Case Name: James Taylor v. Miami Exporting Company and others
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1833-12
Citations: 6 Ohio 176
Docket Number: 
Parties: James Taylor v. Miami Exporting Company and others.
Judges: 
Reporter: Cases decided in the supreme court of ohio : upon the circuit at the special sessions in Columbus
Volume: 6
Pages: 181–230

Head Matter:
James Taylor v. Miami Exporting Company and others.
A bank may receive from the stockholders transfers of stock in payment of debts previously contracted by them; and at a distant day subsequent, equity will not compel the party to reinstate his stock.
If one purchase of the bank a large amount of stock to multiply his votes for a board of directors, vote upon such stock, and immediately after the board direct that the purchase money of the stock be returned, and the stock again taken by the bank, equity will not compel the purchaser to refund the money and take back the stock, where the proofs show no actual loss attendant upon the transaction.
This is a.suit in chancery, adjourned from Hamilton county. The bill states that, complainant was, prior to September 1, 1818, a stockholder in the Miami Exporting Company, and on July 14, 1818, contracted a debt with said company for three thousand dollars, upon a pledge of his stock, upon which suit has been instituted, and they are pressing it to judgment, notwithstanding the pledge of stock, and notwithstanding they have paid him no dividends. Complainant avers that the interests of the company have been greatly mismanaged and their rights abused, and the capital stock nearly all squandered ; that illegal by-laws have been made, by which the company has been paralyzed so that they have been unable to pay off their notes, whereby the credit ot the company was ^impaired, and the stock depreciated; and especially,- [177 that without authority, and for the purpose of ease and favor to themselves and others, on September 22, 1818, the board of directors adopted an illegal resolution, which was made known to but few, whereby it was agreed to accept a transfer of stock in payment of debts due, thereby enabling those that were indebted to withdraw what they had paid in upon stock; and that certain of the defendants, as named in said bill, made transfers under said resolution, amounting in all to one hundred thousand seven hundren and seventy-six dollars and thirty-one cents, and thereby withdrew so much of the capital stock of said company ; and under another resolution of May 8, 1821, of a similar character, forty-six thousand one hundred and nine dollars and ninety-six cents of t.he capital stock of said company was transferred in payment of debts due, which, added to the sum withdrawn under the resolution of September 22, 1818, makes the entire amount of capital stock thus withdrawn one hundred and forty-six thousand eight hundred and eighty-six dollars and twenty-seven cents, since September 22, 1818, and j>rior to January 1, 1823, and in which complainant has an interest in proportion to his stock; the whole amount then (that is, on September 22, 1818,) paid in being four hundred and seventy-nine thousand six hundred and forty-five dollars and thirty-one cents, and his stock twenty thousand dollars. It is then stated that William Barr, on or about May 21, 1821, subscribed for six hundred shares of the-stock of said company — one hundred shares in his own name, one hundred in that of S. Patterson, dne hundred in that of J. Sterret, one hundred in that of D. Griffin, one hundred in that of J. Eiddle, and one hundred in that of Samuel Perry — for which he paid sixty thousand dollars, making the capita] stock paid in five hundred and thirty-nine thousand six hundred and forty-five dollars and thirty-one cents; and that subsequently, on June 5, 1821, by resolution, the board of directors (the said William Barr, Samuel Perry, David Griffin, James Eiddle, and John Sterret being members, and present, voting in the affirmative,) agreed to take back the stock, and did accordingly take back fifty-nine thousand dollars of stock, and refunded to Barr fifty-nine thousand dollars of the capital stock of said company, in conformity with some fraudulent agreement, made previous to the taking of said stock, and for the purpose of securing their own 178] election; which, added to the sums withdrawn *under the resolutions of September 22, 1818, and May 8, 1821, makes the total amount withdrawn two hundred and five thousand eight hundred and eighty-six dollars and twenty-seven cents, si nee September 22,1818, and for which there is nothing to show, leaving a balance of three hundred and thirty-three thousand seven hundred and fifty-nine dollars and four cents of the capital stock, which has been sunk and totally lost by the mismanagement of the affairs of the said company; and this loss will fall upon complainant and others if those who have withdrawn the amounts paid by them are permitted to hold the same. The bill closes by a prayer that those who have transferred stock may be compelled to resume the same, and pay their debts, and meet their proportion of the losses of the said company, and that William Barr be decreed to refund the fifty-nine thousand dollars withdrawn under the resolution of June 5, 1821, and reinstate his stock therefor, and for relief generally.
The answer of the Miami Exporting Company admits the act of incorporation, and that complainant is the owner of twenty thousand dollars of the stock of said company, and was in indebtedness and.pledge of stock as stated in the bill, and that no dividends have been declared since April 1, 1821, soon after which they learned they could not pay dividends, though they had paid complainant. his dividends previously. They say that complainant acquiesced in the necessity of stopping dividends, and deny that he demanded any dividends since April 1, 1821. They deny that they have abused their rights, mismanaged the capital stock of said company, or violated their charter by the adoption of illegal resolutions. They admit the resolution of September 22, 1818, but deny it was passed to defraud any stockholder or creditor, or that it was known only to a few, and adopted only for a select few, but that it was general and as public as any other of their resolutions; that it was in force a long time and generally known, and that all stockholders indebted were entitled to the benefit of it, and that when passed they were redeeming their notes with specie, and their credit was unimpaired, and their stock was believed to be worth more than par, and was then selling, and continued to sell for a long time after it, at par. They considered they had the right to pass that resolution, and then believed it for the benefit of the stockholders, and, as far as they know, the stockholders acquiesced in that resolution, and manifested *thoir confi- [17® dence in that board by their re-election. They admit a transfer of stock, as stated in their answer, under this resolution, to the amctmt of ninety-six thousand seven hundred and seventy-six dollars and thirty-one cents, and not one hundred thousand seven hundred and seventy-six dollars and thirty-one cents, as stated in the bill, and that they were, bona fide, for a fair and valuable consideration in payment of debts. They admit the'resolution of May 8, 1821. They deny that it was fraudulent; they state that by it one-half of the stock owned by any stockholder was authorized to be transferred in payment of debts, as the stock was not greatly depreciated, and that the remaining half would be sufficient to cover their proportion of losses, and they believed that by this resolution they were promoting the interests of the said company, and that the whole amount of stock transferred under this resolution, as therein stated, was thirty-five thousand five hundred and fifty-seven dollars and sixty-eight cents, which, added to that transferred under the resolution of September 22, 1818, amounts to one hundred and thirty-eight thousand eight hundred and twenty-two dollars and ninety-four cents, and not one hundred and forty-six thousand eight hundred and eighty-six dollars and twenty-seven cents. All these transfers are alleged to have been made in good faith, without any intention of fraud. They admit the capital stock paid in to be four hundred and eighty thpusand six hundred and forty-five dollars and thirty-one cents. They deny that Barr subscribed, on May 21,1821, for six hundred shares of the said company, but on that day he came into the office of said company and directed the officers of the company to charge on the books of the said company six hundred shares of the said company, as alleged in the bill, and that the money was paid in. They admit that the stock was not charged upon the books, though entered upon a piece of paper in the said office, and they admit the resolution of June 5, 1821, and set it out at large, but say the stock when taken back was well worth as much as it was when taken by Barr, and the company sustained no loss, and no fraud was intended ; and though said stock was voted on May 22, 1821, yet stock so taken did not elect the board, as there was a heavy majority without it. They deny that complainant ever applied to adjust his account, but, as they understood, set up some extravagant claim against the said company. They state, by a resolution of November 6, 1823, there was a consolidation of. stock partially 180] paid in, so as *to reduce the stock to the amount paid in, from which deducting the transfers left three hundred and forty-two thousand nine hundred and ninety-two dollars and thirty-seven centsof capital. The debts owing amount to ninety-nine thousand dollars, which, added to the capital, makes four hundred and forty-one thousand nine hundred and ninety-two dollars and thirty-seven cents. The debts due, they say, are about four hundred and thirty-eight thousand eight hundred dollars, and real estate seventeen thousand three hundred and twenty-nine dollars and fifty-nine cents, and depreciated paper three thousand two hundred and ninety dollars. Total, four hundred and fifty-nine thousand four hundred and nineteen dollars and fif'ty-nine cents, upon which there will be very great loss. They say they have made great exertions in attempting to collect, and have expended about nine thousand dollars in charges upon that account; and they say that there is considerable stock held by those who have transferred, and in the ag gregate it amounts to one hundred and twenty-three thousand and fourteen dollars and five and a half cents. For further particulars, they refer to their books. They say that all the stock transferred was transferred by the holders thereof, and transferred at par, and that the stock transferred under the resolution of September 22,1818, was believed to be at par value, and after said resolution was rescinded, stock was sold at par for cash, and they believe that that transferred under the resolution of May 8,1821, was worth ninety cents, down to seventy cents on the dollar, stock varying, in 1821, from par to seventy dollars per share. They deny all fraud, etc.
The answers of the other defendants all concurred in denying fraud, and asserting that the sales of stock were effected in good faith. Some controverted the legality of the complainant’s ownership of stock. Some insisted on the statute of limitations. Thomas D. Carneal alleged that the complainant should refund eleven thousand nine hundred and twenty dollars received for dividends upon stock that he could not legally own.
Fox, for Barr:
In relation to that part of the bill in which he is charged with having subscribed for six hundred shares of the stock of the company, on May 21, 1821; of his having paid for those shares, and of the contract having been rescinded by a fraudulent vote of the directors on June 5, 1821, he denies ever having subscribed for these shares, and calls upon *the com- [181 plainant for proof of the fact. He admits that on the day mentioned, himself and some others agreed to make an application to the officers of the company for the purchase of six hundred shares; that respondent accordingly applied to the president or cashier for the purchase of the stock, viz : one hundred shares in respondent’s name, one hundred in Samuel Perry’s name, one hundred in David G-riffin’s name, one hundred in Samuel Patterson’s name, one hundred in John Sterret’s name, and one hundred in James Riddle’s name, having been by them authorized so to do.
