the company, bonds, in the technical sense of the word, and secured not by the public faith, or the mere corporate liability, but by mortgages on real estate.

But it was contended that the unrestricted power of borrowing, which the company claims for effecting the purposes of its charter, virtually confers upon the corporation unlimited power. That the purposes of the charter would, in this instance at least, be no restraint, because they could embrace accommodations for every description of commercial business, and the extent of their credit would be equally ineffectual, for there would be no limit to that, except in the prudence of the lender, and finally, that no such extravagant authority was granted to this corporation, expressly or by implication, and it is contrary to the spirit and policy of our laws and institutions.

This whole argument is, in my judgment, unsound. The danger of inordinate accumulation of property and consequent overshadowing power is wholly fallacious. The whole extent of the corporate credit is, in truth, measured and controlled by its capital. Every addition to its means beyond its paid-up capital (leaving profits out of view) must be by gift or contract, and if by contract, a debt ensues. If a corporation with a million of capital succeeds in running into debt two millions it has no more solid property, and is intrinsically worth no more than before, unless the property obtained on credit is worth more than it cost, and then the increase of property is only such excess of value. And if worth less than cost, then the company has by the operation sunk a part of its capital.

All experience shows that the financial management of corporations is, in general, less judicious and safe than that of individuals. Hence losses are likely to ensue from expansions upon credit; and the farther such credit is pushed by any corporation, the greater the danger that such losses will impair and finally consume its capital. The lenders of money are usually sagacious enough to protect their interests when dealing with corporations as well as with individuals; and few would lend money to a company which already owed debts greatly exceeding its whole capital stock, however flattering in appearance the investment might be. The laws of trade have placed an impassable barrier to the power of corporate borrowing, in the tendency of such institutions to make an improvident use of exuberant means, and in the caution and prudence of capitalists. It is utterly impossible for a corporation with a known limited capital to accumulate by means of its credit the gigantic property and power which the imagination of the counsel portrayed.

In this case, then, I am satisfied that the Merchants' Exchange Company were authorized by law to borrow money for the completion of their building, to the extent adopted by the n, and to secure its repayment by their corporate obligations, and by mortgages on their

real estate.

I do not find that any limitation contained in their charter has been thereby exceeded, nor that any condition annexed to the grant of their

franchise has been broken, nor that they have failed to perform the duties enjoined upon them by the law of their creation.

Bill dismissed.

Note. Stock is generally used synonymously with "shares of stock" with us, and indicates a definite proportional interest that the owner has in the management, dividends and final distribution of the surplus assets of the corporation upon dissolution. In England it seems that stock is a fund which can be divided and held in irregular amounts, like the government stocks, which can be bought in £991⁄2 sums, as well as any other sums, while a share, or debenture, is of a fixed amount, as £100, incapable of subdivision.-Rapalje & L. Law Dictionary, 1224.

Common stock, or shares, are such as entitle all the owners thereof to equal (in proportion to number of shares owned) participation in the management of the corporation, and, in the absence of any preference shares, to a like equal portion of the profits and assets. The common shares quite frequently have a preference in the management of the corporation, though not in the profits.

Preferred stock, or shares, are such as entitle the owners thereof to some preference in the distribution of the profits or assets of the corporation over the owners of the common shares. There may be various classes of preferred, such as first and second, etc., preferred, with different kinds of preferences as the basis. But within each class the owners have equal rights in proportion to their holdings. The preference may be either as to profits, or assets when dissolved, or both. In the absence of special provisions, preferred shareholders have the right to participate in the management, and are subject to liabilities to the same extent as common shareholders.

