their creation. We have thought that we could not afford a more just and unexceptionable commentary upon this difficult and important subject, than in the language of one of the most sober, discreet, and learned of the English equity judges, Lord Langdale, M. R.9

The man

9 Colman v. The Eastern Counties Railw. Co., 4 Railw. C. 513. aging directors of a railway company, with the view of increasing the traffic on their line, entered into a contract with a steam-packet company, that they would guarantee the proprietors of the steam-packet company a minimum dividend of £5 per cent. on their paid-up capital until the company should be dissolved, and that, upon a dissolution, the whole paid-up capital should be returned to the shareholders in exchange for a transfer of the assets and properties of the steampacket company.

One of the shareholders filed a bill on behalf of himself and all other shareholders who should contribute, except the directors, against the company and the directors, and obtained an injunction, ex parte, to restrain the completion of the contract:

Held, on motion to dissolve the injunction, that an objection for want of parties to a suit so framed was not sustainable. That directors have no right to enter into or to pledge the funds of the company in support of any project not pointed out by their act, although such project may tend to increase the traffic upon the railway, and may be assented to by the majority of the shareholders, and the object of such project may not be against public policy. That acquiescence by shareholders in a project for however long a period, affords no presumption that such project is legal.

That an objection stated by affidavit and remaining unanswered, that the plaintiff was proceeding at the instigation and request of a rival company, did not deprive him of his right to an injunction, and the motion to dissolve the injunction was refused, with costs.

The learned judge said: "To look upon a railway company in the light of a common partnership, and as subject to no greater vigilance than common partnerships may be, would, I think, be greatly to mistake the functions which they perform, and the powers of interference which they exercise with the public and private rights of all individuals in this realm. We are to look upon those powers as given to them in consideration of a benefit, which, notwithstanding all other sacrifices, is on the whole hoped to be obtained by the public; but the public interest being to protect the private rights of all individuals, and to save them from liabilities beyond those which the powers given by the several acts necessarily occasion, those private rights must always be carefully looked to. "I am clearly of opinion, that the powers given by an act of parliament like that which is now in question, extend no further than expressly stated in the act, except where they are necessarily and properly acquired for the purposes which the act has sanctioned. How far those powers may extend which are necessarily or conveniently to be exercised for the purposes intended by the act,

6. In a recent English case,10 it was declared by the Court of Chancery that the directors of the company were restricted, as to will very often be a subject of great difficulty. We cannot always ascertain what they are; ample powers are given for the purpose of constructing the railway; ample powers are given for the purpose of maintaining the railway; ample powers are also given for the purpose of doing all those things which are required for the proper use of the railway; but I apprehend that it has nowhere been stated that railway companies have power to enter into transactions of all sorts and to any extent. Indeed it is admitted, and very properly admitted, that they have not a right to enter into new trades and new businesses not pointed out by the act; but it is contended that they have a right to pledge the funds of the company, without any limit, for the encouragement of other transactions, however various and extensive, provided only they profess that the object of the liability occasioned to their own shareholders by such encouragement is to increase the traffic upon the railway, and thereby the profit to the shareholders. Surely that has nowhere been stated; there is no authority for anything of that kind. What has been stated is, that these things to a small extent have frequently been done since the establishment of railways. Be it so; but unless what has been done can be proved to be in conformity with the powers given by the special acts of parliament, they do not, in my opinion, furnish any authority whatever. To suppose that the acquiescence of railway shareholders, for the last fifteen years, in any transaction conducted by a railway company, is any evidence whatever of their having a lawful right to enter into it, is, I think, wholly to forget the frenzy in which the country has been for the last fifteen or sixteen years, or thereabout. There is no project, however wild, which has not been encouraged by some one or more of these companies. There is no project, however wild, which the shareholders, or the persons liable in respect of those companies, have not acquiesced in, from one cause or another, either from cupidity and the hope of gaining extraordinary profits beyond their first. anticipations, or from terror of entering into a contest with persons so powerful. In the absence of legal decisions, I look upon the acquiescence of shareholders in these transactions as affording no ground whatever for the presumption that they may be in themselves legal."

The case was afterwards mentioned to the court, on behalf of the defendants, when his lordship stated, that the injunction was only meant to refer to the guaranty proposed to be given, and the case made by the bill; but was not intended to affect any arrangement which the directors might enter into with any steam-packet company respecting the rates and tolls to be charged on the rail

way.

In Salomons v. Laing, the same learned judge said (6 Railw. C. 301): "A railway company, incorporated by act of parliament, is bound to apply all the

10 Stanhope's case, 12 Jur. N. S. 79, reversing the decision of the Master of the Rolls in s. c. 11 Jur. N. S. 872; Lord Belhaven's case, 11 Jur. N. S. 572, is here denied, and Spackman's case, Id. 207, approved.

