that it may destroy the energies of all other corporations of a given kind, and suck their life blood out of them, is not a "lawful purpose."

The privileges awarded to the four gas companies under their respective charters were given them in return for, and in consideration of, services to be rendered by them to the public. When they entered the streets of Chicago, they assumed the performance of the public duty of furnishing light to the inhabitants. That they should be permitted, or required, or forced, to abandon the performance of such public duty is against the policy of the law. The public duty is imposed upon each company separately, and not upon the four when combined together. Each for itself, when it accepted its articles of association, assumed an obligation to perform the objects of its incorporation. But the appellee, through the control which it does or may exercise over the four companies by reason of its ownership of a majority of their stock, renders it impossible for them to discharge their public duties except at the dictation of an outside force, and in the manner prescribed by a corporation operating independently of them. They are thus virtually forced to abandon the performance of their duty to the public. The freedom and effectiveness of their action in carrying out the purposes of their creation are seriously interfered with, if not actually destroyed. A power, whose exercise leads to such a result can not be lawfully entrusted to any corporate body. *

The court below erred in overruling the demurrers. Reversed. Note. See note at end of next case.

Sec. 305. Same.

3. Exceptions to general rule.

PEARSON v. CONCORD RAILROAD CORPORATION, ET. Al1 1883. IN THE SUPREME COURT OF NEW HAMPSHIRE. 62 New Hampshire Reports 537-551, 13 Am. St. Rep. 590.

[Bill in equity by certain stockholders to set aside certain contracts of the directors of one railroad company whereby they purchased for it a controlling interest in the stock of a connecting road for the purpose of controlling the latter in the interests of the former.]

SMITH, J. The case finds that the Northern railroad is the owner of 1,290 shares of Concord railroad stock, purchased in 1873, upon which it has since voted at the meetings of the Concord railroad. A corporation can not become a stockholder in another corporation, unless such power is given it by its charter or is necessarily implied in it (Franklin Co. v. Bank, 68 Maine 43; Bank v. Agency Co., 24 Conn. 159; Green Bri. Ult. V. 91, and cases cited; Mor. Corp., section 229 and cases cited); especially if the purchase

1Only so much of the opinion as relates to the single point is here given.

be for the purpose of controlling or affecting the management of the other corporation. Sumner v. Marcy, 3 W. & M. 105; Central R. R. Co. v. Collins, 40 Ga. 582; Hazlehurst v. Savannah, etc., R. R. Co., 43 Ga. 13; G. N. Ry. Co. v. Eastern, etc., Ry. Co., 21 L. J. Ch. 837; Booth v. Robinson, 55 Md. 419, 439. Dealing in stocks is not expressly prohibited in the act of congress providing for the organization of national banks (U. S. Rev. St., section 5136, par. 7), but such prohibition is implied from the failure to grant the power. Bank v. Bank, 92 U. S. 122, 128. Corporations are creatures of the legislature, having no other powers than such as are given to them by their charters, or such as are incidental or necessary to carry into effect the purposes for which they were established. Downing v. Mt. W. Road Co., 40 N. H. 230, 232; Trustees v. Peaslee, 15 N. H. 317, 330; Beaty v. Knowler's Lessee, 4 Pet. 152; Perrine v. Company, 9 How. 172; Bank v. Earle, 13 Pet. 519; Trustees Dartmouth College v. Woodward, 4 Wheat. 518, 636.

