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THE LIBRARY

OF

THE UNIVERSITY

OF CALIFORNIA

LOS ANGELES

SCHOOL OF LAW



J^^;rm^ ^<^^^^



SELECT CASES

AND

OTHER AUTHORITIES
ON THE LAW OF

PRIVATE CORPORATIONS



BY

EDWARD H. WARREN

PROFESSOR OF LAW IN HARVARD UNIVERSITY



CAMBRIDGE

PUBLISHED BY THE EDITOR
1909



Copyright, 1909,
By Edward H. Warren



^



PREFACE.

This book is intended as a successor to the Cases on Private Cor-
porations, published by Judge Jeremiah Smith, the first edition of
which appeared in 1897, and the second in 1902. With the abounding
generosity characteristic of him, Judge Smith has allowed me to make
any use I pleased of the matter contained in his book, and a large num-
ber of the cases in his book are here reproduced. It is a pleasure to
make public acknowledgment of my indebtedness to him.

E. H. W.

Cambridge, July, 1909.



6710.^9



TABLE OF CONTENTS.

BOOK I.

THE NATURE OF A CORPORATION.

CHAPTER I.

Page

The Distinction between a Corporation and a Partnership.
Herein of a Joint-Stock Company 1

CHAPTER II.
Corporations Sole ' 23

CHAPTER III.
" Disregarding the Corporate Fiction " 24

BOOK II.
CORPORATE ACTION.

CHAPTER I.
Formation of Corporations 106

CHAPTER II.
Powers of a Corporation :

(a) Determination of the Powers 119

(b) In whom the Powers are vested 136

CHAPTER III.
What Acts are Corporate Acts :

(a) Acts which the Corporation is authorized to do 140

(b) Torts, Crimes, and Unauthorized Contracts 148

CHAPTER IV.

Collateral Attack upon the Formation of a Corporation. Herein
OF the Expression " De Facto Corporation " :

(a) Where there have been Dealings between the Parties on a Corpo-

rate Basis , 179

(b) Where there have been no Dealings between the Parties on a Cor-

porate Basis 239



vi TABLE OF CONTENTS.

CHAPTER V.

Paqe

Collateral Attack upon the Powers of a Corporation. Herein
OF the Expression " Ultra Vires " :

(a) Executory Transactions 262

(b) Executed Transactions 319

(c) Devises and Bequests to Charitable Corporations 347

(d) Liability of Stockholders or Officers 368



BOOK III.

SOME RIGHTS AND LIABILITIES OF HUMAN BEINGS
ARISING OUT OF THEIR RELATIONS TO CORPORA-
TIONS.

CHAPTER I.

Promoters :

(a) Subscriptions to Stock of a Corporation to be formed .... 374

(b) Contracts in behalf of a Corporation to be formed. Herein of

Underwriting Agreements 379

(c) Liability of Promoters arising from the Sale of Property to the

Corporation, when formed 399

CHAPTER IL
Directors :

(a) Unauthorized Action by de jure Directors 402

(b) De facto Directors 403

(c) Liability of Directors for Action or Inaction 407

(d) Contracts between a Director and the Corporation 443

(e) Dealings by a Director with Third Parties 450

(f) Do Directors stand in a Fiduciary Relation to the Shareholders

Individually? 453

CHAPTER III.

Rights of a Shareholder, even if he is in the Minority:

(a) To inspect the Corporate Books and Records 464

(b) To recover a Declared Dividend, and to compel the Declaration

of a Dividend 471

(c) To subscribe to New Issues of Stock 477

(d) To compel the Corporation to assert Valid Claims, and to resist

Invalid Claims. Herein of the Procedure necessary in bringing

a Shareholder's Bill 484

(e) To prevent and redress an Appropriation of Corporate Assets by

the Majority 508

(f) To enjoin any Act which the Corporation is unauthorized to do,

or whioli it was unauthorized to do when Plaintiff became a

Sliareholder 523

(f;) To prevent the Sale, or Lease, of all the Corporate Assets . . . 538

(ii) Personal Exception to the Sli.areholder 553

(i) Rights of Persons who became Shareholders at a time subse-
quent to the commission of the alleged Wrong 5C5



TABLE OF CONTENTS. Vll

CHAPTER IV.

