh v. Stromberg-Carlson Tel.

Biv. 751, 130 N. Y. Supp. 388. Mfg. Co., 217 Fed. 328.
3 Hudson Valley R. Co. v. O 'Connor, It must be held that underwriting
95 N. Y. App. Div. 6, 88 N. Y. Supp. agreements are assignable whetlier
742. made with a corporation or with the
4 Knickerbocker Trust Co. v. Davis, promoters. Kirkpatrick v. Eastern
143 Fed. 587. Milling & Export Co., 135 Fed. 14V
971
§ 478] Pkivate Coepobations [Ch. 15
when and how it should be enforced.* But such agree-

petent tO see
ments representing large values are being constantly assigned and
accepted as the basis for the organization of incorporated companies,'
and to announce a doctrine prohibiting assignment, would be to dis-
turb seriously prevailing ideas in the business world.*
The usual underwriting agreement cannot in any sense be termed a
negotiable instrument. It is merely a contract and, as has already
been pointed out, is more in the nature of a conditional subscription
contract, or guaranty.*
In one case an action was brought by the indorser of an under-
writing "certificate," by which the obligee agreed to pay a certain
sum of money to a named person or order, it being stipulated that he
was bonds and stock therefor. It was held that the plaintiff
to receive
could not recover, since there was no proper performance, or tender
of the security underwritten to the person who signed the agreement.^*
But the matter of the negotiability of the agreement was not involved,
and in any event, the agreement M'as different from the usual under-
writing certificate.
§479. —
Rights of assignee. An assignee of an underwriting
agreement occupies the same position as the assignor.^^
As to the underwriter, an assignee who accepts an agreement as
collateral for money loaned cannot contend that it stands in a better
position than its assignor. Instead the agreement is subject to all
defenses which might be made against the original corporation, or
assignor. In one case, a subscriber contended that his subscription
was conditional when it was sought to enforce it, and it was held
that the assignee of the underwriting agreement, in order to protect
itself, was bound to inquire of the subscribers if they had any defense
6Kirkpatrick v. Eastern Milling & authorized in case of default to bring

Export Co., 135 Fed. 146. suit in the name of the company,
7Kirkpatrick v. Eastern Mill- against any, and all subscribers, the
ing & Export Co., 135 Fed. 146. bank is invested in the fullest man-
Kirkpatrick v. Eastern Milling &
8 ner with the rights of the company
Export Co., 135 Fed. 146. to and under the agreement, and by
9 See §§ 443, 444, supra. implication with whatever is essential
10 Litchfield Sav. Society v. Dibble, to the exercise and enforcement of
80 Conn. 128, 67 Atl. 476. those rights. Kirkpatrick v. Eastern
11 Where a corporation by an ex- Milling & Export Co., 135 Fed. 136.
press agreement assigns, transfers, Where an underwriting agreement
and a bank all its rights,
sets over to is assigned to a bank and it has the
claims, and demands under an under- right to enforce the agreement of the
writing agreement, and such bank is underwriters, and the corporation be-
972
Ch. 15] Undekwbiting Agkeembnts [§ 479
to their subscriptions.^^ Usually the assignee may enforce the agree-

ment of the underwriter, regardless of the value of the securities
which were underwritten. It is only necessary to tender the par-
ticular stocks and bonds.
Where underwriters entered into an agreement which was not to be
held by a corporation until the subscribers were required to accept
bonds, the purpose being to enable the corporation to assign the lia-
bility of the subscribers as collateral security for a loan, the under-

writer was liable to the assignee under the conditions of the agreement
regardless of the value of the securities, as where the corporation
became insolvent.^^ This proposition is the same as that referred to in
another section, as to the liability of underwriters for breach of con-
tract, regardless of the worthlessness of the stock, or the subsequent
insolvency of the corporation whose securities were underwritten.^*
comes insolvent and the stock passes 12Eeal Estate Trust Co. of Phila-
into the hands of receivers, such bank delphia v. Eiter-Conley Mfg. Co., 223
is entitled to possession of such gtock. Pa. St. 350, 72 Atl. 695.
Although worthless, its production and 13 Eastern Tube Co. v. Harrison, 140
tender are prerequisite to a demand Fed. 519.
upon the subscribers for fulfillment of 14 See § 467, supra,
their agreement. Kirkpatrick v. East-
ern Milling & Export Co., 135 Fed.
146.
973
CHAPTER 16
By-Laws
I
480. Definition.
i
481. Distinguished from resolutions.
j 482. Distinguished from laws of municipal corporations.
i 483. Distinguished from rules and regulations operating upon third persons,
n. ADOPTION AND PROOP
S 484. Adoption —Power in general.
i 485. — Necessity.
] 486. — By whom power exercised.
] 487. — Mode.
§ 488. Proof.
III. VALIDITY
§ 489. Consonance with law.

§ 490. Consonance with public policy and public welfare.
§ 491. Ousting courts ' jurisdiction.
§ 492. Impairment of obligation of contracts and destruction or impairment of
vested rights.
§ 493. Restraint of trade.
§ 494. Consonance with charter and with nature, purposes and objects of cor-
poration.
§ 495. Beasonableness.
§ 496. Uniformity of operation.
§ 497. Effect of partial invalidity.
§ 498. Right to enforce invalid by-law as contract.
IV. CONSTRUCTION
§ 499. General rules as to construction.
V. NOTICE
§ 500. Presumption of knowledge.
VI. OPERATION AND EFFECT
§ 501. On stockholders or members.

§ 502. On third persons.
974
.
Ch. 16] By-Laws [§ 480
VII. WAIVER
§ 503. Power of corporation, members and officers as to waiver of by-laws; proof
of waiver.
VIII. AMENDMENT AND SUBSEQUENT ADOPTION

§ 504. Power in general.
§ 505. Eeservation of power.
§ 506. Who may amend.
S 507. Mode.
IS. BEFEAI,
§ 508. Power in general.
§ 509. Who may repeal.
§ 510. Mode.
X. EEGULATION OP PAKTICULAR MATTERS
§ 511. Acquisition of, and expulsion from membership ; fine^.

§ 512. Stock; issue; payment; assessments; rights and liabilities of stockholders
in general.
§ 513. Transfer of stock — Êestrictions on alienation.
§ 514. — Protective regulations.
§ 515. — Creating or reserving lien on stock.
§ 516. Corporate meetings.
§ 517. Eight to vote and manner of voting at corporate meetings.
§ 518. Directors and officers.
§ 519. Inspection of books and papers.
§480. Definition. Originally the term "by-laws" was applied to

the laws and ordinances enacted by public or municipal corporations.^
At the present time, however, it more often has reference to the private
laws of private corporations, unincorporated associations and other
private bodies.* As used in connection with private corporations, it has
a peculiar and limited meaning, designating as it does the orders and
regulations which a corporation, as one of its legal incidents, has
power to make, and which is usually exercised to regulate its own
1 Monroe Dairy Ass'n v. Webb, 40 Yonkers v. Copcutt, 71 Hun (N. Y.)

N. Y. App. Div. 49, 57 N. Y. Supp. 149, 24 N. Y. Supp. 625 (from opinion
572. See also Com. v. Tjirner, 1 Cush. of Dykman, J., at special term).
(Mass.) 493. See also concurring opinion of Good-
The history of by-laws "is briefly rich, P. J., in Hanna v. Nassau Elee.
this: Where the Danes acquired^pos- E. Co., 18 N. Y. App. Div. 137, 45
session of a shire in England, the N. Y. Supp. 437.
township was often called a 'by,' and 8 Board of Health City of Yonkers
as they enacted laws of their own v. Copcutt, 71 Hun (N. Y.) 149, 24
they were called by-laws or town N. Y. Supp. 625 (from opinion of Dyk-
laws." Board of Health City of man, J., at special term)
975
actions and concerns, the rights and duties of its stockholders or

members in their relation to it and among themselves, and the rights,
powers and duties of the directors and officers.' In other words, the
by-laws of a private corporation are the permanent and continuing*
rules adopted by it for its own government and that of its officers and
stockholders or members.*
3 Calif oraia. Cheney v. Canfield, 158 & Ladies of America v. Weber, 101
Cal. 342, 32 L. E. A. (N. S.) 16, 111 App. 488, 490.
111.
Pac. 92; Bornstein v. District Grand 4 United States. Hayes v. Canada,

Lodge No. Independent Order B'
4, Atlantic & Plant S. S. Co., Ltd., 181
nai B'rith, 2 Cal. App. 624, 84 Pae. Fed. 289.
271. Indiana. State v. Anderson, 31 Ind.
Kansas. Hogsett v. .3!tna Building App. 34, 67 N. E. 207.
& Loan Ass'n, 78 Kan. 71, 96 Pac. 52. Oklahoma. Cummings v. State, —
Massachusetts. Plint v. Pierce, 99 Okla. —
, 149 Pac. 864.
Mass. 68, 96 Am. Dec. 691; Com. v. Oregon. Griffith v. Klamath Water
Turner, 1 Cush. 493. Ass'n, 68 Ore. 402, 137 Pac. 226.
Missouri. Smoot v. Bankers' Life Texas. Steger v. Davis, 8 Tex. Civ.
Ass'n, 138 Mo. App. 438, 120 S. W. App. 23, 27 S. W. 1068.
719. Wisconsin. North Milwaukee Tovra
Pennsylvania. Hayes v. German Site Co. No. 2 v. Bishop, 103 Wis. 492,
Beneficial Union, 35 Pa. Super. Ct. 142, 495, 45 L. R. A. 174, 79 N. W. 785.
148. That by-laws are not "permanent
Bhode Island. Ireland v. Globe Mill- and continuing" rules in the sense
ing Co., 21 E. I. 9, 79 Am. St. Eep. that they cannot be amended or re-
769, 41 Atl. 258. pealed, see §§ 504-510, infra.
England. Norris v. Staps, Hob. 211a. 5 United States. Hayes v. Canada,
"The function of a by-law * * * is Atlantic & Plant S. S. Co., Ltd., 181
to prescribe the rights and duties of Fed. 289.
the members with reference to the in- California. Wells 117 Cal.
v. Black,
ternal government of the corporation, 157, 37 L. E. A. 619, 59 Am.
Eep. St.
the management of its affairs, and the 162, 48 Pac. 1090; People's Home Sav.
rights and duties existing between the Bank v. Sadler, 1 Cal. App. 189, 81
members * * *." Cummings v. State, Pac. 1029.
— Okla. — , 149 Pac. 864. Indiana. Eenn United States
v.
The English "articles of associa- Cement Co., 36 Ind.App. 149, 73 N. B.
tion" under which a corporation is
269; State v. Anderson, 31 Ind. App.
organized correspond to the American
34, 67 N. E. 207.
"by-laws." New England Trust Co.
Van Atten v. Modern Broth-
Iowa.
V. Abbott, 162 Mass. 148, 27 L. E. A.
erhood of America, 131 Iowa 232, 108
271, 38 N. E. 432.
N. W. 313; Dempster Mfg. Co. v.
While the by-laws of a private cor-
poration are not strictly speaking rec-
Downs, 126 Iowa 80, 106 Am. St. Rep.
ords (see, however, Miller v. John- 340, 3 Ann. Cas. 187, 101 N. W. 735.
ston, 71 Ark. 174, 72 S. W. 371), those Maine. Flaherty v. Portland Long-

which are written or printed are docu- shoremen 'a Benev. Society, 99 Me. 253.
ments within the general rules relat- 59 Atl. 58.
ing to documentary evidence.' Knights Mississippi. Bank of Holly Springs
976
CL 16] By-La v/s l§481
§481. Distinguished from resolutions. "While a by-law may be

in the form of a resolution, a resolution is not necessarily a by-law,*
V. Piuson, 58 Miss. 421, 436, 38 Am. as a by-law even. State v. Anderson,

Eep. 330. supra.
New York. Drake v. Hudson Eiver That the "constitution" of a cor-
E. Co., 7 Barb. 508. poration, particularly one of a mutual
North Dakota. J. P. Lamb & Co. v. or fraternal benefit character, has no
Merchants' Nat. Mut. Pire Ins. Co., greater force than a by-law, see Blasin-
18 N. D. 253, 119 N. W. 1048. game v. Eoyal Circle, 111 111. App. 202,
Oklahoma. Cummings v. State, — 206; that it is, in fact, nothing
Okla. —
, 149 Pac. 864. more than a by-law under an inappro-
Oregon. Griffith v. Klamath Water priate name, see the following:
Ass'n, 68 Ore. 402, 137 Pae. 226. Illinois. Peterson v. Gibson, 191
Fennsylyania. Bagley v. Eeno Oil 111. 365, 54 h. E. A. 836, 85 Am. St.
Co., 201 Pa. 78, 56 L. E. A. 184, 50 Eep. 263, 61 N. E. 127, aff'g 92 111.
Atl. 760. App. 595; Supreme Lodge Knights of

Texas. Steger v. Davis, 8 Tex. Civ. Pythias v. Kutscher, 179 111. 340, 70
App. 23, 27 S. W. 1068. Am. St. Eep. 115, 53 N. E. 620, rev'g
Wisconsin. North Milwaukee Town 72 111. App. 462; People v. Crossley,
Site Co. No. 2 v. Bishop, 103 Wis. 492, 69 III. 195, 196. Compare People v.
495, 45 L. E. A. 174, 79 N. W. 785; Women's Catholic Order of Foresters,
Germania Iron Min. Co. v. King, 94 162 111. 78, 86, 44 N. E. 401, aff'g 59
Wis. 439, 36 L. E. A. 51, 69 N. W. 181. 111. App. 390.
It would seem that a provision in Indiana. Supreme Lodge Knights

the articles of incorporation which, of Pythias v. Knight, 117 Ind. 489,
although not repugnant to the stat- 495, 3 L. E. A. 409, 20 N. E. 479.
ute, is not responsive to any speci- Mississippi. Domes v. Supreme
fication thereof, will have no more Lodge Knights of Pythias, 75 Miss.
force than a by-law. See State v. 466, 23 So. 191.
Anderson, 31 Ind. App. 34, 67 N. E. New York. Burns v. Manhattan
207; O'Brien v. Cummings, 13 Mo. Brass Mut. Aid Society, 102 App. Div.
App. 197, 200. 467, 92 N. Y. Supp. 846; Stein v.
So a provision in the charter of a Marks, 44 Misc. 140, 89 N. Y. Supp.
land company that its indebtedness 921.
should not exceed five hundred dol- Wisconsin. See Wuerfler v. Grand
lars at any one time was held to have Grove of Wisconsin, Order of Druids,
no more force than a by-law, and to 116 Wis. 19, 96 Am. St. Eep. 940, 92
be directory only, the statute pro- N. W. 433.
viding that the charter of a corpora- That the statute law under which a
tion should set out the amount of its stock corporation is organized and the
capital stock, but not requiring that certificate of incorporation constitute
its indebtedness should have any other such corporation's "constitution," see
limit. Sherman Center Town Co. v. Scanlan v. Snow, 2 App. Cas. (D. C.)
Morris, 43 Kan. 282, 284, 19 Am. St. 137.
Eep. 134, 23 Pac. 569. 6 Domes v. Supreme Lodge Knights
Where, however, a provision in the of Pythias, 75 Miss. 466, 23 So. 191;
articles of association is in conflict Drake v. Hudson Eiver E. Co., 7 Barb,
with the statute, it cannot be applied (N. Y.) 508.
977
I Priv. Corp. —62
§ 481] Pkivate Coepoeations [Ch. 16
The distinction between the two has been said to lie in the fact that a
resolution applies to a single act of the corporation whereas a by-law
is a permanent and continuing rule which is to be applied on all
future occasions.''
§ 482. Distinguished from laws of municipal corporations. A by-

law of a private corporation differs from a law enacted by a municipal
corporation in that the former is merely a rule, adopted by the stock-
holders or members, or a majority of them, acting under authority
from the corporate membership, for the regulation and management
of their joint affairs, while the latter is a local law enacted by public
officers under legislative power delegated to them by the state.^ A
further difference lies in the fact that a by-law of a private corporation
—at least, one of a mutual benefit character —derives itsforce from
assent either actual or constructive,^ while a law enacted by a munici-
pal corporation binds, by statutory or prescriptive force, all who
happen to be within the territorial limits of its jurisdiction, whether
corporators or strangers.^'
§483. Distingxiished from rules and regulations operating upon

third persons. The rules and regulations of a corporation which
do not relate to its government or that of its ofiScers, or stockholders,
or members, except in the matter of the corporation's dealings with
third persons, are not, strictly speaking, by-laws. An example of such
rules and regulations is those formulated by a common carrier which
have for their purpose the safety, convenience and comfort of pas-
A by-law providing that resolu- The duration of by-laws may be

tions adopted for any special purpose general or limited, according to the
shall be as binding as if they were necessity or convenience of the cor-
embodied in by-lawa refers to resolu- poration. Germania Iron Min. Co. t.
tions which are not inconsistent with, King, 94 Wis. 439, 36 L. B. A. 51, 69
and hence do not have the effect of N. W. 181.
amending or repealing the by-laws. 8 See Monroe Dairy Ass 'n v. Webb,
Flaherty v. Portland Longshoremen's 40 N. Y. App. Div. 49, 57 N. Y. Supp.
Benev. Society, 99 Me. 253, 59 Atl. 572.
58. estate Overton, 24 N. J. L. 435,
v.
7Steger v. Davis, 8 Tex. Civ. App. 440, 61 Am.
Dec. 671; Black & White
23, 27 S. W. See also Hayes v.
1068. Smiths' Society v. "Vandyke, 2 Whart.
Canada, Atlantic &
Plant S. S. Co., (Pa.) 309, 30 Am. Dec. 263.
Ltd., 181 Fed. 289; People v. Throop, See also § 501, infra.
12 Wend. (N. Y.) 183; Budd v. Malt- 10Black & White Smiths' Society
nomah St. By. Co., 15 Ore. 413, 3 Am. v. Vandyke, 2 Whart. (Pa.) 309 30
St. Bep. 169, 15 Pae. 659. Am. Dee. 263.
978
Ch. 16] By-Laws [§484
sengers and the securing to the carrier of its rights under the contracts
of carriage.^^
n. ADOPTION AND PROOF
§ 484. Adoption —Power in general. The power of a corporation

to adopt by-laws is regarded as of so much importance that it is rarely
left to implication, but is as a general rule expressly conferred by
the law from which corporate existence is derived.^* Such power,
however, does not depend for upon any formal statement
its existence
in the charter ^' in the absence of a posi-
or governing statute, but is,
tive legislative provision to the contrary, inherent in, and an insepa-

rable incident of every corporation.^* Nor is this view one that has
11 "All regulations of a company Bank v. Smith, 19 Johns. (N. T.) 115,

affecting its business, which do not 124.
operate upon third persons, nor in 18 A clause in a charter, giving
any way affect their rights, are prop- "the force and effect of legal enact-
erly denominated by-laws of the com- ment" to the "constitution and by-
pany. » * * But there is another laws" that may be adopted, confers

no greater power than is usually given
class of regulations, made by corpo-
or implied without such clause. Mar-
rations, as yvell as by individuals, who
tin V. Nashville Bldg. Ass'n, 2 Coldw.
are common carriers of passengers,
(Tenn.) 418.
which operate upon, and affect the 14 Alabama.. Supreme Commandery
rights of others which are not, prop-
Knights of Golden Rule v. Ainsworth,
erly speaking, by-laws of the corpora- 71 Ala. 436, 46 Am. Rep. 332; Cun-
tion * * *. Of this character are ningham V. Alabama Life Insurance
all regulations touching the comfort & Trust Co., 4 Ala. 652, 654.
and convenience of travelers, or pre- California. Cheney v. Canfield, 158
scribing rules conduct to
for their Cal. 342, 32 L. R. A. (N. S.) 16, 111
secure the just rightsthe com- of Pae. 92; Bernstein v. District Grand
pany. ' ' State V. Overton, 24 N. J. L. Lodge No. 4, Independent Order
435, 440, 61 Am. Dec. 671. See B 'nai B 'rith, 2 Cal. App. 624, 84 Pac.
also Compton v. Van Volkenburgh, 271 ; People 's Home Sav. Bank v. Sad-
34 N. J. L. 134, 135; Morris & E. ler, 1 Cal. App. 189, 81 Pac. 1029.
R. Co. V. Ayres, 29 N. J. L. 393, 395, Georgia. Interstate Building A
80 Am. Dec. 215. Loan Ass'n v. Wooten, 113 Ga. 247,
12 Supreme Commandery Knights 38 S. E. 738.
of Golden Rule v. Ainsworth, 71 Ala. Illinois. Peterson v. Gibson, 191
436, 46 Am. Eep. 332. See also Leg- 111. 365, 369, 54 L. R. A. 836, 85 Am.
gett V. New Jersey Manufacturing & St.Rep. 263, 61 N. E. 127, aff'g 92
Banking Co., 1 N. J. Eq. 541, 23 Am. 111.App. 595; Fullenwider v. Supreme
Dee. 728; Martin v. Remington-Mar- Council of Royal League, 180 111. 621,
tin Co., 95 N. Y. App. Div. 18, 88 N. 72 Am. St. Rep. 239, 54 N. E. 485,
Y. Supp. 573; People v. Medical So- aff'g 73 111. App. 321; People v. Chi-
ciety County of Erie, 24 Barb. (N. cago Live Stock Exchange, 170 111.
Y.) 570, 574; Mechanics' & Farmers' 556, 570, 39 L. R. A. 373, 62 Am. St.
979
484] Private Cokpobations [Ch. 16
obtained only in recent years. Blaekstone includes among the pow-

ers, rights and which "are necessarily and inseparably
capacities
incident to every corporation; which incidents, as soon as a corpora-
tion is duly erected, are tacitly annexed, of course," the power "to
Eep. 404, 48 N. E. 1062; People v. Itt- v. Budd, 52 Mise. 217, 103 N. Y. Supp,
ner, 165 111. App. 360, 363. See also 45.
People V. Julia F. Burnham Hospital, North Carolina. Duffy v. Fidelity
71 111. App. 246, 249. Mut. Life Ins. Co., 143 N. C. 697, 55
Indiana. McCallister v. Shannon- S. E. 1047 (mem. dec.), 142 N. C. 103,
dale Co-operative Tel. Co., 47 Ind. 7 L. R. A. (N. S.) 238, 55 S. E. 79.
App. 517, 94 N. E. 910. Pennsylvania. Bagley v. Reno Oil
Iowa. Farmers' Mut. Hail Ins. Co., 201 Pa. 78, 56 L. R. A. 184, 50
Ass'n of Iowa v. Slattery, 115 Iowa Atl. 760; Lynn v. Freemansburg
410, 88 N. W. 949. Building & Loan Ass'n, 117 Pa. St.
Louisiana. State v. Bank' of Louisi- 1, 2 Am. St. Rep. 639, 11 Atl. 537;
ana, 5 Mart. (N. S.) 327, 344. Evans v. Philadelphia Club, 50 Pa. St.
Maryland. Anaeosta Tribe No. 12, 107.
Improved Order of Red Men v. Mur- South Carolina. St. Luke's Church
bach, 13 Md. 91, 71 Am. Dee. 625. v. Mathews, 4 Desauss. Eq. 578, 6 Am.
MlcMgan. Wineland v. Knights of Dee. 619; Palmetto Lodge No. 5, I.
Maccabees of World, 148 Mich. 608, O. O. F. v. Hubbell, 2 Strobh. 457, 49
112 N. W. 696. Am. Dec. 604.
Nebraska. Miller v. Farmers' Mill- Tennessee. Doty v. American Tele-
ing & Elevator Co., 78 Neb. 441, 126 phone & Telegraph Co., 123 Tenn. 329,
Am. St. Rep. 606, 110 N. W. 995. 330 S. W. 1053.
New Jersey. Taylor v. Griswold, 2 Texas. Supreme Ruling of Frater-
Green L. 222, 27 Am. Dec. 33. See also nal Mystic Circle v. Ericson, Tex. —
lieggett V. New Jersey Manufacturing Civ. App. — , 131 S. W. 92.
& Banking Co., 1 N. J. Eq. 541, 23 Germania Iron Min. Co.
Wisconsin.
Am. Dec. 728. v. King, 94 Wis. 439, 36 L. E. A. 51,
New York. EngelLardt v. Fifth 69 N. W. 181.
Ward Permanent Dime Saving & Loan England. Sutton's Hospital Case,
Ass'n, 148 N. Y. 281, 286, 35 L. R. 10 Coke 30; Norris v. Staps, Hob.
A. 289, 42 N. E. 710; Matthews v. 211a; Child v. Hudson's Bay Co., 2
Associated Press State of New York, P. Wms. 207.
136 N. Y. 333, 32 Am. St. Rep. 741, "It must be conceded that the de-
32 N. E. 981; National League of Com- fendant, like every other corporation,
mission Merchants of United States v. possessed the inherent power of self-
Hornung, 72 Mise. 181, 129 N. Y. government. Its by-laws are the chan-
Supp. 437; People v. Medical Soc. nels through which this power is ex-
County of Erie, 24 Barb. 570, 574; Me- erted and declare the corporate will
dhaniea' & Farmers' Bank v. Smith, as to the manner in which the corpo-
19 Johns. 115, 124; Thomas v. Dakin, rate functions are to be exercised and
22 Wend. 9, 16; In re Long Island E. such other matters as to which it may
Co., 19 Wend. 37, 32 Am. Dec. 429; properly and lawfully legislate."
People V Throop, 12 Wend. 183, 186. Hayes v. German Ben. Union, 35 Pa.
See also Driscoll v. West Bradley & Super. Ct. 142, 147.
C. Mfg. Co., 59 N. Y. 96, 106; Cohen Provisions contained in the articles
980
CL 16] By-Laws [§ 484
make by-laws or private statutes for the better government of the

corporation which are binding upon themselves, unless contrary to
the laws of the land, and then they are void. This is also included by
law in the very act of incorporation: for as natural reason is given
to the natural body for the governing it, so by-laws or statutes are
a sort of political reason to govern the body politic. And this right
of making by-laws for their own government, not contrary to the
law of the land, was allowed by the law of the Twelve Tables of
Eome."'^ In other words, a corporation without the power to make
by-laws would, generally speaking, be a nonentity, such power ordi-
narily being necessary for it to accomplish the purposes of its cre-
ation.^^ But whatever the inherent power may be and however broad
its scope, it may be said with assurance that no corporation has the
power to legislate on any subject and in any manner that it chooses.
Always there are restrictions and limitations. Always the power is
circumscribed to some extent or degree. Always it carries with it
certain implications such as, for example, that the by-law adopted
will be in harmony with the purposes of the corporation,^'' and that
it will be reasonable. ^8 And again, even where there is an express
grant in the charter or general law of power to make by-laws, such
grant may itself carry implied limitations and restrictions. Thus,
although cannot be laid down as a rule that has been invariably
it
sanctioned and has no exceptions, it has been held that where the
charter or the general law expressly gives to the corporation the power
to make by-laws, not generally, but for certain purposes, enumer-
ating them, the corporation, unless there is something to show a
of incorporation which are inconsiat- it was created. Knights of Pythias v.

ent with or additional to those pre- Weller, 93 Va. 605, 25 S. E. 891.
scribed by the statute are surplusage 15 i Bl. Com. *475 476.
and do not afCect the power to adopt is People v. Chicago Live Stock Ex-
by-laws relative to the matters of g^^nge, 170 111. 556, 570, 39 L. E. A.
which they treat. Eenn v. United
373^ gg Am. St. Eep. 404, 48 N. E.
^°" ^^ ^''^' ^^^' ^^^' ^'" ^''° ^^"°"^^ ^'^^^ °°"'-
nVSlS^ "
"^^-
mission. Merchants of United States
mi.'
The i-i" i-
constitution J!
of a X. j:l
benefit i
society
•
„ '
_ „
^- H<»-"""?. 72 N. Y. Misc. 181, 129
cannot deprive the society of its in-
herent power to adopt such other by- ^- "^-
^''PP- ^37; Bagley v. Eeno Oil
Co., 201 Pa. 78, 56 L. E. A. 184, 50
laws as its charter permits. Blasin-
game v. Eoyal Circle, 111 111. App. 202, -^tl- 760; North Milwaukee Town Site
206. Co. No. 2 V. Bishop, 103 Wis. 492, 496,
A corporation has no power to adopt 45 L. E. A. 174, 79 N. W. 785.
by-laws after it has been dissolved by 1'' See § 494, infra.
the expiration of the period for which 16 See § 495, infra.
981
contrary intention on the part of the legislature, cannot make by-laws

for any other purpose, the enumeration of certain purposes being an
implied exclusion of other purposes.^'
§ 485. — Necessity. The mere fact of the existence in the corpo-

ration of the power to adopt by-laws does not ordinarily make the
exercise of such power necessary to its corporate life^" or to the
validity of any of its acts.*^
§ 486. — By whom power exercised. In the absence of a charter

or statutory provision to the contrary, the power to adopt by-laws
resides originally in the stockholders or members of the corporation,
Nicholson v. Franklin Brewing
19 In People 's Home Sav. Bank v. Sad-
Co., 82 Ohio St. 94, 137 Am. St. Eep. ler, 1 Cal. App. 189, 81 Pac. 1029, it
764, 19 Ann. Cas. 699, 91 N. E. 991; was held that a statute enumerating
Child V. Hudson's Bay Co., 2 P. Wms. special matters as to which the corpo-
207. See also Cunningham v. Alabama ration may adopt by-laws does not
Life Insurance & Trust Co., 4 Ala. 652, preclude it from adopting by-laws re-
654; People v. Ittner, 165 111. App. lating to other matters which are
360, 365. proper under its inherent power, as
"The rule is that where by the it is statutorily recognized.
provisions of the particular charter, See also Ireland v. Globe Milling
or by a general statute relating to Co., 21 E. I. 9, 79 Am. St. Eep. 769,
corporations, power is conferred upon 41 Atl. 258.
a corporation to enact by-laws for 20 Powell Bros. v. McMullan Lum-
certain specified purposes, its power ber Co., 153 N. C. 52, 68 S. E. 926.
of legislation is limited to the cases A
statute requiring corporations to
and objects enumerated, all others be- adopt by-laws within one month after
ing excluded by implication. 'Ex- the filing of the articles of incorpora-
pressio unius est exclusio alterius.' " tion held to have been repealed so far
Ireland v. Globe Milling &
Beduction as it applied to banking corporations.
Co., 19 K. I. 180, 29 L. R. A. 429, 61 Smock V. Farmers' Union State Bank,
Am. St. Eep. 756, 32 Atl. 921. But 22 Okla. 825, 98 Pac. 945.
see, as possibly minimizing the value 21 Steger v. Davis, 8 Tex. Civ. App.
of this statement, Ireland v. Globe 23, 27 S. W. 1068.

Milling Co., 21 E. I. 9, 79 Am. St. Eep. Where the steps taken in forfeiting
769, 41 Atl. 258. Contra, Com. v. St. unpaid stock were treated as sufficient
Patrick's Society, 2 Binn. (Pa.) 441, by the corporation and the stock-
4 Am.Dec. 453, in which it was held holder, the validity of the forfeiture
that the fact that the charter of a is not open to attack by a creditor of
benevolent society contains an express the corporation seeking to enforce
power of expulsion in certain cases a stockholder's individual liability
does not of itself preclude the adop- against the estate of the one whose
tion of a by-law providing for expul- stock was forfeited, although the stat-
sion in such other cases as the good ute provided that the directors should
government of the corporation may require subscribers to pay their sub-
require. scriptions in such manner and instal-
982
Ch. 16] By-Laws [§486
and not man-

in the officers or the board of directors, trustees or
agers.^* The charter of the corporation or the general law may,
however, expressly vest such power in the governing board. When this
is done, the by-laws must, of course, be adopted, not by the stockholders
or members, but by such board.*' But the inherent right of the stock-
ments as the by-laws might provide, Compare The Chevaliers v. Shearer,

and no by-laws regulating the matter 27 Ohio Cir. Ct. 509, in which the
of payment were ever adopted. Cris- court says: "We
take it that in Ohio
sey V. Cook, 67 Kan. 20, 72 Pae. 541. a corporation not for profit is gov-
22 United States. Thayer v. Her- erned somewhat as a corporation for
rick. Fed. Gas. No. 13,868. profit is; the fundamental law or con-
minois. See People v. Ittner, 165 stitution is adopted by the members
III. App. 360, 365. who adopt
elect trustees; the trustees
Indiana. Morton Gravel Boad Co. by-laws for their own government in
V. Wysong, 51 Ind. 4. the management of the business of
Maryland. Darrin v. Hoff, 99 Md. the association. By the statute
491, 58 Atl. 196. * • * the trustees of fraternal
Michigan. Borgards v. Farmers' beneficial associations like the defend-
Mut. Ins. Co., 79 Mich. 440, 44 N. W. ant for the first year are entrusted
856.- with the management of the concerns
Mlssourl. Brinkerhoff-Farris Trust of the corporation. Whether the trus-
& Savings Co. v. Home Lumber Co., tees had a right to adopt a constitu-
118 Mo. 447, 24 S. W. 129; Klix v. tion providing, for instance, how
Polish Boman Catholic St. Stanislaus many trustees there should be —a fun-
Parish, 137 Mo. App. 347, 118 S. W. —
damental law is doubtful, but that
1171; Watson v. Sidney F. Woody they had a right to adopt * • •
Printing Co., 56 Mo. App. 145; Albers [a provision of the corporate consti-
v. Merchants' Exchange, 39 Mo. App. tution],which concerns only the con-
583; State Sav. Ass'n v. Nixon-Jones duct of the business of the associa-
Printing Co., 25 Mo. App. 642. tion, we have no doubt."
New In re A. A. Griffing
Jersey. Under a
statute providing that per-
Iron Co., 63 N. J. L. 357, 57 L. E. A. sona signing articles of incorporation,
624, 46 Atl. 1097, 63 N. J. L. 168, 41 their associates and successors shall be
Atl. 931. a body politic and corporate by the
New York. See In re Empire State name and for the purposes stated in
Supreme Lodge Degree of Honor, 118 such articles, the subscribers to
App. Div. 616, 53 Misc. 344, 103 N. Y. articles of incorporation are "stock-
Supp. 465. holders, ' ' and the fact that they have
Pennsylvania. United Fire Ass 'n v. not paid for the stock subscribed, or
Benseman, 4 Wkly. Notes Cas. 1. that stock certificates have not issued
Wisconsin. North Milwaukee Town to them does not affect their right to
Site Co. No. 2 v. Bishop, 103 Wis. 492, adopt by-laws. Cummings v. State, —
45 L. K. A. 174, 79 N. W. 785, over- Okla. — , 149 Pae. 864.
ruling In re Klaus, 67 Wis. 401, 405, 23 Illinois. See People's Bank of
29 N. W. 582; Hughes
Wisconsin v. Bloomington v. Gridley, 91 111. 457,
Odd Fellows' Mut. Life Ins. Co., 98 468; People v. Ittner, 165 111. App.
Wis. 292, 73 N. W. 1015. 360, 365.
983
holders or members to adopt by-laws is a valuable, important and essen-

tial one,and inference or implication is not sufficient to deprive them of
it,** though a by-law enacted by the directors pursuant to usage has
been sustained as valid.*^ It would seem that the stockholders or mem-

bers may themselves yield up this right and delegate the power of adop-
tion to the corporation's governing board,*® although the general rule
Iowa. See Farmers' Mut. Hail Ins. agement and control of the hospital
Ass'n of Iowa v. Slattery, 115 Iowa that is to be maintained by the cor-
410, 88 N. W. 949. poration, and no restrictions on the
Michigan. Cahill v. Kalamazoo power of the board appear, they must
Mut. Ins. Co., 2 Dougl. 124, 43 Am. be deemed empowered to adopt any
Dee. 457. regulation for the government of the
Minnesota. Heintzelman v. Druids' hospital that is reasonable and con-
Eelief Ass'n, 38 Minn. 138, 36 N. W. sistent with the general purposes of
100. the corporation. People v. Julia F.
Mississippi. Bank of Holly Springs Burnham Hospital, 71 111. App. 246.
V. Pinson, 58 Miss. 421, 38 Am. Eep. The directors of a corporation have
330. the power to adopt by-laws when they
Iilissourl. See Purdy v. Bankers' are vested therewith by statute even
Life Ass'n, 101 Mo. App. 91, 74 8. W. though such power is not specifically
486. delegated to them by the articles of
Bhode Island. See Lockwood v. incorporation. Houdeck v. Mer-
Meehanica' Nat. Bank, 9 R. I. 308, 11 chants' & Bankers' Ins. Co., 102 Iowa
Am. Eep. 253. 303, 71 N. W. 354.
See Hughes v. "Wiscon-
Wisconsin. 24 A
statute placing the stock,
sin Odd Fellows' Mut. Life Ins. Co., property, affairs and business of cor-
98 Wis. 292, 73 N. W. 1015. porations under the care and manage-
A statute vesting the corporate ment of their directors does not give
powers in a board of directors or man- the directors the power to adopt by-
agers and providing that it "may" laws. North Milwaukee Town Site
adopt by-laws for the government of Co. No. 2 v. Bishop, 103 Wis. 492, 45
the officers and affairs of the company L. E. A. 174, 79 N. W. 785.
reposes the power of adopting by-laws 25 Morton Gravel Eoad Co. v. Wy-
in such board solely, the word "may" song, 51 Ind. 4,
being interpretable only as meaning 26Eex V. Spencer, 3 Burrows 1827.

"shall." Manufacturers' Exhibition See also In re Empire State Supreme
Bldg. Co. V. Landay, 219 HI. 168, 76 Lodge Degree of Honor, 118 N. T.
N. B. 146, rev'g 121 HI. App. 96. App. Div. 616, 53 Misc. 344, 103 N. T.
See also Steinweg v. Antiseptol Supp. 465; North Milwaukee Town
Liquid Soap Co., 168 HI. App. 479, Site Co. No. 2 v. Bishop, 103 Wis. 492,
482; Independent Brewing Ass'n v. 495, 45 L. E. A. 174, 79 N. W. 785.
Klein, 135 111. Appl 234, 248, rev'd The articles of association of a
on other grounds 231 111. 594, 83 N. E. mutual insurance company may
434. validly empower its directors to adopt
Where the petition upon which let- by-laws. Pfister v. Gerwig, 122 Ind.
ters of incorporation are issued com- 567, 23 N. E. 1041.
mit to the board of directors the man- A corporation cannot, in the ab-
984
Ch. 16] By-Laws [§ 486
is that by-laws adopted by the goveruing board of the corporation when

the power of adoption reposes in the stockholders or members, and
those adopted by the stockholders or members when the power of
ftdoption 2'' has been vested by statute in the governing board, will be
invalid.^* It would seem that this rule will not apply where the
by-laws adopted by the powerless body are the only by-laws that the
corporation has ever had, are properly recorded in the books kept by
the body that should have adopted them, and have been referred to,
used, and acted upon as the by-laws of the corporation by all con-
cerned for a long period of time.^' Moreover, even though the statute
vests thepower of making by-laws in the "directors" or "managers,"
a by-law shown by the record of the company's proceedings to have
been adopted by the "stockholders" will not for that reason be invalid
when at the time of its adoption all of the stockholders were directors
or managers and vice versa.^" Somewhat conversely, where a by-law
is adopted at a stockholders' meeting, it is not invalid by reason of
sence of express authority, delegate and thus make binding and opera-
it
its power to adopt by-laws affecting tive. Supreme Lodge
Knights of
certain of its members in a funda- I'ythias v. Trebbe, 179 111. 348, 70 Am.
mental manner to a subordinate body, St. Rep. 120, 53 N. E. 730, rev'g 74
wholly ministerial in character, which 111. App. 545.
it isauthorized to create, although for Although it be denied that a corpo-

administrative purposes the subordi- ration may delegate its power to make
nate body has direct control over by-laws, the corporation yet leave may
such members in the matter to which to its board of directors the determi-
the by-laws relate. Supreme Lodge nation of the question when a by-law
Knights of Pythias v. Stein, 75 Miss. shall go into efEeet, such act not con-
107, 37 L. E. A. 775, 65 Am. St. Eep. stituting a delegation of the adopting
589, 21 So. 559; Supreme Lodge power. Evans v. Southern Tier Ma-
Knights of Pythias of World v. La sonic Relief Ass'n, 76 N. Y. App. Div.
Malta, 95 Tenn. 157, 30 L. R. A. 838, 151, 78 N. Y. Supp. 611.
31 S. W. 493. See also Supreme 27 Amendment and repeal of by-
liOdge Knights of Pythias v.
laws, see §§ 504-510, infra.
Kutseher, 179111. 340, 70 Am. St. Rep.
28 See People v. Ittner, 165 111. App.
115, 53 N. E. 620, rev'g 72 111. App.
360, 365.
462; Supreme Lodge Knights of
29 State v. Curtis, 9 Nev. 325, 335.
Pythias v. McLennan, 171 HI. 417, 49
See also Graebner v. Post, 119 Wis.
N. B. 530, aff'g 69 111. App. 599;
Lange v. Royal Highlanders, 75 Neb. 392, 100 Am. St. Rep. 890, 96 N. W.
783.
188, 10 L. R. A. (N. S.) 666, 121 Am.
30 People V. Sterling Burial Case
St. Eep. 786, 110 N. W. 1110, 106 N.
W. 224. Mfg. Co., 82 111. 457, 460. See also
But the body having authority to Manufacturers' Exhibition Bldg. Co.
adopt by-laws may approve one v. Landay, 219 111. 168, 76 N. E. 146,
adopted by the administrative body, rev'g 121 111. App. 96.
985
the fact that the meeting is designated in the records as a directors'

meeting.*^
When the statute vests the power of adoption exclusively in the
directors, the concurrence of the stockholders is not required, and, if
procured, adds nothing to the by-law's validity.'*
§487. — Mode. When either the general law or the charter of

the corporation prescribes the mode in which by-laws may be adopted,
the by-laws which the corporation seeks to make must be adopted in
such mode in order to be valid.'' So, whether the stockholders or the
directors are the ones having the power to make by-laws, the meeting
at which they are adopted must be called and conducted in accordance
with the law and with the charter of the corporation.'* In the
absence, however, of any statutory or charter provision on the sub-
ject, no particular formality is ordinarily requisite to their adoption.'^
31 state Sav. Ass'n v. Nixon- Jonea 86 Md. 668, 39 Atl. 527 (in this case,
Printing Co., 25 Mo. App. 642. a resolution of the members of a cor-
32 Independent Brewing Ass'n v. poration was held invalid as a by-
Klein, 135 111. App. 234, 248, rev'd on law, because of insufficient notice of
other grounds 231 111. 594, 83 N. E. the meeting).
434. See also Manufacturers' Exhibi- 36 A statute requiring the certifica-
tion Bldg. Co. V. Landay, 219 111. 168, tion of the by-laws by a majority of
177, 76 N. E. 146, rev'g 121 111. App. the directors and by the secretary of
96; Steinweg v. Antiseptol Liquid the corporation does not thereby make
Soap Co., 168 111. App. 479, 482. such certification a condition prece-
33 Manufacturers' Exhibition Bldg. dent to the by-laws taking effect.
Co. V. Landay, 219 111. 168, 76 N. E. Cummings v. State, Okla.— , 149 —
146, rev'g 121 111. App. 96; Dunston Pac. 864.
V. Imperial Gas Light & Coke Co., 3 A statutory requirement that a copy
B. & Ad. 125. See also Cummings v. of the by-laws with the names of all
State, — Okla. — , 149 Pac. 864. the corporation's officers appended be
A finding that a code of by-laws posted in the corporation's principal
was not adopted in the manner con- place of business and be subject to
templated by the statute providing public inspection is for the benefit of
that a code might be adopted after the public, and the duty of the
it is
the organization of the corporation corporation to comply therewith for

either at a meeting of the stockhold- the protection of persons who may
ers called for the purpose or by the' be affected by the by-laws. Des
written assent of the holders of two- Moines Nat. Bank v. Warren County
thirds of the stock, is sustained by the Bank, 97 Iowa 204, 66 N. W. 154.
fact that the code was prepared and Where there has been a failure to
signed by a large number of the stock- post a copy of the by-laws in the cor-
holders before the creation of the corporation 's principal place of business
poration. Vercoutere v. Golden State as required by statute, a person in-
Land Co., 116 Cal. 410, 48 Pac. 375. may have an action for
jured thereby
34 Mutual Fire Ins. Co. v. Farquhar, damages or performance may be re-
986
Gil. 16] By-Laws [§487
They need not be under nor even in writing. ^^ Nor is an express

seal
vote necessary.^'' seems that they may be adopted as well
Indeed, it
by the conduct of the corporation and the acts and conduct of its
officers as by an express Vote or an adoption in a meeting.^* Even
in the case of formal action by the stockholders, a majority vote of
quired by mandamus. Boardman v. by-law. Dunston v. Imperial Gas

Marshalltown Grocery Co.,105 Iowa Light & Coke Co., 3 B. & Adol. 125.
445, 75 N. W. 343. The court may inquire into whether
Where the statute requires the a"dop- the by-laws of a voluntary association
tion of by-laws and the filing of a were adopted according to the rule
copy thereof with the county clerk, agreed upon by the association 's mem-
but does not prescribe the time within bers. Green v. Felton, 42 Ind. App.
which such copy is to be filed, by-lawa 675, 84 N. E. 166.
adopted are not invalid because the 87 Bankof Holly Springs v. Pinson,
filing of the copy is postponed for a 58 Miss. 421, 439, 38 Am, Eep. 330;-
number of years. Taylor v. Laurid- Germania Iron Min. Co. v. King, 94
son, 161 Cal. 718, 118 Pac. 535; Willis Wis. 439, 36 L. E. A. 51, 69 N. W.
V. Lauridson, 161 Cal. 106, 118 Pac. 181.
530. 38 Domes v. Supreme Lodge Knights
The typewriting of by-laws on a of Pythias, 75 Miss. 466, 23 So. 191:
sheet of paper and the pasting of the Bank of Holly Springs v. Pinson, 58
latter in a book, kept in the o£H.ce of Miss. 421, 439, 38 Am. Eep. 330;
the corporation and designated "Sec- Graebner v. Post, 119 Wis. 392, 100
retary's Record and Stock Account" Am. St. Eep. 890, 96 N. W. 783; Ger-
held a sufficient compliance with a mania Iron Min. Co. v. King, 94 Wis.
statute requiring them, as a condition 439, S6 L. E. A. 51, 69 N. W. 181.
precedent to their taking effect, to be "The by-laws of the company were
"copied in a legible hand in some admitted in evidence over the plain-
book kept in the office of the corpora- tiff's objection that they were not
tion, to be known as the 'Book of legally adopted. The record does not
By-laws.' " Cummings v. State, — show a formal adoption by the board
Okla. — , 149 Pac, 864. of directors of the company, or by the
Knights & Ladies of America v.
36 company itself, but the by-laws them-
Weber, 101 111. App. 488, 490; Union selves show an approval over the sig-
Bank of Maryland v. Eidgely, 1 Harr. natures of more than a majority of
& G. (Md.), 324; Bank of Holly the incorporators. The articles of
Spring;s v. PinsOn, 58 Miss. 421, 38 incorporation provide that the com-
Am. Bep. See also District Grand
330. pany may ' establish by-laws. ' The by-
Lodje No. 4 v. Cohn, 20 111. App. 335, laws thus approved were published
344; Loekwood v. Mechanics' Nat. and acted upon during the existence
Bank, 9 E^ I. 308, 11 Am, Rep. 253; of the company, and were undoubt-
See Germania Iron Min. Co. v. King, edly adopted, though informally. We
94 Wis. 439, 36 L. E. A. 51, 69 N. W. think this sufficient." Smith v. Sher-
181. man, 113 Iowa 601, 85 N. W. 747.
Where the statute requires the cor- A custom or usage long continued
porate seal to be affixed to by-laws, and invariably pursued has the force
a resolution to which Such seal was of a by-law, and, where not repugnant
not affixed cannot be sustained as a to any of the provisions of the ehar-
987
'
those present at the meeting, provided they constitute a quorum, will,

ordinarily and in the absence of any law or binding rule to the con-
trary, be sufficient for the adoption of a iby-law.^^
When
the charter vests the power to make by-laws in the president
and directors, the power may be exercised by the president and a
majority only of the directors.*"
Illegality of adoption will not be presumed but must be proven
by the one alleging it."
Whereby-laws have been acquiesced in and acted upon, the pre-
sumption is that they were regularly and duly adopted.*^ Moreover,
a stockholder may be estopped, by consent or acquiescence, to object
to the mode in which a by-law was adopted.**
ter, is valid. Mutual Fire Ins. Co. 42 Marsh v. Mathias, 19 Utah 350,
V. Farquhar, 86 Md. 668, 39 Atl. 527. 56 Pac. 1074.
That custom does not take the place Provisions printed on a policy is-
of a by-law, see District Grand Lodge sued by a mutual insurance company
No. 4 V. Cohn, 20 111. App. 335, 344. and purporting to be its by-laws will
39 Granara v. Italian Catholic Ceme- be accepted as such in a suit on the
tery Ass'n, 218 Mass. 387, 105 N. E. Ijoliey until impeached. Wilson v.
1073. Pee also Ex parte Willcocks, 7 Union Mut. Fire Ins. Co., 77 Vt. 28,
Cow. (N. T.) 402, 17 Am. Dee. 525; 58 Atl. 799.
Iiockwood V. Mechanics' Nat. Bank, 9 43 Morrison v. Dorsey, 48 Md. 461.
E. I. 308, 11 Am. Rep. 253. A stockholder who participated in
"Two-thirds of the stockholders" the adoption of a by-law and who has
in a statute providing that regulations lecognized it as being in force, will
may be adopted by the assent in writ- not be heard to say that it was not
ing of two-thirds of the stockholders, legally adopted. Bank of Atchison
held, in view of the provisions of stat- County V. Durfee, 118 Mo. 431, 40
utes in pari materia, to mean "two- Am. St. Rep. 396, 24 S. W. 133. So,
too, one who has legally participated
thirds of the stockholders in interest. '
in the adoption of a by-law and acted

Toledo Traction, Light & Power Co. v.
and acquired under it, and
rights
Smith, 205 Fed. 643.
through whom it has been held out
40 Cahill V. Kalamazoo Mut. Ins.
to the public as one of the laws of the
Co., 2 Dougl. (Mich.) 124, 43 Am. Dec.
corporation, is estopped, after third
457.
persons have acquired rights in the
41 Star Mut. Tel. Co. v. Longfellow, corporation on the faith of its validi-
85 Kan. 353, 116 Pae. 506. to deny
ty, that it was legally
Where a by-law of a de facto cor- adopted. People v. Sterling Burial
poration has been acquiesced in and Case Mfg. Co., 82 111. 457, 461.
acted upon for a period of more than A
member of a mutual insurance
eleven years by all of the stockholders company cannot attack the validity
and ofllcers it must be presumed to of by-laws under which he acquired
have been regularly and duly adopted. membership, on the ground that they
Marsh V. Mathias, 19 Utah 350, 56 were not regularly adopted. Pfister
Pac. 1074. V. Gerwig, 122 Ind. 567, 23 N. E. 1041.
988
Ch. 16] By-Laws [§488
§488. Proof. The courts do not take judicial notice of tlie by-
laws of a corporation, but they must be proved^** and the burden
of proving them is on the party oifering them in evidence.** When
they are matters of record on the books of the corporation, it has
been held that they cannot be proved by parol,*' but the general
rules relating to documentary evidence apply.*' When thus of
But the fact that a by-law was 47 Knights & Ladies of America v.
adopted by a majority vote of the Weber, 101 111. App. 488, 490.
stockholders does not estop an in- In proving the constitution of an
dividual stockholder from attacking insurance association the best evidence
its validity when he did not partici- rule obtains, and the best evidence in
pate in its adoption or assent to it. such case is the constitution itself.
Laughlin v. Geer, 121 111. App. 534, Masons' Union Life Ins. Ass'n v.
539. Broekman, 20 Ind. App.. 206, 50 N. E.
44Kempton Lodge, No. 482, I. O. 493.
O. F. V. Mozingo, 180 Ind. 566, 103 N. "Publications of a mutual insurance
E. 411; Elkhart Hydraulic Co. v. Tur- company, generally circulated among
ner, 170 Ind. 455, 84 N. E. 812; Haven its members, and purporting to con-
V. New Hampshire Asylum for Insane, tain its rules and by-laws, are admis-
13 N. H. 532, 38 Am. Dee. 512; Simp- sible as prima facie evidence of such
son V. South Carolina Mut. Ins. Co., 59 rules and by-laws." Knights &
S. C. 195, 37 S. B. 18. See also Ijadies of America v. Weber, supra.
liucas. Turner & Co. v. San Francisco, What were claimed to be the by-laws
7 Cal. 463, 474. of a religious corporation held sufi-
The court will not take judicial ciently proved to be such. Church of
notice of the "laws of the Catholic St. Stanislaus v. Algemeine Verein, 31
Church." Katzer v. Milwaukee, 104 N. T. App. Div. 133, 52 N. T. Supp.
Wis. 16, 79 N. W. 745. 922, afl'd 164 N. Y. 606, 58 N. E.
46MUler V. Johnston, 71 Ark. 174, 1086.
72 S. W. 371. » Where plaintiff, in an action against
Where in a suit on a benefit certifi- a corporation and certain of its offi-
cate issued by a fraternal benefit so- cers, introduces, over the defendants*
ciety, the plaintiff's declaration objection that they were not legally
averred generally, under the statute, adopted, some of the corporation 's by-
the performance of all conditions laws although with a reservation that
precedent to recovery, and the defend- he did not admit their legality, de-
ant's pleading specified an after- fendants have the right to introduce
adopted by-law as a condition prece- the others which are recorded in the
dent, the performance of which it in- same book as those introduced by
tended to contest, the burden of plaintiff, where the statute provides
proving the adoption of such by-law that when part of a writing is given
was on the defendant. Herman v. in evidence by one party the whole
Supreme Lodge K. of P., 66 N. J. L. thereof on the same subject may be
77, 48 Atl. 1000. inquired into by the other. McCon-
46 Supreme Lodge Knights of nell V. Combination Mining & Milling
Pythias v. Bobbins, 70 Ark. 364, 67 S. Co., 30 Mont. 239, 104 Am. St. Rep.
W. 758. 703, 76 Pac. 194.
989
record, they may be proved by the books of the corporation containing

the minutes of the .meeting at which they were adopted,** or, where
it is inconvenient to produce such books, by an examined or authenti-
cated copy.** Parol evidence will be, competent, however, if they

were not entered on the records and there is no charter or statutory
requirement that they be recorded, or if the records cannot be pro-
duced.^" They may be proved also by the acts and uniform course
of the corporation, as well as by an entry or memorandum in writing.*^
III. VALIDITY
§ 489. Consonance with law. In order to be valid, by-laws must
48 Com. V. Woelper, 3 Serg. & E. Bldg. & Sav. Ass'n, 25 Ohio St. 186,
(Pa.) 29, 8 Am. Dee. 628. 204.
49 Lodge
Supreme Knights of A book containing what is testified
Pythias Bobbins, 70 Ark. 364, 67
v. by the president of a mutual associa-
S. W. 758. See also Zimmerman v. have
tion to be its by-laws as they
Masonic Aid Ass 'n of Dakota, 75 Fed. been used and recognized generally
236, appeal dismissed 90 Fed. 832. by its members for
years, is admis-
Where a fraternal benefit society sible evidence as containing the
in
sued on a certificate issued by it by-laws of the association, the presi-
pleads an after-adopted by-law as a dent further testifying that no set of
condition precedent, the performance by-laws was ever copied into the
of which it intends to contest, the minutes. Star Loan Ass 'n v. Moore,
adoption of such by-law cannot be 4 Pennew. (Del.) 308, 55 Atl. 946.
proved by the testimony of a member See also §§484-487, supra.
that a printed book produced by him, Bl Walker v. Johnson, 17 App. Gas.
in which such by-law was included, (D. C.) 144, 161; Union Bank of
contained the by-laws of the society Maryland v. Ridgely, 1 Harr. & G.
in force at a certain date. Herman (Md.) 324. See also Henry v. Jack-
V. Supreme Lodge K. of P., 66 N. J.
son, 37 Vt. 431.
L. 77, 48 Atl. 1000.
Custom may be resorted to as evi-
60 Union Bank of Maryland v.
dence of the adoption of a by-law.
Eidgely, 1 Harr. & G. (Md.) 324;
District Grand Lodge No. 4 v. Cohn,
Flakne v. Minnesota Farmers' Mut.
20 111. App. 335, 344.
Ins. Co., 105 Minn. 479, 117 N. W.
785.
Where the benefit society offering
"It is not necessary to prove the in evidence what purport to be the

adoption of by-laws by a formal vote constitution and by-laws of the parent
of the members or directors. The society shows that such constitution

adoption of by-laws is sufficiently and by-laws were furnished it for its
proved by showing that they appear government and have been so used by
upon the records of the corporation, it, it thereby prima facie establishes
and have been uniformly acted upon their adoption. Home Circle Soo. No.
and enforced as the by-laws of the 1 V. Shelton (Tex. Civ. App.), 81 S.
corporation." Hagerman t. Ohio W. 84.
990
Oh. 16] By-Laws [§489
be consistent with the law of the land.*^ Accordingly, a by-law is void
62 United States. Peck v. Elliott, op. Ass'n (Tenn. Ch. App.), 52 S. W.

