is used in this statute, is authority to make by-laws.-Stradley v. Cargill Elevator Co., 135 Mich. 367-375.

Among the provisions to be embraced in the by-laws of these associations, the following may be noted:

(a) That each share shall entitle the member holding the same to one vote upon all subjects coming before any meeting of the stockholders; (b) That members may vote in person or by proxy;

(c) That notice of all meetings may be served by mailing the same, with postage prepaid, to the last address of the member appearing upon the books of the company;

(d) That stockholders' meetings shall be held at a certain time and place;

(e) That there shall be a certain number of managers, a majority of whom shall constitute a quorum;

(f) That there shall be a vice-chairman selected from among the managers;

(g) That the chairman, vice-chairman, secretary and treasurer shall be elected in a certain manner. Usually they are chosen by the managers, but the by-law may provide that they shall be elected by the stockholders from among the managers.

(h) That certain officers shall have power to call all meetings;

(i) That special meetings both of stockholders, and of directors, may be called by the giving of certain notice.

(j) That the managers shall constitute a board having full power to direct, manage and control the property and business of the company.

(k) That the association shall have a lien upon the shares of each member to the amount of any and all indebtedness of such member due or owing to the association. Suitable provisions for the enforcement of such lien should be included. The statute is silent upon this important right, hence it should be fully declared in the by-laws.

These are provisions which should not be overlooked. The usual provisions of all well-drawn by-laws, except as inconsistent with the act, should also be embodied.-See Sec. 57 ante, and 452 post.

It has been seriously questioned whether by-laws of such associations may lawfully provide for voting by proxy.-Stradley v. Cargill Elevator Co. ante. Such a rule is certainly not inconsistent with the terms of the act, and it is believed to be clearly supported by the general authority to make by-laws there conferred. By-laws permitting voting by proxy have the sanction of the general corporation laws of the state (C. L. 1897, Sec. 8528), as well as of usage. There would seem to be no sound reason why such by-laws should not be sustained.

$315. Managers.

Originally the managers were not regarded as a distinct board-as a body to move by concerted action; but more recent legislation in this State so regards them. (See Sec. 317 and 334 post). Apart from certain peculiar

ities, which we shall now proceed to discuss, boards of managers are equivalent to boards of directors.-Stradley v. Cargill Elevator Co., 135 Mich. 367-376.

As was pointed out by Justice Hooker, in Attorney General v. McVichie, 138 Mich. 387-390, a minority of the managers may bind the association by acts and contracts. Up to $500 one manager may bind the association. Beyond that sum, two may bind it. In merchandising companies, the members may authorize a single manager to make notes and contracts to any specified extent. It has even been held that knowledge of a long course of dealing during which a manager has been permitted, without protest, to repeatedly execute notes exceeding $500, would warrant purchasers of such paper in assuming that proper authority had been given, and that they might become bona fide holders of such paper, notwithstanding that, upon its face, it appeared to exceed the statutory contractural authority of one manager acting alone.-Armstrong et al. v. Stearns et al., 16 D. L. N. 288-290. (Decided May 26, 1909). In this case several notes exceeding $500, executed by one manager without special authority were held valid in the hands of bona fide purchasers, under the circumstances above outlined.

Except through remedial legislation, there is no effective way in which the excessive powers conferred upon the managers by this law can be restricted. By-laws are unavailing against it. Restrictive clauses in the articles are unauthorized. The only redeeming feature of the situation is that the power seems to have been rarely abused. Ordinarily, and most properly, the managers proceed by way of meetings, and action is permitted to be governed by majority vote.

§316. Debts and Liabilities Exceeding $500.

