other relation or privity between the parties need be shown.1 The false statement, which was an inducement to the investment, need not have been the only inducement in order to make it actionable. Where such false papers have been adopted by the corporation, its contract, as for the sale of its capital stock, with a party who put faith in them, may be set aside at his instance.3 The liability of directors for such publications is to be confined to statements of fact, peculiarly within their knowledge, and therefore attracting and justifying the special confidence of the public. Mere general declarations, although greatly exaggerated, of the prospects of an enterprise, do not, when proving erroneous, subject them to liability, these being matters of opinion in relation to which the public should be on its guard. The director's knowledge of the fraud, and participation in it, must be proved, and cannot be inferred merely from his official character; and if the false statements are made by agents, it must be shown that he authorized such agents to make them. Each director is liable for his own fraud, and not for that of his colleagues in which he' did not participate. A director is not liable for an incorrect statement of a matter of law.8

1 Morgan v. Skiddy, 62 N. Y. 319, 36 N. Y. Superior, 152;- Nelson v. Luling, 36 N. Y. Superior, 544; Newbery v. Garland, 31 Barb. 121; Morse v. Swits, 19 How. Pr. 275; Cross v. Sackett, 2 Bosw. 617; Vreeland v. New Jersey Stone Co., 2 Stewart (N. J.), 188; Salmon v. Richardson, 30 Conn. 860; United Society of Shakers v. Underwood, 9 Bush, 609; Scott v. Dixon, 1 El. & E. 1099; Gerhard v. Bates, 2 El. & Bl. 476; Clarke v. Dickson, 6 C. B. N. s. 453; Swift v. Winterbotham, L. R. 8 Q. B. 244; Davidson v. Tulloch, 3 Macq. 783; Burnes v. Pennell, 2 H. L. Cas. 497; Ross v. Estates Investment Co., L. R. 3 Eq. Cas. 122; Kent v. Freehold L. & B. Co., L. R. 4 Eq. Cas. 588; Hill v. Lane, L. R. 11 Eq. Cas. 215; Bigelow on Fraud, ch. 1, § 6. See Seizer v. Mali, 32 Barb. 76; Houldsworth v. Glasgow Bank, L. R. 5 App. Cas. 317; Henderson v. Lacon, L. R. 5 Eq. Cas. 249. The case of Peek v. Gurney, L. R. 6 H. L. 377 (which overrules Bagshaw v. Seymour, 18 C. B. 903, and Bedford v. Bagshaw, 4 H. & N. 538),

limits the liability of the directors to parties who purchased of them, or were directly misled by them.

2 Morgan v. Skiddy, 62 N. Y. 319, 36 N. Y. Superior, 152; Clarke v. Dickson, 6 C. B. N. s. 453.

3 New Brunswick & C. R. & L. Co. v. Cony beare, 9 H. L. Cas. 711, 1 Giffard, 339; Central R. Co. v. Kisch, L. R. 2 H. L. 99; New Brunswick & C. R. & L. Co. v. Muggeridge, 1 Drewry & S. 363. See Bradley v. Poole, 98 Mass. 169.

4 Morgan v. Skiddy, 62 N. Y. 319, 36 N. Y. Superior, 152; New Brunswick & C. R. & L. Co. v. Conybeare, 9 H. & L. Cas. 711.

5 Wakeman v. Dalley, 51 N. Y. 27; Arthur v. Griswold, 55 N. Y. 401; Mabey v. Adams, 3 Bosw. 346.

The directors are liable to the bona fide purchasers of spurious or overissued stock which they have fraudulently issued, whether such purchasers obtained it immediately from the directors or by assignment from other holders.1

A bill against directors for abuse of trust is not multifarious for uniting various grounds of complaint, some applying only to a part of the directors, and other grounds applying only to other directors.2 The jurisdiction of equity against directors for a waste or misapplication of the corporate funds is not excluded by the existence of a concurrent remedy at law.3