Paob
Creditors :

(a) Fraudulent Conveyances 577

(b) Right to have Shares paid up, regardless of Agreements by the

Corporation with the Shareholders to the contrary 580

(c) Right to compel Repayment of Moneys improperly disbursed as

Dividends 593

BOOK IV.

SHARES OF STOCK.

CHAPTER I.
Issue and Payment. Herein of Watered Stock 600

CHAPTER II.
Transfer 614

CHAPTER III.

Ownership by a Corporation of Shares of its own Stock, or of
the Stock of other Corporations 644

CHAPTER IV.
The Validity of Voting Trusts 655

APPENDIX OF CORPORATE FORMS.

Certificate of Incorporation '. . . 668

By-Laws 672

Minutes of First Meeting of Incorporators 678

Minutes of First Mef-.ting of Board of Directors 681

Certificate of Amendment of Original Certificate of Incorpora-
tion 685

Listing of Securities 680

Syndicate Agreement 693

Voting Trust Agreement 700

Certificate of Common Stock 705

Certificate of Preferred Stock 707

Bond 709

Coupon 711

Voting Trust Certificate 713



TABLE OF CASES.



American" Union Telegraph Co. v.

Union Pacific R. Co. 325

Andrews Bros. Co. v. Youngstown

Coke Co. 8

Ashbury Railway Co. v. Riche 262

Athol Music Hall Co. i;. Carey 37-1

Bahia & San Francisco Railway Com-
pany, in re C3S
Bank v. Trebein 76
Bank of United States v. Deveaux 59
Bartholomew v. Derby Rubber Co. 545
Bath Gas Light Co. v. Claffy 299
Beatty v. Northwestern Transporta-
tion Co. 518
Bissell V. Michigan Southern 274
Booth V. Robinson 649
Borland v. Steel Brothers & Company 621
Boston & Albany Railroad v. Richard-
son 641
Boyce v. Trustees of Towsontown

School 190

Bradbury v. Boston Canoe Club 13-0

Bradley v. Reppell 247

Brewer v. Boston Theatre 508

Brewer v. The State 254

Brightman v. Bates 665

Broderip v. Salomon 49

Brundred v. Rice 79

Bryant's Pond Co. v. Felt 377

Burroughs v. The North Carolina Rail-
road Company 686
Bushnell v. Consolidated Ice Machine

Co. 199

Button V. Hoffman 91

California National Bank v. Kennedy 343
Callender v. Painesville & Hudson

Railroad Co. 189
Carniichael's Case 395
Case V. Kelly .3.o8
Central R. R. & Banking Co. v. Smith 173
Central Transportation Co. v. Pull-
man's Car Co. 268
Chambers v. McKee & Brothers 488
Cheraw & Chester R. Co. v. White 117
Chestnut Hill Turnpike Co. v. Rutter 148
Chicago City Railway Co. v. Allerton 137
Commonwealth v. Bringhurst 144
Cook V. City of Burlington 27

Davenport v. Dows .505

Davidson College v. Chambers 347

Davis V. Stevens 222

Denver Fire Ins. Co. v. McClelland 303

Dodge V. Woolsey 500

Dovey v. Cory 434

Dow I'. Northern R. R. 549
Downing v. Mount Washington Road

Co. 119



Dunphy v. Traveller Newspaper Asso-
ciation 506
Dupee V. Boston Water Power Co. 644
Duvergier v. Fellows 187

East Birmingham Land Co. v. Dennis 623

East Norway Lake Church v. Froislie 25.5

Eaton V. Walker 224

Ellis u. Marshall 113

Elyton Land Co. v. Dowdell 541
Erlanger v. New Sombrero Phosphate

Co. 399

Exchange Banking Company, in re 604

Fairfield County Turnpike Co. v.

Thorp 94

Farmers' Loan & Trust Co. v. New

York & Northern R. Co. 513

Fayette Land Co. v. Louisville &

Nashville R. Co. 336

Ford V. Easthampton Rubber Thread

Co. 471

Forrest v. Manchester Railway Co. 5.53
Fort Payne Rolling Mill v. Hill 445

Foss V. Harbottle 491

Foster v. Commissioners of Inland

Revenue 31

Franklin Bridge Co. v. Wood 106

Gallagher v. Germania Brewing Co. 36

Gashwiller v. Willis 140

Gibbons v. Anderson 428

Gow V. Collin & Parker Lumber Co. 232
Great Southern Fire Proof Hotel Co.

