share, either in person or by proxy, a subscriber to the stock of such corporation is not released by an amendment to the charter declaring that the stockholders of such company resident in any town or state within the United States might, at any annual meeting of such stockholders to be held in said town or state, elect such a number for the board of directors as such stockholders might be entitled to by the by-laws of the corporation. Payson v. Withers, SS 215-219. § 93. Subscribers to the stock of a foreign corporation cannot say they are ignorant of the terms of the act creating that corporation. They are presumed to know what its terms are. Ibid. § 94. An assessment by directors upon stock, presumed lawful until the contrary is shown. Walker v. Ogden, §§ 225-227. See § 239. 95. Where there is a mere naked declaration of forfeiture of stock for non-payment of "calls" by directors, but no rights of property have vested by such forfeiture, the stock never having been distributed among shareholders, or sold, held, that equity would relieve against such forfeiture, especially where it would subject the shareholder to loss of payments already made, and he has made a tender of the amount due. In such a case to validate the forfeiture a judicial decree of forfeiture upon bill filed by the directors is necessary. Ibid. $96. If through misrepresentation and fraud any one is induced to subscribe for or purchase stock, he may repudiate the stock and be relieved of the relation of stockholder, provided he does so promptly and uses reasonable diligence in measures to that end. But it will be too late to set up misrepresentation and fraud after he has paid repeated assessments, participated, in person or by proxy, in the meetings of the stockholders, and continued to hold his stock for more than a year, until the company has by reason of losses become insolvent, and creditors seek to have its assets applied to pay their claims. Upton v. Jackson, §§ 137-141. See § 261. 97. Stockholders cannot resist payment of unpaid subscriptions at the suit of creditors by showing fraudulent representations inducing them to subscribe, where they have failed for a long time to raise such objections. Ogilvie v. Knox Ins. Co., §§ 189–191. § 98. It is the duty of a person who subscribes for stock of a corporation under circumstances tainted with fraud to use diligence to discover the fraud, if any there be, and promptly to make his choice to retain the stock with its advantages and responsibilities, or to abandon it; and whether or not he has been diligent in this particular is a question to be left to the jury. Upton v. Tribilcock, $ 192-196. § 99. A subscription was solicited and made in Iowa. The bank charter was on file in the auditor's office in Illinois. Held, that the agent of the company could make fraudulent representations concerning the laws of Illinois and the charter of the company. That if he did represent that by those laws and charter eighty per cent. of the stock was non-assessable, and the subscriber relied upon this, he is entitled, in the absence of laches and acquiescence, as against the company to resist payment of this eighty per cent.; but it is the duty of a person that has been fraudulently drawn into the purchase of shares to take prompt measures of discovering the fraud and to repudiate and rescind the contract. (1) Because his remaining in the company may mislead others into becoming members of it upon the credit of his name, when otherwise they would not do so. (2) Because it may likewise induce others to deal with it and give credit to it for the same reason. Upton v. Englehart, § 197-209. § 100. A contract to purchase shares, induced by fraudulent representations or concealment, is not void, but only voidable. A purchaser of shares, therefore, whose purchase was induced by fraud, may hold on to them if it shall be profitable to do so, and, in order to avoid liability to the creditors of the company, he must be guilty of no laches in discovering the fraud and repudiating his purchase. Ibid. § 101. If a company has fraudulently misrepresented or concealed material facts and thus drawn an innocent person into the purchase of stock, he at the time being guilty of no want of reasonable caution and judgment and afterwards guilty of no laches in discovering the fraud, and he thereupon, without delay, notifies the company that he repudiates the contract and offers to rescind the purchase, this fact occurring, the insolvency of the company subsequently happening will not enable the assignee to insist that the purchase is binding upon him. Ibid. § 102. It is the duty of persons soliciting subscriptions to a joint stock company to inform those who are asked to become subscribers what has been done tending to the organization of such company. If the company has already been formed and its articles of association signed and acknowledged, it is the duty of solicitors to make known to subscribers what the articles of association are, and whether any liabilities have been contracted on the part of the company; and concealment of these facts will release subscribers from liability on their subscriptions. National Park Bank v. Nichol, 210-214. § 103. But while persons subscribing to the stock of a joint stock company may not be partners therein in consequence of not understanding the position of affairs, misrepresentations being made to them, they may, however, become liable as partners by subsequent acts of their own with knowledge of the facts; thus, where such subscribers received certificates of stock stating on their faces that the holders were entitled to a certain number of