(known as Exhibit K), wherein it is said, this "issue of stock, with such prospects, at $30 per $100, ought to produce a large bonus to such shareholders as may desire to sell their allotments, as its prospect of dividends is much better than those of many existing stocks standing at a higher price.”

The English precedents which appear to have suggested this scheme, were, so far as we have been referred to them, all sales of stock in the usual form. In his London address the president said: "This scheme is not a new one. Other companies in England have adopted this plan before. Within the last five or six years, according to a statement furnished me, the London, Brighton, and Southeast Ry. issued £1,500,000 worth of ordinary stock at 45 per cent of its par value. The Grand Trunk Ry. of Canada issued £7,500,000 of ordinary stock at £22 8s. I am told that the Manchester, Sheffield, and Lincolnshire Co. has issued £1,100,000 of ordinary stock at 50 per cent, and therefore we are not the first company to adopt a new scheme, which has been heralded by a good many people with a vast amount of ridicule."

Thus it appears by the statements of the president not only that the English precedents were issues of ordinary stock, but also that he regards this scheme as precisely the same. The unfortunate distinction, however, between it and the precedents is, that they were authorized by statute, while it is not. The 26th and 27th Victoria, of July, 1863, known as "The Companies' Clauses Act," provides not only for the issue of ordinary stock or shares at less than the par value, by railway companies chartered in pursuance of or conformity with it, but also for an increase of the capital by an issue of what is called debenture stock. That the defendants have no authority to issue stock for the purposes involved in the scheme under consideration, is not only clear on examination of the charter, and subsequent statutes relating to the subjects, but is fully conceded by their counsel. The proposed mortgage for $150,000,000 being liable to the same objection as respects a part of the bonds proposed to be secured thereby, no further reference to it is necessary.

Subsequently, in accordance with these opinions, the Court entered decrees enjoining the defendants from carrying out either the deferred bond scheme or the blanket mortgage scheme, as set forth in the petition and bill.

The principal case is one which has attracted great attention by reason of the magnitude of the interests involved. The question at issue is, however, one the solution of which depends rather on the construction of the chartered powers of the corporation than on the general principles of law.

The principle that a corporation has only such powers as are expressly or impliedly conferred upon it by its charter is now generally admitted to be a fundamental maxim of corporation law. In the words of Mr. Justice Miller,

on delivering the opinions of the Supreme Court of the United States, in a late important and interesting case:

"We take the general rule to be in this country, though there may be exceptional cases and some authorities to the contrary, that the powers of corporations organized under legislative statutes are such and such only as those statutes confer." (Thomas v. Railroad Co. 11 Otto, 82; East Anglian Ry's. Co. v. Eastern Co's. Ry. Co. 11 C. B., 775; Eastern Counties Ry. Co. v. Hawks, 5 H. L. Cas., 331; McGregor v. D. & D. Ry. Co. 22 L. S. (N. S.) & B., 69; L. R., 9 Exch., 224.) Instances of the application of this rule are found in those authorities which hold that a corporation cannot without special charter authority issue preferred stock. (Green's Brice's Ultra Vires, 145; in re National Patent Steam Fuel Co. ex parte Worth, 4 Drew, 529; Hutton v. Scarborough Cliff Hotel Co. 2 Dr. & Sm., 521; Field on Corp., § 121.) Others are found in the cases cited by complainants, which hold that the directors of a company have no right to dispose of the shares at less than the par value.

It is evidently in pursuance of this principle and solely in pursuance of it that the action of the court was framed in the principal case. Holding as it did that no express authority to issue such bonds or to execute such a mortgage as was proposed was reposed in the corporation, there was no alternative but to interpose by injunction. That the powers of the court were ample to warrant such interference is established by a cloud of authorities.

Equity will interpose to prevent a board of directors from misapplying the funds of a corporation. Kean v. Johnson, 1 Stockt., 401; Simpson v. Westminster Palace Hotel Co. 8 H. & L. Cas., 717; Ernest v. Nicholls, 6 Id., 401; Dodge v. Woolsey, 18 How. (V. S.), 331; Davenport v. Down, 18 Wall., 626; Hersey v. Veazie, 24 Me., 9; Smith v. Hurd, 12 Metc., 371; Allen v. Curtis, 26 Com., 456; Western R. R. Co. v. Nolan, 48 N. Y., 513; March v. Eastern R. R. Co., 40 N. H., 548; Same v. Same, 43 N. II., 515; Lauman v. Lebanon, 30 Pa. St., 46; Samuel v. Holladay, 1 Woolw. 400; Heath, Erie R. R. Co. 8 Blatch, 347; Brewer, etc., v. Proprietors, 104 Mass., 378; Brown v. Vandyke, 4 Halston, 795; Butts v. Woods, 38 Barb., 181; S. C., 37 N. Y., 317; Green's Brice's Ultra Vires, 183.

