stock is not entitled to have the money paid upon the invalid stock offset against assessments upon his valid stock; and where the fraudulent issue is made by an officer of the corporation, although he is the proper person to issue stock, the corporation is not responsible to the holders for the amount paid therefor, unless the directors have been guilty of such negligence in the matter as operates as a fraud upon purchasers of stock, and entitles them to equitable relief; in which case, such fraudulent stock being a cloud upon the title of the holders of the genuine stock, a court of equity, upon a proper bill 1 In Scovill v. Thayer, ante, where the holders of stock issued in excess of the statutory limit, were also holders of valid stock, and the company had been thrown into bankruptcy, in an action by the assignee to recover the unpaid assessments upon the stock, it was held that the amount paid by such stockholder for the invalid stock could not be set off against the assessments upon his valid stock. "It is a general rule," says WOOD, J., "that a holder of claims against an insolvent corporation cannot set them off against his liability to assessment on his stock in the corporation, in a suit by an assignee in bankruptcy. Sawyer v. Hoag, 17 Wall. 610; Upton v. Sawyer, 91 U. S. 56; Scammon v. Kimball, 92 id. 362; County of Morgan v. Allen, 103 id. 498. The ground upon which this rule stands is thus stated by Mr. Justice MILLER in Sawyer v. Hoag, ante: "The debt which the appellant owed for his stock was a trust fund devoted to the payment of all the creditors of the company. As soon as the company became insolvent, and this fact became known to the appellant, the right of set-off for an ordinary debt to its full amount ceased. It became a fund belonging in equity to all its creditors, and could not be appropriated by the debtor to the exclusive payment of his own claim.' The defendant in error seeks to avoid the application of this rule in his case on the ground that the real capital of the company was only $200,000, and this constituted the trust fund for the security of the debts of the company; that all the money that had been paid in as capital stock had been paid into that fund, and that the party paying any money to that fund was enti tled to credit upon his dues thereto. We cannot assent to this view. The defendant in error was as much bound to know the limits of the charter of the company in which he was a stockholder, as the public or the creditors of the company. When he paid in his money on the void stock, he knew that he was not paying it on the valid stock, and he is presumed to have known that it was not a good payment on the valid stock. The company had no right to apply it on the valid stock without his direction. He never directed such application, and it remained in the possession of the company until the rights of the assignees in bankruptcy attached. To say that it was a contribution to the trust fund devoted to the payment of the creditors of the company is an entire misapprehension. It could not be such a contribution unless it was a payment on the stock of the company; and this, we have seen, was not the case. No call had been made by the company upon the valid stock to which the payments on the void stock could be said to apply. No call could have been made by the company under its agreement with the stockhold ers, unless to pay its creditors; and it does not appear that when the payments were made the company had any creditors. It was a voluntary payment for the benefit of the company, and tended to increase the value of the authorized stock. In that way the stockholders got the benefit of it. There is no rule of law or equity which entitles him in a contest between himself and the creditors of the company, either to receive a credit for it on his unpaid stock, or to have it repaid to him pro rata out of the assets of the company." brought by the corporation, will remove it, the corporation acting as the representative of the stockholders. In some early cases in the Supreme and Superior Courts of New York,2 it was held that a railroad company whose officers had issued stock in excess of the amount authorized by its charter, were bound thereby in any event, applying the ordinary rule applicable in the case of an ordinary agent, that where a corporation has held a person out as possessed of authority to do a certain act, it is bound by his acts. But the court lost sight of the fact that this rule could only apply to cases where the principal himself could not lawfully perform the act, and could have no force whatever where no negligence on the part of the corporation is shown, and the act would have been ultra vires if done by the corporation itself; and the Court of Appeals, as we have seen,3 reversed this ruling, and held that, under such