Central Railroad Company, by G. L. Woods, chairman, seventy thousand shares seven million dollars.' It was held that this subscription was a nullity, and that a board of directors elected by the six persons could not lawfully transact business for the corporation.1

§ 1108. Limited View that One Corporation can Invest in the Shares of Another. A few decisions are met with where the view is taken that a corporation may invest in the stock of other corporations, as well as in any other funds, provided it be done bona fide, and with no sinister or unlawful purpose, and there be nothing in its charter, or in the nature of its business, that forbids it.2 The theory of these cases seems to be that such a purchase is not necessarily void; and it has been held that there is no presumption that a corporation is incapable of purchasing and holding shares of the stock of another corporation, it not appearing under what circumstances it was acquired or held. Sir Nathaniel Lindley thinks that "there is no general principle of law which prevents a corporation from holding shares in a company, except the principle that a corporation cannot lawfully employ its funds for purposes not authorized by its constitution." And he adds, citing the authorities in the margin: "It has been assumed by the legislature, in many of the statutes relating to companies, that corporations may lawfully be shareholders, and at common law one corporation may be a member of another. Accordingly it has held that, where the above principle does not apply, one company may hold shares in another; although not in a benefit

1 Holliday v. Elliott, 8 Or. 84.

2 Booth v. Robinson, 55 Md. 419, 433.

3 Hill v. Nisbet, 100 Ind. 341.

4 Evans v. Bailey, 66 Cal. 112. In Mutual Savings' Bank v. Meriden Agency, 24 Conn. 159, the court went no further than to declare that a subscription by a corporation to the stock of another corporation, whose objects were in no wise connected with those of the subscribing corporation, is void.

5 See for example the Companies act 1862, § 23, and the interpretation put on it in the cases cited in note (t); the Industrial and Prov. Soc. act, 39 and 40 Vict., c. 45, § 12 (4); 7 Wm. IV. and 1 Vict., ch. 73, §§ 6 and 10; 7 and 8 Vict., ch. 110, §§ 3 and 7 (8), and § 50. 6 Grant on Corporations, p. 5.

Ex parte Contract Corp., 3 Ch. 105; Royal Bank of India's case, 4 Ch. 252, and 7 Eq. 91.

building society.

Practically, however, it may be said to be prima facie ultra vires for one company to hold shares in another: i. e., power to do so must be shown to be expressly or impliedly given to it." 2

§ 1109. Illustrations. - For instance, the Supreme Court of Tennessee has taken the view that there is no legal objection to the holders of the stock of an insurance corporation purchasing the stock and franchises of a bank. This is not regarded as an absorption of the bank franchises by the insurance corporation.3 Under statutes

of Kansas, a railroad company has the power to purchase and hold the stock of any other railroad company, the line of whose railroad, constructed or being constructed, connects with its own.4

A company organized for the purpose of owning, developing and disposing of a large quantity of wild and inaccessible land, with power to build a railroad not more than twenty miles in length, has power, it seems, to subscribe to the stock of a railroad, the building of which is necessary to afford access to the subscribing company's lands.5 The West Virginia statute which forbids one corporation to subscribe for or purchase the bonds or stock of another corporation except in payment of a bona fide debt, is held not to preclude advances made on bonds and stock as collateral security.6

§ 1110. Consequences which Flow from this View.- Where the view obtains that one corporation may rightfully purchase and hold the shares of stock of another, the ordinary liabilities of a stockholder attach to the corporation which so acts. Thus, where a banking firm purchased in their own name shares

1 Dobison v. Hawks, 16 Sim. 407. A corporation cannot be treasurer of a friendly society. Ex parte Swansea Friendly Society, 11 Ch. D. 768.

2 See Great W. Rail. Co. v. Metrop. Rail. Co., 9 Jur. (N. s.) 562; Ex parte Contract Corp., 3 Ch. 105; Ex parte British Nation &c. Ass., 8 Ch. Div. 679, where it was held that a society to which shares in another society had been transferred by an act ultra vires, could not be placed on the list of contributories of that society. Lind. Comp. 5th ed. p. 43.

3 State v. Butler, 86 Tenn. 614. Circumstances under which a purchase

by a life insurance company of the stock of a fire insurance company will not be set aside because fully executed. Alexander v. Jones, 8 Mo. App. 589, 591.

4 Atchison &c. R. Co. v. Fletcher, 35 Kan. 236; Atchison &c. R. Co. v. Cochran, 43 Kan. 225; s. c. 7 L. R. A. 414; 23 Pac. Rep., 151; Atchison &c. R. Co. v. Davis, 34 Kan. 209. Compare Pullman Palace Car Co. v. Missouri Pacific R. Co., 115 U. S. 587.

5 Watts' Appeal, 78 Pa. St. 370, 392. 6 Taylor County Court v. Baltimore &c. R. Co., 35 Fed. Rep. 161.

of stock for a customer, which they treated as their own, and so made it appear on the books of the corporation issuing the stock, it was held that they assumed the liability of stockholders as between themselves and the corporation. But it seems that a corporation cannot, by merely purchasing the shares of another corporation, and thereby acquiring control of it, succeed to its special franchises. Thus, it is held in Massachusetts that the fact that one corporation has purchased the property and most of the capital stock of another corporation does not necessarily authorize the purchasing corporation to do that which, under a special act, the other corporation is authorized to do, but which the general law prohibits.2

Laches.