V. Jones 16

Green v. London General Omnibus Co. 157

Groel V. United Electric Company 497

Guckert v. Hacke 260

Guthrie v. Harkness 464

Hale V. Mason 410

Hall's Safe Co. v. Herring-Hall-Mar-
vin Safe Co. 42
Heckman's Estate 387
Home V. Ivy 146
Hospes V. Northwestern Car Co. 585
Hubbard v. Worcester Art Museum 360
Hun V. Gary 419
Hurd V. New York Laundry Co. 577
Hutchinson v. Green 136
Hutton V. Joseph Brancroft & Sons
Co. 535

Indianapolis Furnace Co. v. Herkimer 2.56

Jemison v. Citizens' Savings Bank 271

John Foster & Son. Limited, v. Com-
missioners of Inland Revenue 31
Johnson v. Corser 23(5
Joint Stock Discount Co. v. Brown 653



TABLE OF CASES.



FAOB

Jones V. Aspen Hardware Co. 210

Jones V. Cincinnati Type Foundry Co. 202



Kelner v. Baxter
Kuser V. Wrijrht



382

403



Lake Superior Iron Company v. Drexel 606
Leazure v. Hillegas 319

Leeds Company v. Shepherd 407

Liverpool Insurance Co. v. Massachu-
setts 1
Long V. Georgia Pacific R. Co. 323

Marble Co. v. Harvey 312
McArthur v. Times Printing Co. 370
MuCutcheon v. Merz Capsule Co. 332
McDonald v. Dewev 633
McDonald l\ Williams 593
McGraw, Matter of 352
McXab V. McNab & Harlin Co. 474
McNeil V. Tenth National Bank 627
Medill V. Collier 368
Menier v. Hooper's Telegraph Works 510
Mill V. Hawker 80
Mobile and Ohio R. R. Co. v. Nicholas 661
Mobile Improvement Co. v. Gass 443
Montgomery v. Forbes 228
Monument Nat'l Bank v. Globe Works 166
Moore & Handley Co v. Towers Hard-
ware Co. 38
Morris v. Elyton Land Co. 543

Nassau Bank v. Jones 316

National Bank v. Matthews 307

Natnsch v. Irving- .52.3

Newconib v. Reed 115

New York Cable Co. v. Mayor of New

York 259

Nicoll V. New York & Erie R. R. Co. 128
Niiiis V. Mount Hermon Boys' School 168
Northern Securities Co. v. United

States 72

Northern Trust Co. v. Snyder 532

Oakps V. Turqnand 601

Old Dominion Copper Co. v. Lewisohn 570

Oliver v. Oliver 456

Ottumwa Screen Co. v. Stodghill 618

Parker v. Bethel Hotel Co. 85
Parsons v. Joseph .566
Pearson v. Concord Rjiilroad 650
Pe.irsftn's Case 450
Pennell i;. Lothroj) 379
Penobscot llailroad Company v. White 603
People V. Board of Railroad Commis-
sioners 605
People V. North River Sugar Refining

Co. 97

People ex rel. Winchester v. Coleman 18

Percival v. Wright 453
Phillips V. Providence Steam Engine

Co. 538
Ph(£nix Life Assurance Coini)any, in

re 178



FAOB

Prescott National Bank v. Butler 342
Proprietors Stourbridge Canal v.

Wheeley 123

Richardson v. Williamson 372

Royal British Bank v. Turqnand 402

Russell V. Temple 24

Sargent v. Franklin Insurance Com-
pany 616
St. Louis R. Co. V. Terre Haute R. Co. 328
Sawyer v. Hoag .580
Seaton v. Grant 556
See V. Heppenheimer 610
Seymour v. Spring Association 451
Shepaug Voting Trust Cases 658
Sherman v. Fitch 147
Slocum V. Providence Steam and Gas

Pipe Co. 192

Slocum V. Warren 192

Smith V. Hurd 484

Snider's Sons Co. v. Troy 217

Snyder v. Stndebaker 206

Society Perun v. Cleveland 239

Spering's Appeal 414

State V. Dawson 111
Stevens v. Rutland & Burlington R. R.