circumstances, the corporation could not be held chargeable; and as the question was then presented to the court, this doctrine seems to us to be sound and unassailable. But where the directors of the corpora tion have been guilty of negligence in the matter, and the officer who issues the spurious and unauthorized stock have general authority to issue certificates to subscribers and purchasers in the same form, the corporation may be made liable to innocent purchasers for the negligence of the directors; and the measure of damages would be the sum paid for the stock, with interest to the date of recovery. SEC. 94. Corporation may Contract for Sale of Stock, before Authority to build road is obtained. Where a railroad corporation already organized contemplates an extension of its road beyond the point originally intended, it may lawfully enter into a contract for the sale of stock for such additional increase in its line before it has even applied to the legislature for the requisite authority to extend its road, the contract being conditional upon the building of such extension.5 1 New York & N. H. R. R. Co. v. Schuyler, 17 N. Y. 592; New York & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30. 2 Mechanics' Bank v. N. Y. & N. H. R. R. Co., 4 Duer (N. Y.), 480; N. Y. & N. H. R. R. Co. v. Schuyler, 38 Barb. (N. Y.) 534. 3 Mechanics' Bank v. N. Y. & N. H. R. R. Co., 13 N. Y. 599. 4 N. Y. & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30. 5 Supervisors of Portage Co. v. Wisconsin, &c. R. R. Co., 121 Mass. 460. CHAPTER VI. TRANSFER OF SHARES. SEC. 95. Nature of Property in Shares: | SEC. 97. Liability of Company for refus. How transferred. 96. Assignment of, Effect of. ing to enter Transfer. Remedies for. 98. SEC. 95. Nature of Property in Shares: How transferred.-Whatever may formerly have been the rule, it is now well settled that shares in a corporation, although its property is mainly real estate, are personal property, whether there is a clause to that effect in the act creating it or not.1 The certificates which represent the shares are not strictly negotiable instruments,2 but are rather quasi negotiable, 1 Johns v. Johns, 1 Ohio St. 350; Ashton v. Langdale, 20 L. J. Ch. 234; Arnold v. Ruggles, 1 R. I. 165; Slaymaker v. Gettysburgh Bank, 10 Penn. St. 373; Howe v. Starkweather, 17 Mass. 243; Gilpin v. Howell, 5 Penn. St. 57; Bank of Waltham v. Waltham, 10 Met. (Mass.) 334; Union Bank of Tennessee v. State, 9 Yerg. (Tenn.) 490; Denton v. Livingston, 9 Johns. (N. Y.) 100; Heart v. State Bank, 2 Dev. (N. C.) Ch. 111; State v. Franklin Bank, 10 Ohio St. 91; Planters' Bank v. Merchants' Bank, 4 Ala. 753; Cape Sable Co.'s Case, 3 Bland (Md.), 606; Mohawk, &c. R. R. Co. v. Clute, 4 Paige (N. Y.) Ch. 384; Chesapeake, &c. R. R. Co. v. Paine, 29 Gratt. (Va.)502; Bradley v. Holsworth, 3 M. & W. 422; Mayer v. Childs, 47 Cal. 142; Tempest v. Kilner, 3 C. B. 249; Burrall v. Bushwick R. R. Co., 75 N. Y. 211; Tisdale v. Harris, 20 Pick. (Mass.) 9; Weaver . Barden, 49 N. Y. 286; Pinkerton v. Manchester, &c. R. R. Co., 42 N. H. 424; Baltimore, &c. R. R. Co. v. Sewell, 35 Md. 238; Sargent v. Franklin Ins. Co., 8 Pick. (Mass.) 90; Duncupt v. Albrecht, 12 Sim. 189. But in Kentucky it has been held that they are real estate, Price v. Price, 9 Dana (Ky.), 107; Copeland v. Copeland, 7 Bush (Ky.), 349; also to the same effect, see Welles v. Cowles, 2 Conn. 567. Even where the charter expressly provides that the stock, &c. shall be held as real estate and descend as such, it has been held that this only related to the interests of the stockholders themselves, and that as to third persons the character of the property was not changed. Cape Sable Company's Case, 3 Bland's Ch. (Md.) 606. See, however, Cooper v. Dismal Swamp Co., 2 Murph. (N. C.) 195; Robinson v. Addison, 2 Beav. 515. 2 Cecil National Bank v. Watsontown, 105 U. S. 17; Emery's Sons v. Irving National Bank, 25 Ohio St. 360; Loeb v. Peters, 63 Ala. 243; Pollard v. Vinton, 105 U. S. 5; Tiedman v. Knox, 53 Md. 612; McNeil v. Tenth National Bank, 46 N. Y. 325. They are not securities for money, nor are they negotiable securities in a commercial sense. They are rather muniments and evidence of the holder's title to a given share in the property and franchises of the corporation. Mechanics' Bank v. N. Y. & H. R. Co., 13 N. Y. 627; Sherwood v. Meadow Valley Mining brought by the corporation, will remove it, the corporation acting as the representative of the stockholders. In some early cases in the Supreme and Superior Courts of New York,2 it was held that a railroad company whose officers had issued stock in excess of the amount authorized by its charter, were bound thereby in any event, - applying the ordinary rule applicable in the case of an ordinary agent, that where a corporation has held a person out as possessed of authority