3. Shareholders entitled to proportionate share 11. How far shareholders exonerated by

of net profits.

transfer or forfeiture of shares.

4. Liability of subscribers, when scheme is 12. Bonâ fide transfer with no trust in favor

§ 242. 1. A RAILWAY corporation may be dissolved in the same manner as other private moneyed corporations.1

(1.) By act of parliament, which alone by the English constitution has inherent power to dissolve or repeal the charter of corporations, although the king may create them.2 But the failure to hold meetings and elect officers is not, within reasonable limits, to be regarded as a dissolution of the corporation.3

(2.) By surrender to the legislature of all its corporate fran

1 If a corporation once had a legal existence, which is alleged to have been determined, it is necessary that the pleadings should show or set forth particularly the manner in which its corporate powers ceased. Sutherland v. Lagro & Manchester Plank-Road Company, 19 Ind. R. 192.

Ante, § 204.

3

Angell & Ames on Corp. § 771, and cases cited; Smith v. Steamboat Co., 1 How. (Miss.) 479.

chises, and the acceptance of such surrender. But the mere non-user, or abuse of its corporate franchises, will not amount to a surrender. This must, in general, be effected by some distinct * and unequivocal act of the corporation, accepted by the government.5

(3.) By forfeiture of the corporate franchises, by disuse, or abuse, judicially declared, upon scire facias or quo warranto brought for that purpose. This is the only mode in which a

4 Angell & Ames, § 772; 2 Kent's Comm. 310, and notes; Missouri and Ohio Railw. v. State, 29 Ala. R. 573.

6

5 Town v. Bank of River Raisin, 2 Doug. (Mich.) 530; McMahan v. Morrison, 16 Ind. R. 172; 2 Kent's Comm. 312, and notes. A railway corporation is not dissolved by the sale of a part, or all of its road, upon execution. State v. Rives, 5 Iredell, 297, 309. See Commonwealth v. Tenth Mass. Turnpike Co., 5 Cush. 509; State v. Bank of Maryland, 6 Gill & J. 205; De Ruyter v. St. Peter's Ch., 3 Comst. 238; Bruffett v. Great Western Railw., 25 Ill. R. 353. Ang. & Ames, § 774. The Eastern Archipelago Co. v. Reginam, 22 Eng. L. & Eq. 328, in Exchq. Ch.; s. c. in Q. B. 18 Eng. L. & Eq. 167; Ante, § 204. A corporation cannot, except with the consent of the legislature, alienate its property (as where all the stock in one railway is subscribed by another railway, which has the entire control of the first corporation), and thus relinquish the control and management of its affairs, so as to divest itself of further responsibility. York & Maryland Line Railw. v. Winans, 17 How. (U. S.) 30.

In Baltimore v. Connellsville and Southern Penn. Railw., Legal Intelligencer, Sept. 28, 1866, the court thus define the expressions misuse or abuse of corporate franchises. "There can be no abuse or misuse without a positive act of malfeasance. This, to furnish ground of forfeiture, must be wilful. It must be something more than accidental negligence, excess of power, or mistake in the mode of exercising an acknowledged power." "There is nothing profound or mystical about these terms, misuse or abuse. They are not terms of art in the law. The popular sense in which they are used every day is well known. To abuse is compounded of ab and utor; and in strictness it signifies to injure, diminish in value, or wear away by improperly using." "Misuse is a still simpler word. It signifies simply to use amiss. But I admit that these words, like all others, may have different meanings when spoken with reference to different subjects. Acts which would be an abuse of one thing, may be no abuse of another. We are, therefore, to ascertain what is 'abuse or misuse' of the corporate privileges by the company. Abuse includes misuse. We may take them both together, and define them thus: Any positive act in violation of the charter, and in derogation of public right, wilfully done, or caused to be done, by those appointed to manage the general concerns of the corporation."