In Citizens' Savings Bank v. Vaughn, 115 Mich. 156, 159, it was held that a liability exceeding $500, not contracted in writing by two or more managers, was unenforcible in toto. It is not merely voidable as to the excess, but is voidable as a whole. See also Rhoades v. Malta Vita Pure Food Co., 149 Mich. 235-238; Armstrong et al. v. Stearns et al., 16 D. L. N. 288 (May, 1909). But a debt exceeding $500 upon an open account made up of items none of which amounts to $500 may be contracted by one manager. Shaw, Kendall & Co. v. Brown, 128 Mich. 573. It has been held in Pennsylvania that, where a partnership association accepts the benefits of a purchase made in disregard of the statute, it is estopped to urge the statute as a defense. Yaryan Co. v. Glue Co., 180 Pa. 480-499.

§317. Cumulative Voting.

In 1909, the legislature of Michigan made another contribution to the law governing these associations. (Act 45 Pub. Acts 1909, p. 72.) The Supreme Court having held, in Attorney General v. McVichie, 138 Mich. 387, that the provisions of the original cumulative voting law (C. L. 1897, Sec. 8553) did not embrace partnership associations, limited, an opportunity for legislation was presented. Accordingly an act directly and exclusively applicable to these associations was framed and adopted in the following language:

The People of the State of Michigan enact: Section 1. In all elections for managers of partnership associations organized under the provisions of chapter one hundred sixty of the Compiled Laws of eighteen hundred ninety-seven and acts amendatory thereto, every member of such partnership association shall have the right to vote in person or by proxy the number of shares owned by him for as many persons as there may be managers to be elected, or to cumulate said shares and give one candidate as many votes as will equal the number of managers multiplied by the number of his shares of stock; or to distribute them on the same principle among as many candidates as he shall think fit. All such partnership associations shall elect their managers annually, and the entire number of managers shall be balloted for at one and the same time and not separately: Provided, That the by-laws of any such partnership association shall not be so amended as to reduce the number of managers of such partnership association, in case the votes of a sufficient number of shares are recorded against such proposed amendment, which, if cumulatively voted as herein provided, would elect one or more managers where the same number of shares, if cumulatively voted, would not be sufficient to elect the same number of managers of the reduced board of managers.

Measured by American standards, this legislation is wrong upon principle. When coupled with the powers vested in the managers of these associations by statute, it is violative of the maxim of majority rule. It seemed enough that a manager chosen by the preponderating stock interests might bind the credit of the association; but now we have the anomalous spectacle of a minority member of the board, himself the choice of a minority of the stockholders, clothed with power to bind the majority by his acts.

The cumulative voting law of 1909 applies to all partnership associations of this State, whether organized before or after the statute went into operation. As to subsequently formed companies, the law is valid. But as to pre-existing associations purely private in their nature, doubt of the constitutionality of this law is entertained. Assuredly the inequities of its operation cannot strongly commend it to the courts.-Attorney General v. McVichie, 138 Mich. 387. This much is certain, that the Looker case (Attorney General v. Looker, 111 Mich. 498, 179 U. S. 46, 45 L. ed. 79) does not predetermine the validity of this later legislation. The present statute is distinguished by its vices. The Looker case dealt with an act that conferred upon minority stockholders the power to elect an innocuous minority of the directorate. The mischief of the law of 1909 is, that, in operation, it enables the minority stockholders to set up within the company an inharmonious independent management whose acts and contracts shall be binding upon the majority.

It would be difficult to devise a statute better calculated, though by indirection, to undermine vested majority interests and to defeat the objects of the grant. As to purely private partnership associations that pre-existed the statute, it is believed that this amendatory legislation transcends the state's reserved right.-See Attorney General v. Looker, 111 Mich. 498, and cases there cited.

