subscribers, and at the same time in so holding no wrong is done to the parties of which either has reason to complain.

Affirmed.

Note. See, 1827, Center & K. Turnpike Co. v. McConaby, 16 S. & R. (Pa.) 140; 1858, Graff v. Pittsburg & S. R. Co., 31 Pa. St. 489; 1859, LaGrange & M. Plank R. Co. v. Mays, 29 Mo. 64; 1869, Custar v. Titusville Gas & W. Co., 63 Pa. St. 381; 1875, Melvin v. Lamar Ins. Co., 80 Ill. 446, 22 Am. Rep. 199; 1876, Phoenix Warehouse Co. v. Badger, 67 N. Y. 294; 1878, Miller v. Hanover, Jc. & S. R. Co., 87 Pa. St. 95, 30 Am. Rep. 349; 1886, Galena & S. W. R. Co. v. Ennor, 116 Ill. 55; 1888, Topeka Manufacturing Co. v. Hale, 39 Kan. 23; 1889, Morrow v. Iron & Steel Co., 87 Tenn. 262, 3 L. R. A. 37.

Compare, 1872, Burke v. Smith, 16 Wall. 390; 1888, Morgan v. Struthers, 131 U. S. 246; 1888, Meyer v. Blair, 109 N. Y. 600, 4 Am. St. Rep. 500; 1889. Winston v. Dorsett Pipe & P. Co., 129 Ill. 64, 4 L. R. A. 507.

But under some circumstances conditional deliveries in escrow are valid. See, 1874, Bucher v. Dillsburg & M. R. Co., 76 Pa. St. 306; 1894, Great Western Tel. Co. v. Loewenthal, 154 Ill. 261. Also, Minneapolis Threshing Mac. Co. v. Davis, 40 Minn. 110, 12 Am. St. Rep. 701, 3 L. R. A. 796, supra, p. 492; Wight v. Shelby R. Co., 16 B. Mon. 4, supra, p. 536, and Cass v. P., V. & C. R. Co., 80 Pa. St. 31, supra, p. 538.

ARTICLE III. THE CORPORATE FUNDS-CAPITAL STOCK.

Sec. 204. In general. "The legal relations resulting from incorporation subsist in respect of the object of incorporation specified in the charter or articles of association and the means of attaining this object, i. e., the corporate funds and property. Roughly speaking, the general result of these relations is that the corporate funds become a so-called trust fund, set apart for the attainment of the object of incorporation." "The general outline is this: The state has the power or right to enforce the application of these funds to the objects of incorporation, at least, so far as the public is interested in their attainment; the shareholders have the right to apply these funds to these objects; and the creditors of the corporation have the right to prevent the diversion of these funds from the objects of incorporation to the injury of creditors. The result of the respective rights of these different classes of persons is that corporate property becomes a fund set apart for the attainment of certain purposes from which it can not be diverted without the consent of all whose legally protected interests would be injured by such diversion."-Taylor Private Corporations, §§ 32-34.

Sec. 205. Right to create a capital stock.

COOKE v. MARSHALL.'

1899. IN THE SUPREME COURT OF PENNSYLVANIA.

Rep. 315-323.

191 Pa. St.

[Quo warranto to determine right to office of secretary of the Chartiers Cemetery Company. This company was created by act of 1862, with the usual corporate powers-nothing being said as to power to have a capital stock. The corporators organized, passed a resolution establishing the cemetery on the ground designated, "and for this purpose" fixed the capital stock at "$8,000, divided into 160 shares of the par value of $50 each." This was subscribed, and the corporation proceeded to business. Afterward increases were made, first to $50,000, and later to $150,000. In 1893, at an informal meeting of some of the shareholders, the board was increased from five to seven members, and Cooke was elected secretary; to these acts Marshall protested, and later he, in connection with other members, organized a new board, wholly ignoring all idea of corporate stock, elected "associates" and officers, and Marshall has ever since claimed to be secretary, and obtained possession of the seal and books of the company. The stock board, however, continued to control the management of the cemetery. Cooke brought the suit and obtained judgment below. Marshall appealed.]

GREEN, J. The question then is, was the original creation and issue of stock lawful, and if so, were the subsequent increases lawful? The issue was made for the purpose of performing the original duty to establish a cemetery. It was necessary to acquire land in order to create the cemetery, and the corporators adopted the method of obtaining the land by issuing stock in payment for it. It is not denied that the corporation might have borrowed money for this purpose, and made a mortgage on the property to secure the payment of it, although no such power was expressly conferred by the charter. On the question whether capital stock might be issued for the same purpose where the charter has not specially authorized a capital stock, not a single authority is cited for or against in the paper-books of either party. There is no doubt that this particular corporation did possess full corporate powers, and there is also no doubt that it was not only authorized but expressly enjoined to create a cemetery of not less than thirty acres in extent, and after that to lay it out into lots and plots, and roads and walks, and to do various other things necessary to its proper development as a cemetery. No method of raising money to acquire the land and do these various things was provided in the charter. The ordinary method in which such things are done is by the creation and issue of capital stock, and it may be argued with apparent reason that it is a necessary implication from the grant of 1 Arguments and part of opinion omitted. Statement abridged.,

