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the plaintiff was authorized by law to issue, which the defendants do not admit, and whereof they have no knowledge, except as it is derived from the allegations of the plaintiff's petition, and which the defendants deny, that then and in that case the said certificates were issued by the plaintif corporation by its president and secretary under the genuine seal of the corporation negligently and fraudulently; that the plaintiff by its officers and agents wholly failed to observe any care in respect to the issue of the certificates for its capital stock, and that the president of the corporation signed his name in blank to such certificates without any inquiry or knowledge in respect to the issue made or to be made of said certificates, or as to whether there had been a surrender of valid certificates of the stock of the corporation before the said certificates owned by the defendants were issued, and without any investigation thereafter of the use that had been made of certificates so wrongfully signed in blank by the president of said corporation; that the plaintiff corporation permitted and by its by-laws provided that certificates for the capital stock in plaintiff corporation should be issued to its president and to its secretary in the same manner and form and by the same officers as the same were provided to be issued to all other parties; and that the · exercise of ordinary care and prudence, or of any care and prudence by the plaintiff corporation through its board of directors and other officers, would have prevented the wrongful issue of the certificates aforesaid.'

The defendants further aver that the loans for which said certificates were taken as collateral security, are long since due, that they have made demand upon the plaintiff corporation to transfer said shares of stock on the books of the corporation, which demands have been refused, and they therefore ask judgment against defendants for the amounts of their loans, with interest.

The cause coming on to be heard in special term, the decision of the court was that "the directors and president of the plaintiff company were negligent in the examination and supervision of the said certificate books and register of transfers and of the certificates from time to time surrendered and in the possession of the company for cancellation, and of the use being made by said Doughty of certificates signed in blank, and said negligence enabled said Doughty to commit the fraud complained of," and that such negligence was the proximate cause of the injury which the defendants had suffered, but "that the presence of the name of George F. Doughty, both as secretary and owner of the certificates, put each of the defendants acquiring said certificates respectively, upon inquiry, and the failure of said several defendants to make inquiry of some officer of the plaintiff company other than Doughty, constituted contributory negligence on the part of each of said defendants, whereby they were prevented from recovering upon their several cross-petitions their loss sustained by reason of the negligence of the plaintiff as stated in the conclusion of fact."

As to some of the certificates held by certain of the defendants, the court held that they were the genuine certificates of the corporation; and also held that by reason of the acts and statements of Theodore Cook as president of the corporation, and acting on behalf of the corporation, after the discovery of the frauds by the corporation, certain of the defendants had been misled to their damage, and that to the extent of such damage they were enitled to a judgment against the corporation. The opinion of the court upon these matters fully appears in the report of the case; ante 50.

At the request of the defendants, the court stated separately its conclusions of fact and law. And inasmuch as the decision of the case must largely rest upon the facts so found, and because it is necessary to an intelligent discussion of the legal questions raised by the case that these facts should be constantly borne in mind, we have incorporated such findings of fact in this opinion, omitting those in which the court finds certain certificates to be genuine, and omitting those with reference to the statements of Theodore Cook made to certain defendants subsequent to the railway company's discovery of the Doughty frauds.

Conclusions of fact. First-That the plaintiff was incorporated. under the laws of Ohio, on October the eighth, 1881, with an authorized capital stock of three millions of dollars, divided into thirty thousand shares of one hundred dollars each, all of which shares were lawfully subscribed for by bona fide subscribers, paid in full in cash, and proper certificates therefor duly issued to such subscribers on or before October the 12th, 1881; which certificates were duly signed by Theodore Cook, as president, and by George F. Doughty, as the secretary of the plaintiff, and were evidened by the genuine seal of the plaintiff corporation.

That Theodore Cook was elected and qualified as president of the plaintiff corporation at the date of the organization, and George F. Doughty was elected and qualified as secretary of the plaintiff corporation at the date of its organization, and that the said Theodore Cook and George F. Doughty were re-elected and qualified as president and secretary, respectively, of said corporation on the first Monday in January, 1882, and the said Theodore Cook continued to be president thereof until January, 1883, and the said George F. Doughty continued to be its secretary until his death, on May 25, 1882. That the plaintiff's capital stock has never been increased by any express action of the directors or of the stockholders as provided by the statutes of the state in that behalf. That, upon its organization, the plaintiff corporation adopted, among others, the following by-laws, in reference to the issue of its certificates of stock, which continued in force until January, 1883.

