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7. There is a very sensible case 5 in North Carolina bearing upon this question. The legislature had authorized the town. of Newbern to take stock in a company for improving the navigation of the river Neuse, by which the business of the town was expected to be advanced. The town was, by the act, authorized to pay for the stock subscribed by them with their bonds, to be issued and sold on certain terms, but the amount of bonds issued was restricted to the amount of the stock subscribed, and it was held, that as the corporation could not, except by legislative sanction, accept anything but money in payment of stock, and could not issue stock at any rate below par, that the bonds could not be sold below par; and that, to a mandamus to compel the town to pay for stock thus subscribed, it must be regarded as a sufficient return, that the authorities of the municipality had prepared and executed the bonds, and had offered the same for sale by public advertisement, and had diligently endeavored otherwise to effect a sale of the same on the terms prescribed by the statute, and had not been able to sell the same.

8. This case unquestionably puts these perplexing inquiries upon the true basis, that is, of fair dealing, or no dealing at all. But we apprehend that railway contractors and builders would regard it as placing the matter in a very impracticable light. And we are not prepared to say how far the courts will feel justified in departing from the strict letter of the law in these particulars, out of deference to the speculative tendencies of the age.

9. It is certain that corporate stocks, from the first, are now always more or less a matter of speculation in the market; and the same is true of all municipal bonds issued in aid of enterprises affecting the interests of such corporations. And, in fact, no one ever dreams of demanding strictly par values, in dealing either with the bonds or the stock, and we do not suppose it can now ever be brought back to the strictly par basis. There is, too,

5 Neuse River Nav. Co. v. Commissioners of Newbern, 7 Jones Law, 275. But in Shoemaker v. Goshen Turnpike Co. 14 Ohio N. S. 569, from the mere permission in the statute to submit the question of subscription to the voters of a township, the court implied the power to issue bonds in payment of such subscription in the usual negotiable form, and to negotiate them to the company at par, in payment for the stock subscribed.

another great embarrassment in the way of return to par values. We have, in fact, no par basis to which to return. Until a specie basis is reached, everything is at the mercy of speculators and monopolists. This is, no doubt, a very melancholy state of affairs to have a great commercial country in. But, so long as commercial men endure it, and the government submits to it, we do not see how the courts can remedy it. But it is certainly refreshing to see courts struggling to resist in every way in their power such a fearful tide of evil. In our humble judgment, unless some mode of escape is found, speculation and monopoly will eat out all honesty and fair dealing in all commercial transactions, and the country will in its commerce become a band of legalized plunderers upon each other. The monopoly in flour and grain and some of the other staples of the country is scarcely less than that at the present time.

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10. There seems to be some question whether a corporation can stipulate to pay interest upon its stock certificates from the first, without regard to the earnings of the company. It is certain such a stipulation is at variance with the ordinary duties of corporations, and will not therefore come within the range of the implied authority of the directors of the company. But in one case, it seems to have been considered, that the stockholders might so ratify such a stipulation as to render it binding upon the company. But we should very seriously question if any such power is implied from the general grant of corporate power for ordinary business purposes, like that of railways. It would seem to require a special delegation of authority by the legislature, and in that form it is nothing else but a device for borrowing money, in advance of launching the corporation upon its legitimate functions.

. 11. The case last cited 6 decided that such a stipulation, superadded to a certificate of stock, will not defeat its original effect of making the holder a member of the corporation; and that if certificates of stock be so issued by the directors, it will be regarded as a sufficient ratification of them by the corporation that McLaughlin v. Detroit & Milw. Railw. Co. 8 Mich. R. 100. It seems scarcely allowable to treat the vote of the majority as a ratification of an act of the directors beneficial to the minority, and at the same time not binding upon the minority except by their own consent.

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at a stockholders' meeting a majority voted to pay such interest in the bonds of the company; but the holders are not thereby compellable to accept payment in that mode, unless they assented to the vote.

* SECTION XIII.

Equitable Relief from Subscriptions obtained by Fraud.

1. Substantial misrepresentations in obtaining subscriptions will avoid them.

directors, in the matter, they alone are liable.

2. But for circumstantial misconduct of the 3. Directors cannot make profit for themselves.

§ 59. 1. The directors of a railway company, who make representations on behalf of the company to induce persons to subscribe for the stock, so far represent the company in the transaction, that if they induce such subscription by a substantial fraud, the contract will be set aside in a court of equity.1 The proper inquiry in such case is, "Whether the prospectus, so issued, contains such *representations, or such suppression of existing facts, as, if the real truth had been stated, it is reasonable to believe the plaintiff would not have entered into the contract, that is, that he would not have taken the shares allotted to him, and those which he purchased." 2

1 Sir John Romilly, M. R., in Pulsford v. Richards, 19 Eng. L. & Eq. 387, 392. The prospectus issued in such cases is to be regarded as a representation. And where one is induced to take shares in a joint-stock company, through the false and fraudulent representations of the directors, he is not liable to calls for the purpose of paying the expenses of the company. The Royal British Bank, Brockwall's case, 29 Law Times, 375.

