an where they acquiesce in such an arrangement for a long period of time, during which the rights of innocent members of the public have supervened to such an extent that great wrong would be done to them by declaring the preference shares illegal, action brought by shareholders for this purpose will be repelled, as, under a collection of stated circumstances, where there has been a delay of four years.1 Thus, where one of the promoters of a manufacturing corporation, who afterwards became its manager, voluntarily subscribed and paid for some of its preferred stock, for the purpose of promoting the scheme, which stock he held for twenty-eight months, the corporation performing all the terms and conditions of the subscription on its part, he could not, the corporation having become insolvent, rescind his subscription and recover the money paid for the shares on the ground that neither the governing statute nor the articles of association authorized the issue of such shares.2 So, where the directors of a hotel company, in pursuance of the request of three-fourths of the shareholders and in opposition to a directory statute, made an unauthorized issue of preferred stock for the purpose of securing money to pay the legitimate debts of the company, and for other corporate purposes, which stock was subsequently redeemed by the issue of mortgage bonds, it was held that holders of the common stock who knew of this unauthorized issue of preferred stock but did not take prompt action to disaffirm the same, were not entitled to relief in equity against proceedings to foreclose the mortgage. The court laid stress on the fact that no principle of public policy was involved, that no wrong had been done of a public nature, and that the corporation had had the full benefit of a performance of the contract on the part of the mortgagee. So, it has been held that an acquiescence of 1 Kent v. Quicksilver Mining Co., 78 N. Y. 159; affg. s. c. 12 Hun, 53. See to the general principle, Veeder v. Mudgett, 95 N. Y. 310; Chubb v. Upton, 95 U. S. 665. Compare Sheldon &c. Co. v. Eickemeyer Co., 90 N. Y. 613; Aspinwall v. Sacchi, 57 N. Y. 331; Eaton v. Aspinwall, 19 N. Y. 119; Contra, American Tube Works v. Boston Machine Co., 139 Mass. 5; 2 Bard v. Banigan, 39 Fed. Rep. 13; s. c. 26 Am. & Eng. Corp. Cas. 155; 6 Rail. & Corp. L. J. 170; s. c. affirmed, sub nom. Banigan v. Bard, 134 U. S. 291; s. c. 10 Sup. Ct. Rep. 565. 3 Hill v. Cincinnati Hotel Co. (Super. Ct. Cin.), 25 Ohio L. J. 425. -- the common stockholders, for a period of nearly four years, in a resolution of the directors for the issue of preferred stock, will preclude them from setting aside the issue, where the money realized therefrom has been used by the corporation, and where the public have been allowed to deal in the preferred stock under the belief, engendered by silence, that no objection would be made to its validity. On the contrary, where “special stock," described in a preceding chapter,2 had been illegally issued under a statute of Massachusetts to a creditor of the corporation who subsequently received dividends thereon; and the corporation, at two subsequent meetings, had attempted, but without success, to cure the defect, and to make a valid issue of stock instead of it; and, twenty-seven months after the illegal issue, and two months after the last attempt to cure the defect, and shortly before the corporation became insolvent, the creditor gave notice that he rescinded the contract, and tendered back the dividends received, it was held that his election to rescind had been exercised within a reasonable time, and that he could prove the amount of his debt against the estate of the insolvent corporation.3 In this last case the creditor made the election to repudiate his stock, and offered to return it, before the corporation had been adjudicated insolvent. In a subsequent case, the same court, extending the doctrine, held that a holder of such stock which has been illegally issued, may prove against the estate of the corporation in insolvency, the amount paid by him for the stock, deducting any dividends received, although he did not rescind the contract before the insolvency. In the view of the court, there was no occasion for him to return his certificates, since they had become valueless, nor the dividends which he had received, because they were less than the sum which he was entitled to receive, the stock being and remaining invalid. These cases proceed upon the view that there can be no such thing as a stockholder by estoppel, except in cases where there can be a legal issue of the particular stock; and this is the strictly logical view, as has been often held in respect of the dis 1 Hoyt v. Quicksilver Mining Co., 17 Hun. (N. Y.), 169. Gilbert, J., sented in a forcible opinion. 2 Ante, § 2042. 3 American Tube Works v. Boston Machine Co., 139 Mass. 5. 