79 Fed. 10, 38 L. B. A. 616, rev'g 327.
Eoss-Meehan Brake Shoe Foundry Co. Utab. Daniher v. Grand Lodge A.
V. Southern Malleable Iron Co., 72 O. U. W., 10 Utah 110, 37 Pae. 245.
Fed. 957. In re Long Island R. Co., 19 Wend.
Alabama. Weatherly v. Medical & (N. Y.) 37, 32 Am. Dec. 429, the court
Surgical Society, 76 Ala. 567, 570. said: "When taken as incidental it
California. Union Sav. Bank of [the power adopt by-laws] must
to
San Jose v. Leiter, 145 Cal. 696, 79 be conformity to the
exercised in
Pao. 441; Wells v. Black, 117 Cal. 157, general law of the land, that being
37 L. R. A. 619, 59 Am. St. Rep. 162, the rule to regulate the proceedings
48 Pae. 1090; Bernstein v. District of artificial bodies, as well as the
Grand Lodge No. 4, Independent conduct of natural persons, independ-
Order B'nai B'rith, 2 Cal. App. 624, ently of express provisions of the
84 Pac. 271; People's Home Sav. Bank charters of those companies to the
V. Sadler, 1 Cal. App. 189, 81 Pac. contrary. This general law has ascer-
1029. tained the rights of person and of
Delaware. State v. Jessup & Moore property of the citizen, and estab-
Paper Co., 24 Del. 379, 77 Atl. 16. lished modes of proceeding in case of
Illinois. People v. Chicago Live a violation of them; and corporate
Stock Exchange, 170 111. 556, 570, 39 bodies must conform to them, in seek-
L. E. A. 373, 62 Am. St. Rep. 404, ing redress, the same as individuals.
48- N. E. 1062; People v. Board of The former can no more take the reme
Trade of Chicago, 45 111. 112, 118; dy into their own hands than can
People V. Ittner, 165 111. App. 360, 364; the latter. So strict has this salutary
Wierman v. International Building, principle of subjection been held in
Loan & Investment Union, 67 111. App. England, that even a by-law in pur-
550, 551. suance of an express power in a
Indiana. State v. Anderson, 31 charter granted by the king, is void,
Ind. App. 34, 67 N. E. 207. if contrary to the common law or act
Louisiana. State v. Bank of Lou- of parliament. * * * Thus a by.
isiana, 5 Mart. (N. S.) 327. law imposing a forfeiture of goods is
Massachusetts. Sargent v. Frank- void, though the letters patent au-
lin Ins. Co., 8 Pick. 90, 96, 19 Am. thorized it; and a power granted to a
Dec. 306. corporation of dyers to search, and if
New Jersey. State v. Overton, 24 they found cloth dyed with logwood,
N. J. L. 435, 61 Am. Dec. 671.
to seize it as forfeited,
; was adjudged
New York. Kent v. Quicksilver void as contrary to magna charta. On
Min. Co., 78 N. Y. 159, 182; National
the same principle, by-laws in re-
League of Commission Merchants of
straint of trade are adjudged void.
United States v. Hornung, 72 Misc.
181, 129 N. Y. Supp. 437; People v.
* * * So a by-law that may be
Throop, 12 Wend. 183, 186. lawful cannot be enforced by an ex-
Pennsylvania. In re National Liter- traordinary penalty, such as impris-
ary Ass'n, 30 Pa. St. 150, 151. See onment or forfeiture of goods, or by
also Bagley v. Reno Oil Co., 201 Pa. distress and sale of ôods, for, by the
78, 56 L. R. A. 184, 50 Atl. 760. general law of the kingdom, no man
Tennessee. Herring v. Ruskin Co- is to \\e imprisoned, or dispossessed of
991
489] Peivatb Cokpokations [Ch. 16
if it contravene any provision of the federal or state constitution,*'
his goods and chattels nisi per legale Oallfomia. Union Sav. Bank of
judicium parivm suorutn, vel per legem San Jose 145 Cal. 696, 79
v. Leiter,
terrae: and if such penalties were Pac. 441; Bernstein v. District Grand
allowed, would be en-
eorporations Lodge No. 4, Independent Order B'
abled to up private particular
set nai B'rith, 2 Cal. App. 624, 84 Pae.
laws in contradiction to the laws of 271.
the land, whicli is against the nature nUnols. People v. Chicago Live
* * • Stock Exchange, 170 111. 556, 570, 39
and essence of a by-law.
Even an act of parliament does not by L. R. A. 373, 62 Am. St. Rep. 404, 48
implication invest the corporation N. E. 1062; Durkee v. People, 5S 111.
with any extraordinary authority and App. 396, 402, afE'd 155 111. 354, 46
if it is intended to be given, it must Am. St. Rep. 340, 40 N. E. 626.
be by express words to that effect." New York. Kent v. Quicksilver
"The power of a corporation to Min. Co., 78 N. Y. 159, 182; National
make by-laws for the government of League of Commission Merchants of
its members does not authorize it to United States v. Hornung, 72 Misc.
violate law, nor to require its members 181, 129 N. Y. Supp. 437;
to do so. The power is limited by Pennsylvania. In re German Gen-
the nature of the corporation and the eral Ben. Ass'n of Philadelphia, 30
laws of the country. It can make no Pa. St. 1455; Granger v. 'Grubb, 7
rule which is contrary to law, good Phila. 350.
morals, or public policy." Sayre v. Tennessee. Herring v. Ruskin Co-
Louisville Union Benev. Ass'n, 1 Duv. op. Ass'n (Tenn. Ch. App.), 52 S. ^V.
(Ky.) 143, 85 Am. Dec. 613. 327.
"If by-law be contrary to the
this Provisions of the federal and of the
laws of this state, it certainly has no state constitutions are "laws of the
validity. It is not a settled principle, United States and of the state ' ' with-
however, that a by-law must never in the meaning of a statute provid-
modify or vary the rights of individu- ing that corporations shall have
als, lest it should be contrary to the power and authority to make and es-
laws of the state. According to such tablish rules and regulations not con-
a principle no valid by-law whatever trary to the laws of the United States
could be made. No; all by-laws of a or of the state.Kern v. Arbeiter Un-
minor corporation are good that are terstuetzungs Verein, 139 Mich. 233,
reasonable, and calculated to carry 102 N. W. 746.
into effect the objects of the institu- A by-law restricting the free exer-
tion, and are not contradictory to the cise of the constitutional right of
general policy of the laws of the franchise is invalid. Stein v. Marks,
land." State v. Tudor, 5 Day (Conn.) 44 N. Y. Misc. 140, 89 N. Y. Supp.
329, 5 Am. Dec. 162. 921. This is also true of a by-law
63 United States. Peck v. Elliott, conflicting with the constitutional
79 Fed. 10, 14, 38 L. R. A. 616, rev'g guaranty of religious freedom. People
Eoss-Meehan Brake Shoe Foundry Co. Franciscus Ben. Society, 24 How.
V. St.
v. Southern Malleable Iron Co., 72 Pr. (N. Y.) 216.
Fed. 957. A by-law of a press association
Alabama. Supreme Commandery which provides that no member of
Knights of Golden Rule v. Ainsworth, such association shall receive or pub-
71 Ala. 436, 46 Am. Rep. 332. lish regular news dispatches of any
992
Ch. 16] By-Laws [§489
or of any federal or state statute^* or any of the rules of the com-
other news association organized for Moines Mut. Hail & Cyclone Ins.
a like purpose and covering a like ter- Ass'n, 35 8. D. 627, 153 N. W. 884.
ritory is not open to the objection Texas. Eaton v. International Trav-
that it restricts' the liberty of the elers ' Ass'n of Dallas, Tex. Civ,—
press. Matthews v. Associated Press App. —
, 136 S. W. 817.
State of New York, 136 N. Y. 333, Equity will not give its aid or coun-
32 Am. St. Kep. 741, 32 N. E. 981. tenance to a by-law, the purpose of
84 United States. Peck v. Elliott, which is to frustrate and defeat the
79 Fed. 10, 38 L. K. A. 616, rev'g Eoss- plain intent and provision of the
Meehan Brake Shoe Foundry Co. v. statute. New York Protective Ass'n
Southern Malleable Iron Co., 72 Fed. v. McGrath, 23 N. Y. St. 209, 5 N. Y.
957. Supp. 8.
Alabama. Supreme Commandery Where the rights of a member of a
Knights of Golden Eule v. Ainsworth, fraternal benefit society have become
71 Ala. 436, 46 Am. Eep. 332. fixed prior to the time of the enact-
California. Union Sav. Bank of San ment of a statute which it is claimed
Jose V. Leiter, 145 Cal. 696, 79 Pac. validated certain invalid by-laws,
441; People's Home Sav. Bank v. Su- tending to impair such rights, the
perior Court City & County of San statute, whatever its prospective force
Francisco, 104 Cal. 649, 29 L. B. A. and effect may be, will not be held
844, 43 Am. St. Eep. 147, 38 Pac. 452. to operate retroactively. Leland v.
Illinois. Durkee v. People, 53 111. Modern Samaritans, 111 Minn. 207,
App. 396, 402, afe'd 155 111. 354, 46 126 N. W. 728.
Am. St. Eep. 340, 40 N. E. 626. Aby-law of a fraternal benefit
Kentucky. Corydon Deposit Bank society cannot nullify the statutory
v. McClure, 141 Ky. 481, 133 S. W. presumption of death from seven
201. years' absence. Samberg v. Knights
of Modern Maccabees, 158 Mich. 568,
Maine. Jay Bridge Corporation v.
133 Am. St. Eep. 396, 123 N. W. 25;
Woodman, 31 Me. 573; Kennebec &
Sovereign Camp Woodmen of World
P. E. Co. V. Kendall, 31 Me. 470.
Maryland. Darrin v. Hoff, 99 Md.
V. Eobinson, —
Tex. Civ. App. , 187 —
S. W. 215; Supreme Euling Fraternal
491, 58 Atl. 196.
Kahn
Mystic Circle v. Hoskins, —
Tex. Civ,
Missouri.
Joseph, 70 Mo. 262, 269.
v. Bank of St.
App. —
, 171 S. W. 812.
An express charter provision that
New York. Picalora v. Gulf Co- by-laws on a particular matter shall
operative Co., 68 Misc. 331, 123 N. Y. not be contrary to the general law
Supp. 980. of the state has been stated to mean
Oregon. Griflth v. Klamath Water that they shall "not contravene the
Ass'n, 68 Ore. 402, 137 Pac. 226. general laws other than that govern-
Pennsylvania. Commonwealth v. ing the subject about which they are
Detwiller, 131 Pa. St. 614, 7 L. E. A. prescribed." St. Louis Perpetual Ins.
357, 18 Atl. 990; In re German General Mo. 149. Though
Co. V. Goodfellow, 9
Ben. Ass 'n of Philadelphia, 30 Pa. St. the form of expression employed
1455; Granger v. Grubb, 7 Phila< might be taken as implying that a
350. by-law might contravene the law gov-
South Dakota. Sehultz v. Dea erning the particular matter to which
993
I Priv. Corp.— 63
t§489] Peivate Cobpoeations [Ch. 16
mon law forming a part of the law of the state.^^ In this connection, it
has been held that the term "existing law" in a statute providing that
"every corporation as such has power, though not specified in the
law under which it was incorporated: * * * to make by-laws
not inconsistent with any existing law" refers not only to statutes
but also to judicial decisions as to what powers a corporation may
or may not possess, where the subject is not covered by statutory
enactment.*^ In other words, by-laws must not conflict with the law
as laid down by the courts. So, where the courts have held that the
subordinate lodge or council of a benefit order is the agent of the
supreme lodge or council, by-laws of such an order cannot, even as
between the order and its members, validly declare to the contrary."
the by-law relates, such construction Missouri. Kahn v. Bank

of St.
is not warranted by the decision, Joseph, 70 Mo. 262, 269. See also God-
which merely held that under power dard v. Merchants' Exchange, 9 Mo.
conferred by its charter to regulate App. 290, aff'd 78 Mo. 609.
the transfers of stock, the corporation New Jersey. Taylor v. Griswold, 14
might impose restrictions on such N. J. L. 222, 27 Am. Dee. 33.
transfers running counter to the regu- Pennsylvania. See Com. v. Detwil-
lations of the general law of the state ler, 131 Pa. St. 614, 7 L. E. A. 357,
governing the transfer of other spe- IS Atl. 990.

cies of personal property. The validity of a by-law permitting
A member of a building and loan as- voting by proxy was sustained in
sociation may be estopped by his con- State V. Tudor, 5 Day (Conn.) 329, 5
duct from denying the existence of a Am. Dec. 162, although such form of
by-law, adopted at a time when its voting was not permitted at common
provisions were
invalid under the law, the court taking the view that it
statute but
sought to be enforced was doubtful whether the common-law
against him after the statute had been rule was applicable to other than pub-
so amended as to permit of the adop- lic corporations and also that such a
tion of a similar one. Collins v. Cobe, by-law did not contravene the general
202 m. 469, 66 N. E. 1079, aff'g 104 policy of the laws of the state, in view
111. App. 142. of the fact that the legislature had
B6 United States. Peck v. Elliott,
enacted a law permitting votes by
79 Fed. 10, 38 L. R. A.
616, rev'g
proxy in the case of banking corpo-
Eoss-Meehan Brake
Shoe Foundry
rations.
Co. V. Southern Malleable Iron Co.,
56Eaub V. Gerken, 127 N. Y. App.
72 Fed. 957.
Div. 42, 111 N. Y. Supp. 319.
Alabama. Supreme Commandery
57Dromgold Eoyal Neighbors of
v.
Knights of Golden Bule v. Ainsworth,
71 Ala. 436, 46 Am. Eep. 332.
America, 261 60, 103 N. E. 584.
111.
Illinois. See People v. Crossley, 69 See also Supreme Lodge K. of P. v.

111. 195. Withers, 177 XJ. S. 260, 44 L. Ed. 762,
Michigan. People v. Fire Depart- aff'g 89 Fed. 160. See also Supreme
ment City of Detroit, 31 Mich. 458, Tent Knights of Maccabees of World
466. V. Volkert, 25 Ind. App. 627, 57 N. E.
994
Ch. 16] By-Laws [§490
In a proper case, the questionwhether a by-law is consistent with

the law of the land one for judicial investigation *' and determina-
is
tion. Such question, however, should not be submitted to the jury,

itbeing solely one of law for the court.*' When; however, the question
iswhether a by-law, invalid under the statute under which the cor-
poration was formed, was adopted subsequently to the enactment of
an amendment to the statute, under which the by-law was valid, it
is one of fact for the jury.ô
§ 490. Consonance with public policy and public welfare. By-

laws must also be consistent with public policy *^ and not in conflict
203; Brown v. Supreme Court 1. O. F., 88 State V. Bank of Louisiana, 5

176 N. Y. 132, 68 N. E. 145. Mart. N. S. (La.) 327.
In Sternaman v. Metropolitan Life It is only when an attempt is made
Ins. Co., 170 N. Y. 13, 57 L. E. A. to enforce an invalid by-law to the
318, 88 Am. St. Rep. 625, 62 N. E. detriment of a stockholder that the
763, while the validity of a by-law question of its validity can properly
waa not involved, the principle which be raised for adjudication. Burden v.
apparently underlies the holding of Burden, 8 N. Y. App. Div. 160, 40 N.
the court in Dromgold v. Boyal Neigh- Y. Supp. 499. Moreover, under a
bors of America, supra, was stated as statute empowering the trustees of a
follows: "The power to contract is corporation to make such prudential
not unlimited. While, as a general by-laws as they shall deem proper for
rule, there is the utmost freedom of the management of the affairs of the
action in this regard, some restrictions corporation, they not to be incon-
are placed upon the right by legisla- sistent with the laws of the state,
tion, by public policy, and by the judicial inquiry as to the validity of
nature of things. Parties cannot make a by-law is limited to the question
a binding contract in violation of law whether it is inconsistent with the
or of public policy. They cannot in laws of the state. Burden v. Burden,
the same instrument agree that a supra.
thing exists, and that it does not exist, 59 State V.
Overton, 24 N. J. L. 435,
or provide that one is the agent of 61 Am.
Dec. 671; People v. Throop,
the other, and at the same time, and 12 Wend. (N. Y.) 183, 186. See also
with reference to the same subject, Compton v. Van Volkenburgh, 34 N.
that there is no relation of agency be- J. L. 134, 135; Morris & E. E. Co. v.
tween them. They cannot bind them- Ayres, 29 N. J. L'. 393, 395, 80 Am.
selves by agreeing that a loan in fact Dec. 215.
void for usury is not usurious, or that 60 Supreme Council v. Perry, 140
a copartnership which actually exists Mass. 580, 5 N. E. 634.
between them does not exist. They 61 Alabama. Weatherly V. Medical
cannot by agreement change the laws & Surgical Society, 76 Ala. 567, 570.
of nature or of logic, or create rela- Illinois, People v. Chicago Live
tions, physical, legal, or moral, which Stock Exchange, 170 111. 556, 570, 39
cannot be created. In other words, L. E. A. 373, 62 Am. St. Eep. 404, 48
the^ cannot accomplish the impossible N. E. 1062; People v. Ittner, 165 111.
by contract." App. 360, 364; Dufkee v. People. 53
995
with public welfare.^^ If they conflict with either they are invalid
and will not be sustained.
§491. Ousting courts' jurisdiction. The general rule, as recog-

nized by no less an authority than the Supreme Court of the United
States, is that parties cannot by contract completely oust the' juris-
diction of the courts over claims involving property rights which

may in Ihe future arise out of their dealings one with the other .^'
m. App. 396, 402, aff'd 155 111. 354, A by-law of an incorporated under-
46 Am. St. Kep. 840, 40 N. E. 626. takers' association not for pecuniary
Indiana. State v. Anderson, 31 Ind. profit, by which personal solicitation
App. 84, 67 N. E. 207. of business is prohibited under pen-
Michigan. Van Poucke v. Nether- alty of suspension or expulsion, etc.,
land St. Vincent de Paul Society, 63 is not unreasonable in the sense that
Mich. 378, 29 N. W. 863; People v. it is illegalor contrary to public poli-
Fire Department City of Detroit, 31 cy. Allen V. Chicago Undertakers'
Mich. 458, 466. Ass'n of Illinois, 137 111. App. 61, aff'd
Keliraska. Markham v. Supreme 232 111. 458, 83 N. E. 952, distinguish-
Court I. O. F., 78 Neb. 295, 110 N. ing People V. Chicago Live Stock Ex-
W. 638. change, 170 111. 556, 39 L. E. A. 373, 62
New National League Com-
York. Am. St. Eep. 404, 48 N. E. 1062.
mission Merchants of United States v. 62 People V. Chicago Live Stock Ex-
Hornung, 72 Misc. 181, 129 N. Y. Supp. change, 170 111. 556, 570, 39 L. E. A.
437. 373, 62 Am. St. Eep. 404, 48 N. E.
Utah. Daniher v. Grand Lodge A. 1062; National League Commission
O. TJ. W., 10 Utah 110, 37 Pae. 245. Merchants of United States v. Hor-
A by-law of a mutual accident asso- nung, 72 N. Y. Misc. 181, 129 N. Y.
ciation providing that the association Supp. 437.
shall not be liable for the payment 63 "A man may not barter away
of benefits or indemnity on account of * * * his substantial rights. * * •
disability or death resulting from a In a civil case he may submit his
bodily injury caused by the discharge particular suit by his own consent to
of firearms, unless the member or per- an arbitration, or to the decision of a
son claiming by, through or under single judge. * * * In these aspects,
any certificate issued to such member, any citizen may no doubt waive the
shall establish the accidental charac- rights to which he may be entitled.
ter of such discharge by the testimony He cannot, however, bind himself in
of at least one person, other than the advance by an agreement, which may
member, who was an eyewitness of be specifically enforced, thus to for-
the event, held not contrary to public feit his rights at all times and on all
policy. Eoeh v. Business Men's Pro- occasions, whenever the case may be
tective Ass'n of Des Moines, 164 Iowa presented." Home Ins. Co. of New
199, 15 L. E. A. Ann.
(N. S.) 221, York Morse, 20 Wall. (U. S.) 445,
V.
Cas. 1915 C 813, 145 N. W. 479. See 22 L. Ed. 365. See also Barron v.
also Moses v. Illinois Commercial Burnside, 121 U. S. 186, 30 L. Ed.
Men's Ass'n, 189 HI. App. 440, 448. 915.
996
Ch. 16] By-Laws [§491
Under which is said to have existed ever since and even

this rule,®*
before the time of Lord Coke,** there are courts which hold that
by-laws ** which attempt to deprive the courts of any and all juris-
diction over the property rights of the stockholders or members of
the corporation are invalid. Thus the by-law of a mutual insurance
company or a benefit society making final and conclusive the action
of a tribunal created by it in regard to the allowance of a claim,
will not ordinarily be sustained.*'
64 In Cotter v. Grand Lodge A. O. 73 Am. St. Rep. 19, 57 Pao. 558. Com-
U. W. of Montana, 23 Mont. 82, 57 pare Eobinson v. Irish-American
Pae. 650, it is said that ' ' the common- Benev. Society, 67 Cal. 135, 7 Pac. 435
law doctrine that a provision in an (while this case carries the intimation
ordinary contract requiring all differ- that recourse to the courts might be
ences between the parties touching had after the exha,ustion of the reme-
their rights and liabilities thereunder dies provided by the society, &ever-
to be submitted to arbiters, whose de- theless the only cases that are cited
cision or award shall be conclusive are Anaeosta Tribe No. 12, Improved
and final, will not be allowed to bar Order of Bed Men v. Murbach, and
the litigation of such differences in Black & White Smiths' Society' v.
the courts of the land, is an anomaly, Van Dyke, discussed in note 69, infra,
and inconsistent with the right freely and these are cited approvingly).
to contract; and, if it were not so Where a member of a fraternal
firmly and well-nigh universally es- benefit society resorts to the tribunal
tablished, we apprehend that it would established by the society to procure
be overturned, as resting upon no the allowance of his claim for bene-
solid foundation of reason. Its oper- fits, although he is not required so to
ation should not be extended by do even by the by-laws of the society,

construction, nor should it ever be he is bound by its judgment in the
invoked to nullify or impair contrac- absence of fraud, misconduct and mis-
tual provisions not clearly infected take. See the following decisions:
with the supposed evils intended to California. Eobinson v. Templar
be cured or prevented. * * * The doe- Lodge No. 17, I. O. O. F., 97 Cal. 62,
trine is, however, recognized and ap- 31 Pac. 609, distinguished in Grimbley
proved by the decisions of this court V. Harrold, 125 Cal. 24, 73 Am. St.
* * * and also by section 2245 of the Rep. 19, 57 Pac. 558.
Civil Code of 1895." Indiana. Supreme Council Order of
65 Munson v. Straits of Dover S. S. Chosen Friends v. Garrigus, 104 Ind.
Co., 99 Fed. 787. 133, 54 Am. Rep. 298, 3 N. E. 818;
66 In this section, by-laws will be Bauer v. Samson Lodge, 102 Ind. 262,
treated as contracts, pure and simple, 1 N. E. 571.
into which the stockholders or mem- Maine. Perry v. Cobb, 88 Me. 435,
bers expressly enter, the question of 49 L. R. A. 389, 34 Atl. 278; Ste-
the validity of the by-laws herein phenson v. Piscataqua Fire & Marine
referred to turning on their subject- Ins. Co., 54 Me. 55.
matter rather than on the mode of North Carolina. Duffy v. Fidelity
their adoption. Mut Life Ins. Co., 143 N. C. 697^ 55
«» Grimbley v. Harrold, 125 Cal. 24, S. E. 1047 (mem. dec), 142 N. C.
997
491] Pbivate Coepoeations [Ch. 16
The ground on which such by-laws are deemed void is that they
103, 7 L. R. A. (N. S.) 238, 55 S. E. who have claims against a city or

79. town to present them for a certain
Ohio. Myers Jenkins> 63 Ohio
v. time, in order to allow opportunity
St. 101, 81 Am. Eep. 613, 57 N. E.
St. for investigation. But where a per-
1089; Baltimore & 0- E- Co. v. Stank- son who has a right of action is
ard, 56 Ohio St. 224, 49 L. B. A. 381, deprived of his remedy, either by
60 Am. St. Bep. 745, 46 N. B. 577. nonaction or wrong action on the
To an action for the recovery from part of the society, or where by-laws
a beneficial society of certain bene- imposed conditions which would not
fits claimed by plaintiff under the be allowed to stand, under recog-
society's by-laws, the society inter- nized rules of law, in other cases of
posed the plea that by its by-laws contracts, such by-laws are invalid,
all contests between the society and upon the ground that they operate
members must be referred to a com- to deprive a person of his remedy of
mittee whose decision was final. recourse to the law, which is a com-
The (jourt held that inasmuch as the mon constitutional right." Pepin v.
by-law operated to deprive members Societe St. Jean Baptiste, 23 B. I. 81,
of the right of seeking to enforce the 91 Am. St. Eep. 620, 49 Atl. 387.
monetary obligations of the society Aby-law of a stock corporation
by the aid of the court, the by-law providing that differences thereafter
was invalid. The court, while ad- arising between the corporation and
mitting that it is true that a member its stockholders shall be submitted to
of such society may not in all re- arbitration is not effective to bar the
spects come to the court regardless right of a stockholder to resort to the
of the by-laws of the society, indi- courts, a stipulation whereby persons
cated that such by-laws are not in undertake to shut the doors of the
all respects binding absolutely upon courts with regard to matters to arise
members, and continued: "Where, in the future not being enforceable.
as we have said, the by-laws relate State v. North American Land & Tim-
simply to matters of internal admin- ber Co., 106 La. 621, 87 Am. St. Eep.
istration, or of discipline, courts 309, 31 So. 172.
will not undertake to review them. The trustees or treasurer of a bank
Courts are not established for such cannot be made ultimate arbiter of
a purpose. Also, where the by-laws whether a bank book has been lost or
amount to a condition precedent to a destroyed, so as to deprive the courts
right of action, such as a proper of jurisdiction to decide the matter
opportunity to hear and examine a
by a by-law which provides that no
claim for the purpose of ascertaining
part of a deposit shall be withdrawn
the liability or the amount due, they
without producing the regular book
must be followed before a court will
unless the trustees or the treasurer
hear a party who has failed thus to
shallhave been satisfied that such
conform tp his reasonable contract.
This is a principle applicable to all
book has been lost or idestroyed, even
contracts. A familiar illustration is though the provisions of the by-law
found, in contracts of insurance, in be looked upon as constituting a con-
provisions relating to notice, adjust- tract between the parties. Webber v.
ment of loss, and the like. Also, in Cambridgeport Sav. Bank, 186 Mass.
statutory provisions requiring those 314, 71 N. E. 567. See also Stein v.
998
Ch. 16] By-Laws [§491
are against public policy.** On the other hand, there are courts
which seem to find nothing per se invalid in a by-law's closing the
courts to the adjudication of a claim under a benefit certificate, issued
by the benefit society adopting the by-law.*' But whether or not a
Marks, 44 N. T. Misc. 140, 89 N. Y. V. Murbaeh, 13 Md. 91, 71 Am. Dec.

Supp. 921. 625.
68 Markham v. Supreme Court I.O. Michigan. Conley v. Supreme
P., 78 Neb. 295, 110 K. W. 638. See Court Independent Order of Forest-
also Kelly v. Trimont Lodge No. 249, ers, 158 Mich. 190, 122 N. W. 567;
I. O. O. F., 154 N. C. 97, 52 L. R. A. Fillmore v. Great Camp Knights of
(N. S.) 823, 69 S. E. 764. Maccabees, 103 Mich. 437, 61 N. W.
A
provision in the constitution and 785; Hembeau v. Great Camp Knights
by-laws of a benefit society which of Maccabees, 101 Mich. 161, 49 L.
leaves it wholly within the discretion B. A. 592, 45 Am. St. Rep. 400, 59
of the beneficiary board whether they N. W. 417 (such a by-law does not vio-
will pay a disability claim, denies an late the constitutional right of trial
appeal from the decision of the board, by jury) ; Canfield v. Great Camp
and makes its terms pleadable in bar Knights of Maccabees, 87 Mich. 626,
of any suit in equity or action at law 13 L. R. A. 625, 24 Am. St. Rep. 186,
brought on a benefit certificate, held 49 N. W. 875; Van Pouche v. Nether-
to be against public policy. Convery land St. Vincent de Paul Society, 63
V. Brotherhood of Eailroad Trainmen, Mich. 378, 29 N. W. 863.
190 111. App. 479. Pennsylvanlai. Black & "White
It has been suggested, however, by Smiths' Society V. Vandyke, 2 Whart.
the court which decided the case just 309, 30Am. Dec. 263.
cited that although a beneficiary in a A
by-law of a benefit association
benefit certificate is not required be- which requires a claim to be submitted
fore bringing suit to submit his claim to arbitrators and makes their deci-
to the tribunal provided in the by- sion final, and which is made a part
laws where such tribunal is composed of the policy of insurance, is valid.
of the ofScers of the society, a by-law Russell V. North American Ben. Ass 'n,
providing for arbitration before or an 116 Mich. 699, 75 N. "W. 187.
adjudication by some third person or A by-law of a fraternal benefit so-
a tribunal whose members are in no ciety which provides that a tribunal
way- connected with the society would, of the society's members shall hear
perliaps, be a complete bar to a suit and determine all claims against it on
in court. Great Hive Ladies of Mod- the part of its members and that such
ern Maccabees v. Hodge, 130 HI. App. tribunal's finding shall be final, will
1, See also Bond v. Grand Lodge
3. be sustained by the courts. Derry v.
Brotherhood of Eailroad Trainmen, Great Hive Ladies of Modern Macca-
165 111. App. 490, 497. bees, l35 Mich. 494, 98 N. W. 23.
69 United States. Rood v. Railway A by-law of a mutual fire insurance
Passenger & Freight Conductors ' Miit. company which provides that the de-
Ben. Ass'n, 31 Fed. 62. cision of arbitrators in the matter of
Maryland. Osceola Tribe No. 11, a claim for loss shall be final and that
Independent Order of Red Men v. neither party shall thereafter have
Schmidt, 57; Md. 98; Anacosta Tribe any right of action in regard to such
No. 12, Improved- Order of Red Men matter either at law or in equity, and
999
by-law of this character is valid, it would seem that the courts,

very generally, will sustain a by-law of a benefit society which pro-
vides that before any suit at law or in equity shall be instituted on
a claim for benefits, the means afforded by the by-laws for the press-
ing of the claim shall be exhausted.'"'
to which a member agrees, in his appli- of disputes between members arising

cation, to conform, is valid, notwith- put of business transactions, and pro-
standing a statute which gives a mem- vided that the decision of the appel-
ber the right to sue on a claim which late tribunal should
be considered
has accrued if payment be withheld final, held binding and wise.
valid,
more than a certain length of time, Vaughn v. Herndon, 91 Tenn. 64, 17
the claim which the by-law requires to S. W. 793.
be submitted to arbitration not be- The power of a membership cor-
coming due until the award is made. poration, not for profit, to adopt a
Raymond v. Farmers' Mut. Fire Ins. by-law providing for a tribunal to set-
Co., 114 Mich. 386, 72 N. W. 254. tle disputed accounts, a failure to exe-
See also Patrons' Mut. Fire Ins. Co. cute whose judgment subjects a
of Michigan v. Attorney General, 166 member to the penalty of expulsion,
Mich. 438, 131 N. W. 1119. will notbe lightly implied. National
In Cotter Grand Lodge A. O. TJ.
v. Iieague of Commission Merchants of
W. of Montana, 23 Mont. 82, 57 Pae. United States v. Hornung, 72 N. Y.
650, the court, citing Eobinson v. Misc. 181, 129 N. T. Supp. 437.
Templar Lodge, 117 Cal. 370, 49 Pae. 70 Connecticut. McGuiness v. Court
170, infra, v. Great Camp
Canfield Elm City No. 1, Foresters of America,
Knights of Maccabees, supra, and Fill- 78 Conn. 43, 3 Ann. Gas. 209, 60 Atl.
more V. Great Camp Knights of 1023.
Maccabees, supra, said: "We are Delaware. King v. Wynema Coun-
inclined to think the better reason- cilNo. 10, Daughters of Pocahontas
ing is with those courts which, Improved Order of Eed Men, 25 Del.
while recognizing and following the 255, 78 Atl. 845.
common-law rule [which holds ineffec- Illinois. Grant v. LangstafC, 52 111.
tive for their purpose agreements oust- App. 128, 132.

ing the jurisdiction of the courts over Indiana. Bauer v. Samson Lodge,
civil and property rights] where ordi- 102 Ind. 262, 1 N. E. 571.
nary contracts are involved, never- Kansas. Supreme Lodge Order of
theless hold that the members of, and Select Friends v. Raymond, 57 Kan.
those claiming benefits from, the so- 647, 49 L. E. A. 373, 47 Pae. 533.
ciety are bound, in the absence of Maine. Jeane v. Grand Lodge A.
fraud or palpable error, to seek re- O. U. W., 86 Me. 434, 30 Atl. 70.
dress of their grievances in the mode Massachusetts. Oliver v. Hopkins,
prescribed by the society, wherein 144 Mass. 175, 10 N. E. 776.
vests the sole jurisdiction to right Michigan. Larkin v. Modern Wood-
their wrongs, and that they are pre- men of America, 163 Mich. 670, 127
cluded from resort to the courts." N. W. 786; Conley v. Supreme Court
A by-law of a tobacco board of Independent Order of Foresters, 158
trade, adopted "pursuant to its char- Mich. 190, 122 N. W. 567; Monger v.
ter powers," which created trial and New Bra Ass'n, 156 Mich. 645, 24 L.
appellate tribunals for the settlement E. A. (N. S.) 1027, 121 N. W. 823.
1000
Ch. 16] By-Laws [§ 491
This rule is, however, subject to certain limitations, such as
Montana. Cotter v. Grand Lodge law violated by a by-law requiring

A. O. U. W. of Montana, 23 Mont. 82, an appeal to the governing body. * * *
57 Pae. 650. We have no doubt that a by-law re-
New Hampshire. Levy v. Order of quiring the presentation of claims to
Iron Hall, 67 N. H. 593, 38 Atl. 18. subordinate officers, and requiring, in
New Jersey. Ocean Knights
Castle, case of a decision adverse to the
of Golden Eagle v. Smith, 58 N. J. L, claimant, an appeal to the governing
545, 33 Atl. 849. body of the society, is reasonable and
New York. Poultney v. Bachman, valid." Supreme Council Order of
31 Hun 49, 54. Chosen Friends v. Eorsinger, 125 Ind.
Ohio. Myers v. Jenkins, 63 Ohio 52, 9 L. E. A. 501, 21 Am. St. Eep. 196,
St. 101, 81 Am. St. Eep. 613, 57 N. E. 25 N. E. 129. Compare, however,
1089; Baltimore & O. R. Co. v. Stank- Daniher v. Grand Lodge A. O. U. W.,
ard, 56 Ohio St. 224, 49 L. E. A. 381, 10 Utah 110, 37 Pac. 245, in which the
60 Am. St. Eep. 745, 46 N. E. 577; court said: "It is further contended
Supreme Court I. O. ¥. v. Herlinger, by the appellants that the plaintiff
27 Ohio Cir. Ct. 151, 153. cannot recover, because he failed and
Pennsylvania. Beeman v. Supreme refused to submit his ease to the board
Lodge Shield of Honor, 215 Pa. 627, of arbitration, as provided in the con-
64 Atl. 792; McAlees v. Supreme Sit- stitution and laws of the order, after
ting Order of Iron Hall, 13 Atl. 755. demanding a hearing. The constitution,
Rhode Island. Wood v. What among others, contains a provision
Cheer Lodge No. 298, Sons of St. relating to the board of arbitration,
George, 35 Atl. 1045. as follows: 'In this board is vested
"It is not unreasonable to provide jurisdiction to hear and determine all
that the member claiming benefits controversies as to the liability of this
shall appeal to the governing body of grand lodge for any claim made
the association. The member volun- against it by those claiming to be the
tarily enters the association, with beneficiaries of deceased members,
knowledge of its by-laws, and agrees and also as to who are entitled as
to be bound by such as are not in vio- beneficiaries where conflicting claims
lation of law, and certainly no princi- are set up; and the decision of a ma-
ple of law is violated in making pro- jority of said board shall be final and
vision for the submission of claims conclusive, unless reversed by the
of a member to the highest body of grand lodge or supreme lodge, it being
the association with which he volun- the purpose and intention of this pro-
tarily unites himself. It is but just vision that all these rights shall thus
to the association that its chief ofS- be determined without recourse to
cers should have an opportunity to courts of law.' It then provides how
ijivestigate the claim asserted by the appeals may be taken. It is evident
member before it is harassed by liti- that this provision is intended to
gation, and, indeed, the provision is cover the whole subject of conflicting
presumptively for the benefit of the or disputed claims of beneficiaries,
member, for the fair inference is that and the intention is that claimants
the governing officers will do their shall not have recourse to courts of
duty, and allow all rightful claims. law. When individuals unite to form
At all events, there is no principle of a voluntary association, and adopt a
1001
'
§ 491] Pkivate Coepokations [Ch. 16
that the means afforded by the by-laws shall not be unreason-
constitution and by-laws, the relation of arbitration of its own creation, and
which exists between the members is that its decision shall be final and con-
one of contract, and the constitution clusive, is legally ineffectual to bar
and by-laws form the terms of the this action. The rule of law is well
agreement. Such agreement is valid settled that in such a case an agree-
and binding upon them, so long as it ment to arbitrate does not preclude
is not in contravention of the law of the parties to it from resorting to
the land or of public policy. As to their legal remedies. Nor is a sub-
their binding effect, there is no dis- mission to arbitration, under such an
tinction between the constitution and agreement, a condition precedent to
the by-laws, except that it generally the bringing of an action. To hold
requires less solemnity and formality otherwise would be an attempt to
to change the latter than the former. clothe such voluntary associations
If in either the association inserts pro- with power to create judicial tribu-
visions attempting to create a tribunal nals, which would be contrary to the
haying the power to adjudicate upon law of the land. '
all the property rights of members or In People v. Women's Catholic Or-
by virtue of mem-
beneficiaries arising der of Foresters, 162 111. 78, 44 N. E.
bership in the order, then such provi- 401, aff 'g 59 111. App. 390, it was said:
sions have no more effect than a "It is to be remembered, however,
revocable agreement to submit to an that there is a clear distinction be-
award, because, otherwise, the attempt tween the obligation to appeal from
would be to usurp the functions of the the lower to the higher tribunals of
sovereign power, for it alone can cre- the society itself resting upon one who
ate judicial tribunals. In the construc- presents a question of discipline, and
tion of all such provisions, the courts such obligation so far as it concerns
will apply the most cautious rules in one who asserts a claim to money due
the interests of justice and fair deal- upon a contract. Where the contro-
ing. If the constitution or agreement versy concerning the discipline or
is
provides for the determination only of policy or doctrine of the order or fra-
some particular fact or facts, or of a ternity, the member must resort to the
question where no obligation to pay a method of procedure prescribed by the
fixed sum is expressed in the contract, association including the remedy by
or where no particular thing is to be appeal, before invoking the power of
done, but only such sum is to be paid, the courts. But it is otherwise, where
or such thing is to be done, as may a member claims money due from, the
be determined by the arbitrators, society on its contract, or where the
then, in such and like cases, the pro- beneficiary of a deceased member
vision or agreement to submit is bind- claims money due from the society on
ing, in the absence of fraud. . The its contract of
insurance; in such case,
case at bar must be distinguished the right to resort to the courts to
from these classes of cases, however, coerce payment will not be abridged
for here the sum to be paid is defi- by the right of appeal from a lower to
nite; and the constitutioij, which pro- a higher tribunal of the society as
vides, in general terms, that all claims conferred by and rules.
its laws
and rights of members and benefici- 'Courts of justice are freely open to
aries shall be submitted to the board those who seek money due them upon
1002
Ch. 16] By-Laws [§491
able '^ or such as will work a denial of justice,''^ and the intent to
abridge the right to resort to the courts immediately is made to appear
by express terms and is not dependent on mere implication. In order
in any way to abridge the. right of a member of a benefit order to
resort to the courts to obtain the benefits to which he claims to be
entitled, the by-law must do so expressly, and where it does so only
by implication, the abridgment will not Ibe binding on the member,
a contract.' * * • Hence, there is a Grubbs v. Comanche Tribe No. 6, 1. O.

distinction between the question of E. M., 16 Ga. App. 11, 84 S. E. 494.
the validity of the expulsion when it The assignee of a beneficiary was
is set up as a defense to an action held in Strasser v. Staats, 59 Hun (N.
upon a benefit certificate or other con- Y.) 143, 13 N. Y. Supp. 167, not to be
tract, and the question of the validity subject to the operation of a by-law
of the expulsion when restoration to whereby benefits are forfeited by a
the privileges of the society is sought resort to the courts before the reme-
to be secured through the writ of man- dies within the society are exhausted.
damus or other procedure. In the for- But that the assignee of a member of
mer ease, it is sufficient for the bene- a stock exchange whose seat was, upon
ficiary to show, that the judgment of his insolvency, disposed of in accord-
expulsion was invalid, without fur- ance with the by-laws of the exchange,
ther showing the exhaustion of all must, in asserting his claim, exhaust
remedies within the order or society the remedies open to him under the
for the purpose of having the judg- exchange's by-laws before resorting to
ment vacated. * * * In the latter the courts, see Gartner v. Pittsburgh
case, it must appear that the remedy Stock Exchange, 247 Pa. 482, Ann.
provided by the rules of the society Cas. 1916 E 878, 93 Atl. 759.
for the review of the judgment com- 71 A by-la* of a fraternal benefit
plained of was resorted to." society which requires the exhaustion
And see in connection with these of all of the remedies providedby the
last two cases: Supreme Lodge Order society's constitution and by-laws be-
of Mutual Protection v. Meister, 204 fore legal proceedings are instituted
111. 527, 68 N. E. 454, aff'g 105 111. will be enforced against the benefici-
App. 471; Harris v. National Council ary in a benefit certificate only when
Junior Order United American Me- the remedies provided are reasonable.
chanics, 168 N. O. 357, 84 S. E. 405; Lindahl v. Supreme Court I. O. F., 100
Kelly V. Trimont Lodge No. 249, I. Minn. 87, 8 L. E. A. 916, 117 Am. St.
O. O. F., 154 N. C. 97, 52 L. B. A. Eep. 676, 110 N. W. 358. See also
(N. S.) 823, 69 S. E. 764; Pearson v. Kane v. Supreme Tent Knights of
Anderburg, 28 Utah 495, 80 Pac. 307. Maccabees of World, 113 Mo. App.
A member of a fraternal benefit 104, 87 S. W. 547.
association must ordinarily exhaust 72 Where resort to the remedies pro-
all of the remedies provided by such vided by a benefit order for its mem-
association before resorting to the bers would work a denial of justice, a,
civil courts,but his beneficiaries are by-law requiring the exhausting of
not required to thus proceed after his such remedies as a condition prece-
death unless the by-law contains a dent to the bringing of any civil ac-
mandatory provision to that effect. tion or legal proceeding will not be
1003
regardless of its being in conformity with custom.''' Certain it is
that if by-laws which seek to oust the jurisdiction of the courts en-
tirely can be sustained at all, they can accomplish their purpose
only when it is made to appear by clear and explicit terms.'*
'
' The judicial mind is so strongly against the propriety of allowing
one of the parties, or its especial representative, to be judge or arbitra-
tor in its own ease, that even a strained interpretation will be resorted
'
to if necessary to avoid that result. '
''*
Moreover, where through the
•
fault of a fraternal benefit society, it becomes impossible for a member
or his beneficiary to pursue the means provided by the society for
securing the allowance of a claim for benefits, the society cannot
avail itself of a by-law requiring the exhaustion of all such means
as a condition precedent to the institution of legal proceedings.'"
That there was fault on the part of the society is not, however, a
it must be pleaded.''''
matter of presumption but
sustained. Brown v. Supreme Court tors' Ben. Ass'n v. Eobinson, 147 111.
I. O. r., 176 N. Y. 132, 68 N. E. 145. 138 [supra]. We are inclined to the

T3 Bauer v. Samson Lodge, 102 Ind. opinion that such a by-law should,
262, 1 N. E. 571. upon grounds of public policy, be held
74 Supreme Lodge Order of Select by the courts to be invalid as an at-
Friends v. Eaymond, 57 Kan. 647, 49 tempt to usurp the judicial functions
L. E. A. 373, 47 Pac. 533. of government." Fraternal Aid
7B Eailway Passenger & Freight Ass'n v. Hitchcock, 121 111. App. 402,
Oonductora' Mut. Aid & Benefit 408.
Ass'n V. Eobinson, 147 111. 138, 159, 76Euterbusch v. Supreme Court I.
35 N. E. 168, afE'g 38 111. App. 111. 0. F., 162 Mich. 213, 127 N. W. 288.
See also Eailway Passenger & Freight See also Supreme Sitting Order of
Conductors' Mut. Aid & Benefit Iron Hall v. Stein, 120 Ind. 270, 22
Ass'n V. Tucker, 157 111. 194, 204, 44 N. E. 186; Steiner v. Supreme Court
N. E. 286, 42 N. E. 398, rev'g 54 111. 1. O. F., 149 Mich. 567, 113 N. W. 15;
App. 445; Great Hive Ladies of Mod- Harris v. National Council Junior Or-
ern Maccabees v. Hodge, 130 111. App. der IJnited American Mechanics, 168
1, 3; Brotherhood of Ey. Trainmen v. N. C. 357, 84 S. E. 405; Myers v. Jen-
Greaser, 108 111. App. 598, 600. kins, 63 Ohio St. 101, 81 Am. St. Eep.
"It has been held, in effect, that a. 613, 57 N. B. 1089.
by-law of a benefit association author- When a benefit society denies lia-
izing an officer of such association bility on a claim under a benefit cer-
finally to construe a law of the asso- tificate, disallows the same, and re-
ciation purporting to limit its liability fuses an appeal to its appellate tri-
to pay benefits, and obligating a mem- bunal, it estops itself from relying on
ber to abide the decision of such offi- provisions of its constitution for such
cer in the construction of such by-law, an appeal. Dague v. Grand Lodge
will not be enforced by the courts Brotherhood of Eailroad Trainmen,
against a member, if be possible to
it 111 Md. 95, 73 Atl. 735.
avoid Uiat result. Bailway Conduc- 77<'We do not doubt that if the
10G4
— '
Ch. 16] By-Laws [§ 492
Nothing that has been said in this connection, however, must be

understood as authority for the proposition that by-laws cannot pro-
vide that certain facts shall be established by a tribunal within the
corporation or by arbitration as a condition precedent to the attaching
of legal liability. Indeed so far from the courts' lending themselves
to any such proposition, it would seem that by-laws thus providing
will, if otherwise valid, be sustained. It is only of jurisdiction over
the question of legal liability on the facts that the courts refuse to be
deprived, and it is only to this point that the above discussion goes.
In keeping with the rule that the courts cannot be ousted of their
jurisdiction over the property rights of stockholders or members by
by-law, or perhaps, more properly, as an extension of such rule, it
has been held that a corporation cannot by by-law fix the venue of
suits against it and thus change the jurisdiction of the courts as
established by law.'*
§492. Impairment of obligation of contracts and destruction or

'
impairment of vested rights. The word by-law
'
ordinarily sig-
' '
nifies a rule for future action,'* and the power of a corporation to

adopt by-laws does not extend to the adoption of such as impair
the obligation of contracts or destro^y or impair vested rights, and
by-laws which have such effect will not be sustained.*'* In this oon-
officers of the society should refuse "A by-law, like any other law, is a
ar. appeal, or do any act hindering or rule prescribed to regulate future eon-
delaying an appeal, that the member duct, not to- act retrospectively, by
might at once invoke the assistance of which a forfeiture is incurred, or
the courts. * * * But it cannot be onerous conditions imposed amounting
presumed, in the absence of averments to a forfeiture. ' Illinois Conference
'
to the contrary, that the ofieera have Female College v. Cooper, 25 111. 148,
been guilty of a breach of duty, so 150.
that it is incumbent upon a party who 80" A corporation has not capacity,
relies upon the wrong of the corporate as the legislative power from which it
officers to show by affirmative allega- derives existence has not competency,
tiohs their wrongful conduct." Su- by laws of its ov/u enactment, to dis-
preme Council Order of Chosen turb or divest rights which it had cre-
I'riends v. Forsinger, 125 Ind. 52, 9 L. ated, or to impair the obligation of its
E. A. 501, 21 Am. St. Eep. 196, 25 N. contracts, or to change its responsibili-
E. 129. ties to its members, or to draw them
Amesbury v. Bowditch Mut. Fire
78 into new and distinct relations. '
Ins. Co., 6 Gray (Mass.) 596; Nute v. Supreme Commandery Knights of

Hamilton Mut. Ins. Co., 6 Gray Golden Eule v. Ainsworth, 71 A.la.
(Mass.) 174. See also Eaton v. Inter- 436, 46 Am. Eep. 332.
national Travelers' Aas'n of Dallas, In support of this rule, see also:
Tex. Civ. App.—, 136 S. "W. 817. United States. Peck v. Elliott, 79
79 People V. Fire Department of De- Fed. 10, 38 L. E. A. 616, rev 'g Eoss-
troit, 31 Mich. 458, 465. Meehan Brake Shoe Foundry Co. v.
1005
neetion, however, a by-law which is a mere declaration or expression

of an implication of the law cannot be attacked as impairing the obli-
gation of contracts.'^
Southern Malleable Iron Co., 72 Fed. When a moneyed corporation makes

957. and attempts to enforce a by-law
California. People's Home Sav. which involves a forfeiture of vested
Bank Superior Court City & County
v. property rights, it must show ex-
of San Francisco, 104 Cal. 649, 29 L. press legislative authority or a power
R. A. 844, 43 Am. St. Eep. 147, 38 lawfully conferred by its charter to
Pac. 452; Bornsteiu v. District Grand declare such a forfeiture. March v.
Lodge No. Independent Order B 'nai
4, Fairmount Creamery Ass'n, 32 Pa.
B'rith, 2 Cal. App. 624, 84 Pac. 271. Super. Ct. 517, 520.
lUinols. Illinois Conference Female A by-law of a creamery association,
College V. Cooper, 25 111. 148, 151. a moneyed corporation, which provides
Indiana. State v. Anderson, 31 Ind. that stockholders producing milk and
App. N. E. 207.
34, 67 failing to dispose of it as required by
Iowa. Van Atten v. Modern Broth- the by-laws shall forfeit their stock
erhood of America, 131 Iowa 232, unless a reason for noncompliance
108 N. W. 313. therewith which shall be satisfactory
Maine. Northport Wesleyan Grove to the board of managers be given, is
Camp-Meeting Ass'n v. Perkins, 93 invalid as to persons who are stock-
Me. 235, 48 L. E. A. 272, 74 Am. St. holders at the time of its adoption,
Eep. 342, 44 Atl. 893. and did not assent thereto, as provid-
Michigan. People v. Fire Depart- ing for a forfeiture of vested prop-
ment Oity of Detroit, 31 Mich. 458, erty rights. March v. Fairmount
465. Creamery Ass'n, supra.
Minnesota. Duluth Olub v. Hae-
A physician whose only interest in
Donald, 74 Minn. 254, 73 Am. St. Eep.
the government of an endowed hos-
344, 76 N. W. 1128; Bergman v. St.
pital is the hope of gains and profits
Paul Mut. Bldg. Ass'n, 29 Minn. 275,
to arise from the practice of his pro-
13 N. W. 120.
fession therein, is not a beneficiary of
Missouri. Smoot v. Bankers' Life
the trust and has no standing in a
Ass'n, 138 Mo. App. 438, 120 S. W.
court of law or equity to complain
719.
that the by-laws of the charity are
New York. Kent v. Quicksilver
such as to deprive him of the gains
Min. Co., 78 N. Y. 159.
and profits that he might otherwise
Oregon. Griffith v. Klamath Water
obtain. People v. Julia F. Burnham
Ass'n, 68 Ore. 402, 137 Pac. 226.
Hospital, 71 HI. App. 246.
Bhode Island. Ireland v. Globe
Milling Co., 21 E. I. 9, 79 Am. St.
A by-law must not unlawfully inter-
fere with a member's right to con-
Eep. 769, 41 Atl. 258.
The right of a benefit society to,
tract. Matthews v. Associated; Press
make by-laws of such character is no
State of New York, 136 N. Y. 333, 32
broader than that of any other cor-
Am St. Eep. 741, 32 N. E. 981.
poration. Wuerfler v. Grand Grove See also §§ 504, 505, infra.
of Wisconsin Order of Druids, 116 81 Supreme Commandery Knights of
Wis. 19, 96 Am. St. Eep. 940, 92 N. W. Golden Eule v. Ainsworth, 71 Ala. 436,
433. 46 Am. Eep. 332. See also Plunkett v.
1006
Ch. 16] By-Laws [§493
§ 493. Restraint of trade. A by-law is invalid if it is in unreason-

able restraint of trade.*^ It has been said, however, that the invalidity-
Supreme Conclave, 105 Va. 643, 55 For by-laws of a live stock exchange
S. E. 9. which are not invalid under the fed-
82 Illinois. Inter-Ocean Pub. Co. v. eral act prohibiting restraints and
Associated Press, 184 111. 438, 48 L. E. monopolies, see Hopkins v. United
A. 568, 75 Am. St. Eep. 184, 56 N. E. States, 171 U. S. 578, 43 L. Ed. 290,
822, rev'g 83 111. App. 377; People v. rev'g 82 Fed. 529.
Chicago Iiive Stock Exchange, 170 111. In Matthews v. Associated Press
556, 39 L. E. A. 373, 62 Am. St. Eep. State of New York, supra, it was held
404, 48 N. E. 1062. that a by-law of a news association,
Iowa. Parmers ' & Merchants Bank ' composed of the publishers of news-
of Lineville v. Wasson, 48 Iowa 336, papers in a state, and organized for
30 Am. Eep. 398. .
the purpose of procuring and supply-
Kentucky. Huston v. Eeutlinger, ing its members with news, prohibit-
91 Ky. 333, 34 Am. St. Eep. 225, 15 ing its members from receiving or
S. W. 867. publishing the dispatches of any other
Massachusetts. Sargent v. Franklin news association covering the same
Ins. Co., 8 Pick. 90, 96, 19 Am. Dee. territory, and organized for the same
306. purpose, was not unreasonable or op-
New York. Matthews v. Associated pressive, nor void as being in restraint
I-ress State of New York, 136 N. Y. of trade and competition, or of the
333, 32 Am. St. Eep. 741, 32 N. E. 981. liberty of the press. See also State v.
Oregon. See Budd v. Multnomah Associated Press, 159 Mo. 410, 51 L.
St. Ey. Co., 15 Ore. 413, 3 Am. St. E. A. 151, 81 Am. St. Eep. 368, 60
Bep. 169, 15 Pae. 659. S. W. 91.
Pennsylvania. Commissioners v. On the other hand, the same by-law
Gas Co., 12 Pa. St. 318. was held invalid in restraint of trade
Tennessee. Bailey v. Master Plumb- in an Illinois decision. See Inter-
ers, 103 Tenn. 99, 46 L. E. A. 561, Ocean Pub. Co. v. Associated Press,
184 111. 438, 48 L. E. A. 568, 75 Am.
52 S. W. 853.
England. Tailors of Ipswich Case, St. Eep. 184, 56 N. E. 822, rev'g 83
11 Coke 53; Eex v. Wardens of Coop- 111. App. 377.
ers Co., 7 T. E. 543. An association of manufacturers
In People v. Chicago Live Stock may adopt a by-law giving it the right
Exchange, 170 111. 556, 39 L. E. A. • to order the closing down of the fac-
373, 62 Am. St. Eep. 404, 48 N. E. members, provided the ob-
tories of its
1062, it was held that a by-law of a jects sought to be attained be within

its lawful purposes and the means
live stock exchange board, limiting the
number of solicitors who might be used be legal. Associated Hat Manu-
employed by any member within cer- facturers V. Baird-Unteidt Co., 88
tain states,, prohibiting the employ- ConnJ 332, 91 Atl. 373.
ment of any solicitors except upon a Where an incorporated milk ex-
salary, and allowing a member to so- change adopted by-laws declaring that
licit only when counted as a solicitor, its directors should have the power to
and while complying with the regula- make and fix the standard or market
tions of the by-laws, was void as being price at which milk should be pur-
in unreasonable restraint of trade. chased by the corporation's stoek-
1007
493] Jr'RIVATB COEPORATIONS i,(,.i. si
attaching to such a by-law goes only to the extent that the law wiL
refuse to enforce it, and that a third person cannot complain if the
members of the corporation choose to conform to it.*'
§494. Consonance with charter and with nature, purposes and

objects of corporation. In order for by-laws to be valid, they must
be consistent with the terms and spirit of the charter of the cor-
—
poration the word "charter" being here used in its broadest sense
and as having reference to the statutory right to be a corporation
without regard to whether such right be obtained by special act or
under general statutes. A by-law which is not thus consistent with
the charter but is in conflict with and repugnant to it, is void.'* Thus
holders, and, acting under such by- 99 Am. Dee. 237; Bernstein v. District
laws, the directors from time to time Grand Lodge No. 4, Independent Or-
fixed the price of milk to be paid by der B'nai B'rith, 2 Cal. App. 624, 84
dealers, and the price so fixed largely Pac. 271; People's Home Sav. Bank
controlled the market in and about the V. Sadler, 1 Cal App. 189, 81 Pac.
city in which the exchange had its 1029.
place of business, it was held that a Delaware. Brooks v. State, 26 Del.
verdict or finding that the exchange as 1, 79 Atl. 790.
managed constituted a combination Illinois. People v. Chicago Live
inimical to trade and commerce was Stock Exchange, 170 111. 556, 570, 39
authorized. People v. Milk Exchange, L. E. A. 373, 62 Am. St. Eep. 404, 48
145 N. Y. 267, 45 Am. St. Eep. 609, N. E. 1062; King v. International
39 N. E. 1062. Building, Loan & Investment Union,
83 American Live Stock Commission 170 III. 135, 48 N. E. 677; Durkee v.
Co. V. Chicago Live Stock Exchange, People, 155 111. 354, 46 Am. St. Eep.
143 111. 210, 235, 18 L. E. A. 190, 36 340, 40 N. E. 626; People v. Ittner, 165
Am. Eep. 385, 32 N. E. 274, aff'g
St. 111. App. 360, 364; Cerny v. Sesterska
41 App. 149.
111. Podporujici Jednota, 146 111. App. 590;
84 United States. BuUard v. Na- Cerny v. Jednota Cesky Dam, 146 111.
tional Eagle Bank, 18 Wall. 589, 21 App. 518, 523; "W'ierman v. Interna-
L. Ed. 923; First Nat. Bank of South tional Building, Loan & Investment
Bend v. Lanier, 11 Wall. 369, 20 L. Union, 67 App. 550, 551.
111.
Ed. 172; Peek v. Elliott, 79 Fed. 10, Indiana. Presbyterian Mut. Assur.
38 L. E. A. 616, rev'g Eoss-Meehan Fund V. Allen, 106 Ind. 593, 7 N. E.
Brake Shoe Foundry Co. v. Southern 317; McCallister v. Shannondale Co-
Malleable Iron Co., 72 Fed, 957. operative Tel. Co., 47 Ind. App. 517,
Alabama. Supreme Commandery 94 N. E. 910; State v. Anderson, 81
Knights of Golden Eule v. Ainswprth, Ind. App. 34, 67 N. E. 207.
71 Ala. 436, 46 Am. Eep, 332. Maryland. Mutual Fire Ins. Co. v.
California. Home Sav.
People's Farquhar, 86 Md. 668, 39 Atl. 527.
Bank Court City & County
v. Superior. Massachusetts. Supreme Council v,
of San Francisco, 104 Cal. 649, 29 L. Perry, 140 Mass. 580, 5 N. E. 634.
E. A. 844, 43 Am. St. Eep. 147, 38 Pac. Minnesota. Kolff v. St. Paul Fuel
452; Brewster v. Hartley, 37 Cal. 15, Exchange, 48 Minn. 215, 50 N. W.
1008
Cli. 16] By-Laws [§494
where a corporation has been made one of a stock character by the

articles of incorporation, it cannot be made one of a mutual character
3036; Bergman v. St. Paul Mut. Bldg. V. Mathews, 4 Desauss. Eq. 578, 6 Am.
Ass'n, 29 Minn. 275, 13 N. "W. 120. Dec. 619.
Missouii. Kahn v. Bank of St. Jos- Tennessee. State v. Vanderbilt Uni-
eph, 70 Mo. 262, 269; Kretzef v. Cole versity, 129 Tenn. 279, 164 S. W.
Bros. Lightning Eod
Mo. App.
Co., 193 1151; Bailey v. Master Plumbers, 103
99, 181 S. W. 1066; O'Brien v. Cum- Tenn. 99, 46 L. E. A. 561, 52 S. W.
niings, 13 Mo. App. 197. 853; Martin v. Nashville Bldg. Ass'n,
Nevada. State v. Curtis, 9 Nev. 2 Cold. 418; Herring v. Euskin Co-op.
325. Ass'n (Tenn. Ch. App.), 52 S. W. 327.
NeVHampsblre. Great Falls Mut. Texas. Tempel v. Dodge, 89 Tex.
Fire Ins. Co. v. Harvey, 45 N. H. 292. 69, 33 S. W. 222, 32 S. W. 514.
New Jersey. In re United Towns England. Child v. Hudson's Bay
Building & Loan Ass 'n, 79 N. J. L. 31, Co., 2 P. Wms. 207.
74 Atl. 310; State v. Overton, 24 N. J. "In so far as its by-laws are incon-
L. 435, 61 Am. Dec. 671; Taylor v. sistent with the object of the corpora-
Griswold, 14 N. J. L. 222, 27 Am. Deo. tion, and the
spirit and terms of its.
33; Kearney v. Andrews, 10 N. J. Eq. charter, or attempt to authorize the
70. corporation to perform acts beyond its
New York. Conklin v. Second Nat. charter powers, they are void, al-
Bank of Oswego, 45 N. Y. 655; Parish though adopted with the unanimous
V. New York Produce Exchange, 60 consent of the stockholders. ' ' Steiuer
App. Div. 69 N. Y. Supp. 764;
11, V. Steiner Land & Lumber Co., 120
National League Commission Mer- Ala. 128, 26 So. 494. It is possible;;
chants of United States v. Hornung, however, that the fact that the provi-
72 Misc. 181, 129 N. Y. Supp. 437; sions of a by-law are such that the
Stein V. Marks, 44 Misc. 140, 89 N. Y. effect of invoking it in a particular
Supp. 921. instance would be to prevent the
North Carolina. Duffy v. Fidelity meeting of a requirement of the gen-
Mut. Life Ins. Co., 143 N. C. 697, 55 eral corporation act will not invali-
S. E. 1047 (mem. dec), 142 N. C. 103, date it as to cases wherein its oper-
7 L. E. A. {N. S.) 238, 55 S. E. 79. ation will not in any way impair the
OMo, Nicholson v. Franklin Brew- force and effect of such act. Lutz v.
ing Co., 82 Ohio St. 94, 137 Am. St. Webster, 249 Pa. 226, 94 Atl. 834.
Eep. 764, 19 Ann. Cas. 699, 91 N. E. A by-law prescribing a religious
991. qualification for membership in a so-
Oregon. Grifiith v. Klamath Water ciety, the articles of association of
Ass'n, 68 Ore. 402, 137 Pac. 226. which are silent on the subject, can-
Pennsylvania. In re German Gen- not be sustained. People v. Young
eral Ben. Ass'n of Philadelphia, 30 Men's Father Matthew T. A. B. So-
Pa. St. 155. ciety, 41 Mich. 67, 1 N. W. 931.
Bhode Ireland v. Globe