Certain classes of corporations, such as religious and charitable corporations, and corporations for literary purposes, may rightfully invest their moneys in the stock of other corporations. The power, if not expressly mentioned in their charters, is necessarily implied, for the preservation of the funds with which such institutions are endowed, and to render their funds productive. So an insurance company or savings bank may rightfully invest its capital or deposits in the stocks of railroad companies, banks, manufacturing companies, and similar corporations. The power is necessary to enable them to engage in the business for which they are organized, and hence is implied, if not expressly granted, in their charters. Such investments are in the line of their business. On the other hand, a manufacturing or railroad corporation is incorporated to do the business of manufacturing or transporting passengers and merchandise. Investing their funds in that of other corporations is not in the line of their business. Under extraordinary circumstances it may become necessary for a national bank, or a manufacturing corporation, or a railroad corporation, to acquire stock in another corporation, as in satisfaction of a valid debt, or by way of security, but with a view to its subsequent sale or conversion into money so as to make good or redeem an anticipated loss. Bank v. Bank, 92 U. S. 128; Fleckner v. Bank, 8

Wheat. 338.

In Hodges v. N. E. Screw Co., 1 R. I. 312, the court said there was no doubt the defendant company might have taken the stock in the iron company in payment for its rolling-mill, if it had been taken with a view to sell again, and not permanently to hold it.

The Northern Railroad by its charter was vested with all the powers necessary to carry into effect the purposes and objects of its incorporation, subject to the laws in relation to corporations and railroads contained in the Revised Statutes. The objects of its incorporation are declared to be the accommodation of the public travel and the transportation of goods and merchandise. Laws 1844, ch. 190. It was not contemplated that more funds would be raised by the issue of stock than was necessary to construct and equip its road. The pro

ness.

vision that when the net receipts shall amount to a sum making, with the prior net receipts of the corporation, more than an average of 10 per cent. per annum from the commencement of its operations, the excess shall be paid into the treasury of the state, is evidence that the legislature never contemplated the accumulation of a fund from its earnings, or from loans, or from the issue of stock, to be invested in the stock of another railroad corporation. It can no more make a permanent investment of funds in the stock of another road than it can engage in a general banking, manufacturing or steamboat busiIt is neither incidental to the purposes of its incorporation, nor necessary in the exercise of the powers conferred by its charter. If it can purchase any portion of the capital stock of the Concord company it may buy up the whole, and thus engage in a business for which its charter gives it no authority. And what would hinder a banking corporation from becoming a manufacturing company, or a manufacturing company from becoming a railroad common carrier? But the facts in this case go further. The stock was bought at $105 or $106 per share (par value, $50), a price largely in excess of its market value, and for the purpose of obtaining control of the Concord and securing more favorable contracts to itself. In Sumner v. Marcy, 3 W. & M. 105, the corporation was chartered to deal in lumber, with a capital of $150,000, of which only $75,000 could be invested in personal property, and took stock in a bank to the value of $168,000, for the purpose of getting control of the bank-a clear violation of its charter, but no more so than in this case. The purchase by a corporation of stock in another corporation will be enjoined at the instance of stockholders, when it involves a misapplication of corporate funds, or is a mere speculation, or is induced by a vicious purpose. Pierce R. R., 505. If the investment by one railroad corporation of more than $135,000 in stock of another at prices exceeding its market value, for the purpose of controlling such corporation for its own benefit, is not a misapplication of corporate funds, it would be difficult to find a case where such investment would be. [Contracts set aside and a trustee appointed to manage the affairs of the Concord company.]

Note. Acquiring stock in other corporations.

1. General rule: In the absence of particular charter or statutory provisions, or circumstances (indicated below), one business corporation has no general implied authority to acquire or hold stock in another such corporation (organized either for a similar or for a different purpose), as an investment for speculation, or for purpose of controlling or managing such corporation. This rule is applied in cases of:

(a) Banks: 1852, Talmage v. Pell, 7 N. Y. 328; 1877, Franklin Co. v. Lewiston Sav. Inst., 68 Maine 43 (in manufacturing); 1884, Franklin Bank v. Commercial Bank, 36 Ohio St. 350 (in banks); 1884, Nassau Bank v. Jones, 95 N. Y. 115, infra, p. 1205 (in railroad); 1893, Bank of Commerce v. Hart, 37 Neb. 197 (in insurance); 1897, California Bank v. Kennedy, 167 U. S. 362 (in banks); 1899, First National Bank v. Hawkins, 174 U. S. 364 (in banks). But compare, 1897, Latimer v. Citizens' S. B., 102 Iowa 162. See infra (i).

