officers are liable, it may be, to judicial proceedings to control their action where it is fraudulent or destructive of the rights and interests of the corporation. They are responsible, however, more directly and practically, to the corporate body itself, through the power of the corporators to supersede them at their elections."

In the case of Dana v. The Bank of the United States, 5 Watts & S. (Pa.) 223, 246, the following passage occurs:

"This, I take it (that is to say, the election), is the utmost that the stockholders can do according to the tenor and design of the act under which they must all act until an election of the directors shall come around, when the former, if dissatisfied with the conduct of the latter in managing the affairs of the bank, may turn any one, or more, or the whole of them, out of the direction, and place it in other hands."

The claim made by virtue of these decisions is that the stockholders have no power to do anything in relation to any matter whatever pertaining to their corporation, except that if dissatisfied with the conduct of their directors in managing the affairs of the corporation they may turn them out at the next election; and this is certainly the language of all the above decisions. But how inapplicable is such remedy to an act of the directors which has terminated the business of the corporation and placed all its property in other hands for a thousand years; will that give back the property to the corporation; will that set right any maladministration if the directors had the power to thus act? Clearly not, and the language was intended to apply to cases where the action taken was neither radical nor fundamental in its character. For mismanagement of the ordinary business of the company, the turning out of the directors is a reasonably adequate redress; but when the directors have divested the company of all its property, it is difficult to see how any remedy is afforded by turning them out. Further, the courts of this state, as has already been seen, expressly recognize the fact, notwithstanding the decision above mentioned, that the shareholders have certain other rights and privileges beside that of electing directors, viz.: The right to be consulted in respect to change of business, increase of capital stock, dissolving and winding up the affairs of the corporation, sale of any portion of its property necessary for the transaction of its business, etc.

It need hardly, therefore, be necessary, in view of the principles which have controlled the decisions already quoted, to discuss further the question that there are powers reserved to the corporation which can not be exercised by the directors without the assent of the shareholders, and that the shareholders, under some circumstances, at least, may exercise other functions than simply those of electing their board of directors. Nor is it necessary now to dwell upon the scope of the act of 1839, or to attempt to show that by this act the Metropolitan Railway Company had the power to lease its road and properties That such power existed is now conceded by the counsel for the plaintiff, in view of the decision of the court of appeals in the case of Woodruff v. The Erie R. Co., 93 N. Y. 609.

It is claimed by the counsel for the defendants that as far as this state is concerned, at least, the power of a board of directors to lease without the assent of shareholders has been expressly recognized by the legislature of this state, and various acts of the legislature are cited, in which leases of railroads and consolidations of railroads are authorized to be made as the directors shall determine. It seems to me, that instead of these acts being an evidence of a legislative construction that, under the act of 1839, directors had the power to lease without the assent of shareholders, it was only because such acts could not be performed by the directors alone that it was thought necessary to confer express powers upon the directors. If the power was conferred upon the corporation the directors alone could not exercise it, and, therefore, the legislature conferred the power expressly upon the directors.

Attention has also been called to various cases where the assent of stockholders is provided for as a condition of corporate action.

It will be seen that in every case it is a limitation upon corporate action by requiring more than a majority of stockholders to assent, or the conferring of a new power upon corporations and affixing the conditions upon which such power is to be exercised.

I fail to see that legislation of this.character in any way aids us in the determination of this question. If, however, a solution of the problem is to be reached by the light of legislative interpretation, chapter 349 of the Laws of 1880 seems to clearly indicate the necessity of stockholders' assent, given at a stockholders' meeting, to the leasing of the property of a railroad corporation; otherwise, what necessity for legislative intervention in the terms of the act referred to?

The cases of Fisher v. New York Central, etc., R. Co., 46 N. Y. 644, and The Central Cross Town R. Co. v. The Twenty-third Street R. Co., 54 How. Pr. 183, are cited as deciding that a lease may be made without the assent of the shareholders. I have failed to find any such adjudication in either of those cases. All that can be claimed for those cases is that they decide that a lease of its road, made by a railroad corporation, is not ultra vires, and they decide nothing more upon the question of power.