Island. If the articles of association of an
Milling &
Eeduction Co., 19 E. I. 180, English corporation wkich correspond
29 L. E. A. 429, 61 Am. St. Eep. 756, to the by-laws of an American cor-
32 Atl. 921. poration conflict with the act of par-
South Carolina. St. Luke's Church liament under which the company is
1009
I Priv. Corp. —64
by a by-law.*^ Further applying such rule, a corporation cannot

by a by-law vest the management of its business in an executive com-
mittee, when the charter or enabling act vests the management in the
board of directors.*®
A by-law can neither enlarge the rights and powers conferred by
the charter nor restrict .the duties and liabilities imposed thereby, and
in case it attempts so to do, the charter will prevail.*''
organized, the act of parliament will Union Mut. Fire Ins. Co. v. Keyser,
prevail. Republican Mountain Silver 32 N. H. 313, 64 Am. Dee. 375.
Mines v. Brown, 58 Fed. 644, 24 L. E. 87 Steiner v. Steiner Land & Lumber
A. 776. Co., 120 Ala. 128, 26 So. 494; Kelly
Stockholders or members are not V. Mobile Building & Loan Aas'n, 64
estopped by consent or acquiescence Ala. 501; Brewster v. Hartley, 37 Cal.
to object to a by-law on the ground 15, 99 Am. Dec. 237; State v. Ander-
that it violates the charter of the cor- son, 31 Ind. App. 34, 67 N. E. 207.
poration, or is contrary to the law or See also Parish v. New York Produce
to public policy. Durkee v. People, Exchange, 60 N. Y. App. Div. 11, 69
•155111. 354, 46 Am. St. Rep. 340, 40 N. Y. Supp. 764.
N. E. 626, aff 'g 53 111. App. 396. The articles of association of a cor-
If a by-law is unauthorized and void poration cannot be modified by by-
as against a stockholder or member, laws as to any matters which the
his mere failure to object to it until statute requires to be stated therein.
it issought to enforce it against him State V. Anderson, 31 Ind. App. 34,
does not estop him, where the rights 67 N. E. 207. See also Guinness v.
of third persons are not involved. Land Corp. of Ireland, 22 Ch. Div. 349.
Kolff V. St. Paul Fuel Exchange, 48 Since a corporation has such powers
Minn. 215, 50 N. "W. 1036. only as are conferred upon it by its
An action to annul a by-law on the charter, and its powers cannot be
ground of its alleged invalidity does added to or diminished by the consent
not ordinarily lie; it is only when of the shareholders, it necessarily fol-
there an attempt to enforce it to
is lows that the powers of a corporation
the detriment of a stockholder that cannot be affected by its by-laws.
the question of its validity is open to That additional power cannot be con-
adjudication, and even then the stock- ferred by a by-law is clear, for to hold
holder cannot invoke equitable relief otherwise would allow a corporation
unless there is reason to apprehend to assume any powers it might see fit
irreparable injury. Burden v. Burden, to exercise. Brewster
v. Hartley, 37
8 N. Y. App. Div. 160, 40 N. Y. Supp. Cal. 15, 99 Am.
Dee. 237; Andrews v.
499. See als6 Thomas v. Musical Mut. Union Mutual Fire Ins. Co., 37 Me.
Protective Union, 121 N. Y. 45, 8 L. 256; Traders' & Mechanics' Ins. Co.
R. A. 175, 24 N. E. 24. V.Brown, 142 Mass. 403, 8 N. E. 134;
85 Canyon Creek Irrigation Dist. v. Mutual Ben. Life Ins. Co. v. Utter, 34
Martin, 52 Mont. 339, 159 Pac. 418. N. J. L. 489.
See also Shiflett v. John W. Kelly & "It is not competent for the stock-
App. 91, 84 S. E. 606.
Co., 16 Ga. holders, by the adoption of by-laws
86Tempel v. Dodge, 89 Tex. 68, 33 * * * to enlarge or extend the pow-
S. W. 222, 32 S. W. 514. See also ers of the corporation beyond the
loio
Ch. 16] By-Laws [§494
A by-law prohibiting acts which are within the powers conferred,

expressly or impliedly, by its charter, affects the authority of its
officers, but does not render such acts ultra vires. "By-laws of a
corporation are not enforced by avoiding contracts made in violation
of them.""
By-laws must be consistent with the nature, purposes and objects
of the corporation; otherwise, they will be invalid." Thus, where
there is nothing in the articles of incorporation which suggests power
in the corporation to control, regulate or interfere with its stock-
holders in the conduct of their separate, individual businesses, by-laws
scope authorized by its charter and void; if not, and it is consistent with
the general laws." Steiner v. Steiner the general laws of the land, it will be
Land & Lumber Co., 120 Ala. 128, 26 valid." People v. Board of Trade of
So. 494. Chicago, 45 111. 112, 118.
"Aby-law may regulate the exer- See also in this connection:
cise of a corporate power, but it can- Alabama. Steiner v. Steiner Land &
not enlarge or alter the powers con- Lumber Co., 120 Ala. 128, 26 So. 494;
ferred by the charter or by statute." Supreme Commandery Knights of
Peck V. Elliott, 79 Fed. 10, 38 L. E. Golden Rule v. Ainsworth, 71 Ala. 436,
A. 616, rev 'g Ross-Meehan Brake Shoe 46 Am. Rep. 332.
Foundry Co. v. Southern Malleable California. Brewster v. Hartley, 37
Iron Co., 72 Fed. 957. Cal. 15, 99 Am. Dec. 237.
It has been held that a corporation Illinois. People v. Chicago Live
organized for the purpose of a purely Stock Exchange, 170 111. 556, 570,
private business may adopt a by-law 39 L. R. A. 373, 62 Am. St. Rep. 404,
at the time of its organization limit- 48 N. E. 1062.
ing the duration of its corporate ex- Iowa. Van Atten v. Modern Broth-
istence. Merchants' & Planters' Line erhood of America, 131 Iowa 232, 108
V. Waganer, 71 Ala. 581. N. W. 313.
Injunction proper remedy
is the Maine. Andrews v. Union Mut.
where ultra vires by-laws are at- Fire Ins. Co., 37 Me. 256.
tempted to be enforced against a Massachusetts. Traders' & Me-
stockholder. Kolff v. St. Paul Fuel chanics' Ins. Co. v. Brown, 142 Mass.
Exchange, 48 Minn. 215, 50 N. W. 403, 8 N. E. 134.
1036.
New Jersey. Mutual Benefit Life
Kelly V. Mobile Building & Loan
88
Ins. Co. V. 34 N. J. L. 489;
Utter,
Ass'n, 64 Ala. 501. And see Tome v.
Taylor v. Griswold, 14 N. J. L. 222,
Parkersburg Branch R. Co., 39 Md.
27 Am. Dec. 33.
36, 17 Am. Rep. 540; First Nat. Bank
of Washington v. Eureka Lumber Co.,
New York. National League Com-
mission Merchants of United States v.
123 N. C. 24, 31 S. E. 348.
89 '
' The controlling consideration
Hornung, 72 Misc. 181, 129 N. Y.
[in determining the validity of a by- Supp. 437; Stein v. Marks, 44 Misc.
law] is, the nature and purpose of the 140, 89 N. Y. Supp. 921.
corporation. If a by-law is clearly alien South Carolina. Palmetto Lodge
to its nature and a departure from its No. 5, I. O. O. F. V. Hubbell, 2 Strobh,
purpose, it will be held ultra vires and 457, 49 Am. Dec. 604.
1011
494] Peivate Cobpobations [Ch. 16
which assume to do this are beyond the scope of the corporate pur-
poses and are void.*"
Whether a by-law is in conflict with and repugnant to the charter
is a question of law for the court.'^
§ 495. Reasonableness. Reasonableness is another essential of a

valid by-law,'^ and an essential, the existence of which in the case
"When the directors of a corpora- Delaware. State v. Jessup & Moore

tion are given the right to enact by- Paper Co., 1 Boyce (24 Del.) 379, 77
laws for the government of the con- Atl. 16.
cern, this is not to be construed as an Illinois. Vierling v. Mechanics' &
unlimited power to make fundamental Traders' Savings, etc., Ass'n, 179 111.
524, 527, 53 N. E. 979, rev'g 66 111.
or radical changes in the conduct of
the afEairs of the corporation, but only App. 621; People v. Chicago Live
such as will be in harmony with the Stock Exchange, 170 111. 556, 570, 39
powers they are supposed to exercise L. R. A. 373, 62 Am. St. Rep. 404, 48
and the purposes sought to be accom- N. E. 1062.

plished." Clark V. Brown (Tex. Civ. Indiana. State v. Anderson, 31 Ind.
App.), 108 S. "W. 421. App. 34, 67 N. E. 207.
Paul Fuel Exchange,
90 KolfE V. St. Louisiana. State v. Bank of Louisi-
48 Minn. 215, 50 N. W. 1036. See also ana, 5 Mart. (N. S.) 327.
Monroe Dairy Ass'n v. Webb, 40 N. Massachusetts. Saltman v. Nesson,
Y. App. Div. 49, 57 N. Y. Supp. 572 201 Mass. 534, 88 N. E. 3.
(by-law of association, incorporated Michigan. Samberg v. Knights of

under manufacturing statute, impos- Modern Maccabees, 158 Mich. 568,
ing penalty on stockholder failing to 571, 133 Am. St. Rep. 396, 123 N. W.
furnish milk to association). 25; Wineland v. Knights of Macca-
91 State V. Overton, 24 N. J. L. 435, bees of World, 148 Mich. 608, 112 N.
61 Am. Deo. 671. See also Compton W. 696; Van Pouche v. Netherland St.
V. Van Volkenburgh, 34 N. J. L. 134; Vincent de Paul Society, 63 Mich. 378,
Morris & E. R. Co. v. Ayres, 29 N. J. 29 N. W. 863; AUnutt v. Subsidiary
L. 393, 395, 80 Am. Dec. 215. High Court, 62 Mich. 110, 28 N. W.
92 United States. Peck v. Elliott, 802.
79 Fed. 10, 38 L. E. A. 616, rev'g Nebraska. Markham v. Supreme
Ross-Meehan Brake Shoe Foundry Co. Court L 0. F., 78 Neb. 295, 110 N. W.
V. Southern Malleable Iron Co., 72 Fed. 638.
957. New Jersey. State v. Overton, 24
Califomla. People's Home Sav. N. Am. Dec. 671.
J. L. 435, 61
Bank v. Superior Court City & County New York. Brown v. Supreme Court
of San Francisco, 104 Cal. 649, 29 L. I. O. F., 176 N. Y. 132, 68 N. E. 145;
R. A. 844, 43 Am. St. Rep. 147, 38 Matthews v. Associated Press State of
Pac. 452; Bornstein v. District Grand New York, 136 N. Y. 333, 32 Am. St.
Lodge No. 4, Independent Order B 'nai Rep. 741, 32 N. E. 981; Kent v. Quick-
B'rith, 2 Cal. App. 624, 84 Pac. 271; silver Min. Co., 78 N. Y. 159, 182;
People's Home Sav. Bank v. Sadler, 1 DriscoU V. West Bradley & C. Mfg.
Cal. App. 189, 81 Pac. 1029. Co., 59 N. Y. 96, 102; Stanton v. Ec-
Connecticut. State v. Tudor, 5 Day centric Ass 'n of Firemen, Local Union
329, 5 Am. Dec. 162. No. 56 of International Brotherhood
1012
Ch. 16] By-Laws [§495
of a particular by-law, presents a question of law for the court

rather than one of fact for the jury ,8' Before a by-law will be
of Stationary Firemen, 130 App. Div. By-laws must not be oppressive.

129, 114 N. Y. Supp. 480; Burns v. Van Poucke v. Netherland St. Vincent
Manhattan Brass Mut. Aid Society, de Paul Society, 63 Mich. 378, 29 N.
102 App. Div. 467, 92 N. Y. Supp. 846; W. 863.
Monroe Dairy Ass'n v. Webb, 40 App. It is immaterial, under the Wiscon-
Div. 49, 57 N. Y. Supp. 572; National ein statutes, on the question of the
League of Commission Merchants of legality, as against objecting members,
United States v. Hornung, 72 Misc. of the incorporation of a religious so-
181, 129 N. Y. Supp. 437; Stein v. ciety whether the by-laws adopted by
Marks, 44 Misc. 140, 89 N. Y. Supp. the corporation are reasonable or not.
921; Cartan v. Father Matthew United Spiritual & Philosophical Temple v.
Benev. Society, 3 Daly 20; People v. Vincent, 127 Wis. 93, 105 N. W. 1026.
Throop, 12 Wend. 183, 186. 93 Florida. South Florida E. Co. v.
North Carolina. Duffy v. Fidelity Ehodes, 25 Fla. 40, 3 L. E. A. 733, 23
Mut. Life Ins. Co., 143 N. C. 697, 55 Am. St. Eep. 506.
S. E. 1047 (mem. dec), 142 N. C. 103, Illinois. People v. Ittner, 165 111.
7 L. K. A. (N. S.) 238f 55 S. E. 79. App. 360, 367.
Oregon. Budd v. Multnomah St. Massachusetts. Com. v. Worcester,
By. Co., 15 Ore. 413, 3 Am. St. Eep. 3 Pick. 462.
169, 15 Pae. 659. New Jersey. See Compton v. Van
Pennsylvania. Lynn v. Freemans- Volkenburgh, 34 N. J. L. 134, 135;
burg Building & Loan Ass'n, 117 Pa. Morris & E. E. Co. v. Ayres, 29 N. J.
St. 1, 2 Am. St. Eep. 639, 11 Atl. 537; L. 393, 80 Am. Dec. 215; State v. Over-
Commissioners v. Gas Co., 12 Pa. St. ton, 24 N. J. L. 435, 61 Am. Dee. 671.
318; Granger v. Grubb, 7 Phila. 350; New York. See Kennedy v. Local
Com. v. Gill, 3 Whart. 228. Union No. 726, United Brotherhood
South Carolina. St. Luke's Church of Carpenters & Joiners of America,
V. Mathews, 4 Desauss. Bq. 578, 6 Am. 75 App. Div. 243, 78 N. Y. Supp. 85;
Deo. 619; Palmetto Lodge No. 5, I. O. Cartan v. Father Matthew United
O. F. V. Hubbell, 2 Strobh. 457, 49 Benev. Society, 3 Daly 20; People v.
Am. Dec. 604. . Throop, 12 Wend. 183, 186.
Tennessee. Graham v. House-Build- North Carolina. Duffy v. Fidelity
ing & Loan Ass'n (Tenn. Ch. App.), Mut. Life Ins. Co., 143 N. C. 697, 55
52 S. W. 1011. S. E. 1047 (mem. dec), 142 N. C. 103,
Texas. Sovereign Camp Woodmen 7 L. E. A. (N. S.) 238, 55 S. E. 79.
of World V. Bobinson, —
Tex. Civ. Pennsylvania. Hibernia Fire En-
App. —, 187 S. W. 215. gine Co. V. Com., 93 Pa. St. 264.
"Courts will compel adherence to Compare Highland Park Ass'n v.
the charter [in the adoption of by- Boseker, 169 Mich. 4, 135 N. W. 106.
laws] and to the laws under which it The. reasonableness of the by-laws
[the corporation] is organized, and of a corporation is a question open
will interfere to prevent an unreason- to judicial investigation. State v.
able and arbitrary invasion of private Bank of Louisiana, 5 Mart. N. S.
rights." McCallister v. Shannondale (La.) 327, 344.
Co-operative Tel. Co., 47 Ind. App. It has been held, however, that
517, 94 N. B. 910. when the statute empowers the trus-
1013
§495] Pbivatb Coepobations [Ch. 16
declared invalid for unreasonableness, however, the fact that it is

unreasonable must clearly appear.'* In other words, where its reason-
ableness is a mere matter of judgment and one upon which reasonable
minds must necessarily differ, the court will not be warranted in sub-
judgment for the judgment of those who were authorized
stituting its
to adopt by-laws and who exercised their authority by adopting the
one attacked.'* On the other hand, a by-law which the corporation
was without power, under the statute, to adopt, will not be validated
tees of the corporation to make such was reasonable and within the power
prudential by-laws "as thay shall of the directors to adopt. People v.
deem proper" for the management of Julia F. Burnham Hospital, 71 111.
the affairs of the corporation, they not App. 246.

to be inconsistent with the laws of the That a by-law is inconvenient or
state, the question of the wisdom or embarrassing in administration does
expediency of a by-law adopted is not not invalidate it. Weatherly v. Medi-
one for judicial determination. Bur- cal & Surgical Society, 76 Ala. 567.
den V. Burden, 8 N. Y. App. Div. 160, 96 People V. Ittner, 165 111. App. 360,
40 N. Y. Supp. 499. See also Me- 367. .
Callister v. Shannondale Co-operative "The power of every corporation
Tel. Co., 47 Ind. App. 517, 94 N. E. * * * [to make by-laws] has its
910. limits, which are at the boundaries of
That the courts have no visitorial what is reasonable under the circum-
power to determine the reasonableness stances of each case. Though that is
of the by-laws of a voluntary asso- determinable, primarily, by the corpo-
ciation, see Green v. Felton, 42 Ind. ration, there is this legal check upon
App. 675, 84 N. E. 166. See also Tau- it: If, resolving all fair doubts in
fer V. Brotherhood of Painters, Deco- favor of its action, the boundaries of
rators & Paperhangers of America, Teaaon have been exceeded, to that
137 N. Y. App. Div. 838, 122 N. Y. extent such action is ultra vires."
Supp. 527. Wuerfler v. Grand Grove of Wis-
94 People V. Ittner, 165 111. App. consin Order of Druids, 116 Wis. 19,
360, 367; Shelly v. Private Coach- 96 Am. St. Eep. 940, 92 N. W. 433.
men 's Benev. Society, 13 Daly (N. Y.) That a by-law confers many and im-
2. See also Taufer Brotherhood
v. portant powers on a single person goes
of Painters, Decorators &
Paperhang- to its expediency rather than to its
ers of America, 137 N. Y. App. Div. legality, the powers conferred being
838, 122 N. Y. Supp. 527. Such as are delegable. Burden v.
The board of directors of an incor- Burden, 8 N. Y. App. Div. 160, 40 N.
porated hospital adopted a by-law re- Y. Supp. 499.
citing that certain medical societies The court will not determine
had adopted codes of medical ethics whether a by-law alleged to have been
as nearly identical as possible and uni- devised by the individual defendants
form in scope and arrangement, and to perpetuate themselves or those
providing that only physicians who chosen by them in ofSce, is so un-
complied with the codes of such as- reasonable and oppressive as to be
sociations should practice in the hos- invalid until it is manifest that no
pital. It was held that the by-law change can be effected through appro-
1014
Ch. 16] By-Laws [§496
by the fact that its provisions are reasonable.'* Furthermore, a by-law

may be reasonable as to the corporation and as to third persons con-
tracting, subsequently to its adoption, with the corporation, and yet
be invalid as to third persons sustaining, at the time of its adoption,
contractual relations with the corporation.*''
. When the stockholders alone are affected by the unreasonableness
of the by-law, it can be attacked by them only and not by a third
person."
§ 496. Uniformity of operation. In order that a by-law affecting

stockholders or members may be reasonable, it must be general; that
it must affect alike, and operate equally as to, all stockholders or
is,
members under the same circumstances, and not be directed against

particular stockholders or members.®®
"It is all corporation by-laws must stand on their own
plain that
validity,and not on any dispensation granted to members. They
cannot be subjected to any conditions which do not apply to all alike,
and cannot be compelled to receive, as matter of grace, anything
which is matter of right neither on the other hand should there be
;
personal exemptions of a general nature from any valid regulations
priate corporate action. Granara v. The doctrine of estoppel may pre-

Italian Catholic Cemetery Ass'n, 218 vent a member of a benefit society
Mass. 387, 105 N. E. 1073. from attacking a by-law as unreason-
96 Ireland v. Globe Milling & Reduc- able. Falcone v. Societa Sarti Italiani
tion Co., 19 R. I. 180,29 L. R. A. di Mutuo Soccorso, 30 N. Y. Misc.
429, 61 Am. St. Rep. 756, 32 Atl. 921. 106, 61 N. Y. Supp. 873.
When
a by-law is ultra vires, the 99 Illinois. See Wierman v. Inter-
motives which led to its adoption, national Building, Loan & Investment
and its reasonableness, are immaterial. Union, 67 111. App. 550, 551.
Gaut V. American Legion of Honor, Maryland. Mutual Fire Ins. Co. v.
107 Tenn. 603, 55 L. R. A. 465, 64 Fafquhar, 86 Md. 668, 39 Atl. 527.
S. W. 1070. See also Baltimore Building & Loan
97 Illinois Conference Female Col- Ass'n V. Powhatan Improvement Co.,
lege V. Cooper, 25 111. 148, 150. See 87 Md. 59, 39 Atl. 274.
also NorthportWesleyan Grove Camp- Mississippi. Domes v. Supreme
Meeting Ass'n V. Perkins, 93 Me. 235, Lodge Knights of Pythias, 75 Miss.
48 L. R. A. 272, 74 Am. St. Rep. 342, 466, 23 So. 191.
44 Atl. 893. Missouri. Goddard v. Merchants'
And see further §§ 511-519, infra. Exchange, 9 Mo. App. 290, 295, afE'd
98 American
Live Stock Commis- 78 Mo. 609.
sion Chicago Live Stock Ex-
Co. V. Oregon. Griffith v. Klamath Water
change, 143 111. 210, 18 L. R. A. 190, Ass 'n, 68 Ore. 402, 137 Pae. 226.
86 Am. St. Rep. 385, 32 N. E. 274, Wisconsin. Germania Iron Min; Co.
aff'g 41 111. App. 149; Detweiler v. v. King, 94 Wis. 439, 36 L. R. A. til,
Breekenkamp, 83 7Io. 45. 69 N. W. 181.
1015
§ 496] Pbivatb Cokpoeations [Ch. 16
that bind the mass of corporators. " ' So an order of certain dire6tors
that one of the members of the board be denied the right to inspect
the corporate books cannot be sustained as a valid by-law.^ Not even
a statute authorizing a corporation to pass by-laws for the sale of
delinquent stock for unpaid assessments authorizes a by-law or reso-
lution declaring a forfeiture of the stock of a particular stockholder
only.'
§497. Effect of partial invalidity. A by-law is not necessarily

void as a whole because invalid in part. If the portion of it which is
unobjectionable is independent of and separable from the portion

which is bad, the unobjectionable portion will be sustained;* but if
a by-law is indivisible, so that the part which is bad cannot be
separated from the part which is good, it will be void in its entirety."
§ 498. Right to enforce invalid by-law as contract. The power

of a natural person to make contracts not prohibited by law is, in
itsscope, far beyond the power of a corporation to adopt by-laws,®
and although a regulation, adopted by the corporation, be not enforce-
able, considered strictly as a by-law, it may be enforceable as a
contract' against a stockholder or member who agrees to be bound
1 People V. Young Men 's Father Rogers v. Jones, 1 Wend. (N. T.) 237,
Matthew Total Abstinence Benev. 260, 19 Am. Dec. 493.
Society, 41 Mich. 67, 1 N. W. 931. 6 State v. Curtis, 9
Nev. 325.
2 People V. Throop, 12 Wend. (N. & Supply Co.
« Farmers' Mercantile
Y.) 183, 186. V. Laun, 146 Wis. 252, 131 N. "W. 366.
3Budd V. Multnomah St. Ey. Co., 15 "It is manifest that a stockholder
Ore. 413, 3 Am. St. Eep. 160, 15 Pae. may make a contract with a corpora-
659- tion to do or not to do certain things
4Amesburyv. Bowditch Mut. Fire in regard to his stock, or to waive
Ins. Co., 6Gray (Mass.) 596 (in this certain rights, or to submit to certain
case, a by-law of a mutual insurance restrictions respecting which the
company was held void so far as it stockholders might have no power of
provided relative to the jurisdiction compulsion over him. ' ' New England
of courts in actions
for losses, but Trust Co. v. Abbott, 162 Mass. 148, 27
valid so far as provided with re-
it L. R. A. 271, 38 N. E. 432.
spect to the time within which such 7 Jennings v. Bank of California, 79
actions should be brought). Cal. 323, 5 L. E. A. 233, 12 Am. St.
See also Supreme Council of Order Rep. 145, 21 Pac. 852; People's Home
of Chosen Friends v. Forsinger, 125 Sav. Bank v. Sadler, 1 Cal. App. 189
Ind. 52, 9 L. E. A. 501, 21 Am. St. Eep. 81 Pae. 1029; New England Trust Co!
196, 25 N. E. 129; State v. Anderson, v. Abbott, 162 Mass. 148, 27 L E A
31 Ind. App. 34, 67 N. E. 207; Burden 271, 38 N. E. 432; Weiland v Hoean
V. Burden, 159 N. Y. 287, 54 N. E. 17; 177 Mich. 626, 143 N. W. 599; Blue Mfc!
1016
Ch. 16] By-Laws [§499
by it, provided it is not of itself illegal ' or ultra vires the corpora-
tion.®
IV. CONSTRUCTION
§499. Gîeral rules as to construction. By-laws must be given

a reasonable construction ^^ and, when reasonably susceptible thereof,
Forest Ass'n v. Borrows, 71 N. H. 69, corporation. He cannot object to it

75, 51 Atl. 670. See also Smoot v. on the ground that it impairs his
Bankers' Life Ass'n, 138 Mo. App. rights as a stockholder or member,
438, 120 S. W. 719. whether he knew of it or not, for he
Mutuality is necessary in order that is chargeable with notice of it. Mat-
regulation not enforceable as by-law thews V. Associated Press State of
may be enforceable as contract. New York, supra.
Mnch, Macoupin Telephone &
Jr. v. 9 An ultra vires by-law cannot be
Telegraph Co., 146 111. App. 158, 162. valid as a contract. Purdy v. Bank-
A by-law which the corporation was ers' Life Ass'n, 101 Mo. App. 91, 74
without power to adopt may be good S. W. 486. See also Steiner v. Steiner
as a contract between the trustees as- Land & Lumber Co., 120 Ala. 128, 26
senting to and voting for it, but not So. 494.
as a by-law to affect strangers, or Carney v. New York Life Ins.
10
those not consenting. Driscoll v. West Co., 162 N. Y. 453, 49 L. H. A. 471,
Bradley & C. Mfg. Co., 59 N. Y. 96, 76 Am. St. Eep. 347, 57 N. E. 78.
109. The president of a corporation, one
A provision that is unreasonable as of the by-laws of which imposes on
a by-law may be valid as a contract. him the duty ' to have a special super-
'
Purdy V. Bankers' Life Ass'n, 101 vision and care over the property and
Mo. App. 91, 74 S. W. 486. concerns of the company" is not en-
8 National League Commission Mer- titled thereunder, ' ' in order to conceal
chants of United States v. Hornung, hisown defalcation, to borrow either
72 N. Y. Misc. 181, 129 N. Y. Supp. money or securities upon the credit of
437. the company, and make it responsible
If a by-law is otherwise unobjec- for the return thereof." Logan v.
tionable, a stockholder or member who i'idelity-Phenix Eire Ins. Co., 161 N.
has consented to its adoption cannot Y. App. Div. 404, 146 N. Y. Supp. 678.
object that it impairs his rights under The word "conveyance" in a by-
his contract of membership, or under law providing that "no mortgage or
an independent contract between him conveyance shall be made without the
and the corporation. Matthews v. As- consent of the holders of at least two-
sociated Press State of New York, 136 thirds of the outstanding stock of the
N. Y. 333, 32 Am. St. Eep. 741, 32 N. corporation" held to refer to an act
E. 981. whereby the legal or equitable title to
If a person becomes a stockholder leal propertyis transferred and not to
or member of a corporation after the merely a lease for a term of years.

adoption a by-law which is not
of Seal of Gold Min. Co. v. Slater, 161
illegal, he impliedly consents to it, and Cal. 621, 120 Pac. 15.
it enters into his contract with the A by-lavf of a mutual insuranca
101 7
§499] Peivate Corporations [Ch. 16
a construction which will sustain their validity.^^ So too a con-

struction that will render a by-law just and equal in its operation
will be adopted in preference to one that will have a contrary eifect.^^
The by-laws of a fraternal benefit society will be given a liberal
construction and their language will be given such meaning as will
tend not to defeat but rather to carry out the manifest intention of
the parties, and as will promote the object of the issuance and accept-
ance of the certificate, consistently with the rules, regulations, and
requirements of the society.^^ This rule does not, however, permit
company forbidding the transfer of in case of death. Whether intended

the property insured and providing to have such result or not, such pro-
that in case of a transfer thereof the visions and conditions are calculated
policy shall be void, will not be con- to insured, and entrap
mislead the
strued as applying in case of transfer him into some act of omission or com-
by operation of law as upon the death mission that will work a forfeiture
of the assured. Pfister v. Gerwig, 122 of his insurance. It would certainly
Ind. 567, 23 N. E. 1041. be a great boon to the public if there
A third person against whom a by- could be devised legislative forms of
law is sought to be made operative contracts and rules for all such asso-
is entitled to that construction of the ciations, couched in clear, concise, and
same which makes it conform to the intelligible language, and to or from
jjopular and ordinary signification of which the associations could neither
its language. Smith v. Brooklyn Sav. add nor subtract."
Bank, 101 N. Y. 58, 54 Am. Eep. 653, 11 Hibernia Fire Engine Co. v. Com.,
4 N. E. 123. 93 Pa. St. 264.
An unintelligible and meaningless A
by-law will not be so construed
by-law is, of course, inoperative. as bring it in conflict with a
to
Boulware v. Farmers' & Laborers' Co- statute, where it is reasonably sus-
operative Ins. Co., 77 Mo. App. 639, ceptible of another construction, under
648. See also Egg Harbor Building & v/hich it can be sustained. Kahu v.
Loan Ass'n v. Baake (N. J. Ch.), 65 Bank of St. Joseph, 70 Mo. 262.
Atl. 864. IZThibeault v. Association St.
In Schultz V. Citizens' Mut. Life Jean Baptist, 21 E. I. 157, 42 Atl. 518.
Ins. Co., 59 Mian. 308, 61 N. W. 331, 13 Woodmen of World v. Gilliland,
the court observed in passing that it 11 Okla. 384j 67 Pac. 485. See also
had "no patience with the prolix, ob- Starnes v. Atlanta Police Belief Ass 'n,
scure, and involved provisions and 2 6a. App. 237, 58 S. E. 481; Knights
conditions which so many so-called co- Templar & Masons' Life Indemnity
operative, life, endowment, casualty Co. V. Vail, 206 111. 404, 68 N. E. 1103,
insurance, and other similar associa- aff'g 105111. App. 331; Coverdale v.
tions usually incorporate into their Boyal Arcanum, 193 111. 91, 101, 61
policiesand by-laws. The patrons of N. E. 915, rev'g 93 111. App. 373;
such associations are largely composed Grand Lodge A; O. IT. W. of Kansas
of people of limited means, neither V. Smith, 76 Kan. 509, 92 Pac. 710.
astute lawyers nor experienced busi- "The construction must be put
ness men, whose object is to make upon the laws of the order, taken as a
moderate provision for their families whole, which is most favorable to the
1018
CL 16] By-Laws [§499
a strained construction or interpretation contrary to the obvious mean-

ing of the language.^*
Where the violation of a by-law of a benefit society will forfeit
all of the member's rights and privileges, such by-law should receive
the strict construction accorded a penal statute.** This rule of strict
construction must, however, be read in connection with the rule
which favors a construction upholding the validity of the by-law.*^
An implication of which a by-law of a mutual insurance company
will possibly permit but which it does not require, will not be read
into it when to do so will defeat the right of action of the beneficiary
in a membership certificate.*''
Unless the intent that a by-law was to have a retrospective oper-
ation clearly appears, it will, as a general rule, be construed as
operating prospectively only,** and this rule is not limited to by-laws
assured and most protects the benefi- Loan Ass'n v. Baake (N. J. Ch.), 65
ciariesunder certificates issued by the Atl. 864.
order." Supreme Lodge Order of 16 Nelson v. Modern Brotherhood
Mut. Protection v. Meister, 105 111. of America, 78 Neb. 429, 110 N. W.
App. 471, 477, aff'd 204 111. 527, 68 1008.
N. E. 454. See also Woodmen of 17Hobbs V. Iowa Mut. Ben. Ass'n,
"World V. Gilliland, 11 Qkla. 384, 67 82 Iowa 107, 11 L. E. A. 299, 31 Am.
Pac. 485. St. Eep. 466, 47 N. W. 983.
When the by-laws of a mutual bene- ISBornstein v. District Grand
fit society contain inconsistent provi- Lodge No. 4, Independent Order B'
sions, the one most favorable to the nai B'rith, 2 Cal. App. 624, 84 Pac.
member will be held to govern. Wolf 271; Kaemmerer v. Kaemmerer, 231
V. District Grand Lodge No. 6, I. O. 111. 154, 83 N. E. 133, aff'g 137 HI.
B. B., 102 Mich. 23, 60 N. W. 445. App. 28; Illinois Conference Female
When a liberal construction of an College V. Cooper, 25 111. 148, 150;
amendment will work the forfeiture Haley v. Supreme Court of Honor, 139
of property rights, such construction 111. App. 478, 487; Hayes v. German
should not be adopted. Grand Lodge Ben. Union, 35 Pa. Super. Ct. 142, 149.
A. O. IT. W. of Kansas v. Haddock, A by-law will be given retrospective
72 Kan. 35, 1 L. E. A. (N. S.) 1064, operation only when the intention
82 Pac. 583. that it should have such operation is
14 Grand Lodge I. O. U. W. v. evidenced by language clear, strong,
Crandall, 80 Kan. 332, 102 Pac. 843. and imperative fro<n which no other
Supreme Council Eoyal Arcanum
16 intention can be drawn. Eoxbury
v. Urban, 137 111. App. 292, 296. See Lodge No. 184, I. O. O. F. v. Hock-
also Knights Templar & Masons' Life- ing, 60 N. J. L. 439, 64 Am. St. Eep.
Indemnity Co. V. Vail, 206 111. 404, 596, 38 Atl. 693.
68 N. E. 1103, afE'g 105 111. App. 331; In order to be good on demurrer, a
Coverdale v. Eoyal Arcanum, 193 111. plea, in an action on a fire insurance
91, 101, 61 N. E. 915, rev'g 93 111. policy, which interposes as a defense
App. 373; Egg Harbor Building & a by-law providing that if the presi-
1019
499] Peivate Cobporations [Ch. 16
originally adopted, but applies equally in the case of amendments.^^

In determining the rights of a member of a corporation under its
by-laws, portions thereof in pari materia with the one directly involved
must be construed therewith.^"
When, in construing a by-law, the design and intent of the framers
can be ascertained, such design and intent must prevail.^^
Ordinarily, the practical construction of an ambiguous by-law by
the corporation, if such construction is not one which will for any
reason render the by-law invalid, will control.^^
dent of the company causes written between the society and a member,
notice to be given the insured that such by-laws should, in an action by
the company declines to have an arbi- the beneficiary of the member to re-
pay the loss without suit,
tration or to cover benefits be considered in their
the insured must sue virithin six integrity as essential to a proper con-
months thereafter, must allege that struction of any particular part, and
the by-law was passed prior to the the beneficiary cannot claim the bene-
issuance of the policy. Cox v. Fire fit any one section thereof to the
of
Assur. Ass'n, 48 N. J. L. 53, 3 Atl. exclusion of another. Badesch v. Con-
122. See also Butler v. Supreme gregation Brothers of Willna, 23 N. Y.
Council American Legion of Honor, Misc. 160, 50 N. Y. Supp. 958.
305 N. T. App. Div. 164, 93 N, Y. 21 Baltimore Building & Loan Ass'n
Supp. 1012. V. Powhatan Improvement Co., 87

19 The presumption exists in the Md. 59, 39 Atl. 274.
absence of an' express provision to the 22 ' ' Taking, as their premise, that
contrary that a by-law was not in- the by-laws of the society are the laws
tended to apply to contracts with of the corporation for the government
members existing before its adoption. of its members and transaction of its
Northwestern Benevolent & Mut. Aid business, as much as the acts of the
Ass'n of Illinois v. Wanner, 24 111. legislature are the laws of the state
App. 357, 361. See also Modern by which its affairs are regulated and
Woodmen of America v. Wieland, 109 the conduct of its citizens prescribed
111.App. 340, 347; Dolan v. Supreme and governed, counsel for the com-
Council Catholic Mut. Ben. Ass'n, 152 plainant assume and argue that it is
Mich. 266, 16 L. E. A. (N. S.) 555, the duty of this court to interpret,
15 Ann. Cas. 232, 116 N. W. 383, over- explain and apply the by-laws in the
ruling former opinion (Mich.), 113 same manner and upon the same prin-
N. W. 10; Eoach v. Farmers' Mut. Ins. ciples that it interprets, explains and
Ass'n of Oconee County, 102 S. C. applies the statute laws of the state
478, 86 S. E. 950. in cases of ambiguity and doubt. This
20 Penhall v. Minnesota State Medi- we regard as an erroneous assumption
cal Ass'n, 126 Minn. 323, 148 N. W. on the part of counsel; and in this
472. See also Supreme Lodge Order also, we think, consisted our own error
of Mut. Protection v. Meister, 105 111. on the former occasion. We were
App. 471, 477, afE'd 204 111. 527, 68 wrong in attempting to give a posi-
N. E. 454. tive judicial construction to the by-
Where the by-laws of a benefit so- law as against any consistent, practi-
ciety define the only contract existing cal construction whicli it may have
1020
Ch. 16] By-Laws [§499
Where there is no dispute as to the facts, questions arising with
otherwise received at the hands of the travening the rules of law or sound
itiembers of the society. The proposi- policy, that the practical construction
tion that the constitutions and by- should govern and be absolutely au-
laws of these private corporations and thoritative whenever the question is
chartered societies are in a general judicially presented. This may seem
sense laws to them and their mem- to be a new principle in the construc-
bers, is undoubtedly correct; but it ia tion of the by-laws of this and other
not true, we think, in cases like the similar corporations, but it strikes our
present, that they are laws in the un- minds with so much force as to its
qualified sense of being the proper truth and correctness, that we cannot
subjects of judicial interpretation, but yield assent to it as that which
the same as the laws of the state should govern in (all such cases. Our
enacted by its legislature. The differ- view respecting the function and ofSee
ences in respect of the practical con- of the court in cases like this, no
structions of such constitutions and question being made that the by-law
by-laws, in themselves doubtful, which is unreasonable, against law, or con-
they may have received at the hands trary to public policy, is, that the
of the corporators or members, and of court must construe and give effect
the practical construction which may to the by-law in the same manner and
have been given to a doubtful statute upon the same principles that it
of the state, are such as upon little would construe and give effect to an
reflection will readily be suggested. agreement in writing made and en-
The form of government of the corpo- tered into between private individuals.
ration or society is such, that, so far The rules respecting the construction
as it is self-controlling or capable of of contracts and agreements in writ-
making and enforcing its own laws, ing are well understood. If the lan-
the same power or body which enacts, guage of the contract is plain and
likewise interprets, and then executes unambiguous, it is a question of law,
those laws. We have, in such case, for the court, to determine the inten-
the lawgivers themselves expounding tion of the parties from the words
and determining the meaning of their used. If, on the other hand, the
own laws.Unlike the state, or other language is doubtful, or the intention
governmental body under our system, not clearly expressed, and the ambigu-
the society has no separation of pow- ity is such that it may be explained
ers into legislative, judicial,and ex-
' by other evidence, or if the meaning
—
ecutive one department for making, of the terms used is to be ascertained
another for interpreting, and the third and determined by extrinsic proof,
for executing its laws. If, therefore, then the construction is usually a
in the interpretation of general or question of fact, for the jury. * » •
public law, great attention is paid by In the case of a written contract, the
the courts to practical constructions meaning of which is in doubt, we sup-
given by the executive or legislative pose it is not to be denied that evi-

departments, it seems to follow in dence of the practical construction
cases like this, there being nothing put upon it by the parties themselves
in the by-law or construction given, may sometimes be received for the

either unreasonable, against the prin- purpose of showing their intention,
ciples of justice or morality, or con- or what they understood it to mean.
1021
reference to the meaning of a by-law are for the determination of

the court.'''
V. NOTICE
§ 500. Fresmnption of knowledge. As a general rule the stock-

holders or members of a corporation are presumed to know the pro-
visions of the corporation's by-laws.^* This presumption is ordinarily
Such evidence, it is true, may not be The fact that a by-law of an em;
resorted to except where the words ployers' association which binds the
used are ambiguous, but there we un- members to pay a specified sum for
derstand that it is receivable. ' ' State the violation of, or the failure to
V. Couklin, 34 Wis. 21, 29. See also comply with any decisions, orders, pro-
Frances v. Brigham-Hopkins Co., 108 hibitions or regulations made or
Md. 233, 70 Atl. 95; Schutte v. Cali- adopted by the association in accord-
fornia Building & Loan Ass'n, 146 Pa. ance with its by-laws and certificate
St. 324, 23 Atl. 336; Supreme Lodge of incorporation explicitly declares
K. P. V. Mims, 241 U. S. 574, L. E. A. such sum is not to be regarded as a
1916 F 919, 60 L. Ed. 1179, rev'g — penalty but as liquidated damages
Tex. Civ. App. —
, 167 S. W. 835. should be given due weight, but is not
Even though the stockholders have controlling on the question as to the
the power to supervise or review the nature of the imposition. Associated
construction placed upon an ambigu- Hat Manufacturers v. Baird-Unteidt
ous by-law by the board of directors, Co., 88 Conn. 332, 91 Atl. 373.
the latter have the power to construe 24 Alabama. United Order of Golden
it in the first instance and its con- Cross- V. Hooser, 160 Ala. 334, 49 So.
struction will stand unless annulled. 354; Supreme Commandery Knights
Wait V. Homestead Bldg. Ass'n, — of Golden Rule v. Ainsworth, 71 Ala.
W. Va. — , 85 S. E. 637. 436, 46 Am. Eep. 332.
Carney v. New York Life Ins. Co.,
23 Illinois. Mandel v. Swan Land &
162 N. Y. 453, 49 L. E. A. 471, 76 Am. Cattle Co., 51 111. App. 204, 208, rev 'd
St. Eep. 347, 57 N. E. 78. See also on other grounds 154 111. 177, 27 L. R.
Enright v. National Council Knights A. 313, 45 Am. St. Eep. 124, 40 N. E.
& Ladies of Security, 253 111. 460, 97 462.
N. E. 681. Iowa.Hobbs v. Iowa Mut. Ben.
The word "year" in a by-law of Ass'n, 82 Iowa 107, 11 L. B. A. 299,
a benefit association which provides 31 Am. St. Eep. 466, 47 N. W. 983.
that a member thereof who becomes Missouri. Shartle v. Modern Broth-
incapable of working by reason of erhood of America, 139 Mo. App. 433,
sickness or accident shall receive from 122 S. W. 1139; Purdy v. Bankers'
the association a specified amount per Life Ass'n, 101 Mo. App. 91, 74 8. W.
week during a certain number of 486.
weeks only of the same "year," will Nebraska. Farmers' Mut. Ins. Co.
be construed as meaning a year's time V. Kinney, 64 Neb. 808, 90 N. W. 926.
or the period of a year rather than a New Jersey. Kocher v. Supreme
calendar year. Thibeault v. Associa- Council Catholic Benev. Legion, 65
tion St. Jean Baptiste, 21 R. I. 157, N. J. L. 649, 52 L. R. A. 861, 80
42 Atl. 518. Am. St. Eep. 687, 48 Atl. 544.
1022
Ch. 16] By-Laws [§500
regarded as a legal one, and hence conclusive and incapable of being

rebutted by evidence of want of actual knowledge.^* In other words,
a stockholder or member, by the very fact of his being such, is
charged with notice of the by-laws and remains actually ignorant of
their provisions at his peril,^^ though this rule of presumptive notice
Oklahoma. Home Forum

Ben. Order Ohio. Pete v. Woodmen of World,
50 Pac. 165.
V. Jones, 5 Okla. 598, 26 Ohio Cir. Ct. 653, 663.
Texas. Modern Woodmen of Virginia. Knights of Columbus v.
America v. Owens (Tex. Civ. App.), Burrough's Beneficiary, 107 Va. 671,
130 S. W. 858. 17 L. E. A. (N. S.) 246, 60 S. E. 40.
ytah. Sterling v. Head Camp Pa- 26CaIlfomla. Supreme Lodge of
cific Jurisdiction, 28 Utah 526, 80 Pae. Fraternal Brotherhood v. Price, 27
1110, 28 Utah 505, 80 Pae. 375. Cal. App. 607, 150 Pae. 803.
Vermont. See Wilson v. Union Mut. Pfister v. Gerwig, 122 Ind.
Indiana.
Fire Ins. Co., 77 Vt. 28, 58 Atl. 799. 567, 23 N. E. 1041; Presbyterian Mut.
A director is presumed to have Assur. Fund v. Allen, 106 Ind. 593,
knowledge of the corporation's by- 7 N. E. 317; Bauer v. Samson Lodge,
laws. Bank of Atchison County v. 102 Ind. 262, 1 N. E. 571; Green v.
Durfee, 118 Mo. 431, 40 Am. St. Eep. Felton, 42 Ind. App. 675, 84 N. E.
396, 24 S. W. 133. 166; Farmers' Ins. Co. v. Borders, 26
An officer is presumed to know the Ind. App. 491, 60 N. E. 174.
provisions of the corporation's
by- Iowa. Norton v. Catholic Order of
laws. Hunter v. Sun Mut. Ins. Co. of Foresters, 138 Iowa 464, 24 L. E. A.
New Orleans, 26 La. Ann. 13, 14. But (N. S.) 1030, 114 N. W. 893; Fitz-
a corporation cannot interpose its by- gerald V. Metropolitan Aec. Ass'n,
laws as a defense to an action by an 106 Iowa 467, 76 N. W. 809.
agent for breach of his contract of Kentucky.Union Benev. Soe. No. 8
employment, where the provisions of V. Martin, 113 Ky. 25, 67 S. W. 38.
such by-laws were not communicated Massachusetts. Eichardson v. De-
to the agent or to the general man- vine, 193 Mass. 336, 79 N. E. 771.
ager who executed the contract. Idinnesota. Davidson v. Old
Mover v. East Shore Terminal Co., People's Mut. Ben. Society, 39 Minn.
41 "s. C. 300, 25 L. E. A. 48, 44 Am. 303, 1 L. E. A. 482, 39 N. W. 803.
St. Eep. 709, 19 S. E. 651. Missouri. Smoot v. Bankers' Life
25 District of Columbia. Clark v. Ass'n, 138 Mo. App. 438, 120 S. W.
Mutual Reserve Fund Life Ass'n, 14 719.
App. Caa. 154, 43 L. E. A. 390. New Jersey. Miller v. Hillsborough
Illinois. Benes v. Supreme Lodge Fire Ass'n, 42 N. J. Eq. 459, 7 Atl.
Knights & Ladies of Honor, 231 111. 895.
134, 14 L. R. A. (N. S.) 540, 121 Am. North Dakota. J. P. Lamb & Co. v.
St. Eep. 304, 83 N. E. 127, aff'g 135 111. Merchants' Nat. Mut. Fire Ins. Co.,
App. 314. 18 N. D. 253, 119 N. W. 1048.
New York. Evans v. Southern Tier Oregon. Wist v. Grand Lodge A. O.
Masonic Belief Ass'n, 76 App. Div. U. W., 22 Ore. 271, 29 Am. St. Eep.
151, 78 N. Y. Supp. 611; People v. 603, 29 Pac. 610.
Grand Lodge A. O. V. W., 32 Misc. Texas. United Moderns v. CoUigan,
528, 67 N. Y. Supp. 330. 34 Tex. Civ. App. 173, 77 S. W. 1032.
1023
§500] PkIVATE COBPOEATIONS [Ch. 16
has been held inapplicable to transactions with the corporation not

growing out of or dependent upon his relation as stockholder.^'
It would seem to be necessary, in order to hold the stockholders or
members bound by the by-laws, that they should be presumed to
have such notice.^^ Indeed, it is for the reason, among others at
least, that knowledge of the by-laws is not generally imputed to third
persons and that they are not required, in dealing with the corporation
or its oflSeers or agents, to take notice of them, that they are ordinarily
not bound thereby.^^ But as an illustration of the fact that even
as to members of the corporation the presumption of knowledge is
not always and invariably regarded as conclusive, it has been held
that such presumption is rebutted in the case of a member by proof
that the corporation itself gave to him by-laws other than those in
force.^" Thus a person becoming a member of a loan association is
entitled to treat the by-laws handed to him as all of those which the
association has adopted, and, in the absence of notice, is not bound
by modifications thereof which appear merely in the association's
records.*^
Where, by the express terms of a by-law of a fraternal benefit
society, it is contemplated that the society will give members notice
See also Home Circle Soo. No. 1 v. Mfg. Minn. 371, 21 L. R. A.

Co., 53
Shelton (Tex. Civ. App.), 81 S. W. 84. 174, 55 N. W. 547.
Virginia. West End Eeal Estate 27 Underbill v. Santa Barbara Land,
Co. V. Claiborne, 97 Va. 734, 34 S. E. Building & Improvement Co., 93 Cal.
900. 300, 28 Pae. 1049.
An ofScerrequired to take notice
is A stockholder of a telegraph eom-
of the corporation's by-laws. Ellis v. pany, dealing with it as a customer in
North Carolina Institution for Deaf & sending messages, is not chargeable
Dumb & Blind, 68 N. C. 423. with constructive notice of resolutions
A director of a mutual insurance or by-laws regulating the mode in
company must use eare and diligence, which its business must be conducted
commensurate ^yith his duties, to in- its customers, and his rights as
'W'it'i
form himself as to the company's ^ customer are not affected thereby

""^®^^ ^'^*^^^ "°t^<=« i« brought home
by-laws. Mutual Life Ins. Co. v.
*° ^™- ^^^^^^^^ v. Western U. Tel.
McSherry, 68 Md. 41, 11 Atl. 577.
~, ' ., ',. Co., 124 N. Y. 256, 21 Am. St. Rep.
Where the by-laws fix the time and,
, ,
''^
„.„'
place of holding the annual meeting

^^ g^^ ^'^^^ .^^-^^
of the stockholders and neither the gg q » -(,„' . .
charter nor the by-laws require any so Smythe v.' Supreme Lodge K. P.,
notice to be given, the by-laws them- igg Fed. 967, afC'd 220 Fed. 438.
selves are sufficient notice to all of the 31 McKenney v. Diamond State
stockholders and no further notice is Loan Ass'n, 8 Houst. (Del.) 557 18
necessary. Morrill v - Little Falls Atl. 905.
1024
'
Ch. 16] By-Laws [§ 501
thereof by its insertion in their certificates, a member in whose cer-

not inserted will not be chargeable with knowledge of its
tificate it is
provisions.32 Moreover, it would seem that an applicant for member-
ship in a mutual association is not, merely by reason of the relation
which he sustains to the latter, chargeable with notice of the pro-
visions of its by-laws relative to what is required of him as a condition
precedent to his becoming a member.'^ Nor does the knowledge of
the by-laws with which a person becomes chargeable on acquiring stock
in the corporation relate back so as to affect what has been done, or
those rights which have vested in him under a contract which he
entered into with the corporation at a time when he was a stranger
to the latter.3*
VI. OPERATION AND EFFECT
§ 501. On stockholders or members. Valid by-laws are as much

the law of the corporation as if their provisions had been a part of its
charter .^5 They are in fact written into the charter and become a part
of the fundamental law of the corporation,*^ and the corporation,"
32 Sovereign Camp Woodmen of 37Borgards v. Farmers' Mut. Ins.

