If this trust fund be misapplied to objects or uses outside of the scope of the corporate powers, this is a breach of trust, and fastens a personal liability on those who perpetrate the wrong, commensurate with the injury, if any, caused by the misapplication. And persons receiving the trust fund so misapplied, knowing it to be such, make themselves trustees in invitum, and render themselves liable to the corporation whose funds are thus misapplied, or to the creditors of the corporation, for any diminution the trust fund may suffer in the transaction.

What is meant by the language, "To invest their money in stocks or choses in action, and to sell the same?" Will it or can it be contended that the authority to invest in stocks confers the power to subscribe to the capital stock of another corporation in process of organization? And if it confers the authority to subscribe for and become a stockholder in another corporation, in what description of corporation may the insurance company become a stockholder? The statute employs only the generic word stocks; and that word, if it include bank shares, applies equally to shares in all private corporations. Can the insurance company invest its capital stock, and thus become a stockholder in any and every description of private corporation, at the mere will and pleasure of its governing body? The vast variety of corporations now in use and operation need not be referred to, to show to what extreme results this interpretation would lead. Railroads, telegraph lines, telephones, express companies, mining and manufacturing enterprises, these are only a few of the numerous subjects of incorporation under the law. Can an incorporated insurance company under our statute subscribe for stock in the organization of each, all, or any of the numerous corporations now so common in human transactions? The statute has a different meaning.

Stocks-shares in corporations-have come to be, in a large degree, subjects of commercial dealing and speculation. The newspapers contain tables of the ruling prices of stocks, as their market value fluctuates. These notices refer to the shares of stock in organized corporations. Their sale neither increases nor diminishes the capital stock in the corporation; it neither adds to, nor takes from the corporation one dollar of its stock. It simply changes its ownership pro tanto. The capital remains in the corporation intact, and the security it furnishes, and is intended to furnish, the creditors of the corporation remains unimpaired.

When we speak of capital stock of a corporation, we are understood to refer to the sum subscribed in its organization. When we speak of stock, we mean the certificates issued by the corporation to the shareholders, which certificates, like titles to property, furnish the evidence of ownership of the shares of stock. Capital stock is the aggregate of money or other valuable thing contributed, or paid into the common treasury as a condition of the exercise of corporate functions, and a security for their faithful and prudent exercise. It is the property of the corporation, charged with a trust, it is true; but nevertheless, in its possession and under its control. The stock,

stocks or shares of stock do not belong to the corporation. They belong to the shareholders and are exclusively under the individual control of the several owners. The stocks which the statute authorizes insurance companies to invest their money in can not mean capital stock owned and to be held by the corporation. This, we have seen, is a trust fund. It means the stock owned by stockholders, usually evidenced by stock certificates. Stock, as a subject of commercial dealing, is what the legislature meant in the statute we are interpreting. The very connection in which the word is used in the statute confirms this interpretation. "To invest their money in stocks or choses in action, and to sell the same," is the language employed. There is not even a comma between the words "stocks" and "choses in action," nor a shade of difference in the powers conferred as to each. The power to invest in and to sell is very appropriate language when applied to commercial dealings. It is very inapt, if the intention was to confer authority to subscribe for stock in the formation of another corporation.

The tax is, by statute, levied on the capital stock of corporations. In the corporation's petition to be relieved of a part of the tax thus levied, it describes it as a tax on the capital stock. It avers "That said capital stock is invested, * $51,000 thereof in the capital stock of the Bank of Montgomery." The corporation owned its capital stock, and, presumptively at least, did not own the shares of its capital stock. Hence the propriety and reasonableness of the averment that it was so invested, and not shares in its capital stock, pretermitting, for the sake of argument, its want of corporate power to invest its capital stock. The exact and specific case made in the petition is that the capital stock of one corporation-the thing itself—is invested in the capital stock of another corporation. And, it may be added, this averment was necessary to give the petition a semblance of merit. Capital stock-the insurance company's capital stock—was the subject of the tax, and in order to maintain the discount or deduction claimed, it was necessary to aver and show that that specific subject of taxation-the capital stock-or some portion of it, had been "invested in property which is otherwise taxed as property." We are thus confronted with the question, can one and the same sum of money, at one and the same time, serve the purpose of capital stock for two corporations?

We have shown by the highest legal authority that the capital stock of a corporation is a trust fund for the security and benefit of the creditors of the corporation, and that the managing board fills the relation of trustee for its preservation and administration. Corporations acting within the scope of corporate powers, fix no liability on their officers or on any one else. They charge only the corporation. Hence the purpose and policy of requiring a capital stock as security and indemnity of persons who become its creditors. The law-making power confers on them privileges-a franchise, a right to make contracts in its artificial name without fastening a liability on any natural person-and it exacts from them as a condition on which it

grants this franchise, this privilege and power, that they place a capital stock in safe pledge for the security of their creditors. And this capital stock is a permanent investment, with no power in the shareholder to withdraw it until the corporation is wound up and all its debts paid, and no power in the managing board to permit it to be withdrawn at the expense of creditors. It is a trust fund in the corporation's treasury, to be used only in its interest, and whatever of profit or emolument it may yield belongs of right to the corporation, its creditors and shareholders. It must be kept within the corporation and under its control to meet the purpose for which it was required to be raised and paid in. It is not materially unlike any other pledge that is placed as a guaranty of faithful performance of debt or duty. It is a fixed pledge until the debt is paid, or the duty performed.