shares in the company, and that they were subject in future to the payment of such assessments as might be made in case of loss or other necessity, and to all the obligations and liabilities of the company, and also were entitled to all the privileges of members as fully as if they had signed the articles of association, it is their duty to examine these certificates, and to make some inquiry as to their relation to the company, to know where they stand and what were their responsibilities as members of the company; and if in point of fact they find themselves in a different position from what they supposed they were in from the representations that were made, it is their duty to repudiate and disavow the connection at once and to have nothing more to do with it. This duty, however, might be qualified by the influence of the representations made by the agents who applied for subscriptions and for money. Ibid. § 104. Although fraud may be practiced in procuring the subscriptions of persons to a joint stock company, it is competent for such persons, with knowledge of all the facts, to waive the fraud; and if they did — if they assumed the advantages of members and partners of the association -they cannot, when called upon to respond for contracts of the association, be heard to deny their liability. Ibid. § 105. Where a person signs a written agreement and subscription making himself absolutely liable to pay for the stock taken, he cannot defend an action to recover an unpaid balance on said stock by saying that he was ignorant of the condition and circumstances of the company when he subscribed, and alleging that the agent who obtained his subscription represented to him that no more than $20 a share would be assessed against him or ever called for. Payson v. Withers, §§ 215-219. § 106. As against creditors, stockholders and directors have no power to declare partially paid up stock "non-assessable." Upton v. Jackson, § 137-141. See § 235. § 107. An agreement between a corporation and its shareholders, that, having paid a part of their stock, they shall not be called upon to pay more, is valid as between the shareholders and the company, but void as to creditors. But nothing is due upon such stock until a court of equity has declared the agreement to be in fraud of creditors, and ordered the payment of the unpaid portion of the subscription. Hence the statute of limitations does not begin to run until such decree has been made. Scovill v. Thayer, §§ 158-166. § 108. Shares of stock issued as full paid shares by authority of the board of directors, under a construction contract, which was never questioned by the company or its shareholders or creditors, and which is not assailed or impeached in the action, and sold by the contractor as full paid shares to purchasers for value, without actual notice of the equities between the contractor and the company, if any there be, cannot be held subject to such equities, and to a liability to have shares thus issued and purchased treated as unpaid stock. Steacy v. Little Rock, etc., R. Co., § 167–171. § 109. Where stock is sold for twenty per cent. of its par value and purports to be nonassessable, this only means that no assessment will be made beyond the percentage agreed to be paid, unless the legal liabilities of the company require it. Hawley v. Upton, §ș 179–181. § 110. A certificate of stock signed by the president and secretary, that a shareholder is entitled to one hundred shares of stock of one hundred dollars each, payable five per cent. on receipt of the certificate, five per cent. in three months from the date, five per cent. in six months from the date, five per cent. in nine months from the date, the time or manner of the payment of the remainder not being specified, and the face of this certificate being stamped in red ink with the figures "$100," and in another place stamped with the word “non-assessable,” makes the remaining eighty per cent. payable on the demand of the company. Upton v. Tribilcock, SS 192-196. § 111. The term "non-assessable" upon certificates of stock means that no further assessments can be made thereunder after the stock is paid up, but does not relieve from assessments for unpaid instalments. Ibid. § 112. A representation that, by the laws of the state incorporating the company, a person might become a subscriber to a given amount, and by means of a certificate making only twenty per cent. of the nominal value of the stock payable, and on which was stamped the word " non-assessable," he would be liable only to the extent of one-fifth of his subscrip tion, is not an error, mistake or misrepresentation of fact, but of law, and is not, therefore, such a representation as will avoid the subscription. Ibid. § 113. Stock issued in excess of the authorized capital of a company is void. Upton v. Jackson, $ 137-141. § 114. A board of directors of a railroad company agreed to execute to A. a bond for $750,000, convertible in four years after its date into fifteen thousand shares of stock at $50 each, and agreed to sell and deliver such bond to A. for $521,677, payable by him on call of the company. This arrangement was carried out, and by it A. received the amount of stock named at considerably less than its par value. Subsequently A. sold to B. a number of shares of this stock, taking from B. a note for $24,000 in payment therefor. B.'s stock was never delivered to him, but was deposited with a trust company to be delivered to him upon payment of the note. In an action by A. against B. to compel the latter to pay the note and take the stock, held, that the issue of the stock in the manner above set forth