In People v. Albany, &c. Railw., 24 N. Y. R. 261, it is held that a railway corporation, chartered to operate a railroad between A. & B., cannot legally operate it between A. & C. only, C. being a way station between A. & B., and

forfeiture of corporate franchises can be determined, and such question cannot be collaterally raised in suits instituted by the corporation, as the state may waive any forfeiture committed by the corporation.7

2. The rights of creditors against the corporation will depend upon the charter, and the general statutes in force at the time of its creation and dissolution. But there is no liability of the shareholders beyond the amount of their subscriptions, in the abandon that part of the route lying between B. & C.; and if it does so, its charter may be vacated, or its corporate existence annulled by proper proceedings, though a suit in equity, to compel maintenance and operation over the whole track, cannot be maintained. And the legislature cannot declare the charter of a corporation forfeited. This power belongs only to the courts. Bruffett v. Great Western Railw., 25 Ill. R. 353.

7 State v. Fourth N. H. Turnpike Co., 15 N. H. R. 162; Young v. Harrison, 6 Ga. R. 130; Bank v. Trimble, 6 B. Mon. 599; Johnson v. Bentley, 16 Ohio, 97; 16 S. & R. 140; Union Branch Railw. v. E. Tenn. & Ga. R. 14 Ga. R. 327; Illinois Central Railw. v. Rucker, 14 Ill. R. 353; People v. Bank of Pontiac, 12 Mich. R. 527; 5 Johns. Ch. 366; 19 Johns. 456. But a charter may be made dependent upon the performance of conditions precedent, in such a form, as that non-performance will work a forfeiture. Parmelee v. Oswego & S. Railw., 7 Barb. 599. See also R. M. Charlton, 250; Wilmans v. Bank of Illinois, 1 Gilm. 667; Enfield Toll-Bridge Co. v. Conn. River Railw., 7 Conn. R. 28; 23 Wendell, 222; 11 Ala. R. 472; Brookville & G. Turnpike Co. v. McCarty, 8 Ind. R. 392. Ante, § 18.

After the forfeiture judicially determined, the company can do no act, unless its power and capacity for that purpose are continued by statute. Saltmarsh v. Planters' and Merchants' Bank of Mobile, 17 Alabama R. 761. See also Attorney-General v. Petersburg & Roanoke Railw., 6 Iredell, 456, where the state is held bound by an implied waiver of forfeiture of corporate charters. But see People v. Bank of Pontiac, 12 Michigan R. 412.

In a very late case in New York, it is held that if there is any defect in the proceedings for the organization of a corporation, or any abuse of its powers or of the statute authorizing the formation of corporations, under general or special laws, the question is one of law, and it is for the state alone to take steps to dissolve such corporation, or forbid the exercise by it of corporate rights and franchises. The courts of equity will not take cognizance of such questions in regard to corporations. Doyle v. Peerless Petroleum Co., 44 Barb. 239. The same doctrine is maintained in Sturges v. Knapp, 31 Vt. R. 1.

* See Blake v. Concord & Portsmouth Railw., 39 N. H. R. 435. It is here held, under a statute provision, that suits may be brought by or against a corporation within three years after its dissolution, that no repeal of the charter of a corporation can take away or impair the remedy of a creditor against it for previously incurred liability, or affect a pending suit against it.

absence of special liability imposed, either by the charter, or the general laws of the state in force at the time of the incorporation.9

3. The rights of shareholders will be to a proportion of the assets of the company, where it had already gone into operation, and the managers and directors were guilty of no fraud, either in * the management or closing up of the concerns of the company. But where a scheme is set on foot, and a prospectus issued, stating that all money deposited will be laid out at interest, and after some subscriptions had been paid to the directors, who had the management of the concern, but before any money was laid out the directors resolved to abandon the concern, it was held, that each subscriber might recover the whole sum paid in by him, of the directors, in an action for money had and received, without the deduction of any part towards the expense of the concern.10

4. And where the company goes into operation without the subscription of the full number of shares limited in the charter, it is an irregularity, and may become a fraud in those who consent, but it will not render those shareholders liable upon the contracts of the directors, who do not assent to the company thus going into operation. So, too, where the party is induced

• Post, § 244. And see Hoffman v. Van Nostrand, 42 Barb. 174.