World V. Fraley, 94 Tex. 200, 51 L. B. Co., 79Mich. 440, 44 N. W. 856; Eath-
A. 898, 59 S. W. 879, aff'g judgment bun V. Snow, 123 N. Y. 343, 10 L. E.
59 S. W. 905. A. 355, 25 N. E. 379; Powers v.
33 Younghoe v. Grain Shippers Schlicht Heat, Light & Power Co., 23
Mut. Fire Ins. Ass'n, 126 Iowa 374, N. Y. App. Div. 380, 48 N. Y. Supp.
102 N. W. 137. See also National 237, afp'd 165 N. Y. 662, 59 N. E.
Mut. Fire Ins. Co. v. Barnes, 41 Kan. 1129; J. P. Lamb & Co. v. Merchants'
161, 21 Pae. 165. Nat. Mut. Fire Ins. Co., 18 N. D. 253,
34 Wait V. Smith, 92 111. 385, 390. 119 N. W. 1048; Com. v. Vandegrift,
See also Meyer v. East Shore Termi- 232 Pa. 53, 36 L. E. A. (N. S.) 45,
nal Co., 41 S. C. 300, 25 L. R. A. 48, 44 Ann. Cas. 1912 C 1267, 81 Atl. 153.
Am. St. Eep. 709, 19 S. E. 651. A corporation must observe its own
35 Kent V. Quicksilver Min. Co., 78
by-laws until it changes them in legal
N. Y. 159, 179; State v. Vanderbilt form. Weatherly v. Medical & Surgi-
University, 129 Tenn. 279, 164 S. W.
cal Society, 76 Ala. 567.
1151.
Members of a society or association
A valid by-law, regardless of its in-
are entitled to the protection of valid
convenient or embarrassing effect on
the individual members of the corpo-
by-laws. Weatherly v. Medical & Sur-
gical Society, 76 Ala. 567.
ration, is as much a law of the latter
as is its charter. People v. Ittner,
"It would be against public policy
165 App. 360, 364.
111.
and all reason to allow a corporation
36 Lutz v. Webster, 249 Pa. 226, 94 to contract [with a member] in vio-
Atl. 834; Com. v. Vandegrift, 232 Pa. lation of itsown by-laws." Howard
53, 36 L. E. A. (N. S.) 45, Ann. Cas. V. Bankers' Union of World, 94 Ma
1912 C 1267, 81 Atl. 153. App. 442, 68 S. W. 369.
1025
IPriv. Corp.— 65
and its directors and officers are bound by and must comply with
them.'* Moreover, by-laws which it was within the power of the
corporation to adopt, and which were legally adopted by a majority
of the stockholders or members, or by the directors, they having been
vested with the power to make by-laws, are binding upon all the stock-
holders or members, in so far as their rights as such are concerned,
whether they expressly consented to them or not ;
'^ and, it makes no
38 Connecticut. CougUin v. Knights 16 Pac. 397; Supreme Lodge of Fra-

of Columbus, 79 Conn. 218, 64 Atl. 223. ternal Brotherhood v. Price, 27 Cal.
Louisiana.State v. New Orleans & App. 607, 150 Pac. 803.
C. R. Co.,30 La. Ann. 308; Hunter v. Connecticut. Coughlin v. Knights
Sun Mut. Ins. Co. of New Orleans, 26 of Columbus, 79 Conn. 218, 64 Atl. 223.
La. Ann. 13. TIIJTiois. People v. Women's Catho-
Michigan. Borgards v. Farmers' lic Order of Foresters, 162 111. 78, 80,
Mut. Ins. Co., 79 Mich. 440, 44 N. W. 44 N. E. 401, afe'g 59 111. App. 390;
856. Mandel v. Swan Land & Cattle Co., 51
ITortli Carolina. Ellis v. North Caro- 111. App. 204.
lina Institution for Deaf & Dumb & Iowa. Norton v. Catholic Order of
Blind, 68 N. C. 423. Foresters, 138 Iowa 464, 24 L. R. A.
South Dakota. American Nat. Bank (N. S.) 1030, 114 N. W. 893; Fitz-
V. Wheeler-Adams Auto Co., 31 S. D. gerald V. Metropolitan Ace. Ass 'n, 106
524, 141 N. W. 396. Iowa 457, 76 N. W. 809.
The drawing of corporate funds from Kansas. Miller v. National Knights
the bank in which they were deposited & Ladies of Security, 69 Kan. 234, 76
by an officer of the corporation in a, Pac. 830.
manner contrary to that provided by Louisiana. Daughtry v. Knights
the latter 's by-laws would tend to of Pythias, 48 La. Ann. 1203, 55 Am.
prove a conversion by such officer of St. Eep. 310, 20 So. 712; State v. New
the funds withdrawn. Sanitary Caa Orleans & C. B. Co., 30 La. Ann. 308.
Co. V. MuUins, 86 N. Y. App. Div. 450, Maine. Cummings v. Webster, 43
83 N. Y. Supp. 918. Me. 192; Came v. Brigham, 39 Me. 35.
Subordinate officers and employees Maryland. Anacosta Tribe No. 12
of a corporation are not bound by the Improved Order of Red Men v. Mur-
latter 's by-laws of which they have bach, 13 Md. 91, 71 Am. Dee. 625. See
no actual knowledge, merely by rea- also Donnelly v. Supreme Council
son of the relation which they sustain Catholic Benev. Legion, 106 Md. 425,
to the corporation. Moyer v. Ea.st
124 Am. St. Rep. 499, 67 Atl. 276;
Shore Terminal Co., 41 S. C. 300, 25 L.
Mutual Life Ins. Co. v. McSherry, 68
B. A. 48, 44 Am. St. Eep. 709, 19 S. E.
Md. 41, 11 Atl. 577.
651.
Massachusetts. Reynolds v. Supreme
3B Alabama. Weatherly v. Medical
Montgomery Co., 76 Council of Royal Arcanum, 192 Mass.
& Surgical Soc. of
Ala. 567; Supreme Commandery K. 6. 150, 7 L. R. A. (N. S.) 1154, 7 Ann.
B. V. Ainsworth, 71 Ala. 436, 46 Am. Cas. 776, 78 N. E. 129.

Bep. 332. Michigan. Douville v. Farmers'
California. McFadden v. Board Mut. Fire Ins. Co., 113 Mich. 158, 71
Sup'rs Los Angeles Co., 74 Cal. 571, N. W. 517; Van Poueke v. Netherland
1026
'
Ch. 16] By-Laws [§501
difference, so far as the existence of these rules is concerned, that the
St. Vincent de Paul Society, 63 Mieh. Virginia. Knights of Columbus v.

378, 29 N. "W. 863. Burrough's Beneficiary, 107 Va. 671,
Minnesota. Thibert v. Supremo 17 L. R. A. (N. 8.) 246, 60 S. B- 40;
Lodge Knights of Honor, 78 Minn. Haden v. Farmers' & Mechanics' Fire
448, 47 L. R. A. 136, 79 Am. St. Rep. Ass'n, 80 Va. 683.
412, 81 N. W. 220; Davidson v. Old By-laws "have much the same
People's Mut. Ben. Society, 39 Minn. force and effect when applied to its
303, 1 L. R. A. 482, 39 N. W. 803. [corporation's] members and ofScers
Missouri. Hill v. Rich Hill Coal in the conduct of the affairs of the
Min. Co., 119 Mo. 9, 24 S. W. 223; corporation that a public statute has.
'
Sraoot V. Bankers' Life Ass'nj 138 J. P. Lamb & Co. v. Merchants' Nat.
Mo. App. 438, 120 S. W. 719; Purdy Mut. Fire N. D. 253, 119 N.
Ins. Co., 18
V. Bankers' Life Ass'n, 101 Mo. App. W. 1048. See also Cummings v. Web-
91, 74 S. W. 486; McLellan v. St. ster, 43Me. 192, 197.
Louis Public Schools, 15 Mo. App. The members of a fraternal benefit
362. society are presumed to contract with
Nebraska. Swett v. Antelope County reference to its existing by-laws.
Farmers' Mut. Ins. Co., 91 Neb. 561, United Order Golden Cross v.
of
136 N. W. 347. Hooser, 160 Ala. 334, 49 So. 354;
New York. Bathbun v. Snow, 123 Supreme Commandery Knights of
N. Y. 343, 10 L. R. A. 355, 25 N. E. Golden Rule v. Ainsworth, 71 Ala. 436,
379; Powers v. Schlieht Heat, Light 46 Am. Rep. 332.
& Power Co., 23 App. Div. 380, 48 Where a benefit certificate is, by its
N. Y. Supp. 237, aff'd 165 N. Y. 662, terms, issued subject to the society's
59 N. E. 1129. See also Driscoll v. existing by-laws, a member is bound
West Bradley & C. Mfg. Co., 59 N. Y. thereby regardless of whether they
96, 101. are posted in the association's princi-
North Dakota. J. P. Lamb & Co. v. pal place of business as required by
Merchants' Nat. Mut. Fire Ins. Co., 18 statute. Fee v. National Masonic Ace.
N. D. 253, 119 N. W. 1048; Montgom- Ass'n, 110 Iowa 271, 81 N. W. 483.
ery V. Whitbeck, 12 N. D. 385, 96 N. A person becoming a member of
W. 327. a board of trade voluntarily submits
Oklahoma. Home Forum Ben. Order himself to the operation of all laws
V. Jones, 5 Okla. 598, 50 Pac. 165. adopted for its government, and agrees
Pennsylvania. Com. v. Vandegrift, to be bound by them so far as they
232 Pa. 53, 36 L. R. A. (N. S.) 45, are within the corporate authority.
Ann. Cas. 1912 C 1267, 81 Atl. 153. Board of Trade of Chicago v.Nelson,
Palmetto Lodge v.
South Carolina. 162 111. 431, 438, 53 Am. St. Rep. 312,
Hubbell, 2 Strobh. 457, 49 Am. Dee. 44 N. E. 743, rev'g 62 111. App. 541.
604. The members of a nonstock employ-
South Dakota, American Nat. Bank ers' association, the purpose of which
V. Wheeler-Adams Auto Co., 31 S. D. is the mutual protection and benefit
524, 141 N. W. 396. of its membors must, while member-
Texas. Supreme Ruling Fraternal ship continues, submit to all lawful
Mystic Circle v. Ericson, Tex. Civ. — by-laws adopted by the corporation
App. —131 S. W. 92.
, for its government. Associated Hat
Vermont. See Wilson v. Union Mut. Manufacturers v. Baird-Unteidt Co.,
Fire Ins. Co., 77 Vt. 28, 58 Atl. 799. 88 Conn. 332, 91 Atl. 373.
1027
1501] Peivatb Cobpobations [Ch. 16
stockholders or actual knowledge of the by-laws,

members had no
notice ordinarily beingimputed to them.*'
The by-laws enter into the contract *^ between the corporation and
its stockholders or members or, in the case of a mutual association
By the by-laws of a building and 40 See § 500, supra.

loan association dues were made pay- 41 Alabama. Slaughter v. Grand
able to the secretary, and that a mem- Lodge, 192 Ala. 301, 68 So. 367.
ber had customarily made payments California. O'Connor v. Grand
to the president was held not to Lodge A. O. U. W., 146 Cal. 484, 80
absolve him from making a payment Pac. 688.
a second time where the president
Illinois. Dromgold v. Eoyal Neigh-
absconded with a payment of a large
bors of America, 261 111. 60, 103 N. E.
amount of back dues paid by such
584; Love v. Modern Woodmen of
rnember, which the president never
The America, 259 111. 102, 106, 102 N. E.
paid over to the association.
court said: "Without attempting to 183; Enright v. National Council
precisely define the law in this regard, Knights & Ladies of Security, 253 111.
it may be briefly stated to be as fol- 460, 462, 97 N. E. 681; Fullenwider

lows: 'Where a corporation by its V. Supreme Council of Eoyal League,
by-laws designates some particular 180 111. 621, 625, 72 Am. St. Eep. 239,
officer as Its agent to receive moneys 54 N. E. 485, afC'g 73 III. App. 321;
due it, the members of that associa- Lehman v. Clark, 174 111. 279, 287, 43
tion are charged with knowledge of L. E. A. 648, 51 N. E. 222, rev'g 71
such regulation or by-law, and pay- 111. App. 366; Alexander v. Parker,
ment to any other officer or person 144 111. 355, 364, 19 L. E. A. 187, 33
can only bind the corporation if it
N. E. 183, rev'g 42 App. 455. 111.
actually receives money. the
If,
Indiana. Braman, 171 Ind.
Earra v.
however, notwithstanding such by-law
529, 86 N. E. 843; Supreme Lodge
or regulation, the corporation, by its
Knights of Pythias v. Knight, 117
conduct, authorizes, or, by its action,
some othef than Ind. 489, 3 L. E. A. 409, 20 N. E. 479;
ratifies payment to
the designated agent, it will be bound. Holland V. Taylor, 111 Ind. 121, 12 N.
A course of conduct pursued for a B. 116; Bauer v. Samson Lodge, 102
long time by of a corporation,
officers Ind. 262, 1 N. E. 571; Earra v. Braman
if it is known to the corporation, (Ind. App.), 82 N. E. 926, rehearing
will bind it, even though such con- denied (Ind. App.), 84 N. E. 155; Nye
duct is in violation of the by-laws. V. Grand Lodge A. O. U. W., 9 Ind.
But to thus bind the corporation by App. 131, 36 N. E. 429.
estoppel or on the ground that it has Montana. Kennedy v. The Grand
authorized or ratified, it must, in each Fraternity, 36 Mont. 325, 25 L. E. A.
instance, be shown that the directors
(N. S.) 78, 92 Pac. 971.
thereof knew of the conduct of the
North Dakota. J. P. Lamb & Co. v.
officers and acquiesced in or ratified
Merchants' Nat. Mut. Fire Ins. Co.,
it passively or actively.' " Manches-
18 N. D. 253, 119 N. W. 1048; Mont-
ter Building & Loan Ass'n v. Geyer,
71 N. J. Eq. 192, 63 Atl. 545. See gomery v. Whitbeck, 12 N. D. 385, 96
also Louchheim v. Somerset Building N. W. 327.
& Loan Ass 'n, 211 Pa. 499, 3 Ann. Gas. Ohio. The Chevaliers v. Shearer, 27
728, 60 Atl. 1054. Ohio Cir. Ct. 509, 511.
1028
Ck 16] By-Laws [§501
or fraternal benefit society, the contract between the members, and

become a part thereof as a matter of law.*^
Texas. TJnited Moderns v. Colligan, Georgia. Interstate Building & Loan

34 Tex. Civ. App. 173, 77 S. W. 1032. Ass 'n V. Wooten, 113 Ga. 247, 38 S. E.
Where a corporation, as such, alone 738; Barbot v. Mutual Eeserve Fund
has power under its charter to adopt a Life Ass'n, 100 Ga. 681, 28 S. E. 498.
certain such by-law when
by-law, Illinois. Dromgold v. Eoyal Neigh-
adopted by a subordinate body created bors of America, 261 111. 60, 64, 103
by the corporation under authority N. E. 584; Love v. Modern Woodmen
derived from its charter vnll not be of America, 259 111. 102, 106, 102 N.
binding on the ground of contract E. 183; Enright v. National Council
upon a member under the direct con- Knights & Ladies of Security, 253
trol of the subordinate body in the 111. 460, 462, 97 N. E. 681; Kaemmerer
matter to which the by-law relates, V. -Kaemmerer, 231 111. 154, 157, 83
even though its provisions are incorpo- N. E. 133, aff 'g 137 111. App. 28; Bald-
rated in the certificate of membership win V. Begley, 185 111. 180, 56 N. E.
issued by the subordinate body under 1065, rev'g 84 111. App. 674; Fullen-
its administrative powers, the corpo- wider v. Supreme Council of Eoyal
ration's charter which constitutes the League, 180 111. 621, 625, 72 Am, St.
law of the contract and invalidates Eep. 239, 54 N. E. 485, aff'g 73 111.
the provision as a by-law having the App. 321; Lehman v. Clark, 174 III.
effect of writing it out of the contract. 279, 287, 43 L. E. A. 648, 51 N. E.
Supreme Lodge Knights of Pythias 222, rev'g 71 111. App. 366; Alexander
V. Stein, 75 Miss. 107, 37 L. E. A. 775, V. Parker, 144 111. 355, 364, 19 L. E.

65 Am. St. Eep. 589, 21 So. 559. A. 187, 33 N. E. 183, rev'g 42 111. App.
42 United States. Polk v. Mutual 455; Neenan v. National Council
Eeserve Fund Life Ass'n, 137 Fed. Knights & Ladies of Security, 188 HI.
273.
App. 490, 493 Supreme Lodge Knights
;
Arkansas. Supreme Lodge Knights

& Ladies of Honor v. Benes, 135 HI.
& Ladies of Honor v. Johnson, 81 Ark. App. 314, afC'd 231 111. 134, 14 L. E.
512, 99 S. W. 834. A. (N. S.) 540, 121 Am. St. Eep. 304,
California. O'Connor v. Grand 83 N. E. 127; Nowak v. Murray, 127
I-odge A. 0. U. W., 146 Cal. 484, 80 111.App. 125; Mutual Protective
Pac. 688; Hass v. Mutual Belief Ass'n League v. McKee, 122 111. App. 376,
of Petaluma, 118 Cal. 6, 49 Pac. 1056; aff 'd 223 111. 364, 79 N. E. 25; Supreine
Supreme Lodge of Fraternal Brother- Council Catholic Knights & Ladies of
hood V. Price, 27 Cal. App. 607, 150 America v. Beggs, 110 111. App. 13^,
Pac. 803. See also Cheney v. Canfield, 149.
158 Cal. 342, 32 L. E. A. (N. S.) 16, Indiana. Farra y. Braman, 171 Ind.
111 Pac. 92.
529,-i N. E. 843; Supreme -lljodge
86
Delaware. King v. Wynema Coun- Kiiights of Pythias v. Knight, 117
cil No. 10, Daughters of Pocahontas Ind. 489, 3 L. E. A. 409, 20 N. E. 479;
Improved Order of Bed Men, 25 Del. Holland v. Taylor, 111 Ind. 121, 12
255, 78 Atl. 845. N. E. 116; Bauer v. Saliison Lodge, '
District of Columbia. Clark v. Mu- 102 Ind. 262, 1 N. E. 571; Almy v.
tual Eeserve Fund Life Ass 'n, 14 App. Commercial Travelers' Ass'n, 59 Ind
Gas. 154, 43 L. B. A. 390. App. 249, 106 N. E. 893; Farra v.
1029
Under the operation of this rule, those by-laws vzhich are in force
Braman (Ind. App.),'82 N. E. 926, re- See also Dempster v. Opocensky, 81

hearing denied (Ind. App.), 84 N. E. Neb. 612, 116 N. W. 524.
155; Nye v. Grand Lodge A. O. U. W., New Jersey. See Schubert Lodge
9 Ind. App. 131, 36 N. E. 429. No. 118, K. P. of New Jersey v.
Iowa. Farmers' Mut. Hail Ins. Schubert Kranken Unterstuetzungs
Ass'n V. Slattery, 115 Iowa 410, 88 Verein, 56 N. J. Eq. 78, 38 Atl. 347.
N. W. 949. New York. Sulz v. Mutual Reserve
Kansas. Hogaptt v. Aetna Building Fund Life Ass'n, 145 N. Y. 563, 28
& Loan Ass'n, 78 Kan. 71, 96 Pac. 52; L. E. A. 379, 40 N. E. 242; Sabiu v.
Miller v. Tuttle, 73 Pac. 88, writ of Phinney, 134 N. Y. 423, 30 Am. St.
mandamus allowed set aside on Eep. 681, 31 N. E. 1087; In re Equit-
rehearing, 69 Kan. 234, 76 Pae. able Eeserve Fund Life Ass'n of New
830. York, 131 N. Y. 354, 30 N. B. 114;
Kentucky. Union Benev. Soe. No. Kent V. Quicksilver Min. Co., 78 N. Y.
8 r. Martin, 113 Ky. 25, 67 S. W. 38. 159, 179; Taufer v. Brotherhood of
Maine. Gifford v. Workmen's Ben. Painters, Decorators & Paperhangers
Ass'n, 105 Me. 17, 17 Ann. Gas. 1173, of America, 137 App. Div. 838, 122
72 Atl. 680. N. Y. Supp. 527; McCloskey v. Su-
Maryland. Condon v. Mutual Re- preme Council American Legion of
serve Fund Life Ass'n, 89 Md. 99, Honor, 109 App. Div. 309, 96 N. Y.
44 L. E. A. 149, 73 Am. St. Eep. 169, Supp. 347; Butler v. Supreme Council
42 Atl. 944. American Legion of Honor, 105 App.
Michigan. Douville v. Farmers' Div. 164, 93 N. Y. Supp. 1012; O'Brien
Mut. Fire Ins. Co., 113 Mich. 158, 71 v. Supreme Council Catholic Benev.
N. W. 517; Van Poucke v. Nether- Legion, 81 App. Div. 1, 80 N. Y. Supp.
iand St. Vincent de Paul Society, 63 775, aff'd 176 N. Y. 597, 68 N. E.
Mich. 378, 29 N. W. 863; Becker v. 1120; Evans v. Southern Tier Masonic
Farmers' Mut. Fire Ins. Co., 48 Mich. Relief Ass'n, 76 App. Div. 151, 78 N.
610, 12 N. W. 874. Y. Supp. 611; Grossmayer v. District
Mississippi. Newman v. Supreme No. 1 of B'nai B'rith, 70 App. Div.
Lodge K. of P., 110 Miss. 371, L. R. 90, 74 N. Y. Supp. 1057; Deuble v.
A. 1916 C 1051, 70 So. 241; Woodmen Grand Lodge, 66 App. Div. 323, 72
of World, Sovereign Camp v. Wood- N. Y. Supp. 755, aff'd 172 N. Y. 665,
ruff, 80 Miss. 546, 32 So. 4. 65 N. E. 1116; Bird v. Mutual Union
Missouri. Claudy v. Eoyal League, Ass'n, 30 App. Div. 346, 52 N. Y.
259 Mo. 92, 168 S. W. 593; Daffron v. Supp. 1044; M 'Clement v. Supreme
Modern Woodmen Mo.
of America, 190 Court L O. F., 88 Misc. 475, 152 N.
App. 303, 176 S. W. 498; Lewine v. Y. Supp. 136, rev'd on another point
Supreme Lodge Knights of Pythias of 169 App. Div. 77, 154 N. Y. Supp. 700;
World, 122 Mo. App. 547, 99 S. W. Gienty v. Knights of Columbus, 55
821. Misc. 98, 105 N. Y. Supp. 244, aff'd

Montana. Kennedy v. The Grand 126 App. Div. 934, 110 N. Y. Supp.
Fraternity, 36 Mont. 325, 25 L. E. A. 1129; Langan v. American Legion of
(N. S.) 78, 92 Pac. 971. Honor, 34 Misc. 629, 70 N. Y. Supp.
Nebraska. Farmers' Mut. Ins. Co. 663; Green v. Supreme Council of
V. Kinney, 64 Neb. 808, 90 N, W. 926. Eoyal Arcac-iin, 124 N. Y. Supp. 39?,

1030
Ch. 16] By-Laws [§ 501
at the time of a subscription for stock in a corporation enter into and
North Carolina. Meisenheimer v. mandamus allowed on former hearing,

Alexander, 162 N. C. 226, 78 S. E. 161. 73 Pac. 88.
North Dakota. Montgomery v. Where, in an action on a death claim
Whitbeok, 12 N. D. 385, 96 N. W. 327. against a benefit society, it is neces-
Ohio. Pete v. Woodmen of World, sary to go outside of the certificate
26 Ohio Cir. Ct. 653, 663. of membership and the constitution
Oregon. Wist v. Grand Lodge A. O. and by-laws of the society and intro-
U. W., 22 Ore. 271, 29 Am. St. Eep. duce oral evidence of extrinsic facts
603, 29 Pac. 610. in order to bring the plaintiff within
Rhode Island. Newton v. Northern the scope and meaning of the require-
Mut. Belief Ass'n, 21 E. I. 476, 44 ments of such constitution and by-
Atl. 690. laws, the contract sued on will be re-
Texas. Lone Star Lodge Knights garded as an unwritten and implied
& Ladies of Honor v. Cole, 62 Tex. one. Eailway Passenger & Freight
Civ. App. 500, 131 S. W. 1180; United Conductors' Mut. Aid & Benefit
Moderns v. Colligan, 34 Tex. Civ. App. Ass'n V. Loomis, 142 111. 560, 571, 32
173, 77 S. W. 1032. N. E. 424, rev'g 43 111. App. 599.
Wisconsin. Thomas v. Covert, 126 See also Eailway Passenger & Freight
Wis. 593, 3 L. R. A. (N. S.) 904, 105 Conductors' Mut. Aid & Benefit
N. W. 922; Hughes v. Wisconsin Odd Ass'n V. Tucker, 157 111. 194, 205, 44
Fellows' Mut. Life Ins. Co., 98 Wis. N. E. 286, 42 N. E. 398, rev'g 54 111.
292, 73 N. W. 1015; Morrison v. Wis- App. 445.
consin Odd Fellows' Mut. Life Ins. Where the by-laws of a fraternal
Co., 59 Wis. 162, 18 N. W. 13. benefit society qualify in an ambigu-
The by-laws of a mutual insurance ous manner the terms of a certificate
company being part of the contract of insurance, issued by it, they are to
between it and its members, such by- be construed most favorably to the
laws may be introduced in evidence insured under the general rule that
by the company, when sued on a cer- when the language of the promisor
tificate issued by it, on the question of
may be understood in more senses
than one, it should be construed in
its liability. Hayden v. Franklin Life
the sense in which he had just reason
Ins. Co., 136 Fed. 285.
to believe it would be understood by
But see McDonald v. Bankers' Life
the promisee. Laker v. Eoyal Frater-
Ass 'n of Des Moines, 154 Mo. 618, 628, nal Union, 95 Mo. App. 353, 75 S. W.
55 S. W. 999. 705.
Where a membership certificate is- A statute may require the benefit
sued by a fraternal beneficiary asso- which are intended
society's by-laws
ciation is so defective in its recitals to form part of the contract to be
as to make reference to the associa- printed on the benefit certificate.
tion's by-laws necessary to an under- Nuetzel v. Travelers' Protective
standing of the exact obligation and Ass'n, 168 Ky. 734, 183 S. W.
499. See
duties of each of the parties, such by- also Corley v. Travelers' Protective
laws become a part of the agreement. Ass'n, 105 Fed. 854.
Miller V. National Council Knights Where the policy issued by a mutual
& Ladies of Security, 69 Kan. 234, insurance company provides that if
76 Pac. 830, setting aside writ of any special provisions or stipulations
1031
'
form a part of the contract.*^ So also, while the terms of the con-
tract existing between a stock corporation and a holder of preferred
stock therein** are generally set out in the latter 's stock certificates,
such certificates must be read in connection with the by-laws in force
at the time of the issuance of the stock as well as the charter or articles
of association, the general law, and the vote or proceedings by or
under which the stock was issued, each of which enters into and
forms a part of such contract.*®
not inserted in the policy require men- Cheney v. Canfleld, 158 Cal. 342, 32
tion in effecting the insurance, such
provisiona or stipulations shall be legi-
L. K. A. (N. S.) 16,
The by-laws of a
m Paja. 92.
benefit order at
tly written or printed and permanent- least enter into the construction of the
lyand securely attached to the policy contract of a member. Supreme Lodge
and signed separately by the com- Knights of Pythias v. Stein, 75 Miss.
pany or agent, the policy is the only 107, 37 L. E. A. 775, 65 Am. St. Eep.
evidence of the insurance contract, 589, 21 So. 559. See also Home Circle
and by-laws, not printed on or Soe. No. 1 v. Shelton (Tex. Civ. App.),
attached to the policy cannot be used 81 S. W. 84.
to contradict, vary or enlarge the Where a policy in a life insurance
terms of the contract. Gleason v. association testamentary in char-
is
Canterbury Mut. Fire Ins. Co., 73 N. must be construed
acter, its provisions
H. 583, 64 Atl. 187. according to, among other things, the
Where the application for member- constitution and by-laws of the asso-
ship in an assessment life insurance ciation. Hall V. Ayer's Guardian, 32
association states that "it is hereby Ky. L. Bep, 288, 105 S. W. 911.
expressly agreed that the above ap- 43 Wapello County v. Burlington &
plication and this declaration with M. Eiver E. Co., 44 Iowa 585.
the certificate thorcon shall
issued By-laws adopted before books of
form the basis of the contract be- subscription are opened enter into and
tween" the applicant and the asso- form part of the contract between
ciation, the application and the cer- the corporation and its subscribers.
tificate constitute the contract, and Hazeltine v. Belfast & M. L. R. Co.,
the by-laws of the association, at least 79 Me. 411, 1 Am. St. Eep. 330, 10 Atl.
as far as the latter is concerned, 328; Belfast & M. L. E. Co. v. Belfast,
form no part of it. Purdy v. Bankers 77 Me. 445, 1 Atl. 362. See also
Life Ass'n, 101 Mo. App. 91, 74 S. W. Loewenthal v. Eubber Eeclaiming Co.,
486. 52 N. J. Eq. 440, 28 Atl. 454.
A by-law is not a "law or con- Aperson in purchasing stock con-
tract" within the meaning of a stat- tracts with reference to the corpora-
ute which provides that "whenever tion 's by-laws. Mandel v. Swan Land
an act of a secular nature * » » & Cattle Co., 51 111. App. 204, 209.
is appointed by law or contract to « See i 512, infra. ,
be performed on a particvllar day 45Cratty v. Peorig,, Law Library

which falls upon a holiday, it' may be Ass'n, 219 111. 516, 76 N. E.' 707, rev'g
performed upon the next business day 120 111. App. 596; Heller v. National
with the same effect as if it had been Marine Bank, 89 Md. 602, 45 L. E. A.
performed upon the day appointed." 438, 73 Am. St. Eep. 212, 43 Atl. 800;
1032
Ch. 16] By-Laws [§502
§ 502. On third persons. Although it has been said that valid

by-laws are as much the law of the corporation as if their provisions
had been a part of its charter and that they are in fact written into
the charter and become a part of the fundamental law of the cor-
poration,*^ and broadly stated that they are binding on third persons
dealing with the corporation,*' the generally accepted rule would
seem to be that such third persons are not bound by by-laws not
expressly authorized by the charter or statute unless they have actual
notice of them.*' When, however, a by-law is one which is in express
Eogers v. New York & T. Land Co., upon the alienation of stock. Nich-
134 N. Y. 197, 32 N. E. 27; Boardman olson V. Franklin Brewing Co., 82
V. Lake Shore & M. S. Ey. Co., 84 N. Ohio St. 94, 137 Am. St. Rep. 764, 19
Y. 157; Gordon's Ex'rs v. Richmond, Ann. Cas. 699, 91 N. E. 991.
F. & P. R. Co., 78 Va. 501. See also 48 Colorado. Arapahoe Cattle &
Hackett V. Northern Pao. Ry. Co., 140 Land Co. v. Stevens, 13 Colo. 534, 22
Fed. 717. Pac. 823.
A by-law stating the conditions Illinois. Ashley Wire Co. v. Illinois
upon which dividends are to be paid Steel Co., 164 111. 149, 56 Am. St. Rep.
as between preferred and common 187, 45 N. E. 410, aff'g 60 111. App.
stock is a contract between the cor- 179; Union Mut. Life Ins. Co. v.
poration and its stockholders. Hazel- White, 106 111. 67; Wait v. Smith, 92
tine v. Belfast & M. L. R. Co., 79 Me. 111. 385; Smith v. Smith, 62 111. 493;
411, 1 Am. St. Rep. 330, 10 Atl. 328; Metropole Building & Turkish Bath
Belfast & M. L. R. Co. v. Belfast, 77 Co. v. Garden City Fan Co., 50 111.
Me. 445, 1 Atl. 362. App. 681.

See also § 512, infra. Iowa. Dempster Mfg. Co. v. Downs,
46 See § 501, supra. 126 Iowa 80, 106 Am. St. Eep. 340, 3
47Lutz V. "Webster, 249 Pa. 226, 94 Ann. Cas. 187, 101 N. W. 735.
Atl. 834; Com. v. Vandegrift, 232 Pa. Maryland. Hagerstown Brewing Co.
53, 36 L. R. A. (N. S.) 45, Ann. Cas. v. Gates, 117 Md. 348, 83 Atl. 570;
1912 C 1267, 81 Atl. 153. Tome V. Parkersburg Branch E. Co.,
In Texas it is held that a third per- 39 Md. 36, 17 Am. Eep. 540.
son, entering into a contract with an Massachusetts. Worcester v. Essex
agent of a corporation to purchase cor- Merrimac Bridge Corporation, 7 Gray
porate realty, is chargeable with 457.
knowledge that under the by-laws of Michigan. Halleubeck v. Powers
the corporation no sale of realty be- & Walker Casket Co., 117 Mich. 680,
longing to it can be consummated 76 N. W. 119.
without the consent of the board of Nebraska. Johnston v. Milwaukee
directors. Vacarezza v. Realty Inv. & W. Inv. Co., 46 Neb. 480, 64 N. W.
Co., — Tex. Civ. App. , —
165 S. W. IIDO.
516. New Jersey. State v. Overton, 24
A purchaser of stock in a foreign N. J. L. 435, 61 Am. Dec. 671. See
corporation is deemed to know all re- also Morris & E. E. Co. v. Ayres, 29
strictionswhich its by-laws, not incon- N. J. L. 393, 80 Am. Dec. 215.
sistent with the laws of the state of NewYork. Pearsall v. Western U.
the corporation's creation, imposed Tel. Co., 124 N. Y. 256, 21 Am. St. Eep,
1033
terms authorized by the charter or statute, third persons are charge-

able with notice of its provisions and are bound thereby.*^ Moreover,
such persons are generally held to be bound by valid by-laws, not
thus authorized, when they have actual notice thereof.*" A person
contracting with a corporation with actual notice of a by-law affecting
such a contract as he enters into, may, however, expressly exclude
662, 26 N. E. 534; Eathbun v. Snow, place of business are not binding on a

323 N. Y. 343, 10 L. B. A. 355, 25 N. stranger without actual notice. Fee
E. 379; Powers v. Sehlieht Heat, Light V. National Masonic Aoc. Ass'n, 110
& Power Co., 23 App. Div. 380, 48 Iowa N. W. 483.
271, 81
N. Y. Supp. 237, aff'd 165 N. Y. 662, 49 Brent Bank of Washington, 10
v.
59 N. E. 1129; National Spraker Bank Pet. (II. S.) 596, 9 L. Ed. 547; In re
V. George C. Treadwell Co., 80 Hun Millward-Cliff Cracker Co.'s Estate,
363; Perry v. Council Bluffs City 161 Pa. St. 157, 28 Atl. 1072; Haden
Water Works Co., 67 Hun 456; Par- V. Farmers' & Mechanics' Eire Ass'n,
melee v. Associated Physicians & 80 Va. 683.
Surgeons, 11 Misc. 363, 32 N. Y. Supp. BO Eathbun v. Snow, 123 N. T. 343,
149. 10 L. E. A. 355, 25 N. E. 379; Powers
South Carolina. Moyer v. East Shore V. Sehlieht Heat, Light & Power Co.,
Terminal Co., 41 S. C. 300, 25 L. E. A. 23 N. Y. App. Div. 380, 48 N. Y. Supp.
48, 44 Am. St. Eep. 709, 19 S. E. 651; 237, aff'd 165 N. Y. 662, 59 N. E. 1129;
Walker v." Wilmington, C. & A. E. Co., American Nat. Bank v. Wheeler-
26 S. C. 80, 1 S. E. 366. Adams Auto Co., 31 S. D. 524, 141 N.
Tennessee. Barnes v. Black Dia- W. 396.
mond Coal Co., 101 Tenn. 354, 47 S. W. Valid by-laws are binding on third
498. persons dealing with the corporation
Vermont. Howland Bros. & Cave with notice to the same extent as a
V. Barre Sav. Bank & Trust Co., 89 public law of the state. Cummings v.
Vt. 290, 95 Atl. 679. Webster, 43 Me. 192, 19 f. See also
Virginia. De Voss v. Eichmond, 18 Hale V. Mechanics' Mut. Fire Ins. Co.,
Gratt. 338, 98 Am. Dec. 646. 6 Gray (Mass.) 169, 66 Am. Dec. 410;
By-laws "are not in the nature of Driscoll V. West Bradley & C. Mfg.
legislative enactments, so far as' third Co., 59 N. Y. 96, 101, and cases cited
parties are concerned." Dempster under note 49, supra.
Mfg. Co. V. Downs, 126 Iowa 80, 106 A by-law has no extra corporate
Am. St. Eep. 340, 3 Ann. Cas. 187, force and is only binding on those
101 N. W. 735. dealing with the corporation who have
That constructive notice of by-law notice of it or who deal with it under
by third person may be sufficient, see such circumstances that they are
Bank of Holly Springs v. Pinson, 58 bound to take notice of it. Bank of
Miss. 421, 436, 38 Am. Eep. 330. Holly Springs v. Pinson, 58 Miss. 421,
The posting of by-laws as required 38 Am. Eep. 330.
by statute constitutes constructive A by-law adopted by the board of
notice to third persons of their con- directors, which provides how special
tents. Des Moines Nat. Bank v. War- meetings of the board shall be called,
ren County Bank, 97 Iowa 204, 66 N. does not affect third persons dealing
W. 154. with the corporation. Samuel v. Hol-
By-laws not posted, as required by laday, Woolw. 400, Fed. Cas. No.
statute, in the corporation's principal 12,288.
1034
Ch.l6] By-Laws [§502
the by-law, so that his contract will not be affected thereby.*^ But
the by-law enters into the contract, and he is bound thereby, if it is
not expressly excluded.^^ So also when a by-law is intended to
Bl Soldiers' Orphans' Home v. Shaf- quiring the presentation of the pass

fer, 63 III. 243; Martino v. Commerce book and notice to the bank in case
Tire Ins. Co., 47 N. Y. Super. Ct. 520. of the loss of the book as conditions
B2 Douglass V. Merchants ' Ins. Co., precedent to payment are brought to
118 N. Y. 484, 7 L. E. A. 822, 23 N. E. the notice of a depositor, they become
806 (holding a person who entered a part of the contrac.t between the lat-
into a contract with a company as its ter and the bank. Hough Ave. Sav-
secretary at a yearly salary, but with- ings & Banking Co. v. Andersson, 78
out fixing the term of his employment, Ohio St. 341, 18 L. R. A. (N. S.) 431,
bound by a by-law, of which he had 125 Am. St. Eep. 707, 14 Ann. Cas.
notice, giving the directors the power 479, 85 N. E. 498. See also Kummel
to remove him at any time). v. Germania Sav. Bank, 127 N. Y.
When with full notice of a certain 488, 13 L. E. A. 786, 28 N. E. 398j
by-law, the assignee of stock acknowl- Smith V. Brooklyn Sav. Bank, 101 N.
edges in writing that he receives the Y. 58, 54 Am. Eep. 653, 4 N. E. 123;
certificate, issued by the corporation, Allen V. Williamsburg Sav. Bank, 69
subject thereto, and subscribes his N. Y. 314, 322, distinguishing Schoen-
name to the book of by-laws, thereby wald V. Metropolitan Sav. Bank, 57
agreeing to the provisions of such by- N. Y. 418; Mierke v. Jefferson County
laws, he holds his stock on the same Sav. Bank, 134 N. Y. Supp. 44.
conditions and subject to the same Where a depositor in a savings
obligations as did his assignor. Peo- bank accepts from the latter and uses
ple's Home Sav. Bank v. Sadler, 1 a deposit book, the cover of which
Gal. App. 189, 81 Pac. 1029. bears the direction to read the book
carefully and preserve it, and which
The assignee of a policy holder in
contains a copy of the bank 's by-laws,
a mutual fire, lightning and tornado
ho will be presumed to have knowl-
insurance company, who signed an
edge of such by-laws and impliedly
application agreeing to accept his
to contract to make his deposits in
policy subject to the company's by-
accordance with their terms, and this
laws, a copy of which application was
presumption is not affected by the
attached to the policy issued, will not
fact that the depositor is a foreigner
be heard to say that the by-laws are
who is not familiar with the English
not a part of the contract, although language. Dinini v. Mechanics' Sav.
the copy of the by-laws attached to Bank of Winsted, 85 Conn. 225, 82
the policy was not signed in accord- Atl. 580.
ance with the statutory requirements. Although the by-laws of a savings
Smith V. Eepublic County Mut. Fire bank printed in the pass book accepted
Ins. Co., 82 Kan. 697, 109 Pac. 390, by the depositor at the time of his
distinguishing Capitol Ins. Co. v. Bank opening an account constitute a con-
of Blue Mound, 48 Kan. 393, 29 Pac. tractbetween him and the bank, and
576. the by-laws provide that, whilt the
When by-laws of a savings bank re- bank will endeavor to prevent fraud
1035
operate as to certain third persons and is communicated to them for

the purpose of inducing action by them in reliance thereon, the cor-
poration cannot defeat a claim by one of their number under such
by-law by asserting that by-laws are rules for the interna^ govern-
ment of the corporation and its stockholders only and that third
persons cannot claim rights thereunder.®^
If a person contracts with a corporation with reference to a by-law,
as, for example, a by-law by which the stockholders or members bind
themselves individually for all debts that may be contracted by the
corporation, the by-law becomes a part of his contract, and he may
enforce the same; but it is otherwise if he does not contract with
reference to or on the faith of the by-law.®*
Vn. WAIVER
§ 503. Power members and officers as to waiver of

of corporation,
by-laws; proof of waiver. By-laws which are not required by the
charter or statute and which operate in favor of the corporation are
subject to waiver, both express and implied, by the corporation,
considered as an entity separate and apart and having rights distinct
and imposition, payments made to in thereon."

reliance Zwolanek v.
persona who may
present the pass book Baker Mfg. Co., 150 Wis. 517, 44 L.
shall constitute payments releasing E. A. (N. S.) 1214, Ann Cas. 1914 A
the bank to such extent as against 793, 137 N. W. 769 (involving by-law
the depositor, ordinary care and dili- providing for profit sharing by em-
gence will nevertheless be required ployees).
on the part of the bank to make pay- A
by-law of a bank under which the
ments only to the person entitled bank was to open for business at a
thereto. Ferguson v. Harlem Sav. certain hour does not give the drawer
Bank, 43 N. Y. Misc. 10, 86 N. Y. of a draft on such bank, who at-
Supp. 825. tempted to stop payment thereon be-
A by-law of a bank that all pay- fore such hour but after the draft
ments or deposits made or received had been paid, a right of action
must be examined at the time does against the bank, the latter 's custom,
not prevent a person paying or de-
although not known to the drawer,
positing money from afterwards show-
being to open at an earlier hour and
ing a mistake in his account with the
it not appearing that in its terms the
bank. Mechanics' & Farmers' Bank
by-law was designed to afford special
V. Smith, 19 Johns. (N. Y.) 115.
53 " If corporations desire to have protection to the depositors. Butler
their so-called by-laws affect only the V.Broadway Sav. Inst. City of New
corporation and its shareholders, then York (N. Y. App. Div.), 157 N. Y.
they should refrain from exploiting Supp. 532.
them to third persons, for the pur- B4 Flint v. Pierce, 99 Mass. 68, 96
pose of inducing such persons to act Am. Dec. 691.
1036
'
Ch. 16] By-Laws [§503
from those of its stockholders or members.^^ In like manner, a by-law

may be waived by a stockholder or member when it is he whose indi-
vidual rights are advanced or protected by its provisions.^^ If it acts
or contracts in disregard of a by-law with the consent or acquiescence
of the stockholders or members, thereis a waiver of the by-law, at
least pro hac vice, afterwards sought to set up the by-law

whether it is
as against strangers or as against its stockholders or members.^'
B5 California. Supreme Lodge of New Hampshire. Currier v. Conti-

Fraternal Brotherhood v. Price, 27 nental Life Ins. Co., 53 N. H. 538;
C'al. App. 607, 150 Pac. 803. Union Mut. Fire Ins. Co. v. Keyser,
Delaware. McKenney v. Diamond 32 N. H. 313, 64 Am. Dec. 375.
State Loan Ass 'n, 8 Houst. 557, 18 Atl. Pennsylvania. Susquehanna Mut.
905. Fire Ins. Co. v. Elkins, 124 Pa. St.
Indiana. Almy v. Commercial 484, 10 Am. St. Rep. 608, 17 Atl. 24.
Travelers' Ass'n, 59 Ind. App. 249, 106 Tennessee. Snyder v. Supreme Ruler
N. E. 893; Supreme Tent Knights of of Fraternal Mystic Circle, 122 Tenn.
Maccabees of World v. Volkert, 25 248, 45 L. R. A. (N. S.) 209, 122 S. W.
Ind. App. 627, 57 N. E. 203. 981.
Iowa. Kesler v. Farmers Mut. Fire ' Washington. Frank v. Switchmen 's
& Lighting Ins. Ass'n, 160 Iowa Union of North America, 87 Wash.
374, 141 N. W. 954; Thornburg v. 634, 152 Pac. 512.
Farmers' Life Ass'n, 122 Iowa 260, Wisconsin. Ledebuhr v. Wisconsin
98 N. W. 105; Watts v. Equitable Mut. Trust Co., 112 Wis. 657, 88 N. W. 607;
Life Ass'n of Waterloo, 111 Iowa 90, Morrison v. Wisconsin Odd Fellows'
82 N. W. 441. Mut. Life Ins. Co., 59 Wis. 162, 169,
Kansas. Boman v. Bankers' Union 18 N. W. 13.
of World, 76 Kan. 198, 11 L. E. A. A corporation may estop itself to
(N. S.) 1048, 91 Pac. 49. avail of the provisions of a by-law.
Massachusetts. Clark v. New Eng- Gray v. National Ben. Ass 'n. 111 Ind.
land Mut. Fire Ins. Co., 6 Cush. 342, 531, 11 N. E. 477; Shartle v. Modern
53 Am. Dec. 44. Brotherhood of America, 139 Mo. App.
Minnesota. Swedish Christian Mis- 433, 122 S. W. 1139.
sion Soc. of Minneapolis v. Lawrence, The fact that there has been a
79 Minn.. 124, 81 N. \7. 756; Wiberg waiver of a by-law must be pleaded.
V. Minnesota Scandinavian Belief Swett V. Antelope County Farmers
Ass'n, 73 Minn. 297, 76 N. W. 37; Mut. Ins. Co., 91 Neb. 561, 136 N. W.
Davidson v. Old People's Mut. Ben. 347.
Society, 39 Minn. 303, 1 L. R. A. 482, 66 The stockholders may waive a by-
39 N. W. 803. law requiring notice of assessments to
Mississippi. Bank of Holly Springs be published in^' a newspaper. Grand
V. Pinson, 58 Miss. 421, 38 Am. Eep. Valley Irrigation Co. v. Fruita Im-
330. provement Co.,' 37' Colo. 483, 86 Pac.
Missouri. Shartle v. Modern Broth'- 324.
erhood of America, 139 Mo. App. 433, 67 California. Underhill v. Santa
122 S. W. 1139; Laker v. Royal Fra- Barbara Land, Building & Improve-
ternal Union, 95 Mo. App. 3S3, 75 ment Co., 93 Cal. 300, 28 Pac. 1049.
S. W. 705. Massachusetts. Clark v. New Eng-
1037
§ 503] Private Cobpokations [Ch. 16
Indeed it has been held that provisions of the by-laws of a mutual

benefit society which attempt to put it beyond the power of the society
to waive compliance with the by-laws by its members are nugatory,**
and would certainly seem that the fact that a corporation does
it
waive its by-laws cannot be objected to by third persons.*®

"When the power to make by laws is vested in the stockholders or
members, and they have made by-laws for the protection of the cor-
poration, they cannot be waived by the directors or other officers of
the corporation.*" Especially does it seem to be true that the officers
of a mutual association cannot waive a by-law relating to the sub-
stance of the contract between it and its members.*^ But it has been
land Mut. Fire Ins. Co., 6 Cush. 342, his associates in their corporate capaci-
53 Am. Dec. 44. ty. See also Crowley v. A. O. H.
New Hampsliire. Currier v. Conti- Widows' & Orphans' Fund, 222
nental Life Ins. Co., 53 N. H. 538. Mass. 228, 110 N. E. 276; Brewer v.
Pennsylvania. Susquehanna Mut. Chelsea Mut. Fire Ins. Co., 14 Gray
Fire Ins. Co. v. Elkins, 124 Pa. St. (Mass.) 203, 209. And compare Lyon
484, 10Am. St. Eep. 608, 17 Atl. 24. v.Supreme Assembly of Eoyal Soe. of
Vermont. Henry v. Jackson, 37 Vt. Good Fellows, 153 Mass. 83, 26 N. B.
431. 236; Home Forum Ben. Order v. Jones,
58 Cline V. Sovereign Camp Wood- 5 Okla. 598, 50 Pac. 165.
men of World, 111 Mo. App. 601, 86 "Many hold that the
authorities
S. W. 501. See Leland v. Modern
also officers of a mutual insurance com-
Samaritans, 111 Minn. 207, 126 N. W. pany may waive provisions in the by-
728. laws which are not of the substance;
69 Supreme Lodge of Fraternal that they may waive many irregu-
Brotherhood v. Price, 27 Cal. App. 607, larities, and even waive the proof of
150 Pac. 803; Almy v. Commercial loss, and irregularities in the form of
Travelers' Ass'n, 59 Ind. App. 249, the proof. We no authorities,
find
106 N. B. 893. however, to the effect that, where the
SOMulrey v. Shawmut Mut. Fire members of a corporation themselves
Ins. Co.,4 Allen (Mass.) 116, 81 Am. adopt the by-laws and a vote of the
Dec. 689; Hale v. Mechanics* Mut. members is required to repeal or amend
Fire Ins. Co., 6 Gray (Mass.) 169, 66 them, any officer of the corporation
Am. Dec. 410. may waive any matter of substance
61 Kocher v. Supreme Council Catho- contained in such by-laws, unless
lic Benev. Legion, 65 N. J. L. 649, authorized to do so by a resolution
52 L. E. A. 861, 86 Am. St. Eep. 687, or vote of the members. This prin-
48 Atl. 544. ciple is reasonable, and its enforce-
In McCoy v. Eoman Catholic Mut. ment is necessary to the carrying out
Ins. Co., 152 Mass. 272, 25 N. E. 289, of the objects of a mutual company.
it is said that the law is well settled It is simply a recognition of the well-
that the officers of a mutual insurance established general principle that it
company cannot waive the company's requires actionby the same authority
by-laws which relate to the substance to undo a thing which did or had the
of the contract between a member and power to do it originally. Only those
1038
held that the stockholders may permit the directors or other officers
to act in disregard of such a by-law, or they may ratify their action,

and in such a case there is a waiver of the by-law by the stockholders.*^
A corporation will not be permitted to assert in an action to enforce
liability against it that the liability was incurred in contravention of
its by-laws where there has been a continued disregard of such by-laws
who can make are empowered to un- relating to his own duties; and if the
make. If even the president of a society, by its conduct, has induced
mutual corporation could waive com- him to fall into a habit of nonobserv-
pliance with one substantial require- anee of some of its requirements, it
ment of the by-laws in dealing with cannot, without warning to him of a
one member of the corporation, he change of purpose, inflict the penalty
could waive compliance with some of failure of strict observance. A
other requirement by another member. member dealing with a subordinate
He could permit one member to be ofScer of the society, knowing his
insured for a less premium than would duties to be prescribed by law, has no
be required of another member under right to rely upon the act of that offi-
the same circumstances, or he could cer, if he should attempt to waive a

credit one member a larger percent- requirement which, under the law, he
age of the net surplus than is given has no right to waive. But when he
to other members, and the element of has dealings of that kind with such
mutuality would be wholly elimi- of&cer, and those dealings are of such
nated." J. P. Lamb & Co. v. Mer- a nature as that they must pass under
chants' Nat. Mut. Fire Ins. Co., 18 N. the observation of those who have in
D. 253, 119 N. W. 1048. charge the ultimate management of
It may well be doubted whether a the company's affairs to such an ex-
subordinate lodge of a fraternal intent as to justly induce the member
surance society has the power to to believe that the practice is ap-
waive a requirement of the constitu- proved by the company itself, the
tion and laws of the supreme lodge company is estopped to take advan-
membership in the society.
relative to tage of the situation." McMahon v.
Supreme Lodge Knights & Ladies of Supreme Tent Knights of Maccabees
Honor v. Johnson, 81 Ark. 512, 99 S. of "World, 151 Mo. 522, 52 S. W. 384.
W. 834. See also Galvin v. Knights of Father'
62 Kelly V. Mobile Building & Loan Mathew, 169 Mo. App. 496, 155 8. W.
Ass'n, 64 Ala. 501; Underhill v. Santa 45.
Barbara Land, Building & Improve- "Batification [of acts of the direct-
ment Co., 93 Cal. 300, 28 Pac. 1049. ors in violation of by-laws] need not
"A member of such a [fraternal be formally made
in a meeting of the
benefit] society is presumed to know stockholders, but may be presumed
its laws, and the contract of insur- from the circumstances of the case,
ance is to be construed as having been such as long acquiescence in acts bene-
made under the limitations of those ficial to the corporation, with knowl-
laws. But a member has a right to edge of all the material facts."
look to the general conduct of the so- Underhill v. Santa Barbara Land,
ciety itself in respect of the observ- Building & Improvement Co., 93 Cal.
ance of its —particularly
laws, those 300, 28 Pac. 1049.
1039
§ 503j PeIVATE COEPOEATIONS [Cll. 16
acquiesced in by the stockholders.^* Moreover, when the board of

directors has power to adopt by-laws, it has power to waive those
adopted.**
Knowledge of the facts rendering a by-law applicable is, of course,
waiver depends solely on the inten-
essential to its waiver,*^ but since
tion of the party against whom it is invoked, knowledge by a member
of a benefit society of the waiver of a by-law by the latter is not
essential to his availing himself thereof.^®
Where an impor-
a by-law of a fraternal benefit society constitutes
tant part of the contract between the society members, the and its
waiver thereof is not to be inferred from slight evidence.*'' In any

event, the question whether there has been a waiver of a by-law is
ordinarily one of fact for the jury.*'
Vlir. AMENDMENT AND SUBSEQUENT ADOPTION
§ 504. Power in general. In treating this subject it would as a

general proposition be an unnecessary refinement to separate the
caseswhich involve the amendment, strictly speaking, of a particular
by-law and those which involve the amendment of the body of by-laws
by the adoption of one or more additional by-laws or the repeal of
one or more of those forming part of such body. For present pur-
poses no distinction need be drawn between the two kinds of amend-
ments, and vvhich kind is involved will not be noticed unless the
peculiar facts of the particular ease require it.
Even as the power to adopt by-laws is one of the incidents of
63 Blair v. Metropolitan Sav. Bank, In Shartle v. Modern Brotherhood of

27 Wash. 192, 67 Pao. 609. See also America, 139 Mo. App. 433, 122 S. W.
Salvail v. Catholic Order of Foresters, 1139, it was held that a fraternal
70 N. H. 635, 50 Atl. 100. benefit society will not be estopped
64 Bank of Holly Springs v. Pinson, to take advantage of a by-law by its
58 Miss. 421, 38 Am. Eep. 330. continued nonenforeement thereof
65 tJnderhill v. Santa Barbara Land, when it does not appear that the mem-
Building & Improvement Co., 93 Cal. ber alleging the estoppel knew of such
300, 28 Pac. 1049; Modern Woodmen nonenforeement, since unless he did
of America v. Wieland, 109 111. App. have knowledge thereof, he was not
340, 351. misled or deceived thereby.
66 Watkins v. Brotherhood of ^meri- 67 Crowley v. A. O. H. Widows ' &
can Yeomen, 188 Mo. App. 626, 176 Orphans' Fund, 222 Mass. 228, 110
S. W. 516; Galvin v. Knights of Father N. E. 276.
Mathew, 169 Mo. App. 496, 155 S. W. 68 Crowley v. A. O. H: Widows ' &
45. But see Underhill v. Santa Bar- Orphans' Fund, 222 Mass. 228 110
bara Land, Suilding & ImprovemeDt N. E. 276; Leland v. Modern Samari-
Co., 93 Cal. 300, 28 Pac. 1049. tans, 111 Minn. 207, 126 N. W. 728;
1040
corporate existence,^^ so the power to amend those adopted is inherent

in the corporation,''*' in the absence of any charter or statutory pro-
vision, express or implied, to the contrary.''^
The power of amendment is an attribute of corporate life'^ —an
incident of the power to adopf
A by-law does not ordinarily bind the corporation longer than it
chooses to be bound,'* any matter which is the proper subject of
Villmont v. Grand Grove TJ. A. O. D., Templars & Masonic Mut. Aid Ass'n,
Ill Minn. 201, 126 N. W. 730; Eeisz 134 App. Div. 736, 119 N. Y. Supp.
V. Supreme Council American Legion 515.
of Honor, 103 "Wis. 427, 429, 79 N. W. Khode Island. Supreme Council
430. Cath. Knights of America v. Morri-
69See § 484, supra. son, 16 E. L 468, 17 Atl. 57.
70United States. Peek v. Elliott, Vermont. Smith v. Nelson, 18 Vt.
79 Fed. 10, 14, 38 L. K. A. 616, rev'g 511.
Eoss-Meehan Brake Shoe Foundry Co. England. Eez v. Ashwell, 12 East
V. Southern Malleable Iron Co., 72 22; Eoyal Bank of India's Case, L. E.
Fed. 957. 4 Ch. 252.
Arkansas. W. Jones Lumber
G. Co. A majority stockholder who is re-
V. Wisarkana Lumber Co., — Ark. •
-t-, sponsible for the calling of the meet-
187 S. W. 1068. ing to amend the by-laws as per-
California. Tlnderhill v. Santa Bar- mitted by statute will not be enjoined
bara Land, Building & Improvement from voting his stock at such meet-,
Co., 93 Cal. 300, 28 Pac. 1049. ing on the ground merely that he in-
Georgia. Crittenden v. Southern tends the by-laws to be so amended
Home Building & Loan Ass'n, 111 Ga. as to prejudice the rights of the stock-
266, 36 S. E. 643. holder seeking the injunction. Lersner
Indiana. Supreme Lodge Knights v. Adair Mach. Co., 137 N. T. Supp.
of Pythias v. Knight, 117 Ind. 489, 3 565.
L. E. A. 409, 20 N. E. 479.' 71 A statute requiring a copy of the
Iowa. Fort v. Iowa Legion of Honor, by-laws to be made a part of the cer-
146 Iowa 183, 123 N. W. 224. tificate of organization issued by the
Maine. Flaherty v. Portland Long- secretary of state precludes the
shoremen 's Benev. Society, 99 Me. 253, amendment of such by-laws, and it is
59 Atl. 58. immaterial that the by-laws originally
Mississippi. Domes v. Supreme adopted provide themselves that they
Lodge Knights of Pythias, 75 Miss. may be amended. Fritze v. Equitable
466, 23 So. 191. Building & Loan Society, 186 111. 183,
Missouri. Sehriek v. St. Louis Miit. 57 N. E. 873, aff'g 83 111. App. 18.
House Bldg. 34 Mo. 423.
Co., 72 Peterson v. Gibson, 191 111. 365;
New Hampshire. Supreme Council 54 L. E. A. 836, 85 Am. St. Eep. 263,
American Legion of Honor v. Adams, • 61 N. E. 127, afE'g 92 111. App. 595.
68 N. H. 236, 44 Atl. 380. 73 Interstate Building & Loan Ass 'n
New York. Engelhardt v. Fifth V. Wooten, 113 Ga. 247, 38 S. E. 738;
Ward Permanent Dime Saving & Loan Hayes v. German Beneficial Union,
Ass'n, 148 N. Y. 281, 35 L. E. A. 289, 35 Pa. Super. Ct. 142, 147.
42 N. E. 710; Eockwell v. Knights 74Eichardson v. Union Congrega-
1041
IPriv Corp.—66
' ,
504] Pbivate Cokpobations [Ch. 16
regulation by by-law being capable of regulation from time to time

as the corporate interests demandJ* Indeed, there is authority for
the proposition that a corporation cannot bind itself not to amend its
by-laws.''® In the fact that by-laws are subject to amendment at the
will of the corporation lies one of the differences between them and
the corporation's charter/'' and there obtains the presumption that
a person who becomes a stockholder in or a member of a corporation
does so with knowledge that its by-laws may be amended^* It is not,
tional Soc. of Francestown, 58 N. H. determine upon the capital to be en-