Should the reasons given be deemed insufficient to repel the operation of the cumulative voting law as to pre-existing associations, a final reason is offered. The legislature has provided by the terms of section 11 of the act (Sec. 326, post), "That no amendment, modification or repeal of this act shall affect anything duly done (or) right acquired * * before such amendment, modification, or repeal comes into effect." The charter is a contract. By this clause the contracting parties have adopted a construction to be placed upon a provision of that contract-a construction of the contractual provision relating to the state's reserved right of amendment and repeal. They have agreed that lawful acts done and rights acquired prior to exercise of the reserved power shall not be disturbed. They have not attempted to restrict, but rather to explain, the constitutional provision. Where its operation was uncertain, they have, by an agreed construction, rendered it certain. In doing this they have strictly adhered to the spirit of the State's organic law. They have infringed upon no constitutional principle. If this be conceded, it follows that the construction so adopted will be sustained by the courts.-Detroit City Railway v. Mills, 85 Mich. 634-646; Vincennes v. Citizens Gas Light Co., 16 L. R. A. 485. Given effect, section 11, above quoted, certainly denies the legislature power to impose upon existing associations the revolutionary change incident to a minority representation, amounting to minority rule.-See Cook's Corp. Sec. 501; see also Sec. 52 post.

§318. Partnership Associations, Limited, Law.-Section

Relating to Dividends.

Section 6. The association may, from time to time divide the profits of its business in such manner and in such an amount as a majority of its managers may determine, which profits so divided shall not at the time diminish or impair the capital of the said association; and any one consenting to a dividend which shall diminish or impair the capital shall be liable to any person or persons interested or injured thereby to the amount of such diminution or impairment.

$319. Impairment of Capital by Payment of Dividends.

Section 6 of the act clearly contemplates that the managers shall act as a board, and by majority vote, in declaring dividends. It declares, too, a restriction against payment of dividends from capital stock-a restriction not dependent upon the statute for its existence.-American Steel & Wire

Co. v. Eddy, 130 Mich. 266. The section then proceeds to provide a punishment for payment of unwarranted dividends, and here lies the sole constructive difficulty. "Any one consenting to a dividend which shall diminish or impair the capital shall be liable, etc." Who is meant by "any one"? Since no one else is mentioned in the section, it would seem that the legislature was speaking of managers. They are the persons who have power, and it is their duty, to ascertain whether or not a dividend is warranted. It is their assent that makes declaration of a dividend possible. Clearly, it is to them that the statutory responsibility should attach. The statute is to be construed as though it read, "Any one of the managers consenting, etc........shall be liable."

Who may bring the action? The statute says, "Any person or persons interested or injured thereby." The word "interested' as here used is simply an inapt attempt to express the idea that the action may be brought by stockholders as well as by creditors. The statute is penal.-Thomp. Corp. Secs. 4293-4295-and hence will not be construed to render managers individually liable for unwarranted dividends declared and paid without negligence and in good faith. It is in addition to the equitable remedy which permits a judgment creditor to follow capital stock, distributed as dividends, into the hands of the stockholders.-American Steel & Wire Co. v. Eddy, 130 Mich. 266.

§320. Partnership Associations, Limited, Law.-Section

Relating to Loans.

Section 7. It shall not be lawful for such association to loan. its credit, its name, or its capital to any member of said association, and for such loan to any other person or association, the consent in writing of a majority in number and value of interest shall be requisite, and in no case shall the credit of the association be loaned except the regular business of the association is to be directly benefited thereby.

§321. Loans of Credit, Name or Capital.

A stockholder who has borrowed money from the association cannot defeat his obligation by urging that the transaction was illegal. He is estopped. Butterworth & Lowe v. Kritzer Milling Co., 115 Mich. 1; Carson City Savings Bank v. Elevator Co., 90 Mich. 550; Fifth National Bank v. Pierce, 117 Mich. 376; Union National Bank v. Matthews, 98 U. S. 621, 25 L. ed. 188-190.

The association itself cannot plead the illegality of its own act as a defense. Citizens Savings Bank v. Globe Brass Works, 15 D. L. N. 849 (Nov. 1908); Rehberg v. Tontine Surety Co., 131 Mich. 135; Peterson v. People's Building, Loan & Savings Ass'n., 124 Mich. 573; Clement, Bane & Co. v. Michigan Clothing Co., 110 Mich. 458.