He also admits that Miami Bank paper, and checks of individuals, to the amount of sixty thousand dollars, were placed in the hands of William Oliver, cashier of the bank, to be applied in payment of the stock, in case the application should be approved by the president and directors of the company. But he denies that the cheeks were ever charged to the drawers, or that the money was ever entered on the books of the company, either as a charge ■or credit against or for the company or any other person. He denies that any entry was ever made of the transaction on any of the books of the company, except the resolution of the 5th of June, hereafter set forth. He further shows the following resolutions were passed by the stockholders and by the directors, which are made part of the answer:
“Agreeable to notice, the shareholders of the Miami Exporting 'Company met at their office, in order to take into consideration the expediency of increasing the stock of said company. Messrs. Arthur St. Clair, jr., Thomas Williams, and Josiah Halley were chosen judges, and O. M. Spencer, clerk. A motion was made that the president and directors of the Miami Exporting Company be authorized and empowered to create as many new shares of the stock of said company as in their opinion may be necessary to supply the demands, and to sell them on such terms or considerations as they judge most advantageous to the stockholders, until the first day of November next. On counting the votes, there being sixteen hundred and eighty (all the votes present) in favor of the above motion, it was accordingly carried. Signed by
“Arthur St. Clair, Jr. Thomas Williams,
Josiah Halley,
"Judges of the election”
*(tMay 3, 1814.
“The following resolutions were unanimously adopted. The president and directors of the Miami Exporting Company, by virtue of the power vested in them by the stockholders, at their meeting on the 2d inst., resolved to create six thousand new shares, of which they will now put into the market fifteen hundred shares, on the following terms, viz:
“ 1. The present shareholders shall be allowed to subscribe to the amount of fifteen hundred shares, in proportion to the amount •of stock they now severally hold, for which they shall be charged with a premium of ten per cent. This charge shall be made on the deposit accounts.
“ 2. On this stock the proprietors shall not be required to make any payment until the expiration of six months, but shall be allowed, if they wish so to do, to pay on each share the sum of fifty dollars, or any less sum. Beyond the sum of fifty dollars per share, no payment shall be received on this stock until the same shall be authorized by a resolution of the board of directors.
“3. After the expiration of six months, the directors shall have power to require payment on this stock, provided that no installment shall exceed twelve dollars and fifty cents per Bhare, of which thirty days’ public notice shall be given previous to the payment of each installment.
“4. In subscribing for this stock, any subscriber who now holds one share shall be allowed to subscribe for one more; every subscriber who now holds three shares shall be allowed two more, and every subscriber who now holds five shares shall be entitled to three new ones, and every subscriber who holds more than five shares, and has an odd share, shall not be entitled to a new share for such odd share.
“ The president and directors of the Miami Exporting Company also put into the market fifteen hundred shares on the following terms, viz:
“ 1. This stock shall be sold at an advance of ten per cent. The whole amount of this advance shall be placed to the credit of the deposit accounts of the present stockholders, in proportion to the stock which they now hold.
“2. At the time of subscribing, the premium of ten dollars, and also the further sum of five dollars, shall be paid on each share. At the end of each sixty days after subscribing, the further sum of fifteen dollars shall be paid, until each share shall *be [183 paid up to fifty dollars, beyond which amount of fifty dollars no payment shall be made on any share, unless the same shall be authorized and called for by the board of directors.
“ 3. The remaining fifty dollars on each share shall be payable when called for by the directors, by installments not exceeding twelve dollars and fifty cents, of which payment at least thirty days’, previous public notice shall be given, and two installments shall not be required within sixty days of each other.
“ 4. The subscribers for the above-mentioned stock shall be at liberty to pay their installments faster than is herein required, until their payments amount to fifty dollars on each share.
“ 5. No individual shall be permitted to subscribe for more than, twenty-five shares on one day, nor shall any individual be allowed to-subscribe for more than twenty shares within any period of ten days.
■ “6. It shall be the duty of the officers of the bank to exercise a-discretion in receiving subscriptions, and they shall take memorandums of applications, and lay them before the directors for their approbation. By order,
“ O. M. Spencer, • Clerk.”
He then avers that the president and directors never did approve of the application to purchase; on the contrary, the only entry ever made on the books of the company, in any manner relating to the application to purchase, was a resolution passed, on June 5, 1821, in the following words: Resolved, That the stock purchased by Vm. Barr, James Eiddle, David Griffin, John Sterret, Samuel Patterson, and Samuel Perry, on the 21st of May last, being six hundred shares, shall not be charged to their accounts, and that the cashier be, and he is hereby authorized and directed, to return the whole amount of moneys deposited for the payment of said shares, excepting one thousand dollars, to be applied in full payment of five shares retained by David Griffin, and five shares by John Sterret, thereby disapproving of said application. He admits the checks and money were then received back from Oliver, and the whole matter considered at an end. No certificate, nor any transfer of stock, was ever made or delivered to any of said persons named, except for five shares to G-riffin,and five shares-to Sterret. He denies that any fraud was intended in this transaction.
He denies that the president or cashier had power to make a sale of stock under said resolutions, without the sale was ap184] proved *of by the board of directors, and that after November 1, 1814, he denies the power of the board of director’s to create or sell any new stock. ■ He also denies the power of the-company to make a legal contract for any new stock, there having boon already more than five hundred thousand dollars ..capital created.
He insists the complainant has remedy at law, has shown no title to equitable relief, etc.
V. Worthington, for complainant:
The Miami Exporting Company was incorporated on April 15, 1803, 1 Ohio Stat. 126, to continue until May 1, 1843, and was permitted to hold goods and chattels, lands and tenements, to an .-amount not exceeding five hundred thousand dollars. By section 3 of the act of incorporation, the capital or joint stock is limited -to one thousand shares of one hundred dollars each, unless by the •assent of a majority of the stockholders. 1 Stat. 128.
By section 5, the office of the company is fixed at Cincinnati, and the sole management of the funds of the company is given to the president and directors for the use and benefit of the stockholders, ¡according to their respective interests therein. By this section, the •directory have power to fill vacancies in their own body. 1 Stat. 130.
By section 6, they are authorized to appoint agents, clerks, etc., •fix their compensation, make shipments, and dispose of the funds of the company for the purposes contemplated, in such manner as they shall adjudge most advantageous to the stockholders. 1 Stat. 130.
By section 8, they are enjoined to vest at least one-half of all -cash received on shipments in produce and manufactures. 1 -Stat. 132.
And by sections 12 and 13, they are limited in their engagements to the one-half of the actual stock in the funds, and made •liable for any excess, except in cases of necessity. 1 Stat. 133.
These are all the powers given to the president and directors -over the stock of the company. Shortly after its incorporation, thO company went into operation, and soon increased their stock to -three thousand shares, at which it stood till May 1,1814, when, by a vote oí the stockholders, the stock was increased to six thousand ■shares, fifteen hundred of which were to be divided, pro rata, .among the then stockholders, and the ^residue put into market [185 upon certain terms. Of the original stock, complainant held, on May 1, 1814, seventy-four shares, took his proportion of the reservation, thirty-seven shares, and purchased eighty-nine, making his entire stock two hundred shares.
In September, 1818, the directors, without the assent of the stockholders, passed a resolution authorizing the officers of the bank to receive transfers of stock in payment of debts, and again, in May, 1821, they, of their own accord, authorized the stockholders to transfer a proportion of their stock to pay regular aecom modation notes. Under these resolutions, certain stockholder» withdrew from the company one hundred and thirty-eight thousand three hundred and twenty-two dollars and ninety-four cents of its capital.
In May, 1821, William Barr takes six hundred shares of the stock of said bank for the purpose of operating upon an election that was about to ensue. He succeeded in his ticket by a majority greater than his additional stock, and after 'the new board was organized, they agreed to rescind his purchase, and did actually receive back five hundred and ninety shares, and refunded him his money.
The complainant insists that the transfers under the resolutions of September, 1818, and May, 1821, and the Barr transaction, are a fraud upon his rights, and can not be sustained upon principles of justice and equity.
When the complainant became the holder of his stock in this company, he acquired a vested right in the whole capital, in proportion to his interest, and no act of the directors could divest. that right. He had the right to participate in the increase or diminution of the stock, which could alone take place under the direction, not of the board of managers, but the stockholders generally. Banking corporations are now viewed as a copartnership, and the stockholders partners, or, more correctly speaking, the corporation is a trustee for the management of property for certain purposes, and each stockholder a cestui que trust according to his shares, and the power of increasing or diminishing the stock fund, according to the " original agreement, is a beneficial interest in each subsisting partner, and which the partners or cestui que trusts must exercise in proportion to their respective interests in the original stock. If, in the course of events, the stockholders of an incorporated bank under their charter agree to increase 186] their stock, or to diminish it, each ^stockholder has the right to participate in proportion to his interest. This right does not belong to the directors, it is reserved to the stockholders.