And where one of the directors of a company put the name of an extensive stockholder in the company, who resided in a foreign country, to a new subscription for forty additional shares, without consultation with such person, upen the belief that he would ratify the act, and, upon being informed of such act, he made no objection for the period of nearly seven years, during which time the company had applied the dividends upon his stock in payment of such subscription, having no intimation of any dissent upon his part, it was held the subscription thereby became binding, and that the party could not recover such dividends of the company. Philadelphia, Wilmington, & Baltimore Railw. v. Cowell, 28 Penn. St. 329.

2 Pulsford v. Richards, 19 Eng. L. & Eq. 392; Jennings v. Broughton, 19 Eng. L. & Eq. 420. One, to entitle himself to be relieved from his subscrip

*100, 101

2. But the omission to state in a prospectus the number of shares taken by the directors, or other persons, in their interest, is no such fraud as will enable a subscriber to avoid his subscription.2 The fact that the directors of the company had entered into a contract with one, as general superintendent of construction, for four per centum upon the expenditure; and that this was an exorbitant compensation, and was, in fact, intended to compensate such person for his services, in obtaining the charter, and that this is not stated in the prospectus, is no such suppression as will exonerate subscribers for stock. "There was not the suppression of a fact, that affected the intrinsic value of the undertaking. That value depended upon the line of the projected railway, the population, the commercial wealth, the traffic of the places through which it passed, the difficulties of the construction, and the cost of the land required. Extravagance in the formation of a line of railway is a question of liability of the individual directors to the shareholders, but not a ground for annulling the contract between them." 2

3. But the learned judge here suggests, with great propriety, that if the directors have made contracts, in the course of the performance of their duties, from which advantage is expected to arise to themselves, or to others, for their benefit, mediately or immediately, they may, in a court of equity, be made to stand in the place of trustees to the shareholders.3

tion, must show that he acted upon the false representations of the directors in a matter of fact material to the value of the enterprise, and not upon the mere speculation of the directors, or upon his own exaggerated expectations of the prospective success and value of the undertaking. See, also, upon this general subject, the remarks of the Master of the Rolls, p. 427.

• Post, § 179.

*SECTION XIV.

Forfeiture of Shares. — Relief in Equity.

1. Requirements of charter and statutes must | 4. Provisions of English statutes.

be strictly pursued.

2. If not, equity will set aside the forfeiture.

3. Must credit the stock at full market value.

5. Evidence must be express, that all requisite steps were pursued.

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§ 60. 1. The company, in enforcing the payment of calls by forfeiture of the stock, must strictly pursue the mode pointed out in their charter and the general laws of the state. This is a rule of universal application to the subject of forfeitures, and one which the courts will rigidly enforce, and more especially where the forfeiture is one of the prescribed remedies, given to the party, and against which equity does not relieve, when fairly exercised.1

2. But as the company, in such case, ordinarily stand in both relations of vendor and vendee, their conduct, in regard to fairness, will be rigidly scrutinized, and the forfeiture set aside in courts of equity, upon evidence of slight departure from perfect fairness.

3. Hence where the company declared the stock cancelled, and credited the value at a less sum than the actual market price at the time, but more than it would probably have sold for if that number of shares had been thrown at once into the market, the court set aside the forfeiture, on the ground that the company were bound to allow the highest market price which could be obtained, without speculating on what might be the effect of throwing a large number of shares into the market.2

1 Sparks v. Liverpool Water-Works, 13 Vesey, 428; Prendergast v. Turton, 1 Younge & Coll. N. R. 98, 110-112. This case is put mainly upon the ground of delay and acquiescence, but there is little doubt it would have been maintained, upon the general ground stated in the text. See Edinburgh, Leith, & N. H. Railw. v. Hibblewhite, 6 M. & W. 707; s. c. 2 Railw. C. 237.

But where the deed of settlement of a joint-stock company provides for a forfeiture of the shares without notice to the subscriber, the forfeiture determines the title without notice. Stewart v. Anglo-California Gold Mining Co., 14 Eng. L. & Eq. 51.

2 Stubbs v. Lister, 1 Y. & Coll. N. C. 81.

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