187, 189. See also Domes v. Supreme gaged is made one of the matters for
Jjodge Knights of Pythias, 75 Miss. internal regulation by by-law. ' ' Peck
466, 23 So. 191. V. Elliott, 79 Fed. 10, 15, 38 L. E. A.
The allegation that the corporatioa 616, rev'gEoss-Meehan Brake Shoe
amended its by-laws in certain par- Foundry Co. v. Southern Malleable
ticulars is not of itself sufficient to Iron Co., 72 Fed. 957.
raise the question of the validity 76 Manufacturers ' Exhibition Bldg.
of the amendments, the amendment of Co. V. Landay, 121 111. App. 96, rev 'd
its by-laws by a corporation not on other grounds 219 111. 168, 76 N. E.
of itself being illegal. Crittenden v. 146; Smith v. Nelson, 18 Vt. 511; Mal-
Southern Home Building & Loan leson V. National Insurance & Guar-
Ass'n, 111 Ga. 266, 36 S. E. 643. antee Corporation, 70 L. T. (N. S.)
'
The minority stockholders have no
' 157.
right, vested or otherwise, which is A by-law of a religious society
infringed by the action of the majori- which prohibits the amendment of a
ty in amending the corporate by-laws; by-law prescribing a ritual or form
the method followed being regular of worship except by a unanimous
and in accordance with the provision vote of the members of the society
therefor." Eenn v. tJnited States at a meeting called for the purpose is
Cement Co., 36 Ind. App. 149, 73 N. E. unreasonajjle and inconsistent with
269. W. Jones Lumber
See also G. Co. the legal right of control
of the
V. Wisarkana Lumber Co., Ark. — — affairs of the society existing in its
187 S. W. 1068. membership. Saltman v. Nesson, 201
VBPeck V. Elliott, 79 Fed. 10, 14, Mass. 534, 88 N. E. 3.
38 L. E. A. 616, rev'g Eoss-Meehan 77 Peck V. Elliott, 79 Fed. 10, 14,
Brake Shoe Foundry Co. v. Southern 38 L. E. A. 616, rev'g Eoss-Meehan
Malleable Iron Co., 72 Fed. 957; Ful- Brake Shoe Foundry Co. v. Southern
Icnwider v. Supreme Council of Eoyal Malleable Iron Co., 72 Fed. 957.
League, 180 111. 621, 625, 72 Am. St. 78 McCallister v. Shannondale Co-
Eep. 239, 54 N. E. 485, aff'g 73 111. operative Tel. Co., 47 Ind. App. 517,
App. 321; Union Benev. Society v. 04 N. E. 910; Farmers' Mut. Hail Ins.
Martin, 113 Ky. 25, 67 S. W. 38. Ass'n v. Slattery, 115 Iowa 410, 88
'
' The rule
• * * against an im- '
N. W. 949.
plied power of increase [of capital] "Voluntary acceptance of member-
where the amount of the capital is ship in such corporation [beneficial
definitely fixed by the charter or the society or fraternal union] necessarily
statutory articles of incorporation involves and implies the assent of
has no application where the power to each member to every amendment to
1042
Ch. 16] By-Laws [§504
then, the question of the existence of thepower to amend, but rather

the question of what comprehended by and what is the scope and
is
extent of this power that presents the difficulty. Equally with the
by-laws themselves,''^ the amendments thereto must be consistent with
law, with the corporation's charter, and with reason.*' So a corpora-
tion cannot adopt amendments which impair the vested or contract
rights of its stockholders or members.'^ There is authority, however,
the by-laws the substance of which 79 Fed. 10, 14, 38 L. R. A. 616, rev'g
is the proper subject of such law, and Eoss-Meehau Brake Shoe Foundry
which has been formally and regularly Co. V. Southern Malleable Iron Co., 72
adopted. It is difficult to see how an Fed. 957.
express declaration by an applicant Alabama. Supreme Commandery
of his willingness to be bound by ex- Knights of Golden Rule v. Ainsworth,
isting by-laws and future amendments 71 Ala. 436, 46 Am. Eep. 332.
thereto can add anything to the like California. Bornstein v. District
obligation necessarily assumed in the Grand Lodge No. 4, Independent Order
act of becoming a member." Hayes B'nai B'rith, 2 Cal. App. 624, 84
V. German Beneficial Union, 35 Pa. Pac. 271.
Super. Ct. 142, 147. Georgia. Interstate Building & Loan
79
See §§ 489, 494, 495, supra. Ass'n V. Wooten, 113 Ga. 247, 38 S.
80 Bornstein v. District Grand Lodge E. 738.
No. 4, Independent Order B'uai Illinois. Peterson v. Gibson, 191
B'rith, 2 Cal. App. 624, 84 Pac. 271; 111. 365, 54 L. E. A. 836, 85 Am. St.
Crittenden v. Southern Home Build- Eep. 263, 61 N. E. 127, aff'g 92 111.
ing & Loan Ass'n, 111 Ga. 266, 36 S. App. 595; Modern Woodmen of
E. 643; Thibert v. Supreme Lodge America v. Wieland, 109 111. App. 340,
Knights of Honor, 78 Minn. 448, 47 L. 347; Covenant Mut; Life Ass'n v.
K. A. 136, 79 Am. St. Eep. 412, 81 Tuttle, 87 111. App. 309, 323; North-
N. W. 220; Kent v. Quicksilver Min. western Benev. & Mut. Aid Ass'n
Co., 78 N. Y. 159, 182. of Illinois V. Wanner, 24 111. App. 357,
While a corporation can amend its 361.
constitution and by-laws, it cannot Indiana. Supreme Lodge K. of P.
so amend them as to change its char- V. Knight, 117 Ind. 489, 3 L. E. A.
acter in a fundamental manner. Shi- 409, 20 N. E. 479.
flett V. John W. Kelly & Co., 16 6a. Iowa. Wasson v. American Patriots,
App. 91, 84 S. E. 606. 148 Iowa 142, 126 N. W. 778; Field
An amendment cannot enlarge or V. Eastern Building & Loan Ass"'n, 117
extend the powers of the corporation Iowa 185, 90 N. W. 717; Hobbs v.

beyond the scope authorized by its Iowa Mut. Ben. Ass'n, 82 Iowa 107,
charter and the general laws. Steiner 11 L. R. A. 299, 31 Am. St. Rep. 466,
V. Steiner Land & Lumber Co., 120 47 N. W. 983.
Ala. 128, 26 So. 494. Massachusetts. Attorney General v.
81 United States. Supreme Council Supreme Council A. L. H., 196 Mass.
A. L. H. V. Lippineott, 134 Fed. 824, 151, 81 N. E. 966.
825, 69 L. R. A. 803, rev'g 130 Fed. Michigan. Wheeler v, Supreme Sit-
483; Supreme Council A. L. H. v. ting of Order of Iron Hall, 110 Mich.
Black, 123 Fed. 650; Peck v. Elliott, 437, 68 N. W. 229; Startling v. Su-
1043
for the proposition that the relation sustained by a member of a

fraternal benefit society, holding a benefit certificate therein, to the
society is not strictly a contract one, and when this view is adopted,
preme Council Eoyal Templars of Odd Fellovifs' Mut. Life Ins. Co., 59
Temperance, 108 Mich. 440, 62 Am. St. Wis. 162, 18 N. W. 13.
Eep. 709, 66 N. W. 340; McLaughlin See also Baily v. British Equitable
V. Detroit & M. By. Co., 8 Mich. 100, Assur. Co., 1 Ch. 374, 385.
[1904J
102. "Though to a large extent volun-
New Jersey. Loewenthal v. Eubber tary associations are independent of
Reclaiming Co., 52 N. J. Eq. 440, 28 judicial control, when they proceed
Atl. 454. so arbitrarily as to manifestly violate
New York. Dowdall v. Supreme the private rights of their members,
Council Cath. Mut. Ben. Ass'n, 196 they are amenable to the law the same
N. T. 405, 31 L. E. A. (N. S.) 417, 89 as any other person, natural or artifi-
N. E. 1075, rev'g on another point cial. In matters of discipline and poli-
123 App. Div. 913, 108 N. Y. Supp. cy not manifestly violating private
1130; "Weber v. Supreme Tent of rights they are as supreme within
Knights of Maccabees of World, 172 their own field as a religious society.
N. Y. 490, 92 Am. St. Eep. 753, 65 N. But when they go beyond that, at-
E. 258; Kent v. Quicksilver Min. Co., tempting to nullify their contracts of
78 N. Y. 159, 182; Eockwell v. Knights insurance and to substitute others
Templars & Masonic Mut. Aid Ass'n, therefor on an entirely different plan
134 App. Div. 736, 119 N. Y. Supp 515, under the guise of changing by-laws,
distinguishing Mock v. Supreme Coun- rules, and regulations for the efS.cient
cil of Eoyal Arcanum, 121 App. Div. administration of a plan, they cross
474, 106 k. Y. Supp. 155; MoCloskey the line and enter upon a field where
V. Supreme Council American Legion the right to proceed may be success-
of Honor, 109 App. Div. 309, 96 N. Y. fully challenged before judicial tribu-
Supp. 347; Double v. Grand Lodge A. nals." Wuerfler v. Trustees of Grand
O. U. W., 66 App. Div. 323, 72 N. Y. Grove of Wis. Order of Druids, 116
Supp. 755, aif'd 172 N. Y. 665, 65 N. Wis. 19, 96 Am. St. Eep. 940, 92 N. W.
E. 1116. 433.
North. Carolina.Johnson v. Grand A
by-law making all stock common
Fountain of United Order of True constitutes a contract between the
Eeformers, 135 N. C. 385, 47 S. E. corporation and those purchasing
463. stock, and a subsequent by-law, the
Oregon. Wist v. Grand Lodge A. O. right to adopt which had not been re-
V. W., 22 Ore. 271, 29 Am. St. Eep. served, which created preferred stock
603, 29 Pac. 610. will be invalid as to a stockholder
Pennsylvania. Becker v. Berlin not assenting thereto. Kent v. Quick-
Ben. Society, 144 Pa. St. 232, 27 Am. silver Min. Co., 78 N. Y. 159, 179.
St. Eep. 624, 22 Atl. 699; Hayes v. An amendment cannot be said to
German Beneficial Union, 35 Pa. Su- impair a vested right of a member
per. Ct. 142, 149. when it is but the expression of a
Washington. Gellermann v. Atlas provision which the law read into the
Foundry & Machine Co., 45 Wash. 114, contract at its inception. Plunkett
87 Pac. 1059. V. Supreme Conclave, 105 Va. 643, 55
Wisconsin. Morrison v. Wisconsin S. E. 9. See also Supreme Command-
1044
it would, seem impossible for tlie matter of impairment of "contract"

rights to be involved in the determination of the validity of an amend-
ment to the society 's by-laws.*^
ery Knights of Golden Eule v. Ains- A member of a mutual insurance

Am. Ecp. 332.
•worth, 71 Ala. 436, 46 company may make a bonding waiver
Where a stockholder in a building of the invalidity of an amendment to
and loan assoeiaticn. duing the asso- the company's by-laws which consti-
ciation, alleges that certain amend- tutes a breach of his contract. Voss
ments to the by-laws violate his con- V. Northwestern Nat. Life Ins. Co.,
tract with the association, he muat 137 Wis. 492, 118 N. W. 212.
set out such contract with sufficient Laches may deprive a member of
fullness to enable the court to deter- a fraternal benefit society whose con-
mine whether not the allegation
or tract has been impaired by an amend-
is well founded. Crittenden v. South- ment to the society '.« by-laws of his
ern Home Building & Loan Ass'n, 111 right to rescind such contract because
Ga. 266, 36 S. E. 643. of the impairment. Supreme Council
In the absence of an express reser- A. L. H. V. McAlaruey, 135 Eed. 72,
vation by a building and loan assocja- rev'g 131 Fed. 538. See also Clymer
tion of power to amend its by-laws V. Supreme Council A. L. H., 138 Fed.
or express consent by its members to 470; Supreme Council A. L. H. v. Lip-
the making of amendments afEecting pincott, 134 Fed. 824, 69 L. E. A. 803,
their contractual rights, a change in rev'g 130 Fed. 483.
the by-laws relating to contracts be- 82 One of the and most care-
latest
tween the association and its members fully considered cases in which this
will not be given retroactive effect, question is discussed is Thomas v.
rield V. Eastern Building & Loan Knights of Maccabees of World, 85
Ass'n, 117 Iowa 185, 90 N. W. 717. Wash. 665, L. E. A. 1916 A 760, 149
The fact that the holder of a policy Pac. 7. See also Miller v. National
in a mutual insurance association was Council Knights & Ladies of Security,
present by proxy at the meeting at 69 Kan. 234, 76 Pac. 830 (setting aside
which there was adopted an amend- on rehearing writ of mandamus al-
ment to the by-laws which neither ex- lowed on former hearing, 73 Pac. 88.
pressly nor by necessary implication On the rehearing in this ease the court
applied to existing policies is not said: "The contractual relation be-
enough to charge such holder with tween the members of such [fraternal
consenting to the by-law's application beneficiary] association and the asso-
to his policy. Roach v. Farmers Mut. ' ciation should not be measured by the
Ins. Ass'n of Oconee County, 102 S. same standard or determined by the
C. 478, 86 S. E. 950. same legal principle applicable be-
Where the statute under which a tween an ordinary insurance company
fraternal benefit society was incorpo- and the holder of one of its poli-
rated expressly prohibited the amend- cies"); Shipmau v. Protected Home
ment of by-laws affecting the rights Circle, 174 N. Y. 398, 63 L. E. A. 347,
and benefits of members, amendments 67 N. E. 83, modifying 66 N. Y. App.

adopted can have prospective oper- Div. 448, 73 N. Y. Supp. 594; Hart-
ation only. Guthrie v. Supreme Tent man v. National Council, 76 Ore. 153,
Knights of Maccabees of World, 4 Cal. 147 Pac. 931. But compare with Mil-
App. 184, 87 Pac. 405. ler V. National Council, supra, the
1045
Amendments which meet with the requirements mentioned above

are valid and binding on all of those who come within the operation
of the by-laws amended.*^
opinion on rehearing in Moore v. Life 1052; Miller v. National Council

& Annuity Ass'n, 95 Kan. 591, 148 Knights & Ladies of Security, 69 Kan.
Pao. 981 (supplementary petition for 234, 76 Pao. 830, setting aside writ
rehearing denied 96 Kan. 397, 151 Pae. of mandamus allowed on former hear-
1107), in which the court, although ing, 73 Pac. 88.
following Miller v. National Council, Massachusetts. Eeynolds v. Supreme
supra, in holding valid the by-law in- Council of Eoyal Arcanum, 192 Mass.
volved, states on the authority of 150, 7 L. E. A. (N. S.) 1154, 7 Ann.
Endowment & Benevolent Ass'n v. Cas. 776, 78 N. E. 129.
State, 35 Kan. 253, 10 Pac. 872, and Mississippi. Ward v. David & Jona-
Mayes National Council Knights Sc
v. than Lodge No. 1976, Grand United
Ladies of Security, 92 Kan. 841, 142 Order of Odd Fellows in America, 90
Pac. 290, that "benefit certificates Miss. 116, 43 So. 302.
issued by fraternal associations are New York. Cunningham v. Supreme
given the same construction as any Council Eoyal Arcanum, 165 App.
contract of insurance." See also Div. 52, 151 N. Y. Supp. 83; O'Brien
Stohr v. San Francisco Musical V. Supreme Council Cath. Benev. Le-
Fund Society, 82 Cal. 557, 22 Pao. gion, 81 App. Div. 1, 80 N. Y. Supp.
1125; Euss v. Supreme Council 775, afe'd 176 N. Y. 597, 68 N. E.
American Legion of Honor, 110 La. 1120.
588, 98 Am. St. Eep. 469, 34 Texas. Supreme Euling of Frater-
So. 697; Attorney General v. Supreme nal Mystic Circle v. Ericson, Tex. —
Council American Legion of Honor, Civ. App. —
131 S. W. 92.
,
206 Mass. 180, 92 N. E. 145. "Where, by the constitution [char-

83 United States. Gaines v. Supreme ter] of a corporation, it is given
Council of Royal Arcanum, 140 Fed. power upon the amount of capi-
to fix
978. tal stock to be engaged in the business
California. Caldwell v. Grand Lodge by by-laws, an increase of capital by
of United Workmen, 148 Cal. 195, 2 an amendment of the by-law is valid,
L. E. A. (N. S.) 653, 113 Am. St. Eep. and a subscriber [to the additional
219, 7 Ann. Cas. 356, 82 Pac. 781. stock] bound." Peck v. Elliott, 79
Colorado. Head Camp Pacific Juris- Fed. 10, 16, 38 L. E. A. 616, rev'g
diction Woodmen of World v. Woods, Eoss-Meehan Brake Shoe Foundry Co.
34 Colo. 1, 81 Pac. 261. V. Southern Malleable Iron Co., 72
Connecticut. Gilmore v. Knights of Fed. 957.
Columbus, 77 Conn. 58, 107 Am. St. An amendment to the by-laws of a
Eep. 17, 1 Ann. Cas. 715, 58 Atl. 223. benefit society which reduces the age
Georgia. Crittenden v. Southern limit for admission, and provides that
Home Building & Loan Ass'n, 111 6a. all who are then members
persons
266, 36 S. E. 643. shall be exempt from the age qualifi-
Indiana. McCallister v. Shannon- cation and shall be called promoter
dale Co-operative Tel. Co., 47 Ind. members and founders, benefits only
App. 517, 94 N. E. 910. those who have been regularly ad-
Kansas. Knights of Maccabees of mitted to membership under the origi-
World V. Nelson, 77 Kan. 629, 95 Pac. nal age limit and who may otherwise
1046
Ch. 161 By-Laws [§505
§ 505. Reservation of Notwithstanding their inherent

power.
power to amend mutual and of a
their by-laws,** corporations of a
fraternal benefit character, very uniformly, in contracting with their
members, reserve the power of amendment by requiring such members
to agree, in general fashion without specification, to be bound by or
to comply with all amendments or new by-laws that may in the future
be adopted. While such reservation of power by agreement is
undoubtedly valid and binding,** the courts are in direct conflict and
hopeless confusion as to what amendments are and what are not a valid
exercise of a power reserved in such terms. Attempt to reconcile the
decisions or to justify the distinctions attempted to bedrawn as to the
scope and effect of this general reservation would be futile, and would
merely compel the conclusion that, aside from its recognition of two
or three fundamental rules, each separate decision must be regarded
as standing solely on its own merits. It is, manifestly, not open to
question that amendments which will bind the members of the associa-
tion or society may be adopted under such general reservation of
power, 86
seem to be declared ineligible there- Michigan. Highland Park Ass'n v.

by, and does not validate the fraudu- Boseker, 169 Mich. 4, 135 N. W. 106;
lent election to membership of one Wineland v. Knights of Maccabees of
who was not eligible under either age "World, 148 Mich. 608, 112 N. W. 696;
limit. Crisouolo v. Societa Monarchia Borgards v. Farmers' Mut. Ins. Co.,
Di Mutuo Soeeorso Vittoria Emanuele 79 Mieh. 440, 44 N. W. 856.
III, 89 Conn. 249, 93 Atl. 532. Mississippi'. Newman v. Supreme
The burden of proving an amend- Iiodge K. of P., 110 Miss. 371, L. B.
ment to the by-laws of a benefit so- A. 1916 C 1051, 70 So. 241.
ciety, affecting the rights of a member New Hampshire. Supreme Council
and his beneficiaries, is on the society. American Legion of Honor v. Adams,
United Moderns v. Bathbun, 104 Va. 68 N. H. 236, 44 Atl. 380,
736, 52 S. E. 552. 86 United States. Supreme Lodge
K. P. V. Mims, 241 U. S. 574, 60 L. Ed.
85Alabama. Fraternal Union of
1179, L. E. A. 1916 F 919, rev'g —
America v. Zeigler, 145 Ala. 287, 39
So. 751.
Tex. Civ. App. — , 167 S. W. 835.
Alabama. Ellison v. District Grand
Illinois. Murphy v. Nowak, 223
Lodge No. 23, 11 Ala. App. 442, 66 So.
ril. 301, 7 L. B. A. (N. S.) 393, 79
872.
N. E. 112, rev'g 127 111. App. 125;
Pierce v. Bankers' Union of World,
Georgia. Union Fraternal League
140 HI. App. 495, 500; Supreme Tent of Boston V. Johnston, 124 Ga. 902,
Knights of Maccabees v. Hammers, 53 S. E. 241.
81 111. App. 560, 567. Illinois. Apitz v. Supreme Lodge
Iowa. Norton v. Catholic Order of Knights & Ladies of Honor, 274
Foresters, 138 Iowa 464, 24 L. R. A. HI. 196, L. R. A. 1917 A 183, 113 N.
(N. S.) 1030, 114 N. W. 893. E. 63; Supreme Council Boyal
1047
,
Amendments in order to be binding must be such as are capable of

being complied with.^''
The agreement of the member to be bound by amendments and

subsequently-adopted by-laws*' must be given a reasonable construc-
tion,*^ and the amendments or new by-laws must themselyes he
reasonable in order to be binding,^"* this being just as essential in
Arcanum v. McKnight, 238 111. 349, in the association. Roach v. Farmers'

87 N. E. 299, rev'g 140 111. App. 421. Mut. Ins. Ass'n of Oconee County,
Kansas. Kirk v. Fraternal Aid 102 S. C. 478, 86 S. E. 950.
Asa'n, 95 Kan. 707, 149 Pac. 400. Amember of a benefit society,
Massachusetts. Reynolds v. Supreme agreeing to be bound by by-laws that
Council of Royal Arcanum, 192 Mass. may thereafter be enacted, is bound
150, 7 L. R. A. (N. S.) 1154, 7 Ann. by the by-laws of a merging society
Cas. 776, 78 N. E. 129. when the contract of statutory merger
Micblgan. Borgards v. Farmers* provides that such by-laws shall gov-
Mut. Ins. Co., 79 Mich. 440, 44 N. W. ern. Fairchild v. The Maccabees, 199
856. 111. App! 144.
New York. Hutchinson v. Supreme 87 Wist V. Grand Lodge A. O. U.
Tent of Knights of Maccabees of W., 22 Ore. 271, 29 Am. St. Rep. 603,
"World, 68 Hun 355, 22 N. Y. Supp. 29 Pac. 610. See also Morton v. Su-
801. preme Council of Royal League, 100
North Carolina. Faulk v. Fraternal Mo. App. 76, 73 S. W. 259; Grossmayer
Mystic Circle, 171 N. C. 301, 88 S. E. v. District No. 1 of B'nai B'rith, 70
431. N. Y. App. Div. 90, 74 N. Y. Supp.
Pennsylvania. Chambers v. Supreme 1057.
Tent of Knights of Maccabees, 200 Pa. 88 Express recognition by a member
244, 86 Am. St. Rep. 716, 49 Atl. 784, of a benevolent society of the latter 's
distinguishing Hale v. Equitable Aid power to make new by-laws which
Union, 168 Pa. St. 377, 31 Atl. 1066, shall be binding on him is necessarily
and distinguished in Wineland v. a recognition of the right to amend
Knights of Maccabees of the World, those theretofore made. Fullenwider
148 Mich. 608, 112 N. W. 696. V. Supreme Council of Royal League,
Texas. Hackler v. International 180 III. 621, 626, 72 Am. St. Bep. 239,
Travelers' Ass'n, —
Tex. Civ. App. — 54 N. E. 485, aff 'g 73 111. App. 321.
165 S. W. 44; Eversberg v. Supreme 89 Olson V. Court of Honor, 100
Tent Knights of Maccabees of World, Minn. 117, 8 L. R. A. (N. S.) 521, 117
33 Tex. Civ. App. 549, 77 S. W. 246.
Am. St. Rep. 676, 10 Ann. Cas. 622,
Washington. Klein v. Knights &
110 N. W. 374.
Ladies of Security, 79 Wash. 173, 140
90
United States. Supreme Lodge of
Pac. 72.
I'raternal Union of America v. Light,
The holder of a policy in a mutual
195 Fed. 903, 906.
fire insurance association who by the
terms of his contract recognizes the Alabama. Supreme Commandery
power to make by-laws as incident to Knights of Golden Rule v. Amsworth,
the association and agrees to be 71 Ala. 436, 46 Am. Rep. 332.
bound by the by-laws made cannot California. Bernstein v. District
question the existence of such power Grand Lodge No. 4, Independent Order
1048
Ch. 16] By-Laws [§505
the case of amendments or new by-laws as in regard to by-laws origi-

nally adopted.
B 'nai B 'rith, 2 Cal. App. 624, 84 Pae. Michigan. Highland Park Ass'n v.
271. Boseker, 169 Mich. 4, 135 N. W. 106;
Connecticut. Kane v. Knights of Samberg v. Knights of the Modern
Columbus, 84 Conn. 96, 79 Atl. 63; Maccabees, 158 Mich. 568, 571, 133
Gilmore v. Knights of Columbus, 77 Am. St. Bep. 396, 123 N. W. 25;
Conn. 58, 107 Am. St. Bep. 17, 1 Ann. Monger v. New Era Ass'n, 156 Mich.
Cas. 715, 58 Atl. 223. 645, 24 L. B. A. (N. S.) 1027, 121
lUlnols. Scow V. Supreme Council N. W. 823; Williams v. Supreme Coun-
of Eoyal League, 223 111'. 32, 79 N. E. cil of Cath. Mut. Ben. Ass'n, 152
42; Moerschbaecher v. Supreme Coun- Mich. 1, 115 N. W. 1060; Wineland v.

cil of Eoyal League, 188 111. 9, 52 L. Knights of Maccabees of World, 148
B. A. 281, 59 N. E. 17, aff'g 88 111. Mich. 608, 112 N. W. 696.
App. 89; Eullenwider v. Supreme Minnesota. Ledy v. National Coun-
Council, 180 111. 621, 72 Am. St. Bep. cil Knights & Ladies of Security, 129
239, 54 N. E. 485, aff'g 73 111. App. Minn. 137, L. E. A. 1915 D 1095, Ann,
321; Moses v. Commercial
Illinois Cas. 1916 B 486, 151 N. W. 905;
Men's Ass'n, 189 111. App. 440, 447; Elakne v. Minnesota Farmers' Mut.
Smith V. Mutual Eeserve Eund Life Ins. Co., 105 Minn. 479, 117 N. W.
Ass'n, 140 HI. App. 409, 417; Grand 785; Tebo v. Supreme Council of
Lodge Ancient Order United Work- Boyal Arcanum, 89 Minn. 3, 93 N. W.
men V. Oetzel, 139 111. App. 4, 6; Theo- 513; Thibert v. Supreme Lodge
rell V. Supreme Court of Honor of Knights of Honor, 78 Minn. 448, 47
Springfield, 115 HI. App. 313, 317; Su- L. E. A. 136, 79 Am. St. Bep. 412, 81
preme Tent Knights of Maccabees v. N. W. 220.
Hammers, 81 111. App. 560, 567. ITebraska. Lange v. Boyal High-
Iowa. TTry v. Modern Woodmen of landers, 75 Neb. 188, 10 L. B. A. (N,
America, 149 Iowa 706, 127 N. W. 665; S.) 666, 121 Am. St. Bep. 786, 110
Boss V. Modern Brotherhood of N. W. 1110, 106 N.- W. 224; Hall v
America, 120 Iowa 692, 95 N. W. 207. Western Travelers' Ace. Ass'n, 69
Kansas. Bass v. Life & Annuity Neb. 601, 96 N. W. 170.
Ass'n, 96 Kan. 398, 151 Pac. 1117, 96 New Hampshire. Supreme Council
Kan. 205, 150 Pac. 588; Moore v. Life American Legion of Honor v. Adams,
& Annuity Ass'n, 95 Kan. 591, 148 68 N. H. 236, 44 Atl. 380.
Pac. 981, overruling former opinion New Jersey. Sautter v. Supreme
93 Kan. 398, 148 Pac. 981; Knights Conclave Improved Order of Hepta-
of Maccabees of World v. Nelson, 77 sophs, 76 N. J. L. 763, 71 Atl.' 232,
Kan. 629, 95 Pac. 1052. afE'g 72 N. J. L. 325, 62 Atl. 529;
Maryland. Eoyal Arcanum v. Vitz- Strang v. Camden Lodge A. O. XJ. W.
thum, 128 Md. 523, L. B. A. 1917 A of New Jersey, 73 N. J. L. 500, 64
179, 97 Atl. 923; Arnold v. Supreme Atl. 93.
Conclave Improved Order of Hep- New York. Kent v. Quicksilver
tasophs, 123 Md. 675, 91 Atl. 829; Su- Min. Co., 78 N. T. 159, 182; Evans v.
preme Conclave Improved Order of Southern Tier Masonic Belief Ass'n,
Heptasophs v. Eehan, 119 Md. 92, 46 76 App. Div. 151, 78 N. Y. Supp. 611;
L. E. A. (N. S.) 308, Ann. Cas. 1914 D Grossmayer v. District No. 1, Inde-
58, 85 Atl. 1035; Mathieu v. Mathieu, pendent Order of B'nai B'rith, 70
112 Md. 625, 77 Atl. 112. App. Div. 90, 74 N. Y. Supp. 1057;
1049
§505] Pkivate Coepokations [Ck 16
Good faith in its adoption will not alone sustain an amendment.^^

It is settled that a broad general power reserved to alter, amend
or repeal by-laws confers no authority to make an amendment which
will amount to the destruction or impairment of the vested or contract
rights of the member.'^ Not even a statute expressly authorizing
Weiler v. Equitable Aid Union, 92 America v. Zeigler, 145 Ala. 287, 39

Hun 277, 36 N. T. Supp. 734; M 'Cle- So. 751.
ment V. Supreme Court I. O. F., 88 Arkansas. Eminent Household of
Misc. 475, 152 N. Y. Supp. 136, rev'd Columbian Woodmen v. Hewitt, 122
on another point 169 App. Div. 77, Ark. 480, 184 S. W. 52.
154 N. T. Supp. 700; Grafstrom v. California. Eomstein v. District
Frost Council No. 21, 19 Mise. 180, Grand Lodge No. Independent Order
4,
43 N. Y. Supp. 266. B'nai B'rith, 2 Cal. App. 624, 84
Texas. Eaton v. International Trav- Pac. 271. See also Schack v. Supreme
elers' Ass'n of Dallas, —
Tex. Civ. Lodge of Fraternal Brotherhood, 9
App. —
, 136 S. W. 817. Cal. App. 584, 99 Pac. 989.
Wisconsin. Schmidt v. Supreme Connecticut.Kane v. Knights of
Tent Knights of Maccabees of World, Columbus, 84 Conn. 96, 79 Atl. 63.
97 Wis. 528, 73 N. W. 22. Iowa. Jordan v. Iowa Mut. Tornado
' What are to be deemed reasonable Ins. Co., 151 Iowa 73, Ann. Cas. 1913 A
'
[by-laws within a benefit association 's 266, 130 N. W. 177; Fort v. Iowa Le-
reserved power], depends on the ob- gion of Honor, 146 Iowa 183, 123 N.
jects and purposes of the society." W. 224.
Weiler v. Equitable Aid Union, 92 Daughtry v. Knights of
Louisiana.
Hun (N. Y.) 277, 36 N. Y. Supp. 734. Pythias, 48 La. Ann. 1203, 55 Am. St.
The reasonableness of an after- Eep. 310, 20 So. 712. See also Euss
adopted by-law, depending as it does v. Supreme Council American Legion
on particular circumstances or mat- of Honor, 110 La. 588, 98 Am. St. Eep.
ters in pais, is a question for the jury. 469, 34 So. 697.
Highland Park Ass'n v. Boseker, 169 Maryland, Supreme Conclave Im-
Mich. 4, 135 N. W. 106. proved Order of Heptasophs v. Eehan,
But see § 495, supra. 119 Md. 92, 46 L. E. A. (N. S.) 308,
91 '
' Whatever compliance with Ann. Cas. 1914 D 58, 85 Atl. 1035.
[after-adopted] by-laws may be con- Massachusetts. Newhall v. Supreme
strued to mean, it does not mean abso- Council American Legion of Honor,
lute submission to whatever may be 181 Mass. Ill, 63 N. E. 1; Messer v.
enacted in good faith * * *. " New- Grand Lodge A. O. U. W., 180 Mass.
hall V. Supreme Council American Le- 321, 62 N. E. 252. See also Attorney
gion of Honor, 181 Mass. Ill, 63 N. E. General v. Supreme Council American
1. See also Flakne v. Minnesota Farm- Legion of Honor, 206 Mass. 158, 92 N.
ers ' Mut. Ins. Co., 105 Minn. 479, 117 E. 136; Porter v. Supreme Council
N. W. 785. American Legion of Honor,, 183 Mass.
92 United States. Smythe v. Su- 326, 67 N. E. 238.
preme Lodge K. P., 198 Fed. 967, 980, Michigan. Monger v. New Era
Supreme Council
aff'd 220 Fed. 438; Ass'n, 156 Mich. 645, 24 L. E. A. (N.
American Legion of Honor v. Getz, 8.) 1027, 121 N. W. 823; Kern v.
112 Fed. 119, 121, afE'g 109 Fed. 261. Arbeiter Unterstuetzungs Verein, 139
Alabama. Fraternal Union of Mich. 233, 102 N. W. 746.
1050
Ch. 16] By-Laws [§ 505
the amendment of by-laws authorizes the adoption of an amendment
Minnesota. Flakne v. Kinnesota App. Div. 883, 112 N. Y. Supp. 1150,

Farmers Mut. Ins. Co., 105 Minn. 479,
' 196 N. Y. 391, 31 L. E. A. (N. S.)
117 N. W. 785. 423, 134 Am. St. Eep. 838, 89
Missouri. Modern
Mathews v. N. E. 1078; A^yera v. Grand
Woodmen of America, 236 Mo. 326, Lodge A. O. TJ. W. State of New
Ann. Cas. 1912 D 483, 139 8. W. 151; York, 188 N. Y. 280, 80 N. E.
Umbarger v. Supreme Council of 1020, aff'g 109 App. Div. 919, 95
Eoyal League (Mo. App.), 118 N. Y. Supp. 1112, distinguished in
S. W. 1199 (mem. dec.) Smail v. Court
; Shipman v. Protected Home Circle,
of Honor, 136 Mo. App. 434, 117 S. W. 174 N. Y. 398, 63 L. E. A. 347, 67 N. E.
116; Wilcox V. Court of Honor, 134 83, 84, modifying 66 App. Div. 448,
Mo. App. 547, 114 S. W. 1155; Toung 73 N. Y. Supp. 594; Langan v. Su-
V. Bailway Mail Ass'n, 126 Mo. App. preme Council American Legion of
325, 103 S. W. 557; Zimmermann v. Su- Honor, 174 N. Y. 266, 66 N. E. 932;
preme Tent of Knights of Maccabees Kent V. Quicksilver Min. Co., 78 N. Y.
of World, 122 Mo. App. 591, 99 S. W. 159; Stewart v. Thorburn, — App.
817; Sisson v. Supreme Court of Div. —
, 157 N. Y. Supp. 242; Mock v.
Honor, 104 Mo. App. 54, 78 S. W. 297; Supreme Council of Eoyal Arcanum,
Campbell v. American Ben. Club Fra- 121 App. Div. 474, 106 N. Y. Supp.
ternity, 100 Mo. App. 249, 73 S. W. 155; MoCloskey v. Supreme Council
342; Morton v. Supreme Council of American Legion of Honor, 109 App.
Eoyal League, 100 Mo. App. 76, 73 S. Div. 309, 96 N. Y. Supp. 347; Butler
W. 259. See also Lewine v. Supreme V. Supreme Council American Legion
Lodge Knights of Pythias of World, of Honor, 105 App. Div. 164, 93 N.
122 Mo. App. 547, 99 S. W. 821 (said Y. Supp. 1012; Smith v. Supreme
in Dessauer v. Supreme Tent, 191 Mo. Council A. L. H., 94 App. Div. 357,
App. 76, 176 S. W. 461 [certified to 88 N. Y. Supp. 44; Williams v. Su-
state supreme court] to have been preme Council American Legion of
overruled in Claudy v. Eoyal League, Honor, 80 App. Div. 402, 80 N. Y.
259 Mo. 92, 168 S. W. 593); Pearson Supp. 713; French v. New York Mer-
V. Knight Templars' & Masons' In- cantile Exchange, 80 App. Div. 131,
demnity Ins. Co., 114 Mo. App. 283, 80 N. Y. Supp. 312; Farmers' Loan &
S9 S. W. 588. Trust Co. V. Aberle, 19 App. Div. 79,
New Jersey.Sautter v. Supreme 46 N. Y. Supp. 10, modifying 18 Misc.
Conclave Improved Order of Hepta- 257, 41 N. Y. Supp. 638; M'Clement
sophs, 76 N. J. L. 763, 71 Atl. 232, 233, v. Supreme Court I. O. P., 88 Misc.
afE'g 72 N. J. L. 325, 62 Atl. 529; 475, 152 N. Y. Supp. 136, rev'd on
Strang v. Camden Lodge A. O. U. another point 169 App. Div. 77, 154
W. of New Jersey, 73 N. J. L. 500, N. Y. Supp. 700; Heath v. New York
64 Atl. 93. Safety Eeserve Fund, 69 Misc. 452,
New York. Green v. Supreme 125 N. Y. Supp 852; Gienty v.
Council of Eoyal Arcanum, 206 N. T. Knights of Columbus, 55 Misc. 98, 105
591, 100 N. E. 411, rev'd on another N. Y. Supp. 244, aff'd 126 App. Div.
point 237 V. S. 531, 59 L. Ed. 1089, 934, 110 N. Y. Supp. 1129; Bottjer v.
L. E. A. 1916 A 771; Wright v. Supreme Council American Legion of
Knights of Maccabees of World, 197 Honor, 37 Mjsc. 406, 75 N. Y. Supp.
N. T. 613, 91 N. E. 1122, rev'g 128 805, aff'd 78 App. Div. 546, 79 N. Y.
1051
§ 505] Pkivate Cokpoeations [Ch. 16
which impairs the obligation of a member's contract, and this, if for
Supp. 684; Langan v. Amsrican Le- thereby destroy rights of its members,
gion of Honor, 34 Misc. 629, 70 N. Y. where it merely changes the methods
Supp. 663; Green v. Supreme Council of business procedure. Messer v.

of Eoyal Areanum, 124 N. Y. Supp. Grand Lodge A. O. U. "W., 180 Mass.
398. See also Evans v. Southern Tier 321, 62 N. B. 252.
Masonic Belief Ass'n, 182 N. Y. 453, Where the benefit certificate pro-
75 N. B. 317; Lewin v. Koerner Benev. vides that the insured shall be bound
Ass'n, 125 App. Div. 91, 109 N. Y. by by-laws thereafter adopted, he will
Supp. 101; Cipriano v. Societa San be bound by any subsequently adopted
Salvatore, 94 Misc. 130, 157 N. Y. by-law which merely works a change
Supp. 467; Lewin v. Koerner Benev. in a matter of detail deemed neces-
Ass'n, 60 Misc. 576, 112 N. Y. Supp. sary or advisable to carry out the
508, aff'd 131 App. Div. 922, 115 N. fundamental principle or plan of in-
Y. Supp. 1128. surance, and not a change in a sub-
Ohio. Tisch v. Protected Home stantial part of the plan itself or a
Circle, 72 Ohio St. 233, 74 N. E. 188. nullification of any substantial part
Pennsylvania. Palmer v. Protected of the existing contract of insurance.
Home Circle, 252 Pa. 201, 97 Atl. 188; Dean v. Dean, 162 Wis. 303, 156 N. W.
Hale v. Equitable Aid Union, 168 Pa. 135; Curtis v. Modern Woodmen of
St. 377, 31 Atl. 1066; Hayes v. Ger- America, 159 Wis. 303, 150 N. W. 417.
man Beneficial Union, 35 Pa. Super. See also Jaeger v. Grand Lodge of
Ct. 142, 148. Order of Hermann's Sons, 149 Wis.
Tennessee. See Conner v. Supreme 354, 39 L. E. A. (N. S.) 494, 135 N. W.
Commandery Golden Cross, 117 Tenn. 869; Wuerfler v. Trustees of Grand
549, 97 S. W. 306. Grove of Wis. Order of Druids, 116
Texas. Supreme Ruling of Frater- Wis. 19, 96 Am. St. Eep. 940, 92 N.
nal Mystic Circle v. Ericson, — Tex. W. 433.
Civ. App. —131 S. W. 92; Supreme
, Acorporation which has laid out its
Council A. L. H. v. Batte, 34 Tex. land into streets and lots for homes,
Civ. App. 456, 79 S. "W. 629. See also and made perpetual leases of the lots
United Benev. Ass'n v. Cass, 54 Tex. to the occupants of the dwellings
Civ. App. 628, 119 S. "W. 123. thereon, without any other restriction
Virginia. Plunkett v. Supreme Con- than that they are subject to "such
clave, 105 Va. 643, 55 S. E. 9. rules and regulations as the associa-
"Compliance with future by-laws tion may from time to time adopt,"
has reference to such by-laws as may cannot subsequently, for revenue pur-
be adopted at some future time per- jposes, impose a license tax upon per-
taining to the duties of the members sons visiting the occupants to obtain
but cannot affect the rights granted orders for family supplies, etc. North-
such members by virtue of the con- port Wesleyau Grove Campmeeting
tract of insurance." Court of Honor Ass'n V. Perkins, 93 Me. 235, 48 L. R.
v. Eausch, 50 Ind. App. 161, 95 N. E. A. 272, 74 Am. St. Edp. 342, 44 Atl.
1018, distinguishing Supreme Lodge 893.
Knights of Pythias v. Knight, 117 A reservation of power does not au-
Ind. 489, 20 N. E. 479. thorize the adoption of a by-law
A by-law will not be held to defeat depriving a member of a statutory
the purposes of the organization, and right. Eaton v. International Travel-
1052
Ch. 16] By-Laws l[§ 505
no other reason than that it cannot, do so under the Federal Constitu-

tion.^'
era' Ass'n of Dallas, — Tex. Civ. in a foreign state, under the full faith
App. — ,W. 817.
136 S. and credit clause of the Federal Con-
An amendment to the by-laws of a stitution,on the question of the im-
benefit association, under "the associa- pairment by such amendment of the
tion's reserved power, may be bind- contract rights of a member of a sub-
ing on -a member although his vested ordinate council of the society located
rights are impaired thereby, where in the latter state. Supreme Council
after its adoption he assents thereto. of Royal Arcanum v. Green, 237 U. S.
Allen V. Merrimack County Odd Fel- 531, 59 L. Ed. 1089, L. R. A. 1916 A
lows' Mut. Belief Asa'n, 72 N. H. 771, rev'g 206 N. Y. 591, 100 N. E.
525, 57 Atl. 922. 411.
The validity amendment
of an In Campbell v.American Ben. Club
affecting the contract rights of mem- Fraternity, 100 Mo. App. 249, 73 S. W.
bers must be determined according to 342, it was held that decisions of the
the law of the covfhtry in which the supreme court of the state in which
corporation was chartered. McCle- a deceased became a member of a
ment Supreme Court I. O. F., 169
v. foreign fraternal benefit organization
N. Y. App. Div. 77, 154 N. Y. Supp. which hold that a reserved power of
700, rev'g 88 N. Y. Misc. 475, 152 N. amendment authorizes an amendment
Y. Supp. 136. altering the contracts of the corpora-
See also Simmelink v. Supreme tion 's members be followed in
will not
Court of Independent Order of For- an action Missouri on the de-
in
esters, 162 N. Y. App. Div. 934, 147 ceased's certificate, the rule in the
N. Y. Supp. 1141, afE'd; 152 N. Y. App. latter state, as laid down by the
Div. 892, 136 N. Y. Supp. 527 (mem. courts, being to the contrary.
dec). Contra, see the opinion of the A member of a fraternal benefit so-
lower court (88 N. Y. Misc. 475, 152 ciety who agrees to be bound by after-
N. Y. Supp. 136) in 'McClement v. adopted by-laws is entitled to the
Supreme Court, I. O. F., supra, and the benefit of an amendment which
strong dissenting opinion of Spring, changes the society's contract in a
J., in Simmelink v. Supreme Court I. manner favorable to him. Woodmen
O. F., 152 N". Y. App. Div. 892, 136 of World, Sovereign Camp v.
the
N. Y. Supp. 527, rev'g 71 N. Y. Misc. Woodruff, 80 Miss. 546, 32 So. 4.
535, 130 N. Y. Supp. 803. See also 93 Interstate Building & Loan Ass 'n
Supreme Council of American Legion V. Wooten, 113 Ga. 247, 38 S. E. 738.

of Honor v. Getz, 112 Fed. 119, 121, See also Pokrefky v. Detroit Fire-
aff'g 109 Fed. 261. men's Fund Asa'n, 121 Mich. 456, 80
When the supreme court of the state N. W. 240.
in which a fraternal benefit society Although a statute requiring any
was chartered has decided (Reynolds by-laws of a fraternal benefit society
V. Supreme Council of Eoyal Arcanum, which are referred to in a mfember-
192 Mass. 150, 7 L. E. A. [N. S.] 1154, ship certificate, "hereafter issued,"
7 Ann. Cas. 776, 78 N. B. 129) that to appear in or be attached to the
an amendment to the society 's by-laws certificate in order for them to be
does not impair the contract rights of admissible in evidence or be consid-

members, such judgment is conclusive ered as part of the contract, be
1053
,§505], Private Coepoeations [Ch. 16
iWhether vested or contract rights such as will be protected

from destruction or impairment are possible when tiiere has been
even a mere general reservation of power to amend the by-laws or
to adopt new by-laws, and, provided they are, what amendments or
subsequent by-laws constitute their destruction or impairment, are
altogether different questions, and questions which have been answered
in various and widely different ways.^* No less an authority than
the Supreme Court of the United States has taken the view that an
agreement by a member of a mutual insurance society to abide by,
observe and adhere to after-adopted by-laws was broad enough to
make binding on such member a subsequent by-law which altered his
contract.'* On the other hand, the New York Court of Appeals, in
construed as including a by-law, mate- preme Lodge K. of P., 110 Miss. 371,
rially altering the contract of insur- L. E. A. 1916 C 1051, 70 So. 241.
ance, which was adopted after the 95 Regarding the agreement of a
issuance of a certificate in which it is member of a mutual fire assurance so-
recited that the Insured agrees to be ciety to abide by, observe and adhere
controlled by all by-laws that should to the constitution, rules and regula-
subsequently be adopted, it is not for tions which were already established,
that reason unconstitutional as impair- or might thereafter be established by
ing the contract obligation. Supreme a majority of the insured present in
Lodge Knights of Pythias v. Hunzi- person, or by representatives, or by
ker, 121 Ky. 33, 27 Ky. L. Eep. 201, 87 a majority of the property insured,
S. W. 1134. See also Supreme Coun- Represented either by the persons
cil Cath. Knights of America v. Fen- themselves or their proxies, duly au-
wick, 169 Ky. 269, 183 S. W. 906; thorized, or their deputies, as estab-
Hunziker v. Supreme Lodge K. of P., lishedby law, at any general meeting
25 Ky. L. Rep. 1510, 78 S. "W. 201. held by the society or which were
94 '
' The rule is well established that or might thereafter be established by
such an association or corporation, the president and directors of the so-
under the reserved power to amend ciety, such court, in an early case,
its laws, whether the power be re- said: "It would be difficult to find
served in the constitution and laws words of more extensive signification
or in its contracts with its members, than these, or better calculated to
may amend its laws as to bind its
so
aid, explain, and enforce the general
principle, that the majority of a cor-
members and affect their pre-existing
porate body must have power to bind
contracts, provided the amendment be
its individuals. It is true that the
reasonable, does not impair vested
words of this declaration, as well as
rights, or radically alter its contracts
the general power of a corporate body,
with its members. As to what is a must be restricted by the nature and
reasonable amendment, or an impair- object of its institution; but apply
ment of vested rights, or to what ex- this rule to the case before us, and it
tent the amendment may alter pre- cannot avail the plaintiffs, for * » *
existing contracts, the decisions are the alteration made in its constitution
in direct conflict." Newman v. Su- [under statutory authority whereby
1054
Ch. 16] By-Laws [§505
a case decided a number of years later, expressed itself as opposed

to the idea that human language was strong enough to place it in
the plaintiffs' premium, was in- bound by such amendments, i£ reason-

creased], under a vote of the majori- able and valid, as fully as if the same
^7, * * * [is] strictly conform- were recited at length over the sig-
able to the general objects for which natures to the application and policy.
the company was instituted." Korn Moses V. Illinois Commercial Men's
V. Mutual Assur. Society, 6 Cranch. Ass'n, 189 111. App. 440, 447.
(TJ. S.) 192, 3 L. Ed. 195. See also '

In his application Smith certified
' ,
Mutual Assur. Society v. Korn, 7 that he had read the constitution. As

Crauc-h (U. S.) 396, 3 L. Ed. 383. already stated, the constitution pro-
"Where the contract [of a member vided how amendments might be
of a benevolent society] contains an adopted. Benefits were restricted to
express provision reserving the right members in good standing, which was
to amend or change by-laws it cannot defined as consisting of paying, all
be doubted that the society has the dues and 'faithfully observing the
right so to do, and where, in a certifi- laws, rules, commands, and regula-
cate of membership, it is provided tions that are now in force or that
that members shall be bound by the may be added to this constitution, by-
rules and regulations now governing laws, and rules.' In taking the obli-
the council and fund or that may gation of membership (without which
thereafter be enacted for such govern- admittance was impossible) Smith
ment, and those conditions are as- agreed in writing 'to abide by the
sented to and the member accepts the constitution as it now is or may be
certificate under the conditions pro- hereafter amended.' Defendant in
vided therein, it is a sufficient reser- error insists that the promise 'to ob-
vation of the right in the society to serve' and 'to abide by' amendments
amend or change its by-laws." Pul- related only to disciplinary and social
lenwider v. Supreme Council of Royal regulations and not to the indemnity
League, 180 HI. 621, 72 Am. St. Eep. contract. As and so-
to disciplinary
239, 54 N. E. 485, aff'g 73 111. App. a reservation of power
cial regulations
321. See also Supreme Council Royal to amend was not needed. If a con-
Arcanum v. McKnight, 238 111. 349, sent to amendment is exacted, it
87 N. E. 299, rev'g 140 111. App. 421; should be attributed to the matter in
Theorell v. Supreme Court of Honor respect to which consent is necessary.
of Springfield, 115 111. App. 313, 317; 'To observe' and 'to abide by' mean
Covenant Mut. Life Ass'n v. Tuttle, 'to obey' and 'to accept the conse-
87 111. App. 309, 323. quences of.' It is to be noted that
Where, by the terms of a policy of these verbs define the agreement of
insurance and the application therefor, members not only to 'amendments,'
each and all of the provisions of the but also to the '
constitution as it now
by-laws of the association, and all of is.' So, if these verbs are given
a
the provisions of any and all amend- meaning under which Smith never
ments, alterations and new issues of agreed to be bound by the amend-
the by-laws subsequently adopted be- ments, by the same token he never
come part of the contract of insur- agreed to be bound by anything, and
ance,the insured and any and all therefore a mutually binding contract
beneficiaries under the policy are was never entered into by and between
1055
the power of one of the parties to a contract to change the contract

in whatever respect he might choose.'*
him and the order. If they are troad of Maccabees v. Hammers, 81 HI. App.
enough to express Smith 's engagement 5,60, 567.
that indemnity to him or his named An amendment of by-laws which
96 '
'
beneficiary should be measured by the form part of a contract is an amend-

constitution as it read when he joined, ment of the contract itself, and, when
that same meaning necessarily ex- such a power is reserved in general
presses his engagement that indemnity terms, the parties do not mean, as
to him or his named beneficiary should [so] the courts hold, that the contract
be measured by amendments legally is subject to change in any essential
adopted." Order of United Commer- particular at the election of the one
cial Travelers of America v. Smith, in whose favor the reservation is
192 Fed. 102, 104. made. It would be not reasonable and

The right to modify a member's hence not within their contemplation,
contract by after-adopted by-laws at least in the absence of stipulations
must be reserved in the contract itself. clearly specifying the subjects to be
Kaemmerer v. Kaemmerer, 231 111. affected, that one party should have
154, 83 N. E. 133, aff'g 137 111. App. the right to make a radical change in
28.' the contract, or one that would reduce
The fact that a member of a mutual its pecuniary value to the other. A
aid association agrees to comply with contract which authorizes one party to
the constitution thereof which pro- change it in any respect that he
vides that it may
be amended and chooses would in eSect be binding
changed at the association's annual upon the other party only and would
meeting by a majority of two-thirds leave him at the mercy of the for-
of all the members present cannot be mer, and we have said that human
construed as an assent to .the adoption language is not strong enough to
of a by-law devesting him of a vested place a person in that situation.
right and impairing the obligation of * * * While the defendant may
his contract. Peterson v. Gibson, 191 doubtless so amend its by-laws, for
III. 365, 54 L. E. A. 836, 85 Am. St. instance, as to make reasonable
Rep. 263, 61 N. E. 127, aff'g 92 111. changes in the methods of administra-
App. 595. See also Fort v. Iowa Le- tion, the manner of conducting its
gion of Honor, 146 Iowa 183, 123 N. business, and the like, no change can
"W. 224. Compare, however. Interstate be made which will deprive a member
Building & Loan Ass 'n v. Haf ter, 76 of a substantial right conferred ex-
Miss. 770, 24 So. 871, in which it is pressly or impliedly by the contract
held that the existence of a by-law itself. That is beyond the power of
of a building and loan association at the legislature as well as the associa-
the time a person becomes a member tion, for the obligation of every con-
thereof which provides for the amend- tract is protected from state inter-
ment of the by-laws is a consent on ference by the Federal Constitution,
the part of such person to their art. 1, §10." Ayers v. Grand Lodge
amendment, provided it be made be- A. O. U. W. State of New York, 188
fore any notice of withdrawal is N. Y. 280, 80 N. E. 1020 (distinguished
given. See also, in connection with in Donnelly v. Supreme Council Cath.
this last case. Supreme Tent Knights Benev. Legion, 106 Md. 425, 124 Am.
1056
It has been said that a general reservation of power is an answer to
St. Eep. 499, 67 Atl. 276), aff'g 109 from which it derives its existence has
N. Y. App. Div. 919, 95 N. Y. Supp. no competency, by laws of its own
1112. enactment, to disturb or destroy rights
The assent of a stockholder in a which it has created, or to impair the
moneyed corporation, to the adoption obligation of contracts, or change the
of a by-law impairing his vested responsibility to its members, or to
rights will not be presumed. March draw them into new and distinct rela-
V. Fairmount dreamery Ass'n, 32 Pa. tions. " Sieverts v. National Benev.
Super. Ct. 517, 520. Ass'n, 95 Iowa 710, 64 N. W. 671.
A fraternal benefit society has the "It is gravely to be doubted that
burden of proving the consent of a the framers of the by-law [providing
member to the alteration of his eon- that 'amendments to these by-laws
tract by an amendment or after- may be made by the board of directors
adopted by-law. Bragaw v. Supreme by a majority vote'] * * *which
Lodge Knights & Ladies of Honor, is now relied on as amounting to
128 N. C. 354, 54 L. B. A. 602, 38 S. E. an express reservation by the asso-
905. See also Johnson v. Grand Foun- ciation of power to effect changes in
tain of United Order of True Eef orm- the plan originally adopted as that
ers, 135 N. 0. 385, 47 S. E. 463. upon which its business should be con-
A member of a building and loan as- ducted, even remotely contemplated
sociation will not be bound by an that this by-law would ever be so con-
amendment to the association's by- strued. The more reasonable inter-
laws which alters his contract, by pretation of it would seem to be that
reason of his acceptance of a certifi- its real purpose was simply to pro-
cate which makes part of the con- vide that whatever power the associa-
tract the by-laws "printed upon the tion might have to make 'amend-
'
front and back of, attached to,
'
' ' ments* to its by-laws should reside
and indorsed" on the certificate, it in its board of directors, and be ex-
being the by-laws then existing and ercised by the members of that body,
indorsed in extenso on the certificate rather than' by others of its officers, or
which thereunder enter into and form by its stockholders. To otherwise in-
a part of the contract, and no power terpret this by-law would 'be to sub-
to modify the contract by an amend- ject it to censure as presenting a
ment being reserved thereby. Field countenance far from ingenuous. Its
V.Eastern Building & Loan Ass'n, 117 bare recital that 'amendments' to the
Iowa 185, 90 N. "W. 717. by-laws might be made by the board
The agreement of a member of an of directors was hardly calculated to
assessment life insurance association convey notice to persons of ordinafy
"to conform to all the lawful regula- intelligence that the association there-
tions and by-laws made for govern- by sought to reserve to itself power
ment of" the association does not to wholly dismember or totally de-
constitute "an agreement to be bound stroy its existing by-laws by way of
by any change which might be made radical alteration, absolute repeal, or
in his contractual rights after the is- the adoption of new by-laws of an
suance of the certificate. It has fre- altogether different character." In-
quently been held that a corporation terstate Building & Loan Ass'n v.
has no authority, as the legislature "Wooten, 113 Ga. 247, 38 S. E. 738.
1057
I Priv. Corp. —67
the claim of impairment of contract;^'' that a member of a benevo-

lent society who agrees to be bound by by-laws subsequently adopted
has no vested right to have the contract in his certificate remain
unchanged ^* that a change in the by-laws can never destroy vested
;
rights because the contract itself provides that there shall be no vested
rights,'^ and that an amendment, even though it alters the contract,
97Loeffler v. Modern "Woodmen of vided, it could not be changed without
America, 100 Wis. 79, 75 N. W. 1012. the consent of all the parties. But
98 PuUe'nwider v. Supreme Council of here the contract itself does provide
Eoyal League, 180 111. 621, 72 Am. St. otherwise. Under the averments of
Eep. 239, 54 N. E. 485, afC'g 73 III. the second defense there is an express
App. 321. See also Head Camp Pacific provision that the by-laws may be
Jurisdiction Woodmen of World v. changed; and we do not consider the
Woods, 34 Colo. 1, 81 Pac. 261; Su- second defense to be different from
preme Council Eoyal Arcanum v. Me- the first in legal effect, for the law
Knight, 238 HI. 349, 87 N. E. 299, provides that the by-laws may be
rev'g 140 111. App. 421; Kaemmerer changed. This provision must be held
V. Kaemmerer, 231 111. 154, 83 N. E. to enter into and form a part of the
133, afe'g 137 111. App. 28; Baldwin contract, and in legal effect it is as
V. Begley, 185 111. 180, 56 N. E. 1065, potent as the express provision of the
rev'g 84 111. App. 674, distingfuishing second defense. The latter is but
Voigt V. Kersten, 164 111. 314, 45 N. E. the expression of what the law pro-
543, afE'g 61 111. App. 42; Theorell v. vides. In view of this power to alter
Supreme Court of Honor of Spring- the contract, it cannot be said that
field, 115 111. App. 313, 317; Faso v. La the defendant could not alter its by-
Cerdese Commodore Vito La Mantia laws in any respect. The respondent
Society, 93 N. Y. Misc. 163, 156 N. argues, however, that it had no power
Y. Supp. 1090; People v. Grand Lodge to alter them so as to impair a vested
A. O. U. W., 32 N. Y. Misc. 528, 67 N. light. This must be conceded, but we
Y. Supp. 330; Wuerfler v. Grand Grove do not think that the new by-law pur-
of Wisconsin Order of Druids, 116 ported to impair a vested right. The
Wis. 19, 96 Am. St. Eep. 940, 92 N. W. term 'vested right' is often loosely
433. used. In one sense every right is
99 Norton v. Catholic Order of For- vested. If a man has a right at all,
esters, 138 Iowa 464, 24 L. E. A. (N. it must be vested in him; otherwise,
S.) 1030, 114 N. W. 893. how could it be a right? The moment
"It iscontended for the respondent a contract is made, a right is vested
that the by-law giving a right to bene- in each party to have it remain un-
fits constituted a contract which could altered, and to have it performed.
not be changed, and the question pre- The term, however, frequently used
is
sented is whether the defendant had to designate a right which has become
power to change said by-law in the so fixed that it is not subject to be
way it did. Undoubtedly when the divested without the consent of the
plaintiff complied with what was owner, as contradistinguished from
required of him as a member, the by- rights which are subject to be di-
laws constituted a contract; and un- vested without his consent. Now a
less the contract itself otherwise pro- right, whether it be of such a fixed
1058
Ch. 16] By-Laws [§ 505
is in accordance therewith, and cannot be held in violation thereof.^