Co. 526

Stewart v. Lehigh Valley R. Co. 44(5

Stokes V. Continental Trust Co. 477

Stourbridge Canal u. Wheeley 123

Stoutimore v. Clark 204

Swentzel v. Penn Bank 424

Telegram Newspaper Co. v. Common-
wealth 163
Thomas v. Dakin 4
Tisdale v. Harris 614
Trevor v. Whitworth 646
'Trimble v. American Sugar Refining

Co. 509
Trustees of Davidson College v. Cham-
bers 347

United States v. John Kelso Company 100

United States v. Milwaukee Refrigera-
tor Transit Co. 64

United States Steel Corporation v.

Hodge 444

Utley V. Union Tool Company 196

Vanderbilt v. Bennett 655

Washington Insurance Co. v. Price 62

Weatherford R. Co. v. Granger 388
Whiiaker v. Delaware & Hudson Canal

Co. 126
White V. Howard 132
Williams v. Hewitt 213
Williamson v. Smoot 26
Windsor Electric Light Co. i'. Tandy 600
Winget V. Quincy Building Ass'n 209
Winsor v. Bailey 565
Wormser v. Metropolitan Street Rail-
way Company 559



SELECT CASES



AND OTHER



AUTHORITIES ON THE LAW OF
PRIVATE CORPORATIONS.



BOOK I.

THE NATURE OF A CORPORATION. '

CHAPTER I.

THE DISTINCTION BETWEEN A CORPORATION AND A PART-
NERSHIP. HEREIN OF A JOINT-STOCK COMPANY.

LIVERPOOL, &c. INSURANCE CO. v. MASSACHUSETTS.

1870. 10 Wallace, U. S. 566.1

Error to the Supreme Court of Massachusetts. Bill in equit}' by
State of Massachusetts to collect a tax, and to restrain company from
doing further business till the tax was paid.

One question raised in this case was, whether the above Insurance
Compan}' is a corporation within the meaning of the Massachusetts
Statute imposing upon each fire, &c. insurance company " incorporated
or associated under the laws of any government or State other than
one of the United States, a tax of 4 per cent upon all premiums
charged or received on contracts made in this Commonwealth for
insurance of property." The facts as to the nature of the company
are sufficiently stated in the opinion.

The Supreme Court of Massachusetts decided that the company was
liable to the tax. 100 Mass. 531 [Oliver \. Liverpool, Sc. Ins. Co.].

B. M. Curtis and J. G. Abbott, for insurance company.

Charles Allen, Attorney-General of Massachusetts, for State.

Mr. Justice Miller These propositions dispose of the

case before us, if plaintiff is a foreign corporation, and was, as such,
conducting business in the State of Massachusetts, and we proceed
to inquire into its character in this regard.

* Statement abridged. Arguments aud part of opinion omitted. — Ed

1



/.



2 LIVERPOOL, ETC. INS. CO. V. MASSACHUSETTS.

The institution now known as the Liverpool and London Life and
Fire Insurance Company, doing an immense business in England and
in this countr}', was first organized at Liverpool by what is there called
a deed of settlement, and would here be called articles of association.

It will be seen b}' reference to the powers of the association, as or-
ganized under the deed of settlement, legalized and enlarged by the
acts of Parliament, that it possesses many, if not all, the attributes
generally found in corporations for pecuniary profit, which are deemed
essential to their corporate character.

1. It has a distinctive and artificial name by which it can make
contracts.

2. It has a statutory provision by which it can sue and be sued in
the name of one of its officers as the representative of the whole body,
which is bound by the judgment rendered in such suit.

3. It has provision for perpetual succession b}' the transfer and trans-
mission of the shares of its capital stock, whereby new members are
introduced in place of those who die or sell out. .

4. Its existence as an entit}' apart from the shareholders is recog-
nized by the act of Parliament, which enables it to sue its shareholders
and be sued by them.

The subject of the powers, duties, rights, and liabihties of corpora-
tions, their essential nature and character, and their relation to the
business transactions of the community, have undergone a change in
this country within the last half-century, the importance of which can
hardly be overestimated.