4 Reed v. Boston Machine Co., 141 Mass. 454; s. c. 5 N. E. Rep. 852. fraudulent over-issues of corporate shares.1 But it does not follow that, in every case, the person who has participated in the illegal act, by receiving the illegal shares, will stand in a position so favorable that he will have the right to have the contract undone for his benefit, after insolvency and at the expense of other creditors, or that he will have the right to maintain an action for damages against the corporation before insolvency to recover what he has paid for the illegal shares. It is to be noticed that a distinguished Federal judge, in taking the contrary view of this question in a case already cited, found himself "not favorably impressed" with the doctrine of these Massachusetts cases;2 and that the Supreme Court of the United States, in affirming this last named case, in an opinion in which the reasoning of the judge who sat in the circuit court is quoted and adopted, has placed itself in distinct opposition to the Massachusetts doctrine.3 § 2254. Doctrine that Persons Accepting Preferred Stock Estopped from Disputing its Validity. It must be obvious, on a little reflection, that the doctrine of the Massachusetts cases, that a person can never become a shareholder by estoppel so far as the rights of creditors are concerned, unless the corporation had the legal power to issue the shares, cannot be asserted as an universal principle. The doctrine of estoppel in pais, as is well known, rests upon the idea that a party, by adopting a course of action which influences the conduct of others may put himself in a position where he will not be allowed to disclose the real truth. Such being the basis of the doctrine, it cannot, except in cases rising to the grade of questions of public policy, make much difference what that truth is. This principle of estoppel, in its every day-application, extends much farther than it is required to extend it, in order to prevent the holder of illegal corporate shares from repudiating the relation after the rights of creditors have supervened. We refer to the numerous and constantly recurring cases where a person who enters into a contract with another contracting party, by a name 1 Ante, § 1493. 2 Bard v. Banigan, 39 Fed. Rep., at p. 17, per Shipman, J. 3 Banigan v. Bard, 134 U. S. 291; s. c. 10 Sup. Ct. Rep. 565. or by language which admits that the other party is a corporation, thereby becomes estopped, in an action upon the contract, to deny that it is a corporation.1 Stated in another way, this principle is so broad that a corporation itself may be created by estoppel for the purposes of a particular case, where no corporation exists in fact or in law. Upon these analogies there seems no insuperable difficulty in adopting the view of the Supreme Court of the United States, in opposition to that of the Supreme Judicial Court of Massachusetts, and in concluding that where persons accept preferred stock which has been illegally issued and receive interest upon it for several years, they and their assigns thereby become estopped from questioning the power of the corporation to issue it.2 § 2255. Stockholder Proceeding in Time may Rescind.— But, on either theory, one who agrees to take preferred shares may evidently rescind on discovering that the issue will be illegal, if he proceeds in time. Thus, where the corporation borrowed money of one who at the time erroneously supposed that it had power to issue preferred shares, promising to issue such shares to him in payment of the loan,- it was held that he might, on discovering that it had no such power, maintain an action to recover his money back, and that it was no defense that, pending the action, a statute was enacted under which preferred stock was issued and offered to plaintiff.3 § 2256. Constitutional and Statutory Provisions. - By the constitution of Alabama it is provided: "No corporation shall issue preferred stock without the consent of the owners of two-thirds of the stock of said corporation." By the constitution of Missouri, "No corporation shall issue preferred stock without the consent of all the stockholders."5 Statutory grants of this power, and statutory prohibitions of it exist; but it has been found impracticable to collect them. A statutory authority to issue preferred stock does not, it has 1 Ante, § 495, et seq.; § 1846, et seq.; post, §, et seq. 2 Branch v. Jesup, 106 U. S. 468. 3 Anthony v. Household Sewing Mach. Co., 16 R. I. 571; s. c. 18 Atl. Rep. 176; 5 L. R. A. 575. 4 Ala. Const. of 1875, art. 13, § 9. 104. been held, include a grant of power to issue common stock.1 A contract by a corporation to repay a loan in preferred stock which it had no authority to issue, being a nullity, is not renewed by a subsequent act authorizing it to issue preferred stock, but which does not empower it to renew that contract.2 § 2257. Privilege of Taking in Exchange for Common Stock when Exercised. In schemes by which preferred stock is issued in exchange for common stock, the privilege of making the exchange is usually accorded to the members to be exercised within a time fixed by the resolution; and where the resolution does not fix the time, it must be exercised within a reasonable time. It has been held that a tender of common stock and the additional sum required for an exchange, made thirty-three years after the privilege was conferred, is not made within a reasonable time." § 2258. Formalities in the Mode of Issuing. Where, in Massachusetts, the statute defines the mode in which "special stock" may be issued, a departure from the statutory requirements invalidates the issue; as, for instance, where the call is to consider whether preferred stock shall be issued, and, under such call, a vote to issue special stock is had, or where the record fails to show the assent of the required number of stockholders. Nor in Massachusetts, contrary to the general rule does the doctrine of estoppel apply to the case of one who has taken stock of an illegal issue.5 1 Covington &c. Bridge Co. v. Sargent, 1 Cinc. (Ohio) 354. 2 Anthony v. Household Sewing Mach. Co., 16 R. I. 571; s. c. 5 L. R. A. 575; 18 Atl. Rep. 176. There is a useful note on the subject of preferred stock in 19 Am. & Eng. Corp. Cas. 468. That a note given in payment of a subscription for preferred stock is valid, etc., see Magee v. Badger, 30 Barb. (N. Y.) 246. 3 Holland v. Cheshire R. Co., 151 Mass. 231; s. c. 24 N. E. Rep. 206. In the same case it was held that the appointment by the corporation of a committee, twenty years after a vote |