that Brown then delivered Smith's deed duly executed, and that the stock was issued fully paid to Brown or his order.

We then go to the office of the clerk and recorder, and find the record of this deed, and notice that it bears $50 in revenue stamps, which corresponds to an actual value of $50,000 for the property; from this we observe that the company gave to Brown $50,000 for the property and $950,000 for the option, and we are astounded to discover that the company paid for the option nineteen times the value of the property. We then commence to investigate, and learn that the promoters, having a property of an actual present value of $50,000, desiring to put it into a corporation of $1,000,000 capital, consulted an attorney how this could be accomplished without putting $1,000 in revenue stamps on the deed, and he advised that it could be done by use of the "fiction" of an option, and that this was done; and that all parties thoroughly understood it, and that it was done in order to comply with the revenue laws. We wonder whether, as a matter of fact, it could be said that the corporate minutes have not really been made to state an untruth for the purpose of attempting to evade the law.

This brings us to a consideration of the law governing the issuance of corporate stock full paid in purchase of property. The true purpose of a corporation is to furnish a means by which a given amount of money may be invested in a given enterprise without rendering the investors individually liable for any further amount. In America the corporation lives, moves and has its being solely by virtue of statutory law, but that law is constantly being developed, construed, expanded and applied to new conditions. It became necessary to adopt some method for representing the total amount of money invested, and the proportion contributed by each person. This was done by issuing stock aggregating the total amount contributed, and dividing to each contributor his proportionate share. Experience soon showed that nearly every corporation had to expend a large part of its money in procuring property to deal in, and in payment of services rendered, hence laws were passed that stock full paid might in the first instance

be issued for necessary property or services to the amount of the value thereof. Experience soon proved that the market value of this stock was rarely the same as its actual value, and dealing in stocks became a distinct independent business of itself. Then began the rapid development of the law regarding corporate stocks. Two classes of persons were found to be interested in the manner in which the stock was issued: (1) the purchaser, and (2) the creditor of the corporation. The desire to make money in stocks has caused the flotation of thousands of corporations where the whole of the capital stock was issued in purchase of property fully paid and non-assessable, and every day cases arise where the value of the property bought was altogether out of proportion to the face value of the stock paid for it.

With regard to the purchasers of the original issue, who had knowledge of the manner in which the company was organized, and who had acted in good faith as between themselves, it was at once apparent that even if the law had not been complied with, all were in pari delicto, no one was injured or deceived, and none could complain. Nor did it take long to establish the rule that subsequent purchasers bought cum onere, and hence they could not complain. But with regard to corporate creditors a totally different proposition was presented, and the decisions have varied from one extreme to the other, some courts contending for the strictest proof that unless full actual value as found by the court had been received, then the stockholder was liable for the difference; while other courts held that so long as the parties had acted in good faith among themselves in the manner in which they had distributed the stock in the first instance, no one who thereafter dealt with the company had any cause of complaint, since the creation of his debt had nothing whatever to do with, and was entirely independent of, the manner in which the stock was issued, and if any harm had been done, the wrong existed before he ever dealt with the company, and did not affect him. This view has had able advocates.

No one would contend

The true rule lies at neither extreme. for an instant that a man has a right to gain credit by misrepre

senting the value of his property, or by misrepresenting what it cost him; no more is it right for a corporation to do so. The true rule is that so long as directors act honestly, and use their best judgment in the purchase of property with stock, the law has been fully complied with. They may make honest mistakes, and give much more for property than it is actually worth; but that is no reason that their company or its stockholders should suffer, except in the loss sustained. If any person makes a bad bargain, or uses bad judgment, he must abide by the consequences; but he is not thereby made additionally liable to his creditors, or is his liability altered, or is he guilty of any fraud or wrong; so with corporations in the issuance of their stock. Our own Supreme Court has laid down this rule: "The transaction cannot be impeached for errors of judgment on the part of the officers of the company as to the value of the services or property. Good faith and the exercise of an honest judgment meet the requirements of the law."

The question whether the directors acted in good faith is one of fact to be submitted to the jury under the usual rules of evidence. The valuation paid in stock may be so extravagant as compared with the market price, or price for which the property has lately been sold, as to effectually negative the presumption of good faith. And I should say that the fact that a property is capitalized considerably above the price actually paid for it is not ordinarily a suspicious circumstance. The Federal statute calls for the payment of taxes based upon actual value, that is, the market value as opposed to the value as fixed by the judgment of any particular person or persons; and upon that basis the revenue stamps are affixed; but the basis upon which stock is issued in payment of property is totally different. An individual, and a board of individuals, from his or its knowledge of a mining claim, its location, formation, etc., may honestly believe that it is worth many times its market value, and exploration, may be more, may be less, may prove such to be the fact. Perhaps in the majority of instances properties are purchased and stocked because somebody believes that they are worth more than their market value. So it is evident that while this question has arisen since the passage of the present

revenue laws, yet it does not grow out of them and has nothing to do with them. But in connection with this "fiction of an option" which is so popular just now, I would suggest that if I were a juror, and I found that a board of directors had paid for an option many times the value at which could be purchased the property on which the option was held, it would create in my mind a strong belief that the directors well knew that the property purchased was not worth the stock paid; and this belief would be much strengthened if I further found that this was done purposely, and under legal advice, so as to evade the payment of revenue.

ADDRESS

OF

CHARLES W. WATERMAN

OF

DENVER, COLORADO.

ALEXANDER HAMILTON.

I had hoped, when I accepted the highly esteemed invitation to address this distinguished gathering of gentlemen and lawyers, to be able to trace with you the career of the soldier, lawyer, statesman and philosopher who has, in my humble opinion, exercised a great and wide influence upon the Constitution, constitutional law and the destiny of the American Republic, in such a manner as to merit in some slight degree your approval.

The busy life of the ordinary lawyer is inauspicious for such a task; and while I shall offer no apology, because it ought not to be received if offered, I am frank to say that this address has not received the attention which courtesy to you demands or the magnitude of the subject-matter merits.

We are dealing with the commencement of constitutional history; with the very beginnings of free, popular, sovereign government. We start with the very dawn of the morning of republican institutions, the morning of our government, and the morning of American statesmanship. Go back with me to the commencement of the American Revolution. Alexander Hamilton, the waif of the West Indies, was there. He had already appeared upon the political horizon, and had been a prominent factor in stimulating the public mind to the resistance of further British aggression. This youth of 18 years was already leading the American people, already preparing American society for an independent government. He espoused the cause of the American people, he enlisted