No question is raised or discussed as to the manner of the exercise of its power by the corporation. There was no person before the court seeking to impeach the lease, who could be heard upon the question of stockholders' assent. The only question was whether the lease was not actually void, not voidable.

There is no question but that, admitting that a board of directors alone have no power to lease the property of their corporation, and if such lease is executed by the directors without the assent of the stockholders, such stockholders may accept the lease or repudiate it, and that if they allow the parties to the lease to go on under the lease without any action being taken in respect thereto, within a reasonable time, they will be held to have acquiesced in the lease and ratified it. Therefore, conceding that the corporation has the power to lease,

when the action is taken and the stockholders have acquiesced, no third party can raise the objection that the stockholders have not formally assented.

In the cases cited the leases had long been in operation, and the time for dissent had long passed, and, therefore, the only question that could be raised was the power of the corporation to act at all. After an examination of the reasoning in all the adujdicated cases (which has been by no means cursory), after a consideration of the principles governing the relations of shareholders of a corporation and its directors, conceding that a corporation can do no act unless specially authorized thereto, except through its board of directors, I am irresistibly brought to the conclusion that acts making organic or fundamental changes in the character or business of the corporation, can not be done either by the directors alone, or by the shareholders alone; but that both the executive and administrative officers of the corporation must unite with the shareholders of the corporation, who confer the right to act upon the individuals intrusted with the office of directors; that directors are merely temporary officers of the corporation, by virtue of their office entitled to manage the business and affairs of the corporation during their term of office, without interference from the stockholders, but they can not say that a new board of directors, although duly elected by the stockholders, shall never thereafter interfere with the management of the properties of the corporation, because they have placed their possessions and management into other, hands forever.

*

Judgment for plaintiff.

Note. Functions of shareholders.-In general shareholders have the right to:

(1) Elect directors. 1865, Mottu v. Primrose, 23 Md. 482; 1881, State v. Merchant, 37 O. S. 251.

(2) Pass on amendments to the charter. 1818, Marlborough Manufacturing Co. v. Smith, 2 Conn. 579; 1850, Commonwealth v. Cullen, 13 Pa. St. 133, 53 Am. Dec. 450, supra, p. 417; 1854, Stark v. Burke, 9 La. Ann. 341; 1870, Hope v. Mut. F. Ins. Co., 47 Mo. 93; 1873, Railway Co. v. Allerton, 85 U. S. 233, supra, p. 442; 1885, Baker's Appeal, 109 Pa. St. 461; 1886, Venner v. Atchison, etc., R., 28 Fed. Rep. 581; 1899, In re Election of Directors of Newark Lib. Assn., 64 N. J. L. 217, 265, 43 Atl. Rep. 435; 1899, Alexander v. Atlantic & W. P. R. Co., 108 Ga. 449, 33 S. E. Rep. 866. But see contra, 1855, Dayton & C. R. Co. v. Hatch, 1 Disn. (Ohio) 84; 1858, Illinois River R. Co. v. Zimmer, 20 Ill. 654.

(3) Increase or reduce stock. 1860, New York & N. H. R. v. Schuyler, 38 Barb. 534; 1871, Eidman v. Bowman, 58 Ill. 444, 11 Am. Rep. 90; 1873, Chicago City Ry. Co. v. Allerton, 85 U. S. (18 Wall.) 233, supra, p. 442; 1897, McNulta v. Corn Belt Bank, 164 111. 427.

(4) Make by-laws. 1766, Rex v. Spencer, 3 Burr. 1837; 1868, Stevens v. Davison, 18 Gratt. (Va.) 819, 98 Am. Dec. 692; 1875, Morton Gravel Co. v. Wysong, 51 Ind. 4; 1876, People v. Sterling B. C., 82 Ill. 457, contra; 1876, Thayer v. Herrick, Fed. Cas. 13868; 1877, United Fire Assn. v. Benseman, 4 Weekly N. C. (Pa.) 1; 1893, Brinkerhoff v. Lumber Co., 118 Mo. 447, infra, p. 1162; 1894, Watson v. Sidney, F. W. P. Co., 56 Mo. App. 145.