for less than its par value was fraudulent and void and furnished a good defense to A.'s action against B. upon the latter's note. Sturges v. Stetson, § 142–149. § 115. On a sale of stock at auction or execution nothing is sold but the interest of the stockholder, and the purchaser acquires only his right. If the stock has been paid for in part only, the new owner must pay the remaining instalments as required under the rules of the company, and if he fails so to do the stock may be again sold. Ibid. § 116. Where the directors are not authorized by the charter to sell stock below par it is not necessary expressly to prohibit them from so selling it. Ibid. § 117. From the authority given to directors to sell above or below par notes, bonds, scrip, and certificates for payment of money or property, which the company had previously received as donations or in payment of subscriptions to the capital stock, power cannot be derived to dispose of stock to subscribers for less than its par value. Ibid. 118. A subscription of stock for less than the price of the shares fixed in the charter is void except as against a bona fide purchaser without notice and for value from the first subscriber or his vendees. Ibid. § 119. Subscription is essential to the creation of stock. Before subscription it is not property. Until subscribed for the term "stock" means nothing more than a power in the directors to receive subscriptions for stock. Ibid. 120. Promoters of corporations and commissioners to organize them have no power to receive subscriptions for shares at less than their par value. Ibid. § 121. Capital stock not being property until it is subscribed for, a power given directors by a charter to sell the property of the company does not apply to capital stock. Ibid. $122. Power to determine the time and terms of payment of subscriptions of stock does not authorize directors to determine the price at which it shall be sold. Ibid. § 123. The power given to directors to pledge "by mortgage or otherwise their entire road, fixtures and equipments, with the income and resources thereof, together with the capital stock," does not authorize directors to sell stock at less than par value. This power quoted refers to capital stock which was owned by stockholders and not such as remained in the hands of the company, never having been subscribed for or issued. Ibid. $124. Stock may be sold at less than its nominal value on executions after judgment against a stockholder, or it may be sold at auction for default of payment by subscribers. Ibid. 125. A shareholder cannot set off a debt owing from the company against an unpaid subscription of stock. Sawyer v. Hoag, § 150–156. 126. A. subscribed for stock and gave his check for $5,000 in full payment thereof, receiving back $4,250 immediately as a loan. Held, as to creditors of the company a payment of only fifteen per cent. of the stock, leaving the subscriber liable for the remaining eighty-five per cent. Ibid. $127. A contract by a company to accept property in full payment of stock is neither ultra vires nor void. It is valid and binding upon the company and share takers until rescinded or set aside for fraud. Especially where the rights of bona fide purchasers of the stock intervene. Phelan v. Hazard, § 157. § 128. A creditor cannot show that property accepted by a company in full payment of its stock was not fully worth the price of the stock, and thus compel the holder of the stock to pay the difference between such price and the alleged actual value of the property. Ibid. § 129. A stockholder who has both valid and void stock in a company is not entitled to set off payments made on the void stock against calls made upon that which is valid. Scovill c. Thayer, § 158-166. § 130. One who subscribes for void stock incurs no liability to pay therefor. Ibid. § 131. One who subscribes for void stock is not estopped to deny his liability thereon by the facts that he attended by proxy the meetings at which such void stock was voted to be issued; that he received certificates therefor, and that the company by its agents held itself out as having a capital which included the void stock and thereby invited and obtained credit upon the faith of such representations. Ibid. § 132. A loss under a policy of insurance cannot be set off against a subscription to the stock of the insurance company when the latter is insolvent, however it may be where the insurance company is solvent. Scammon v. Kimball, §§ 220-224. § 133. Trustees (directors) have no authority to take anything but money in payment of stock. They have no power to take third parties' acceptances therefor. Walker v. Ogden, S$ 225-227. [NOTES.- See §§ 228-329.] RAILWAY COMPANY v. ALLERTON. (18 Wallace, 233–236. 1873.) APPEAL from U. S. Circuit Court, Northern District of Illinois. STATEMENT OF FACTS.