§ 1111. Undoing Such Transactions: Estoppel Although a corporation may not possess the power to deal in the shares of another corporation, yet one who has purchased from a corporation the shares of another corporation, will not be allowed to escape the payment of the purchase money by setting up such want of power. The estoppel works also against the corporation so assuming to act. Thus, a railroad company was held estopped to deny its liability under a contract by which it loaned the sum of $150,000 to another railroad company, whose road it had leased, taking as security 1,500 shares of the stock of the lessor company. The court found, however, that the contract was within the scope of the powers of the lessee corporation; that it had been entered into by the proper officers and had been recognized by corporate acts; and the holding was that the lessee company was estopped from setting up that its officers were not authorized to make the contract. In short, it seems that a defense of want of power so to act will not avail where there has been laches,5 or were the other party to the contract cannot be put in statu quo.o

1 McKim v. Glenn, 66 Md. 479; 8. c. 8 Atl. Rep. 130; 5 Cent. Rep. 776; 9 East. Rep. 901.

2 French v. Connecticut River Lumber Co., 145 Mass. 261.

3 Holmes & Griggs Man. Co. v. Holmes & Wessel Metal Co., 53 Hun (N. Y.), 52; s. c. 5 N. Y. Sup. p. 937.

• Peterborough R. Co., v. Nashua &c. R. Co. 59 N. H. 385.

Boston &c. R. Co. v. New York &c. R. Co., 13 R. I. 260.

141.

Terry v. Eagle Lock Co., 47 Conn.

ARTICLE III.

MUNICIPAL CORPORATIONS.

SECTION

1115. Validity

of municipal subscriptions to private corpora

tions.

1116. Illustrations of the principle: aid to railroad companies valid - to manufacturing companies not.

1117. Rule in the absence of direct

constitutional restraints. 1118. Validity of statutes authorizing municipal subscriptions to corporations.

1119. Power to grant such aid by way of subscription settled.

1120. Whether power exists to make

donations to such companies. 1121. Right to municipal aid not created by general words. 1122. Right to municipal aid passes to new company on consolidation.

1123. Statute repealed before right vested.

1124. An illustration of this principle.

§ 1115. Validity of Municipal Subscriptions to Private Corporations. Whether the legislature of a State has the power to authorize cities, towns or counties to subscribe for the shares of private corporations, and to exert the taxing power to raise money to pay such subscriptions, depends for the most part on the question whether the object, as far as it affects the public, which the corporation is organized to promote, is a public object as distinguished from a merely private enterprise. As presently seen,1 nearly all American courts hold that municipal aid may be extended in this form to corporations organized for the building and operating of railroads, turnpike roads,' and plank roads.3 But it is equally clear that, under our American State constitutions, such aid cannot be extended to corporations which are

1 Post, §1118.

3 Wetumpka v. Winter, 29 Ala.

' Com. v. McWilliams, 11 Pa. St. 62. 651.

organized to promote merely private enterprises, because of some supposed collateral benefit which may thereby accrue to the public.1

§ 1116. Illustrations of the Principle: Aid to Railroad Companies Valid-to Manufacturing Companies not. - To illustrate this principle let us take a case which arose under the constitution of Alabama, which provided that private property shall not be taken for public use, or for the use of corporations other than municipal, without the consent of the owner," and that "the State shall not engage in works of internal improvement, but its credit, in aid of such, may be pledged by the General Assembly on undoubted security." Construing these provisions, it has been held that the legislature has power to authorize a county, as a body corporate, on a popular vote of the county, to subscribe for stock in a railway company; and that, for the payment of the stock so subscribed, the county may be compelled by mandamus to issue its bonds and deliver them to the railway company.2 Let us throw into contrast with this a case where a statute authorized a municipal corporation, with the consent of a majority of the owners of taxable property, to subscribe for the stock of a private manufacturing corporation and to issue bonds in payment thereof. Here it was held (1) that the statute was unconstitutional and void, inasmuch as it attempted to authorize taxation for other than public purposes; (2) that the fact that the establishment of the business of the corporation would tend to increase the business prosperity of the town did not render its purpose a public use; and, (3) that the town was not estopped from denying the validity of the bonds by the fact that it had previously voted a special tax to pay the interest thereon.3

1 Weismer v. Douglas, 64 N. Y. 91; s. c. 21 Am. Rep. 586; Loan Asso. v. Topeka, 20 Wall. (U. S.) 655; Olcott v. Supervisors, 16 Wall. (U. S.) 689; People v. Salem, 20 Mich. 452; Jenkins v. Andover, 103 Mass. 94; Whiting v. Fond du Lac, 25 Wis. 188; Allen v. Jay, 60 Me. 124.

Ex parte Selma &c. R. Co., 45 Ala. 696; s. c. 6 Am. Rep. 722.

3 Weismer v. Douglas, 64 N. Y. 91; s. c. 21 Am. Rep. 586; denying Allegheny City v. McClunkan, 14 Pa. St. 81; commending Thomas v. Richmond, 12