Such being the nature, the status of capital stock in a corporation, can one and the same fund supply this want and fill this condition for two corporations? The law required $100,000 of capital stock as a condition on which it granted the corporate franchise for that amount of capital to the Commercial Fire Insurance Company, and the same amount from the Bank of Montgomery as the condition on which it conferred a similar franchise on it. Will a single sum of $100,000 meet and satisfy this double demand? The law does not grant acts of incorporation in the undoubting faith and trust that they will be profitably and successfully administered. If there was neither distrust nor doubt, no guaranty, no pledge, no capital stock paid in should be required. The law, basing its action on experience, requires this guaranty, this security, because human enterprises often miscarry. Let us suppose that in the case before us disaster should overtake both corporations, and it should become necessary to exhaust the capital stock of each in the payment of its liabilities. Is it not manifest that the $100,000 the law required as a pledge and guaranty from each company would not be forthcoming? Fifty-one thousand dollars of the sum could not meet the double demand of that sum from the respective creditors of the two companies. One dollar can not pay

two.

Let us take a further step. If corporation No. 1 can, of its $100,ooo of capital stock, supply fifty-one of the $100,000 the law requires of corporation No. 2, and yet retain its $100,000 of stock, no sound. argument can be formulated why it could not furnish the bank with the whole $100,000 of capital with the same result. And if corporation No. I can, from its own capital, furnish the capital stock of corporation No. 2, why can not corporation No 2 render the same service to corporation No. 3? And why can not this process be carried on indefinitely? Would not such proceedings be an utter subversion of the purpose and policy which require that corporations, as a condition of the franchise they ask to be clothed with, shall furnish this security for those with whom they propose to have dealings? These questions can receive but one answer, and that answer is, that corporations

have no authority to subscribe their own capital stock in the capital stock of another corporation in process of organization. Affirmed. Walker and McClellan, JJ., dissent.

Sec. 210. Capital, capital stock, surplus and franchise distinguished.

PEOPLE, Ex REL. U. T. CO., v. COLEMAN.1

1891. IN THE COURT OF APPEALS OF NEW YORK.

Rep. 433-450.

126 N. Y.

[Appeal from judgment of supreme court, dismissing a writ of certiorari to review assessment of trust company's capital. The company claimed that all its capital stock and surplus were invested in United States securities and exempt. The commissioners held that the capital stock, the actual value of which they were to assess, was the shares, and they ascertained such value by multiplying the nominal capital by the market price of the shares, and deducted therefrom ten per cent. of the nominal capital, the assessed value of the real estate and the investments in the United States securities.]

FINCH, J. The relator has been assessed upon an "actual value" of its capital stock derived entirely from the market value of its shares. These are selling at the large premium of something over five hundred dollars for each share of one hundred dollars, and the assessors have concededly taken that valuation, or the principal part thereof, as the "actual value" of the company's stock liable to taxation, instead of its own proved and established value. The relator challenges the assessment, and through all the proceeding has persistently raised and pressed the inquiry, not so much as to the mode or manner of ascertaining value, but rather as to what is the precise thing to be valued, whether the capital stock of the company or the capital stock held in shares by the corporators. If these are the same, or in any just sense equivalents, either might be valued without substantial error, but if they are not such we must determine which is to be valued before we can solve the problem of how to value it.

Now it is certain that the two things are neither identical nor equiv alents. The capital stock of a company is one thing, that of the shareholders is another and a different thing. That of the company is simply its capital, existing in money or property, or both; while that of the shareholders is representative, not merely of that existing and tang ible capital, but also of surplus, of dividend earning power, of fran chise and the good will of an established and prosperous business. The capital stock of the company is owned and held by the company in its corporate character; the capital stock of the shareholders they own and hold in different proportions as individuals.

1 Statement abridged; arguments and part of opinion omitted.

The one

belongs to the corporation, the other to the corporators. The franchise of the company, which may be deemed its business opportunity. and capacity, is the property of the corporation, but constitutes no part or element of its capital stock, while the same franchise does enter into and form part, and a very essential part, of the shareholder's capital stock. While the nominal or par value of the capital stock and of the share stock are the same, the actual value is often widely different. The capital stock of the company may be wholly in cash or in property, or both, which may be counted and valued. It may have in addition a surplus, consisting of some accumulated and reserved fund, or of undivided profits, or both, but that surplus is no part of the company's capital stock, and, therefore, is not itself capital stock. The capital can not be divided and distributed; the surplus may be. But that surplus does enter into and form part of the share stock, for that represents and absorbs into its own value surplus as well as capital, and the franchise in addition. So that the property of every company may consist of three separate and distinct things, which are its capital stock, its surplus, its franchise; but these three things, several in the ownership of the company, are united in the ownership of the shareholders. The share stock covers, embraces, represents all three in their totality, for it is a business photograph of all the corporate possessions and possibilities. A company also may have no surplus, but, on the contrary, a deficiency which works an impairment of its capital stock. Its actual value is then less than its nominal or par value, while yet the share stock, strengthened by hope of the future and the support of earnings, may be worth its par, or even more. And thus the two things-the company's capital stock and the shareholder's capital stock—are essentially and in every material respect different. They differ in their character, in their elements, in their ownership and in their values. How important and vital the difference is became evident in the effort by the state authorities to tax the property of the national banks. The effort failed, and yet the share stock in the ownership of individuals was held to be taxable as against them. The corporation and its property were shielded, but the shareholders and their property were taxed.

Now some degree of confusion and trouble have come in because these two different things are denominated alike capital stock, making the expression sometimes ambiguous. It is the important and decisive phrase in the law of 1857, under which the assessment here resisted was made, and requires of us to determine at the outset in which sense it was used. The section reads thus: "The capital stock of every company liable to taxation, except such part of it as shall have been excepted in the assessment roll, or shall have been exempted by law, together with its surplus profits or reserved funds exceeding 10 per cent. of its capital, after deducting the assessed value of its real estate and all shares of stock in other corporations actually owned by such company which are taxable upon their capital stock under the laws of this state, shall be assessed at its actual value and taxed