7 Spring Companyv. Knowlton, 103 U. S. 49, affirming S. C. sub. nom. Knowlton v. Congress etc. Co. 14 Blatchf. 364; Peckham v. Smith, 9 How. Pr. 436.

8 Merrill v. Gamble, 46 Iowa, 615; Merrill v. Beaver, 46 Iowa, 646. Cf. Merrill v. Beaver, 50 lowa, 401.

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§ 323. The legislative grant vests in the stockholders, not in the directors.-Ordinarily, when the charter of a corporation has been amended under a power reserved to the State, an acceptance by the directors, without the express consent of the stockholders, is sufficient to give effect to the amendment;1 but a grant of authority to a corporation to increase or reduce its capital stock, vests in the shareholders and not in the directors; notwithstanding that the charter may provide that "all the corporate powers of said corporation shall be vested in and exercised by a board of directors." For a change so organic and fundamental as an increase or reduction of the capital stock cannot be made by the directors alone, unless expressly authorized thereto. The general power to perform all corporate acts, conferred upon the directors, " refers to the ordinary business transactions of the corporation, and does not extend to a reconstruction of the body itself, or to an enlargement of its capital stock."4 But the change having been made by the directors, and being acquiesced in by the shareholders, will be as legal and binding upon the latter as though it had been expressly authorized by them at a shareholders' meeting.5 An amendment to the charter of a company taking from the shareholders and vesting in the directors the power to authorize an increase of the capital stock, is not such a fundamental change in the constitution of the corporation as will release dissenting share

holders from obligation upon their stock. When, as is sometimes the case, the charter of the company directs that the power to increase the capital stock shall be exercised by the directors, their decision as to the necessity for an increase, if unbiased by fraudulent motives, is conclusive."

1 Illinois River R. R. Co. v. Zimmer & Casey, 20 Ill. 654, 661; Barret (reported Banit") v. Alton etc. R. R. Co. 13 I. 508; Sprague v. Illinois River R. R Co. 19 Ill. 174 Cf. Lincoln etc. Bank v. Richardson, 1 Greenl. 79, where it was held that mere user without express acceptauce either by directors or stockholders, is ordinarily sufficient.

2 Railway Co. v. Allerton, 18 Wail. 233; People v. Vein Coal Co. 10 How. Pr. 513; Percy v. Millaudon, 3 La. 598, 585; 6 Martin, N. £. 616; 17 Am. Dec. 196; Crandall v. Lincoin, 52 Conn. 73, 99; Eidraar. v. Bowman, 58 ill. 444; Finley Shoe etc. Co. v. Kurtz, 31 Mich. 89; Cook on Stock & Stockh. $285; Morawetz on Corporations (2nd ed.), § 512; Taylor on Corporations (2nd ed.), § 228; Green's Brice's Ultra Vires (2nd ed.), § 495.

3 Railway Co. v. Allerton, 18 Wall. 233.

4 Railway Co. v. Allerton, 18 Wall. 233.

5 Railway Co. v. Allerton, 18 Wall. 235, 235; Payson v. Stoever, 2 Dill. 424; Eidman v. Bowman, 58 Ill. 444; Sewell's Case, Law R.3 Ch. 131; Lane's Case, 1 De Gex, J. & S. 504. That shareholders may by subsequent action at a corporate meeting ratify and render valid irregular acts of directors done in good faith and not impairing the obligations of the company to its creditors, see Supervisors v. Schenck, 5 Wall. 772, 782; McLaughlin v. Detroit et. R. R. Co. 8 Mich. 100, 103. See also cases enumerated by Cook on Stock & Stockh. § 285.

6 Cook on Stock & Stockh. § 285; Payson v. Withers, 5 Biss. 269; Payson v. Stoever, 2 Dill 428.

7 Sutherland v. Olcott, 95 N. Y. 93.

§ 324. The manner of effecting an increase or reduction. If a corporation desire to increase its capital stock, this may be done by the issue of new shares, or by increasing the par value of those already out tanding.' If the increase is to be made by the issue of new shares, the manner of effecting the increase not being prescribed in the enabling act, it is immaterial whether it be made by awarding the stock to the stockholders, as dividends in lieu of money, retaining the money for the purposes of the company, or by paying the stockholder the divi,

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dends in cash from the earnings of the enterprise, and selling the stock in the market to raise money for the corporate purposes. When it is provided by the statutes or constitution of a State that stock shall not be issued except for money, property or services, an additional issue of stoc. cannot be based upon an increase in the value of the property in which the original stock is invested.3 The vote of the shareholders is not per se an increase of the capital stock. Until the new stock is subscribed for, at least, there is an clement of uncertainty respecting the increase; and the shareholders may, at any time before the new stock is taken, reconsider their vote.* Reduction may be accomplished by the company purchasing and extinguishing its own shares; or the company may refund to its stockholders a definite portion of ea h share. A company cannot, however, reduce its capital stock by purchasing and extinguishing a portion of its shares, without the consent and against the protest of any of its stockholders, when it would operate for the relief and benefit of those from whom the stock is purchased, and would increase the liability of the remaining stockholders." The purchase of its own shares may or may not operate to reduce the capital stock at the option of the company. If it has authority to make a reduction, and manifests an intention to produce that result by the purchase, and the shares are extinguished, a reduction will thereby be effected; but where there is no such intention, or where the authority to reduce is not possessed by the company, it may reissue them at any time.