Opposed to the cases thus holding, there are cases which, meeting
the issue squarely, hold that, even though the power of amendment,
generally, be reserved, vested and contract rights which come within
the constitutional protection against impairment or destruction may
character or not, must be a right to 64 Neb. 808, 90 N. W. 926; Hughes v.

something; and when a man talks Wisconsin Odd Fellows ' Mut. Life Ins.
vaguely of his vested right, it con- Co., 98 Wis. 292, 73 N. W. 1015. See
duces to clearness to ask: A vested also Pain v. SociStS St. Jean Baptiste,
right to what? In the present case 172 Mass. 319, 70 Am. St. Eep. 287,
the plaintiff can have no right to have 52 N. E. 502; Domes v. Supreme Lodge
the contract remain unchanged, be- Knights of Pythias, 75 Miss. 466, 23
cause, as we have seen, the contract So. 191; Eversberg v. Supreme Tent
itself provides that it may be
changed. Knights of Maccabees of World, 33
Nor has he a right to remain un- Tex. Civ. App. 549, 77 S. W. 246.
affected by any change that may be By-laws of a benefit association
made; for if such right be common valid under the charter and the law
to all the members, it is merely an- of the land, may
be made applicable
other way of saying that no change when the mem-
to existing contracts
can be made; and if the right be- not bers have expressly agreed to be
common to the members, it
other bound by by-laws to be subsequent-
would be to assert a privilege or su- ly enacted. Supreme Commandery
periority over them, of which there is Knights of Golden Eule v. Ainsworth,
no pretense. If the plaintiff has any 71 Ala. 436, 46 Am. Eep. 332.
right which is so fixed that it is not Where the contract of a member
subject to change, we think
can it of a mutual insurance association
only be to the fruits which ripened makes after-adopted by-laws a part
before the change was made; in other thereof, the member is required to be
words, to such sums as became due governed by such by-laws. Fitzgerald
before the new by-law was adopted.
V. Metropolitan Ace. Ass'n, 106 Iowa
To express it differently, the change
457, 76 N. W. 809. See also Norton v.
could not be retroactive. This is all
Catholic Order of Foresters, 138 Iowa
that we think can be meant by vested '
464, 24 L. E. A. (N. S.) 1030, 114 N.

right' in a case like the present."
Stohr V. San Francisco Musical Fund
W. 893.
Society, 82 Cal. 557, 22 Pac. 1125;

A by-law adopted by a benefit order
People V. Grand Lodge A. O. U. W., subsequently to a person's becoming
32 N. T. Misc. 528, 67 N. Y. Supp. a member is binding on such person,
330. even though his contract be altered

1 Murphy v. Nowak, 223 111. 301, 7 thereby, when he has agreed to be
L. E. A. (N. S.) 393, 79 N. E. 112, bound by sulpsequently-adopted by-
rev'g 127 111. App. 125; Scow v. Su- laws. Supreme Lodge Knights of
preme Council Eoyal League, 223 111. Pythias of World v. La Malta, 95
32, 79 N. E. 42; Hobbs v. Iowa Mut. Tenn. 157, 30 L. E. A. 838, 31 S. "W.
Ben. Ass'n, 82 Iowa 107, 11 L. E. A. 493. But see Gaut v. American Legion
299, 31 Am. St. Eep. 466, 47 N. W. of Honor, 107 Tenn. 603, 55 L. E. A.,
983; Farmers' Mut. Ins. Co. v. Kinney, 465, 64 S. "W. 1070.
1059
exist as between the memiber and the corporation. According to this

view, the agreement of a member to be bound by or comply with all
amendments or after-adopted by-laws cannot be construed as a con-

sent on his part to changes in,^ or the complete abrogation of his
2 "A provision that one should be- tion of law. In any event, such rules
come a member, subject to the power can never have any greater force than
of the corporation to change its by- the law that authorizes their adop-
laws, cannot be construed into liberty tion; and, if this has the effect of
to change at its will the contract of impairing the obligation of a contract,
insurance it has made with each in- it is void by constitutional inhibition.
surer. The company and the assured But it is said that the plaintiff, upon
occupy two entirely different rela- entering the association, agreed, ex-
tions. In one it is a company, and pressly or impliedly, that changes
the other party one of its members. might be made in its constitution and
In that relation the by-laws or con- by-laws, and is bound thereby. We
stitution can be amended at will of have no evidence that he agreed that
the majority, if done in the legal and such changes might be made as were
prescribed mode. The other relation made, and we have no idea that he
is that of insurer and insured, and this ever intended to place it within the
contract relation cannot be altered power of the association to break his
save by the consent of both parties, contract at pleasure, or render it ut-
and the party alleging that the consent terly valueless by subsequent stipula-
was given must show it." Bragaw v. tions or regulations adopted without
Supreme Lodge Knights & Ladies of his consent. A
mere general consent
Honor, 128 N. C. 354, 54 L. E. A. 602, that the constitution and by-laws may
88 S. E. 905, citing Strauss v. Mutual be amended applies only to such rea-
Reserve Fund Life Ass'n, 126 N. C. sonable regulations as may be within
971, 54 L. E. A. 605, 83 Ann. Cas. 699, the scope of its original design. We
36 S. E. 352, on the rehearing in which must again repeat what we said in
ease (39 S. E. 55) the court said: our former opinion: 'Whatever may
"The had a contract of in-
plaintiff be the power of a mutual association
surance with the defendant, which the to change its by-laws, such changes
latter seems to have violated in its must always be in furtherance of the
most essential features, with the re- essential objects of its creation, and
sult of having destroyed its value not destructive of vested rights.' "
to the plaintiff. But it is said that In Olson V. Court of Honor, 10)
the plain tiif made such contract of Minn. 117, 8 L. E. A. (N. S.) 521, 117
insurance with a mutual insurance as- Am. St. Eep. 676, 10 Ann. Cas. 622,
sociation, of which he was a member, 110 N. W. 374, it was said: "It is
and by virtue of such membership; the contention of the defendant that
and that he is, therefore, bound by it was by virtue of the provisions of
all such rules and regulations as may the original contract that the society
be thereafter lawfully adopted. 'Law- might change its by-laws and that the
ful adoption ' may mean much or little. members should be bound thereby. It
Eules may be adopted under the forms is obvious that such a provision must
of law that might nevertheless be so receive a reasonable construction. It

unreasonable and inequitable as to be would be' unreasonable to consti-ue it
clearly beyond any possible contempla- as giving the society plenary power
1060
contract at the will of the association or society,^ but merely as an

express recognition of the right of the latter to change its by-laws
on the subject of its internal administration and his duties as a mem-
to change its by-lawa in any manner 3 " It is very generally, if not uni-
it might elect; for, if such construc- versally, held that these benefit cer-
tion were to obtain, then the original tificates, like other contracts, confer
contract would be simply one to the a vested interest upon the member,
effect that the society would pay the which may not be impaired by a sub-
beneficiary, in case of the death of sequent amendment, even though the
the member, in accordance with the power to amend be reserved in gen-
terms of the contract or in accordance eral terms. If the member's stipula-
with such new, other, or further con- tion to comply with all by-laws there-
tract as it might elect thereafter to after enacted could be construed to
make for the parties. It seems clear relate to a by-law that reduced the
that when the member —that is, the benefit from $5,000 to $2,000, it must
insured —gives advance his gen-
in also relate to a by-law canceling the
eral consent to a change in the by- benefit certificate entirely a result —
laws, and agrees in his certificate to Wholly unjust and absurd. The stipula-
'
abide by all the laws thereafter tion must be construed as referring

enacted by the society, he does not only to reasonable by-laws and amend-
intend thereby that the society shall ments adopted in furtherance of the
have the power to impair in essential contract, and not to such as would
particulars the contract for the pay- overthrow it or materially alter its
ment of a specific sum to his bene- terms." O'Neill v. Supreme Council
ficiary which it agrees by its certifi- A. L. of H., 70 N. J. L. 410, 1 Ann.
cate to pay; or, in other words, he Cas. 422, 57 Atl. 463.
does not consent that the society may See also Lewine v. Supreme Lodge
make, without consulting him, a new Knights of Pythias of World, 122 Mo.
contract for both parties. It has ac- App. 547, 99 S. W. 821 (said, in Des-
cordingly been held by this court, in sauer v. Supreme Tent of Knights of
accordance with the weight of judicial Maccabees of World, 191 Mo. App. 76,
authority, that the general consent 176 S. W. 461 [certified to state su-
and agreement of a member of a mu- preme court] to have been overruled
tual fraternal benefit society in his by Claudy v. Eoyal League, 259 Mo.
application and certificate to be bound 92, 168 S. W.*593).
by any future changes in the consti- See also Sautter v. Supreme Con-
tution, by-laws, and rules of the so- clave Improved Order of Heptaaophs,
ciety that it may enact in the future 76 N. J. L. 763, 71 Atl. 232, aff'g 72
are subject to the implied condition N. J. L. 325, 62 Atl. 529.
that they must be reasonable." "The crucial question in all the
See also Boman Bankers' Union
v. cases has been one of construction,
of "World, 76 Kan. 198, 11 L. E. A. the courts, however, differing upon
(N. S.) 1048, 91 Pac. 49, in which the the reasonableness vel non of the
court, although not deciding the ques- new law; and, in deciding this ques-
tion of the extent of a general reser-. tion, reference has always been had
vation of power, argues against the to the nature and purposes of the
giving of a liberal construction there- contract, read in the light of the ob-
to. jects of the order. These contracts,
1061
—
ber —
so far as those duties do not affect his rights as an insured
and in particulars making for the fulfillment of his contract, and to
make such changes operative as to him. In other words and pro- —
—
ceeding somewhat in a circle a general reservation of power author-
izes the adoption of such amendments or additional by-laws as are
reasonable, it being reasoned that an amendment or new by-law which
destroys or impairs the vested or contract rights of a member is not
reasonable.*
It is sometimes advanced as an argument in favor of the validity
of an amendment or new by-law which alters the contracts of the
society's members that it is necessary to the society's continued
existence or functioning. This argument is disposed of by one New
York court* as follows: "The following very strong language by
like other contracts, confer vested was reserved. This rests on principles
rights and interests upon the member; too familiar to call for citation of
and it would be most unreasonable authority. I find in the contract no
and unjust to hold that, under a gen- such reservation. The agreement by
eral reserved power to amend, or upon the plaintiff in the application for
a general stipulation of the insured membership, and in the benefit cer-
that the society might amend, one tificate, to comply with all laws that
party to the contract had the power might thereafter be adopted, as well
to destroy the rights of the other. as the power reserved in the by-laws
Such a construction would put the to change them, had reference to
rights of one party to the contract changes which should not impair the
\vholly at themercy of the other." substance of the contract. Nothing
Supreme Conclave Improved Order of beyond this will be implied on the
Heptasophs v. Behan, 119 Md. 92, 46 theory that it is • reasonable. * * *
L. R. A. (N. S.) 308, Ann. Cas. 1914 Some opinions of judges seem to say
D 58, 85 Atl. 1035. See also Weiler v. (strangely enough, as it would seem)
Equitable Aid Union, 92 Hun (N. T.) that a by-law changing the contract,
277, 36 N. Y. Supp. 734. where no such power was reserved, is
4 See cases cited under notes 88-90, unreasonable and therefore void. I
supra. do not understand it to be a question
There is one court, however, that of reasonableness at all, but of power.
has said that the validity of an If the power sought to be exercised
amendment does not turn on the ques- to change the contract was not re-
tion of its reasonableness, but on the served, its exercise cannot be called
question of the society 's power. ' ' The reasonable. I therefore cannot con-
contract between the plaintiff and the sider the evidence given for the de-
defendant consisted of the statute fendant to show the wisdom, reason-
under which the order is incorporated, ableness or even necessity of the new
the application for membership, the by-law by reason of the declining
benefit certificate issued thereon, and membership of the order." Langan
the constitution and by-laws of the V. American Legion of Honor, 34 N.
defendant. Such contract could not Y. Misc. 629, 70 N. Y. Supp. 663.
be changed unless the power to do so 6 Cipriano v. Societa San Salvatore,
I 062
oil. 16] By-Laws [§ 505
Judge Martin ^ may be applied to the case I am considering: 'If it

be true that the defendant cannot successfully continue its business
upon the plan it has established without disregarding its contracts,
* ** no unmitigated calamity will be liable to befall the com-
munity in which its business is transacted by its suspension, or by a
final dissolution of the association.' " ' On the other hand, the Appel-
late Court of Indiana was seemingly impressed on one occasion at
least with such an argument, for it said: "We do not affirm that a
benefit society may, by a change in its by-laws, arbitrarily repudiate
an obligation created by a policy of insurance, but we do affirm that,
where a change is regularly made in its by-laws, and the motive which
influences the change is an honest one to promote the welfare of the
society, and the members are all given an opportunity to avail them-
selves of the change, no actionable wrong is done the members or
their beneficiaries. It may sometimes happen that the interests of
one individual, or of a few individuals, may be impaired, but it is
the right, and, indeed, it is the duty, of the society to protect the
interests of the many rather than of the few. Persons who become
members of such societies must take notice of this, and one person
cannot, therefore, demand that the welfare of the society and the
interests of the many may be sacrificed for his sole benefit."'
Even on the question of whether, when there has been a reserva-
tion of power, the amendment or new by-law must affect existing
contracts by its express terms before such contracts will be held to
come within its would seem to exist a contrariety of
operation, there
judicial opinion, some courts apparently taking the view that an
94 N. T. Misc. 130, 157 N. Y. Supp. he became a member, in speeiffc and

467 (while it does not appear in this unmistakable terms").
case that there was even a general 6 "Vought v. Eastern Building & Loan
reservation by the society of power to Ass 'n, 172 N. Y. 508, 92 Am. St. Kep.
amend its by-laws, the court clearly 761, 65 N. E. 496.
implies that such a general reserva- 7 See Langan v. American Legion of
tion would not justify an amendment Honor, 34 N. Y. Misc. 629, 70 N. Y.
depriving of sick benefits any member Supp. 663.
residing outside of Greater York, New 8 Court of Honor v. Hutchens (Ind.
by stating that "if the defendant App.), 79 N. E. 409. See also Bar-
wished to bind the plaintiff by a rows v. Mutual Reserve Life Ins. Co.,
modification of the constitution and 151 Fed. 461; Reynolds v. Supreme
by-laws depriving him of 'sick bene- Council of Royal Arcanum, 192 Mass.
fits' in case of his illness while a non- 150, 7 L. R. A. (N. S.) 1154, 7 Ann.
resident of the city of New York, Gas. 776, 78 N. E. 129; Flakne v.
there should have been a provision in Minnesota Farmers ' Mut. Ins. Co., 105
the by-laws to that effect, at the time Minn. 479, 117 N. W. 785.
1063
'
amendment or new by-law, phrased merely in general terms, will

apply to existing contracts through force of the reservation,* while
others are explicit in holding that the intent that an amendment or
after-adopted by-law should have a retrospective operation cannot
arise by implication but must be expressly stated notwithstanding
such reservation.^"
9 Eminent Houaehold of Columbian form as to give it a retroactive effect,'

Woodmen v. Hewitt, 122 Ark. 480, 184 but that there was nothing in the case
S. W. 52; Arold v. Supreme Conclave to show that the defendant intenijed to
Improved Order of Heptasophs, 123 have the amendment apply to those
Md. 675, 91 Atl. 829; Mathieu v. who then were members. Upon this
Mathieu, 112 Md. 625, 77 Atl. 112; ground alone the court, as matter of
McCloskey v. Supreme Council Ameri- law, instructed the jury, in effect, that
can Legion of Honor, 109 N. Y. App. if, after the passage of the amend-
Div. 309, 96 N. Y. Supp. 347; Plun- ment, Gilmore entered upon the occu-
kett V, Supreme Conclave Improved pation of switchman, he did not there-
Order of Heptasophs, 105 Va. 643, 55 by forfeit his rights of membership.
S. E. 9. In so charging, we think the court
In Gilmore v. Knights of Columbus, erred. The court appears to have
77 Conn. 58, 107 Am. St. Rep. 17, 1 held that the amendment was intended
Ann. Cas. 715, 58 Atl. 223, it appeared to operate only in the future, mainly
that the member agreed in his applica- because it contained no words indicat-
tion that if he should engage in any ing that it was to operate upon those
occupation which should be deemed already members. Notwithstanding
extrahazardous or prima facie extra- this, we think the amendment was in-
hazardous by the board of directors tended to affect those who were mem-
or their successors, he would thereby bers when it was passed. Gilmore had
forfeit his membership together with expressly agreed to be bound by such
all payments made by him, and that an amendment, and so, presumably,
he would conform to and abide by the had all his fellow members of that
constitution, by-laws, rules and regu- time; and a provision in the amend-
lations of the order which were then ment that it should apply to them was
in force or which might thereafter be tmnecessary, and would have been
adopted, or submit to the penalty then superfluous.They had agreed that it
or thereafter provided for a breach should apply to them, and there is
or violation thereof. It further ap- nothing in the vote to indicate that
peared that the member was killed it was the intention of the directors
while engaged in an occupation which that should not.
it '
had been classified as extrahazardous See also § 499, supra.

after his admission to membership. 10 In Knights Templars' & Masons'
Said the court: "The court told the Life Indemnity Co. v. Jarman, 187 U.
jury that Gilmore, in his application, S. 197, 47 L. Ed. 139, aff'g 104 Fed.
had agreed to be bound by future 638, it is said that "conceding the
amendments, and that he would be proposition that Jarman liad agreed to
bound by the amendments [amend- abide by the constitution, rules, and
ment] here in question, 'provided the regulations of the company, as they
same was passed in such a manner and then were, or might be constitutionally
1064
Ch. 16] By-Laws [§506
§5Q6. Who may

amend. In the absence of any binding restric-
tion, thebody which has the power to adopt a by-law also has the
power to amend one adopted.^^ ^Tien this body consists of the stock-
changed thereafter, this agreement jority of the board of directors'; but

could have no operation upon changes it is one thing for a member to agree
which, upon their face, indicated that generally that the by-laws may be
they applied only to policies thereafter changed by his agents, the directors,
to be issued. To cover this ease he and quite another for him to agree
shonld have promised to abide by that the by-laws so changed shall ipso
amendments thereafter made, thongh facto become part of his already com-
they were intended to apply only to pleted contract. The court leans
future policies. " See also Kaemmerer against giving by-laws a retrospective
V. Kaemmerer, 231 lU. 154, 157, 83 N. effect. * * * Otherwise, the contract
E. 133, aff'g 137 ITL App. 28; Haley would be anything the directors might,
V. Supreme Cburt of Honor, 139 HL from time to time, choose to mate it.
App. 478, 487; Grant v. Independent The meeting of minds, so necessary to
Order of Sons & Daughters of Jacob the conception of a contract, would be
of America, 97 Miss. 182, 52 So. 698; purely notional." Annan v. Hill
Bottjer V. Supreme Council American Union Brewery Co., 59 X. J. Eq. 414,
Legion of Honor, 78 X. T. App. Div. 418, 46 Atl. 563. See also Sautter v.
546, 79 N. T. Supp. 684, aff'g 37 N. T. Supreme Conclave Improved Order of
Misc. 406, 75 N. T. Supp. 805. Heptasophs, 76 X. J. L. 763, 71 Atl.
a member of a fraternal relief
"SVhile 232, aff'g 72 N. J. L. 325, 62 Atl. 529.
association may agree to be bound A by-law adopted by a fraternal
by the association's constitution and benefit society even though under its
by-laws existing at the time and by reserved power, after the issuance of
any by-law that may thereafter be a benefit certificate, which provides
legally adopted, he is entitled to rely for a forfeiture on the happening of
upon the contract as made until the a certain contingency, will be strictly
law-maiing power of the association construed against the society and if
enacts legislation which by its terms adopted in contravention of the pro-
applies to his contract. Under the very -idsions either of the articles of asso-
generally recognized rule of construc- ciation, the constitution and by-laws,
tion a by-law subsequently adopted or the governing statute, wtU be held
will not be construed as intended to ultra vires and of no effect. Lange v.
apply to such a previous contract un- Eoyal Highlanders, 75 Neb. 188, 10 L.
less the intention that it shall have a Am. Eep.
E. A. (N. S.) 666, 121 St.
retrospective be clearly
operation
786, 110 N. W. 1110, 106 X. W. 224.
manifested, such intention never exist-
See also § 499, supra.
ing by mere implication. Fraternal
11 Supreme Lodge Knights of
Belief Ass 'n v. Edwards, 9 6a. App. 43,
Pythias Knight, 117 Ind. 489, 3 L.
v.
70 S. E. 265. See also Ancient Order
E. A. 409, 20 X. E. 479; Court of Hon-
United Workmen v. Brown, 112 Ga.
or V. Hutchens (Ind. App.), 79 N. E.
545, 37 S. E. 890.
"It is true that * * * it is pro- 409; Thibert v. Supreme Lodge
vided that 'these by-laws may be Knights of Honor, 78 Minn. 448, 47
e^mended, changed, altered, or repealed L. E. A. 136, 79 Am. St. Eep. 412, 81
at any time by the consent of a ma- X. W. 220; Domes v. Supreme Lodge
1065
holders or members, as it does unless it is otherwise provided,?'' the

directors have no power to amend the by-laws adopted by them. The
charter or statute may, however, vest the power of amendment in
the directors,^^ and it seems that such power may ordinarily be dele-
gated to them by a by-law adopted by the stockholders or members.^*
"Where the directors or managers are vested by statute with the
exclusive power of adopting by-laws originally, they may, without the
consent of the stockholders, amend those adopted,^* and a by-law
requiring the ratification by the stockholders of amendments adopted
by the directors or managers will not be effective to prevent such
amendments as are made by the latter from being valid without such
ratification.^® But a by-law, made by the stockholders, which gives the
board of directors the power to alter or amend any of the by-laws,
does not authorize the directors to alter or amend a by-law which
expressly imposes a limitation upon their powers.^'' Moreover, the
Knights of Pythias, 75 Miss. 466, 23 poration may delegate its power to

So. 191. amend its by-laws, the corporation
12 See § 486, supra. may yet leave to its board of directors
13 People V. Ittner, 165 HI. App. 360, the determination of the question
365; Hingston v. Montgomery, 121 Mo. when an amendment shall go into ef-
App. 451, 97 S. W. 202; Hughes v. fect, such act not constituting a dele-
Wisconsin Odd Fellows ' Mut. Life Ins. gation of the amending power. Evans
Co., 98 Wis. 292, 73 N. W. 1015. V. Southern Tier Masonic Relief Ass 'n,
14 Hingston v. Montgomery, 121 Mo. supra.
App. 451, 97 S. W. 202; Stevens v. IB Manufacturers ' Exhibition Bldg.
Davison, 18 Gratt. (Va.) 819, 98 Am. Co. V. Landay, 219 111. 168, 177, 76 N.
Dee. 692. E. 146, rev'g 121 111. App. 96. See also
A by-law giving the executive com- Steinweg v. Antiseptol Liquid Soap
mittee whose appointment was author- Co., 168 m. App. 479, 481.
ized by statute "full powers" of the Where the articles of a corporation
board of directors when the latter is provided for the management of its
not in session, held not to give such business by a board of directors, and
committee the power to amend the cor- for meetings of that board, and made
poration 's by-laws. Hayes v. Canada, no provision for meetings of the cor-
Atlantic & Plant S. S. Co., Ltd., 181 porators, and the first by-laws were
Fed. 289. adopted by the directors, it was held
It is doubtful whether the statutory that the directors had power to amend
power of an assessment insurance as- them. Heintzelman v. Druids' Relief
sociation to make by-laws affecting Ass'n, 38 Minn. 138, 36 N. W. 100.
and altering the association's con- 16 Manufacturers ' Exhibition Bldg.
tracts of insurance may be delegated Co. V. Landay, 219 111. 168, 76 N. E.

even to the board of directors. Evans 146, rev'g 121 111. App. 96.
V. Southern Tier Masonic Belief 17 Stevens v. Davison,' 18 Gratt.
Ass'n, 76 N. Y. App. Div. 151, 78 N. (Va.) 819, 98 Am. Dec. 692. In this
Y. Supp. 611. case it was held that an article of the
Although it be denied that a cor- by-laws of a corporation providing that
1066
Ch. 16] By-Laws [§507
delegation by the stockholders to the directors of power to amend

the by-laws does not abridge the power of the stockholders, them-
selves, to amend them, especially when a subsequent statute provides
that the amending power shall be in the stockholders.^*
§ 507. Mode. The mode of amending by-laws is no exception to

the rule that when the charter or statute prescribes the manner in
which a particular corporate power shall be exercised, compliance
therewith is essential to a valid exercise of such power, and therefore
when the charter or statute provides the manner in which ihe by-laws
may be amended, an attempt to amend them in a different manner will
fail."
certain contracts should not be made jurisdictional matter. Haekler v. In,

on behalf of the corporation unless ternational Travelers' Ass'n, — Tex.
approved at a general meeting by a Civ. App. — , 165 S. W. 44.
majority of the stockholders, could The failure to give the proper statu-
not be altered or disregarded by the tory notice of the intended amend-
board of directors under a later article ment of a by-law held not ground for
of the by-laws giving them authority an injunction against such amendment,
to alter or amend any of the by-laws. "since an insufficiency of the notice
18 In re A. A. Griffing Iron Co., 63 would not prevent the making of the
N. J. L. 168, 41 Atl. 931, aff'd 63 N. J. proposed change, all the stockholders
L. 357, 57 L. B. A. 624, 49 Atl. 1097. being present and voting * * * and
19 Supreme Council Catholic Knights since a proper notice of another meet-
of America v. Logsdon, 183 Ind. 183, ing may * * * be given." Gold Bluffl
108 N. E. 587; Mutual Fire Ins. Co. v. Mining & Liimber Corporation v.
Farquhar, 86 Md. 668, 39 Atl. 527; J. Whitlock, 75 Conn. 669, 55 Atl. 175.
P. Lamb & Co. v. Merchants' Nat. A charter provision that the by-
Mut. Fire Ins. Co., 18 N. D. 253, 119 laws "may be amended by a vote of
N. W. 1048; Haekler v. International two-thirds at any regular or special
Travelers ' Ass 'n, —
Tex. Civ. App. ,
— meeting of the company" does not
165 S. "W. 44. require a vote of two-thirds of the en-
A homestead loan association incor- tire capital stock to amend the by-
porated under the Illinois statute can laws, but only a vote of two-thirds of
amend its by-laws only an, a meeting the stock represented at the meeting,
amendment
of its stockholders, and an even though such stock be but a
made otherwise is void. Garlick v. minority of the entire stock, under the
Mutual Loan & Building Ass'n, 129 common-law rule which prevails when
111. App. 402. the charter and t)y-laws are silent on
Where the statutory notice of pro- the subject that "such of the share-
posed amendments does not specify holders as actually assemble at a prop-
the place of the meeting of the di- erly convened meeting, although a
rectors at which they are to be acted minority of the whole number and rep^
on, as it is required to do, their adop- resenting only a minority of the
tion at such meeting will be invalid, stock, constitute a quorum for the
the sufficiency of the notice being a transaction of business and may ex-
1067
507] Peivate Cokpokations [Ch. 16
It has even been held that when the corporation's constitution
press the corporate will, and the body- incorporation. Sovereign Camp Wood-
will be bound by Green
their acts." men of World V. Fraley, 94 Tex. 200,
V. Felton, 42 Ind. App. 675, 84 N. E. 51 L. E. A. 898) 59 S. W. 879, aff'g
166. judgment 59 S. W. 905. The court
A statutory provision that regula- said: "It is claimed that the corpora-
tions may be changed by the assent tion could not hold a meeting for the
in writing of "two-thirds of the exercise of strictly corporate functions
stockholders" held, in view of the outside of the state of Nebraska, under
provisions of statutes in pari materia whose laws it was organized. That is
to mean "two- thirds of the stock- the rule with regard to ordinary cor-
holders in interest. '
' Toledo Traction, porations. * * * That rule, how-
Light & Power Co. v. Smith, 205 Fed. ever, is based upon public policy,
643. which seeks to protect the stockhold-
A statute providing that before any ers from meetings which might be
amendment to or alteration of the con- held at places remote from their
stitution or by-laws of a fraternal homes, or of which they had not been
beneficiary association shall take effect notified; but the reason is not appli-
or be in force, a copy of the amend- cable to this class of corporations, be-
ment or alteration duly certified must cause, in the first place, there are no
be filed with the auditor of public ac- stockholders, in the sense in which
counts is not unconstitutional, as im- that term is ordinarily used. Such
pairing the obligation of contracts, associations are composed of members
when applied to benefit certificates living in various states —usually the
which were issued before the enact- greater number outside of the state
ment of the statute but which were in which the corporation was created.
expressly subject to all future changes Their interests demand that the meet-
in or amendments to the by-laws of ings of the supreme legislative depart-
the association. Knights of Macca- ment be held as near to the member-
bees of World V. Nitsch, 69 Neb. 372, ship as possible, and to accomplish
5 Ann. Cas. 257, 95 N. W. 626. See this purpose the place of meeting is
also Metzger v. Eoyal Neighbors of usually changed at each convocation
America, 86 Neb. 61, 124 N. "W. 913; of the body. Sound public policy sus-
Hart V. Knights of Maccabees of
tains such a proceeding, as consistent
"World, 83 Neb. 423, 119 N. W. 679.
with the rights of persons interested
An amendment, void because not
in the management of the corporation.
adopted in accordance with the re-
In the second place, when a corpora-
quirements of the charter, furnishes
tion like this is created, with power
no evidence of the will of the mem-
to organize subordinate bodies over so
bers and is without effect in achiev-
large a scope of country as the United
ing the end sought to be attained.
Mutual Fire Ins. Co. v. Farquhar, 86 States and the Dominion of Canada,
Md. 668, 39 Atl. 527. it is necessarily contemplated that the
An amendment to the constitution greater part of the business will be
of a fraternal benefit order may be transacted beyond the territory of the
adopted at a legal meeting of the state _in which it has its origin, and
supreme legislative body of the order the authority to hold the meetings at
held outside of the state of the order 's such place as may be best adapted to
1068
specifies the mode in which it may be amended ^^ or the by-laws, thd
mode in which they may be amended, such mode must be followed in

order for amendments adopted to be valid and binding.^^
On the other hand, it has been held that by-laws may be altered by
a majority vote, although they expressly provide that a two-thirds
vote shall be necessary.^^
Although general and continuous disobedience of a by-law by a
part of the officers and members of the corporation does not constitute
an amendment thereof,^' it has been held that a by-law may be
the purpose of its creation arises, by Ass'n, 38 Minn, 138, 36 N. W. 100.

'
implication. '
' But see § 487, supra. And compare Van Atten Modern v.
20 Dick V. General Assembly Order Brotherhood of America, 131 Iowa 232,
of Amaranth, 150 Mich. 215, 113 N. "W. 108 N. W. 313, in which it was held
1125. that where under the articles of in-
Before an amendment to the con- corporation the power of the board of
stitution of a benefit society composed directors to adopt by-laws generally
of a number of unit bodies becomes extended only to the adoption of such
competent evidence against a bene- by-laws as did not conflict with cer-
ficiary in a certificate issued by one tain fundamental by-laws which it
of such bodies, the society must show was empowered to adopt, and such
that such amendment was adopted in fundamental by-laws provided that
the manner provided by the constitu- they could not be amended except by
tion. United Brotherhood of Carpen- a two-thirds vote of the directors, an
ters & Joiners of America v. Eortin, amendment thereto could not be given
107 App. 306, 310.
111. effect unless it appeared that it re-
That the constitution of a mutual ceived such vote. Where, however,
association or a benefit society is a by-laws providing for cumulative vot-
mere by-law, see § 480, n. 5, supra. ing and that fl. two-thirds vote di the
21 Deuble v. Grand Lodge, 66 N. Y. stockholders shall be necessary to
App. Div. 323, 72 N. T. Supp. 755, amend the by-laws constitute a part
afe'd 172 N. Y. 665, 65 N. E. 1116. of the fundamental contract between
See also Heintzelman v. Druids' Be- the stockholders, the legislature itself
lief Ass'n, 38 Minn. 138, 36 N. "W. 100. cannot authorize an amendment of the
A mutual benefit society cannot, by-laws by a majority vote of the
without the consent of the member, stockholders. Loewenthal v. Rubber
change its agreement with him as con- Eeclaiming Co., 52 JST. J. Bq. 440, 28
tained in its by-laws except in the Atl. 454.
mode provided therein. Mutual Aid 23 Goughlin v. Knights of Columbus,
& Instruction Society v. Monti, 59 N. 79 Conn. 218, 64 Atl. 223.
J. L. 341, 36 Atl. 666. That there is an unauthorized addi-
22 Domes v. Supreme Lodge Knights tion to a corporation's committee on
of Pythias, 75 Miss. 466, 23 So. 191; elections does not change or modify a
Richardson v. Union Congregational by-law which 'designates certain ofS.-
Society of Trancestown, 58 N. H. 187, cers as constituting such committee.
189; Smith v. Nelson, 18 Vt. 511. But Clopton V. Chandler, 27 Cal. App. 595,
see Heintzelman v. Druids' Eelief 150 Pac. 1012.
1069
modified by usage, without any formal action taken for such purpose.''*
Even when formal action is taken and an amendment adopted, its
amendatory character need not be express but may be implied, the
implied amendment of a by-law being possible in the same manner
as the impliedamendment of a statute.*^
When is amended by viva voce vote, members of the
a by-law
corporation who are present but do not participate in such vote will
be regarded as having voted in the affirmative.^®
"When not required either by the charter or statute or by a by-law,
publication is not necessary for an amendment, regularly adopted,
to become a law of the corporation.^''
That certain amendments were adopted at a particular meeting and
in the manner prescribed for the adoption of amendments, may be
proved by the testimony of officers, directors and members who were
present at such meeting.^*
An entry in the minutes of a meeting of the corporation that an
amendment was "adopted" is prima facie evidence that it received
the number of votes necessary to legally adopt it.*^
24 Bank of Holly Springs v. Pinson, Knights of Maccabees of World, 33

58 Miss. 421, 38 Am. Kep. 330; Henry Tex. Civ. App. 549, 77 S. "W. 246.
V. Jackson, 37 Vt. 431. A member of an assessment insur-
A
by-law may be modified by the ance company whose contract entitles
unanimous consent of the stockholders him to notice of amendments to the
to the corporation 's regular pursuit of company's by-laws will not be bound
a course of action inconsistent thereby an amendment of which he had no
with. Buck V. Troy Aqueduct Co., 76 notice, and the burden of showing
Vt. 75, 56 Atl. 285. notice is on the company. Northwest-
That custom cannot control over a ern Life Assur. Co. v. Erlenkoetter,
by-law, see Hunter v. Sun Mut. Ins. 90 111. App. 99, 103, 104.
Co. of New Orleans, 26 La. Ann. 13. An amendment to the by-laws of a
Flaherty v. Portland Longshore-
25 mutual insurance association will not
men 's Benev. Society, 99 Me. 253, 59 bind a member who did not receive
Atl. 58. proper notice of the meeting at which
An amendment to a by-law which it was adopted and who was not pres-
merely changes the number necessary ent at such meeting either in person
to constitute a quorum of the board or by proxy. Metropolitan Safety
of directors does not alter another by- Fund Ace. Ass'n v. Windover, 137 111.
law which requires a vote of two- 417, 433, 27 N. E. 538, aff'g 37 111.
third^ of the directors to suspend or App. 170. See also Johnson v. Mutual
remove a corporate officer. Stockton Guarantee Building & Loan Ass'n, 66
V. Harmon, 32 Fla. 312, 13 So. 833. N. J. L. 683, .51 Atl. 150.
Eichardaon v. Union Congrega-
26 28 Masonic Mut. Ben. Ass 'n v. Sever-
tional Soc. of Francestown, 58 N. H. son, 71 Conn. 719, 43 Atl. 192.
187, 188. 29 Heintzelman v. Druids ' Belief
BTEvBraberg v. Supreme Tent Ass'n, 38 Minn. 138, 36 N. W. 100.
1070
Ch. 16] By-Laws [§509
Where the evidence as to the adoption of an amendment is not

disputed, it is a question of law for the court whether such amend-
ment was adopted in a -valid manner.*"
rx. REPEAL
§ 508. Power in general. By-laws are in their nature subject to

repeal*^ and may, generally speaking, be repealed, at the pleasure
of the corporation, there being no charter or statutory provision to
the contrary.'^ Indeed, it would seem that the mere power to adopt
carries with of necessity the power to repeal.**
, § 509. Who may repeal. The power of repeal ordinarily resides

in the body having the power of adoption,** and when this body is
SOHackler v. International Travel- great difficulty, arise also in connec-

ers' Asa'n, — Tex. Civ. App. — , 165 tion with the subject of the repeal of
8. W. 44. by-laws, but since an amendmeiU; is a
The question of whether a member pro tanto repeal (Bornstein v. District
of a fraternal benefit society had no- Grand Lodge No. 4, Independent Order
tice of or acquiesced in changes in B'nai B'rith, 2 Cal. App. 624, 84 Pac.
the society's constitution and was 271), and a repeal, a pro tanto amend-
therefore precluded from questioning ment of the body of by-laws, and the
the regularity of their adoption is one cases bearing on these questions have
of fact for the jury. Dick v. General been collated under the sections
Assembly Order of Amaranth, 150 (§§504-507, supra) dealing with the
Mich. 215, 113 N. W. 1125. amendment of by-laws, such questions
31 Peck V. Elliott, 79 Ted. 10, 38 L. will not be considered further at this
R. A. 616, rev'g Eoss-Meehan Brake point. See generally, however, Born-
Shoe Foundry Co. v. Southern Malle- stein v. District Grand Lodge No. 4,
able Iron Co., 72 Fed. 957. Independent Order B'nai B'rith, 2
By-laws cease to operate when the Cal. App. 62*, 84 Pac. 271; Fullen-
corporation becomes insolvent and no wider v. Supreme Council of Eoyal
longer able to transact the business League, 180 111. 621, 72 Am. St. Eep.
which it was created to transact. 239, 54 N. E. 485, aff'g 73 111. App.
Chapman v. Young, 65 111. App. 131. 321; Kent v. Quicksilver Min. Co., 78
A
by-law in force for several years N. Y. 159, 182; State v. Vanderbilt
may, even after its repeal, be of value University, 129 Tenn. 279, 164 S. W.
in an action involving a matter to 1151.
which it related, as indicating what A repeal can affect only the future
was for a long time the policy of the —not the past. Falkiner v. Grand
corporation in such matter. Belfast Junct. E. Co., 4 Ont. 350, 354.
& M. L. E. Co. v. Belfast, 77 Me. 445, 33 Interstate Building & Loan Ass 'n
1 A:I 362. v. Wooten, 113 Ga. 247, 38 S. E. 738.

32 The same inconclusively decided 34 California, Underhill v. Santa
questions which render the subject of Barbara Land, Building & Improve-
the amendment of by-laws one of ment Co., 93 Cal. 300, 28 Pac. 1049.
1071
'
§509] Private Coepoeations [Ck 16
made up of the stockholders or members, they as a general rule alone

possess the repealing power.*^ Such power may, however, be delegated
to the directors ^^ and seemingly is delegated to them by the con-
ferring of the power of adoption. In other words, where
upon them
the directors have been given power to adopt by-laws, they ipso facto
are vested with power to repeal those adopted.'''
§ 510. Mode. When the charter or statute prescribes the mode

in which by-laws may be repealed, such mode must be followed in
order for an. attempted repeal to be effective.'*
In the absence of any charter or statutory provision on the sub-

ject, any action, h-owever informal, on the part of the body having the
power of repeal which evidences a desire and intention on its part

that a particular by-law shall no longer be operative would seem to
be sufficient as a repeal of such by-law. So the adoption of a by-law
by the proper body, though in a manner different from that prescribed
by ai\ existing by-law, is a repeal of the latter.'*
"While repeals by implication are no more favored in the case of
Indiana. Supreme Lodge Knights 37 Bank of Holly Springs v. Pinson,

of Pythias v. Knight, 117 Ind. 489, 58 Miss. 421, 38 Am. Eep. 330.
3 L. E. A. 409, 20 N. E. 479; Court of A by-law adopted by the directors
Honor v. Hutchena (Ind. App.), 79 N. may be set aside by them at any time.
E. 409. Martino v. Commerce Fire Ina. Co.,
Iowa, Houdeek v. Merchants' & 47 N. Y. Super. Ct. 520.
Bankers' Ins. Co., 102 Iowa 303, 71 38 A by-law can be repealed only in
N. W. 354. the manner provided by statute. J. p.
Maine. Flaherty v. Portland Long- Lamb & Co. v. Merchants' Nat. Mut.
shoremen 'a Benev. Society, 99 Me. 253, Fire Ins. Co., 18. N. D. 253, 119 N. W.
59 Atl. 58. 1048.
Thivert v. Supreme
IVEinuesota. 89 Dornea v. Supreme Lodge
Lodge Knights of Honor, 78 Minn. Knights of Pythias, 75 Miss. 466, 23
448, 47 L. E. A. 136, 79 Am. St. Eep. So. 191.
412, 81 N. "W. 220. A general clause in a revised code
Mississippi. Dornea v. Supreme of by-laws, repealing all inconsistent
Lodge Knights of Pythias, 75 Miss. by-laws or parts of by-laws extends
466, 23 So. 191. only to those by-laws on the same sub-
35 Where neither the charter nor ject and repeals only such of them as
the by-laws confer the power of re- are inconsistent with the new code,
peal on the directors, such power that is, such
by-laws as the body
rests exclusively in the stockholdera. adopting the new code manifeatly in-
See Kingston v. Montgomery, 121 Mo. tended to repeal. Supreme Tent
App. 451, 97 8. W. 202. Knighta of Maccabeea of World v.
86 Hughes V. Wisconsin Odd Pellows Altmann, 134 Mo. App. 363, 114 S. W.
Mut. Life Ins. Co., 98 Wis. 292, 73 1107.
N. W. 1015. A by-law which designatsa certain
1072
Ch. 16] By-Laws [§ 511
by-laws than in the case of statutes *" it is recognized that there may
be an implied repeal of a by-law in the same manner and to the
same extent aa there may be an implied repeal of a statute.*^ So a
by-law is impliedly repealed, pro tanto at least, by a subsequent by-law
or resolution which is inconsistent with it.*^ It has even been h«ld
that the nonusage of a by-law by the corporate officers when continued
for a length of time sufficient to bring it home to the stockholders
will accomplish the abrogation thereof.*^
Where is extended as fully as if
the existence of a corporation
the additional period had been named in the charter, such by-laws
as have been adopted do not cease to operate on the expiration of
the original period of existence but continue to be binding during the
additional period.** When, however, the repeal of the statute which
authorized a particular by-law indicates a legislative policy at vari-
ance with such by-law, the operation of the latter ceases at once.*^
X. REGULATION OF PARTICULAR MATTERS
§ 511. Acquisition of, and expulsion from membership ; fines. By-

laws may prescribe the qualifications necessary to membership in the
corporation and provide the mode in which members shÛ be admit-
officers as constituting the corpora- under express statutory authority, by

tion's committee on elections is not officers on whose power it places limi-
ropealed by an unauthorized addition tations and restrictions, does not con-
to such committee. Clopton v. Chand- stitute its abrogation, see In re Mill-
ler, 27 Cal. App. 595, 150 Pac. 1012. ward-ClifE Cracker Co.'s Estate, 161
40 Supreme Tent Knights of Macca- Pa. St. 157, 28 Atl. 1072. See also
bees of World v. Altmann, 134 Mo. Houdeck v. Merchants' & Bankers'
App. 363, 114 S. W. 1107. Ins. Co., 102 Iowa 303, 71 N. W. 354.
41 Flaherty v. Portland Longshore- A mutual insurance company may,
men 's Benev. Society, 99 Me. 253, 59 in certain cases, be estopped, however,
Atl. 58; Washington Grove Ass'n v. from setting up a by-law in defense
Walker, 128 Md. 85, 96 Atl. 1079. when all of the members of the com-
42Eoyal Bank of India's Case, 4 pany have assented to its abrogation.
Ch. App. 252. See also Murphy v. Houdeck v. Merchants* & Bankers'
Pacific Bank, 130 Cal. 542, 62 Pac. Ins. Co., supra.
1059. ' That a by-law is not abrogated by
43 Blair v. Metropolitan Sav. Bank, its disuse by the stockholders, see
27 Wash. 192, 67 Pac. 609. Procter Coal Co. v. Finley, 98 Ky.
A by-law may be repealed by uni- 405, 33 S. W. 188.
form conduct contrary to that pre- 44 Campbell v, Watson, 62 N. J. Eq.
scribed. Bank of Holly Springs v. 396, 50 Atl. 120.
Pinson, 58 Miss. 421, 38 Am. Eep, 330. 45 First Nat. Bank of South Bend
That the continual violation of a v. Lanier, 11 Wall. (U. S.) 369, 20
by-law, adopted by the stockholders L. Ed. 172.
1073
I PriiT. Corp. —68
.
ted.** But, of course, by-laws dealing with these subjects, equally

with those dealing with others, must, if they are to be valid, be reason-
able *'' and not inconsistent with the charter or statute.**
When a valid by-law prescribes a particular mode of acquiring
membership in the corporation, a person cannot ordinarily become a
member thereof in any other mode, there having been no waiver of
such by-law, and a coixrt of equity has no power to compel the issu-
ance of a certificate of membership to an applicant who has not
complied with the by-law's provisions.**
Nonstock corporations, such as benefit societies, boards of trade,
social clubs, and the like, not organized for pecuniary profit, may
make reasonable by-laws providing for the expulsion or disfranchise-
ment of members for cause, but they cannot provide for expulsion
without reasonable grounds therefor.**
46 American
Live Stock Commis- Adams, 123 N. Y. 609, 20 Am. St. Rep.
sion Co.Chicago Live Stock Ex-
V. 785, 25 N. E. 1057.
change, 143 111. 210, 18 L. R. A. 190, SO Georgia. Hussey v. Gallagher, 61
36 Am. St. Rep. 385, 32 N. E. 274, Ga. 86.
afE'g 41 111. App. 149; Taylor v. Ed- lUlaois. People v. Board of Trade
son, 4 Gush. (Mass.) 522; Reg. v. Sad- of Chicago, 80 111. 134, 137; People v.
dlers' Co., 10 H. L. Cas. 404. Board of Trade of Chicago, 45 111. 112.
4'? People v. Young Men's Father Michigan. People v. Young Men's
Matthew Total Abstinence Benev. So- Father Matthew Total Abstinence
ciety, 41 Mich. 67, 1 N. W. 931; Benev. Society, 41 Mich. 67, 1 N. W.
People V. Medical Soc. of Erie County, 931; Pulford v. Fire Department City
24 Barb. (N. Y.) 570. of Detroit, 31 Mich. 458.
A by-law of a fraternal benefit so- New York. Cunningham v. Su-
ciety which makes initiation necessary preme Council of Royal Arcanum, 165
to membership and the enjoyment of App. Div. 52, 151 N. Y. Supp. 83;
the resultant benefits, is reasonable People V. Medical Soc. of Erie County,
and valid. Matkin v. Supreme Lodge 24 Barb. 570.
Knights of Honor, 82 Tex. 301, 27 Pennsylvania. Evans v. Philadel-
Am. St. Rep. 886, 18 S. "W. 306. See phia Club, 50 Pa. St. 107; Com. v. St.
also Supreme Lodge Knights & Ladies Patrick Benev. Society, 2 Binn. 441,
of Honor v. Johnson, Ark. 99 — — , 4 Am. Dee. 453.
S. W. 834; Shartle v. Modern Brother- Wisconsin. Dickenson v. Chamber
hood of America, 139 Mo. App. 433, of Commerce City of Milwaukee, 29
122 S. W. 1139. Wis. 45, 9 Am. Rep. 544.
48 Diligent Fire Co. v. Com., 75 Pa. And see § 495, supra.
St. 291. See g 495, supra. "Whether a by-law of a benevolent
49 American Live Stock Commission society, not expressly authorfzed by
Co. v. Chicago Live Stock Exchange, the charter, providing for expulsion
143 III. 210, 18 L. R. A. 190, 36 Am. in certain cases is valid, depends on
St. Rep. 385, 32 N. E. 274, aff'g 41 whether it is necessary for the good
111. App. 149. See also McKane v. government and support of the affairs
1074
Ch. 16] By-Laws [§512
A nonstock corporation may make reasonable by-laws imposing a

fine upon members for infraction of its rules and by-laws ;
"^ but such
a by-law is void if it is unreasonable, as where it is ex post facto,*^
or where it fixes no limit as to the extent and amount of the fine,*'
or where the fine provided for is excessive.**
§512. Stock; issue; payment; assessments; rights and liabilities
of stockholders in general. Where the amount of capital is not

definitely fixedby the charter or the statutory articles of incorpora-
tion, but is made a matter for internal regulation by by-laws, an
increase therein by an amendment to the by-law fixing it will be
and a subscriber to the additional stock bound.*'
valid,
In the absence of legislative authority, a majority of the stock-
holders cannot make a valid by-law authorizing the issue of preferred
stock, if a holder of common stock dissents, for this would impair his
contract with the corporation as a common stockholder.** On the
other hand, a by-law may properly provide for the issuance of pre-
ferred stock if it be adopted by a unanimous vote of the stockholders,
or even if it be adopted merely by a majority vote, provided the
of the eorpora4;ion. Com. v. St. Pat- valid by-law operating retrospectively,

rick Benev. Society, supra. and imposing a new penalty upon
SlHussey v. Gallagher, 61 Ga. 86; stockholders for past defaults. Pul-
Master Stevedores' Ass'n v. Walsh, ford v. Pire Department City of De-
2 Daly (N. Y.) 1; Palmetto Lodge v. troit, 81 Mich. 458.
Hubbell, 2 Strobh. (S. C.) 457, 49 Am. 53 Albers v. Merchants ' Exch. of St.
Dec. 604. Louis, 39 Mo. App. 583.
A by-law of an employers' associa- B4Lynn v. Preemansburg Building
tion providing that members who vio- & Loan Ass'n, 117 Pa. St. 1, 2 Am.
late its lawful orders shall be liable St. Eep. 639, 11 Atl. 537.
to a fine is not unlawful. Associated 65 Peck V. ElMott, 79 Fed. 10, 38 L.
Hat Manufacturers v. Baird-Unteidt E. A. 616, rev 'g Eoss-Meehan .Brake
Co., 88 Conn. 332, 91 Atl. 373. Shoe Foundry Co. v. Southern Malle-
In Monroe Dairy Ass 'n v. WebB, 40 able Iron Co., 72 Fed. 957, in which it
N. Y. App. Div. 49, 57 N. Y. Supp. 572, was held that a corporation, organ-
the court said: "We are very much ized under a general incorporation act
inclined to question the authority of which provided that the corporation
any private corporation in this state, might by by-laws fix upon the amount
or at least of any private stock cor- of capital stock to be invested in the
poration, without express legislative enterprise, was authorized thereby to
authority, to impose fines for the vio- fix the original or initiatory capital
lation of its by-laws for which the in- stock, only, and not to increase such
corporator may be sued and amerced stock by by-law.
in his property." 56 Kent v. Quicksilver Min. Co., 78
62 A corporation cannot enact a N. Y. 159.
1075
§512] Peivate Coeporations [Ch. 16
issuance of such stock is authorized by the charter, the general law
or the articles of association.^''

A
by-law requiring a certain percentage of the subscriptions to
the corporation's capital stock to be paid at the time of subscribing,
and declaring that subscriptions without such payment shall be void,
is intended for the benefit of the corporation only, and may be
waived by it,and, if the corporation accepts and treats as valid sub-
scriptions unaccompanied by such payment, the subscribers are
bound.^^
Unless authorized by its charter or the general law, a corporation
cannot, by a by-law, provide for the sale or forfeiture of shares for
nonpayment of assessments thereon.'"'
A -by-law cannot impose upon a member or stockholder who does
not consent thereto any liability or restriction in addition to that
which he has assumed, or to which he is subject by his contract of
5? In re South Durham Brewery Co., of its stock for delinquent or unpaid

:il Ch. Div. 261. assessments due thereon, which sale
Piscataqua Ferry Co. v. Jones, 39
58 may be made without judgment or exe-
N. H. 491. Compare State Ins. Co. of cution," should be general, that is,
Missouri v. Redmond, 1 McCrary (TJ. it should affect every delinquent sub-
S.) 308, 3 Fed. 764. scriber, and all delinquent stock alike,
59 In re Election of Directors of and should not be directed against the
Long Island B. Co., 19 Wend. (N. Y.) stock or interests of a particular
37, 32 Am. Dec. 429; Kirk v. Nowill, stockholder. Budd v. Multnomah St.
1 T. E. 118. See also Monroe Dairy Ey. Co., 15 Ore. 413, 3 Am. St. Eep.
Ass'n V. Webb, 40 N. Y. App. Div. 169, 15 Pao. 659.
49, 57 N. Y. Supp. 572; Driscoll v. A statute empowering a corporation
West Bradley & Mfg. Co., 59 N. Y.
C. "to make by-laws not inconsistent
Super. Ct. 96, aff'd 59 N. Y. 96. with any existing law for the sale of
It would seem, however, that all of any portion of its stock for delinquent
the stockholders may, by unanimous or unpaid assessments due thereon,
vote, adopt a by-law giving the cor- which sale may be made without judg-
poration the right to forfeit or sell ment or execution" confers the power
their shares; and that even when a to ^11 for failure to pay a call upon
by-law to this effect is adopted with- stock but also prescribes the manner
out such unanimous consent, those of
in which it shall be exercised, namely,
the stockholders who do consent will
by a "by-law not inconsistent with
not be heard to complain of a for-
any existing law, and if the corpora-
'
'
feiture or sale of their shares in ac-
cordance with its provisions. Lesseps
tion wishes to proceed by a sale of the
V. Architects' Co.,4 La. Ann. 316. stock, instead of by an action to re-
cover the money, it must have such a
In order to be reasonable, a by-law,
adopted under a statutory provision by-law as the statute prescribes, and
empowering the corporation '
' to make compliance therewith must af^rm^-
by-laws not inconsistent with any ex- tively appear. Budd v. Multnomah
isting law for the sale of any portion St. By. Co., supra.
1076
'
Ch. 16] By-Laws [§512
membership. Thus, in the absence of a charter or valid statutory

provision therefor or an express agreement, a by-law cannot render a
dissenting member or stockholder liable to assessment by the cor-
poration beyond the amount which he is required to pay by his con-
tract of membership.^"
If the law does not make a stockholder liable for a deficiency after
sale of his shares for nonpayment of assessments thereon, such liability
cannot be imposed by. a by-law without his consent.®^
While a by-law whereby stockholders repudiate their constitutional
liability to creditors of the corporation will be invalid,^^ individual
60Duluth Club Maedonald, 74

V. assent to it). And compare Omaha
Minn. 254, 73 Am. Eep. 344, 76 N.
St. Law Library Ass 'n v. Connell, 55 Neb.
W. 1128; Sullivan County Club v. 396, 75 N. W. 837 (in this case it was
Butler, 26 N. Y. Misc. 306, 56 N. Y. held that the charter which in one
Supp. 1. article authorized the cancellation of
' To hold that a by-law imposing an stock for the nonpayment of dues, and
'
annual assessment on stock already in another authorized the making of

fully paid for is a lawful exercise of by-laws consistent with its various
corporate power, is tantamount to articles, authorized a by-law imposing
holding that a corporation may, by a annual dues on the stockholders). See
single resolve, in the form of a by- also in connection with this last ease
law, put its stockholders in debt to it Blue Mt. Forest Ass'n v. Borrowe,
annually to any amount that it may 71 N. H. 69, 51 Atl. 670.
see fit to specify, and all without their It has been held that by-laws of a
consent. To state such a proposition natural gas company, providing, at the
is simply to refute its legality." Sul- time stock is sold, that each stock-
livan County Club v. Butler, 26 N. Y. holder shall be entitled to gas for his
Misc. 306, 56 N. Y. Supp. 1. house free, may be changed by the
A
by-law making the holders of stockholders to authorize a uniform
fully paid and nonassessable shares of charge for gas used, so as to provide
the capital stock liable to periodical money for expenses. Eedkey Citizens
assessments for the payment of its Nat. Gas, Light, Fuel &Petroleum Co.
debts and operating expenses is ultra V. Orr, 27 Ind. App. 1, 60 N. B. 716.
vires and void, and equity has juris- 61 Mandel v. Swan Land & Cattle
diction of a bill to obtain an adjudica- Co., 154 111. 177, 27 L. E.A. 313, 45
tion of its validity and to enjoin Am. St. Eep. 124, 40 N. E. 462, rev'g
actions to recover assessments there- 51 111. App. 204; Jay Bridge Corpora-
under and the enforcement thereof tion V. Woodman, 31 Me. 573; Kenne-
generally. v. Longdale Inde-
Eoush bec & P. E. Co. V. Kendall, 31 Me. 470.
pendent Tel. Co., —
W. Va. , 88 S. — 68 Wells V. Black, 117 Cal. 157, 37
E. 623. See also Hibernia Fire Engine L. E. A. 619, 59 Am. St. Eep. 162, 48
Co. V. Com., 93 Pa. St. 264 (holding Pac. 1090.
that a by-law of a fire company in- A by-law cannot provide for the dis-
creasing the dues of members from tribution among subscribing members
twelve and a half cents a month to of a fund accumulated by it for a
two dollars was held unreasonable and specific purpose, in accordance with
void as against a member who did not authority conferred upon it hy Jts.
1077
§512] Private Cobpobations [Ch. 16
liability cannot be imposed upon a stockholder as such by by-law

when not imposed by the constitution or the charter or statute,
although it is may be liable as an individual when
possible that he
he has consented to such by-law and creditors have relied thereon in
dealing with the corporation.^'
Although it has been held that a by-law cannot confer upon stock-
holders the right to return their shares to the corporation at a fixed
value,®* it has also been held that a by-law providing that where a
stockholder dies, his stock with dividends, if any, shall be paid to
his legal representative at the next annual meeting, provided that
the stock shall have remained in the company for one year and that
charter. Parish v. New York Produce application to the directors to be paid