Suits against Directors. A suit in equity may be sustained by the corporation against a director for fraud or breach of trust; and where the directors, being requested, refuse to bring a suit in the name of the corporation, a stockholder may bring the suit in his own name, for himself and others similarly situated, making proper allegations and joining the corporation as defendant.4 This remedy is confined to fraud and breaches of trust, and cannot be used to recover debts due to and property belonging to the corporation.5 Stockholders have a remedy in equity to prevent violations of the charter or acts ultra vires amounting to a breach of trust, or endangering the existence of the corpora

1 Bruff v. Mali, 36 N. Y. 200; Cazeaux v. Mali, 25 Barb. 578. See post, Chap. V., THE CAPITAL STOCK p. 127. 2 Lewis v. St. Albans I. & S. Works, 50 Vt. 477.

Valley R. Co., 12 Blatch. 280; Peabody v. Flint, 6 Allen, 52; Black v. Huggins, 2 Tenn. Ch. 780; March v. Eastern R. Co., 40 N. H. 548, 43 N. H. 515; Ryan v. Leavenworth, A., & N. R. Co., 21 Kan.

& Citizens' Loan Assoc. v. Lyon, 2 365; French v. Gifford, 30 Iowa, 148; Stewart (N. J.), 110.

4 Robinson v. Smith, 3 Paige, 222; Greaves v. Gouge, 69 N. Y. 154, 16 Abbott Pr. N. s. 377; Gray v. New York & V. Steamship Co., 3 Hun, 383; Kean v. Johnson, 1 Stock. 401; Gifford v. New Jersey R. & T. Co., 2 Stock. 171; Black v. Del. & R. C. Co., 7 C. E. Green, 130, 9 C. E. Green, 455; Hazard v. Durant, 11 R. I. 195; Dodge v. Woolsey, 18 How. 331; Dewing v. Perdicaries, 96 U. S. 193; Morgan v. New Orleans, M., & C. R. Co., 1 Woods, 15; Cogswell v. Bull, 39 Cal. 320; Wright v. Oroville Mining Co., 40 Cal. 20; Lagrange v. State Treasurer, 24 Mich. 468; Cook v. Berlin Woollen Mill Co., 43 Wis. 433; Rogers v. Lafayette Agricultural Works, 52 Ind. 296; Heath v. Erie R. Co., 8 Blatch. 347; Pond v. Vt.

Foss v. Harbottle, 2 Hare, 461: Gregory v. Patchett, 33 Beav. 595; Russell v. Wakefield Water Works Co., L. R. 20 Eq. Cas. 474; Angell & A. on Corp. § 312. As to the mode of making and alleging the request, see Hazard v. Durant, 11 R. I. 195; Brewer v. Boston Theatre, 104 Mass. 378. A request is not always required. Mussina v. Goldthwait, 34 Tex. 125; Rogers v. Lafayette Agricultural Works, 52 Ind. 296; Brewer v. Boston Theatre, 104 Mass. 378; Heath v. Erie R. Co., 8 Blatch. 347.

6 Lagrange v. State Treasurer, 24 Mich. 468; Samuels v. Holladay, Woolworth, 400, McCahon (Kan.), 214; Russell v. Wakefield Water Works Co., L. R. 20 Eq. Cas. 474.

tion. A shareholder's bill has been maintained against the directors for fraud or improper conduct in preventing the majority from exercising a proper control over the company's affairs.2 One must be, in fact, a stockholder in order to have a locus standi in such suits. An action at law by a stockholder is not maintainable against directors for losses caused by their default. The property of the corporation is a trust fund, which, when wrongfully disposed of by the directors or illegally withdrawn by stockholders, may be followed into the hands of parties having notice.5

The corporation may maintain an action at law against an officer for a fraudulent issue of certificates for shares in its capital stock.6