to do a certain act, it is bound by his acts. But the court lost sight of the fact that this rule could only apply to cases where the principal himself could not lawfully perform the act, and could have no force whatever where no negligence on the part of the corporation is shown, and the act would have been ultra vires if done by the corporation itself; and the Court of Appeals, as we have seen,3 reversed this ruling, and held that, under such circumstances, the corporation could not be held chargeable; and as the question was then presented to the court, this doctrine seems to us to be sound and unassailable. But where the directors of the corporation have been guilty of negligence in the matter, and the officer who issues the spurious and unauthorized stock have general authority to issue certificates to subscribers and purchasers in the same form, the corporation may be made liable to innocent purchasers for the negligence of the directors; and the measure of damages would be the sum paid for the stock, with interest to the date of recovery.4 SEC. 94. Corporation may Contract for Sale of Stock, before Authority to build road is obtained. Where a railroad corporation already organized contemplates an extension of its road beyond the point originally intended, it may lawfully enter into a contract for the sale of stock for such additional increase in its line before it has even applied to the legislature for the requisite authority to extend its road, the contract being conditional upon the building of such extension.5 1 New York & N. H. R. R. Co. v. Schuyler, 17 N. Y. 592; New York & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30. 2 Mechanics' Bank v. N. Y. & N. H. R. R. Co., 4 Duer (N. Y.), 480; N. Y. & N. H. R. R. Co. v. Schuyler, 38 Barb. (N. Y.) 534. 3 Mechanics' Bank v. N. Y. & N. H. R. R. Co., 13 N. Y. 599. 4 N. Y. & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30. 5 Supervisors of Portage Co. v. Wisconsin, &c. R. R. Co., 121 Mass. 460. CHAPTER VI. TRANSFER OF SHARES. SEC. 95. Nature of Property in Shares: | SEC. 97. Liability of Company for refus. How transferred. 96. Assignment of, Effect of. ing to enter Transfer. 98. Remedies for. 99. Pledge of Stock. SEC. 95. Nature of Property in Shares: How transferred.-Whatever may formerly have been the rule, it is now well settled that shares in a corporation, although its property is mainly real estate, are personal property, whether there is a clause to that effect in the act creating it or not.1 The certificates which represent the shares are not strictly negotiable instruments,2 but are rather quasi negotiable, 1 Johns v. Johns, 1 Ohio St. 350; Ashton v. Langdale, 20 L. J. Ch. 234; Arnold v. Ruggles, 1 R. I. 165; Slaymaker v. Gettysburgh Bank, 10 Penn. St. 373; Howe v. Starkweather, 17 Mass. 243; Gilpin v. Howell, 5 Penn. St. 57; Bank of Waltham v. Waltham, 10 Met. (Mass.) 334; Union Bank of Tennessee v. State, 9 Yerg. (Tenn.) 490; Denton v. Livingston, 9 Johns. (N. Y.) 100; Heart v. State Bank, 2 Dev. (N. C.) Ch. 111; State v. Franklin Bank, 10 Ohio St. 91; Planters' Bank v. Merchants' Bank, 4 Ala. 753; Cape Sable Co.'s Case, 3 Bland (Md.), 606; Mohawk, &c. R. R. Co. v. Clute, 4 Paige (N. Y.) Ch. 384; Chesapeake, &c. R. R. Co. v. Paine, 29 Gratt. (Va.) 502; Bradley v. Holsworth, 3 M. & W. 422; Mayer v. Childs, 47 Cal. 142; Tempest v. Kilner, C. B. 249; Burrall v. Bushwick R. R. Co., 75 N. Y. 211; Tisdale v. Harris, 20 Pick. (Mass.) 9; Weaver v. Barden, 49 N. Y. 286; Pinkerton v. Manchester, &c. R. R. Co., 42 N. H. 424; Baltimore, &c. R. R. Co. v. Sewell, 35 Md. 238; Sargent v. Franklin Ins. Co., 8 Pick. (Mass.) 90; Duncupt v. Albrecht, 12 Sim. 189. But in Kentucky it has been held that they are real estate, Price v. Price, 9 Dana (Ky.), 107; Copeland v. Copeland, 7 Bush (Ky.), 349; also to the same effect, see Welles v. Cowles, 2 Conn. 567. Even where the charter expressly provides that the stock, &c. shall be held as real estate and descend as such, it has been held that this only related to the interests of the stockholders themselves, and that as to third persons the character of the property was not changed. Cape Sable Company's Case, 3 Bland's Ch. (Md.) 606. See, however, Cooper v. Dismal Swamp Co., 2 Murph. (N. C.) 195; Robinson v. Addison, 2 Beav. 515. 2 Cecil National Bank v. Watsontown, 105 U. S. 17; Emery's Sons v. Irving National Bank, 25 Ohio St. 360; Loeb v. Peters, 63 Ala. 243; Pollard v. Vinton, 105 U. S. 5; Tiedman v. Knox, 53 Md. 612; McNeil v. Tenth National Bank, 46 N. Y. 325. They are not securities for money, nor are they negotiable securities in a commercial sense. They are rather muniments and evidence of the holder's title to a given share in the property and franchises of the corporation. Mechanics' Bank v. N. Y. & H. R. Co., 13 N. Y. 627; Sherwood v. Meadow Valley Mining |