Barry v. Merchants' Exchange Company.

Statutes as imposing a limitation to the estate which any corporation may own, which is not found in its charter or in the provisions of the common law; and they certainly do not declare that the capital stock shall in any case constitute such limitation.

In reference to the accumulation of the profits of the corporation, and thereby increasing their solid capital, I do not find any provision of law which forbids that course. We know perfectly well that our banking institutions, (all of which were chartered with limited capitals previous to the General Banking Act of 1838,) in the days of their prosperity, very frequently accumulated a large surplus, and used it to increase their busi

No one, so far as I have heard, ever questioned their right to do so; and the stock of those institutions was appreciated by the public precisely as they exhibited a greater or lesser amount of surplus property, beyond their capital and liabilities. The practice of monied corporations to accumulate their profits, has been recognized in our legislation relative to the banks, and has been before this court judicially in several See Bank of Ulica v. City of Utica, (4 Paige's R. 399;) Lowerre v. American Fire Insurance Company, and De Peyster v. The Same, (6 ibid. 482. 486;) Scott v. Eagle Fire Company, (7 ibid. 198.)

cases.

The right to keep a surplus on hand, was not questioned in those cases, and in the insurance causes, it was declared by the Chancellor to be a duty in reference to outstanding risks. From the year 1830, to the present year, the custom of our banking corporations to accumulate their profits beyond their capital, has annually been brought before the legislature by the reports of the bank commissioners, which gave the condition of each bank, and exhibited such surplus in each instance where it existed; and during the current year the report of the comptroller exhibits the same details. Yet we have never heard of any doubt or question being raised as to the perfect right of these institutions to retain their profits as a surplus, if they preferred that course to dividing them. The legislature appears to have left this matter to the corporations themselves, wisely

Barry v. Merchants' Exchange Company.

deeming that the natural desire of all men to enjoy the fruits of their property, would be a sufficient preventive against any inordinate or dangerous accumulation.

In the case of Scott v. The Eagle Fire Co., ubi supra, the Chancellor says, if the directors without reasonable cause should refuse to divide what was actually surplus profits, the stockholders are not without remedy, if they apply to the proper tribunal. To this I may add, that they have in a great measure, the remedy in their own hands. They may eject the recusant directors at the next annual election, or if they fail to induce a majority of shareholders to join them in that proceeding, they may sell their stock and retire from the association.

In the charter in question, the corporation is authorized to receive the rents and profits of their exchange, and divide the same amongst the stockholders, at such times as they may deem expedient and proper. It is thus left entirely to the discretion of the trustees.

It is however said that this clause is mandatory, and that the permission to designate the times, for a division of profits, does not authorize a total omission to divide for a long period.

I cannot take this view of the clause in the charter. Whether the first time to be designated for a dividend of profits, shall be one year or twenty, is left to the corperation to determine. Nor is there any serious danger of inordinate accumulation, or of the growth of any overshadowing monopoly, by leaving corporations to pursue their own course in this respect. Few men would care to forego the receipt of an income from their stock, during their lives or for any long period, in order that in the next generation, their heirs may participate in the management of some gigantic corporation. The danger that the surplus may be squandered, or the control pass to unwelcome hands, is too manifest to induce the most ardent admirer of posthumous power and influence, to incur such hazard of his estate. And if there be any evils arising from such surplus accumulations, the legislature in their future action will apply the remedy.

Another argument which was made to bear upon both theories of the complainant's counsel, was pressed upon me with great

Barry v. Merchants' Exchange Company.

force, viz. that the amount fixed as the capital stock of the corporation, was an absolute restriction upon the amount and value of the property both real and personal, which they may hold permanently.

Some modifications of this position, at once forced themselves upon the attention of the counsel. If the capital were the limit of the property of the corporation, they could make no dividends or profits, for those are beyond the capital. Again, in the ever varying and fluctuating values of all descriptions of property, a corporation that was within its capital last year, may without a single new purchase or expenditure, be worth this year, twenty per cent. beyond its capital, by the increased value of the same property.

Hence the learned counsel were driven to rest their point upon a designedly permanent increase of property, beyond the capital of the Company. Still the rule encountered difficulties.