(b) Furniture companies: 1893, Denny Hotel Co. v. Schram, 6 Wash. 134, supra, p. 553 (in hotel); 1895, Knowles v. Sandercock, 107 Cal. 629 (same); 1898, Newland Hotel Co. v. Furniture Co., 73 Mo. App. 135 (same).

(c) Insurance companies: 1855, Mechanics' and W. M. Sav. B., etc., v. Meriden Agency, 24 Conn. 159 (in bank); 1857, Berry v. Yates, 24 Barb. (N. Y.) 199 (in insurance); 1878, Ex parte Liquidators L. R., 8 Ch. D. 679 (same); 1884, Pierson v. McCurdy, 33 Hun (N. Y.) 520 (same); 1891, Commw. Fire Ins. Co. v. Board of Rev., 99 Ala. 1, supra, p. 773 (in bank). See infra (i). (d) Land company: 1893, Pauly v. Coronado Beach Co., 56 Fed. Rep. 428 (in manufacturing);

(e) Lumber company: 1893, Lanier Lumber Co. v. Rees, 103 Ala. 622 (in lumber company);

(f) Manufacturing company: 1847, Sumner v. Marcy, 3 Woodb. & M. 105, Fed. Cas. 13609 (in bank); 1888, Lake Erie, etc., R. Co. v. Iron Co., 46 Ohio St. 44 (in railway);

Buckeye B. Co., 51 Fed. Rep. 156; In other manufacturing: 1892, Easun v. 1892, Buckeye Marble Co. v. Harvey, 92 Tenn. 115; 1895, Merz Capsule Co. v. U. S. Capsule Co., 67 Fed. Rep. 414; 1897, People v. Chicago Gas Co., 130 Ill. 268; 1898, Martin v. Stove Co., 78 Ill. App. 105; 1898, People v. Pullman's P. C. Co., 175 Ill. 125; 1899, De La Vergne R. M. Co. v. German Sav. Inst., 175 U. S. 40. But compare, 1897, White v. Marquardt, 105 Iowa 145. See infra (i).

(g) Railway companies: In other railway companies: 1851, East Anglican R. Co. v. Eastern Counties R., 7 Eng. L. & Eq. 505; 1863, Maunsell v. Midland R., 1 Hem. & M. 130; 1869, Central R. Co. v. Collins, 40 Ga. 582; 1871, Hazelhurst v. Savannah, etc., R. Co., 43 Ga. 13; 1875, Central R. Co. v. Pennsylvania R. Co., 31 N. J. Eq. 475; 1882, Milbank v. N. Y., L. E. & W., 64 How. Pr. 20; 1882, Elkins v. Camden & A. R. 36 N. J. Eq. 5; 1883, Pearson v. Concord Ry. Co., 62 N. H. 537; 1888, Mackintosh v. Flint, etc., R., 34 Fed. Rep. 582; 1888, Langdon v. Branch, 37 Fed. Rep. 449; 1892, Hamilton v. Savannah, etc., R., 49 Fed. Rep. 412; 1896, Farmers L. & T. Co. v. Railroad Co., 150 N. Y. 410; 1898, Military Interstate Assoc. v. Railway Co., 105 Ga. 420 (in an advertising company).