"Article 8. Certificates of stock shall be issued to each subscriber for the number of shares which he may own, under the corporate seal of the company, signed by the president and secretary, setting forth the amount paid, and the amount due upon each share.

"Article 9. It shall be the duty of the secretary to keep the office of the company open during business hours. He shall be the custodian of the seal of the company, and shall affix the same with his attestation thereto whenever the official business of the company may require; he shall attend all meetings of the stockholders, directors, and executive committee, unless excused, and keep and record a full and true minute of their proceedings. He shall also attend the meetings of any committee appointed by the directors or stockholders if requested, and keep a record of their proceedings. He shall keep the stock ledger of the company, and make transfers of stock upon the surrender, and properly indorse and cancel all stock certificates which may be presented for transfer. He shall give bond for fifty thousand dollars, with two good securities, to be approved by the executive committee."

Second-All of the stock certificates of the plaintiff, issued by it, and all the stock certificates of the plaintiff purporting to be issued by the plaintifl, and held by the defendants, were in the same form, and were as follows: with the blanks for the number of shares, and the party in whose favor they were issued, filled in in writing, to-wit:

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FORM OF CERTIFICATE.

is entitled to

"This is to certify that shares, of one hundred dollars each, in the capital stock of The Cincinnati, New Orleans and Texas Pacific Railway Compay. Transferable only on the books of the company, in person or by attorney, on the surrender of this certificate.

"Witness the seal of the company, and the signatures of the president and secretary, at Cincinnati, this day of

Secretary.

66 Corporate Seal"

President.

That all of said certificates issued during the lifetime of George F. Doughty were filled out and signed by George F. Doughty as secretary. They all bear the signature of Theodore Cook, as president, with the exception of two, which were signed by John Scott, the Vice-President, and all bore the seal of the plaintiff corporation, affixed by George F. Doughty, its secretary.

Third-The certificates, before issue, were bound in two books, called the certificate books, with stubs, numbered from one to five hundred, in the first, and from five hundred and one to one thousand in the second. Each certificate bears the same number as its stub.

The secretary, Doughty, was provided with a stock ledger and stock journal and register of transfers, and the books containing the blank certificates regularly numbered as above stated. There was no book designed to contain the actual transfer of the stock, but instead of that, each certificate was indorsed with a blank form of assignment to be filled out when assigned or surrendered, in form as follows:

"For value received,and authorize

-sells to

the stock within mentioned, —, attorney, to transfer the same on the books of the comhand and seal, this

day of- A. D. 188"In presence of

The register of transfers was a book containing a regularly ruled page with numbers on it to correspond with the numbers of certificates, and was arranged with reference to each, so as to permit the bookkeeper to show both the certificate from which and the one into which it was transferred. The stock ledger simply kept a ledger account with each stockholder, and was posted from the stock journal in which the entries were journalized. The secretary Doughty's mode of keeping the certificate books was to mark upon the new certificate the number of the certificate surrendered, in addition to the date, the name of the transferer and transferee, and the number of shares; the stub had a place for the receipt of the transferee upon getting the new certificate.

Fourth-The president, Theodore Cook, gave but little, if any, personal attention to transfers of stock, except to sign the certificates. After the issue of the certificates to the original subscribers to the capital stock of the plaintitt, the president was in the habit of signing a number of certificates in blank, and leaving them with Doughty, as secrtary, to be filled out when necessary, upon the presentation to said Doughty, as such scretary, of outstanding certificates for transfer, duly indorsed as above provided, and for no other purpose. When the secretary, Doughty, died, there had been signed by the president and secretary, with the corporate seal affixed and removed from the book, certificates for

thirty-four thousand shares of stock which had not been surrendered or cancelled by them. The authorized stock was thirty thousand shares.

Fifth--Said George F. Doughty originally subscribed for six hundred and fifty shares, and received therefor certificates No. 86, 87, 88, 89, 90 and 91. Of these, Nos. 87 for two hundred and fifty shares, and 88 for fifty shares, belonged to others who paid the subscription therefor, and the certificates therefor indorsed by Doughty were at once delivered to them, and never again came into his possession. The certificates, No. 89 for 50 shares, and 90 for one hundred shares, were subscribed for by said Doughty on the equal joint account of himself and defendants, Herman Klein & Son, and issued in the name of George F. Doughty. The subscription therefor was paid with funds borrowed on a plecge of said certificates, 89, 90 and 91, on October 8, 1881, by said Doughty and Herman Klein & Son, and said certificates were never afterward in the possession of said Doughty and Herman Klein & Son, until the same were redeemed and returned to said Doughty, on May 17, 1882.

