that the corporation has the same power to dispose of its unsubscribed and properly issued capital stock as any ordinary owner, paying debts with it, or exchanging it for labor or such other property as may be required for the corporate purposes; 1 provided that all this be done in good faith and upon sufficient consideration.2

§ 486. Right of a Corporation to deal in its Own Stock. But the extent to which a corporation, by its managing officers, may employ the corporate funds in buying up its own stock, is a matter of some uncertainty. The practice of speculating in this manner certainly ought not to be encouraged; and there are some cases which regard such a playing of corporate funds from one hand into the other as a breach of trust. But the rule is not so strict in most parts of this country as in England; and not only may a corporation lawfully take its own stock in pledge or as payment of some debt from necessity, but in the absence of special restrictions it is often permitted to purchase and own such shares to much the same effect as an individual stranger, holding them unextinguished and reissuing them; even by issuing new stock on a new subscription, or by dividing the shares pro rata among the remaining shareholders. Even where a corporation may have been guilty of a breach of trust by thus speculating with the corporate property, a stockholder

1 Ib.; Abb. Dig. Corp. 740. The right to issue capital stock not already taken is a corporate franchise, and the property thus held is in trust for the benefit of the corporators and should be disposed of accordingly and not by way of favoritism. Field Corp. § 124; Reese v. Bank of Montgomery Co., 31 Penn. St. 78.

Stock certificates not spurious nor illegally issued may avail a bona fide holder for value, though the consideration, as between the corporation and the party to whom they were issued, should fail. Savage v. Ball, 17 N. J. Eq. 142. Cf. Scovill v. Thayer, 105 U. S. 143, cited supra.

2 Handley v. Stutz, 139 U. S. 417;

Fogg v. Blair, 139 U. S. 118. But it cannot give away its stock, nor transfer it upon any simulated payment or dishonest device. Ib.

3 In re London, &c. Railway Co., 5 De Gex & S. 402; L. R. 5 Ch. 444 ; L. R. 7 Ch. 161; Williams v. Savage Man. Co., 3 Md. Ch. 418.

4 Coleman v. Columbia Oil Co., 51 Penn. St. 74, and cases cited; Abb. Dig. 737; City Bank v. Bruce, 17 N. Y. 507; Robison v. Beall, 26 Ga. 17; Vail v. Hamilton, 85 N. Y. 453; 162 Mass. 148; Taylor, §§ 134-136. See supra, § 481. A corporation having stock not taken may issue certificates therefor, taking in payment its own bonds. Lohman v. N. Y. R., 2 Sandf. 39.

interested may affirm by his own action the misapplication of funds, so as to be debarred of a remedy.1

§ 487. Risks of Investment in Stock; whether Trust Funds may be thus invested. There are two noteworthy risks incurred by those who invest in stock: one, that of the corporate business proving in practice unprofitable; the other, that of bad management of the corporate concerns. To invest in

this manner is to put money into trade; and into a trade which, however safe in itself, may, through the want of judgment, skill, and fidelity in those having the management of affairs, prove disastrous; for a stock corporation's directors are usually difficult to control and difficult to hold accountable. Hence, investments in stock are hardly to be deemed equally safe with investments in the securities of some wellestablished government or in the notes of individuals secured by a first-class mortgage of real estate; for which reason trustees, by the old English rule, were not permitted to invest their funds in any such manner; and such is the positive rule in New York and Pennsylvania.2

But a more flexible rule applies in most parts of this country; and in Massachusetts a trustee is justified in investing in bank stocks, or in the shares of manufacturing and insurance corporations, or in the notes of individuals secured by such stocks and shares as collateral security. With the growth of capital seeking investment on the one hand, and on the other the rapid increase of joint-stock corporations organized for a variety of purposes, the American tendency must constantly be towards a flexible rule. We have a number of public funds offered in the market at this day which are far less secure than the best species of corporation stock; and both kinds of investments are frequently offered at speculative rates, and sold in a similar manner. The real

1 Coleman v. Columbia Oil Co., 51 Penn. St. 74; Taylor, § 541. A bequest to a corporation of its own stock has been sustained as valid. Rivanna Nav. Co. v. Dawson, 3 Gratt. 19.

2 King v. Talbot, 40 N. Y. 76;

Howev. Dartmouth, 7 Ves. 150; Worrell's Appeal, 9 Penn. St. 508; Perry Trusts, §§ 455, 456.

3 Harvard College v. Amory, 9 Pick. 446; Lovell v. Minot, 20 Pick. 116.

safety promised in any investment, in short, must depend greatly upon the facts concerning the particular stock or security.1

§ 488. Methods by which One becomes a Stockholder; Subscription and Transfer.- Secondly, we inquire how one becomes a stockholder. There are two methods open one by being an original subscriber to the stock; the other by coming in afterwards under what is called the transfer of another's stock. In some kinds of corporations, membership is a sort of exclusive privilege. Such is peculiarly the case with societies incorporated for the promotion of some literary, scientific, benevolent, or social object; their charters and by-laws usually providing some special mode for filling vacancies by election, in order that personal fitness may be made a test of membership. But as to joint-stock corporations and companies generally which are organized for the pursuit of gain in some line of business, membership in the first instance is constituted by subscriptions towards the original capital stock, and afterwards by the transfer of shares, without any election on the part of the corporation itself. To be sure, transfer books are kept by corporations of this character, whose records determine to a considerable extent who shall rightfully vote at the meetings, as in the case of an election of directors; yet one who is entitled to stock may compel the corporation to give him a proper certificate where it is refused. And, in general, what distinguishes a joint-stock or business corporation from all others

23 & 24 Vict. c. 38; Perry Trusts, § 455, and cases cited.