Exchange, 60 N. Y. App. Div. 11, 69 by the association an amount equal
N. Y. Supp. 764. to the par value of the shares he may
63 Free Schools in Andover v. Plint, desire to withdraw, and be valid.
to
13 Mete. (54 Mass.) 539, 542. See also Lindsay v. Arlington Co-op. Asa 'n, 186
Eeid V. Eatonton Mfg. Co., 40 Ga. 98, Mass. 371, 71 N. E. 797, distinguishing
2 Am. Rep. 563; Gamwell v. Pomeroy, on question of validity, DriscoU y.
121 Mass. 207; Flint v. Pierce, 99 Lewriston Equitable Co-operative So-
Mass. 68, 96 Am. Dec. 691. ciety, 59 Me. 474, and Vercoutere v.
64Vercoutere v. Golden State Land Golden State Land Co., 116 Cal. 410,
Co.,116 Cal. 410, 48 Pac. 375. 48 Pac. 375.
A
by-law of a business corporation Where the petition in an action by
which provides that a member who a stockholder against a building and
"resigns is entitled to his money
loan association alleges that the plain-
back, the full amount that he has paid
tiff is entitled under the by-laws to
in any single share, not before six
recover a specified amount as the with-
months from the date the deposit was
drawal value of his stock, it is incum-
made, less the admission fee of the
share that he continues to have for
bent upon him to show, by the terms
one year or more from the date of his of his contract, that his rights to re-
admission; and the entire amount, less cover such amount accrued under the
the admission fee, less 10 per cent, on contract in connection with the by-
those shares that he still continues to laws, and to do this it is essential that
possess for less than a year from the the terms of the contract be set out.
date of the admission," held invalid, Crittenden v. Southern Home Building
the action contemplated not being au- & Loan Ass'n, 111 Ga. 266, 36 S. E.
thorized by the law of the state. Pica- 643.
lora v. Gulf Co-operative Co., 68 N. T. A corporation has no power to force
Misc. 331, 123 N. Y. Supp. 980. a stockholder, by a by-law or other-
A by-law of a co-operative associa- wise, to sell his shares for the purpose
tion held to be a positive agreement of canceling and retiring them, and
by such any member
association that thereby reducing the capital stock.
desiring to withdraw the whole or any Bergman v. St. Paul Mut. Bldg. Ass'n,
part of his stock is entitled on written 29 Minn. 275, 13 N. "W. 120.
1078
Ch. 16] By-Laws [§513
ninety days' notice of the withdrawal shall have been given the
secretary, is valid and enforceable.*^
§513. Transfer of stock —^Restrictions on alienation. Shares of

stock are very generally regarded as personal property and trans-
ferable as such without interference by the corporation.®* The legis-
lature may of course place such restrictions on their transfer as it
chooses®'' or may authorize the corporation to act in the matter.®*

A delegation of power of this character to the corporation, however,
will not ordinarily be implied, but must be made in express terms.*^
66 Howe Grain & Mercantile Co. v. trade and against public policy, and
Jones, 21 Tex. Civ. App. 198, 51 S. W. therefore void. Moore v. Bank of
24. Commerce, 52 Mo. 377, 379.
66 Where neither the general law 69 Dickinson v. Central Nat. Bank,
nor the charter contains any rule de- 129 Mass. 279, 37 Am. Eep. 351.
termining what shall constitute an Express legislative authority is nec-
actual transfer of shares, the rules essary to enable a corporation to
which govern the transfer of similar adopt a valid by-law, providing
property at common law must be ap- that stock shall not be transferable
plied. Biekinson v. Central Nat. except by registration upon its books,
Bank, 129 Mass. 279, 37 Am. Rep. 351. which will prevent a transfer without
67 " It is not doubted that the legis- registration from passing the legal
lature may, in granting a charter, im- title. Sargent v. Essex Marine Ey.
pose such conditions upon the transfer Corporation, 9 Pick. (Mass.) 202;
of stock, as will render it inalienable DriseoU v. West Bradley & C. Mfg.
without a compliance with the condi- Co., 59 N. Y. 96.
tions. '
' O 'Brien v. Cummings, 13 Mo. Legislative authority is essential to
App. 197, 199. confer power on a corporation to adopt
a by-law providing that no stock shall
The statute may make stock trans-
be sold or transferred to a corporation,
ferable in the manner provided by the
firm or person interested in a competi-
by-laws. Talcott v. Mastin, 20 Colo.
tive line of business; that a sale or
App. 488, 79 Pae. 973.
transfer to a competitor shall be void
When the statute contemplates that
and shall not be recognized by the
as against a judgment creditor of the
officers of the corporation, and that
stockholder, title to the latter 's stock
the corporate books shall not be open
can only pass by transfer on the books
to inspection by the vendee or trans-
of the company, transfer by indorse-
feree if the officers deem it possible
ment and delivery of the certificates
that the information obtained on an
will not be effective. Peoples Bank of
inspection may be used to the detri-
Bloomington v. Gridley, 91 HI. 457,
ment of the business of the corpora-
466.
tion, and such authority is not con-
See also § 514, post. ferred by a statute providing that a
68 In the absence of statutory au- corporation has power to make by-laws
thorization, at least, a by-law prohibit- not inconsistent with existing law for
ing the alienation of stock or placing the management of its property, the
restrictions thereon is in restraint of regulation of its affairs and the trans-
1079
Thus a corporation has no implied power to prohibit transfers or

either directly or indirectlymake their validity dependent on the
approval and consent of its officers, directors or other stockholders,
and by-laws attempting so to do are void not only as violative of the
rights of the stockholders but also as contrary to public policy as
an unreasonable restraint on the alienation of property,'"* and it has
been held that the fact that a stockholder consents to such a by-la,w
does not render it binding on him, since, it being contrary to public
policy, the consent of all of the stockholders cannot give it validity.''^
Moreover, the express provision necessary to the existence in the
corporation of the power to adopt by-laws restricting the transfer
fer of its stock. Kretzer v. Cole Bros. Sullivan County Club, 26 App. Div.
Lighting Eod Co., 193 Mo. App. 99, 213, 50 N. Y. Supp. 95.
181 S. W. 1066. Rhode Island. Ireland v. Globe
United States. Morgan v. Struth-
70 Milling Co., 21 E. I. 9, 79 Am. St. Eep.
ers, 131 TJ. S. 246, 33 L. Ed. 132; John- 769, 41 Atl. 258; Ireland v. Globe
son V. Laflin, 5 Dill. 65, Fed. Cas. No. Milling & Seduction Co., 19 E. I. 180,
7,393, aff'd 103 U. S. 800, 26 L. Ed. 29 L. E. A. 429, 61 Am. St. Eep. 756,
532. 32 Atl. 921.
Illinois. MeNulta v. Corn Belt Tennessee. Herring v. Euskin Co-
Bank, 164 111. 427, 447, 56 Am. St. Eep. op. Ass'n (Tenn. Ch. App.), 52 S. W.
203, 45 N. E. 954, afC'g 63 111. App. 327.
593. Virginia. Feckheimer v. National
Maryland.Victor G. Bloede Co. v. Exch. Bank of Norfolk, 79 Va. 80.
Bloede, 84 Md. 129, 33 L. E. A. 107, Wisconsin. In re Klaus, 67 Wis. 401,
57 Am. St. Eep. 373, 34 Atl. 1127. 29 N. W. 582.
Massachusetts. Bond v. Mt. Hope A by-law having for its object the
Iron Co., 99 Mass.. 505, 97 Am. Dec. prohibition of transfer of stock or cer-
49; Quiater v. Marblehead Social Ins. tificates without the assent of the
Co., 10 Mass. 476; Taylor v. Edson, 4 president or of the board of directors
Cush. 522; Sargent v. Franklin Ins. would be in restraint of trade and
Co., 8 Pick. 90, 19 Am. Dec. 306. therefore void. Finch v. Macou-
IVCississippi. Bank of Holly Springs pin Telephone & Telegraph Co., 146
V. Pinson, 58 Miss. 421, 38 Am. Eep. 111.App. 158, 160.
330. While a by-law making the validity
Missouri.Brinkerhoff-Farris Trust of a transfer of stock dependent upon
& Savings Co. v. Home Lumber Co., the approval and acceptance of the
118 Mo. 447, 24 S. W. 129; Bank of board of directors "may be lawfully
Atchison County v. Durfee, 118 Mo. enforced to protect rights of the cor-
431, 40 Am. St. Eep. 396, 24 S. W. 133; poration, it cannot, in other cases, be
Moore v. Bank of Commerce, 52 Mo. exercised without limitation so as to
377; Chouteau Spring Co. v. Harris, defeat the rights of others." Farm-
20 Mo. 382. ers'& Merchants' Bank v. Wasson, 48
New York. DriseoU v. West Brad- Iowa 336, 30 Am. Eep. 398.
ley & C. Mfg. Co., 59 N. T. 96; Bank 11 In re Klaus, 67 Wis. 401, 29 N. W.
of Attica V. Manufacturers' & Trad- 582. But see Weiland v. Hogan, 177
ers' Bank, 20 N. Y. 501; Kinnan v. Mich. 626, 143 N. W. 599.
1080
'
Ch. 16] By-Laws [§513
of its stock must be specific in character. That it might possibly be

construed as giving such power will not be sufficient. Thus, a cor-
poration will not be permitted to restrict the alienation of its stock,
by a by-law, merely because has the power under the statute or its
it
charter to "regulate" the transfer thereof, the legislature being

regarded as having intended no more than that the corporation might
prescribe the formalities which as to it, itself, are to be observed in
the making of transfers.''^
As to whether a corporation may adopt a by-law providing that
before a stockholder shall sell his stock to a third person, he shall
offer it to the corporationand other stockholders and give them an
opportunity to purchase it, the courts would seem to differ, it having
been declared, on the one hand, that such a by-law is invalid,'^ and,
ySA statute declaring shares of other stockholders who shall have

stock to be personal property and the option to purchase the stock at
transferable on the books of the cor- the price named in pro rata amounts
poration in such manner and under and that the corporation shall have the
such regulations as the by-laws pre- right to take such of the stock as is
scribe, gives power to regulate or ap- not taken by the stockholders, is void
prove the formalities of the transfer as being in restraint of trade and con-
of certificates but not power to restrict trary to the general law relating to
.
the absolute right of transfer, and a transfers of personalty. Victor Q.

by-law restricting such right of trans- Bloede Co. v. Bloede, 84 Md. 129, 33
fer is void as being unreasonable and L. E. A. 107, 57 Am. St. Eep. 373, 34
in restraint of trade and as violating Atl. 1127. See also Steele v. Farmers
the general laws relating to the right & Merchants ' Mut. Tel. Ass 'n, 95 Kan.
of transfer of personalty. Morris v. 580, 148 Pac. 661; Brinkerhofe-Farris
Hussong Dyeing Mach. Co., 81 N. J. Trust & Savings Co. v. Home Lumber
Eq, 256, 86 Atl. 1026. See also Mor- Co.. 118 Mo. 447, 24 S. W. 129; Morris
gan V. Struthers, 131 U. S. 246, 33 L. v. Hussong Dyeing Mach. Co., 81 N. J.
Ed. 132; Steele v. Farmers' & Mer- Eq. 256, 86 Atl. 1026.
chants' Mut. Tel. Ass'n, 95 Kan. 580, When the statute provides that cer-
148 Pae. 661; Chouteau Spring Co. v. tificates of stock may be transferred
Harris, 20 Mo. 382; Kretzer v. Cole by their indorsement by the owner, his
Bros. Lightning Eod Co., 193 Mo. App. attorney or legal representative, and
99, 181 S. W. 1066; O'Brien v. Cum- their delivery to the transferee, a cor-
mings, 13 Mo. App. 197, 199; Kinnan poration cannot by a mere by-law
V. Sullivan County Club, 26 N. Y. App. provide that shares are not transfer-
Div. 213, 50 N. Y. Supp. 95. able except in pursuance of a vote of
73 A by-law providing that if any two-thirds of all the outstanding
stockholder desires to dispose of his shares; that this majority may either
stock he shall before transferring the consent to the transfer or take up the
same notify the president of the cor- shares by paying par therefor, and
poration of his intention to sell and of that if it does neither, the holder is
the price which he can obtain, which then at liberty to otherwise sell and
notice shall be communicated to the transfer them. Farmers Mercantile &
'
1081
on the other, that it is not against public policy, at least as between

the transferee of the stock and the corporation,''* but is consistent
with common sense and practical business.'*
would seem, however, that under the maxim "expressio unius
It
est exclusio alterius," a statute providing that "corporations may
determine by their by-laws the manner of calling and conducting
meetings the number of members that constitute a quorum the num-
; ;
ber of votes to be given by the shareholders the tenure of office of the ;
several officers the mode of voting by proxy, and of selling shares

;
for neglect to pay assessments; and may enforce such by-laws by

penalties not, exceeding twenty dollars" precludes the adoption by the
corporation of a by-law requiring a stockholder who desires to sell
his stock or any petrt thereof to first offer it to the corporation.'^
But whether valid or not, such a by-law furnishes no legal objection
to a contract by the majority stockholder with an employee of the
corporation whereby the former agrees to pay over the earnings on a
certain number of his shares to the latter and to transfer such
number of shares to the latter whenever he can do so without thereby
losing control of the company." Moreover, there is authority for the
proposition that even though such a provision may not be valid as a
by-law, it may be binding as a contract upon a stockholder who was
a party to its adoption,''* notwithstanding it is not binding on a bona
Supply Co. V. Laun, 146 Wis. 252, 131 61 Am. St. Rep. 756, 32 Atl. 921. But
N. W. 366. see, as possibly discounting the ground
T4 Barrett v. King, 181 Mass. 476, on which this by-law was held invalid,
6.^ N. E. 934. Ireland v. Globe Milling Co., 21 B. I.
75 Moses V. Soule, 63 N. Y. Misc. 9, 79 Am. St. Eep. 769, 41 Atl. 258.
203, 118 N. y. Supp. 410, aff'd 136 N. 77 Price v. Minot, 107 Mass. 49, 60.
y. App. Div. 904, 120 N. y. Supp. 1136. 78 The by-law involved in this case
Where a by-law forbids the disposi- provided that no transfer of stock
tion of stock unless the holder at least certificates by virtue of sale should be
thirty days prior thereto shall have made without a written offer of sale
offered in writing to sell the same to being first made to the corporation and
the board of directors on the same stockholders; that the company, or, if
terms as he would sell to a third per- the company refuses to purchase, the
son, and the offer shall have been stockholders should have six months
declined, an agent purchasing stock from the date of notice to accept or
in his own name for his undisclosed reject the offer and that the stock
principal cannot transfer it to the should be equally distributed among
latter withoujt first making the offer the stockholders desiring it. Said the
required by such by-law. Barrett v. court: "The contention is made * • •
King, 181 Mass. 476, 63 N. E. 934. that this by-law is void for various
76 Ireland v. Globe Milling & Reduc- enumerated reasons. The authorities
tion Co., 19 R. I. 180, 29 L. R. A. 429, upon this point are not uniform, and
1082
'
Ch. 16] By-Laws [§513
fide purchaser of his stock, taking without notice of the provision.'^

Where, however, the right of a corporation to contract is limited
by statute to the making of such contracts as are "essential to the
transaction of its ordinary affairs," a regulation, attempting to restrict
the sale of stock to an extent greater than that authorized by statute
and invalid as a by-law, cannot be sustained as a contract between
the corporation and the stockholder, since the sale of his stock by the
latter is no affair of the corporation beyond the point specified by the
statute.*"
But, even if a by-law providing that a stockholder shall not sell
or transfer his stock until the board of directors shall have received
notice and been given an option to purchase it be valid, such board
may, in the absence of fraud, waive its rights thereunder, and when
it has done so, a stockholder is not entitled to compel its enforcement,
it being for the benefit of the corporation as such and not for that of
individual stockholders.*^
While it has been held that a by-law prohibiting a transfer of
stock to an insolvent person was invalid, ^^ it has also been held
that a statute which expressly authorizes a corporation formed under
it to adopt by-laws regulating the issuance and transfer of shares t)f
though the question is one of interest, But see In re Klaus, 67 Wis. 401, 29
we have found it unnecessary to pass N. W. 582.
upon it in this case, for the reason 79 Ireland v. Globe Milling Co., 21
that -^hether valid or void, considered E. I. 9, 79 Am. St. Eep. 769, 41 Atl.
strictly as a by-law, it can be sus- 258.
tained as an agreement entered into 80 Steele v. Farmers ' & Merchants
between all the parties in interest. It Mut. Tel. Ass'n, 95 Kan. 580, 148 Pac.
should be noted that we are not called 661.
upon here to determine the effect of 81 Hughes V. Citizens Elee. Light,
'
such a by-law upon a stockholder who Heat & Power Co., 226 Pa. 95, 75 Atl.
had not given his assent to its adop- 15.
tion, or upon a transferee of stock, That a by-law providing that prior
who, in good faith, for value without to a sale of stock to a third person,
notice, had become an owner of shares the holder shall make a written offer
in the corporation. We now deal-
are of through the treasurer to the
it
ing only with stockholders who them- stockholders may be waived, see
selves, voluntarily and for their own American Nat. Bank v. Oriental Mills,
benefit and protection, enacted the 17 E. I. 551, 23 Atl. 795.
by-law. * * * 'The stockholders are 82 Chouteau Spring Co. v. Harris, 20
not in position to complain, for they Mo. 382. See also Kretzer v. Cole
were all willing parties to the transac- Bros. Lightning Eod Co., 193 Mo. App.
tion and are therefore estopped to 99, 181 S. W. 1066; Feekheimer v.
deny its validity.' " Weiland v. National Exch. Bank of Norfolk, 79
Hogan, 177 Mich. 626, 143 N. W. 599. Va. 80.
1083
itsstock gives validity to a by-law which requires a stockholder who

desires to sell and transfer his stock to notify the directors and give
them a reasonable time to sell such stock to classes of persons, desig-
nated in the by-laws, whose occupations, it is believed, will render
them efficient promoters of the corporation's business.*^ There is
authority, however, for the proposition that by-laws requiring the
approval by directors of the name of the transferee of stock are
applicable only to an original membership. "If applied in the dis-
cretion of directors for th« purpose of controlling or affecting the

right of an existing stockholder to acquire further stock, such restric-
tions are not only unreasonable restraints of trade, but are unreason-
able and illegal for the additional reason that such application of the
by-law would put it in the power of a board of directors to continue
indefinitely their own control of the management."'* Moreover, it
has been held that a by-law prohibiting the transfer of certificates
is void although it is indorsed on
of stock except to the corporation
the certificates.'* Somewhat to the contrary, however, it has been
held that a by-law requiring the executor or administrator of a
deceased stockholder to cause the stock of the latter to be appraised
by the directors and to offer the same at the appraised value to the
directors for the use of the corporation may be valid against the
executor of a deceased stockholder as a contract if not a& a by-law,
where the certificate stated that the stock was transferable only in
the manner and upon the conditions expressed in the by-laws printed
on its back, such by-lawwas actually printed on the back of the
certificate, and the stockholder receipted for the certificate subject
Nicholson v. Pranklin Brewing

83 Co., 81 N. J. Eq. 256, 86 Atl. 1026.
Co., 82 Ohio St. 94, 137 Am. St. Eep. A by-law which limits the number
764, 19 Ann. Cas. 699, 91 N. E. 991. of shares that a person may hold, or
A by-law of a stock exchange pro- forbids a transfer of stock to a non-
hibiting the assignment of a seat in stockholder without the consent of
the exchange to any one but a mem- ^j^g directors, is void as an unreason-
ber or a member elect, may be given ^^^^ restriction upon the transfer of
effect and yet not prevent a decree
^y. Miller v. Farmers' Milling
in favor of the receiver of an execu-
& Elevator Co., 78 Neb. 441, 126
tion debtor, appointed under supple-
'
,, • Am. „St. „
, „„„ .,„ .„ „
Eep. 606, 110 N. W. 995. See
J. 1,
^
mentary proceedings, who brings an? '
^1«° ^^^tzer v. Cole Bros. Lightning

action in equity against the debtor
and hi8 assignee in bankruptcy to ^°^ Co., 193 Mo. App. 99, 181 S. W.
compel an assignment of the debtor's 1066; O'Brien v. Cummings, 13 Mo.
seat in the exchange. Eitterband v. App. 197, 201.
Baggett, 42 N. Y. Super. Ct. 556. SB Herring v. Euskin Co-op. Ass 'n
84 Morris v. Hussong Dyeing Mach. (Tenn. Ch. App.), 52 S. W. 327.
1084
Ch. 16] By-Laws [§ 514
to the conditions and restrictions therein referred to and to the by-laws

to which he agreed to conform.^*
A by-law of a bank providing that transfers of stock shall be made
subject to the condition that it will be voted in favor of all propo-
sitions submitted by the board of directors to increase the capital
stock, until it reaches a specified amount, and that its provisions shall
become a part of every contract for the transfer of stock and be
binding on the transferee, is void as imposing unreasonable restric-
tions upon the right of transfer.*''
§ 514. —
Protective regulations. By-laws regulating the transfer
of shares of stock which are reasonably necessary to protect the cor-
poration, give it the means of knowing at any time who are its stock-
holders and as such entitled to receive dividends, vote at corporate

meetings and otherwise participate in its management, and enable
it to 'take advantage of charter or statutory provisions giving it a
lien on its stock, or to acquire such a lien by contract, are not to be

confused with by-laws restricting that right of alienation which is
incidental to the ownership of stock,** since by-laws of the former
character have repeatedly been upheld*^ and are undoubtedly valid
in so far, at least, as they are not sought to be enforced for the purpose
of accomplishing the end which by-laws of the latter character are
intended to achieve directly.*" So by-laws requiring certain formali-
88 New England Trust Co. v. Ab- laws governing the transfer of stock,
bott, 162 Mass. 148, 27 L. E. A. 271, Giesen v. London & Northwest Ameri-
38 N. E. 432. can Mortg. Co., 102 Fed. 584.
87 McNulta V. Corn Belt Bank, 164 One who purchases stock in a
111. 427, 56Am. St. Eep. 203, 45 N. mutual telephone company from a
E. 954, aff'g 63 111. App. 593. stockholder and member,is deemed
88 See § 513, supra. to have purchased with a knowledge

89 Planters'& Merchants' Mut. Ins. of, and to be bound by the company's
Co. V. Selma Sav. Bank, 63 Ala. 585; by-laws governing the transfers of
Chandler v. Northern Cross E. Co., 18 stock and the admission of new mem-
Ill. 190; Farmers' & Merchants' Bank bers. Star Mut. Tel. Co. v. Long-
V. Wasson, 48 Iowa 336, 30 Am. Eep. fellow, 85 Kan. 353, 116 Pac. 506.
398; Dane v. Young, 61 Me. 160. 90 "The transfer of stock has been
A statute providing that the corpo- uniformly regarded as a legitimate

ration shall on the application of the subject of corporate legislation, to
transferror of stock, enter in its regis- enable the company to know who are
ter of members the name of the trans- stockholders, to whom dividends are
feree in the same manner as if the to be paid, who are entitled to vote,
application for the entry had been and, where the company has a lien on
made by such transferee does not pre- the stock for debts due to it from the
elude the adoption of reasonable by- stockholders, to enable it to prevent
1085
^514] Pbivate Coepobations [Ch. 16
such as an entry on the books of the corporation and the surrender

ties,
of the certificate, to attend the transfer of stock may be binding

on the parties to the extent that the transferror will not be released
from his liabilities nor relieved from his duties as a stockholder or
member,'! and the transferee cannot demand that the corporation
recognize him as a stockholder or member, or claim the privileges and
benefits of one unless and until there is a compliance therewith.'^
a transfer in derogation of its own of sale, or any other conveyance which

rights. But such legislation will not is adequate to transfer the title to
be enforced beyond what is necessary any other species of personal prop-
to serve those purposes, where its erty. * * * It follows, no doubt,
enforcement would operate as an in- from what has been said, that a ven-
fringement on the property rights of dee of stock may have a good title
others or as an unreasonable restraint thereto, as against his vendor, al-
upon the disposition of property in though he been accepted as a

has- not
the stock of the corporation." Mil- member of the company, and although
ler Farmers' Milling & Elevator
V. the vendor has not been released from
Co., 78 Neb. 441, 126 Am. St. Bep. his obligations as a member or share-
606, 110 N. W. 995. holder. This is the necessary result
A by-law requiring the payment of of the doctrine that the corporation
a small fee to cover the necessary is entitled to insist upon the mode of
expense of making the transfer in an transfer * * * prescribed by its by-
orderly manner and keeping a suitable laws, if method prescribed is
the
record thereof, is not unreasonable reasonable, and does not impose un-
and on that account void. Giesen v. necessary restrictions upon the right
London & Northwest American Mortg. of the member to sell." Bank of
Co., 102 Fed. 584. See also Evansville Commerce v. Bank of Newport, 63
Union Stockyards Co. v. State, 179 Fed. 898.
Ind. 505, 101 N. E. 822. 92 Otis V. Gardner, 105 HI. 436, 442;
91 A
by-law providing that sharea Dickinson v. Central Nat. Bank, 129
of stock shall be transferable only Mass. 279, 37 Am. Rep. 351; Sargent
on the books of the corporation in V. Essex Marine Ey. Corporation, 9
person or by attorney on the surren- Pick. (Mass.) 202. See also Rice v.
der of the old certificate properly in- Gilbert, 173 111. 348, 352, 50 N. E.
dorsed, does not prohibit a transfer 1087, aff'g 72 111. App. 649; O'Brien
in another mode but is merely cumu- V. Cummings, 13 Mo. App. 197, 200.
lative. It provides "a particular A provision the
by-laws that
in
mode of transfer, on which the cor- stock is transferable only on the
poration or its assignee may insist, books of the corporation "is for the
before the shareholder is released protection and benefit of the corpora-
from any of his obligations as a mem- tion, so that it may know with whom
ber of the company; but as between to deal as stockholders, and who have
the shareholder and his vendee a good a right to vote as such; and, as against
title to stock may doubtless be con- the corporation, a transfer of stock is
veyed by a simple indorsement and ineffectual until made on the books of
delivery of the certificate, or by a bill the company. The general and better
1086
Ch. 16] By-Laws [§514
Further than this, however, sueh by-laws do not operate unless, of

course, the corporation has a lien on the stock transferred." They do
not ordinarily make an observance of the formalities prescribed neces-
rule is that the person in whose name the admission of new members. Star
stock stands on the books is entitled Mut. Tel. Co. v. Longfellow, 85 Kan.
to vote it; that the books of the com- 353, 116 Pac. 506.
pany are conclusive upon the inspect- A by-law providing that a transfer of
ors as to who are entitled to vote; and stock must be signed by both the trans-
that neither inspectors nor stockhold- ferror and the transferee manifestly
ers can successfully dispute the right has no Application to a transfer of the
of any one to vote who appears by the stock of a deceased to his executrix.
company's books to be the holder of London, P. & A. Bank v. Aronstein,
stock legally issued. Upon any other 117 Fed. 601.
rule it would never be known who 93 As between the parties, a delivery
were entitled to vote until the 'courts of the certificate with an assignment
had settled the dispute. A person who and power of attorney indorsed there-
has purchased stock, and who desires on, passes the entire title, legal and
to be recognized as a stockholder, for equitable, to the shares, notwithstand-
the purpose of voting, must secure ing a by-law providing that ^tock is
such a standing by having the trans- transferable only on the books of the
fer recorded upon the books. If the corporation; such provisions are for
transfer is not duly made upon re- protection of the corporation and may
quest, he has, as his remedy, to compel be waived, and an assignment not on
it be made." Morrill v. Little
to the books passes the entire legal title
Falls Mfg. Co., 53 Minn. 371, 21 L. K. subject only to the corporation's liens
A. 174, 55 N. W. 547. or claims and excepting the right of
A valid by-law which provides that voting at elections. McNeil v. Tenth
no transfer of stock can be made ex- Nat. Bank, 46 N. Y. 325, 7 Am. Rep.
cept on the books of the corporation 341. See also Cushman v. Thayer Mfg.
by the surrender of the certificate, Jewelry Co., 76 N. Y. 365, 32 Am. Rep.
unless the same be lost, is binding on 315.
stockholders and their heirs, and heirs Where a corporation has a by-law
of a deceased stockholder are not en- adopting the transfer rule and there is
titled to mandamus to compel the no lien upon shares of stock by the
transfer to them on the books of the charter, by-laws or otherwise for debts
corporation of the stock standing in due from stockholders to the corpora-
the name of their ancestor and the tion and where shares have been trans-
payment to them of dividends which ferred by indorsement and delivery of
have accrued thereon when the cer- the certificates but not upon the
tificate is neither surrendered nor books of the corporation, and after
shown to be lost. State v. New Or- such transfer a dividend is declared,
leans & C. R. Co., 30 La. Ann. 308. and at that time the apparent owner
Before one who purchases stock in a upon the corporation books owes the
mutual telephone company from a corporation a sum of money, the cor-
stockholder and member is entitled to poration cannot, when sued for the
have the shares transferred and to dividend by the assignee of the stock,
enjoy the rights and privileges of a set up and successfully rely by way of
member, he must comply with the by- set-off upon such indebtedness due it
laws governing transfers of stock and from such apparent owner. American
1087
§514] Peivate Cobpoeations ICh. 16
sury to the passing of the title,'* legal '^ or equitable, to tne stock as
between the parties to the transfer, even though the statute or charter
provides that stock shall be transferable only as provided by the by-
laws.*® Indeed, it has even been held that a transfer of stock made
in a manner other than that provided by the by-laws will be valid
Nat. Bank v. Naahville Warehouse & death. Easmussen v. Sevier Valley

Elevator Co. (Tenn. Ch. App.), 36 S. Canal Co., 40 Utah 371, 121 Pae. 741.
W. 960. 96 Chemical Nat. Bank of New York
94 McCarthy v. Crawford, 238 111. V. Colwell, 132 N. Y. 350, 30 N. B.
38, 29 L. R. A. (N. S.) 252, 128 Am. 644; Eobinson v. National Bank, 95
St. Eep. 95, 86 N. E. 750, rev'g 141 N. Y. 637, 642; McNeil v. Tenth Nat.
111.App. 276; Eice v. Gilbert, 173 111. Bank, 46 N. Y. 325, 7 Am. Eep. 341;
348, 352, 50 N. E. 1087, aff'g 72 111. Parker v. Bethel Hotel Co., 96 Tenn.
App. 649; Star Mut. Tel. Co. v. Long- 252, 31 L. R. A. 706, 34 S. W. 209.
fellow, 85 Kan. 353, 116 Pao. 50T6; United States.
96 See Masury v.
Dickinson v. Central Nat. Bank, 129 Arkansas Nat. Bank, 93 Fed. 603,
Mass. 279, 37 Am. Eep. 351; Sargent rev'g 87 Fed. 381.
V. Essex Marine Ey. Corporation, 9 Alabama. Planters' & Merchants'
Pick. (Mass.) 202; Sargent v. Frank- Mut. Ins. Co. V. Selma Sav. Bank, 63
lin Ins. Co., 8 Pick. (Mass.) 90, 19 Am. Ala. 585, 593.
Dec. 306; Moore v. Bank of Commerce, Colorado. Richardson v. Longmont
52 Mo. 377, 379; Chandler v. Blanks Supply Ditch Co., 19 Colo. App. 483,
Tea & Cofeee Co., 183 Mo. App. 91, 76 Pac. 546.
165 S. W.Crenshaw v. Columbian
819 ;
Illinois. Otis v. Gardner, 105 111.
Min. Mo. App. 355, 86 S. W.
Co., 110
436, 443; Kellogg v. Stockwell, 75 111.
260; O'Brien v. Cummings, 13 Mo.
68, See also People's Bank of
71.
App. 197, 199.
Bloomington v. Gridley, 91 111. 457.
The name that is inserted in a blank Iowa, Farmers ' & Mechanics ' Bank
indorsement on the certificate trans-
v. Wasson, 48 Iowa 336, 30 Am. Eep.
ferred concerns the purchaser only,
398.
and the blank may be filled with the
name of a remote transferee. Mc-
New Jersey.
Eeilly v. Abseoon Land
Co., 75N. J. Eq. 71, 71 Atl. 248.
Carthy v. Crawford, 238 111. 38, 29 L.
E. A. (N. S.) 252, 128 Am. St. Rep. 95,
New York. Chemical Nat. Bank of
86 N. E. 750, rev'g 141 111. App. 276.
New York v. Colwell, 132 N. Y. 250,
30 N. E. 644; Eobinson v. National
Notwithstanding a by-law providing
Bank, 95 N. Y. 637, 642; McNeil v.
that no transfer of stock shall be valid
Tenth Nat. Bank, 46 N. Y. 325, 7 Am.
except between the parties, until it
Eep. 341.
is entered on the corporation's books,
a transfer by a stockholder to whom Rhode Island. American Nat. Bank

no certificates were ever issued, evi- V. Oriental Mills, 17 E. I. 551, 23 Atl.
denced by an order filed with the sec- 795; Lockwood v. Mechanics' Nat.
retary of the corporation, will relieve Bank, 9 R. I, 808, 11 Am. Rep. 253.
the corporation from liability to the Tennessee. Parker v. Bethel Hotel
stockholder's administrator for a Co., 96 Tenn. 252, 31 L. E. A. 706, 34
transfer of the shares on its books to S. W. 209.
the transferee, after the stockholder 'a The transferror of stock can have
1088
as against subsequent judgment, execution and attachment creditors

of the transferror.®''
Whatever the effect of such by-laws, tbey are generally regarded
as being for the benefit of the corporation'* and hence it would seem
that the latter may

waive them ®' or so act as to be estopped to take
advantage of them. Thus it would seem that a corporation waives
compliance with a by-law regulating the mode of transferring stock
by habitually allowing transfers in other than the prescribed man-
ner. So it has been held that where the charter provided that stock
should be transferred in the manner prescribed by the directors, and
a by-law provided for its transfer by an assignment on the corpora-
tion's books signed by the assignor, but this method was never fol-
lowed, a transfer by an entry on the books not signed by the assignor,
this in accordance with the usage of the company, was valid.^ Again,
no relief against his transferee even notice of prior equitable transfers, or

though the latter may never choose to of outstanding equities." See also
have the stock transferred under the Kellogg V. Stockwell, 75 111. 68, 71.
by-laws. Otis v. Gardner, 105 111. 436, 99 Eichmondville Mfg. Co. v. Prall,,
442. 9 Conn. 487; Chemical Nat. Bank of
97 "The provisions touching trans- New York v. Colwell, 132 N. T. 250,
fers on the books of the company are 30 N. E. 644; Isham v. Buckingham,
held to be intended for the protection 49 N. T. 216, 222; Knox v. Eden
of the company. It is manifest that Musee Amerieain Col, Ltd., 25 N. Y.
such provisions cannot be easily con- Supp. 164, aff'd 74 Hun (N. Y.) 483,
sidered as intended to have the effect 26 N. Y. Supp. 482; American Nat.
of recording statutes for the protec- Bank v. Oriental Mills, 17 R. I. 551,
tion of creditors of stockholders, for 23 Atl. 795.
the public at large is not entitled to A mode of transfer prescribed by
access to the stock books of our cor- the by-laws need not in all respects
porations." Eeilly v. Abseeon Land be strictly pursued before the title of
Co., 75 N. J. Bq. 71, 71 Atl. 248. See the vendee is complete as against the
also Dickinson v. Central Nat. Bank, corporation. Since the requirement
129 Mass. 279, 37 Am. Rep. 351; Sar- that the transfer be made on the books
gent V. Essex Marine Ey. Corpora- of the corporation and that there be
tion, 9 Pick. (Mass.) 202. And com- a surrender of the old certificate is
pare People 's Bank of Bloomington v. intended primarily for the benefit and
Gridley, 91 111. 457. advantage of the corporation, it is
98 See, however. Planters ' & Mer- competent for the latter to waive a
chants ' Mut. Ins. Co. V. Selma Sav. strict observance of the prescribed
Bank, 63 Ala. 585, which the pur-
in form and to admit the vendee to full
pose of such by-laws is broadened to membership without a literal com-
include the protection and security pliance with the requirement. Bank
"of third persons who in good faith, of Commerce v. Bank of Newport, 63
on a valuable consideration, may in Fed. 898.
that mode [the mode provided by the 1 Eichmondville Mfg. Co. v. Prall, 9
by-laws] acquire the stock, without Conn. 487.
1089
I Priv. Corp. —69
.§ 514] Peivate Cobpoeations [Ch. 16
the issuance of a without the surrender and cancel-

new certificate
lation of the original certificate may constitute a waiver of a by-law
providing that stock shall be transferred by the surrender and can-
cellation of the transferror's certificate and the issuance of one to
the transferee.^ So also, it has been held that the refusal of the
corporation to enter a transfer on its books is a waiver of a by-law
requiring an entry to be made.*
The transferror of stock may even be relieved from liability for
calls and assessments by a transfer which was not made in conformity
with the by-laws, where it was made in the usual and customary
manner and the nonfeasance of the corporation made compliance with
the by-laws impossible.*
SEichardson v. Longmont Supply 201, 103 N. W. 685. But see Bairett

Ditch Co., 19 Colo. App. 483, 76 Pae. V. King, 181 Mass. 476, 63 N. E. 934,
546. holding that where a by-law forbids
A purchaser of stock is not required the disposition of stock unless the
to see that a by-law, providing that holder have offered it to the
shall
no new certificate shall be issued until board of directors and the offer has
the old certificate is canceled and re- been declined, the corporation will
turned to its original place in the cer- not be liable in tort for the conver-
tificate books, is carried out, but may sion of stock in refusing to enter on
rely upon the corporation
entirely its books a transfer made in disre-
and its officers to have the proper gard of such by-law.
transfer made, and a new certificate Where by by-laws, it is made the
issued to a purchaser in good faith duty of the officers of
the corporation
and for value will be valid even to enter the transfei;^ of shares in the
though the old certificates surrendered books of the company, would seem
it
by the seller are not canceled, but are that mandamus a proper
will lie in
pledged by certain employees of the case to compel the officers to perform
corporation to one who took them this duty. Burnsville Turnpike Co. v.
without actual notice, in good faith State, 119 Ind. 382, 20 N. E. 421. See
and for value as collateral security also Evansville Union Stockyards Co.
for a personal loan. Knox v. Eden V. State, 179 Ind. 505, 101 N. E. 822.
Musee Americain Co., Ltd., 25 N. T. And compare Nicholson v. Franklin
Supp. 164, a,ff'd 74 Hun (iST. Y.) 483, Brewing Co., 82 Ohio St. 94, 137 Am.
26 N. T. Supp. 482. St. Eep. 764, 19 Ann. Cas. 699, 91 N.
3 Eobinson v. National Bank, 95 N. E. 991.
Y. 637, 642. 4 Stewart v. Walla Walla Prtg. &
When, under a valid by-law, it is Pub. Co., 1 Wash. 521, 20 Pac. 605.
necessary that a transfer of stock be In Laing v. Burley, 101 111. 591, it
made on the books of the corporation, was held that although the transferee
and the latter wrongfully refuses to of stpck in a national bank may not
make the transfer, such refusal is a succeed to all of the rights and lia-
conversion of the stock. Herrick v. bilitiesof the transferror, under II. S.
Humphrey Hardware Co., 73 Neb. 809, Eev. St. § 5139, 5 Fed. St. Ann. p. 96,
119 Am. St. Eep. 917, 11 Ann. Gas. unless the transfer be made on tfee
1090
CL 16] By-Laws [§ 515
Although the statute provides that no transfer of stock shall be

valid for any purpose whatever except to render the transferee liable
for the debts of the corporation according to the statutory provisions,
until it have been entered on the corporation's transfer book
shall
by an entry showing from and to whom transferred, and the by-laws
provide that transfers shall only be made on the books of the cor-
poration, a director of a corporation which at the time has no transfer
book may pass title to his stock, so as to prevent there subsequently
attaching to him the statutory liability of a director for the corpora-
making an annual report, by the indorsement of
tion's default in
an assignment and power of attorney on, and the delivery of his
certificate.^
§ 515. — Creating or reserving lien on stock. Ordinarily, a cor-

poration has no power, merely by reason of its corporate existence,
to create or reserve, by by-law, a lien in its favor on its stock for
the indebtedness, both general and particular, of its stockholders
to it, which will operate against the world in every case of such
indebtedness merely through force thereof.® The creation or reserva-
tion of a lien in such manner may, however, be authorized by the
corporation's charter or by statute, and in the event that one or the
other does expressly confer the power to create or reserve a lien by
by-law, third persons are chargeable with notice of such fact, and
the lien thus created or reserved will operate not only as against the
stockholders and against transferees with actual notice, but also as
books of the bank in the manner pre- the amount specified, either as be-
seribed by its by-laws or articles of tween the parties or as to a subse-
association, when the bank issues cer- quent creditor of the corporation who
tifieates to the transferee in lieu of seeks to hold the transferror to a
those held by the transferror without stockholder's individual liability on
observing its by-laws in regard to his claim. O'Brien v. Cummings, 13
transferring stock on its books, the Mo. App. 197, 201. See also Kretzer
transferee will be a "shareholder" v. Cole Bros. Lightning Rod Co., 193
within the meaning of U. S. Hev. St. Mo. App. 99, 181 S. "W. 1066; Miller v.
§5151, 5 Fed. St. Ann. 105, which im- Farmers' Milling & Elevator Co., 78
poses on "shareholders" personal Neb. 441, 126 Am. St. Bep. 606, 110
liability on the contracts and engage- K. W. 995.
ments and for the debts of the bank. 5 Chemical Nat. Bank of New York
A provision in the articles of asso- v. ColWell, 132 N* Y. 250, 30 N. E. 644.

elation, not required by statute, that 6 That the indebtedness by reason
no person shall hold more than a cer- of which the corporation claims a lien
tain amount of stock, does not invali- under a by-law which it was without
date a good faith transfer of stock authority to adopt arose as a result of
to a stockholder, holding at the time the stockholder's embezzlement is of
1091
against transferees, without such notiee.' But if there is, in the above
statement, any one word that should be emphasized more thau another,
it is the word "expressly." The power to create or reserve a stock
lien by by-law as against third persons without notice would seem to
be one that will not be readily implied from general terms or from
terms which may be given effect without being made to include the
conferring of such power. Thus it has been held that the authority
conferred upon a corporation by its charter or by the general law to
adopt by-laws prescribing and regulating the mode of transferring
its stock does not include the authority to adopt a by-law creating or
reserving a lien on its stock for the general indebtedness of the holder
which will be valid as against bona fide transferees without notice.'
So, authority conferred upon the directors by the articles of associa-
itself no reason for sustaining the Mason, 30 Okla. 568, 39 L. R. A. (N.

claim. Bank of Atchison County v. S.) 292, 120 Pao. 1080.
Duifee, 118 Mo. 431, 40 Am. St. Rep. Where the statute gives a corpora-
396, 24 S. W. 133. tion a lien on its stock and provides
'Brent v. Bank of Washington, 10 that the latter shall be transferred
Pet. (TJ. S.) 596, 9 L. Ed. 547; Tuttle only on its books in such form as the
V. Walton, 1 Ga. 43 Bank of Atchison
; by-laws shall prescribe, it would seem
County V. Durfee, 118 Mo. 431, 40 Am. that a by-law requiring the instrument
St. Rep. 396, 24 S. W. 133; Mechanics' of transfer to be under seal will be
Bank v. Merchants' Bank, 45 Mo. 513, binding. Bishop v. Globe Co., 135
100 Am. Dec. 388; St. Louis Perpetual Mass. 132, 137.
Ins. Co. V. Goodfellow, 9 Mo. 149. See 8 " On the siinple reading of this
also People v. Crockett, 9 Cal. 112, clause, we do not think that there ap-
115; Kahn v. Bank of St. Joseph, 70 Xêars a power to prohibit the
in it
Mo. 262, 270; Kretzer v. Cole Bros. transfer of stock; ratherit seems to
Lightning Rod Co., 193 Mo. App. 99, give power to direct the manner in
181 S. W. 1066. which the stock shall be transferred,
A by-law of a bank which is adopted so that by proper regulations, while
under statutory authority and which on the one hand the vendor thereof
prohibits the sale by a stockholder of may obtain a certificate in his own
his stock while he is indebted to the name, on the other hand the corpora-
bank is for the benefit of the latter, tion may have the ready means of
and does not affect the rights of a knowing who were at any time the
bona fide purchaser of stock at a sale owners of its stock and indued with
thereof by the one to whom it has the rights and subject to the liabili-
been pledged as collateral security, ties of stockholders. We think that
when the bank has actual knowledge it is entirely safe to say, that the
of the pledge and such pledge is made terms of this provision do not give
at a time when there is no statutory express power to the defendant to
lien on the stock, and the indebtedness enact such a by-law as that here re-
by reason of which the bank claims lied on. Certainly the powei" is not
its lien is created after the making of specified therein, nor do we think that
the pledge. Ardmore State Bank v. the existence of the power can be im-
1092
Ch. 16] By-Laws [§ 515
don to make by-laws for the government of themselves, their of&cers

and agents, and for the management of the business of the corpora-
tion has been held not to extend to the adoption of a by-law which
plied therefrom. It would be an im- right to be affected, and the favor

plication, in opposition to the policy which that right has met with f roin
of the common law, which * * * the law, would be plainly expressed
is against the existence of secret when intended to be given. Of a cer-
liens. It is also one in opposition to tainty, it is not to be implied from
the policy of the law, in its partioulai statutory phrases, which may have
dealings with this kind of property. ample satisfaction in a by-law which
Shares of stock are in general personal shall regulate, without abridging, the
property, to be dealt with as such, exercise of the right. The statutory
and with as much freedom and ease. provision looks to the effectuating a
The right to them is a chose in action, transfer when the holder of the stock
and though not transferable, so as to has found a purchaser therefor, but
give the same safety in dealing, as is it enables the prescribing of such
given to a bona fide taker of negoti- rules, as to mode, as shall guard the
able paper, the current o£ authority corporation and its actual stockhold-
in this state, is to the protection of
ers, and those intending to become
the bona fide vendee, against secret such, against imposition, while they
or equitable claims thereto of one who set up no
real hindrance to the trans-
has indued the vendor with the indicia fer: such rules as may be easily
of ownership. It is evident that such
complied with by persons who have
a by-law as this in question, not made satisfactorily completed their private
known upon the certificate of stock bargain. This by-law sets up an
issued by the corporation, if it is to obstacle to the transfer, unless some-
be upheld, a very serious hindrance
is
thing is done for the pecuniary benefit
to the ease and safety with which sel- of a third party, not immediately con-
lers and buyers of shares of stock may cerned in the sale and purchase of the
deal therewith. It is not a by-law shares, which was not mutually con-
regulating the exercise of a right, templated by the parties to the sale,
merely pointing out or prescribing the and which one of them is not, upon
manner in which a right may be ex- any abstract rule of justice, bound to
erted, so that protection may be mutu- do. We do not think that a power so
ally secured to the corporation and to to hinder the act of formal transfer, is
incoming stockholders, but it is an so plain and necessary an inference
abridgment, nay, it may be a destruc- from a power to effectuate that act in
tion of a right. Now we do not assert prudential manner, as that the one can
that it is not possible to legally be implied from the other." Dris-
abridge this right. There may be coU V. West Bradley & C. Mfg. Co.,
power given by statute so to do. 59 N. Y. 96, 104.
There may be, in some cases, an agree-
See also in this connection:
ment of the original stockholders,
among themselves by their articles of Alabama. Planters' & Merchants'
association, that such power shall ex-
Mut. Ins. Co. V. Selma Sav. Bank, 63
Ala. 585.
ist. The latter * * * does not ap-
pear in this case. The former we Arkansas. Bankers' Trust Co. of
should expect, from the nature of the St. Louis v. MeCloy, 109 Ark. 160, 47
1093
'
§ 515] Peivate Cokpokations [Ch. 16
gives the corporation a lien for the indebtedness, generally, of its stock-
holders, such by-law concerning not the business of the corporation
but the private business and individual interests of the stockholders.*
Not even a statute giving power to the corporation to make such
prudential by-laws as shall be deemed proper for the management
and disposition of its stock and business affairs, declaring stock per-
sonal property and transferable in such manner as shall be prescribed
by the by-laws, and providing that no share shall be transferable
until all previous calls thereon shall have been fully paid in, or it
shall have been declared forfeited for nonpayment of calls thereon

will authorize, so it has been held, a by-law creating or declaring a
lien on stock, or refusing to permit its transfer, until the indebted-
ness, generally, of the stockholder to the company is paid.^"*
On the other hand,

has been held that a statute which declares that
it
"every corporation as such has power * * * to make by-laws
L. E. A. (N. S.) 333, 159 S. W. 205. Dock Co. V. Heron's Adm'x, 52 Pa.
California. Anglo-California Bank St. 280.
V. Grangers' Bank, 63 Cal. 359; People Astatute providing that the stock
V. Crockett, 9 Cal. 112, 115. of a corporation shall be transferable
Georgia. Hardy v. Beyer, 7 Ga. in the manner prescribed by the by-
App. 472, 67 S. E. 205. laws has reference merely to the way
Evansville Union Stock-
Indiana. in which it shall be transferred, by
yards Co. V. State, 179 Ind. 505, 101 entry on the books or otherwise, and
N. E. 822. does not impliedly confer authority
Iowa. Dempster Mfg. Co. v. Downs, on the corporation to attach to stock
126 Iowa 80, 106 Am. St. Eep. 340, 3 a lien in its favor, especially as
Ann. Cas. 187, 101 N. W. 735; Des against an •innocent holder for value.
Moines Nat. Bank v. Warren County Bank of Atchison County v. Durfee,
Bank, 97 Iowa 204, 66 N. "W. 154. 118 Mo. 431, 40 Am. St. Eep. 396, 24
Maryland. John C. GrafSin Co. v. S. "W. 133.
Woodside, 87 Md. 146, 39 Atl. 413. 9 Bank of Attica v. Manufacturers
MicMgan. Just v. State Sav. Bank, & Traders' Bank, 20 N. Y. 501, 506.
132 Mich. 600, 94 N. W. 200; Bronson lODriscoll V. West Bradley & C.
Elee. Co. v. Eheubottom, 122 Mich. Mfg. Co., 59 N. Y. 96, 107.
608, 81 N. W. 563. A provision in the statute that "no
Missouri. Brinkerhoff-Farris Trust shares shall be transferred until all
& Savings Co. v. Home Lumber Co., previous calls thereon shall have been
118 Mo. 447, 24 S. W. 129. fully paid in" does not authorize a
New Jersey.Drexel v. Long Branch by-law providing that no stock can
Gas Light Co., 3 N. J. L. 250. be transferred so long as the holder is
New York. Bank of Attica v. indebted to the corporation, and re-
Manufacturers' & Traders' Bank, 20 serving a lien on the stock for all
N. Y. 501; Eosenback v. Salt Springs debts owing by the holder. Bank of
Nat. Bank, 23 Barb. 495. Atchison County v. Durfee, 118 Mo,
Pennsylvania. Merchants' Bank v. 431, 40 Am. St. Eep. 396, 24 S. W.
Shouse, 102 Pa. St. 488; Steamship 133.
1094
Ch. 16] By-Laws [§515
not inconsistent with any existing law, for the management of its
property, the regulation of its affairs and for the transfer of its
stock" is sufficiently comprehensive to authorize a by-law making a

callnot paid a debt due to the corporation, giving the latter the right
to sue thereon, and reserving a lien on the stock in its favor.^^
"Where the creation or reservation of a lien by by-law is neither
expressly authorized nor expressly prohibited by the corporate charter
or by statute,^^ it would seem that a lien thus called into being will
be valid as against the stockholders and as against transferees who
do not pay value, who take with notice,^' or who succeed merely to
11 People 'a Home Sav. Bank v. Sad- transfer of stock shall be made while
ler, 1 Gal.App. 189, 81 Pac. 1029. the holder indebted to it to the
is
The by-law of a bank providing that prejudice of the lien held by it to se-
"no transfer of stock shall be al- cure the indebtedness. Corydon De-
lowed or valid so long as the holder posit Bank v. McClure, 141 Ky. 481,
is in arrears to the bank or in any 133 S. W. 201.
form indebted to it," held, in view of A statute prohibiting restraint upon
the provisions of the statute, which the free sale of stock cannot be in-
constituted the bank's charter, and of voked by a stockholder with notice to
the statutory and common law as ex- defeat a by-law creating a lien on
pounded by the courts of the state, stock and permitting the stock's can-
and considered from the standpoint cellation and the crediting of its par
of reasonableness, not to apply to that value on the amount owing by the
portion of the stock subscription stockholder, the relation between the
which had never been called for, but latterand the corporation being con-
only to unpaid calls and to indebted- tractual. Costello V. Portsmouth
ness outside of the subscription. Brewing Co., 69 N. H. 405, 43 Atl. 640.
Kahn v. Bank of St. Joseph, 70 Mo. 13 There existed originally at com-
'
'
262, 269. mon law no lien in favor of a corpora-

