etc., 8 Metc. (Mass.) 321; 1860, Bates v. Androscoggin & K. R. Co., 49 Maine 491; 1863, Rutland & B. R. Co. v. Thrall, 35 Vt. 536; 1866, Taft, Trustee, v. Railroad Co., 8 R. I. 310; 1875, Totten v. Tison, 54 Ga. 139; 1875, West Chester & P. R. Co. v. Jackson, 77 Pa. St. 321; 1881, Boardman v. L. S. & M. S. R. Co., 84 N. Y. 157; 1882, Chaffee v. Rutland R. Co., 55 Vt. 110; 1883, Nickals v. R. Co., 15 Fed. Rep. 575; 1884, Gordon v. R. F. & P. R. Co., 78 Va. 501; 1885, Belfast & M. L. R. Co. v. Belfast, 77 Maine 445; 1887, Hazeltine v. B. & M. R., 79 Maine 411, 1 Am. St. Rep. 330; 1890, Miller v. Ratterman, 47 Ohio St. 141; 1890, Campbell v. American Z. Co., 122 N. Y. 455; 1892, Jones v. Concord & M. R. Co., 67 N. H. 234, 68 Am. St. Rep. 650; 1894, Field v. Lamson & Goodnow Mfg. Co., 162 Mass. 388, 27 L. R. A. 136; 1898, People v. St. Louis, A. & T. R. Co., 176 Ill. 512, 12 A. & E. C. C. (N. S.) 227; 1898, Cook v. Association, 104 Ga. 814, 30 S. E. Rep. 911; 1899, Pronick v. Spirits Distributing, 58 N. J. Eq. 97, 42 Atl. Rep. 586; 1899, Savannah Real Estate, L. & B. Co. v. Silverberg, 108 Ga. 281, 33 S. E. Rep. 908; 1899, Heller v. National Marine Bank, 89 Md. 603, 45 L. R. A. 438, 73 Am. St. Rep. 212, note 227.

Sec. 212. Preferred stock-Power to issue.

KENT v. QUICKSILVER MINING COMPANY.1

1879. IN THE Court of AppealS OF NEW YORK. 78 New York Reports 159-191.

FOLGER, J. These are suits in equity to perpetually restrain the Quicksilver Mining Company from taking certain action, on the one hand proposed by it with the expressed assent of some only of the stockholders in it, and on the other hand demanded of it by certain other of the stockholders in it which demand, it and still other stockholders resist.

Whatever the frame of the pleadings in the several actions, and whatever the formal prayer for judgment, the purpose of the litigation in each is to reach a final and binding judgment, whether certain "preferred stock," heretofore created by that company, is so far valid as to be recognized in the future business of the company as giving to the holders thereof the peculiar right expressed in the certificate thereof. (The judgment below held the issue of preferred stock to be valid.)

What is meant by "preferred stock" is well enough known in law and business without definition or circumlocution here.

(The corporation had the usual corporate powers, including "the power to issue certificates of stock, representing the value of its property, in such form and subject to such regulations as it might from time to time by its by-laws prescribe.")

A by-law was duly made, which declared the whole value of its property and the whole amount of its capital stock, and divided the whole of it into shares equal in amount, and directed the issuing of certificates of stock therefor. It is not to be said that this by-law authorized anything but shares equal in value and in right; or that the 1 Statement much abridged, and only part of opinion given.

taker of one did not own as large an interest in the corporation, its capital, affairs and profits to come, as any other holder of a share. Certificates of stock were issued under this by-law that gave no expression of anything different from that. When that by-law was adopted, it was as much the law of the corporation as if its provisions had been a part of the charter. (Presbyterian Church v. City of New York, 5 Cow. 538.) So it is said in Grant on Corporations, p. So, in a qualified way. Thereby, and by the certificate, as between it and every stockholder, the capital stock of the company was fixed in amount, in the number of shares into which it was divisible, and in the peculiar and relative value of each share. The by-law entered into the compact between the corporation and every taker of a share; it was in the nature of a contract between them. The holding and owning of a share gave a right which could not be divested without the assent of the holder and owner; or unless the power so to do had been reserved in some way. (Mech. Bank v. N. Y. and N. H. R. Co., 13 N. Y. 599-627.) Shares of stock are in the nature of choses in action, and give the holder a fixed right in the division of the profits or earnings of a company so long as it exists, and of its effects when it is dissolved. That right is as inviolable as is any right in property, and can no more be taken away or lessened, against the will of the owner, than can any other right, unless power is reserved in the first instance, when it enters into the constitution of the right; or is properly derived afterwards from a superior law giver. The certificate of stock is the muniment of the shareholder's title, and evidence of his right. It expresses the contract between the corporation and his co-stockholders and himself; and that contract can not, he being unwilling, be taken away from him or changed as to him without his prior dereliction, or under the conditions above stated. Now it is manifest that any action of a corporation which takes hold of the shares of its capital stock already sold and in the hands of lawful owners, and divides them into two classes-one of which is thereby given prior right to a receipt of a fixed sum from the earnings before the other may have any receipt therefrom, and is given an equal share afterwards with the other in what earnings may remaindestroys the equality of the shares, takes away a right which originally existed in it, and materially varies the effect of the certificate of stock.