See infra (i) and,

(h) The general rule is applied with vigor where the object is to obtain control in order to prevent competition: 1869, Central R. Co. v. Collins, 40 Ga. 582; 1879, Central R. v. Penn. R., 31 N. J. Eq. 475; 1882, Elkins v. C. & A. R., 36 N. J. Eq. 5; 1889, People v. Chicago G. T. Co., 130 Ill. 268, 17 Am. St. R. 319, 8 L. R. A. 497, supra, p. 1054; 1892, Clarke v. R. Co., 50 Fed. Rep. 338; 1895, Louisville, etc., R. v. Ky., 161 U. S. 677; 1898, Martin v. Stove Co., 78 Ill. App. 105; 1899, De La Vergne R. M. Co. v. German Sav. Inst., 175 U. S. 40. (i) But the following cases hold contra the general rule above given: 1849, Elysville Mfg. Co. v. Okisko Co., 1 Md. Ch. 392; 1850, Hodges v. Screw Company, 1 R. I. 312, 53 Am. Dec. 624; 1853, Elysville Mfg. Co. v. Okisko Co., 5 Md. 152; 1879, Terry v. Eagle Lock Co., 47 Conn. 141; 1880, Booth v. Robinson, 55 Md. 419; 1883, Pearson v. Railroad Co., 62 N. H. 537 (as to some corporations); 1894, Smith v. Newark, etc., R., 8 Ohio C. C. 583; 1895, Calumet Paper Co. v. S. I. Co., 96 Iowa 147; 1897, White v. Marquardt, 105 Iowa 145, 74 N. W. Rep. 930.

See, also, English rule, supra, p. 1051, and exceptions noted below.

2. Exceptions to the general rule.

(a) Express or implied authority; special authority. 1869, Miners' Ditch Co. v. Zellerbach, 37 Cal. 543; 1884, Evans v. Bailey, 66 Cal. 112; 1899, Trenton Potteries Co. v. Oliphant, 58 N. J. Eq. 507, 43 Atl. Rep. 723.

Authority to consolidate implies power to purchase stock: 1863, Mayor of Baltimore v. B. & O. R., 21 Md. 50; 1879, Ryan v. Leavenworth, 21 Kan. Ky. Union Land 365; 1885, Terhune v. Potts, 47 N. J. L. 218; 1885, Hill v. Nisbet, 100 Ind. 341; 1892, Dewey v. Toledo R., 91 Mich. 351; 1893, Tod v. Co., 57 Fed. Rep. 47, supra, p. 952; 1894, Marbury v. Land Co., 62 Fed. Rep. 335; 1896, Louisville T. Co. v. Louisville, etc., R., 75 Fed. Rep. 433; 1898, Rogers v. Nashville, etc., Co., 91 Fed. Rep. 299; 1900, Trust Co. v. State, 109 Ga. 736, 35 S. E. Rep. 323.

In 1895, Calumet Paper Co. v. South Invest. Co., 96 Iowa 147, power to acquire stock in other companies is implied from a grant "to contract, acquire and transfer property as a private person"; so too, in 1897, White v. Mar

quardt, 105 Iowa 145, 74 N. W. Rep. 930, it was held that a corporation might exchange its goods for stock in other corporations.

In many states the subject is regulated by statutory or other provision-e. g., Georgia forbids her legislature authorizing one corporation purchasing the shares of another corporation. Const. 1877, art. iv, § 2, par. 4. See, 1900, Trust Co. v. State, 109 Ga. 736, 35 S. E. Rep. 323. On the other hand, several states authorize corporations to purchase and deal in such stocks, as Minn. G. S. 1891, § 2680; New Jersey, Acts 1896, § 51; New York, G. L. C. 36, art. iii, § 40.

(b) When necessary to prevent loss, or secure the payment of a debt, stock may be taken in other corporations: 1847, Sumner v. Marcy, 3 Woodb. & M. 105, Fed. Cas. 13609; 1852, Talmage v. Pell, 7 N. Y. 328; 1860, Howe v. Boston Carpet Co., 82 Mass. (16 Gray) 493; 1875, First National Bank v. National Ex. Bk., 92 U. S. 122; 1888, Railway Co. v. Iron Co., 46 Ohio St. 44; 1889, National Bank v. Case, 99 U. S. 628; 1891, Holmes & Griggs Mfg. Co. v. H. & W. M. Co., 127 N. Y. 252; 1893, Bank of Commerce v. Hart, 37 Neb. 197; 1895, Byrne v. Schuyler Elec. Mfg. Co., 65 Conn. 336; 1895, Calumet Paper Co. v. Invest. Co., 96 Iowa 147; 1897, California Bank v. Kennedy, 167 U.