In the case of Gray v. Portland Bank, 3 Mass. 364, recognized in the present case on demurrer, reported in 5 Ohio, 162, and cited in Angelí and Ames on Corporations, 312, the positions we contend for are very forcibly sustained. That was a ease of an increase of stock. This is a'case of a decrease in stock, and no good reason can be perceived why the rule in the one case should not be. that of the other. In that case, the stock was increased by the joint act of the stockholders, but Gray was excluded from participating therein. In this case, not the stockholders, but the directors resolve to reduce the joint capital by taking back the stock of those that are indebted to the institution. Is this fair ? Is it right that directors who control the joint funds of a stock company for the benefit of the whole, should suffer a portion of the stockholders to withdraw their capital without the consent of the others? A majority of the stockholders could not do this, much less the directors. When the capital is taken, it can not be withdrawn or diverted from the purposes contemplated without the consent of all. It is taken upon prescribed terms, and by them the holder must abide, unless his copartners, one and all, admit his withdrawal or the diversion. This is the practical common sense construction of all contracts, and what is there in bank charter agreements to vary the rule ? If it be otherwise, what is to prevent the majority, if there be an advance upon the stock, to appropriate it all to themselves; or, if a loss, to throw it upon the minority ? If a majority of the stockholders could not thus divest the minority of their vested rights, much less could a board of directors of that majority do it. In the case last referred to, 3 Mass. 383, Judge Sedgwick says-, in enforcing the proposition, that a stockholder of the original stock, at the time of the vote to augment the capital of the bank, had a right in the new stock in proportion to his interest in the old stock, of which he might not be rightly deprived by his partners, the other stockholders. “ At the time of the vote to augment the capital of the bank, all the stockholders were partners. The augmentation was supposed to be and intended for the profit of the joint concern ; the capacity to augment was in virtue of their joint interest; and it could only be done by the will of the majority; and that in pursuance of their original association, the law by which *the partner- [187 ship existed, and by which the united interest was regulated, was that alone by which the augmentation could be made. Whenever a partnership adopts a project within the principles of their agreement, for the purposes of profit, it must be for the benefit of all the partners in proportion to their respective interests in the concern. Natural justice requires that the majority should not have authority to exclude the minority. What is there in this- case which should make it an exception from that general principle? There is nothing that I can perceive in the reason or nature of the thing. Suppose it to have been morally certain, that the augmentation would have been double in value to the amount of the money necessary to make it, could a combination of a majority have deprived the minority of their proportion ?
“ The whole number of shares was one thousand; could the proprietors of five hundred and one have engrossed the whole, and deprived the partners of their share? It is impossible.” We all exclaim with the judge, it is impossible. Let us reverse the case and see upon principle if the result be different. A bank with a capital of three hundred thousand dollars gets successfully into operation. A few honest men get control of it, discount freely, not forgetting themselves and friends. In a few years, the bank is clogged — can not get along. Somehow or other, its debtors are many of them insolvent, and those that are not are hard run, but have bank stock and property in plenty. A director proposes that stock be taken in payment of debts, alleging that insolvent debtors may pay in that way, and that the dividends would be increased (see Spencer’s deposition), and it is so. The stock is taken, not from the insolvent, but the solvent debtors, to near one-half the capital, and when this isdone,itisfound that the whole capital is exhausted, and the remaining debts are not worth a pot of porridge. The stockholder, who had no debts to pay, comes forward and asks, how is this? I thought, in these matters, profits and losses were to be equally borne; but you have got ail the cash, and left me the bag to hold. Is this just? Does it accord with reason? No. It is impossible. Rut, nevertheless, such is the case of the complainant; and the defendants, in a body, cry out, we acted in good faith, intended no fraud, and we are all honest men, every one of.us. It is true, the stock now is not worth a song; yet it was worth par when we transferred. But they can not tell how or why it is now worth 188] less than then. No mismanagement *sinee, no bad debts since created, and it is strange that the stock should not be as good now as it was then. So sure are they of the par value of this stock, that they have attempted to prove the stock was par between 1818 and 1821, and they doit by showing that Spencer took a few shares in payment of debts and for Miami paper, and Longworth sold seventy odd shares to John H. Piatt for notes and mortgages, and may be Riddle, Este, and others may have sold some. It seems to me very strange that' there should be an attempt to adduce proof upon this subject, for if the stock could have been sold for par in market, why not have sold it, got the cash, and paid the debts? What necessity was there for the measure? The very fact of the resolutions and transfers are conclusive to my mind, that the stock was not worth par, and could not be sold, saving a few shares, and then not for cash. •
But whether the stock was worth par or not, it is immaterial; the charter of this institution, the fundamental agreement by which the several stockholders threw their respective funds into a joint stock, does not sanction a withdrawal of the capital, directly or indirectly; and no device oí a majority of the stockholders, much less of the directors, or a minority, can be available to accomplish that purpose. Each stockholder’s interest extends to the whole capital in proportion to his stock, and can not be taken away but by and with his consent, and of course this reduction of the stock, to increase dividends and obtain payment of debts from •insolvent debtors, will not do. No principle that has any kindred to justice or natural right will sanction the position, that a few stockholders, who have created debts to the amount of the stock held by them, can cancel their debts by a surrender of their stock, and thereby sink a failing corporation, and leave the wreck to the unsuspecting that have no debts to pay. I have had some curiosity to know how far the directors that passed those famous resolutions participated in these transfers, and what stock they have retained upon which to enjoy the increased dividends; and I find that all save one (who probably was not present when the resolution passed) are participants, and but few of them now hold stock. ■Of course, if their design was, as alleged by Mr. Spencer, to increase the dividends, we see how those who contemplated that increase have partaken of it. I have hitherto been disposed to consider these transfers as untainted with actual fraud, and merely void from a defect or want of power in the board to sanction them; yet *when I see the directors holding out the idea to the un- [1S9 suspecting and unindebted, that the dividends would be increased, and debts of insolvents to the bank secured, and in the meantime getting not only out of debt, but out of interest in the bank, at the •same blow, under these resolutions, we are induced to believe that there was something more than the mere stretch of power; it was ■& breach of faith.
N. Wright, for defendants:
The object of the complainant in this cause, so far as his object is disclosed in the bill, appears to be to have certain contracts, made by divers persons with the directors of the Miami Exporting Company, for the sale and transfer of stock to the corporation, in payment of debts, set aside, on the ground that they were fraudulently made.
Before discussing the merits of the case, we may as well ascertain what has already been done in the cause.
At two successive terms of this court in bank, we understand the demurrer originally filed to the bill was sustained by the then judges, but was continued for further argument.
At the December term, 1831, however, this court, upon full argument, overruled the demurrer, saying that “if the case made in the bill, is one under which facts might be proven, entitling the complainant to any relief, the demurrer could not be sustained.” The court further say: “Upon the case made in the bill, the complainant’s interest has been destroyed by the acts of his agents fraudulently performed for their own exclusive advantage.” It is on the ground of this alleged fraud, and upon the-further ground that the defendant’s directors were the trustees of complainant, and therefore liable to account, that this court sustained the bill on demurrer.
The case now presented, is a case stripped of everything like actual fraud. All the answers, in the most positive and unqualified manner, deny any fraudulent intent, in making the transfers, to injure or defraud the complainant, or any other person. They all allege, and prove, too, that at the time of those transfers, the stock was selling at par in the public market; that if they had doubted the power of the corporation to receive the transfers, they could have gone into the market and sold their stock, and have paid their debt in some other mode. They all deny there being any secrecy in the transaction. They aver and prose that the existence of these resolutions was as publicly known as any other of the 190] transactions of the bank, and that *many of the large stockholders absolutely refused to sell their stock, because they expected larger dividends when the stock became reduced.
That so far from these resolutions being kept secret from complainant, he absolutely refused to transfer any of his stock to pay bis local debt due the bank, but wanted to transfer in payment of a debt, which, by express contract, was payable in eastern funds, and merely deposited wit.h the company for collection. Vide' depositions of O. M. Sepencer, Longworth, Oliver, and G-ano.
Thus it appears the complainant made no objection against other debtors parting with their stock to pay bank debts, but refused to part with his, except at the premium of the difference between western and eastern funds. He not only was knowing to-these transfers, as appears in proof (and his knowledge is not denied in the bill), and made no objection at the time, but remains-perfectly still and quiet until his own debt, which had been due for years, was transferred to the Bank of the United States. Then he comes forward, and claims that contracts entered into in perfect good faith shall be set aside — at a time, too, when it is too late to replace the parties in the same position they formerly occupied. A court of equity, acting as in ordinary cases, would require of such a complainant, not only strong allegations, but proof equally strong and decisive, in support of those allegations. In the present case, there is no proof in support of the fraud-charged in the bill.
Let us ascertain, then, if there is any legal fraud in the case.
To support the. position of a legal fraud, it is attempted to be-established as a legal proposition, that taking a transfer of stock in payment of debts is a withdrawal of so much of the capital stock of the company, and that the directors have no power to-withdraw any portion of the capital, but this, if done at all, must be done by a meeting of the stockholders.
But how or in what way was the transferring of this stock, all of which had been previously paid for, a withdrawal of the capital stock of the company ?
The stock, when paid for, was a species of property, and of value too — and it was of as much value when transferred to the corporation as it was in the hands of the original holder.
It could not be of less value, supposing the corporation to be perfectly solvent. If the corporation was solvent, the share in the ' bands of the debtor was worth its one hundred dollars — and it was ^perfectly immaterial to the corporation whether it was [191 paid its debts in money or that which was equivalent.
The company not only purchased stock, but they resold the same stock, and, in the case of Highway, at an advance of five per cent, beyond the price they allowed for it (Spencer’s deposition),, and also received the regular dividend on this stock, the same as .any other stockholder. How the transaction can be construed into .a withdrawal of capital, I can not conceive.
But, supposing these resolutions had the effect of diminishing the •capital, is it clear and certain the board of directors have no power -to make any contract, which may possibly prove a bad bargain, and thereby diminish the capital ? Is it clear that the directors of a banking company can not, in the exercise of a sound, honest •discretion, receive a transfer of stock in payment of debts due the institution, although they may be satisfied, that unless they take -the stock they will get nothing ? Must they stand with their arms folded, and refuse to take the only species of property their debtor ■has to give in payment of the debt due them ? Must they refuse to take that which will produce money, because the money itself ■can not be produced ?
We have supposed it to be well settled, that all corporations have an absolute right to purchase and sell at pleasure; that this right is neither limited as to objects, nor circumscribed as to ■quantity, except specially restrained by its charter of incorporation, or by some other statute regulation. It is not necessary the •corporation should have an express power to purchase; this power is incident to the body corporate. 2 Kent’s Com. 281, 282.
None of the members of the corporation possess any individual right or privilege in the institution but those which are expressly granted and named.
Why is it the directors who are elected to manage the concerns •of the company, have not the power to receive transfers of stock in payment of debts ? Not because there is any express prohibition of the exercise of the power in the charter. Not because under all circumstances, and in all cases, the exercise of such a power leads to a direct loss on the part of the stockholders, for it is admitted that the taking a transfer of John Highway’s stock, in 1816, operated beneficially for the company; not because the public morals arc corrupted by such contracts; not because the corporation do not obtain a consideration for the discharge of the T92] debt. There is no reason assigned in the ^plaintiff’s argument, except that inasmuch as the shares of stock could not be in■créased, it follows that they can not be decreased without the direction of the stockholders at one of their meetings.
It would be a sufficient answer to this to say, that if the argu ment was to be carried out, nothing could be done without the assent of the stockholders; because no transaction can take place,, but what may result in the withdrawal of some portion of the capital funds of the company; and if this is to be the criterion of the power of the directors, they are powerless as a body. But let us. see if the board of directors are so powerless as is supposed by this argument. By section 5 of the charter oí this institution, it is provided “ that the president and directors shall open and continue their office in the town of Cincinnati, and shall have the sole management of the funds of the company, for the use and benefit of the stockholders,” etc.
By this section it would appear that the directors not only have the management, but the sole management, of the funds of the institution. The stockholders have no right to interfere in the matter, except so far as their right to elect the directors enables them to change their board. By a clause in section 6, the same directors are authorized to “ dispose of the funds of the company in such a manner as they shall judge most advantageous to the stockholders;” and for the purpose of enabling the stockholders to ascertain what is done, the directors are to make “ full, fair, and regular entries of all their transactions, in books to be kept at the office for that purpose, which shall at all times be open for the inspection of the stockholders.” The directors for the time being are the authorized agents of the corporation ; and anything done by them in relation to the disposition of the funds of the company is binding upon the company, provided it is honestly done. 5-Ohio, 165. It is not contended that the directors could fraudulently combine with others, and by deliberate and intentional act, defraud the other stockholders; but we do contend, that the directors, having the power of managing the funds, are only required to exercise a sound, honest discretion in managing those-funds, and in settling with any of their debtors. It is for them to determine whether the debtor is solvent or insolvent, honest or dishonest, and to make the best arrangement they can for the adjustment of the debts due and owing them. On no other principle can any man deal safely with a corporation.
*This corporation and stockholders has, from its first in- [193-stitution to the time of ceasing to do banking business, acted upon the principles here contended for. Hence we find the board, on April 30, 1808, “resolve that the directors may, at any.time when. they conceive it to be the interest for the company, receive stock ■or shares of this company in payment for debts due them.” This resolution has been a part of the records of the company to the present time. We find, also, in August, 1808, the company purchasing Israel Ludlow’s shares of its stock at a public auction.
On November 23, 1806, the company received of John Highway, in payment of his debt, one hundred and seven shares, at an advance of five per cent., amounting to six thousand four hundred ■and five dollars. We find this same company reselling this same Highway stock, in 1817 and 1818, at an advance of ten dollars on a share, making a clear profit of five hundred and thirty-five dollars in the trade. It was the understanding of the company, from its first organization, that it had the power of purchasing or receiving stock in payment of its debts.
Again, if it had no power to receive stock in payment of its ■debts, where did it obtain the power of receiving transfers of stock as collateral security for payment of notes discounted ? That the board received a pledge of stock, in lieu of an indorser, to secure ■the payment of accommodation notes, is notorious. The complainant himself had pledged his own stock to secure the payment ■of a debt of three thousand dollars, the collection of which debt is now enjoined by the present proceeding.
But it is said that as this operates to reduce the capital, it can •only be done with the assent of the majority of the stockholders, because the charter prevents an increase of the stock without such assent.
This position can not, for a moment, be sustained; for the only power which the stockholders have individually reserved, or rather conferred upon them, is the right of voting in the election of directors, and upon the question of increasing the stock, and this latter right is the result of the limitation of the directors’ power, contained in the first clause of section 3; and by no fair construction of the powers contained in this charter can the stockholders ■do any valid act affecting the funds or business of the institution. To contend for the contrary is to say that the directors have the sole management of the funds, etc., and the stockholders have the sole management, etc., which is preposterous. The directors, for 194] the time being, are the company ^itself (so far as contracts are concerned); their power is without control, with the single exception of increasing the amount of stock.
This appears manifest when we reflect upon the nature and ■character of a corporation. It is the creature of the legislature— the expression of the legislative will. The rights and duties of ■the corporation and of the stockholders must be clearly defined. Neither the collected body of stockholders, nor the individual •members, can claim a right not given by the charter. If this is 4he law, upon what principle can it be said that the stockholders •must be consulted at a public meeting to know whether the stock of the company shall be received in payment of debts ? The charter gives to the stockholders no voice on the subject. They can exercise no power except those expressly conferred upon them. ‘They have, therefore, no voice in the matter. Angelí on Corp. 121; 1 Caine, 390. Their united act on the subject would be void. Whenever a particular business is delegated to a select body, and •others join in the performance of it, the act is void. Angelí on Corp. 291.
If we resort to other states we shall find the same institutions exercising the same powers in the same way. In Barrington v. Bank of Washington, 14 Serg. & R. 416, the cashier had undertaken to receive transfers of stock in payment of debts without an order of the board, and the validity and obligation of a discharge honestly obtained in this way was considered so clear that one of the counsel declined arguing the question, and the ■> judge, in page 422, considers the discharge valid.’
The power of the directors to receive a transfer and forfeiture of stock even in payment of the installments due upon the stock, is held binding on the stockholders. 5 Johns. Ch. 383. And persons who surrendered their stock at the time they were owing one-half of the subscription, were decided to be no longer persons composing the company, the contract having been bona fide. 5 Johns. Ch. 384; 19 Johns. 480.
I take it for granted, then, that the directors had the power to act in this matter; that they were the authorized agents of the stockholders, and that their principals are bound by all their contracts honestly made. 5 Johns. Ch. 382.
“As respects the arrangement in question, the directors had a general authority to act according to the best of their *judg- [195 ment for the benefit of the bank.” “ The directors stood in the relation of agents, acting under a. general authority, who alone are responsible for an abuse of it. Whether they act provi dently or otherwise, is a matter with which the person with whom they contract has nothing to do. They represent their principal, and are of sufficient discretion to contract for him. No man in his senses would contract with a hank on any other terms.” 11 Serg. & R. 417.
The directors, then, appear to have had the power to make the contracts in question, and have exercised it. Have they exercised it honestly? Can any man doubt their honesty in the transaction, however they may doubt their wisdom ? What motive had either the directors or Samuel J. Brown to injure the company on October 17, 1818, when Brown transferred his two thousand dollars? The directors were all stockholders, and would be affected by the transaction if injurious. But at this time the institution was in full operation ; its money was in good credit; its stock worth par at least, and was ten per cent, advance in August, 1818; where was the motive to defraud ? This transfer, with that of Baum and Perry, made the day previous, and the one of Carneal, made on the 30th of October, are the only transfers made within four months of the passage of the resolution of September 22, 1818; a resolution which it is pretended was passed with a view to enable the embarrassed stockholders to withdraw the capital stock of the company, and to defraud the larger stockholders; and yet we find, that with this object in view, when the resolution is passed, all the debtors, save and except three, made no move to complete this intended fraud until more than four months have elapsed. They took a kind of leisure time to do this job of fraud!
Again, we find that this, bank stock was a pretty marketable commodity; some of the most business men in the city were perfectly willing not only to receive it in payment of debts, but were willing to buy it at par, and transfer bonds and notes secured by mortgage in payment. Longworth says he sold John H. Piatt seventy-three shares for seven thousand three hundred dollars, the par value, in the month of September, 1821, and it will be found that there were only two transfers of stock made after September 14, 1821. All the transfers, except these two, were made as early as May 22, 1821. Spencer and others were purchasing at par during the years 1819, 1820, 1821. 196] *Again, how can it be pretended that a fraud was intended when it was open for all to transfer ?
But it is said those only could transfer who were indebted; admit this to be the fact, the complainant was not in that predicament, for he then was, and ever since has been in debt to the company, and probably will be as long as he can. But this argument will not be entitled to any consideration when we consider that there were few, if any, of the stockholders that were not indebted to the company; there was no partiality shown in the resolutions ; they embraced all the stockholders who were indebted, and all the stockholders were indebted — some, to be sure, more largely than oth ers.
But suppose the complainant could have set aside these transfers, if he had made a timely application for that purpose, can he, therefore, do it at any period of time, and that, too, in a court of equity? Can the principal, on being informed that his agent has done an act or made a contract which he disapproves, lie still, permit the person who has contracted with his agent to part with his property on the faith of the contract made, afterward come forward and disavow his agent’s acts ?
It is a well-settled principle that an authority to an agent may be proved as well by subsequent assent as by a previous power; that a ratification of the act is equal to a previous authority; and that a principal, in order to avoid the act of an agent, is bound to show his dissont at the first convenient opportunity after the transaction is made known to him.
So far from Taylor denying the acts of his agents to be binding-upon him, he acknowledges their obligation by himself applying-to transfer his own stock in payment, of a debt not embraced in the resolution. H'is objection at that time was not to the power, nor to the fraudulent intention of the directors to cheat and defraud the stockholders. He has, by his own acts, confirmed these-transfers, so far as he' could confirm them. He voted personally for all the directors of 1820, and, by agent, for all those of 1821; and these were nearly the same as the directors of 1818. He is, by this very bill, confirming a part of said transfers, by alleging that they have been since sold to one of the defendants, whom he is seeking to make liable for the purchase money. And if he has not confirmed them, he has laid by until it is too late for a court of equity to help him. He has laid by and suffered the present respondents to rely upon the contracts which have been made, until it is impossible that *they should be placed in the [197' same situation they were before the contracts were made.
Allow us to enlarge upon this point in the case, and notice particularly its bearings on complainant’s claim.
In the first place, he can not have a compensation in damages for a tort; equity has no such jurisdiction. If he could show that any individual director or stockholder had been guilty of a fraud in relation to the affairs of the bank, to his injury, damages for that injury are not recoverable here. Fraudulent acts may, in a proper ■case, be set aside, and the parties reinstated in their original situation, if no counteracting equity has arisen; but beyond this, equity can not go. This position requires no argument.
In the next place, complainant can not have a decree for any ■sum to be made up to him, or for the stock to be made good to him, at an estimated or supposed price; nor, indeed, for anything whatever to be paid to him. If he could succeed to the utmost, his decree could go no further than to require the debts to be set up which have been paid in stock, the stock returned, and those debts paid to the bank. To go beyond this would be to dissolve the corporation and distribute its stock before the expiration of the charter, and without a quo warranto or any adjudication of a forfeiture. If Taylor can have any portion of the value of his ■stock paid to him, every other stockholder has the same right; and thus, on application of any stockholder, the corporation may be dissolved and its funds divided, leaving, for aught we know, its ■debts unpaid and the charter remaining, in full force, on the statute book. After what has already been said in this case, by this court (5 Ohio, 167), it is unnecessary to argue this point.
It is material to keep distinctly in mind, the consequences which may follow such relief as may be granted, with reference particularly to this view of the case, which, of itself, is sufficient to settle the whole. The directors are agents of the stockholders, appointed by them to manage for them the affairs of the bank. If the stockholders are dissatisfied with the acts of those agents, done either with or without authority, it is incumbent on them promptly to disavow them, otherwise they are bound by them; more especially are they bound, when the rights and interests of others may be affected by a lapse of time. Let us refer them to some of the consequences which may follow this relief.
*Many of the stockholders who transferred stock are since ■dead; many have become utterly insolvent; many could have sold their stock to others at the same prices and paid their bank debt with the proceeds; this could have been done, even long after the ■stock began to depreciate, for the notes of the bank depreciated, ■as much as the stock.
Now suppose we grant, for argument’s sake, that the board of •directors acted fraudulently in making the orders for the transfers, it can hardly be pretended that every stockholder was guilty •of fraud in making his transfer. If Taylor had applied to this ■court promptly, all parties might have been reinstated in their own rights without loss; but now, after so many of the transferring stockholders have become insolvent, if a few who are able to pay have to return the amount of their stock into the common fund, they suffer a loss by the delay, to the whole amount of the insolvencies accrued since the transfers; for the common fund, which must ultimately be divided among the stockholders, is lessened by that amount.
Again, those who might have sold their stock in market, by the ■acquiescence of the complainant,-have lost that advantage.
Again, those who have transferred their stock have had no vote in the management of the corporation for the last twelve or fifteen years; and, for aught that appears or can be presumed, the very management of the complainant and his associate stockholders, •during that period, has occasioned the losses and depreciation which occasioned the filing of this bill.
Again, all the transfers by the remaining stockholders, from ■hand to hand, since that time, were made on the faith of that arrangement; and who, among them, must have the benefit or bear the burden of the result?
Again, all important business arrangements in a mercantile community, like that in question, become entangled in their consequences every month, more and more, with the interests of third persons, in a way which can not be traced by legal investi.gation, but still in such a way that it is impossible to undo them, .after a lapse of time, without great wrong to persons who originally were entire strangers to them.
That the directors are to be regarded as agents of the stockholders no one will deny. This court so speak of them in this case; the cases cited by complainant’s counsel so treat them, and so in fact they obviously are. In this particular, it is important to keep in mind the distinction between this ease and those in ^Massachusetts, and that before Judge Story. 3 Mason, 310. [199
Those are cases where creditors asserted claims. Should a creditor set up a claim against these transfers, he could probably be sustained, e'ven after such lapse of time; though Judge Story restricted his relief in a very important particular, in consequence of his delay. The creditor has no voice in the appointment of directors; they are not his agents, nor has he any cognizance of their proceedings. He has a right to regard their corporate fund» as sot apart for his debt, and to impeach any act which would defeat that right, and no lapse of time would defeat him which would not defeat any other suit. The situation of the stockholder is entirely different. He has, by charter, access to all the proceedings of the directors — they are acting for him. If he looks to his own interest, as a prudent man ought, he knows all their important transactions, and has his vote in changing them. In the management of a bank, and especially in a new country amonginexperienced men, and more especially in times of such embarrassment as those of 1818, 1819, 1820, and 1821, there is great difficulty, great uncertainty, what is the most judicious policy ; and the results, either for good or evil, may disappoint the best judges. It is cruel, it is wicked, to judge always by the issue. In the clamor-that has been raised against the old banks, and spread until it has. become a popular hobby for some, and a watchword for many, the best names of the country have often been blended with the worst —the honest man abused with the knave; and to connect a man with a broken bank has been regarded sufficient to blight his character, not only in a popular election, but before a court of justice. The extreme difficulties of the times are forgotten ; and curses are heaped upon honest men in Cincinnati, for evils occasioned by the general government, or the policy of the nations of Europe. A stockholder who looks on passively at the time, conscious of the difficulties under which his directors labor, sanctioning their policy by his silence, and by his renewed votes for the same men, comes into equity with a bad grace, after the difficulties have all passed out of the memory of man, to take advantage of the prejudice occasioned by unfortunate results, to subject them to heavy penalties, for measures against which he opened not his mouth at the time.
But to return; if the directors are agents of the stockholders the common principle of law and common sense applies — -the principal is bound promptly to disavow the unauthorized acts. of his agent; and, if he acquiesces in them after being [200 informed of them, or being so situated, that, with ordinary attention, he would know them, he thereby ratifies him.
In Breden v. Dubary, 14 Sergeant & Rawle, 27, it is said by Gibson, Justice, in giving the opinion oí the court: “I take it to be indisputable, that a principal, who neglects promptly to disavow .an act of his agent, by which the latter has transcended his authority, makes the act his own.”
This was an unauthorized transaction by an agent, in relation to sale of goods; no notice in fact appeared to the principal, but the notice was inferred from the presumption that the agent would keep him advised of his proceedings and he had kept silent not more than three months.
Clark’s Ex’rs v. Van Reimsdyke, 9 Cranch, 158, is decided on the same docrtine, and refers to the effect of a subsequent employment of the same agent, without complaint of his prior conduct.
So in Frothingham v. Haley, 3 Mass. 70, the same principle is •laid down, and Parsons, Justice, says : “ Cobb gave the defendants notice of the enlarged acceptance, who made no objection to it, and appeared satisfied with the conduct of the agent. This fact is conclusive, for it is equivalent to a precedent authority.”
If this be the rule of law in relation to an ordinary agency, how forcibly does it apply to the present ease 1 Taylor was not ■only notified of the order, but refused to make a transfer in payment of a debt which could be paid in the paper of the bank, while he requested to make the transfer to pay an eastern debt. He made no objections, but stood quietly by, evidently relying on the stock as being the better speculation, and calculating on the .gain in the value of the stock to result from the reduction of the ■capital. Can he be allowed, in a court of equity, thus to take advantage of his own wrong? To stand still, and see such a multitude of arrangements made by his agents, such extensive interests of third persons involved, and these becoming so changed that they can never be replaced, opening not his mouth, but watching in covert like the cat for its prey, ready to pounce this way or that, as the speculation shall ultimately appear most promising; and then, nine years afterward, come into this court for such relief? If the owner of property stands by in silence, and sees another ■expending money to purchase or improve it, although no agent 201] of his be concerned in the matter, equity will *stop him, by affirmative decree, from setting up his title. Here Taylor comes-himself, setting up his own acquiescence, and asking for profits of it; and that, too, against tho acts of his own agents, never before objected to. Any man of business, even with the lax system of ethics which common traffic allows, would break out in execrations against one, who should attempt to disavow the acts of an agent, done and relied upon under his own eye; and does the-complainant expect less regard to conscience and good faith in this court ? It can not be necessary to follow up his argument. Taylor should have filed his bill promptly, even before the transfers were made, if in his power, and then he might ask the court to-inquire into the validity and fairness of them. But now at this-day, with the facts as they stand on the answer and the testimony, it is truly a hold enterprise. This court will show it little favor.
The statute of limitations is also relied upon, and is a bar so far as the claim is analogous to an action on the ease for misconduct or to a suit to compel the refunding of money. Under one of these heads the claim must be included; but it can not be necessary to spend time on this point.
Again, as the case now stands, it is an attempt, on the part of the complainant, to set aside contracts already completed. Courts never set aside contracts, except upon proof of actual fraud. 5 Ohio, 472.
There is a material distinction between enforcing and setting aside a contract.
It can not be contended that there is any actual fraud. All the-answers deny it in the most positive manner, and the testimony shows most conclusively, the fairness of the intention of all the-parties concerned.