Guaranteed stock, in the United States, is generally given the same meaning as preferred the words being used interchangeably-and both meaning that the "preferred" or "guaranteed" shareholders shall not only receive dividends in preference to the common shareholders, each year there are profits to divide, but also that they will be entitled to arrears of dividends for the years there are no profits earned, whenever subsequent profits are sufficient to pay such dividends. 1860, Bates v. Androscoggin, etc., R., 49 Maine 491; 1866, Taft v. Hartford, etc., R., 8 R. I. 310; 1875, Lockhart v. Van Alstyne, 31 Mich. 76; 1881, Boardman v. Lake S. & M. S. R., 84 N. Y. 157; 1882, Elkins v. Camden, etc., R., 36 N. J. Eq. 233. And the rule seems to be the same in England. 1857, Henry v. Great Northern R., 1 De G. & J. 606; 1875, Webb v. Earle L. R., 20 Eq. Cas. 556. Of course it can be made non-cumulative if so expressed. 1871, Bailey v. Hannibal, etc., R., 1 Dillon 174. And a few cases hold it is non-cumulative, unless expressed to be cumulative. 1885, Belfast, etc., R. v. Belfast, 77 Maine 445; 1887, Hazeltine v. Belfast, etc., R. Co., 79 Maine 411. The term, however, is also applied so as to entitle the guaranteed shareholder to payment of arrears of dividends out of the property of the company, before dividing it up among common shareholders upon dissoJution. It is also sometimes applied to indicate the liability for dividends without regard to there being any earnings from which to pay-such stock then seems to be nothing but an interest-bearing loan.

Interest-bearing stock. Some attempts have been made to issue stock upon condition that all sums paid in upon it shall bear interest until the improvement is completed and profits earned out of which to pay dividends; Such stock is designated interest-bearing stock. Since there are no earnings out of which to pay dividends, it seems that the interest can come only out of the capital, if it is to be paid before profits are earned, and would therefore, in effect, be a reduction of the capital to that extent, of which creditors might complain; when the interest is to be paid as it accrues, and before there are earnings, such stock provisions are generally held to be void. 1854, Troy & B. R. Co. v. Tibbitts, 18 Barb. (N. Y.) 297, on 307; 1861, Miller v. Pitts. & C. R. Co., 40 Pa. St. 237, 80 Am. D. 570; 1867, Painesville & H. R. Co. v. King, 17 Ohio St. 534; 1869, Pittsburgh & C. R. Co. v. Allegheny

Co., 63 Pa. St. 126; 1887, Ohio College of Dental Surgery v. Rosenthal, 45 Ohio St. 183; 1892, Re Sharpe, L. R. 1 Ch. Div. 154.

But if the interest is not to be paid until there are earnings out of which to pay, such provisions will be held valid, and if possible such construction will be given to provisions of this kind: 1853, Wright v. Vt. & M. R. Co., 12 Cush. (Mass.) 68; 1857, Waterman v. T. & G. R. Co., 8 Gray (Mass.) 433; 1860, McLaughlin v. Det. & M. R. Co., 8 Mich. 100; 1860, Milwaukee & N. I. R. Co. v. Field, 12 Wis. *340; 1863, Rutland & B. R. Co. v. Thrall, 35 Vt. 536; 1872, Richardson v. Vt. & M. R. Co., 44 Vt. 613.

Special stock. "This is a peculiar kind of stock, now distinctly provided for by statute, but unknown to the general laws of the commonwealth until 1855. Its characteristics are, that it is limited in amount to two-fifths of the actual capital; it is subject to redemption by the corporation at par after a fixed time, to be expressed in the certificates; the corporation is bound to pay a fixed half-yearly sum or dividend upon it, as a debt; the holders of it are in no event liable for the debts of the corporation beyond their stock; and the issue of special stock makes all the general stockholders liable for all debts and contracts of the corporation until the special stock is fully redeemed. Statutes 1855, ch. 290; 1870, ch. 224, §§ 25, 39, cl. 4; Pub. Stats., ch. 106, §§ 42, 61, cl. 3; Williams v. Parker, 136 Mass. 204, 207." Allen, J., in 1885, American Tube Works v. Boston M. Co., 139 Mass. 5, on 9. See, also, 1886, Reed v. Boston M. Co., 141 Mass. 454. This sort of stock seems to be confined to Massachusetts, although other states have recognized redeemable stock. See 1875, Totten v. Tison, 54 Ga. 139; 1879, Culver v. Reno Real Estate Co., 91 Pa. St. 367.