On November 9, 1881, Doughty issued Certificates Nos. 255 and 256 to himself, and noted upon the register of transfers that they had been issued upon the surrender of certificate No. 86. No. 86 was then in the bank of Kuhn & Sons as pledgees as above stated. On May 20, 1882, the secretary Doughty delivered to Herman Klein & Son certificates Nos. 547 and 548 for one hundred and twenty-five shares, but made no entry thereof on the books of the company. On May 5, 1882, Joseph Rawson & Sons purchased a note of George F. Doughty for seventy-five hundred dollars, secured by one hundred shares of plaintiff's stock represented by certificate No. 86, which they continued to hold until November 27, 1882, and then sold the same in the market. Subsequently to Doughty's death, to-wit, on September 6, 1882, Herman Klein & Son surrendered to the company certificates Nos. 547 and 548, and Theodore Cook, as administrator of George F. Doughty, surrendered certificate No. 89 for fifty shares, and seventy-five shares from certificate No. 90 for one hundred shares, and the company issued to Herman Klein & Sons certificates No. 597 and 598 for one hundred and twenty-five shares. Said Doughty afterward became the owner of fifty shares on December 23, 1881, represented by certificate No. 373, which he sold and transferred to other parties than the defendants herein. He also became the owner of fifty shares on December 23, 1881, represented by certificate No. 373, which he sold and transferred to other parties than the defendants herein. He also became the owner by purchase of twenty-five shares on December 31, 1881, represented by certificate No. 434, which was found indorsed by George F. Doughty in an envelope marked "George F. Doughty, Private," in the safe of the company, and came to the possession of Theodore Cook, and the court find that said certificate was the private property of George F. Doughty, and that it came into the possession of Theodore Cook as his administrator, and was subsequently transferred by said Theodore Cook, as administrator, to other parties than the defendants named in this case. He also became the owner by purchase on February 27, 1882, of one hundred shares evidenced by certificate No. 466, the which he subsequently sold and transferred to parties other than the defendants in this case. And on April 1, 1882, said Doughty purchased one share of capital stock evidenced by certificate No. 513, which was neither found in the possession of said Doughty nor of said plaintiff at the time of his death. The

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above were all the shares which the court find that the evidence shows were ever held or owned by said George F. Doughty.

Sixth-The court further find the personal account of George F. Doughty in the stock ledger at the death of Doughty was as follows:

But that the account as shown by comparison with the stock certificate book and the register of transfers was neither complete nor correct. And the court find the stock certificate books and the register of transfers contain the only entry of the issue of fraudulent certificates by said George F. Doughty. That the entries upon the stock certificate books and the register of transfers disclose, from November 9, 1881, down to the death of George F. Doughty, entry after entry that was suspicious upon its face, and was fraudulent in fact, and that very little investigation of these books would have disclosed the fraud which Doughty was engaged in perpetrating, in issuing stock certificates hereinafter referred to and found to be spurious by the court. And that the directors and president of the plaintiff company were negligent in the examination and supervision of the said certificate books and registers of transfers, and of the certificates from time to time surrendered and in the possession of the company for cancellation, and of the use being made by said Doughty of certificates signed in blank, and that such negligence enabled said Doughty to commit the frauds hereinafter referred to. To the latter part of which finding, plaintiff, the Railway Company, excepted.

The seventh, eighth, ninth, tenth, eleventh, twelfth, thirteenth, fourteenth, fifteenth, sixteenth, seventeenth and eighteenth findings of fact are made with reference to the special facts connected with the issue and ownership of the certificates of stock held respectively by Heistand & Co., Rachel S. Gaff, Mary J. Perin, The First National Bank of Hamilton, Ohio, The Third National Bank of Urbana, Ohio, The German National Bank of Covington, Ky., The Citizens National Bank of Cincinnati, Ohio, The National LaFayette Bank of Cincinnati, Ohio, R. A. Holden, The Third National Bank of Cincinnati and Edward H. Miller.

Excepting the difference as to dates, the number of shares represented by the certificates, the amounts of the loans, and the fact that two certificates were signed by John Scott, the Vice President, instead of Theodore Cook, the President, the findings of fact from the seventh to the eighteenth are in effect as follows: