pay the debts which it owed; that their ratification of the sale made by the directory, being not only by three-fourths but by all of the stock represented at the meeting, was valid and binding; that the verbal understanding as to the management of the corporation, and who should be its officers, was controlled by the express provisions of the charter, however conflicting the latter might be with the former. Hancock v. Holbrook,* 9 Fed. R., 353.

VIII. CONTRACTS.

SUMMARY-Whether stock entitled to vote, § 1031.- Records of meetings evidence against stockholders, § 1032.— Meetings for sale of corporate property; notice of meetings, §§ 1033, 1034.- Guaranty of dividends; contract not made with stockholders, § 1035.- Unsigned note of secretary not binding, § 1036.— Contract varying a policy of insurance, § 1037.— Use of seal necessary, § 1038.- Fraud in sale; payment under mistake of fact, § 1039.

§ 1031. In order to authorize the sale of the property of a corporation it was necessary that three-fifths in interest of the entire stock of the company should vote in favor of such sale. The entire capital stock was subscribed at its par value, but nearly one-half of the subscriptions were intended to be merely nominal, and such stock was at once transferred to the treasurer for the company and no assessments were paid on it. Held, that this latter stock was stock only in name, and was not entitled to vote or be counted in determining whether three-fifths in interest of the entire stock voted to authorize the sale. Farwell v. Houghton Copper Works, §§ 1040-43.

§ 1032. The record of the meetings of the board of directors of a corporation is prima facie evidence against stockholders of the acts of the corporation therein recorded. Where it states that a given number of shares were voted by proxies, this record, in the absence of other evidence, is conclusive that such number of shares were so voted by proxy, although the proxies were required by the charter of the company to be "duly filed," but were missing from the office of the company. The fact that they were so missing does not raise a presumption that they never existed or were not voted as stated in the record of the meeting. Ibid.

§ 1033. Where the charter of a company provides that "a majority of the directors of every such corporation, convened according to the by-laws, shall constitute a quorum for the transaction of business," and the by-laws of the company provided that "the secretary shall give due notice of all meetings of the stockholders and board of directors,” held, that four out of the five directors could not meet and assume to sell the corporate property without giving notice of such meeting to the fifth director, and a sale of the corporate property by those four directors without notice to the fifth of their meeting was without authority and void. Ibid.

§ 1034. One who had been a shareholder of the company, and was familiar with all its business and circumstances, was present at a meeting of a majority of the board of directors called for the purpose of selling to said shareholder the corporate property, without notice of such meeting to the other director of the board. Held, that such shareholder was bound to know that a notice of the board meeting was required; that he knew that one of the directors was absent; that he was not a bona fide purchaser of stock, and that the property of the company was sold to him at such meeting for an inadequate consideration and in fraud of the rights of the absent director. Ibid.

§ 1035. The Manhattan Elevated Railroad Company guarantied to the Metropolitan Railroad Company a dividend of ten per cent. per annum on its capital stock. Subsequently, the directors of the Metropolitan Railroad Company made a new contract by which the Manhattan company was relieved of its obligation to pay this dividend, and consequently it was not distributed among shareholders of the Metropolitan company, certain of whom instituted proceedings with a view of compelling its payment to them. Held, that the guaranty of the Manhattan company to the Metropolitan company was not a contract made with the stockholders of the latter company personally, but with their corporation, which alone could enforce its right to such dividend. That the power to make a new contract releasing the Manhattan company from the payment of such dividend rested with the directors of the Metropolitan company, and if exercised in good faith their action could not be set aside by a court of equity, although such court might not agree with its wisdom or expediency, it being the general power of the directors of a corporation to make and modify its contracts. Flagg v. Manhattan R. Co., SS 1044-45.

§ 1036. An unsigned note delivered by the secretary of an insurance company to persons negotiating for insurance, and saying in substance that "the directors are willing to accede

to Messrs. Head & Amory's proposition, namely, to settle the policy on merchandise at twenty-five per cent.," etc., held, not to be such an acceptance of H. & A.'s proposition as to form an absolute agreement obligatory on the insurance company. Head v. Providence Ins. Co., SS 1046-48.