For a valuable note upon the subject of Preferred, Guaranteed, Interest-Bearing, and Special Stock, see 27 L. R. A. 136.

Treasury stock. This is a term used to designate that part of the authorized stock left (after the required statutory amount for commencing business has been subscribed) in the possession of the corporation to be issued in the future by sale by the corporation or upon further subscription; it is also applied to the stock that has once been issued, but surrendered or forfeited to the corporation, and which may be reissued. See, 1890, Alling v. Wenzel, 133 Ill. 264, on 269. When the holding of such stock by the corporation in this way is legal, it is not merged, but lifeless; it can not be voted, nor draw dividends; but may be sold at the face or the market value. See 1 Cook Corporations, § 314, and cases cited.

Deferred stock, or bonds, are those upon which payment of dividends or interest is expressly postponed until some other class of owners of stock, bonds or other obligations are paid. 1 Cook Corp., §§ 14, 762.

Founders' shares are such as are issued to the promoters or founders of the corporation, and which entitle the holders to all the profits after certain fixed maximum dividends are paid to the other shareholders; though deferred until the ordinary dividends are paid to the other shareholders, they sometimes become enormously valuable. For the usual provisions of such, see 1 Cook Corp., § 14, pp. 52, 53, giving forms, and citing, 1893, Re MacDonald, etc., Co., 69 L. T. R. 567; 1895, Re London, etc., Corp., 73 L. T. R. 280; 1896, Re New Transvaal Co., 75 L. T. R. 272; 1897, Re London, etc., Ltd., 77 L. T. R.

146.

Debenture stock does not mean shares of stock, but is the English form of bond, evidenced generally by a certificate representing a portion of a lump debt, which may or may not be secured by mortgage. A similar security is issued in this country sometimes by a corporation giving a bondholder a certificate entitling him alone to a certain sum with interest on exchange for coupon bonds delivered to the company-like the United States government registered bond. For further descriptions and forms see 1 Cook Corp., §§ 14 and 777.

Scrip, is a certificate that the owner is, or will be, upon the performance of some condition, entitled to a share of something, as land, stock or other property. In England it certifies that the holder will be entitled to certain shares of stock when unpaid installments are paid. 1 Cook Corp., § 14, citing, 1876,

Goodwin v. Robarts, L. R. 1 App. Cas. 476. A form of stock scrip is given in full in, 1865, Brown et al. v. Lehigh Coal and Navigation Co., 49 Pa. St. 270, on p. 272; a form of scrip dividend issued by the New York Central and Hudson R. Co. is given in full in, 1874, Baily v. Railroad Company, 89 U. S. (22 Wall.) 604, on 608. See, also, 1884, Gordon v. Richmond, etc., R. Co., 78 Va. 501, on 506. For a discussion of the nature of land scrip see, 1892, Rogers, etc., v. N. Y. & T. Land Co., 134 N. Y. 197. See, also, 1 Cook Corp., § 535, and Angell and Ames Corp., ch. vi., Proprietors of Common and Undivided

Lands.

Watered stock, is stock which upon its face purports to have been paid for at its full face value, but which, in fact, has been issued without the corporation receiving, or having the right to demand, the full face value either in money, property or service.

Spurious or overissued stock, is such as is issued in excess of the amount authorized. Such stock is void. See note p. 763.

Sec. 209. Same.

COMMERCIAL FIRE INSURANCE CO. v. BOARD OF REVENUE.1 1892. IN THE SUPREME COURT OF ALABAMA. 99 Ala. Rep. 1–12, 42 Am. St. Rep. 17.

[Proceeding by the insurance company to be released from taxation. upon $51.000 worth of stock of the Montgomery Bank owned by it. The law under which plaintiff was organized authorized insurance companies "to invest their money in real and personal property, stocks or choses in action and to sell the same." The tax law provided for a tax upon the capital stock of corporations, except such portions as may be invested in property which is otherwise taxed as property, but when such corporation shall pay taxes on its shares, or the same is paid by shareholders, such corporation shall pay taxes only on its real and personal property. The insurance company claimed that $51,000 of its capital stock was invested in that much of the capital stock of the bank, and the bank had already paid the taxes upon this sum. The lower courts decided against this view, and this is the error assigned.]

STONE, C. J. What is capital stock of corporations, and why are they required to have a capital stock paid in?

"Capital stock is the sum fixed by the corporate charter as the amount paid in, or to be paid in by the stockholders, for the prosecution of the business of the corporation, and for the benefit of corporate creditors. The capital stock is to be clearly distinguished from the amount of property possessed by the corporation.

At common law the capital stock does not vary, but remains fixed, although the actual property of the corporation may fluctuate widely in value, and may be diminished by losses or increased by gains.". Cook on Stock and Stockholders, § 3.

"A stockholder has no legal title to the property or profits of the corporation until a dividend is declared or a division made on the dissolution of the corporation." Ib., § 4a.

1 Statement abridged; arguments and much of opinion omitted.

"A stockholder in an insurance company has the same rights that a stockholder in any other corporation has." Ib., § 4a.

"A share of stock may be defined as a right which its owner has in the management, profits and ultimate assets of the corporation. By the court of appeals of New York it is said that 'the right which a shareholder in a corporation has, by reason of his ownership of shares, is a right to participate according to the amount of stock in the surplus profits of the corporation on a division, and ultimately on its dissolution, in the assets remaining after payment of its debts.' Ib., § 5.

"A

In Neiler v. Kelly, 69 Pa. St. 403, Justice Sharswood said: share of stock is an incorporeal, intangible thing. It is a right to a certain proportion of the capital stock of a corporation-never realized except upon the dissolution and winding up of the corporation -with the right to receive, in the meantime, such profits as may be made and declared in the shape of dividends.'

(Citing 2 Morse on Banking, 669-72; 2 Morawetz Corp., §§ 787-9; Wood v. Dummer, 3 Mason 308; Semple v. Glenn, 91 Ala. 245.)

The foregoing quotations are made with a view of presenting clearly and fully the nature and object of capital stock in a corporation. As property it has peculiar attributes. Collectively it is the property of the corporation, while the ownership of the shares is in the shareholders. Sale and disposition of the shares by the several owners is free and untrammeled, save as the law or by-laws of the corporation may have prescribed rules. Not so with the capital stock. That is a security or pledge the law exacts as a condition on which it grants the corporate franchise-the right to incur liabilities for the discharge of which no responsibility rests on any natural person. It is the indispensable condition on which the law-making power grants the franchise, because the law and public policy so declare. And the capital stock is a trust fund; a trust for the benefit and security of the corporation's creditors. The directory, or gov erning body of the corporation, are trustees, charged with the duty of guarding the trust fund, and preserving it for the uses for which it was placed in trust. The uses are, first, to meet and discharge any liabilities and debts of the corporation which disaster may bring upon it; and, second, to restore to the shareholders, when the corporation is wound up, whatever of the capital stock and accumulated gains may remain on hand, after discharging the corporation's liabilities to creditors.

It is not intended to be affirmed that the governing board of the corporation is required to keep the capital stock unemployed in its locked vaults. It should be utilized with a view of making it productive in some line of investment or operation within the scope of its corporate powers. There is this limitation to its authorized use. It must be within the scope of the corporate powers, and must be done with reference to the interest and success of the corporation whose capital stock it is. When this is the case, there is fidelity in the execution of the trust.