corporate existence and powers that a right to issue stock is conferred. * In this case, however, the charter confers no power to issue any stock, and for such a company as this no such power is needed. It is remarkable that it is so difficult to find either text-book discussion of this subject or adjudicated cases. Whether a corporation without capital provided for in its charter may create and issue capital stock is certainly a fundamental and radical matter in corporation law. In 1 Cook on Stock, etc., § 279, it is said, "The capital stock of all incorporated companies is generally fixed by the charters which give them an existence." Section 281, "In the absence of express authority from the state a corporation has no power whatsoever to increase or reduce the amount of its stock, and any attempt on the part of the corporation, either by the corporate officers or by the stockholders, to do so is wholly illegal and void. Where the attempted increase or reduction of the stock is not authorized by the charter, not even the unanimous assent and agreement of all the parties concerned will legalize it."

(Citing Droitwich P. S. Co. v. Curzon, L. R. 3 Ex. 35;' Scovill v. Thayer, 105 U. S. 143; Sutherland v. Olcott, 95 N. Y. 93; 1 Morawetz, § 434, to the same effect.)

It follows, hence, that the increase of stock being void, all the elections held thereunder since that time are void and confer no authority upon the persons elected.

This ruling would dispose of the present contention, but it is perhaps desirable that the original creation of the $8,000 of capital stock should be considered. It is extremely difficult to understand under the foregoing decisions how any issue of capital stock by this company can be regarded as valid. The company was chartered to establish a cemetery. While a cemetery company is not necessarily a religious or charitable corporation, yet in many instances it is of that character, and perhaps as a rule this is so; yet they may be established as merely private enterprises and carried on for profit. But, in either case, if the charter confers no right or power to create capital stock, it is difficult to understand how any right to create and issue such stock has any existence. If capital stock may neither be increased nor diminished without an express power to that effect, how can any stock be created or issued when there is no capital stock fixed by the charter, and no power is given to create it? In 1 Cook on Corporations, § 8, the following definition of capital stock is given: "Capital stock is the sum fixed by the corporate charter as the amount paid in, or to be paid in, by the stockholders for the prosecution of the business of the corporation, and for the benefit of corporate creditors."

*

(Citing Barry v. Merchants' Exchange, 1 Sandf. Ch. 280; American Pig Iron S. Co. v. State Bd., etc., 56 N. J. L. 389; Salem Mill Dam Co. v. Ropes, 6 Pick. 23.)

Now, if the doctrine of these cases (and there are many more of them) be true, and the act of increasing or decreasing the capital 1Infra, p. 764. Infra, p. 766.

2

stock of a corporation without specific charter power to do so is a void act because it is ultra vires, how can it be true that a corporation may issue any capital stock without having specific legislative authority to do so? We can not see. If it is ultra vires to increase, it is ultra vires to issue any stock, where no power to do so is conferred by the charter. The power to create corporate capital stock is a legislative function, and, in any given case, in order that such stock may have a legal existence, the function must be exercised. Reversed.

Sec. 206. Power to increase the capital stock.

See RAILWAY CO. v. ALLERTON, 85 U. S. (18 Wall.) 233, supra, p. 442.

Note. See, also: 1827, Salem Mill D. Corp. v. Ropes, 23 Mass. (6 Pick.) 23; 1854, People v. Parker Vein Coal Co., 10 How. Pr. (N. Y.) 543; 1856, Mechanics' Bank v. New York, etc., R., 13 N. Y. 599; 1856, Ferris v. Ludlow, 7 Ind. 517; 1865, New York & N. H. R. Co. v. Schuyler, 34 N. Y. 30; 1878, Moses v. Ocoee Bank, 1 Lea (Tenn.) 398; 1881, Scovill v. Thayer, 105 U. S. 143; 1882, Grangers', etc., Ins. Co. v. Kamper. 73 Ala. 325; 1884, Sutherland v. Olcott, 95 N. Y. 93; 1889, Cartwright v. Dickinson, 88 Tenn. 476; 1891, Jones v. Railroad Co., 67 N. H. 119, 234; 1895, Einstein v. Rochester Gas, etc., Co., 146 N. Y. 46; 1897, Peck v. Elliott, 47 U. S. App. 605, 79 Fed. Rep. 10, 24 C. C. A. 425, 38 L. R. A. 616, and note.