§ 1037. A contract varying a policy of insurance can only be made by executing an instrument of equal dignity with the insurance policy. Ibid.

§ 1038. A corporation made a note to a creditor, who a few days later asked the directors for security. After some informal conversation between the four persons then acting as directors, they concluded to give as security a mortgage of certain lands owned by the corporation. An instrument purporting to be such a mortgage was executed to the creditors and signed: "In witness whereof, the said party of the first part has hereunto set their hands and seals on the day and year first above written.

"ST. HELEN MILL CO.,

"WM. PICKERING, Secretary. [L.S.] "JAMES DART, President." [L.S.] No formal meeting of the directors was held. Dart and Pickering acknowledged this instrument "to be their free act and deed” before the county clerk. The corporation had a corporate seal, which was not affixed to this instrument. Held, that it was not the deed of the corporation; a company cannot execute a deed otherwise than under its seal, and by its directors acting as a board of directors and not individually; neither is such instrument operative as an equitable mortgage. In re St. Helen Mill Co., §§ 1019-54. See §§ 788, 1069. § 1039. A railway was subject to two mortgages, one of which was foreclosed and the road sold to the bondholders, who reorganized the company. Subsequently the other mortgage was foreclosed, and the new company then redeemed from it by payment to the mortgagees of the sum due them. Meantime proceedings had been instituted to have the first foreclosure declared void on the ground of fraud. These proceedings were pending on appeal when the new company redeemed from the foreclosure, and finally resulted in a decree that the first sale was fraudulent and void, whereupon the new company brought suit to recover the money it had paid to redeem from the second foreclosure on the ground that it was paid under a mistake of fact. Held, that it could not recover. Being chargeable with the fraudulent sale, it could recover for no money spent in reliance upon its validity, even though the members of the new company had entirely changed between the void sale and the payment of the money by alleged mistake of fact. Railroad Co. v. Soutter, §§ 1055-57. [NOTES.-See §§ 1058-1076.]

FARWELL v. HOUGHTON COPPER WORKS.

(Circuit Court for Michigan: 8 Federal Reporter, 66-71. 1881.)

Opinion by WITHEY, J.

STATEMENT OF FACTS.-The Houghton Copper Works was organized under the laws of Michigan in 1871, among other things, for the purpose of manufacturing copper, with a capital stock of $250,000, divided into ten thousand shares of $25 each. Complainant is a stockholder, and brings this suit to set aside a sale made by a majority of the directors to defendant Edwards, October 6, 1879, for the price of $10,000. The sale comprised all the real estate, works and property of the company. The object sought to be accomplished was to close out the property and wind up the business, and such is manifestly the effect if the sale is valid. The sale is attacked principally upon three grounds: (1) That it was made without authority of the stockholders, inasmuch as threefifths in interest of the entire stock of the company, at a meeting called for that purpose, did not vote to authorize the sale; (2) that a majority of the directors, convened without notice to all the directors, possessed no power to make the sale; and, lastly, that the sale was fraudulent, it being made with intent to deprive complainant of his rights as a stockholder.

According to the records of the company, the stockholders, September 20, 1875, authorized a sale of all the property of the corporation; but it is said that three-fifths in interest of the entire stock was not represented and did not vote in favor of authorizing the directors to sell. Comp. Laws, § 2888.

Whether this objection is valid depends upon two questions: (1) Whether certain of the capital stock owned by the company and carried in the name of the treasurer was to be counted in determining the three-fifths in interest of the entire stock, part of it having been subscribed and immediately transferred to the company to be subsequently disposed of in the interest of the corporation, while other of the stock so held had been purchased at a sale of stock delinquent for non-payment of assessments; (2) whether the prima facie evidence made by the records of the stockholders' meeting, stating that three thousand three hundred and eighty-seven shares more than three-fifths, excluding shares owned by the corporation - voted in favor of authorizing the directors to sell, has been rebutted.