It is said that when a corporation can lawfully buy property, or get money on loan, any known assurance may be exacted and given which does not fall within the prohibition, express or implied, of some statute (Curtis v. Leavitt, 15 N. Y. 66-67); and that is sought to be applied here. But the prohibition to such action as this is found, not indeed in a statute commonly so called, but in the constitutional provision which forbids the impairment of vested rights, save for public purposes and on due compensation. The right which a stockholder gets on the purchase of his share and the issue to him of the certificate therefor is such a vested right.

It is contended that the power so to do is an incidental and implied power, necessary to the use of the other powers of the corporation,

and is a legitimate means of raising money and securing the agreed consideration therefor. We have already conceded that it is legitimate to borrow money, and to secure the repayment of it, with a compensation for the use of it. But that is when it is done in such way as to put the' burthen upon every share of stock alike, and to enable every share of stock to be relieved therefrom alike; in such way as to preserve the equality of right and privilege and value of the shares, and maintain intact the contract thereto with the stockholder.

Citations are made to us for the converse of this, but they do not come up-sometimes in their facts, sometimes in their declarationsto the necessity of the proposition. Either it is where the capital is not limited, and it is new shares that may be issued with a preference, and where there is express power to borrow on bond and mortgage (2 Redf. on Railways, ch. 33, §§ 4, 237; Harrison v. Mex. R. W., 12 Eng. Rep. 793); or the amount of the capital has not been reached and such stock is issued therefrom (Hazelhurst v. Savannah R., 43 Ga. 53; Tottan v. Tison, 54 Ga. 139); or there was legislative authority (Davis v. Proprietors, 8 Metcf. 321; Rutland R. Co. v. Thrall, 35 Vt. 545); or a restriction to authorized capital and there was unanimous consent of the stockholders (Prouty v. M. S. & N. I. R., 1 Hun 663; 43 Ga. 53, supra); or there was power to redeem, which was a transaction in the nature of a debt (Westchester, etc., R. Co. v. Jackson, 77 Pa. St. 321); or the opinion was obiter (Bates v. Androscoggin R. Co., 49 Maine 491); or it was the case of a subscription for stock with a condition for interest until the corporation was in operation (Richardson v. Vt. & Mass. R. Co., 44 Vt. 613); or it was an action on a subscription more favorable to defendant than to other subscribers, and it was held that defendant could not set up the lack of equality (Evansville R. Co. v. Evansville, 15 Ind. 395); or a solemn determination of this question was not necessary for the disposal of the case (Williston v. M. S. & N. I. R. Co., 13 Allen 400); or the issue was authorized by the articles of association (In re A'D. St. Nav. & Col. Co., 20 L. R. Eq. 339); or there was full knowl edge on the part of all concerned (Lockhart v. Van Alstyne, 31 Mich. 81); or the power in the corporate body was conceded, and it was denied that it existed in the directors (McLaughlin v. D. & M. R., 8 Mich. 100).

We will not say, for we are not called upon here to say, that never can a corporation rightfully, against the dissent of a portion of its stockholders, make some of the stock preferred; what we assert is that this case does not present a state of facts in which a power so to do exists.

There is a power in this charter to alter, amend, add to or repeal, at pleasure, by-laws before made. It is argued from this that it was in the power of the corporate body, in due form and manner, to alter the by-law which had fixed the amount of the capital stock and the number and relative value of the shares thereof. The power to make by-laws is to make such as are not inconsistent with the constitution and the law; and the power to alter has the same limit, so that no

alteration could be made which would infringe a right already given and secured by the contract of the corporation. Nor was the power to alter, to the extent of affecting the contracted relative value of a share, reserved when the share was sold to the stockholder, so as to enter into and form a part of the contract. An alteration is a pro tanto repeal; but no private corporation can repeal a by-law so as to impair rights which have been given and become vested by virtue of the bylaw afterwards repealed.

We are therefore of the opinion that there was no power in the corporate body, nor in a majority of the stockholders, to provide by by-law for the creation of a preferred stock, so as to bind a minority of the stockholders not assenting thereto.

*

But there remains a serious question, whether, though there was at the outstart a minority of the stockholders who gave no assent to the corporate act, there has not been such tacit acquiescence and delay in action by that minority as to amount to indefensible laches and estoppel upon those who constituted it and their assigns. In our judgment there has, and we find here a safe place on which to rest our decisions of these cases.

*

Affirmed on the ground of estoppel by laches.