(5) Control the issue of stock. 1867, Curry v. Scott, 54 Pa. St. 270; 1868, McManus v. P. & R. Co., 58 Pa. St. 330; 1883, Jones v. Morrison, 31 Minn.. 140; 1891, Arkansas V. Ag. Soc. v. Eicholtz, 45 Kan. 164.

(6) Investigate the management. 1880, Star Line v. Van Vliet, 43 Mich. 364.

(7) Check ultra vires acts, and in this case a single dissenting shareholder can enjoin such act. 1850, Bagshaw v. Eastern, etc., R., 19 L. J. (Ch.) 410; 1851, Beeman v. Rufford, 1 Sim. N. S. 550; 1867, Hoole v. Great Western R., L. R. 3 Ch. App. 262; 1895, Pollock v. Farmers' L. & T. Co., 157 U. S. 429.

(8) Prevent the sale of the corporate property, unless the corporation is a failing one. 1861, Abbott v. Hard Rubber Co., 33 Barb. 578; 1874, Middlesex, etc., R. v. Boston, etc., R., 115 Mass. 347; 1892, People v. Ballard, 134 N. Y. 269.

(9) Provide for the admission of members. 1837, Comw. v. Gill, 3 Whart. 228.

(10) Remove members or officers. 1758, Rex. v. Richardson, 1 Burr. 517; 1865, Evans v. Philadelphia Club, 50 Pa. St. 107, infra, p. 1165; 1882, Imperial Hydropathic Hotel Co., L. R. 23 Ch. Div. 1; 1898, In re Griffing Iron Co., 41 Atl. Rep. (N. J.) 931.

(11) Dissolve the corporation or surrender the corporate franchises. 1813, Smith v. Smith, 3 Dessau. Eq. (S. C.) 557; 1843 State v. Atch. R. Co., 5 Rob. (La.) 63; 1870, Wilson v. Proprietors of Central Bridge, 9 R. I. 590; 1897, Pringle v. Eltringham C. Co., 49 La. Ann. 301, 6 A. & E. C. C. (N. S.) 385; 1898, Forrester et al. v. B. & M. C. C. & S. M. Co., 21 Mont. 544, 55 Pac. Rep. 229.

Functions of directors. These are usually stated to be to select the inferior officers, agents and servants of the corporation, fix their compensation and direct their actions. 1880, Batchelor v. Planters' National Bank, 78 Ky. 435; 1891, Sheridan Elec. L. Co. v. Chatham National Bank, 127 N. Y. 517, 28 N. E. Rep. 467; 1898, Granger v. Am. Brew. Co., 25 Misel. (N. Y.) 302. Also to control in the ordinary business affairs of the corporation, such as policy of management, expediency of acting or contracting, accepting consideration for corporate property, or service, or appropriation of corporate funds to advance the corporate enterprise. And in these particulars, if they act in good faith, the stockholders can not control their acts. 1840, Burrill v. Pres. and Dir. of Nahant Bank, 2 Metc. (Mass.) 163, 35 Am. Dec. 395; 1850, Gillis v. Bailey, 21 N. H. 149; 1850, Commw. v. Cullen, 13 Pa. St. 133, 53 Am. Dec. 450; 1863, Miller v. Rutland, etc., R. Co., 36 Vt. 452; 1880, Hun v. Cary, 82 N. Y. 65, 37 Am. Rep. 546; 1881, Cleveland & M. R. Co. v. Himrod Furnace Co., 37 Ohio St. 321; 1884, Louisville, E. & St. L. Ry. Co. v. McVay, 98 Ind, 391; 1885, Donohoe v. Mariposa L. & M. Co., 66 Cal. 317; 1891, Ellerman v. Chicago J. R., 49 N. J. Eq. 217, 35 Am. & E. C. C. 388; 1892, Wheeler v. Pullman I. & S. Co., 143 Ill. 197; 1896, Blood v. La Serena, 113 Cal. 221, 4 Am. & E. C. C. (N. S.) 451 (this case holding that stockholders can not direct certain officers to do acts of ordinary business by resolution, unless the directors authorize such acts also); 1899, Cupit v. Park City Bank, 20 Utah 292, 58 Pac. Rep. 839; 1902, Friedman v. Lesher, 198 Ill. 21, 92 Am. St. R. 255 (assignment).