The object of corporators in all monied and business corporations, is to make greater profits than they can command by the separate use of the same amount of capital. They put in their money, the capital stock, for the very purpose of having it increase in value, and more rapidly than in private adventures. And we have seen, that unless positively enjoined by their charters, there is nothing to require them to divide the increase annually, or in any given time.

It was argued, that in this particular case, the design was one not referring to profits for ultimate division, but it was a permanent and solid investment of profits which never could be divided, and which became an essential and integral portion of the real capital of the Company. That the exchange was an unit, indivisible, and composed of the capital stock, and nearly as much more; the latter being added in anticipation of earnings or profits, and the whole incapable of partition or division.

On this subject of the capital stock of a corporation, the elementary treatises are comparatively barren.

It is the aggregate amount of the funds of the corporators, which are combined together under a charter, for the attainment of some common object of public convenience or private

Barry v. Merchants' Exchange Company.

utility. This amount is usually fixed in the act of incorporation, although we have seen in the statutes of 1823, one exception to this practice. It is thus limited, in reference to the convenience of the intended corporators, and for the information and security of the public at large. To the corporators, it prescribes the amount and subdivisions of their respective contributions to the common fund; the voice which each shall have in its control and management; and the apportionment of the profits of the enterprise. To the community, it announces the extent of the means contributed and forming the basis of the dealings of the corporate body, and enables every man to judge of its ability to meet its engagements and perform what it undertakes. And when, as in most instances, the statute requires the stock to be paid in before the corporation can transact business, security to those contracting with it, is thereby superadded to the information of its resources. These objects for the public benefit, are sometimes defeated by fraud and deception, but they are such as the legislature have in view in limiting the amount of capital stock, and requiring a specified sum or proportion to be paid in.

One further consideration dictates the amount thus fixed. This is the probable and reasonable extent of the means requisite to the accomplishment of the end proposed, qualified in many cases by the unwillingness of the legislature to create these artificial beings with an undue amount of capital.

As no certain rule can be devised by which to estimate the means necessary to effect all the purposes of a contemplated incorporation, the amount of the capital in each case must be fixed in reference to the considerations which I have just enumerated; without any intention or expectation in ordinary cases, of limiting to that sum the aggregate property which the corporation, when its capital is paid in, and its operations commenced, shall from time to time possess or own. This is peculiarly true of the numerous incorporations which have sprung into being under the magic influence of the enterprise and ingenuity of our citizens; and in which, from their boldness or novelty, it was impracticable for human foresight to calculate the requisite means.

Barry v. Merchants' Exchange Company.

It is true that in one instance, the authors of a most excellent treatise on corporations, have spoken of capital stock, and the amount of property which they shall hold, as if they were synonymous terms. But they have said on a previous page, that every corporation aggregate has incidentally at common law a right to take, hold and transmit in succession, property real and personal, to an unlimited extent or amount. 1 Angell & Ames on Corp. 87, ch. 5, § 1. 1 Kyd on Corp. 76. 78; 1 Black. Comm. 475; 2 Kent's Comm. 277, 2d ed.; and a host of authorities are to the same effect. Angell & Ames also add that "the statutes of mortmain make no mention of personal property; and hence in England, the power of corporations aggregate to take such property, remains in general unlimited, unless restrained by the charters or acts of parliament establishing them." Treatise on Corp. 90, 92. And see 1 Kyd on Corp. 104.

The capital stock of a corporation, is like that of a copartnership or joint stock company, the amount which the partners or associates put in as their stake in the concern. To this they add upon the credit of the company, from the means and resources of others, to such extent as their own prudence or the confidence of such other persons will permit. Such additions create a debt; they do not form capital. And if successful in their career, the surplus over and above their capital and debts, becomes profits, and is either divided among the partners and associates, or used still farther to extend their operations.

The proposition that a corporation is limited even in its permanent ownership of property, to the amount fixed as its capital, is entirely new, and has not the sanction of authority or reason. The custom of retaining the profits which I have before. mentioned, has been long continued, and has worked in many of our corporations, and especially in banking institutions, an increase of their solid property and estate, as permanent as any that has been inferred in this case. Not that such increase has in those instances been so invested and mingled with the fruits of the original capital, as to become indivisible therefrom; but the increase has in many of the instances been as fixed and permanent as the capital itself, and with no purpose or probability of its being returned to the stockholders until the concern should be wound up voluntarily, or by the expiration of the charters.