§ 1040. Nominal stock held by the company not entitled to vote for a sale of its property.

The entire capital stock was subscribed at its par value, but, as stated, nearly one-half of the subscriptions were intended to be merely nominal, and such stock was at once transferred to the treasurer for the company, on which, of course, no assessments were paid. None of this stock was, in my opinion, to be counted in determining whether three-fifths in interest of the entire stock voted to authorize a sale. It was stock only in name, and therefore not entitled to vote. As to the stock bought by the company for non-payment of assessments, there would be less objection; but if voted it should be in such a manner as to represent the interest of every stockholder, for every one of them had an interest in the stock, and was entitled to have his interest voted according to his own views. If the treasurer should exercise the right to vote such stock, it might result in making the action of the meeting adverse to the views of the majority of the stockholders; and it is not seen how it would be practicable to have the stock voted in harmony with the views of all, unless all the stock was represented at the meeting and all consented to have the treasurer cast the vote, and such was not the case.

§ 1041. Record of votes cast prima facie evidence thereof, although proxies missing from records.

If the stock owned by the company was not entitled to be voted, the next inquiry is whether the requisite three-fifths of the remaining stock was voted in favor of the resolution authorizing the directors to sell. The record, after setting forth the resolution to be acted on, states that a vote by ballot was taken, and sets it forth after this manner, viz.: "T. W. Edwards, three hundred and sixteen shares; T. W. Edwards, proxy, five shares;" and so on until the vote in person and proxy is shown to be three thousand three hundred and eighty-seven shares in favor of the resolution, being more than three-fifths, excluding stock owned by the company. Of the stock thus voted, one thousand five hundred and sixty-one shares were voted by proxies. This record is prima facie evidence, certainly against stockholders, of the acts of the corporation therein recorded. The officer making up the minutes was the agent of the stockholders, and it is therefore their record of their own action. It may not be conclusive, but if a stockholder seeks to discredit this evidence he must do it by proofs conclusive in character and weight. Excluding stock owned by the company, it is claimed that three-fifths of the shares did not vote in favor of a sale. The evidence from which such conclusion is urged is mainly that of the three thousand three hundred and eighty-seven affirmative votes, one thousand five hundred and sixty-one of the shares were voted by proxies, and that a large number of such proxies are missing from the office of the company,

raising the presumption that they never existed, and if not, then the resolution to authorize a sale was not passed by a vote of three-fifths in interest of the stock. It is said the statute (section 2847) which permits stock to be voted by proxy requires the proxy to be "duly filed." But this must be regarded as directory. If the proxies were present and actually voted, the fact that none of them were filed, or that none of them can now be found in the company's office, will not defeat the action taken at the meeting. The record states that E. voted a proxy of five shares, and this means that he held a proxy which was present, signed by a holder of five shares of stock, that authorized E. to vote those shares, and that the proxy was deemed sufficient; and so in the case of every share stated to have been voted by proxy.

§ 1042. Where the by-law of a corporation required notice of meetings of directors to be served, a meeting of the board at which a director had neither been notified nor had attended is unlawful.

If the directors were authorized to make a sale of the company's property, the next question is whether a majority of the directors could take the necessary action to sell without notifying the other director of the meeting, either personally or by notice left at his residence. There were five directors, four of whom met and assumed to sell. The fifth director, being temporarily absent from the state, was not notified, nor was there any attempt made to notify him of the meeting. The statute says: "A majority of the directors of every such corporation, convened according to the by-laws, shall constitute a quorum for the transaction of business." Section 2317. The only by-law bearing on the subject relates to the duties of the secretary, viz.: "The secretary shall give due notice of all meetings of the stockholders and board of directors."