ARTICLE II. OTHER OFFICers.

Sec. 194. The president, etc.

NATIONAL STATE BANK v. VIGO COUNTY NATIONAL BANK.1 1895. IN THE SUPREME COURT OF INDIANA. 141 Ind. Rep. 352

357, 50 Am. St. Rep. 330.

[Action to set aside two mortgages held by Vigo Bank, purporting to have been executed by Sanford Tool Company by its president, "on his own motion and without any authority or permission to him

1

1 Statement of facts abridged. Only part of opinion given.

given by said tool company, or its directors or stockholders," and without their consent or subsequent ratification. The Vigo Bank demurred; demurrer sustained and exceptions reserved. Sustaining the demurrer is the error assigned.]

Monks, J. * * * The statute under which the tool company was organized provides that the business of the corporation shall be managed by a board of directors, a majority of whom shall constitute a quorum. Section 3854, R. S. 1881; section 5054, R. S. 1894.

Under this statute the directors have full authority to act for the corporation, and represent it in all the matters relating to the corporate business. Brooklyn Gravel Road Co. v. Slaughter, 33 Ind. 185; Board, etc., v. Lafayette, etc., R. Co., 50 Ind. 85.

The president of a corporation, by virtue of his office merely, has very little authority to act for the corporation; his powers depend upon the nature of the company's business and the authority given. him by the board of directors. The board of directors may invest him with authority to act as the chief executive officer of the company; this may be done by resolution or by acquiescence in the course of dealing and manner of transacting the business of the corporation. Taylor Corp., §§ 202, 236, 238, and notes; Martin v. Webb, 110 U. S. 7; Northern, etc., R. Co. v. Bastian, 15 Md. 494; Dougherty v. Hunter, 54 Pa. St. 380; Stokes v. New Jersey Pottery Co., 46 N. J. Law 240; Louisville, etc., R. W. Co. v. McVay, 98 Ind. 391; 17 Am. and Eng. Encyc. of Law, pp. 135, 136, 137, and notes; Jones Chat. Mort., § 51.

When a contract is made in the name of a corporation by the president, in the usual course of business, which the directors have the power to authorize him to make, or to ratify after it is made, the presumption is that the contract is binding on the corporation until it is shown that the same was not authorized or ratified. Patterson v. Robinson, 116 N. Y. 193; Eureka Iron and Steel Works v. Bresnahan, 60 Mich. 332; 1 Morawetz Corp., § 538; 1 Beach Corp., § 203; 17 Am. & Eng. Ency. of Law, p. 124.

One dealing with the president of a corporation, in the usual course of business, and within the powers which the president has been accustomed to exercise without objection from the directors, has the right to assume that the president has been invested with those powers. 1 Morawetz Corp., § 538; 1 Beach Corp., § 203; First Nat'l Bank v. Kimberlands, 16 W. Va. 555; Eureka Iron and Steel Works v. Bresnahan, supra.

Each paragraph of the complaint, however, alleges that said mortgages were executed without any authority whatever, and were never ratified after they were executed, and we are of the opinion that the second, third and fourth paragraphs were sufficient to withstand the demurrer.

Judgment reversed.

Note. See, also, as to functions and powers of president. 1872, Smith v. Smith, 62 Ill. 493; 1874, Titus v. Cairo, etc., R. Co., 37 N. J. L. 98; 1881,