But again, the complainant is inconsistent with himself. Either the shares transferred by the stockholders were legal and valid' transfers, or they were not. They are either binding on the complainant or they are not. If they were not binding, upon what principle is it that the complainant claims to charge the defendant, Barr, with the purchase of a part of these very shares which-he now says did not become the property of the company by the transfers? He alleges Barr purchased six hundred shares, paid for them, and then resold them to the company. These shares area part of the shares transferred by the other defendants. It will be seen by an examination of Mr. Spencer’s deposition, that the shares numbered from 1846 to 1870, 2196 to 2220, 2289 to *2310, [202 2735 to 2759, 2817 to 2854, 2958 to 2985, and from 4064 to 4099, amounting to two hundred and thirty-five shares, were all transferred by stockholders in payment of debts. So that the complainant is claiming under what he calls a fraudulent contract, and against it — he is claiming to confirm and disaffirm the same transaction ; and the same inconsistency is carried into the prayer of the bill, for he prays, “that those who have transferred stock, may ' be compelled to resume the same and pay their debts, and that 'William Barr pay the fifty-nine thousand dollars, and receive his stock therefor.” Qucere: Does there not appear to be some fraud prayed for in this bill? It is difficult to conceive how the complainant can get clear of being charged with a confirmation of the bargain.
But what kind of relief is the complainant to have, if he is entitled to any? If it is'only to set aside the transfers of stock, it Will do him no good, except so far as it will leave the corporation at liberty to sue the debtors for the debts which were satisfied by the transfers; for surely it will not be pretended that in this suit the complainant can obtain a judgment in his own name, for the debts due by the parties. He can not be permitted to take the entire control out of the hands of the directors. If he had called upon the directors and requested them to bring the suit, and they had refused, he might perhaps come into equity; but he can not sue until he has first requested the directors to sue. To permit him to do this, is a virtual dissolution of the corporation. It is taking the business out of the control of the directors, and placing it in that of a single stockholder. 3 Paige’s Ch. 232, 233.
Fox, for Barr:
In the present state of the case, the question is presented to the court, whether, in the first place, any legal or equitable contract ever existed by which Barr and the other persons who applied to purchase ever owned or became entitled to these shares of stock. I contend that if the directors had power at that time to sell, that they made no such contract; nothing took place between Barr and the officers but a mere proposition, which was not binding or obligatory upon any one until the action of the board of directors was had upon the subject.
This appears to have been the understanding of the officers, otherwise they would have entered the names of the purchasers on their stock books. They would have required the persons 203] ^applying to subscribe for the stock, according to the directions of the charter, it they had considered the proposition as closed.
Again, to construe this application into a binding contract is to presume the officers intended to disregard the resolutions under which they professed to act, and upon which the validity of their acts depended. It is expressly required by the resolutions of May 3, 1814, that the officers “ shall take memorandums of applications, and lay them before the directors for their approbation.”
But whatever might have been the understanding or intention of the officers, it is very clear that if their intention was not carried into effect, there can be no legal obligation.
The question then arises, how and in what manner could an individual become a stockholder in the Miami Exporting Company?
Section 1 of the charter provides that the then present stockholders of the Miami Exporting Company, together with those who should hereafter become stockholders, in manner therein-after directed, should be incorporated, etc. Section 3 provides that it shall be lawful for any person to subscribe for one or more shares, untiL the company is complete, the capital or joint stock of which shall not exceed one thousand shares, of one hundred dollars each, unless by the assent of a majority of stockholders — five dollars to be paid at the time of subscribing, and forty-five dollars between the time of subscribing and the 1st of March then next. By section 10, it is provided that shares shall be transferable by assignment on the books of the company. -Section 14 provides that every person who shall subscribe for a share or shares, after payment shall have been made by a former subscriber, shall be charged with such an advance as shall render their payments equal to those of former subscribers. The last section provides for receiving subscriptions, and that the subscription papers shall be delivered over to the president and directors of the company.
In the resolutions of May 3, 1814, provision is made as to the number of new shares each new subscriber shall be entitled to, in proportion to the number of shares held. It is also provided in these resolutions, that each new subscriber (not then a share holder), at the time of subscribing, shall pay, etc., and no individual shall be permitted to subscribe for more than twenty-five shares in one day, etc.
*It is clear, therefore, that before any person can become [204 the legal owner of stock in this company, he must subscribe for it. Until he has subscribed, the stock is not his, nor is he liable to pay for it.
The meaning of the term, subscriber, in these corporations, is settled to be one who has subscribed his name. It is one who has stipulated to take and pay for the stock, not one who has merely made a part payment. Angelí on Corporations, 292; 3 Mass. 389.
In the Thames Tunnel Co. v. Sheldon, 5 Barn. & Cress. 341, the •defendant had been one of the shareholders, and had paid for a great portion of 'his stock. The number of shares taken was written on the subscription paper, and a blank left for his name to be written, but he had omitted to sign his name; the court held he was no subscriber, in the legal sense of the term, and was not liable for any subsequent calls.
The same principle was recognized in the Bristol, and Taunton Navigation Canal Co. v. Amos, Maule & Sel. 569, in which case the plaintiffs were nonsuited, because the original paper subscribed by the defendant was not stamped.
The same principle is recognized in 7 Barn. & Cress. 341.
In Gray v. Portland Bank, 3 Mass. 386, an action brought -against the bank for not permitting the plaintiff to subscribe, it was contended the plaintiff had a right to recover damages equal to the dividends declared; but the court held, that although he was entitled to have subscribed, and was wrongfully prevented from subscribing, yet he was not a stockholder until he had subscribed and obtained his certificate. They held that the registry of ownership the bank kept, was the only evidence they had a right to resort to for the purpose oí proving ownership.
In Jenkins v. Union Turnpike Co., 1 Caine’s Cases in Error, 93, where the commissioners authorized to receive subscribers were, by the terms of the act, authorized to receive, subscriptions, and were authorized to receive at the time of subscribing ten dollars •on each share, it was held that a party who had subscribed, but had not paid the ten dollars, was not a stockholder, and therefore not liable to the corporation for subsequent calls.
Again, there could be no binding contract on ¡the part of the-company, unless the same was made by the agent of the company. The directors were expressly prohibited from creating 205] *new stock, or increasing the capital, without the assent of a majority of the stockholders. The stockholders have only delegated to the directors a special power, viz: to create as many new shares of the stock as they may think necessary to supply the demands, and to sell them on such terms, etc., until the 1st day of November next. I suppose it is perfectly clear that the-directors could not sell, nor authorize a share to be sold, after November 1, 1814. To sanction such sales would be to violate-the charter. The stockholders only have the power to direct stock to be disposed of; have the right to stipulate in what way, at what time, and at what price the sales shall be made.
But supposing the directors had the power to sell after November-1, 1814, have they delegated to the president or cashier power to-sell or merely power to receive proposals ? I contend they never authorized the president or cashier to make a binding sale of stock without the application was first approved of by the board. The language used, requiring the officers to “take memorandum of applications, and lay them before the directors for their approval,” can have no sensible moaning attached to it, unless you allow -their approval or disajjproval to have some effect. If the contract was binding without approval, why submit the application for approval? Did the board intend to set themselves up to be laughed at? According to the construction contended for on the opposite side, the contract was first to be made, and then, if the directors approved of it, well; if they disaprove of it, it was good, notwithstanding their disapproval.
I take it to be clear, then, that the president or cashier was-not clothed with power to make a binding sale of a share of stock.
The court can not sustain this transaction as a complete and binding bargain, without sustaining the following positions, viz :
1. That the president and cashier were authorized to sell and transfer, when the resolutions merely authorized them to receive proposals.
2. That an authority to sell until November 1, 1814, is an authority unlimited as to time.
3. That authority to sell not more than twenty-five shares on one day, is an authority to sell an unlimited number on any day.
*4. That an authority to sell and receive not more than [206 fifty dollars on a share, authorizes a sale and receipt oí one hundred dollars on each share.
5. That although agents are authorized to sell, they are not competent to decide whether a proposition has ripened into a contract- or not.
If, then, these officers had no authority given them to contract for the sale of stock, it is perfectly clear there could be no valid sale, whether stock was subscribed for or not. Angelí on-Corp. 304.
This question is expressly decided in Essex Turnpike Corporation v. Collins, 8 Mass. 298. In this case, Foster had obtained defendant’s subscription.
Judge Sedgwick remarks: “It is certain that to every valid-contract there must be parties. Aggregate corporations can not contract without vote, because there is no other way in which-they can express their assent. Such corporations may contract by their agent, but such agents must have authority given them for that purpose. In this case, no such authority was given to-Mr. Foster.”
And although certificates of membership had been tendered, it was held the subscription was void for the want of authority im the person to receive the subscription.
I do not contend, because it is not necessary in this case, that, the company, as a company, might not have confirmed the transaction, and thus have completed the eontraet.
One thing is certain, the company could only ratify the bargain by some corporate act. There is no pretense that the company attempted to affirm this transaction; on the contrary, they disaffirmed it. 8 Mass. 298.
Supposing the proposition established, that no valid contract, was made for the purchase of stock, the right of Barr to receive, back the money deposited with Oliver is unquestionable. The-company had no right to receive it of Oliver, and never did, in fact, receive it. But if the leaving it in the possession of Oliver should be considered a deposit of it with the company, it is well settled that a person paying money on a contract for stock is en ¡titled to recover the money back, in ease the stock is withheld. 3 Mass. 389.
In this case, the judge refers to a case in 20 Tern. Abr. 5, pi. 15, S. S. Comaug v. Carson, in which the cashier had received money for a subscription, but did not enter the name of respondent 207] *in the book. It was held the person could recover his money back, although he could not be considered one of the - company.