There had been no meeting of the directors for many months; there was no custom to hold directors' meetings on given days, and no rule that business might be transacted whenever a majority should be present. On the contrary, the only by-law on the subject requires a notice of board meetings. In such a condition of local statute and regulations of the company, no business could be · transacted by a majority without notice first given to every director. A director not present would be entitled to the opportunity of being present and participating in the business of the meeting. Failure to give him notice not only deprived him of such opportunity, but practically excluded him from all participation in the business transacted. It would hardly be contended that a meeting of directors, at which the majority excluded the minority, could legally transact business affecting the corporation. They had an important duty to discharge, as they were authorized to sell only when the price was by them deemed sufficient; the price was, therefore, a material thing to be determined. On the question of the action of a majority convened without notice to all the members, see Wiggins v. Baptist Society, 8 Metc., 301; Stowe v. Wyse, 7 Conn., 219; State v. Ferguson, 31 N. J. Law, at p. 124; Angell & Ames on Corp., 492; Field on Corp., $$ 227, 228, 234; Grant on Corp., 156-58.

1043. Who is not a bona fide purchaser without notice.

It is not necessary to determine whether the sale was fraudulent. The majority of the directors acted without authority. Their action operated unjustly upon the rights of complainant and other stockholders, and the purchaser, Edwards, is not in the position of a bona fide purchaser, without notice of the actual posture of affairs at the time of the sale. A brief statement will show where the equities are, and why a court of equity should afford the relief prayed for

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against the action of a majority of the directors. The land and works cost $75,000. The company operated until 1874, when it suspended, heavily indebted. September 20, 1875, a stockholders' meeting was held, and the directors were authorized to sell the entire property of the company whenever they could obtain a satisfactory price. Elwards was then a shareholder, but in 1876 sold his stock to complainant at a price which would make the entire stock worth $50,000. Subsequent to 1876 the directors sold four thousand four hundred and seventy-nine shares of stock owned by the company for $12,000 and paid the debts of the company. There was now less urgency, if there was any necessity, to sell the property. Prior to the time of selling the four thousand four hundred and seventy-nine shares of stock, the directors fixed the price for all the assets and property at $55,000. After selling the stock and paying the debts, they fixed the price of what remained at $44,000. All this was known to defendant Edwards. One of the directors, but a few months prior to the sale to Edwards, sold to complainant five thousand one hundred and one shares of the stock for $13,770, a rate which would make the value of the entire stock over $26,000. That the director had made a sale, and for that price, defendant Edwards received information, and the directors were fully advised of the sale, price, and to whom made. They also knew that complainant, had he known of the proposed sale, would be opposed to it. In such a posture of affairs, on the morning of October 6, 1879, Edwards sent a written proposition of $10,000 to the directors for the property. A director, president of the board, was absent from the state. The other four directors met, accepted the proposition, and caused a conveyance to be executed the same day. Edwards was present at the meeting. He was bound to know that notice of a board meeting was necessary, and he knew that one of the directors was not present, and was absent.

The manifest purpose and effect was to circumvent complainant, the owner of a majority of the stock, and deprive him of his rights. The absent director was at once informed of the sale, and not only promptly refused to acquiesce, but repudiated what had been done. When this suit was commenced Edwards had paid but $2,000 of the purchase price, but paid the balance, $8,000, after being fully advised of the matters set up in the bill of complaint. It is in the power of the corporation to refund the purchase money, and this should be done.

Complainant is entitled to a decree setting aside the sale, and for a conveyance of the property to the Houghton Copper Works, making the injunction perpetual, and referring the cause to a master to take proofs and state an account for the use of the property. The Houghton Copper Works is to be decreed to refund the purchase price paid by defendant Edwards, less whatever may be found owing from him for the use of the property, for which use Edwards is to account and pay.

FLAGG v. MANHATTAN RAILWAY COMPANY.

(Circuit Court for New York: 10 Federal Reporter, 413-434. 1881.)

Opinion by BLATCHFORD, J.

STATEMENT OF FACTS.— This suit is brought by three persons as individuals and two persons as copartners, who claim to be owners of shares of the capital stock of the Metropolitan Elevated Railway Company, one hundred and fifty