And the courts have gone much further than this. "It may be asserted as a general rule that courts of equity will enjoin on behalf of the stockholders of an incorporated company any improper alienation or disposition of the corporate property for other than corporate purposes, and will restrain the commission of acts which are contrary to law and tend to the destruction of the franchises, as well as the improper management of the business of the company or a wrongful diversion of its funds." High on Injunctions, § 767; Manderson v. Commercial Bank, 28 Pa. St., 379; Sears v. Hotchkiss, 25 Conn., 171; Bagshaw v. Eastern, etc., Ry. Co., 7 Hare, 114; Coleman v. Same, 10 Beav., 1; Gifford v. N. J., etc., 2 Stockt., 171; Simpson v. Westminster, etc., 8 H. L. Cas., 317; Bissell v. The Michigan, etc., R. R. Co., 22 N. Y., 258; Fisk v. Chicago, R. I. and P. R. R. Co., 53 Barb., 513. The same principle applies wherever the directors threaten to perform acts or to enter into contracts which are clearly ultra vires. Balfour v. Ernest, 5 C. B. (N. S.), 601; Zabriskie v. Hackensack, etc., R. R. Co., 3 Id. 178; Black v. Delaware, etc., R. R. Co., 7 C. E. Green, 130; Kean v. Johnson, 1 Stockt. Ch., 401; Bliss v. Anderson, 31 Ala. (N. S.), 613; Belmont v. Eric R. R. Co., 52 Barb., 637; Memphis . Dean, 8 Wall., 64; Zabriskie v. Cleveland, etc., R. R. Co., 23 How., 381; Attorney Gen'l v. Eastlake, 11 Hare, 205.

And the relief which the court affords in these cases will be granted on the application of a single stockholder, his interest being clearly sufficient to give him a standing in court.

The point taken by the defendants that the injunction could not issue

because the act sought to be restrained had been already done was clearly without force. This principle is only applicable where the contract the fulfilment of which it is sought to enjoin is already completely executed. Thus in the case of Menard v. Hood, 68 Ill., 121, where an application was made to restrain a county from issuing and a company from receiving certain county bonds, the issuing of which was alleged to be ultra vires the county, an injunction was refused because it appeared that the bonds had been already issued and received. To the same effect see, The People, ex rel. v. Clark, 70 N. Y., 518; Owen v. Ford, 49 Mo., 436; Chesapeake and Ohio R. R. Co. v. Patton, 5 West Va., 234; High on Inj., § 23. In the present

case, the circumstances were very different. The agreement to issue the bonds and execute the mortgage was as yet executory. Being as was alleged ultra vires, the agreement in its executory state was not binding on the corporation. The final acts to consummate the contract, the issuing of the bonds and execution of the mortgage were yet to be performed. These were therefore properly enjoined. Had they not been and had the contract been thus finally consummated, the corporation obtaining the advantage thereof, there can be little doubt but that in accordance with the current of American authority the bonds would have been held binding on the corporation notwithstanding their ultra vires character.

TAYLOR
v.

PHILADELPHIA AND READING R. R. Co.

(Advance Case, U. 8. C. C. Pennsylvania. Oct. 19, 1881.) Where the net earnings of a railroad company which is under a receivership are sufficient to purchase necessary rolling stock and equipments, they should be so applied, and the Receivers will not be authorized to create a loan secured by a car trust for their purchase, merely in order to allow the earnings of the road to be applied to the interest due the bondholders.

Whether it is within the scope of the Court's duty to grant to the Receivers authority to create such car trust, dubitatur.

SUR petition of Receivers for authority to create a car trust. The petition set forth, inter alia, that the rolling stock of the Philadelphia and Reading R. R. Co., which passed to the Receivers at the time of their appointment, was not sufficient to transact the increased business of the road and its leased lines. That in order to keep the road in a proper condition of efficiency, the Receivers had found it necessary in addition to the renewing and repairing the rolling stock, and keeping it up to its former carrying capacity, to construct additional cars at the cost of over $50,000 and engines costing over $125,000, and in addition to order to be built cars and engines to the value of over $975,000, amounting in all to upwards of one million of dollars.