S. 362.

(c) But it seems a failing corporation may dispose of its property in exchange for the stock of another corporation, for the purpose of winding up its affairs, but not for holding permanently, and if creditors are protected: 1856, Treadwell v. Salisbury M. Co., 7 Gray (Mass.) 393; 1876, Buford v. Keokuk N. P. Co., 3 Mo. App. 159; 1895, Holmes & G. Mfg. Co. v. H. & W. M. Co., 127 N. Y. 252; 1895, Byrne v. Elec. Co., 65 Conn. 336; 1896, Pinkus v. Minn. L. M. Co., 65 Minn. 40.

But not if solvent, against the protest of shareholders: 1892, People v. Ballard, 134 N. Y. 269, infra, p. 1066; 1895, Byrne v. Elec. Co., 65 Conn. 336; 1896, Elyton Land Co. v. Dowdell, 113 Ala. 177, 59 Am. St. Rep. 105.

(d) A parent company may acquire the stock of a branch company: 1889, People v. Bell Tel. Co., 117 Ñ. Y. 241.

3. Where stock of a corporation is held without authority by another corporation, the latter may collect dividends upon, or sell it, but can not vote upon it: 1872, State v. McDaniel, 22 Ohio St. 354, 368; 1882, Milbank v. N. Y., etc., R., 64 How. Pr. 20, 30; 1889, Memphis, etc., R. Co. v. Woods, 88 Ala. 630; 1899, Bigbee & W. R. Co. v. Moore, 121 Ala. 379, 25 So. Rep. 602; 1899, State v. Newman, 51 La. Ann. 833.

But if the holding is authorized, the stock so held may be voted: 1890, State v. Rohlffs, N. J., 19 Atl. Rep. 1099; 1894, Oelbermann v. N. Y., etc., R., 77 Hun (N. Y.) 332.

As to liability of a corporation upon an ultra vires holding of stock in another corporation, see, 1894, Kennedy v. Cal. Sav. Bk., 101 Cal. 495; 1896, Citizens', etc., Bk. v. Hawkins, 71 Fed. Rep. 369; 1897, California Bk. v. Kennedy, 167 U. S. 362.

The ultra vires exclusive holding, however, does not merge the companies, and the one owning the stock of the other does not make the former liable for the debts of the latter: 1895, Einstein v. Rochester Gas, etc., Co., 146 N. Y. 46; 1898, National Bank of Commerce v. Allen, 90 Fed. Rep. 545; 1898, Louisville Gas Co. v. Kaufman, 20 Ky. L. Rep. 1069, 48 S. W. Rep. 434. 4. Who may object.

(a) A shareholder can, if the contract is executory, or if he acts promptly: 1849, Salomons v. Laing, 12 Beav. 339; 1853, Kean v. Johnson, 9 N. J. Eq. 401; 1885, Holt v. Winfield Bank, 25 Fed. Rep. 812; 1895, Byrne v. Elec. Co., 65 Conn. 336; 1899, Harding v. Am. Glucose Co., 182 Ill. 551, 74 Am. St. Rep. 190. See note, supra, § 291; infra, §§ 583-585.

But not if completely executed or if guilty of laches: 1882, Wright v. Pipe Line, 101 Pa. St. 204; 1885, Holt v. Winfield Bank, 25 Fed. Rep. 812; 1892, Willoughby v. Chicago Jct., 50 N. J. Eq. 656. See note, supra, § 291.

(b) The state can complain: 1889, People v. Chicago Gas Trust, 130 III. 268; 1892, People v. Ballard, 134 N. Y. 269; 1892, State v. Standard Oil Co., 49 Ohio St. 137. See note, supra, § 291, infra, §§ 583–585.