10 Nockels v. Crosby, 3 B. & Creswell, 814; Walstab v. Spottiswoode, 4 Railw. C. 321. In this case the prospectus promised to issue scrip, on demand, for the full sum deposited, but that was refused, and the party was held entitled to recover the full sum deposited. Ashpitel v. Sercombe, 5 Exch. 147; Chaplin v.

Clarke, 4 Exch. 403.

11 Pitchford v. Davis, 5 M. & W. 2; Fox v. Clifton, 6 Bing. 776; Bourne v. Freeth, 9 B. & Cress. 632.

In a recent case in Georgia, Sisson v. Matthews, 20 Ga. R. 848, s. c. 17 Ga. R. 544, it was attempted to charge the members of a manufacturing corporation, in equity, upon the ground that the defendants were originally carrying on the same business, as a copartnership, and obtained the act of incorporation, and transferred the business and responsibility to the corporation, with a view unjustly and fraudulently to exonerate themselves, save their former losses, and thereby impose a corresponding loss upon the creditors of the corporation, who gave credit to it, subsequent to its incorporation, upon the ground that, in the petition to the legislature for the act of incorporation, the defendants represented the foundry of the copartnership as being in actual operation at the time of the petition being preferred, when in fact it required $ 2,000 to be raised upon

to pay his money and execute the subscribers' deed, under a false representation by the defendants, the managing directors, and the scheme is finally abandoned, the plaintiff is entitled to recover his whole money, as upon a failure of consideration.12

5. But where the amount of the capital to be raised is stated in the prospectus as not exceeding £700,000, and the sum actually subscribed is less, the subscribers are not excused from paying their proportion of the expenses on that account.13 And the managing committee, who subscribe for shares and pay deposits in order to comply with the standing orders of the House of Commons, will not be allowed to treat this as a loan to the company, as this would be an express fraud upon parliament, but they are liable the same as other subscribers.1 14 But where no fraud is shown to induce the plaintiff to sign the parliamentary contract, and subscribers' agreement, he cannot recover his deposit as money had and received, or any portion of it, although the scheme had proved abortive, the contract subscribed giving the credit of the corporation to put it in operation, which they subsequently had to refund; and also that the corporation, after the act, paid $ 4,000 of the debts of the former company, thus reducing their available means $ 6,000 below what was represented in the petition to the legislature, upon which the plaintiffs relied, as truth, and were thereby induced to give credit to the corporation, and which they now sought to enforce, to the extent of the $6,000, against the defendants.

The court held that there was no such sequence between the representation to the legislature and the credit given to the corporation as to form the basis of obtaining a false credit; the act of incorporation not having annexed any conditions to the charter, it was not competent to qualify the liability of the corporators by going behind the act of incorporation.

The court seemed to concede in the opinion, that if the defendants had induced the credit, by a substantial misrepresentation, in regard to the funds or liabilities of the corporation, made directly to the plaintiffs for that purpose, and with that intent, they might be made liable, in this form, to indemnify the plaintiff's against the loss which they sustained by such false representation.

12 Wontner v. Shairp, 4 C. B. 404; Jarrett v. Kennedy, 6 C. B. 319. And a shareholder who is liable to contribute to the expenses of a collapsed company, and who is also a creditor of the concern, cannot set off his debt against the call upon his shares, but must first pay calls, and then share with other creditors in the avails. Grissell's case, 12 Jur. N. S. 720.

13 Watts v. Salter, 10 C. B. 477. See ante, § 2 and notes (vol. 1).

14 Clements v. Bowes, 21 Eng. L. & Eq. 471; s. c. 8 Eng. L. & Eq. 238; Upfill's case, 1 Eng. L. & Eq. 13.