That while such additional equipment was absolutely essential to the proper operation of the road, the Receivers considered it unfair and disadvantageous to the creditors of the company to pay for

3 A. & E. R. Cas.-12

said equipments from the current earnings of the road, as it would deprive the bondholders and other creditors of the usual source of revenue for the payment of their income.

That the petitioners believe that the best interests of the creditors of the company demanded that the said additional equipment. should be provided for by the creation of a car trust of a million of dollars, for which a loan should be created by certain trustees, in whom the title to the said rolling stock should be vested, and who should lease the same to the receivers, and upon the termination of the receivership to the company, upon such terms and conditions, that the annual rental should equal and be devoted to the payment of the interest upon the loan, and that $50,000 of the loan should be paid by the lessees every six months after the lease went into operation for ten years or until the whole should be paid off, when the property should be reconveyed to the company, and further that all expenses of the trust and any taxes imposed upon the loan or dividends thereon should be paid by the lessees.

The petition further averred that the petitioners were satisfied. that such a loan could be negotiated at par, and perhaps at a premium, and would be advantageous as well to the company as to its creditors, and prayed for an order authorizing the Receivers to execute the proposed conveyance to the trustees, and the lease from them, and to carry into effect the scheme provided for.

The form of agreement vesting title to the rolling stock in the trustees selected to create the loan, and the lease of the road to the Receivers and company, containing at length the provisions which are in substance above stated were annexed as exhibits to the petition.

The petition was referred to the Special Master, George M. Dallas, Esq. Testimony was offered before him in support of the petition, and he reported in favor of granting the prayer thereof, saying that the evidence satisfied him that the present supply of rolling stock was inadequate for the business of the company, and that the proposed increase of equipment was necessary to the proper operation of the road by the Receivers. That it would not be fair or advantageous to the creditors of the company to pay for the necessary additional equipment out of the current earnings of the company, and that the agreement and lease proposed by the Receivers provided a proper and wise means for carrying out the scheme suggested by them.

The Receivers thereupon moved for a decree in accordance with the prayer of the petition, and the report of the Master thereon.

Richard L. Ashhurst and Samuel Dickson, for the Receivers.

John C. Bullitt for McCalmont Brothers, stock and bondholders of the company, and for the company.

A

BUTLER, J.-This is in effect an application on the part of the Receivers to borrow money upon rolling stock (cars and engines) manufactured at the company's shops and elsewhere, and in process of manufacture, for the Receivers. In terms, it is for the creation of a car trust, but in effect, it is for authority to make a loan, as stated.

Two questions arise in considering the application,-first, Is the matter contemplated within the scope of the Court's duty and authority, as custodian of the road and other property of the company Second, If it is, would it be wise to grant the application? As respects the first question, it must be borne in mind that the custody of the Court is only temporary,-to preserve the property so long as may afford reasonable time to the plaintiffs in the foreclosure bill, to prosecute their proceeding to a close, in case the company fails to make satisfactory arrangements to relieve itself from the proceeding. Whether the order asked for by the Receivers, or the allowance of it, falls within the proper scope of the Court's authority, under the circumstance, is certainly open to doubt. I will not, however, enlarge upon this subject, for if it was not so open to doubt I am satisfied that it would not be wise to make the order.

The petitioners admit, and the testimony proves, that the net earnings of the road are amply sufficient to make the purchase required; and if necessary, these earnings should be so applied. The ground on which the petitioners desire to borrow (instead of using such moneys) is that the moneys should be applied to payment of the bonded creditors of the company, in discharge of interest. We esteem it wiser, if necessary, to allow such interests to go unpaid, rather than to pay them by means of borrowing money which may tend to mislead creditors and others respecting the actual condition of the road and its earnings. It must be borne in mind that the Court's custody of this property is not likely to continue very much longer. The foreclosure proceeding has been running for eighteen months, and it should close without unnecessary delay, and the Court expects it to do so. The interests of all parties involved require that the road and other property shall pass into the custody and management of its owners as speedily as possible.

The modern practice prevailing to some extent, elsewhere, of transferring corporate property to the custody of the Courts, to be thus held and managed for an indefinite period of years, to suit the convenience of parties, whereby general creditors and stockholders are kept at bay, I regard as a mischievous innovation. I have no doubt the petitioners are fully satisfied of the wisdom of the measure they suggest, and that they are actuated by a sincere desire to promote the best interests of the road. We do not, however, agree with them in this matter, and must be governed by our own judgThe petition is therefore disallowed.

ment.