But it seems that if the charter or articles of association provides that the stock may be fixed by the members, it may be changed from time to time by the members. See, 1897, Peck v. Elliott, 47 U. S. App. 605, 38 L. R. A. 616. Overissued shares are void, even in the hands of bona fide holders: 1854, People v. Parker Vein Coal Co., 10 How. Pr. (N. Y.) 543; 1865, N. Y. & N. H. R. v. Schuyler, 34 N. Y. 30; 1867, Bruff v. Mali, 36 N. Y. 200; 1868, Sewell's Case, L. R. 3 Ch. App. 131, 138; 1882, People's Bank v. Kurtz, 99 Pa. St. 344; 1893, Hayden v. Charter Oak D. P., 63 Conn. 142; 1901, First Ave., etc., Co. v. Parker, 111 Wis. 1, 86 N. W. 604, 87 Am. St. R. 841.

But the corporation is liable to an innocent holder for the tort of the officer, if he was clothed with the general power to issue stock for the corporation: 1842, Daly v. Thompson, 10 M. & W. 309; 1857, Mandlebaum v. North Am. Min. Co., 4 Mich. 465; 1865, New York & N. H. R. v. Schuyler, 34 N. Y. 30, 49, 60; 1867, Bruff v. Mali, 36 N. Y. 200; 1868, Re Bahia, etc., R. Co., L. R. 3 Q. B. 584, 595; 1873, Tome v. Parkersburg Br. R., 39 Md. 36; 1882, Peoples' Bank v. Kurtz, 99 Pa. St. 344; 1889, Allen v. South Boston R., 150 Mass. 200; 1892, Ryder v. Bushwick R., 134 N. Y. 83; 1893, Hayden v. Charter Oak Driv. Park, 63 Conn. 142; 1893, Fifth Avenue Bank v. Forty-Second St., etc., R. Co., 137 N. Y. 231; 1897, Cincinnati, etc., R. v. Citizens' Nat'l Bank, 56 Ohio St. 351, 47 N. E. Rep. 249, 43 L R. A. 777; 1901, First Ave. Land Co. v. Parker, 111 Wis. 1. 87 Am. St. R. 841, 86 N. W. 604.

Unless the stock is taken from such officer, as a part of a transaction in which he is personally interested at the time: 1884, Moores v. Citizens' National Bank, 111 U. S. 156; 1890, Farrington v. South Boston R., 150 Mass. 406; 1890, Wilson v. Metropolitan El. R., 120 N. Y. 145; 1891, Hill v. Jewett Pub. Co., 154 Mass. 172; 1893, Manhattan L. Ins. Co. v. Forty-Second, etc., R., 139 N. Y. 146.

Sec. 207. Power to decrease the capital stock.

DROITWICH SALT CO. v. CURZON.1

1867. IN THE ENGLISH COURT OF EXCHEQUER. L. R. 3 Exch. 35-43.

KELLY, C. B. * *The plaintiffs are a company which were in existence long before the passing of the companies act, 1862. At the time of the passing of that act, or rather a short time afterward, when they called on the registrar to register them under the act, their nominal capital was 250,000l. But this capital was then farther stated to be "in 10,000 shares of 257. each, all taken, 257. having been paid on the first 5,000 shares, 157. on the next 1,000 shares, and 57. on the remaining 4,000 shares;" and it was also stated that the last 5,000 shares were issued at 257. each "for the sums above mentioned." This amounts in substance to a declaration that the actual amount of capital had been reduced from 250,000l. to 160,000/., thus: there had been a new issue of 1,000 shares on the original capital of 125,000l. at 157. a share, and two subsequent issues of 4,000 shares at 57. each. The aggregate amount subscribed was, therefore, 160,000l., and this was the real capital of the company, although their nominal capital amounted to 250,000l. It is said that the words in the requisition for registration, "the last 5,000 shares were issued at 257. each, for the sums above mentioned, amount to a statement that these shares were to be considered as fully paid up. Probably this is so, and at all events the registrar entered the company on the register, whether by inadvertence or otherwise, under the act of 1862, in the manner above described. Subsequently he was called upon to register a further change in the amount of capital. Resolutions were passed reducing the capital to 100,000l. in 10,000 fully paid-up shares of 107. each. These resolutions were sent to the registrar and were recorded by him. In fact, he ought to have refused to record them. He did, however, perhaps per incuriam, enter the reduction of capital. Then he was called upon to register an increase of this reduced capital from 100,000l. to 125,000l. Notice was duly given to him of the proposed increase, but he refused to record the notice or the amount of the increase. Had he done so, then taking all the entries together as representing the constitution and condition of the company, the entry of 125,000l. would have amounted, in fact, to an entry, not of an increase, but of a reduction of the nominal capital of 250,000l., as originally registered, to 125,000l. The question, therefore, really is, whether the company were entitled to reduce their nominal capital and to call upon the registrar to enter on the register a minute of that reduction? Now, in the case of a company formed under the act of 1862, and

1 Facts sufficiently stated in the opinion, part of which is omitted. Also arguments, and concurring opinions of Bramwell, Channell and Piggot, Barons, are omitted.