The}^ have entered so extensivel}' into the business of the countr}',
the most important part of which is carried on by them, as banking
companies, railroad companies, express companies, telegraph com-
panies, insurance companies, &c., and the demand for the use of cor-
porate powers in combining the capital and the energy required to
conduct these large operations is so imperative, that botli by statute,
and by the tendency of the courts to meet the requirements of these
public necessities, the law of corporations has been so modified, liberal-
ized, and enlarged, as to constitute a branch of jurisprudence with a
code of its own, due mainly to very recent times. To attempt, there-
fore, to define a corporation, or limit its powers by tlie rules which pre-
vailed when they were rarel}' created for any other than municipal
purposes, and generally by royal charter, is impossible in this country
and at this time.

Most of the States of the Union have general laws by which persons
associating themselves together, as the shareholders in this company
have done, become a corporation.

The banking business of the States of the Union is now conducted
chiefly by corporations organized under a general law of Congress, and
it is believed that in all the States the articles of association of this
company would, if adopted with the usual formalities, constitute it a cor-
poration under their general laws, or it would become so by such legis-



huU/UA /






\>



LIVERPOOL, ETC. INS. CO. V. MASSACHUSETTS. 3 /

lative ratification as is given by the acts of Parliament we have <^-«-*^^
mentioned. ^^ui/^^^

To this view it is objected that the association is nothing but a part- , » ■ ^

nership, because its members are liable individual!}' for the debts of the( // ^^^<-*^
company. But however the law on this subject raa}- be held in Eng- X^oA^
land, it is quite certain that the principle of personal liability of the
shareholders attaches to a very large proportion of the corporations
of this country, and it is a principle which has warm advocates for its ~^

universal application when the organization is for pecuniary gain. ^^^

So also it is said that the fact that there is no provision either in the V?-^
deed of settlement or the act of Parliament for the compan\' suing or ^^~*
being sued in its artificial name forbids the corporate idea. But we see
no real distinction in this respect between an act of Parliament, which -^
authorized suits in the name of the Liverpool and London Fire and
Life Insurance Company, and that which authorized suit against that
compan}' in the name of its principal officer. If it can contract in the
artificial name and sue and be sued in the name of its officers on those
contracts, it is in effect the same, for process would have to be served h)
on some such officer even if the suit were in the artificial name. ^^ ,,^^

L ^ is also urged jtba t the sever al_acts_of Parliam e nt we have men-
tioned expressly declare, thrit tlip^r shall not be heId_to_cpnstitute the



eo'^/^'^






k



body a corporation

But whatever ma}' be the effect of such a declaration in the courts
of that country, it cannot alter the essential nature of a corporation or
prevent the courts of another jurisdiction from inquiring into its true
character, whenever that may come in issue. It appears to have been
the po licy of the English law to attach cer tain consequences to incor -
porated bodies ^bich ren deredJE d esirable Zthat such associations as /
these should not become tec hnicallv corporations. Amono; these, it . .

vmt Lid see mfVom the provisions of these acts, is the exemption from -^^ '*^*-^-f-^
individual liability of the shareholder for the contracts of the corpora- /v,,oy
tion. Such local policy can have no place here in determining whether .^^^^^jXt l
an association, whose powers are ascertained and its privileges con. . j
ferred by law, is an incorporated body.

The question before us is whether an association, such as the one we >C£ — a
are considering, in attempting to carry on its business in a manner .-^
which requires corporate powers under legislative sanction, can claim,
in a jurisdiction foreign to the one which gave those powers, that it is cju^^i^.'^ ^
only a partnership of individuals. (^ijJfU^ <

"We have no hesitation in holding that, as the law of corporations is -j ■
understood in this country, the association is a corporation, and that
the law of Massachusetts, which only permits it to exercise its corpo- "L^c
rate function in that State on the condition of payment of a specific tax,
is no violation of the Federal Constitution or of any treaty protected
by said Constitution.

Mr. Justice Bradley. Whilst I agree in the result which the court
has reached, I differ from it on the question whether the company is a



v4



4 THOMAS V. DA KIN.

corporation. I think it is one of those special partnerships which are
called joint-stock companies, well known in England for nearly a cen-
tury, and cannot maintain an action or be sued as a corporation in this
country without legislative aid. But as it is a company' associated un-
der the laws of a foreign country, it comes within the scope of the
Massachusetts statute, and cannot claim exemption from its operation
for the causes alleged in that behalf. It could not have been the intent
of the treaty of 1815 to prevent the States from imposing taxes or
license laws upon either British corporations or joint-stock companies
desiring to establish banking or insurance business therein. And cer-
tainly these companies cannot be exempted from such laws on the
ground that citizens of other States have chosen to take some of
their shai'es. Judgment affirmed.



