pany are, by the agents of the company, agreed to be received at a discount, below the par value of the shares, it will be regarded as a fraud upon the other shareholders, and not binding upon the company.2

2 Mann v. Cooke, 20 Conn. 178. In this case the defendant subscribed for forty shares in the capital stock of a railway company, upon condition that all future calls should be paid, as required, or the shares should become the property of the company. He thereupon received certificates of ownership of the forty shares, the special terms of his subscription not being known to the other subscribers.

Some time afterwards, the company being largely indebted, and insolvent, and the greater part of the instalments on its stock being unpaid, the president made an arrangement with defendant that he should immediately pay the instalments on twenty shares of his stock, in full, and he was thereupon to be discharged from all liability on the other twenty shares. Defendant complied with these terms, and the money paid went for the benefit of the company.

The plaintiff was appointed receiver of the effects of the company, and brought this bill in equity to obtain payment of the balance due upon the other twenty shares, and it was held:

1. That the subscription for the stock was in legal effect the same as an ordinary subscription for stock, without condition.

2. That the arrangement made with the president of the company was void, as a fraud upon stockholders and creditors.

3. That the company, being created for public purposes, could not receive subscriptions under a private arrangement at less than the par value of the stock, as this would deprive the company of so much of its available means, and thus operate as a fraud upon all parties interested.

But where one paid for stock in a railway company, under a secret agreement with the commissioner of contracts that he might receive land of the company at a future day, and pay in the stock certificate, and the company declined to ratify the contract, it was held the subscriber was released from his portion of the contract, and might recover the money he paid for the stock of the company. Weeden v. Lake Erie & Mad River Railway, 14 Ohio, 563. But in the case of the Cincinnati, Indiana, & Chicago Railw. v. Clarkson, 7 Ind. 595, it seems to be considered, that the company are bound by a contract to compensate a solicitor of subscriptions to the capital stock, payable in land, but no question is made in regard to the validity of the subscriptions. The solicitors were ordered by the directors to accept such subscriptions, and were to have two per cent on all which were accepted by the company, and the contract was held binding upon the company. An agreement by a railway company, that a subscriber for stock may pay the full amount, or any part of his subscription, and receive "interest thereon until the road goes into operation," does not oblige the company to pay interest before the road goes into operation. Waterman v. Troy & Greenfield Railway, 8 Gray, 433. See, also, Buffalo & N. Y. City Railw. v. Dudley, 4 Kernan, 336. Ante, § 54, pl. 4. An agreement to pay interest 66 stock upon as soon as paid," means fully paid. Miller v. Pittsburg & Connellsville Railw., 40 Penn. St. 237.

* 3. In a case in Pennsylvania, it is said that subscriptions. made to the capital stock of a corporation before its * organization, must always be payable in money only. But after the organization, the company may stipulate with the subscriber for payment in any other mode, and can only enforce the contract according to its terms; and the act of the president of the company in accepting conditional subscriptions is binding upon the company.

4. It is also held in the same case,3 that the fact the subscriber makes part payment in money before call, will not estop him from setting up the special contract in defence of an after call.

5. But in a somewhat recent case in Alabama,4 it was held that a subscription to the capital stock of a railway company, in express terms made payable in work, in grading the line, to be taken at the public or private letting and performed to the acceptance of the company's engineer, could not be enforced against the subscriber until he had had reasonable opportunity to perform the contract in the manner specified by its terms. But if, after that, the defendant failed on his part to perform it, he was liable to pay the amount in money. It is here said that the subscriber must take notice of the published lettings of the work.

6. The cases may seem conflicting upon this point; but the true principle seems to be, that the corporation can only enforce the contract of subscription according to its terms, and of this the subscriber cannot complain, or resist successfully the enforcement of his subscription in that mode. But so far as the creditors of the company are interested in the matter, they may hold the directors responsible for having received the amount of the capital stock in money. And as to the duty of the directors, they cannot, in strictness and fairness, receive subscriptions payable in any thing but money; nor can they launch the company until the whole capital stock is subscribed in money. And any fraud or evasion in this particular will render the directors responsible for the debts of the company, as in equity and fair dealing it should.

3 Pittsburg & Connellsville Railw. v. Stewart, 41 Penn. St. 54. The question of the presumptive effect of the conduct of a subscriber after the organization of the company, in attending and taking part in the meetings of the company, upon the proper construction of any special contract with the company, is here considerably discussed.

4 Eppes v. M. G. & T. Railw. 35 Alabama, 33; H. & P. Plank R. Co. v. Bryan, 6 Jones Law, 82.

*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 any thing but money in payment of stock, and could not issue stock at any rate below par, 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, 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

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.

basis is reached, every thing 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.

6

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 authority 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 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 * 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.

6 McLaughlin v. Detroit & Milw. Railw., 8 Mich. 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.

SECTION XIII.

Equitable Relief from Subscriptions obtained by Fraud.

1. Substantial misrepresentations in obtaining subscriptions will avoid them.

2. But for circumstantial misconduct of the directors, in the matter, they alone are liable.

3. Party purchasing must make reasonable examination of papers referred to on all doubtful points. But no relief will be granted, where there is no fraud, or intentional misrepresentation.

4. 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, 17 Beav. 87; s. c. 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; s. c. 4 Drew. 205.

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, tỏ a new subscription for forty additional shares, without consultation with such person, upon 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.

* Pulsford v. Richards, 17 Beav. 87; s. c. 19 Eng. L. & Eq. 392; Jennings v. Broughton, 17 Beav. 234; s. c. 19 Eng. L. & Eq. 420. One, to entitle himself to be relieved from his subscription, 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