- The railway company's directors resolved to increase the capital stock of the company without consulting the stockholders or obtaining their consent. The charter authorized an increase of the stock "at the pleasure of the corporation." Allerton, a stockholder, objected, and filed this bill to prevent the increase. There was judgment in his favor and the company appealed. The complainant relied upon the following provision in the constitution of Illinois, and the statutes enacted to carry it into effect: "No railroad corporation shall issue any stock or bonds, except for money, labor, or property actually received and applied to the purposes for which such corporation was created, and all stock-dividends and other fictitious increase of the capital stock, or indebtedness of any such corporation, shall be void. The capital stock of no railroad corporation shall be increased for any purpose, except upon giving sixty days' public notice in such manner as may be provided by law." § 134. Directors cannot increase capital stock of their company without consent of the stockholders of the corporation. Opinion by MR. JUSTICE BRADLEY. Without attempting to decide the constitutional question, or to give a construction to the act of the legislature, we are satisfied that the decree must be affirmed on the broad ground that a change so organic and fundamental as that of increasing the capital stock of a corporation beyond the limit fixed by the charter cannot be made by the directors alone, unless expressly authorized thereto. The general power to perform all corporate acts 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. poration, like a partnership, is an association of natural persons who contribute a joint capital for a common purpose, and although the shares may be assigned to new individuals in perpetual succession, yet the number of shares and amount of capital cannot be increased except in the manner expressly authorized by the charter or articles of association. Authority to increase the capital stock of a corporation may undoubtedly be conferred by a law passed subsequent to the charter; but such a law should regularly be accepted by the stockholders. Such assent might be inferred by subsequent acquiescence; but in some form or other it must be given to render the increase valid and binding on them. Changes in the purpose and object of an association, or in the extent of its constituency or membership, involving the amount of its capital stock, are necessarily fundamental in their character, and cannot, on general principles, be made without the express or implied consent of the members. The reason is obvious. First, as it respects the purpose and object. This may be said to be the final cause of the association, for the sake of which it was brought into existence. To change this without the con-sent of the associates would be to commit them to an enterprise which they never embraced and would be manifestly unjust. Secondly, as it respects the constituency or capital and membership. This is the next most important and fundamental point in the constitution of a body corporate. To change it without the consent of the stockholders would be to make them members of an association in which they never consented to become such. It would change the relative influence, control and profit of each member. If the directors alone could do it, they could always perpetuate their own power. Their agency does not extend to such an act unless so expressed in the charter or subsequent enabling act; and such subsequent act, as before said, would not bind the stockholders without their acceptance of it, or assent to it in some form. Even when the additional stock is distributed to each stockholder pro rata, it would often work injustice, because many of the stockholders might be unable to take their respective shares, and might thus lose their relative interest and influence in the corporate concerns. These conclusions flow naturally from the character of such associations. Of course the associates themselves may adopt or assent to a different rule. If the charter provides that the capital stock may be increased, or that a new business may be adopted by the corporation, this is undoubtedly an authority for the corporation (that is, the stockholders) to make such a change by a stockholders' vote, in the regular way. Perhaps a subsequent ratification, or assent to a change already made, would be equally effective. It is unnecessary to decide that point at this time. But if it is desired to confer such a power on the directors so as to make their acts binding and final, it should be expressly conferred. Where the stock expressly allowed by a charter has not been all subscribed, the power of the directors to receive subscriptions for the balance may stand on a different footing. Such an act might, perhaps, be considered as merely getting in the capital already provided for the operations and necessities of the company, and, therefore, as belonging to the orderly and proper administration of the company's affairs. Even in such case, however, prudent and fair directors would prefer to have the sanction of the stockholders to their acts. But that is not the present case, and need not be further considered. Decree affirmed. KNOWLTON v. CONGRESS AND EMPIRE SPRING COMPANY. Opinion by WALLACE, J. STATEMENT OF FACTS.-This case comes here by removal from the state court, after a decision adverse to the plaintiff by the commission of appeals, reversing the judgment of the supreme court in favor of the plaintiff, and ordering a new trial (57 N. Y., 518). The plaintiff seeks to recover $13,980, paid by him to the defendant upon a subscription for shares of its capital stock. The defendant, by the action of its directors and stockholders, instituted proceedings for an increase of its capital, and the subscription agreement was prepared and executed in furtherance of that object. It has been assumed, in the arguments of counsel, that these proceedings were illegal, as in contravention of the statute under which the defendant was organized, and constructively fraudulent as to the public and all stockholders not assenting thereto, and the decision of the case in the state courts has been adjudicated upon that assumption. The plaintiff was a stockholder and trustee of the defendant, and participated actively in these proceedings. The subscription agreement provided that the subscribers should pay the |