But supposing the complainant had a right to have set aside the order to restore the money, when ought he to exercise that right? Is he to lay by for years, and then be permitted to come into a court of equity to set aside the transaction ? As a stockholder, he had, by his vote of May 3, 1814, specially authorized the directors to act as his agent to. sell and dispose of the stock. Suppose he -could, after this, be permitted to come into court and question the acts of his agents, he certainly must present himself on the first opportunity to disaffirm the acts of his agents. He is not permitted to delay and speculate upon chances. He must act promptly in the matter. This question is so fully discussed on the general argument, that I merely mention the objection, and beg the court to examine that branch of the argument, and apply.it to .this case.
Again, on what principle is it that one stockholder has a right to insist on adding six hundred new shares to the capital, against .the consent of the other stockholders? I insist that all the stock.holders are interested and necessary parties to the suit.
Upon the whole case, I can discover no foundation for the allegation that Barr was the legal owner of the stock said to be sold ■on May 21,1821. There is not sufficient evidence to lay a foundation for a specific performance of an agreement. A court of ■equity is not in the practice of decreeing a specific performance ■of a contract for chattels. But should it be attempted to be placed on the ground of an application for a specific performance -of a contract, the court'could not sustain the claim; for I take it to be a well-settled rule of the court not to afford relief in cases where the value of the property had materially varied' between the time of sale and the application to carry the contract into ■effect.
The complainant, however, is not authorized to come into court -upon that ground, at all events not until he shall have called upon the directors to attend to the business. The president and direct- ■ ors are the only authorized agents of the stockholders, and it is only in case of a fraudulent refusal to discharge their duties that an individual stockholder can come into this court. 3 Paige, 232.
*To permit a stockholder to substitute himself for the [208 corporation, in prosecuted suits, is to dissolve the corporation.
The charter provides that the company shall sue and be sued in their corporate name; that the control and management of the funds and property of the corporation shall be under the sole management of the board of trustees; and yet, without the least suggestion of there being any unjustifiable refusal on the part of the present directors to institute a suit to try the validity of any supposed agreement, the complainant undertakes to litigate matters which affect the whole of the stockholders. If the corporation exists, the charter must be obeyed. The law of the society is completely nullified, if the complainant can interfere in the control and management of the concerns of the company. This is all the nullifiers ask — they do not claim to dissolve the union, but they claim to control the union. They venerate the constitution of the union, but claim that a sovereign state has the right to disregard it. I can perceive no difference in principle between the two cases.
It is said, and probably will be said, that the object of Barr and the other purchasers was to have the apparent ownership of the stock, so as to control the election of directors; and that as their object was unfair, they ought to be compelled to suffer the consequence. Admitting the charge, the conclusion does not follow. I admit that if a legal and valid contract had been made, and Barr had applied to have the contract rescinded, the court could have looked into all the circumstances, and have refused their aid to Barr and the other purchasers, if they perceived they had been attempting to overreach. But that is not the case before the court. The complainant is asking the aid of a court of equity to - establish and make a contract, which he admits, by coming into this court, is not a legal- one. But the court can not compel a man to become a stockholder, merely because his motives for attempting to become interested were not pure. There must be an agreement binding upon the parties, a contract which in equity and good conscience is valid, although informally executed. A court of equity may direct a contract to be executed, but it can not make - .a contract for the parties. A court of equity executes a contract; :& court of law can only award damages for not executing it.
But I do not perceive anything immoral or improper in the attempt made to counteract the proceedings of Piatt. The other stockholders had cause to feel alarmed at the prospect of 209] *sueh a man as Piatt obtaining the control of the institution. That it would have been advantageous to John H. Piatt to have the control of the Miami Bank, all will admit. That the .stockholders felt a great anxiety to prevent his obtaining that control, is manifest from the large majority of votes given for the directors named in the ticket opposed to Piatt, and among these ■votes we find the agent of complainant conspicuous. All hi's votes were given for the directors opposed to Piatt’s directory.
There is no foundation for the surmise and allegation that the ■directors elected on May 21, 1821, had any expectation of being benefited in the way of transferring stock for payment of debts ; for it is a fact that there was not a single share of stock transferred ■in payment of debts after the 22d, under the resolution of the 8th of ■ May. There were but few shares transferred after the 22d, and those that were transferred were under special resolutions of the board in the particular case. Not one of the new directors ever transferred a single share. They, therefore, could not have had the motive imputed to them.
But supposing that the complainant is entitled to relief, as against Major Barr, what relief is he entitled to ? Can he make Major Barr take the whole six hundred shares, or only the one hundred? The complainant’s counsel does not inform us the extent which he wishes relief to be granted. I suppose, however, he only asks that Major Barr be compelled to take his one hundred shares, inasmuch as neither Griffin, Perry, Sterret, Patter.son, nor Riddle are made defendants. If the complainant wishes to affect more than Barr’s one hundred shares, there is clearly a •want of parties.
Hammond, contra, in reply:
To the branch of the case that embraces William Barr we shall .first direct our reply.
The allegation against Barr is, that in May, 1821, on the eve of .an election for directors, he purchased six hundred shares of ¡stock, in his own name and in the names of five other persons; rfchat he paid for the stock ; that it was voted upon ; that the persons in whose names it was purchased were elected directors, and •that they made an order to rescind the purchase and to return to Barr his money. The prayer of the bill on this point is, that the six hundred shares of stock may be set up, and that Barr account for the purchase money.
*The defense set up is two-fold: that the purchase was not [210 .a legal and obligatory one — that the transaction was had in good faith, and for an honest purpose.
In support of the first proposition, the answer and the argument ■of counsel proceed upon the hypothesis that, in making the purchase, the forms required by the by-laws were not pursued. The point of the whole is, that the stock purchased by Barr was not legally subscribed for, and the term subscribed is the pivot upon which the proposition is made to turn.
As to a part of the stock in question, the facts do not sustain the ■argument, even in its own terms. Of the stock taken in the name of Barr, thirty-six shares had been formerly owned by individuals. The same was the case with respect to sixty-three shares taken in the name of Riddle, and of all the shares taken in the name of Perry. This is fully explained in Spencer’s deposition.
The assumption that the stock taken by Barr must be subscribed for according to the regulations of the company and of the board of directors, is a second error of the respondent’s argument. These regulations, as quoted, refer to subscriptions to be made by the then existing stockholders, and are limited in their operation to a portion of the stock, to a particular class of purchasers, and to a specified period of time. The purchase of Barr had no reference to these regulations; it was made as for existing stock, and the whole purchase money was paid. Spencer testifies that the stock was the property of the bank; that it was sold as such, paid for, and voted upon.
The vote of the shareholders of May 2, 1814, authorized the directors to create new shares, and to sell them on such terms as they might deem most advantageous to the stockholders until the first day of November ensuing. Under this vote, three thousand new shares were created, and one thousand five hundred of them put into market. The residue remained the property of the bank, and as such appears to have been sold by its officers as other stock •owned by it. Such was evidently the understanding of all the parties when the sale in question was made, for no distinction was attempted between the two descriptions of stock.- In this view of the case it is not enough for the respondent to show that the sale-could not legally be made under one particular regulation for making sales. He must show that there was no regulation or practice of the bank that allowed it; otherwise the court must j>re-211] sume that the *sale was regular. A different presumption would involve a charge of fraud of deeper dye than that which the complainant seeks to establish: nothing less than a combination between Barr and those of the then directors who acted with him, and the officers of the bank, to secure the election of a board of directors by the use of fictitious stock, nominally created for the occasion. And here is presented what seems to me a decisive answer to the entire first branch of the respondent’s defense.
He purchased.the stock, paid for it, and voted upon it, to effect a particular object. That object effected, those who acted with him unite with him to rescind the purchase. Can he be»permitted to defend himself against a just responsibility,, by setting up and proving that the whole transaction was fictitious and illegal, and consequently fraudulent? Can he bring forward his own turpitude, and that of his compeers, and use it as a shield to protect and defend himself against what would otherwise be a legal liability? I apprehend this can not be permitted. The face of fairness with which it is attempted, serves only to show to what extent these bank transactions blunt the moral perceptions of those entangled, in them.
The second branch of the defense serves further to illustrate the moral obtuseness upon which the first is predicated. It amounts simply to this — that the object to be effected sanctifies the means employed to effect it. To prevent the direction of the bank falling into the hands of J. H. Piatt, it is an act of good faith to fabricate six hundred shares of stock, and vote upon it. This, conceding the first ground of'defense to be made out, is the sum total-of the second. It can require no further exposure.
Of the question of time, it is only necessary to say here, that-there is not a scintilla of proof in the case that the complainant inew anything of the transaction one week before the suit was commenced. In another place, the question of time must be touched upon more at large.
The bill, as to the other defendants, claims to set up certain shares of stock which they had been permitted to withdraw, or to extinguish, under two distinct resolutions of the board of directors. The first of these was adopted September 22, 1818, in these words:
“Resolved, That the officers of this institution be, and they are hereby authorized to receive bank stock of this company, at par, in payment of debts.”
*The second, adopted May 8, 1821, is in these words: [212 “ Resolved, That the stockholders be, and they are hereby authorized to transfer to this bank an amount not exceeding one-half of their stock in said institution, at par, in payment of their regular accommodation notes, excluding all judgments, bills of exchange, and other transactions of a special nature in the bank.”
The first of these resolutions remained in force until August 31, 1819, when it was rescinded. The second remained in force only about two weeks. Under the first, the bill claims that one hundred thousand seven hundred and seventy-six dollars and thirty-one cents was withdrawn; and under the second, that forty-six thousand one hundred and nine dollars and ninety-six cents was withdrawn. The answer of the bank states a different.sum, but that is immaterial in a general view of the case.