2 Overseers v. Sears, 22 Pick. 122; In re Philadelphia Savings Institution, 1 Whart. 461; Ang. & Ames, 8th ed. § 114. Some business corporations are so organized as to restrict changes of membership by reserving, as in case of a member's death, the right of the company to buy in the stock at a valuation.

1 Such seems to be the principle more latterly regarded in England; for while in that country trustees were formerly obliged almost invariably to invest in the public funds, courts of chancery have been authorized by more recent acts of Parliament to order investments in various other securities; so that, at the present day, cash under the control of chancery may, in that country, be invested in bank stock and East India stock, as well as upon mortgage security. See Acts 22 & 23 Vict. c. 35; 256.

3 Ang. & Ames, §§ 113, 565; Agricultural Bank v. Burr, 24 Maine,

is that the title of one's admission into the concern is either by subscribing to the undertaking or taking the place of an original subscriber. For in such a corporation, each stockholder, whether by purchase or original subscription, has the right unless restrained by the charter or articles of association, to sell and transfer his shares, and by doing so to introduce others into the concern in his stead.1

§ 489. Subscription for Shares. —A subscription for shares in the stock of a joint-stock corporation is a contract, and follows the ordinary rules which relate to a contract. There is a consideration for every such subscription, which the law will infer from the subscription itself and the rights and privileges of membership thereby conferred upon the subscriber; and this consideration is usually sufficient to enable the corporation to sue for the amount of the subscription.2 It is true that there may have been terms and conditions set forth in the subscription paper sufficient to negative the presumption of a promise to pay on the subscriber's part; but subscription contracts are not very strictly construed in matters of form, an intent to subscribe being capable of quite simple manifestation; and it is only necessary, as a rule, that the writing should indicate the subscriber's intention to become a stockholder and the number of shares to be taken by him; for the promise to pay for the stock is implied under these circumstances, and no express promise is necessary, 3

1 Morgan v. Struthers, 131 U. S. 246.

2 Ang. & Ames, 8th ed. §§ 517–519, and cases cited; Wordsworth's JointStock Cos., 317; Birmingham R. R. Co. v. White, 1 Q. B. 282; Small v. Herkimer Manuf. Co., 2 Comst. 330; Abb. Dig. 7883, 801.

8 Ib.; Kennebec, &c. R. R. Co. v. Jarvis, 34 Maine, 360. See Phillips Limerick Academy v. Davis, 11 Mass. 113. If subscription papers refer to the charter of the company, the subscription should be construed as if all the statute provisions affecting the subscriber's liability or his title to the

stock which he purchases were part of his agreement. Small ev. Herkimer Manuf. Co., 2 Comst. 330; Abb. Dig. Corp. 788. A subscription to the full amount named as the capital stock of the corporation is not a condition precedent to the right of recovery from any subscriber. Abb. Dig. Corp. 787; Hoagland v. Cincinnati, &c. R. R. Co., 18 Ind. 452; Schenectady, &c. Plank Road Co. v. Thatcher, 1 Kern. 102. But where a given amount is required to be subscribed before the corporation can go into operation, there is no right to recover subscriptions before that amount is fully sub

It appears to be a rule that if one who subscribes for stock and receives it has not paid up his subscription in full, he owes for the balance, but is, notwithstanding, a stockholder; that is to say, that the mere failure on his part to settle what he owes will not detract from his legal rights and liabilities.1 The subscription is a good consideration for a note given in payment for the stock, and for a mortgage given to secure that note likewise; and in the United States this principle is quite liberally extended. For it is held in a number of cases that a corporation may enter into transactions of this sort, and may even give its stock in payment of land, labor, or materials, where there is no express prohibition to the contrary affecting its charter.2 And it is further held that if the subscriber to stock whose subscription was upon the understanding that a certain amount should be paid in materials refuses so to pay, his subscription may be demanded in money. Not uncommonly we find subscription papers drawn up so as to make the capital subscribed for payable in instalments. This is quite convenient to all parties where the proposed business may be conducted profitably on a minimum cash capital and extended gradually afterwards; as, for instance, where a railroad is being built and subscriptions are to be paid in from time to time as the work progresses.

$490. The Same Subject. The later decisions exhibit the frequent spectacle of a man, who has been drawn into some projected scheme of profit, repenting afterwards, and seeking to disentangle himself from the consequences. He joins others in going before the legislature to procure an act of incorporation for the proposed company, or else, finding

scribed. Fry v. Lexington, &c. R. R. Co., 2 Met. (Ky.) 314.

1 Curry v. Scott, 54 Penn. St. 270; Schaeffer v. Missouri Ins. Co., 46 Mo. 248.

2 See Carr v. Le Fevre, 27 Penn. St. 413; Cincinnati R. R. Co. v. Clarkson, 7 Ind. 595; Clark v. Farrington, 11 Wis. 306; Vermont Central R. R. Co. v. Clayes, 21 Vt. 30; Ang. & Ames, 8th ed. § 517.

Ang. & Ames, ib.; Haywood P. R. Co. v. Bryan, 6 Jones, 82.

4 Ang. & Ames, § 517; Abb. Dig. 789. An engagement being made by a subscriber to pay at stipulated periods, the Statute of Limitations will begin to run against each instalment as fast as it becomes due. Corning v. McCullough, 1 Comst. 47.

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