1

to allow the trustee to commit a fraud on the cestui que trust unless the trust appeared on the books. The right to such complete disregard of equitable interests rested perhaps not so much on decisions as on dicta which may be attributed to a careless over-emphasis of the fact that the legal interest, and, in general, the entire control of stock held in trust, is in the trustee.

In case of refusal by the officers of a company to transfer on the books at the request of the owner of stock, the proper remedy was not wholly clear in the last century. In the case of King v. Douglass 2 an application was made for a mandamus to compel a transfer. Lord Mansfield refused to allow this extraordinary remedy, and suggested a special action of assumpsit, and probably that action would have been held proper. Whether specific performance of the obligation would be enforced by equity was not suggested, but it is not unlikely that such a remedy would have been allowed.3

The right of a shareholder to vote at the election of officers, and in regard to by-laws for the management of a business corporation, was formerly precisely analogous to the similar right necessarily possessed by the members of all corporations from their origin, such as the members of a municipal corporation, for instance, still possess. That is, each shareholder was entitled to one vote if given by him in person. This was at first the rule in the East India Company, but naturally enough, it soon became distasteful to the larger owners, and various changes were made at different times; for example, that only holders of £500 stock should have the right to vote, the smaller holders being allowed to pool their stock to make up the necessary amount. This was simply a restriction of the suffrage. The units of which the corporation was composed were still considered to be the members, as is the case in municipal corporations and guilds, not shares, as is the case in the modern joint-stock corporation. The gradual progress from the old view to the modern one is shown by the changes in the power of voting. It soon became usual to allow the larger holder more than one vote, and it was customarily provided in the charters how many votes should belong to the owner of a given num

1 Stockdale v. South Sea Co., I Atk. 140; s. C. Barnard. Ch. 363.

* See Meliorucchi v. Royal Exchange Ass. Co., 1 Eq. Cas. Abr. 8, pl. 8; Gibson v. Hud. son's Bay Company, I Str. 645.

4 Macpherson, Hist. of Com. 125.

ber of shares, the owner of a large number having more votes than the owner of a few, but not proportionately more. Thus, in the Greenland Company, each subscriber of £500 had one vote, each subscriber of £1000 or more had two votes, and in no case could a shareholder have a greater number, however great his holding might be;1 and in other charters are similar provisions. Except for some such provision, no doubt, each shareholder would have been entitled to but one vote. It did not take very great ingenuity to devise a plan by which owners of large amounts of stock could, in effect, secure a number of votes in proportion to their holdings. All that was necessary was to make temporary transfers of stock to a number of friends,- a practice called "splitting stock." The preamble of an act passed in 17662 shows the custom at that time. It recites "certain publick companies or corporations have been instituted for the purpose of carrying on particular trades or dealings with joint stock, and the management of the affairs of such companies has been vested in their general courts, in which every member of each company possessed of such share in the stock as by the charter is limited, is qualified to give a vote or votes ; and it is further recited that "of late years a most unfair and mischievous practice has been introduced, of splitting large quantities of stock, and making separate and temporary conveyances of the parts thereof for the purpose of multiplying or making occasional votes immediately before the time of declaring a dividend, of choosing directors, or of deciding any other important question, which practice is subversive of every principle upon which the establishment of such general courts is founded, and if suffered to become general, would leave the permanent welfare of such companies liable at all times to be sacrificed to the partial and interested views of a few." It is then provided by the act that in future members who have not held their stock for at least six months shall not vote.

As an instance of the conservatism of the English law in matters of form it may be mentioned that by the English Companies Act of 1862 the votes of shareholders are limited, so that one vote is allowed for every share up to ten, for every five shares between ten and one hundred, and for every ten shares beyond that. But

it is now held that a shareholder may distribute his stock in lots of ten among his friends, and thereby secure, in a clumsy and troublesome way, a vote for every share.1

The right to vote by proxy was not allowed at common law, in the absence of some special authorization.2 This was often given in the charter. Contrary to what is now generally held,1 it is very doubtful if the authority of a by-law would have been held in the last century sufficient to confer the right.5

That the directors of a corporation shall manage its affairs honestly and carefully is primarily a right of the corporation itself rather than of the individual stockholders. The question may, however, be considered in this connection.

The only authority before the present century is the case of The Charitable Corporation v. Sutton, decided by Lord Hardwicke. But this case is the basis, mediate or immediate, of all subsequent decisions on the point, and it is still quoted as containing an accurate exposition of the law. The corporation was charitable only in name, being a joint-stock corporation for lending money on pledges. By the fraud of some of the directors or "committeemen," and by the negligence of the rest, loans were made without proper security. The bill was against the directors and other officers, "to have a satisfaction for a breach of trust, fraud, and mismanagement.' Lord Hardwicke granted the relief prayed, and a part of his decision is well worth quoting. "Committee-men are most properly agents to those who employ them in this trust, and who empower them to direct and superintend the affairs of the corporation.