Note. Power to issue preferred stock generally: 1857, Everhart v. West Chester, etc., R. Co., 28 Pa. St. 339; 1865, Hutton v. Scarborough Cliff Hotel Co., 4 De G. J. & S. 672, 2 Dr. & S. 514, 521; 1884, Gordon v. Richmond, etc., R. Co., 78 Va. 501; 1885, Belfast, etc., R. Co. v. Belfast, 77 Maine 445; 1890, Campbell v. American Z. Co., 122 N. Y. 455, 11 L. R. A. 596; 1890, Bamjam v. Bard, 134 U. S. 291; 1891, Re Dicido Pier Co., L. R. 2 Ch. Div. 354; 1891, Eichbaum v. City of Chicago Grain Elevators, L. R. 3 Ch. Div. 459; 1895, Higgins v. Lansingh, 154 Ill. 301; 1897, Andrews v. Gas Meter Co., 76 L. T. R., 132, overruling Hutton v. Scarborough C. H. Co., supra; 1898, Ernst v. Elmira M. I. Co., 54 N. Y. S. 116, 24 Miscl. (N. Y.) 583.

Majority of members can not, without express legislative authority, and without consent of all the subscribers, after organization or subscription upon an equal basis, convert a part of the shares into preferred. 1865, Hutton v. Scarborough Cliff Hotel Co., 4 De G. J. & S. 672, 2 Drew & S. 514, 521; 1881, Boardman v. L. S. & M. S. R., 84 N. Y. 157; 1890, Campbell v. American Zylonite Co., 122 N. Y. 455; 1898, Ernst v. Elmira M. I. Co., 54 N. Y. Sup. 116, 24 Miscl. 583.

But it has also been held that express legislative authority will make such issue valid, even against dissenting shareholders. 1857, Everhart v. Westchester, etc., R. Co., 28 Pa. St. 339; 1863, Rutland, etc., R. Co. v. Thrall, 35 Vt. 536; 1867, Curry v. Scott, 54 Pa. St. 270; 1875, Westchester, etc., R. Co. v. Jackson, 77 Pa. Št. 321; 1875, Totten v. Tison, 54 Ga. 139; 1897, Andrews v. Gas Meter Co., 76 L. T. Rep. 132, overruling Hutton v. Scarborough Cliff Hotel Co., 4 De G. J. & S. 672, and 2 Drew & S. 514, 521.

But upon the other hand, it seems that neither statutory nor charter authority is necessary, if the preferred stock is issued (under a power to increase or complete an authorized issue) by the unanimous consent of the existing shareholders. Havemayer v. Bordeaux Co., 8 National Corp. Rep. 127; 1895, Higgins v. Lansingh, 154 Ill. 301; 2 Beach Corp., § 808; 1 Morawetz, § 464.

Sec. 213. Shares of stock-Nature of.

(1) Personal property.

JOHNS v. JOHNS.1

1853. IN THE SUPREME COURT OF OHIO. 1 Ohio St. 350-362.

This is a petition in which the plaintiff, the widow of Benjamin Johns, deceased, claims dower in forty-six shares of the capital stock of "The Mansfield and Sandusky City Railroad Company" and in ten shares of the capital stock of "The Ohio and Pennsylvania Railroad Company," of which shares her deceased husband, the said Benjamin Johns, was the owner at the time of his death.

The defendant, Sherman, as executor as aforesaid, answers, admitting the facts alleged in the petition, but insisting that said shares are personal and not real estate.

THURMAN, J. Turning, then, to the charter of the company, we find in it no provision declaring whether its stock is realty or personalty. We are thus brought to the general question, whether railroad shares in Ohio are, in the absence of express legislative enactment, to be considered as real or personal estate. This question must be determined by a reference to the principles of the common law and the general statutes of the state that have a bearing upon it. And its solution is not without difficulty, for as to the common law the adjudicated cases are directly conflicting, and when we resort to our statutes the chief aid we derive is from analogies and inference.

In Drybutter v. Bartholomew, decided in 1723, 2 P. Wms. 127, the master of the rolls said that: "a fine may be, and usually is, levied of New River shares by the description of so much land covered with water," but the case does not inform us what these shares were, nor how they were created; and whether they were real or personal estate was not discussed. They appear to have had their origin in the statutes of 3 James 1, ch. 18, and 4 James 1, ch. 12, to enable the mayor, commonalty and citizens of London to supply the city with water; but these acts simply authorize the construction of the works and the acquisition of the necessary right of way. They create no stock, nor is any mention made in them of shares or shareholders. Yet it would seem from the case cited, as well as the case of Townshend v. Ash, decided in 1745, 3 Atkyns 336, that shares were created, and hence these cases have been frequently cited as showing that stock in a water-works company is real estate.

By a statute of 10 Anne, the mayor, aldermen and common council of the city of Bath, their successors or assigns, or such persons as they should appoint, were authorized to improve the navigation of the river Avon, and to charge tolls on persons and property transported thereon. By an agreement executed between the corporate authorities 1 Only part of opinion is given.