The right to proceed in equity against the officers of private corporations for breaches of trust belongs to the corporation or to stockholders. The government, while it may pursue remedies for the forfeiture of the charter, or to restrain acts ultra vires, has no such interest, as trustee, in the property of the corporation as entitles it to pursue the directors for breaches of trust. This was held in a suit brought by the Attorney-General of the United States under the direction of the act of Congress, March 3, 1873, against the Union Pacific Railroad Company and numerous other parties.7

1 Manderson v. Com. Bank of Penn., 28 Pa. St. 379; Dodge v. Woolsey, 18 How. 331; Ottawa, O., & F. R. V. R. Co. v. Black, 79 Ill. 262; Chetlain v. Republic Life Ins. Co., 86 Ill. 220; Marseilles Land Co. v. Aldrich, 86 Ill. 504.

Co., 6 Brad. (Ill.) 257; Clarkson v. Erie & N. S. Dispatch, 6 Brad. (Ill.) 284. See ante, pp. 13, 14, and post, pp. 80, 81.

6 Brooklyn Crosstown R. Co. v. Strong, 75 N. Y. 591.

7 United States v. Union Pacific R.

2 MacDougall v. Gardiner, L. R. 20 Cos., 98 U. S. 569, 8 Am. Law Rev. (Jan. Eq. Cas. 383.

1874), p. 356. See People v. Ingersoll, 58

3 Phil. & E. R. Co. v. Catawissa R. Co., N. Y. 1; Attorney-General v. Railroad 53 Pa. St. 20.

4 Craig v. Gregg, 83 Pt. St. 19; Allen v. Curtis, 26 Conn. 456; Greaves v. Gouge, 69 N. Y. 154.

5 Goodin v. Cincinnati & W. C. Co., 18 Ohio St. 169; Peterson v. Ill., L., & L.

Cos., 35 Wis. 425; Attorney-General v. Tudor Ice Co., 104 Mass. 239; Attorney-General v. Great Eastern R. Co., L. R. 11 Ch. Div. 449; Green's Brice's Ultra Vires, Part IV. ch. v. (2d Am. ed.), pp. 698-714.

CHAPTER III.

THE CREATION OF THE CAPITAL STOCK.

THE capital stock of a corporation is derived from the contributions of individuals who agree to take a certain proportion thereof, designated by shares, and thereby become liable as its stockholders. The agreement to take stock requires the same essential elements as other contracts; to wit, a consideration, the existence and assent of the parties, and mutuality of obligation. The interest in the stock acquired by the subscription is the consideration of the agreement to take shares in it.2 The contract, as usually drawn, is several and not joint. Being one to be performed in the State creating the corporation, it is to be construed by its law, although made in another State.1 The company's right to the subscription is assignable by its own act, or by operation of law as in a lawful consolidation with another corporation.6

Form of the Agreement to take Shares. - - The assent to take shares in the stock of a company is ordinarily manifested by the subscription of one's name in its books, or on some paper in the possession of its officers or agents, under an appropriate formula, with the number of shares which the subscriber agrees to take placed opposite to his name. The agreement may be made in other modes, where no particular one is prescribed by the

1 Melvin v. Hoitt, 52 N. H. 61, 67; Taggart v. Western Md. R. Co., 24 Md. 563.

2 Buffalo & N. Y. City R. Co. v. Dudley, 14 N. Y. 336; Lake Ontario, A., & N. Y. R. Co. v. Mason, 16 N. Y. 451; Hamilton & D. Plank Road Co. v. Rice, 7 Barb. 157, 165; Danbury & N. R. Co. v. Wilson, 22 Conn. 435, 453; Kennebec & P. R. Co. v. Palmer, 34 Me. 366; St. Paul, S., & T. F. R. Co. v. Robbins, 23 Minn. 439. Whether an agreement is a subscription for, or a purchase of stock, see Ottawa,

O., & F. R. V. R. Co. v. Black, 79 Ill. 262.

Price v. Grand Rapids & I. R. Co., 18 Ind. 137; Whittlesey v. Frantz, 74 N. Y. 456.