He says,

"In this respect they may be guilty of acts of commission or omission, of malfeasance or nonfeasance.8

"Now, where acts are executed within their authority, as repealing by-laws and making orders, in such cases, though attended with bad consequences, it will be very difficult to determine that

1 Moffat v. Farquhar, 7 Ch. D. 591, and cases therein cited.

2 Phillips v. Wickham, 1 Paige Ch. 590; State v. Tudor, 5 Day, 329; Taylor v. Griswold, 14 N. J. L. 222; People v. Twaddell, 18 Hun, 427: Common. v. Bringhurst, 103 Pa. St. 134: Harben v. Phillips, 23 Ch. D. 14.

3 E.g., the charter of the Mine Adventurers, 9 Anne, c. 24, or of the Northumberland Fishery Soc., 29 Geo. III., c. 25.

4 Common. v. Bringhurst, 103 Pa. St. 134, and cases therein cited.

5 See the early case of Taylor v. Griswold, 14 N. J. L. 222 (1834).

6 2 Atk. 400.

"Taylor on Corp. § 619.

9 Citing Domat's Civil Law, 2d B., tit. 3, secs. I and 2.

these are breaches of trust.

For it is by no means just in a judge,

after bad consequences have arisen from such executions of their power, to say that they foresaw at the time what must necessarily happen, and therefore were guilty of a breach of trust.

"Next as to malfeasance and nonfeasance.

"To instance in non-attendance; if some persons are guilty of gross non-attendance, and leave the management entirely to others they may be guilty by this means of the breaches of trust that are committed by others.

"By accepting of a trust of this sort, a person is obliged to execute it with fidelity and reasonable diligence, and it is no excuse to say that they had no benefit from it, but that it was merely honorary; and therefore they are within the case of common ' trustees.1

"Another objection has been made that the court can make no decree upon these persons which will be just, for it is said that every man's non-attendance or omission of duty is his own default, and that each particular person must bear such a proportion as is suitable to the loss arising from his particular neglect which makes it a case out of the power of this court. Now, if this doctrine should prevail, it is indeed laying the axe to the root of the tree. But if, upon inquiry before the master, there should appear to be a supine negligence in all of them, by which a gross complicated loss happens, I will never determine that they are not all liable.

"Nor will I ever determine that a court of equity cannot lay hold of every breach of trust, let the person be guilty of it either in a private or public capacity."

The members of any corporation were entitled to inspect the books of the corporation. The only difference between business. and other corporations as to the right of inspection was this: The books of municipal corporations and guilds might be inspected by non-members under certain circumstances, because the regulations of such bodies were not binding on members alone, and consequently outsiders might be vitally interested in the corporate proceedings.2 Business corporations, on the other hand, were private, and the right of inspection belonged solely to members.3 The most important right of shareholders, the right to divi

1 Citing Coggs v. Bernard, I Salk. 26.

2 See Grant on Corp. 311-313.

• Charitable Corp. v. Woodcraft, Cas, temp. Hard. 130.

dends, was of course always recognized. It is necessarily implied in the conception of a joint-stock company. No cases, however, seem to have been decided before the year 1800 which illustrate the nature of the right. The same remark applies to the right of a shareholder to share in the distribution of the capital stock if the affairs of the corporation are wound up.

The correlative duties imposed on a shareholder were fewer and simpler than his rights. In the first place, he was bound to pay to the corporation, when called upon, the amount of his share in the joint stock, or so much of it as had not been paid by prior holders. The practice of paying in instalments for stock subscribed seems to have arisen at an early date. It is referred to as common in 1723. Lord Macclesfield speaks of "the common by-laws of companies to deduct the calls out of the stocks of the members refusing to pay their calls." 1

In 1796 the question arose whether an original subscriber could avoid liability for future calls by assigning his stock. It was contended that the case was like the assignment of a lease, “in which, though the lessor consents to the lessee's assigning to a third person, he does not give up his remedy against the original lessee." The Court of King's Bench, however, decided that assignees held the shares on the same terms as the original subscribers, and were substituted in their places. The objection that an assignment might be made to insolvent persons was met by saying that it was presumed that the undertaking was a beneficial one, and therefore the right to forfeit shares for non-payment of calls furnished a sufficient check.

No doubt it has been settled for a long time that individual members are not liable for the debts of a corporation, and it has even been said that "the personal responsibility of the stockholders is inconsistent with the nature of a body corporate; "3 yet in the Roman law it seems that if the corporation became insolvent the persons constituting it were obliged to contribute their private fortunes; and though it may be hazardous to assert that at common law the rule was the same in England, it is certain that, so far as the evidence goes, it points to that conclusion.

1 Child v. Hudson's Bay Co., 2 P. Wms. 207.

2 Huddersfield Canal Co. v. Buckley, 7 T. R. 36.

8 Myers v. Irwin, 2 S. & R. 371, per Tilghman, C. J.

Ayliffe, 200, referring to code, Bk. i. tit. 3; Savigny Sys. § 92.