THOMAS y. DAKIN.

1839. 22 Wendell, 9.1

In the Supreme Court of New York. Action brought by plaintiff
Thomas as president of Bank of Central New York, an association
formed under the General Banking Act of April 18, 1838, to recover
several demands alleged to be due to the institution. The declaration
alleged the indebtedness to be to the bank, and the promises to have
been made to the bank ; concluding to the damage of the bank of
$10,000 ; and, therefore, the said plaintiff, as president of the Bank
of Central New York, brings suit, &c.

Demurrer to declaration ; assigning, in substance, the following
special causes : —

1. Plaintiff Thomas has no cause of action.

2. No authority exists in law for plaintiff to sue on behalf of the
bank, or upon promises made to the bank.

3. No association of persons not incorporated are entitled by law to
bring an action in the name of their president, but only in their indi-
vidual names.

4. The General Banking Act of 1838, so far as it purports to
authorize this suit, is unconstitutional ; and also is void because it
did not receive the assent of two-thirds of all the members of the
legislature.

The Constitution of New York, article 7, section 9, is as follows :
" The assent of two-thirds of the members elected to each branch of
the legislature shall be requisite to every bill . . . creating, continuing,
altering, or renewing any l)ody [)olitic or corporate."

1 Statement abridged from facts stated by reporter and from facts stated in the
opinions. The arguments are omitted ; also the greater part of the opinions. — Ed




THOMAS V. DAKIN. 5

The provisions of the General Banking Act of 1838 are sufficiently yt.

stated in the opinion of Nelson, C. J. /tO-^X. V^ a^.^iJ~ ^

C P. Kirkland^ and S. A. Foote^ for plaintiffs. .— A.-/5f<^ ^^
Ward Jlimt, for defendant. ttjn-*. /..»— -^^v^

Nelson, C. J. . . . Are these associations corporations? In order
to determine this question, we must first ascertain the properties essen-
tial to constitute a corporate bod}-, and compare them with those
conferred upon the associations ; for if they exist in common, or sub-
stantially correspond, the answer will be in the affirmative. A corpo-
rate body is known to the law by the powers and faculties bestowed upon
it, express]}- or implied!}-, by the charter ; the use of the term corpo-
ration in its creation is of itself unimportant, except as it will imply the
possession of these. They may be expressly conferred, and then they
denote this legal being as unerringly as if created in general terms. It
has been well said by learned expounders that a corporation aggre-
gate is an artificial body of men, composed of divers individuals, the
ligaments of vliich body are the franchises and liberties bestotced upon
it, which bind and unite all into one, and in which consists the whole
frame and essence of the corporation. The " franchises and liberties,"
or, in more modern language, and as more strictly applicable to private
corporations, the poicers and faculties, which are usually specified as ^
creatiiig^ corporate existence, are : (l) The capacity of perpetual succes- y^^^^-j
sion ; 'Cj The power to sue and be sued, and to grant and receive in '^^-'^'-^^-^^
its corporate name ;GJ To purchase and hold real and personal estate ; Z^* - ^-**-^"^
(M To have a common seal ; and(3^ To make by-laws. These indicia Ju^^^^^^
were given by judges and elementary writers at a very early day : since ^^^-^-^oU
which time the institutions have greatly multiplied, their practical
operation and use have been thoroughly tested, and their peculiar and
essential properties much better understood. Any one comprehending
the scope and purpose of them at this day will not fail to perceive
that some of the powers above specified are of trifling importance, while
others are wholly unessential. For instance, the power to purchase
and hold real estate is no otherwise essential than to afford a place of
business ; and the right to use a common seal, or to make by-laics,
may be dispensed with altogether. For as to the one, it is now well
settled that corporations may contract by resolution, or through agents,
without seal ; and as to the other, the power is unnecessary, in all



Online LibraryUnknownSelect cases and other authorities on the law of private corporations → online text (page 1 of 85)