6

1 Currier v. Lebanon Slate Co. 56 N. H. 262. Cf. Howell v. Chicago etc. R'y Co. 51 Barb. 378,

2 Howell v. Chicago etc. R'y Co. 51 Barb. 378. On the issue of stock dividends, see §§ 285, 286.

3 Fitzpatrick v. Dispatch etc. Co. (1887), 83 Ala. 604.

4 Terry v. Eagle Lock Co. 47 Conn. 141.

5 City Bank v. Bruce, 17 N. Y. 507; Williams v. Savage Manuf. Co. 3 Md. Ch. 413; Currier v. Lebanon Slate Co. 55 N. H. 262; State v. Smith. 43 Vt. 266; Taylor v. Miami Exporting Co. 6 Ohio, 176; S. C. 5 Ohio St. 162; 22 Am. Dec. 785.

6 Currier v. Lebanon Slate Co. 56 N. H. 262.

7 Currier v. Lebanon Slate Co. 56 N. H. 262.

8 City Bank v. Bruce, 17 N. Y. 507; Williams v, Savage Manuf. Co. 3 Md. Ch. 418; American Railroad Frog Co. v. Haven, 101 Mass. 398; State v. Smith, 48 Vt. 266; Currier v. Lebanon Slate Co 56 N. II. 262; Chetlain v. Republic Life Ins. Co. 86 Ill. 220; Taylor v. Miami Exporting Co. 6 Oh o, 176; S. C. 5 Ohio, 162; 22 Am. Dec. 785. Cf. Percy v. Millaudon, 3 La, 568 587; 17 Am. Dec. 196.

§ 325. The validity of an increase of capital stock not to be questioned collaterally.-There are some defenses available in an action to enforce a subscription to the original stock of a company which cannot be plead in a similar action upon a subscription to additional stock. Technical objections to the validity of the contract of subscription are regarded in these cases unfavorably. So, also, the subscriber cannot plead successfully that the whole amount of the increase has not been subscribed for, as he may in case of a subscription to the original stock; nor will he be heard to allege the illegality of the increase, the regularity and legality of an issue of stock being a question to be raised only in direct proceedings for that purpose instituted against the corporation by the attorneygeneral. For, although an increase of the capital stock may have been irregularly and unlawfully made, yet stockholders who have subscribed thereto, who have accepted the certificates and have received dividends upon the shares, are held to be estopped from pleading the illegality as against corporate creditors.1

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1 Kansas City Hotel Co. v. Hunt, 57 Mo. 126.

2 Nutter v. Lexington etc. R. R. Co. 6 Gray, 85; Clarke v. Thomas, 24 Ohio St. 46. Vide supra, §§ 105, 106, 107.

3 Chubb v. Upton, 95 U. S. 665; Pullman v. Upton, 96 U. S. 328; In re Reciprocity Bank, 22 N. Y. 9; Kansas City Hotel v. Harris, 51 Mo. 464.

4 Chubb v. Upton, 95 U. S. 665; Veeder v. Mudgett, 95 N. Y. 295; Sheldon etc. Co. v. Eickemeyer etc. Co. 90 N. Y. 607, 612; Kent v. Quicksilver Mining Co. 78 N. Y. 159, 187; Aspinwall v. Sacchi, 57 N. Y. 331; Buffalo etc. R. R. Co. v. Cary, 26 N. Y. 75; Eaton v. Aspinwall, 19 N. Y. 119; In re Miller's Dale Co. 31 Ch. Div. 211. Cf. Cook on Stock & Stockh. $238; Herman on Estoppel (2d ed.), §§ 1178, 1248; Morawetz on Corporations (2d ed.). §§ 701-767; Thompson on Liability of Stockholders, §§ 160 et seq., 407 et seq. But see 1 Lindley on Partnership (4th ed.), 134; and 2 Ibid. 1349.

§ 326. Stockholders entitled to take the new stock at par.When a company determines to increase its capital stock, each holder of the original stock has a right to subscribe for and purchase at par1 a proportionate amount of the new stock as nearly as it may be fixed in integral shares,3 provided he avail himself of the right within the time prescribed, or, if none be fixed, within a reasonable time. This right exists as well where, upon the organization of the company, the whole amount of capital stock authorized by the charter was not issued, and the increase is by issue of the remainder, as where the corporation has been granted authority by statute to increase the capital stock beyond the amount fixed by the charter; but the right does not extend to a reissue of old shares purchased by the corporation. These may be disposed of by the directors to whomsoever they will. Any attempt to deprive an original shareholder of his right to subscribe to his proportionate part of the increased capital stock may be enjoined by a court of equity;" or, if he has been already deprived of it, he may sue the company by a special count in assumpsit, and recover for the loss, the measure of damages

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