12 Under the National Bank Act, a tion on its shares of stock for debts
national bank cannot adopt a by-law due from stockholders in the absence
reserving a lien.Bullard v. National of statutory or charter authority. No
Eagle Bank, 18 Wall. (XJ. S.) 589, 21 lien could .be created by by-law or
L. Ed. 923; First National Bank of resolution or by common custom, for
South Bend v. Lanier, 11 Wall. (IT. S.) the policy was to discourage secret
369, 20 L. Ed. 172; Buffalo German liens which might hamper the transfer
Ins. Co. V. Third Nat. Bank, 162 N. Y. of shares of stock. » * » But that
163, 48 L. E. A. 107, 56 N. E. 521. Sea policy was even at common law some-
also Corydon Deposit Bank v. MeClure, what relaxed, and the rule was recog-
141 Ky. 481, 133 S. W. 201. And com- nized that such a lien might, as
pare Loekwood v. Mechanics' Nat. between the corporation and its share-
Bank, 9 E. I. 308, 11 Am. Eep. 253. holders and a purchaser with notice,
A statute providing that no bank be created by by-law and even by com-
shall take a lien on any part of its mon custom in such dealings. Child
capital stock as security for any loan V. Hudson's Bay Co., 2 P. Wms. 207.
or discount, precludes the adoption by That is the law now, we think, accord-
a bank of a by-law providing that no ing to the weight of American authori-
1095
the equitable title to the stock,^* even though it cannot be given effect
as against third persons who have no actual notice and are not
ty." Bankers' Trust Co. of St. Louis Sav. Ass'n v. Nixon-Jones Printing
V. MeCloy, 109 Ark. 160, 47 L. E. A. Co., 25 Mo. App. 642, 643.
(N. S.) 333, 159 S. W. 205. See also New Hampshire. Costello v. Ports-
in this connection: mouth Brewing Co., 69 N. H. 405, 43
United States. Brent v. Bank of Atl. 640.
Washington, 10 Pet. 596, 9 L. Ed. 547; New Jersey. v. Vough, 23
Young
Pendergast v. Bank of Stockton, 2 N. N. J. Eq. 535.
J. Eq. 325, aff'd 24
Sawy. 108, Ted. Cas. No. 10,918. Pennsylvania. Eeading Trust Co. v.
Alabama. Cunningham v. Alabama Beading Iron Works, 137 Pa. St. 282,
Life Insurance & Trust Co., 4 Ala. 21 Atl. 169; Morgan v. Bank of North
652. America, 8 Serg. & E. 73, 11 Am. Dee.
Connecticut. Vansands v. Middlesex 575; Tete v. Farmers' & Mechanics'
County Bank, 26 Conn. 144. Bank, 4 Brewst. 308.
Delaware. McDowell v. Bank of Bhode Island. Loekwood v. Me-
Wilmington & Brandywine, 1 Harr. chanics' Nat. Bank, 9 E. I. 308, 11
27. Am. Eep. 253.
Georgia. Tuttle v. Walton, 1 Ga. England. Child v. Hudson's Bay
43. Co., 2 P. Wms. 207.
Indiana. Evansville Union Stock- A by-law of a chamber of commerce
yards Co. V. State, 179 Ind. 505, 101 which provides that one member shall
N. B. 822. have a lien upon the membership of
Iowa. Dempster Mfg. Co. v. Downs, another for any indebtedness arising
126 Iowa 80, 106 Am. St. Rep. 340, 3 from or entered into by virtue of mem-
Ann. Cas. 187, 101 N. W. 735; Des bership in the chamber is valid as to,
Moines Loan & Trust Co. v. Des and enforceable against a member.
Moines Nat. Bank, 97 Iowa 668, 66 Mohler v. Chamber of Commerce of
N. W. 914; Des Moines Nat. Bank Minneapolis, 130 Minn. 288, 153 N. W.
V. Warren County Bank, 97 Iowa 617.
204, 66 N. W. 154; Farmers' & Trad- A lien created by by-law is enforce-
ers'Bank v. Haney, 87 Iowa 101, 54 able against an execution purchaser
N. W. 61. with notice. Tuttle v. Walton, 1 Ga.
Louisiana. Police Jury v. Duralde, 43.
22 La. Ann. 107. A by-law under which the corpora-
Maryland. John C. GrafBin Co. v. tion may refuse to register a transfer
Woodside, 87 Md. 146, 39 Atl. 413. of stock where the holder is in-
Michigan. Bronson Elee. Co. v. debted to it, has no application where
Eheubottom, 122 Mich. 608, 81 N. W. the transfer is to the executrix of the
563. holder and is accomplished by the lat-
Mississippi. Bank of Holly Springs ter 's death. London, P. & A. Bank v.
V. Pinson, 58 Miss. 421, 38 Am. Eep. Aronstein, 117 Fed. 601.
330. & Merchants' Mut. Ins.
14 Planters'
Missouri. Bank of Atchison Co. v. Selma Sav. Bank, 63 Ala. 585,
County V. Durfee, 118 Mo. 431, 40 594. See also Gilbert v. Manchester
Am. St. Eep. 396, 24 S. W. 133; Spur- Iron Mfg. Co., 11 Wend. (N. Y.) 625,
lock V. Pacific E. E., 61 Mo. 319; State 627.
1096
Ch..l6] By-Laws [§515
chargeable with, constructive notice of the by-law, ^^ and who acquire

the legal title to the stock. ^* Moreover, a by-law creating a stock lien,
which the corporation was without power to adopt, may be binding on
a stockholder who was a party to its adoption and on purchasers
from him with notice.^'' In this connection, a director claiming stock
16 "It is well settled that at eom- tween the corporation and its mem-
mon law a corporation has no lien on bers to conduct the corporate business
the stock of its shareholders for an in a particular way. They are not
indebtedness to it. Such liens, when intended to interfere in the least
they exist, result either from a provi- with the rights and privileges of oth-
sion in the charter to that effect, or ers who do not subject themselves to
from a by-law enacted by the corpora- their influence. It may be said with
tion in pursuance of authority con- truth therefore that no person not a
ferred by the charter. Usually the member of the corporation can be
lien, when it exists at all, is given affected in any of his rights by a cor-
by the which being a public
charter, porate by-law of which he has no
law, as well as the act by which the notice" and is not chargeable with
corporation is created, is notice to all notice. Bank of Holly Springs v.
persons dealing with the company. Pinson, 58 Miss. 421, 38 Am. Eep. 330.
* * *The lien may, however, be See also Chandler v. Blanke Tea &
created by a by-law, as was held at an Coffee Co., 183 Mo. App. 91, 165 S. W.
early day by Lord Chancellor Mac- 819.
clesfield in Child v. Hudson 's Bay Com- Aby-law cannot create a lien which
pany, 2 P. Wms. 12, and very gener- will affect abona fide purchaser for
ally since. When thus created, there value and without notice to whom the
seems to be some diversity of opinion stock was transferred in the mode
as to its effect against an innocent prescribed by statute. Anglo-Cali-
purchaser of the stock for value and fornian Bank v. Grangers' Bank, 63
without notice of the lien. * * * Cal. 359, 364.
This difference is more apparent than A lien may exist as between the cor-
real, for it seems to be well recognized poration and a stockholder who has
that a by-law has no extra-corporate knowledge of the by-law giving the
force, and is only binding on those same and whose certificate recites his
dealing with the corporation who have ownership subject to the corporation's
notice of it, or who deal with it under by-laws even though it is not enforce-
such circumstances that they are able against his assignee without no-
bound to take notice of it. A solu- tice. Des Moines Nat. Bank v. War-
tion of the question will be found in ren County Bank, 97 Iowa 204, 66 N.
the right determination of the cate- W. 154.
gories in which notice is inferred. 16 Planters ' & Merchants Mut. ' Ins.
By-laws of private corporations are Co. V. Selma Sav. Bank, 63 Ala. 585,
not in the nature of legislative enact- 594.
ments, so far as third persons are con- 17 Bank of Atchison County v. Dur-
cerned. They are mere regulations fee, 118 Mo. 431, 40 Am. St. Eep. 396,
of the corporation for the control 24 S. W. 133.
and management of its own affairs. When the statute prohibits all ex-
They are self-imposed rules, resulting press agreements between a corpora-
from an agreement or contract be- tion and its stockholders for a lien
1097
obtained from another stockholder will be presumed to have knowledge

of a by-law creating a lien, and hence he is not entitled to the pro-
tection of an innocent holder for value.^* So also, a mere stockholder
to whom
another stockholder pledges his stock as collateral security
for a loan is charged with notice of a by-law creating a lien.^'
The fact that a bank purchasing stock of another bank from a stock-
holder therein had a by-law creating a lien on its stock similar to
the one of the bank whose stock was purchased and that such by-law
of the purchasing bank was printed on all of its stock certificates is
not equivalent to actual notice that the bank issuing the stock pur-
chased had a by-law creating such a lien, although the purchasing
bank might have learned of the existence thereof by inquiry and
failed to make the same.^"
The statement in a stock certificate that it is "transferable only on
the books of the corporation, in person or by attorney, on surrender
of the certificate" does not charge the transferee with notice of the
existence of a lien under a by-law or of the fact of the stockholder's
indebtedness to the company .^^
If a by-law reserving a lien on shares for debts due from the
stockholders provides that notice of the lien shall be given by the
in favor of the former upon the stock 19 Jewell V. Nuhn, 173 Iowa 112, 155
of the latter, to secure any debts or N. W. 174.
liabilities of the stockholders to the 20 Anglo-Calif ornian Bank v. Gran-
corporation, no such lien can be cre- gers ' Bank, 63 Cal. 359, 363.
ated by by-law. Conklin v. Second 21 Bank of CuUoden v. Bank of
Nat. Bank, 45 N. Y. 655, 660. Forsyth, 120 Ga. 575, 102 Am. St. Eep.
A corporation does not waive its 115, 48 S. E. 226. See also Bank of
lien, acquired by contract, by adopt- Holly Springs v. Pinson, 58 Miss. 421,
ing subsequently and upon its reor- 38 Am. Eep. 330.
ganization, a by-law which, after pro- The failure of a corporation to post
viding for the issuance of certificates a copy of its by-laws as required by
of stock, declares that "these certifi- statute held sufEcient to defeat the
cates shall be transferable by indorse-
enforcement of the stock lien, which
ment and delivery they gave as against a good faith as-
thereof, the trans-
signee who had no actual knowledge
fer to be complete and binding upon
of their contents, all that the certifi-
the * * * [corporation] only when
cate contained of a nature to put the
recorded up«n" its books. Jennings
assignee on inquiry being the state-
V. Bank of California, 79 Cal. 323,
ment that the assignor's ownership
5 L. E. A. 233, 12 Am. St. Eep. 145,
was subject to the corporation's by-
21 Pac. 852. laws and articles of incorporation.
18 Bank of Atchison County v. Dur- Des Moines Nat. Bank v. Warren
fee, 118 Mo. 431, 40 Am. St. Eep. 396, County Bank, 97 Iowa 204, 86 N. W.
24 S. W. 133. 154.
1098
Ch. 16] By-Laws [§ 515
certificates of stock issued by the corporation, this provision is bind-

ing upon the corporation, and it cannot assert a lien as against a
transferee of a certificate which does not give such notice.^^

It has been held that the board of directors consents to a transfer
of stock by a stockholder indebted to the corporation within the mean-
ing of a by-law, forbidding a transfer by such a stockholder without
its consent, when it elects the transferee a director and thus recog-
nizes him as a stockholder.^* So would seem that a transfer
also, it
of stock as collateral security will be valid as to the one secured as
against the corporation although the holder of the stock is indebted
to the corporation and the consent of the directors, required by a
by-law in such a case, is not obtained, when the matter of permitting
is one which has never been referred to the directors
a transfer of stock
and the supervision of such transfer has uniformly been intrusted
by them to the secretary of the corporation, and the transfer is made
in the customary manner.^*
A by-law giving the corporation a lien upon its stock cannot ordi-
narily be given a retrospective operation so as to be effective against
the transferee of stock transferred prior to its adoption ^^ or even so
as to be binding on a stockholder who acquired his stock before its
adoption and who did not consent thereto.^® But it would seem that
the lien may operate as to stock vyhich the holder transferred, prior
to the by-law's adoption, to one who was not an innocent purchaser
for value, where no entry of the transfer on the books of the cor-
poration has been made and there has been no request therefor, and
the stock was voted by the holder's proxy at the meeting *t which
the by-law was adopted.^'
22 Bank of Holly Springs v. Pinson, Bank of Forsyth, 120 6a. 575, 102 Am.
58 Miss. 421, 38 Am. Rep. 330. St. Bep. 115, 48 S. E. 226.
"Where notice of a by-law lien is '-^^ illegal by-law cannot be made

given in the face of a stock certificate, operative by printing it on the face
°^ ^^^ certificate. Buffalo German

the transferee takes subject to any
J T,i. J i 1 u ij t Ins. Co. V. Third Nat. Bank, 162 N.
debt 1,
due by 4.1,
the
,.,,,,.
stockholder
^
to 4.1,
the
.
„ ,„„ .„ ^ ^ ,„„;-„ ..x ^^ -n-
.
Y. 163, 48 L. E. A. 107, 56 N. E. 521;
^, ,
corporation
^ at the time of the transfer « , ,.
Conkhn v. r^ L t> < ait -kt
Oswego -kt
Nat. Bank, 45 N.
or which may arise before the corpora- y -gg
tion has notice of the transfer of the
23 Just V. State Sav. Bank, 132
scrip. But where the certificate
Mich. 600 94 N. W. 200.
makes no reference to the existence of 24 chambersburg Ins. Co. v. Smith,
the lien, a pledgee or transferee of n pg,. gt. 120 126.
corporate stock is not affected by the 26 People v. Crockett, 9 Cal. 112.
terms of a by-law lien of which he 26 Bryon v. Carter, 22 La. Ann. 98.
has no notice." Bank of Culloden v. 27 Eureka Mining & Power Co. v.
1099
§ 516] Pbitate Coepokations [Ch. 16
§ 516. Corporate meetings. As a general proposition, by-laws may

fix the time and place of holding stockholders' meetings, and the
mode of calling and of conducting the same unless, of course, this
is prohibited by the charter or statute.*' Without regard, however,
to the power of the corporation to adopt such by-laws, or to their
inherent validity, they manifestly cannot be employed for an unlaw-
ful purpose. Thus, a by-law requiring four-fifths of the capital stock
to be represented either in person or by proxy to constitute a quorum
for the transaction of business at a stockholders' meeting cannot be
Lively, 59 Wash. 550, 110 Pae. 425. held under such resolution, provided
See also Bank of CuUodeu v. Bank it was otherwise regular, was au-
of Forsyth, 120 Ga. 575, 102 Am. St. thorized and its proceedings were not
Eep. 115, 48 S. E. 226. void because of its being held in a
28 Connecticut. State v. Tudor, 5 state other than that named in the by-
Day 329, 5 Am. Dee. 162. laws. Miller v. Council
National
New Taylor v. Griswold,
Jersey. Knights &
Ladies of Security, 69 Kan.
14 N. J. L. 222, 27 Am. Dec. 33. 284, 76 Pae. 830.
New York. In re Election of Di- A by-law requiring four-fifths of
rectors of Long Island E. Co., 19 the capital stock to be represented
Wend. 87, 32 Am. Dec. 429. either in person or by proxy to consti-
Pennsylvania. Juker v. Com., 20 tute a quorum for the transaction of
Pa. St. 484; Com. v. Woelper, 3 Serg. business at a stockholders' meeting
& E. 29, 8 Am. Dec. 628. is a valid exercise of corporate power
England. Newling v. Francis, 3 T. under the Pennsylvania statutes. Lutz
K. 189. V. Webster, 249 Pa. 226, 94 Atl. 834.
As to regulations concerning corpo- The by-laws of a membership cor-
rate meetings and elections, see gen- poration attempting to fix a quorum
erally Chap. 40, infra. being inconsistent and conflicting,
The answer in an action held suffi- held the statutory provision on the
cient, under the statute, to show a subject would control. New York
usage establishing the practical con- Electrical Workers' Union v. Sullivan,
struction of a by-law, ambiguous as to 122 N. Y. App. Div. 764, 107 N. Y.
the time at which the annual meet- Supp. 886.
ing of the society was to be held. By-laws may adopt Gushing 's
State V. Conklin, 34 Wis. 21, 32. Manual to govern debates at cor-
Where the statute under which a porate meetings. People v. Ameri-
fraternal beneficiary association was can Institute City of New York, 44
incorporated authorized the associa- How. Pr. (N. Y.) 468.
tion to so amend or alter its by-laws Aby-law of a railroad company
as to provide for holding the meet- which provides that no contract in-
ings of its legislative body in any volving the franchise of the road
state or territory where it had subor- shall be made except the same be ap-
dinate lodges, and the governing body proved by a general meeting repre-
of the association at a regular meet- senting a majority of the stock, after
ing adopted a resolution to change being recommended by a majority of
the place of meeting provided in the the stockholders, precludes a lease of
by-laws to another state, a meeting the road for a term of years by the
1100
Ch. 16] By-Laws [§517
set up to defeat the requirement of the general corporation law that

directors be chosen annually.^'
§ 517. Ri^ht to vote and majin«r of Voting at corporate meetings.

By-laws, regulating in a reasonable manner the method of voting at
if their provisions do not oon-
corporate elections, will be sustained
with the charter or statute.^" But it does not lie within the
jElict
power of the majority to deprive a nonconsenting stockholder or

member of either the right to vote, given him by the charter or statute,
or the number of votes to which he is entitled thereunder, or to impose
new qualifications on him as a voter or unreasonable restrictions on
the exercise of his rights as such.^^ Moreover, where the charter or
board of directors, for while such lease of corporate elections and a by-law
does not involve the company's essen- prohibiting the counting of ballots on
tial franchise to be a corporation, it which anything should be written
does involve its franchise to take tolls other than the names of the persons
upon the road, and this comes within voted for.
the meaning of the phrase "the fran- SlOalifomia. People's Home Sav.
chise of the road." Stevens v. Davi- Bank v. Superior Court City & County
son, 18 Gratt. (Va.) 819, 98 Am. Deo. of San Francisco, 104 Cal. 649, 29 L.
692. E. A. 844, 43 Am. St. Eep. 147, 38 Pac.
29Lutz V. Webster, 249 Pa. 226, 94 452; Brewster v. Hartley, 37 Cal. 15,
Atl. 834. 99 Am. Dec. 237.
The court held to have the power Colorado. Lilylands Canal & Eeser-
under the exceptional facts of the voir Co. V. Wood, 56 Colo. 130, 136
case, to determine whether a by-law Pac. 1026.
fixing a quorum at four-fifths of the Delaware. Brooks v. State, 26 Del.
capital stock was inconsistent with 1, 79 Atl. 790.
the general corporation act which re- Illinois. Durkee v. People, 155 111.
quired that directors be chosen an- 354, 46 Am. St. Eep. 340, 40 N. E. 626,
nually, and, on finding that it was, to aff'g 53 III. App. 396.
decree that there be held an election New Jersey. Taylor v. Griswold, 14
at which a majority of the stock N. J. L. 222, 27 Am. Dec. 33; Loewen-
should constitute a quorum. Lutz v. thal v. Eubber Eeelaiming Co., 52 N.
Webster, supra. J. Eq. 440, 28 Atl. 454.
30 State V. Tudor, 5 Day (Conn.) South Carolina. St. Luke's Church
329, 5 Am. Dec. 162; Beckett v. Hous-
V. Mathews, 4 Desauss. Eq. 578, 6 Am.
ton, 32 Ind. 393; Com. v. Detwiller,
Dec. 619.
131 Pa. St. 614, 7 L. E. A. 357, 18
Atl. 990; Com. v. Woelper, 3 Serg. &
A by-law requiring qualifications of
voters at elections of trustees of a
E. (Pa.) 29, 8 Am. Dec. 628.
religious corporation additional to
In Com. V. Woelper, 3 Serg. & E.
(Pa.) 29, 8 Am. Dec. 628, it was held
those required by statute is void.
that a religious corporation could People V. Phillips, 1 Den. (N. T.) 388,
make a by-law vesting In the presi- See also State v. Anderson, 81 Ind.
dent the power to appoint inspectors App. 34, 67 N. E. 207.
1101
general law provides as to who shall be entitled to vote, a by-law can-

not confer the right to vote on others.'*
"Where under the charter or statute a stockholder is entitled to one
vote for each share of stock
dwned by him, a by-law cannot limit the
number of votes which he may cast to less than one for each such
share.'*
Where the statute gives a vote to each member of the corporation,
a by-law limiting the right to vote to stock a year old is in.valid.'*
A
corporation cannot by by-law require the answer to a challenge
of the right to vote to be made under oath.'* A stockholder who con-
sents to a by-law which takes away from him his right to vote will
be bound thereby.'*
A
by-law cannot, without his consent, deprive a stockholder of his
constitutional,charter or statutory right''' of cumulative voting,"
and it has been further held that a by-law which permits cumulative
voting cannot be repealed without the consent of all of the stock-
holders." On the other hand, a corporation may, in the absence of a
charter or statutory provision to the contrary,*" adopt a by-law which
changes the common-law rule, giving each stockholder or member
one vote only, without regard to the number of shares of stock
owned by him,** and allows stockholders or members to cast as many
votes as they have shares of stock.**
32Durkee v. People, 155 111. 354, 46 SSTomlin v. Tarmers' & Merchants'

Am. St. Eep. 340, 40 N. E. 626, aff'g Bank, 52 Mo. App. 430.
53 App. 376.
111. 39 Loewenthal v. Eubber Eeclaiming
33
Beckett v. Houston, 32 Ind. 393. Co., 52 N. J. Eq. 440, 28 Atl. 454.
Votes upon amendments to the by- *<' Taylor v. Griswold, 14 N. J. L.
laws of a mutual fire insurance com- 222, 27 Am. Dec. 33.
pany held required, under the charter, *' See § 489, supra.
to be taken not per capita but upon 42 Procter Coal Co. v. Finley, 98
the representation of risks —one vote ^y- 405, 33 S. W. 188; Com. v. Det-
filler, 131 Pa. St. 614, 7 L. E. A. 357,
for each risk held by a member.
Walker v. Johnson, 17 App. Cas. ^ -'^"- ^^0- êe also Stata v. Tudor,
(D C) 144 160 ^ ^^^ (Conn.) 329, 5 Am. Dec. 162.
34 In re United Towns Building & ^- Griswold, 14

'^^y^°'
^J^\ 'i'""?^^
T A Ta
79 -KT T T o^ riA Ail ^^ J" ^- ^22, 27 Am. Dec. 33.
Loan Ass'n, N. J.
)
L. 31, 74 Atl.
A. ,by-law
, , . ,
which provides that at a
^g„ stockholders meeting each stockholder
, TT- A r, ,T.T -o- V '
36 People V. Kip, 4 Cow. (N T. ^^^^ ^^^, ^^^ ^^^^ ^^^ ^^^^
^^^^^
382; People v. Tibbets, 4 Cow. (N. T.) „f ^^^^^ „^^^^ ^^ ^.^_ ^ppj.^^ ^^^
^^^- only to the election of directors at
36 Com. v. Detwiller, 131 Pa. St. sxwh a meeting, but also to the elec-
614, 7 L. E. A. 357, 18 Atl. 990. tion of a chairman to preside over the
37 See §§489, 494, supra. meeting, to a motion to adjourn, in
1102
Ch. 16] By-Laws [§517
Unless the charter or statute requires votes to be cast in person, a

by-law under which, contrary to the common-law rule,** they may
be east by proxy will be valid.**
Where the charter or statute expressly gives the right to vote by
proxy, a by-law which deprives a stockholder of such right or restricts
its exercise in an unreasonable manner will be invalid as to him, pro-
vided he has not consented thereto.*^

Neither a statutory provision that the election of trustees shall be
made by the stockholders in attendance at the meeting either in person
or by proxy, *^ that the stockholders may be represented at all elections
by proxies,*' nor that the corporation may by by-law, where no other
short, whenever a vote is necessary. stitution directs the general assembly

Procter Coal Co. v. Pinley, 98 Ky. 405, to "provide by law, that in all elec-
33 S. W. 188; In re Rochester Dist. tions for directors ormanagers of in-
Tel. Co., 40 Hun (N. Y.) 172. corporated companies, every stock-
43 In State v. Tudor, 5 Day (Conn.) holder shall have the right to vote, in
329, 5 Am. Dec. 162, it is doubted person or by proxy, for the number of
whether the common-law rule prohib- shares of stock owned by him, for as
iting voting by proxy applied in the many persons as there are directors or
case of private corporations. managers to be elected, or to cumu-
See also § 489, supra. late said shares," etc., this being an
44 Com. V. Detwiller, 131 Pa. St. 614, expression in favor of the policy of
7 L. E. A. 357, 18 Atl. 990. Contra, voting by proxy. People v. Crossley,
Taylor v. Griswold, 14 N. J. L. 222, 69 ni. 195.
27 Am. Dec. 33, on the ground that 45 People's Home Sav. Bank v. Su-
such a by-law contravenes the com- perior Court City & County of San
mon-law rule. Voting by proxy, how- Praneisco, 104 Cal. 649, 29 L. E. A.
ever, is now permitted in New Jersey 844, 43 Am. St. Eep. 147, 38 Pac. 452;
by See Kreissl v. Distilling
statute. In re Lighthall Mfg. Co., 47 Hun (N.
Co., 61 N. Eq. 5, 47 Atl. 471.
J. Y.) 258; White v. New York State
Where the charter of a trading Agr. Society, 45 Hun (N. Y.) 580;
corporation on the statute is silent on Com. V. Coxe, 1 Leg. Chron. (Pa.) 89.
the question, the power to adopt a by- 46 In re Lighthall Mfg. Co., 47 Hun
law permitting voting to be by proxy (N. Y.) 258.

will be implied. Walker v. Johnson, 47 ' While it is provided by section
'
17 App. Cas. (D. C.) 144, 163. See 312 of the Civil Code that stockholders
also Market St. Ey. Co. v. Hellman, of corporations may be represented at
109 Cal. 571, 42 Pac. 225. all elections by proxies, yet the by-
Where a benevolent society is au- laws of the petitioner bank provide

thorized to adopt by-laws not incon- that no proxy shall be voted by any
sistent with the constitution or laws one not a stockholder of the corpora-
of the state or of the United States tion; and it is upon the validity of
and to elect directors in such manner such by-law that the merits of this
as may be specified by its by-laws, it case hinge. It is suggested in argu-
may adopt a by-law providing that its ment of counsel that all banking cor-
members may vote for directors by porations have a by-law of similar
proxy especially when the state con- import; but, notwithstanding this gen-
1103
—
517] Pbivate Coepokations [Ch. 16
provision made, provide for the mode of voting by proxy,

is specially
authorizes the adoption of a hy-law prohibiting the voting of a proxy

by any one not a stockholder .^^
eral practice, we have arrived at the it to directors, or the president, or

conclusion, after careful consideration, the secretary, and thus the interests
that the making of such a law is within control would have the power to
out power of the corporation.
the compel the minority interests, if un-
Corporations have no power to create able to be present in person, to be
by-laws that are unreasonable in their representedby the very interests to
practical application, or that are vio- which they are opposed, and to rein-
lative of the statute of the state; and state in office the very men whose elec-
we think this by-law an infringement tion they desire to defeat. The prin-
upon the and a most substan-
statute, ciple of cumulative voting has been
tial upon the rights of
limitation authorized and approved in the inter-
stockholders granted by section 312 of ests of minority representation, yet
the Oivil Code. That section is broad this by-law squarely strikes at this
in its terms, and when it says that a principle which has been so carefully
stockholder in a corporation may ap- fostered. The substantial rights of a
—
point a proxy an attorney in fact stockholder under the law cannot be
to represent him at elections held by taken from him, or even abridged, by
the corporation, in the absence of the by-laws. The right to vote by
limitations in the law, must be held
it proxy is a most substantial right, and
Ijhat the statute gives him the right this by-law handicaps this right out
to name an attorney in fact of his own of all usefulness." People's Home
selection. Any other construction Sav. Bank v. Superior Court City &
would entirely nullify all benefits in- County of San Francisco, 104 Cal. 649,
tended to be conferred by its provi- 29 L. E. A. 844, 43 Am. St. Eep. 147,
sions. To declare that, though the 38 Pac. 452.
statute in general terms gives all 48 "Section 303 of the Civil Code
stockholders of corporations the right provides: 'A corporation may by its
to vote by proxy, yet the corporation, by-laws, where no other provision is
by its by-laws, has the power to say specially made, provide for: * * *
who that proxy shall be,

is to give the i(3) The mode of voting by proxy.'
corporation full power to throttle the This provision does not give the cor-
statute. The stockholders of many of poration power to pass the by-law
our corporations are limited in num- here assailed. It refers to the prelimi-
ber, and the case would undoubtedly nary requirements to be followed in
often arise where the absent stock- order that the proxy may be entitled
holder, deeirous of being represented to vote, as that the authorization
at an election, would be unable to find nuist be in writing, properly wit-
a friend among them in whom to trust nessed, acknowledged, filed with the
his The statute contem-
interests. records, etc. In creating this provi-
plates no such conditions, and neither sion it was not in the mind of the
says nor intended to say that such a legislature to curtail the right of vot-
stockholder would be deprived of his ing by proxy, but rather that such
right to vote by proxy. If you may right might be exercised by stockhold-
limit by by-law the right of holding a ers within any reasonable restrictions
proxy to stockholders, you may limit which the corporation deemed proper
1104
Ch. 16] By-Laws [§518
§518. Directors and officers. By-laws, if not inconsistent with

charter or statutory provisions, may prescribe the qualifications of
the directors or other of&cers of the corporation, and the time and
mode of electing or appointing them, and provide for their removal.*®
A by-law is not invalid as taking away the stockholders' statutory
right to vote their stock for directors merely because it prescribes
certain qualifications as necessary to persons voted for.^"
to incorporate into their by-laws. The ducting elections of trustees. Juker

statute gives to the corporation the v. Com., 20 Pa. St. 484. See also Com.
power to regulate the exercise of V. Woelper, 3 Serg. & E. (Pa.) 29, 8
the right, but no power to either qual- Am. Dec. 628.
ify or limit the right, and certainly no 60 People V. Ittner, 165 111. App. 360,
power to so shackle the right as to 366.
result in its nullification." People's A corporation will not by implica-
Home Sav. Bank v. Superior Court tion be denied the right to prescribe
City & County of San Francisco, 104 the qualifications of its directors and
Cal. 649, 29 L. E. A. 844, 43 Am. St. to provide that no attorney employed
Eep. 147, 38 Pac. 452. in suits against it shall be eligible to
49lUin.ois. People v. Crossley, 69 the directorate. Cross v. West Vir-
111. 195; People v. Ittner, 165 111. App. ginia Cent. & P. By. Co., 37 W. Va.
360, 364. 342, 18 L. B. A. 582, 16 S. E. 587.
Missouri. Savings Bank of Hanni- A
by-law may validly provide that
bal V. Hunt, 72 Mo. 597, 37 Am. Bep. in order to be qualified for the oflSce
449. of director a person must not be di-
New Jersey. In re A. A. Griffing rectly or indirectly interested as a
Iron Co., 63 N. J. L. 168, 41 Atl. 931; stockholder in any other like firm,
Kearney v. Andrews, 10 N. J, Bq. 70. company or association, or be the
New York. Burden v. Burden, 159 immediate member of the family of
N. T. 287, 54 N. E. 17, 8 App. Div. 160, a stockholder in such firm, company
40 N. Y. Supp. 499. or association. People v. Ittner,
Pennsylvania. Com. v. Woelper, 3 165 111. App. 360.
Serg. & R. 29, 8 Am. Dec. 628. A statute held not to invalidate a
Tennessee. See State v. Vanderbilt by-law of a corporation not for profit
University, 129 Tenn. 279, 164 S. W. providing that no person should be
1151. eligible to the ofSce of director unless
West Virginia. Cross v. West Vir- he is a bona fide holder of a certain
ginia Cent. & P. By. Co., 37 W. Va. amount of the corporation's capital
342, 18 L. B. A. 582, 16 S. E. 587. stock. Waterbury v. Temescal Water
A by-law cannot take away the Co., 11 Cal.App. 632, 105 Pae. 940.
power of electing directors, given the Aby-law which requires that, in
stockholders by statute. Brewster v. order to be qualified for the office of
Hartley, 37 Cal. 15, 99 Am. Dec. 237. director, a person must have been the
See also State v. Anderson, 31 Ind. bona fide owner and holder of not less
App. 34, 67 N. E. 207. than two shares of stock standing
When the act incorporating a religi- registered in his name at least six
ous society is silent on the subject, months prior to the time of the annual
by-laws may regulate the mode of con- meeting at the time of his election, is
1105
I Priv. Corp.— 70
Stockholders in a corporation whose charter provides that the elec-

tion of trustees shall be regulated by by-law are required to take
notice of the time and place established by a by-law for the election
of trustees.'^
Where the statute provides that the directors shall be elected by
such of the stockholders as attend, the meeting either in person or
by proxy, the corporation cannot adopt a by-law providing that a
majority of the entire stock shall constitute a quorum.^^
Since the filling of a vacancy on the board of trustees is a corporate
act, a by-law authorizing a vacancy to be filled by less than a majority
not on that account unreasonable. annual meeting for the election of

People V. Ittner, 165 111. App. 360. officers shall be held on the first Sun-
A by-law which, in keeping with the day of July in each year, and the
statute, provides that no person who monthly meeting shall be held on the
is not the holder or owner of at least first Tuesday of each month at half
one share of stock shall be a trustee past seven o 'clock p. m. " does not, on
of the corporation, and that a trans- its face, certainly and incontro-
fer by a trustee of his entire stock vertibly fix the hour for the holding
shall work a forfeiture of his office of the annual meeting, but, to the con-
and be equivalent to his resignation, trary, is on that point doubtful and
precludes the holding of the office of ambiguous, and its practical construc-
trustee by one to whom stock was tion by the corporation will govern.
transferred in order to qualify him, State V. Conklin, 34 Wis. 21, 28.
and who immediately assigned such While for practical purposes it
stock in blank to the true owner, not- would be more satisfactory for the
withstanding the prior amendment of by-laws to specify the number of
the statute in such manner as to per- hours the polls shall be kept open
mit a by-law allowing one not a stock- 'for the election of directors, a by-
holder to be a trustee. In re George law which leaves this matter to the

Eingler & Co., 204 N. T. 30, Ann. Cas. discretion of the inspectors will not
1913 C 1036, 97 N. E. 593. for that reason be invalid, and their
61 Jones V. Hilldale Cemetery So- action relative thereto will not be dis-
ciety, 23 Ky. L. Eep. 1486, 65 S. "W. turbed by the courts in the absence
838. of an abuse of the discretion allowed.
The fact that the statute requires Clopton V. Chandler, 27 Cal. App. 595,
notice of a meeting for the election of
150 Pac. 1012.
directors does not preclude the cor-
Where an addition to the corpora-
poration from electing directors at an
tion 's committee on elections was
adjourned meeting of which no notice
unauthorized, it will not repeal, or
was given under a by-law providing
change or modify a by-law which
for the adjournment of meetings at
designates certain officers as constitut-
which a quorum is not present and
that no notice of the adjourned meeting such committee. Clopton v. Chan-
ing need be given. In re Hammond, dler, supra.
139 Ted. 898. 52Darrin v. Hoff, 99 Md. 491, 58

A by-law which provides that ' ' the Atl. 196.
1106
Ch. 16] By-Laws [§518
of the trustees is void, where the statute makes possible the doing
of corporate acts by a majority only of such trustees.*^
"Where an officer is removed in harmony with by-laws, in force at
the time he took office and adopted under a statute providing that
the officers shall hold their places during the pleasure of the board
of directors, he will not be heard to complain thereof.^* But a statute^
providing that the directors may remove any officers when the inter-
ests of the corporation shall require it, does not authorize a by-law
giving the directors power to remove any one of their number who
shall be guilty of certain acts opposed to the corporate interests,
where it also declares that the officers of the corporation shall be
"a president, secretary and treasurer, and such other officers and
agents as shall be determined by the directors," thus requiring that
the word "officers" as used in that part giving the power of removal
be not construed as including the directors themselves.^* Moreover,
where the state constitution gives to each stockholder the right of
voting — —
and in a cumulative manner for directors, the corporation
cannot adopt a by-law giving the directors power to remove any one
of their number who shall be guilty of certain specified acts, since
such by-law would operate to nullify the constitutional right of a
63 state V. Curtis, 9 Nev. 325. Telephone & Telegraph Co., 104 La.
64Darrah v. Wheeling lee & Stor- 751, 29 So. 271.
age Co., 50 W. Va. 417, 40 S. E. 373. A by-law, adopted by the board of
See also Hunter v. Sun Mut. Ins. Co. trustees whose term of office was four
of NewOrleans, 26 La. Ann. 13. years, which empowered the president
A
by-law of a public institution, and actuary "to appoint, remove and
giving the board of directors power fix the compensation of each and
to remove oflScers without assigning every person, except agents, employed
any reason for their removal, is proper by the company" did not give the
—
and reasonable even indispensable. president 'and actuary power to enter
Ellis V. North Carolina Institution for into a contract whereby a person was
Deaf & Dumb & Blind, 68 N. C. 423. employed for life. Carney v. New
A by-law giving the board of direc- York Life Ins. Co., 162 N. Y. 453,
tors power "to discontinue" officers
49 L. R. A. 471, 76 Am. St. Eep. 347,
57 N. E. 78.
or agents in office at its pleasure, gives
55Laughlin v. Geer, 121 111. App.
it power "to remove" officers or
534, 537.
agents from office whenever it chooses.
In the absence of an express statu-
Darrah v. Wheeling Ice & Storage Co., tory provision and of any provision in
supra. the articles of incorporation or in
Under a by-law providing that all by-laws duly adopted by the stock-
officers shall hold office at the pleasure holders conferring such power, the
of the board of directors, such board directors of a business corporation
has no power to employ a managter by have no power to expel one of their
the year. Eowler v. Great Southern number and hence no power to amend
1107
stockholder to choose whomsoever he might think proper to represent

him on the board of directors.^^
"Where it is competent for the stockholders to adopt a by-law in
the first instance fixing the number of directors, it is also competent
for them to amend the by-law relative thereto in accordance with the
rules for such amendment agreed upon and prescribed.^''
the by-laws so as to make their ex- rectors, and that "the number of
pulsion of such one possible. Raub v. directors and their names who shall
Gerken, 127 N. Y. App. Div. 42, 111 manage the of the company
affairs
N. Y. Supp. 319. for the first year" be stated in the
56 Laughlin v. Gear, 121 111. App. articles of association, a change in
534, 538. the number of directors from seven,
An injunction will lie to prevent as the articles provided, to three, by
the directors from removing one of means of the adoption of a by-law to
their number under an invalid by- such effect by the stockholders, was
law. Laughlin v. Geer, supra; Eaub not invalid, the quoted words having
V. Gerken, 127 N. Y. App. Div. 42, reference to the first year only. Eenn
111 N. Y. Supp. 319. V. United States Cement Co., supra.
57Eenn v. United States Cement The number of directors may of
Co., 36 Ind. App. 149, 73 N. E. 269. course be changed by by-law When the
Where the statute requires the statute thus provides. Gold Bluff
adoption of by-laws and the filing of Mining & Lumber Corporation v.
a copy thereof with the county clerk Whitlock, 75 Conn. 669, 55 Atl. 175;
and authorizes the fixing of the num- In re Griffing Iron Co., 63 N. J. L. 168,
ber of directors by by-law but does 171, 41 Atl. 931.
not prescribe' the time within which A statute providing that the num-
the copy is to be filed, postponement ber of directors may be increased or
of the filing for a number of years reduced "when the stockholders own-
and until after directors to the num- ing a majority of the stock shall so
ber called for by the by-laws are determine," etc., precludes the adop-
elected, will not invalidate their election of a by-law requiring the vote
tion. Taylor v. Lauridson; 161 Cal. of more than such majority in order
718, 118 Pae. 535; Willis v. Laurid- to change the number of directors.
son, 161 Cal. 106, 118 Pae. 530. Katz V. H. & H. Mfg. Co., 109 N. Y.
That the articles of incorporation App. Div. 49, 95 N. Y. Supp. 663, aff'd
state the number of directors which 183 N. Y. 578, 76 N. E. 1098.
the corporation shall have, does not
"A change in the by-laws, increas-
affect the power to enact by-laws fix-
ing the number of directors of a cor-
ing the number when the statement
poration, being manifestly of great
in the articles was not required by
importance, extraordinary and out
statute. Eenn v. United States Ce-
of the usual business transacted at
ment Co., supra.
Under statutes which authorized the a regular or annual meeting of the
stockholders to make necessary by- stockholders, the weight of authority
laws and required the business of the seems to be, as it ought to be, that
corporation to be managed by not less in the absence of notice previously
than three nor more than eleven di- given, it cannot be made." Bagley
1108
Ch. 16] By-Laws [§518
The by-laws may prescribe the powers and duties of the directors
and require particular officers to give bond for the
or other officers,^*
V. Eeno Oil Co., 201 Pa. 78, 56 L. E. articles on credit and give the cor-
A. 184, 50 Atl. 760. poration's notes for the price. Siebe
68 Hale V. Mechanics Mut. Fire
' Ins. v. Joshua Hendy Maeh. Works, 86
Co., 6 Gray (Mass.) 169, 66 Am. Dee. Cal. 390, 25 Pac. 14.
410; Burden v. Burden, 159 N. T. 287, A by-law authorizing the president
54 N. E. 17, 8 N. T. App. Div. 160, 40 to execute accommodation paper, held
N. Y. Supp. 499; Railway Equipment beyond the charter powers of the cor-
& Publication Co. v. Nat.Lincoln poration and therefore void. Steiner
Bank, 82 Hun (N. Y.) 8, 31 N. Y. v. Steiner Land & Lumber Co., 120
Supp. 44; Stevens v. Davison, 18 Gratt. Ala. 128, 26 So. 494.
(Va.) 819, 98 Am. Dee. 692. A by-law authorizing the president
A banking association 'organized of a bank to certify checks, does not
under the general New York law may, authorize him to certify checks drawn
by its articles of association and by- by himself. Claflin v. Farmers' &
laws, divide the business which it is Citizens' Bank, 25 N. T. 293.
authorized to transact into distinct The sole purpose of a by-law of a
departments and create a separate trustcompany providing that its presi-
board of directors for each depart- dent shall not accept a trusteeship or
ment, or, what is the same thing, in- office of receiver without the approval
trust to separate committees of the of the executive committee, held to
directors the exclusive charge of such be to prevent the president from bind-
departments, clothing each committee ing the company wdthout the approval
with all of the powers of a board in of its executive committee by the ac-
relation to the business which its de- ceptance of any trust which it was
partment embraces. Palmer v. Yates, authorized to execute. Citizens ' Trust
3 Sandf. (N. Y.) 137. & Deposit Co. v, Tompkins, 97 Md.
However extensive the authority 182, 54 Atl. 617.
conferred upon the president by a by- Aby-law authorizing the general
law providing that he shall have the manager to bind the company by con-
general charge and direction of the tracts for merchandise, to sign notes,
business of the company as well as all drafts and acceptances in the name of
matters connected with the interests the company and to make
checks upon
and objects thereof and that he shall the company's funds in bank for the
be an ex officio member of all stand- payment of the proper debts of the
ing committees, it does not include bank does not authorize him to bind
authority which is expressly and in the company as a guarantor for the in-
unmistakable terms conferred i^pon a debtedness of another. Dobson v.
certain committee as such. Twelfth More, 164 111. 110, 114, 56 Am. St. Hep.
St. Market Co. v. Jackson, 102 Pa. St. 184, 45 N. E. 243, aff'g 62 111. App.
269. 435.
Where the by-laws authorize the A by-law cannot make the directors
president to "buy and sell the articles personally liable for the corporate
in which the corporation deals with- debts in excess of their subscribed
out first obtaining the sanction or con- capital stock. Underbill v. Santa
sulting the board of directors," the Barbara Land, Building & Improve-
president has power to purchase such ment Co., 93 Cal. 300, 28 Pac. 1049.
1109
faithful discharge of their duties.*' But such by-laws must not be

inconsistent with the charter of the corporation or the governing
statute.^" They cannot limit the powers of the directors as defined
by the charter or general law ®* nor vest the management of the cor-
poration 's business in an executive committee when the charter or
enabling act vests it in the board of directors.®^ By-laws, however,
which provide that the corporate affairs shall be managed by directors,
who may exercise all powers not required by law, or by the charter
or by-laws to be otherwise exercised, subject to control by the com-
mon stockholders, are in harmony with the law as to the powers of
directors.®'
A corporation cannot, in the absence of charter or statutory authori-
ty, limit or restrict the powers of its directors or ofiScers by by-law
and set up the limitations or restrictions contained therein against third
persons who deal with the directors or officers, as they have a right
to do, on the strength of their apparent authority.®*
69 of Wilmington & Brandy-

Bank St. Ey. Co., 68 111. App. 156; Metro-
wine WoUaston, 3 Harr. (Del.) 90;
V. pole Building & Turkish Bath Co. v.
Savings Bank of Hannibal v. Hunt, 72 Garden City Fan Co., 50 111. App. 681,
Mo. 597, 37 Am. Eep. 449. 683.
60 Brewster v. Hartley, 37 Cal. 15, Maryland. Tome v. Parkersburg
99 Am. Dec. 237; Tempel v. Dodge, 89 Branch E. Co., 39 Md. 36, 17 Am. Eep.
Tex. 69, 33 8. W. 222, 32 S. "W. 514. 540.
Union Mut. Fire Ins. Co. v. Key-
61 Michigan. See Hellenbeck v. Pow-
ser, 32 N. H. 313, 64 Am. Dec. 375. ers & Walker Casket Co., 117 Mich.
See also Campbell v. Merchants' & 680, 76 N. W. 119.
Farmers' Mut. Fire Ins. Co., 37 N. H. Missouri. Eosenbaum v. Gilliam,
35, 72 Am. Dee. 324. 101 Mo. App. 126, 74 8. W. 507.
62 Tempel v. Dodge, 89 Tex. 69, 33 Nebraska. Johnston v. Milwaukee
S. W. 222, 32 S. W. 514. & W. Inv. Co., 46 Neb. 480, 64 N. W.
63 Kidd V. New Hampshire Traction 1100.
Co., 74 N. H. 160, 66 Atl. 127. New York. Eathbun v. Snow, 123
64 Alabama. Kelly v. Mobile Build- N. Y. 343, 10 L. R. A. 355, 25 N. E.
ing & Loan Ass'n, 64 Ala. 501. 379; Lyon v. West Side Transfer Co.,
Georgia. Ealeigh & G. R. Co. v. 132 App. Div. 777, 117 N. Y. Supp.
Pullman Co., 122 Ga. 700, 50 S. E. 648; Bacon v. Montauk Brewing Co.,
1008; Johnson v. Waxelbaum Co., 1 130 App. Div. 737, 115 N. Y. Supp.
Ga. App. 511, 58 S. E. 56. 617; Newman v. Lee, 87 App. Div. 116,
Illinois. Ashley Wire Co. v. Illinois 84 N. Y. Supp. 106; Standard Fashion
Steel Co., 164 111. 149, 56 Am. St. Eep. Co. V. Siegel-Cooper Co., 44 App. Div.
187, 45 N. E. 410, afe'g 60 111. App. 121, 60N. Y. Supp. 739; Marine Bank
179; Union Mut. Life Ins. Co. v. of Buffalo v. Butler Colliery Co., 52
White, 106 HI. 67, 75; Wait v. Smith, Hun 612, 5 N. Y. Supp. 291; Mer-
93 111. 385, 390; Smith v. Smith, 62 chants' Bank v. MeColl, 6 Bosw. 473.
111. 493; Trawick v. Peoria & Ft. C. South Carolina. Mayer v. East
1110
Cli. 16] By-Laws [§518
If not inconsistent with the charter, by-laws may fix the time,
Shore Terminal Co., 41 S. C. 300, 25 L. as superintendent at a certain salary,

R. A. 48, 44 Am. St. Eep. 709, 19 S. E. cannot be sustained as against the cor-
651. poration where a by-law, providing
Tennessee. Barnes v. Black Diamond for certain officers, among them a su-
Coal Co., 101 Tenn. 354, 47 S. W. 498. perintendent, required such officers to
Vermont. Howland Bros. & Cave v. be elected by the board of directors.
Barre Sav. Bank & Trust Co., 89 Vt. Said the court: "If there is a provi-
290, 95 Atl. 679; Lyndon Sav. Bank v. sion of charter or a by-law requiring
International Co., 75 Vt. 224, 54 Atl. the powers of a board to be exercised
191. in some particular way, then the thing
Virginia. Pine Beach Inv. Corpora- must be done in that way, and all per-
tion V. Columbia Amusement Co., 106 sons dealing with such corporation
Va. 810, 56 S. E. 822. must know what the limitation of
A
corporation cannot escape liabili- power is." See also in connection
ty upon its indorsement of a note in with this last case: Miners' & Mer-
the course of its business on the chants' Bank of Lonaconing v. Ards-
ground that the indorsement was. not ley Hall Co., 113 N. Y. App. Div. 194,
in accordance with its by-laws. First 99 N. Y. Supp. 98; Bocock's Ex'r v.
Nat. Bank of Washington v. Eureka Alleghany Coal & Iron Co., 82 Ya.
Lumber Co., 123 N. G. 24, 31 S. E. 348. 913, 3 Am.
St. Eep. 128, 1 S. E. 325;
See also Lyndon Sav. Bank v. Interna- Haden Farmers' & Mechanics' Fire
v.
tional Co., 75 Vt. 224, 54 Atl. 191. Ass'n, 80 Va. 683.
The fact that under the statute, the Where the statute under which a
certificate of incorporation may place corporation is organized provides that
limitations on the ordinary powers of the by-laws shall prescribe the powers
the corporate officers, does not consti- and duties of the corporate officers,
tute notice to the world of the by-laws adopted in pursuance thereof

existence of by-laws containing such are part of the corporation's charter,
limitations, so as to make the same and not only define and limit the pow-
binding on all of those dealing with ers and duties of the officers as be-
the corporation. Powers v. Schlicht tween them and the corporation, but
Heat, Light & Power Co., 23 N. Y. put third parties upon notice in treat-
App. Div. 380, 48 N. Y. Supp. 237, ing with such officers as to the extent
aff'd 165 N. Y. 662, 59 N. E. 1129. of their power and agency without
A by-law of a corporation requiring regard to whether knowledge thereof
one of its officers to notify sureties has been specifically brought home to
on obligations held by it of any dues them. In re Millward-ClifE Cracker
unattended to, is intended merely for
Co.'s Estate, 161 Pa. St. 157, 28 Atl.
the convenience and protection of the
1072.
corporation, and a surety is not re-
The by-laws of a corporation may
leased by the officer's failure to com-
be placed in evidence to show that a
ply therewith. New Hampshire Sav.
contract attempted to be entered into
Bank Downing, 16 N. H. 187.
v.
by president was without authori-
its
Contra, Colpe v. Jubilee Min. Co.,
2 Cal. App. 393, 84 Pac. 324, in which ty, no question of estoppel or ratifi-
it is held that a contract between the cation being involved. Northwestern
general manager of a corporation and Packing Co. v. Whitney, 5 Cal. App.
another, whereby the latter was to act 105, 89 Pae. 981.
1111
§518] Pkivatb Cobpoeations [Cli. 16
place andmode of holding and conducting directors' meetings,®^ and

may determine and fix the number of directors who shall constitute
a quorum for the transaction of business, even though they fix the
number at less than a majority, and the number who must concur in
voting on questions.*^
There being no charter or statutory provision to the contrary, the
salaries to bepaid the directors and officers are a proper subject of
by-laws,*' and the stockholders ordinarily have the power to adopt
65 Stockton V. Harmon, 32 Fla. 312, There exists the presumption that

'
13 So. 833; Hill v. Rich Hill Coal Min. the words majority vote ' as used in
' '
Co., 119 Mo. 9, 24 S. W. 223; Foster a by-law providing that a majority

V. Mullanphy Planing Mill Co., 92 Mo. vote of the directors shall at all times
79; Smith v. Law, 21 N. Y. 296; Hoyt determine the action of that body,
V. Thompson's Ex'r, 19 N. Y. 207; were intended to mean a majority
Hoyt V. Sheldon, 3 Bosw. (N. Y.) 267. vote of the directors present at a
A by-law requiring regular meetings meeting, and constituting at least a
of the board of directors to be held ab majority of the number composing the
the home office of the corporation does board. Foster v. Mullanphy Planing
not require the special meetings of the Mill Co., 92 Mo. 79, 4 S. W. 260.
board to be held at such place. Ash- A by-law providing that the unani-
ley Wire Co. v. Illinois Steel Co., 60 mous vote of the directors shall be
111.App. 179. necessary to the sale of the business
A
by-law providing that whenever as a going concern or to a sale of the
less than a quorum is present at a corporate property in bulk or in any
regular meeting of the board of di- way other than in the usual course of
rectors, those present, if three or business, is not invalid under a statute
more number, shall have power to
in making the action of the majority of
adjourn to such time and place as they the directors the action of the board
may deem proper, not passing over "unless it is otherwise provided,"
the next regular meeting, is reason- such by-law being within the excep-
able, and proper action taken at a tion quoted. Levin v. Mayer, 86 N.
meeting to which a regular meeting Y. Misc. 116, 149 N. Y. Supp. 112.
was adjourned under such by-law will 67 Green v. Felton, 42 Ind. App.
be binding, although it does not 675, 84 N. E. 166.
appear that the absent directors had A by-law providing that the salaries
notice of the adjourned meeting ex- of certain corporate officers should be
cept as they were chargeable with fixed prior to their election held, in
notice under the by-laws. Smith v. accordance with its practical construc-
Law, 21 N. T. 296, 297. tion, not mandatory but merely di-
66 V. Harmon, 32 Ma. 312,
Stockton rectory. Francis v. Brigham-Hopkins
13 So. 833; Hoyt v. Thompson's Ex'r, Co., 108Md. 233, 70 Atl. 95.
19 N. Y. 207; Hoyt v. Shelden, 3 Bosw. The right of a person acting as sec-
(N. Y.) 267. retary a corporation to recover
of
When the charter of a corporation compensation for his services is not
requires a majority of the directors to defeated by the fact that the by-laws
act, a by-law cannot authorize action authorized the "appointment" of a
by than a majority.
less State v. secretary and the resolution naming
Curtis> 9 Nev. 325. him as secretary referred to him as
1112
' ;
Ch. 16] By-Laws [§518
a by-law permitting the directors to fix and determine such salaries.**
Although it seems that when the directors fix their own salaries
under authority vested in them, their action in the matter is not
final against a dissenting stockholder who promptly applies for relief
such action will not be set aside unless there appears injustice or
oppression or circumstances amounting to fraud.®'
Notwithstanding the fact that the directors are authorized by statute
to ad-opt by-laws, they cannot, even under a by-law adopted, vote
a salary to one of their number when the vote of such one is necessary
to make a quorumJ"
"elected" to that office. Dodge v. (N. J. L.), 45 Atl. 1091; Davis v.

Lansing & Suburban Traction Co., 152 Thomas & Davis Co., 63 N. J. Eq. 572,
Mich. 100, 115 N. "W. 1004. 52 Atl. 717.
A by-law, providing for the appoint- A by-law providing that the salary
ment cf a secretary but not fixing hia or compensation of all officers, employ-
compensation, which the corporation ees or agents of the corporation ap-
was authorized to allow, does not en- pointed by the board of directors shall
title a director acting as secretary to be fixed by such board does not divest
compensation. Kleinschmidt v. Ameri- equity of its jurisdiction .to hold to an
can Min. Co., 49 Mont. 7, 139 Pac. 785. accounting directors who have voted
68 Green v. Telton, 42 Ind. App. 675, excessive themselves as
salaries to
84 N. E. 166. officers. Carr v. Kimball, 153 N. Y.
The directors cannot be regarded as App. Div. 825, 139 N. Y. Supp. 253,
"officers" within a by-law providing afE'd 215 N. Y. 634, 109 N. B. 1068,
that "the salaries of officers and em- remittitur amended 215 N. Y. 714, 109
ployees shall be determined by the N. E. 1069.
board of directors," especially when 70McConnell v. Combination Min-
another by-law distinguishes between ing &
Milling Co., 31 Mont. 563, 79
officers and directors by providing that Pac. 248. See also Carr v. Kimball,
"the directors and officers of the asso- 153 N. Y. App. Div. 825, 139 N. Y.
'
ciation shall be stockholders therein, Supp. 253, afe'd 215 N. Y. 634, 109
etc. Schoening v. Sehwenk, 112 Iowa N. E. 1068, remittitur amended 215
733, 84 N. W. 916. N. Y. 714, 109 N. E. 1069. See gener-
The execution of a by-law must be ally the chapter on Compensation of
fair and honest and not unreasonable Officers, infra.
and arbitrary; hence where a by-law A by-law, adopted by the directors,
gives the directors power to fix the which authorized them to appoint a
salaries of the officers, the directors secretary and fix his salary, will not
cannot reduce that of the president validate a resolution giving a director,
to less than half of what it had for- whose presence at the meeting at
merly been, merely because of hostili- which the by-law was adopted and at
ty to him. and opposition to his policy. which he was elected secretary and
Banigan v. United States Rubber Co., at the subsequent meeting at which his
22 K. I. 452, 45 Atl. 739. salary was fixed was necessary to con-
69 Green v. Felton, 42 Ind. App. 675, stitute aquorum, the right to collect
84 N. E. 166, citing Hayes v. Pierson such salary as from the time of his
.1113
,§ 519] PRIVATE COKPOBATIONS [Ch. 16
§519. Inspection of books and papers. A corporation may un-

doubtedly make reasonable by-laws regulating the inspection of its
books and papers by its stockholders, but it cannot deny them the
right, or impose unreasonable restrictions ; nor can it make provisions

on the subject which conflict with its charter or the general law.''^
So it has been held that a by-law delegating the stockholder's legal
right to inspect the books to the discretion of the board of directors
and taking away entirely his right to make abstracts therefrom is
unreasonable and unlawful, and that mandamus will lie at the
instance of a stockholder to enforce his rights in the matter^*
election. Martin v. Santa Cruz Water Co.,24 Del. 379, 77 Atl. 16. See also
Storage Co., 4 Ariz. 171, 36 Pac. 36. State V. Jessup & Moore Paper Co.,
See also McConnell v. Combination 7 Pennew. (Del.) 370, Ann. Cas. 1912
Mining & Milling Co., 30 Mont. 239, D 69, 72 Atl. 1057.
104 Am. St. Eep. 703, 76 Pac. 194. "A by-law of a corporation, which
State V. Citizens ' Bank of Jen-
71
provides Jhat no stockholder or other
nings, 51 La. Ann. 426, 25 So. 318. See
person shall have the right to Inspect
generally Chap. 40, infra.
the books without special authority
A
by-law providing that the books
from the board of directors, must be
and papers in the oflSees or custody
subordinated to the provisions of the
of the secretary and treasurer shall
charter and the general and funda-
be open at all times during business
mental law. ' ' State v. Citizens Bank '
hours to tho inspection of any stock-
holder, changes the common-law rule
of Jennings, 51 La. Ann. 426, 25 So.
as to the necessity of alleging or prov- 318.
ing the purpose for which the exami- An order by certain directors that
nation is sought. Wyoming Coal Min. a member of the board be denied the
Co. V. State, 15 "Wyo. 97, 123 Am. St. right to inspect the books held not a
Rep. 1014, 87 Pac. 337. by-law and invalid. People v. Throop,
72 State V. Jessup & Moore Paper 12 Wend. (N. Y.) 183.
3114

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(Jom^U Ham Btl^anl ICtbratg

The original of tiiis book is in

tine Cornell University Library.

There are no known copyright restrictions in

By WILLIAM MEADE FLETCHER

But little explanation is required in connection with the presenta-

Objects for Which Corporations May Torts,

The subject has received scientific treatment at the hands of the

Mr. "William Meade Fletcher needs no introduction to the profession.

new edition of Clark on Corporations; Mr. Frank C. McKinney of

W. Morrison and William "W. Culver of the Publishers' Editorial

S 2. Primitive and ancient forma 4

II. DEPINITIONS and ATTRIBUTES

III. THE CORPORATE TKANCHISE

IV. DISTINGUISHED FROM OTHER FORMS OF ASSOCIATED BUSINESS

V. CORPORATE ENTITY IN DEALING WITH THIRD PERSONS

VI. THE JURISTIC PEESON AND ITS INTERNAL RELATIONS

VII. CONSIDERED AS A PERSON, RESIDENT OR CITIZEN

57. Aggregate and sole corporations — ^In general 79

Who May Be Incoepoeated

S 103. In general 146

Objects for Which Corporations May Be Created

( 132. Who are promoters 264

Power to Create Corporations

} 167. Power as attribute of sovereign 343

Cbeation Under General Laws

II. STATUTORY REQUIREMENTS IN GENERAL

§ 181. Preliminary considerations 370

III, INCORPORATION PAPERS

S 192. In general f 390

§ 225. Necessity for payment and amount 437

§ 226. What constitutes 440

Creation Undek Special Acts

§ 228. Constitutional provisions agafnst special acts . 442

) 273. Definition and nature 530

II. DOCTRINE IN RELATION TO COLLATERAL ATTACK

j 274. Statement of the rule 531

III. REQUISITES OF CORPORATIONS DE TACTO

j 278. General statement 551

IV. RIGHTS AND LIABILITIES OF DE FACTO COBPOEATIONS AND THEIR MEMBERS

§ 304. In general 626

I 322. Nature of corporations by estoppel 660

II. ESSENTIAL REQUISITES OF ESTOPPEL

§ 323. Necessity for recognition or holding out of pretended corporation. . . 661

III. ACTS CONSTITUTING ESTOPPEL AND PERSONS ESTOPPED

5 332. General nature of acts constituting estoppel —General considerations

Incorporation of Partnerships, Associations and Tenants in

Citizenship, Domicile, Residence and Habitancy

I. NECESSITY rOR EXISTENCE

II. COMMENCEMENT, DURATION AND EXTENSION OF EXISTENCE

III. PROOF or EXISTENCE

§ 480. Definition 975

§ 482. Distinguished from laws of municipal corporations 978

II. ADOPTION AND PBOOP

§ 484. Adoption —^Power in general 979

§ 489. Consonance with law 990

§ 499. General rules as to construction 1017

g 500. Presumption of knowledge 102?

vi. operation and effect

§ 503. Power of corporation, members and officers as to waiver of by-laws

VIII. AMENDMENT AND SUBSEQUENT ADOPTION

§ 504. Power in general 1040

\ 508. Power in general 1071