4 Penobscot & K. R. Co. v. Bartlett, 12 Gray, 244.

5 Morris v. Cheney, 51 Ill. 451; Downie v. Hoover, 12 Wis. 174; Smith v. Hollett, 34 Ind. 519.

6 Hanna v. Cincinnati & Ft. W. R. Co., 20 Ind. 30; Swartwout v. Mich. A. L. R. Co., 24 Mich. 389, 404.

charter, provided the one adopted is such as to bind both parties.1 It may, like other agreements, be made by letter. If the incorporating act expressly or impliedly prescribes an exclusive mode of making the agreement, it must be followed in order to hold a subscriber. Thus, under the general plank-road law, and the general railroad law of New York, subscriptions are alone binding when made to the articles of association. There may, however, be several copies of the same set of articles, each signed by a different list of subscribers. A written subscription is the usual mode prescribed by statute. The subscriber will be bound, although his assent is not in the form prescribed by statute, if it is supported by an independent consideration and has been accepted by the corporation. Subscriptions are sometimes made on a paper separate from the corporate books or articles of association, with an express or implied authority to the person holding the paper to transfer them to such books; and when so transferred, the books have been held original evidence of the subscriptions.10

9

Defective Subscriptions.

If the articles are, by reason of blanks, wanting in substantial particulars, as, for instance, the names of

1 Fry v. Lexington & B. S. R. Co., 2 Met. (Ky.) 314; Pittsburg & C. R. Co. v. Stewart, 41 Pa. St. 54.

2 Household Fire Ins. Co. v. Grant, L. R. 4 Exch. Div. 216 (overruling British & A. Tel. Co. v. Colson, L. R. 6 Exch. 108).

3 Charlotte & S. C. R. Co. v. Blakely, 3 Strob. 215; Carlisle v. Saginaw Valley & St. L. R. Co., 27 Mich. 315; Parker v. Northern Cent. M. R. Co., 33 Mich. 23; Monterey & S. V. R. Co. v. Hildreth, 53 Cal. 123.

4 Poughkeepsie & S. P. Plank Road Co. v. Griffin, 24 N. Y. 150.

5 Troy & B. R. Co. v. Tibbitts, 18 Barb. 297; Troy & B. R. Co. v. Warren, 18 Barb. 310. But see Peninsular R. Co. v. Duncan, 28 Mich. 130.

6 Lake Ontario, A., & N. Y. R. Co. v. Mason, 16 N. Y. 451.

7 Pittsburg & S. R. Co. v. Gazzam, 32 Pa. St. 340; Vreeland v. New Jersey Stone Co., 2 Stewart (N. J.), 188. See Hays v. Pittsburg S. R. Co., 38 Pa. St.

81.

8 Carlisle v. Saginaw Valley & St. L. R. Co., 27 Mich. 315; Parker v. Northern Cent. M. R. Co., 33 Mich. 23; Northern Cent. M. R. Co. v. Eslow, 40 Mich. 222.

9 Ashtabula & N. L. R. Co. v. Smith, 15 Ohio St. 328; Brownlee v. Ohio, I., & I. R. Co., 18 Ind. 68; New Hamp. Cent. R. Co. v. Johnson, 30 N. H. 390; Greenville & C. R. Co. v. Smith, 6 Rich. 91; Lane v. Brainerd, 30 Conn. 565; Hamilton & D. Plank Road Co. v. Rice, 7 Barb. 157; Stuart v. Valley R. Co., 32 Gratt. 146. An agreement to subscribe when the books shall be opened does not make a person a subscriber and liable for calls, though he may be liable in damages for breach of his agreement. Thrasher v. Pike County R. Co., 25 Ill. 393. A person may become a stockholder without any subscription, by simply paying for and receiving his stock. Clark v. Farrington, 11 Wis. 306, 326.

10 Iowa & M. R. Co. v. Perkins, 28 Iowa, 281; Stuart v. Valley R. Co., 32 Gratt. 146.