the extent of their authority to bind the members, by the terms of the deed of settlement or charter, or fundamental constitution moneys and property of the company for the purposes directed and provided for by the act of parliament, and not for any other purpose whatever. When the expenses are paid, and the public purposes directed and provided for by the act of parliament, — which, in truth, was the motive and inducement for granting the extraordinary powers given by all these acts of parliament, when these purposes are fully performed, any surplus which may remain after setting apart the sum to answer contingencies, may, if not applied in enlarging, improving, or repairing the works, be divided among the shareholders. The dividends, which belong to the shareholders, and are divisible among them, may be applied by them severally as their own property, but the company itself, or the directors, or any number of the shareholders assembled at a meeting or otherwise, have no right to dispose of the shares of the general dividend, which belong to the particular shareholder, in any manner contrary to the will, or without the consent or authority of that particular shareholder. Any application of or dealing with the capital, or any part of the capital, or any funds or money of the company, which may come under the control or management of the directors or governing body of the company, in any manner not distinctly authorized by the act of parliament, is in my opinion an illegal application or dealing; and without meaning to say that it is or could be practicable for individual shareholders to interfere on every occasion, however small, of alleged the misapplication of particular sums, I am of opinion that if, as in this case, directors are proceeding upon an illegal principle, and for purposes not authorized by the act of parliament, to involve the company, or the shareholders of the company, or any of them, in liabilities to which the shareholders, or any of the shareholders, never consented, relief may and ought to be given in this court; and that the mere circumstance of the Brighton company having obtained, as it is not disputed they did lawfully obtain, a certain number of shares in the Portsmouth company, is not a reason why the company should be enabled or permitted to purchase more shares, and thereby increase the risks to which parliament permitted the shareholders to be exposed by the shares which may have become vested in them by the Amalgamation Act, or any reason why the directors should be permitted to divert so much of the funds of the company as they think proper, or indeed any portion of those funds, for the support of another company having distinct objects, and meant to be applied to purposes different from those in consideration of which alone those powers were granted to them." Ante, § 56. Where the statute prohibits the directors of a company from being concerned, directly or indirectly, in building its road, a contract between the company and two of its directors, for that purpose, is absolutely void. Barton v. Port Jackson, &c. Plank Road Co., 17 Barb. 397.

The deed of a joint-stock banking company contained provisions, that the directors should be not fewer than five or more than seven; that three, or more, should constitute a board, and be competent to transact all ordinary business, and that the directors should have power to compromise debts. Agents might

of the company; and that any arrangement ultra vires of the directors, by which, in consideration of a money payment by a shareholder desiring to retire, they declared his shares forfeited, is not, nor can any lapse of time render it, binding on the general body of the shareholders, unless it is shown, not only that the latter might have been, but also that they actually were, fully aware of the transaction. This seems to us to be placing the question of ratification of an act ultra vires upon its only safe and salutary basis. There should always be either express or

be appointed by the directors to accept or draw bills, without reference to the directors. The number of directors became reduced to four, and three executed a deed, compromising a large debt due the company, taking from the debtor a mining concern, and covenanting to indemnify him against certain bills of exchange.

In an action on this covenant, held that it did not bind the company, not being ordinary business, and no number of directors less than five being competent to transact it. And query, whether a board of three directors could transact even ordinary business, unless when the board consisted of five only. Kirk v. Bell, 12 Eng. L. & Eq. 385.

But where a series of contracts have been openly made by the officers of a corporation, within the knowledge of the corporators, who have acquiesced in and derived benefit from them, the contracts are binding upon the corporation, although not expressly authorized in its charter. And if it be a municipal corporation it is bound to pay whatever is due, by taxes, if it has no other means. Alleghany City v. McClurkan, 14 Penn. St. 81.

So also where, by consent of the board of directors, a general agent was employed in making contracts for the purchase of the right of way, and were in the habit of agreeing upon the price, by submission to arbitrators, and the awards had been paid in such cases by the company's financial officers, under a general resolution to pay the amount these agents directed, it was held that such agent, and another agent employed to assist in the same service, had power to submit the question of price, in such cases, to arbitrators, and their award was binding upon the company. And it is not requisite that the contract of submission should be under the seal of the company in such case, nor will it be avoided by the agent attaching a seal to its execution, by himself. Wood v. The Auburn & Roch. Railw., 4 Seld. 160. But the fact that the directors have executed some ten or twelve similar contracts, and that such contracts had been published in the annual reports, and distributed to the stockholders without objection, although evidence of acquiescence on their part is not evidence of the enlargement of the charter powers of the company, so as to bind the company, as between them and the primary parties entering into the contract with them. McLean, J., in Zabriskie v. C. C. & C. Railw., 10 Am. Railway Times, No. 15. Ante, § 56.

presumptive evidence of actual and unconstrained acquiescence entirely satisfactory to the court, in order to bind a principal by any act of his agent, beyond the proper limits of the authority delegated to him. This is a principle of universal acceptance and application in the law of agency.

7. One of the latest English cases 11 declares, that the power of the directors to give a bill of sale, as security for debts, is incident to all trading corporations, although it be not expressly conferred by the articles of association, or the constitution of the company. Mr. Ch. Justice Erle said, "The fact that the company carries on a trade is a sufficient answer to the first objection. Every trading company must have the power of giving security for the debts which it contracts."

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8. Where power is given in the charter of a corporation or in the deed of settlement, for the directors to confirm any contract made by provisional directors, or any persons acting as directors of the company in its formation, the directors alone have power to confirm such contracts by deed.12 But the directors have no power to make any contract under seal binding upon the corporation, if the formalities prescribed by its constitution have not been complied with.13

9. The directors being but the servants or trustees of the company, it cannot, as before stated, retain money obtained from one by the fraudulent sale by the directors of the company property, unless the purchaser has by his own misconduct precluded himself from redress.14 It was here held, that directors are not justified in using reports to induce a sale of property, which were true at the time they were made, if not true at the time they are so used.

10. But the last case was reversed in the House of Lords, and the decree of Vice-Chancellor Stuart 15 affirmed with costs, - his

11 Shears v. Jacobs, 12 Jur. N. S. 785.

12 Wilkins v. Roebuck, 4 Drew. 281.

13 Hambro v. Hull & London Fire Ins. Co., 3 H. & N. 789. See, also, Eastwood v. Bain, Id. 738; Bryon v. Met. Saloon Omnibus Co., 3 De G. & J. 123; Baker ex parte, 6 Jur. N. S. 240.

14 Conybeare v. New B. & Canada Railw. Co., 6 Jur. N. S. 518; ante, § 41, pl. 2.

15 6 Jur. N. S. 164.