In defense of these two resolutions, and of the transactions under them, various grounds are taken by different defendants, some of which are very inconsistent with others. Indeed, it is difficult to class them so as to preserve them from collision. I shall examine them as stated in the answers and in the argument. First, of the answers; and of them, that of the bank first. It is alleged that in September, 1818, the directors believed the stock to be-worth par; that the directors believed they had power to pass-the resolution; that its object was to promote the interest of the-stockholders:
1. By a cheap collection of a large amount of debts.
2. To insure the payment of debts from certain stockholders,, who had no other means.
3. By collecting a larger amount of debts than could be collected by any other mode.
4. By increasing the dividends of the remaining stockholders.
And it is urged that the stockholders sanctioned the measure-by their acquiescence and the re-election of the directors that adopted it. Further, it is alleged that all the transfers made were; in good faith and for a valuable consideration, that is, for debts due to the bank.
The resolution of May 8, 1821, appears to have been adopted with the same views, and under the belief that the stock was “ not greatly, depreciated in value,” and that the remaining half would be sufficient to cover “ their proportion of losses which might be sustained by the company.” Such is the story of the bank.
■ The next party most largely interested, who has answered, is Thomas D. Carneal. He separates his case entirely from that 218] *made by the'bank. His first position is, that the increase of the stock, under the resolution of the stockholders of May 3, 1814, is illegal and void. The charter, he alleges, authorized the-employment of only five hundred thousand dollars, three hundred thousand of which was then subscribed. That under the resolution of May, 1814, the stock was increased to six hundred thousand dollars, and he alleges that the whole additional three hundred thousand dollars were in fact sold by October 1, 1814. He then sets forth the regulations of the directors for the sale of the fifteen hundred shares of the new stock, and impeaches the sale of the stock owned by the complainant as being illegal and void, •except as to seventy-four shares of the stock subscribed before the increase of May, 1814. The grounds of making this stock void .are, first, that it was subscribed in the names of others, in viola-, ilion of the rules and regulations for its sale; and second, that its •numbers show it to be of stock above-the amount of five hundred •thousand dollars.-
He then proceeds to aver the honest intention of his transfers "the right of the bank to receive them, the value of the stock; and ■charges that the stockholders who retained their stock might have .•sold it, but retained it with a view to the profit.
Next he introduces a resolution of the board of directors, of May 8, 1808, in these words:
“Resolved, That the directors may, at any time, when they conceive it to be the interest of the company, receive stock or shares of this company in payment of debts due to them.”
He shows that some certain transfers took place under this resolution, to a small amount, and alleges that the great injury to the company was the illegal increase of stock, and an excessive declaration of dividends. The amount of dividends received by complainant, at different times, is set out, and it is elaimed'that for so much of these dividends as were declared upon the unauthorized stock held by the complainant, he ought to be made account; calls for proof that the complainant owned any stock when the suit was commenced, and objects that the complainant has acquiesced too long to be now permitted to question any of the transactions referred to.
These three answers, it is believed, coyer pretty much the whole grounds of defense set up by all the defendants. It will be noted that the foundation of Barr’s defense is, that the six hundred shares of stock purchased by him, in May, 1821, had *never been [214 sold, and never constituted any portion of the capital stock of the bank. Whilst the main position taken by Carneal is, that the whole six hundred shares of stock were sold as early as October, 1814, and that one hundred and twenty-six of those shares held by Taylor, being an excess beyond the capital stock allowed by the charter, are of no account whatever. The two answers containing these contradictory propositions, appear to have been prepared, as they certainly are subscribed, by the same counselor.
It will be noted that Carneal, in his answer, asserts that Taylor should be made account for the dividends received upon these one hundred and twenty-six shares — twelve thousand six hundred dollars — and objects that Taylor’s acquiescence precludes him from relief. Whilst the counsel who subscribes this answer, in his argument for Barr, strongly maintains that, if the sale of the stock be void, and money be paid upon it, he is entitled to recover it back. If Carneal be right as to the one hundred and twenty-six shares of stock, and the counsel for Barr be right in his position, the bank owes Taylor twelve thousand six hundred dollars, with interest, except the dividends, which he may justly claim to set off against his debt to them.
If Carneal be correct, in the position that acquiescence precludes inquiry, the proposition protects Taylor as well as himself. An adjustment he would no doubt be very glad to make.
I shall now proceed'to examine the case upon its general merits as embraced in the answers and arguments for the respondents. And I premise that, in the arguments at least, there is much of labor and research that does not touch what the counsel for the complainants conceive to be the real and true question. We do not controvert the right of the bank to purchase and sell its own stock,.as a commodity in the market; nor to receive pledges of it in security for debts; nor, under proper circumstances, to receive it in payment of debts. All the arguments used, and authorities cited upon these points, might have been safely omitted. The proposition maintained for the complainant is a plain and unambiguous one. It is this: the resolutions of September, 1818, and of May, 1821, were not adopted for the purpose of authorizing the bank to deal in its own stock, as a commodity in the market, but specially to enable stockholder debtors to liquidate their claims by withdraw-215] ing *their stock. The power to do this — its fairness — its justice — we deny.
The right to buy and sell its own stock, bona fide, in market, if paid for in money, with a view to be sold for money, is not a right that we call in question. We do not say that any resolution is necessary to enable a bank to do this. But to permit a stockholder to become indebted to the bank and then to apply his stock to the payment of his debts, is a very different matter. Even this, we admit, may be done under proper circumstances, in a particular case. The resolution of May, 1808, proceeds upon the correct principle, and extends as far as it can be allowed to proceed: “ The directors may at any time, when they conceive it to be the interest of the company, receive stock or shares of this company, in payment of debts due them."
This resolution covers all the ground that the authorities cited for the different respondents cover. It remains in force, and was not understood, by the parties concerned, to embraoe the cases of the resolutions of September, 1818, and May, 1823. What, then, was the object of these latter resolutions ? Take those assigned by the bank itself:
To collect debts due the company cheaply.
To collect debts from those who had no other means to pay.
To make large collections of debts.
To increase dividends on the remaining stock.
Which one of the cases cited by any or all of the counsel for the defendants embraces any such proposition as is here stated ? Take them separate or together, and they avow a resolution to reduce the stock.
A great deal is said, in argument, about the unquestionable power of the president and directors to manage the stock and funds of the company. Agreed. But does an authority to manage stock and funds include a power to destroy or extinguish them? I should think that to state the question is to resolve it.
It was doubtless a cheap and effective mode of collecting debts; but how did it profit “ the remaining stockholders ? ” What effect had it on the debts oí stockholders of doubtful credit? The by-laws secured to the company a lien on the stock for the debts of stockholders. Some doubt is suggested as to the validity of this bylaw. There is no pretense that it has ever been adjudged that such by-laws are invalid. The doubt of Chief Justice Parker, 6 Pick. 329, is adduced upon this point. But that doubt is evidently predicated upon the erroneous assumption *that, in that case, [216 it was “ a first attempt.” The validity of such a by-law evidently was not doubted by the bank in question. It is presumed this court can not doubt it.
In September, 1818, the bank was largely indebted. In November following, itsuspended specie payments. The debts liquidated by stock was one of the means of paying its own' indebtedness. How could it profit the “ remaining stockholders ” to withdraw one hundred thousand dollars of the means of paying the company debts, and thus cast the payment of these debts upon a reduced number and upon a reduced amount of means? How could the withdrawal increase the dividends of the “remainder ?” The debts of the institution were not reduced, but the means of discharging them were. I should like to see the proposition stated in figures, that, leaving the debts the same, makes more profit to four hundred thousand dollars capital and six hundred thousand dollars credit, than to five hundred thousand dollars capital and seven hundred thousand dollars credit. The conclusion seems inevitable that the reasons now assigned for these measures are mere after-thoughts. They could not have operated at the time the transaction took place.
But there was honesty of intention in the whole. There was no actual fraudulent intent, and the proceedings can not be hold fraudulent per se. Is this a tenable position? A bank is in a tottering condition ; a resolution is adopted, under which a given number of stockholders grab up the stock they have invested in exchange for the debts they owe; thus realizing the full value of their stock, disincumbering themselves of their indebtedness, and casting a total loss upon their company stockholders. Our position is, that the law does not permit this — that it is a fraud per se, in all concerned in it.
It is stated in many of the answers, and proof is produced in support of it, that at the time of all these transfers, stock was estimated at its par value in the market. In respect to the sales under the resolution of 1821, the answer of the bank does not venture quite so far. But admit the fact; what follows? Obviously, that these withdrawals of stock and debts destroyed the value of the “ remaining ” stock, and consequently demonstrates the wrong done to the complainant, and his right to have the whole restored, at the same par value at which it was disposed of.
There remains, however, one point of defense, in which all the defendants concur. The complainant has remained so long quies217] cent, that he is considered as having assented to, ratified, *and confirm the transactions complained of. This argument, in brief, is thus stated: The directors are the agents of the stockholders, consequently the agents of the complainant; the matters complained of were transacted in 1818, and in 1821, by these agents; the complainant did not promptly disavow them; his failure to do so is to be considered a confirmation.
In support of this position sundry authorities are quoted. 14 Serg. & R. 27; 9 Cranch, 158; 3 Mass. 70. All these cases relate to “ an ordinary agency." They relate to an agency where third persons are to be affected; that is, persons holding no relation to the same agent. But do they bear upon a case like this? The president and directors were the common agents of the complainant and of the respondents. The respondents are bound to know that the agent transcended his authority. If the act be illegal, they are parties to it. The doctrine of the implied ratification, having for its object the protection of third persons, who are in no respect parties, can have no application to a case where a common agent has transcended his authority, whereby one portion of his common employers have gained advantage over another. Can this position be doubted?
It is objected that the delay in demanding the restitution of this s^ock and these debts is necessarily prejudicial to the interests of the respondents, that deaths and insolvencies have taken place. Cases are stated: that of N. Wright; what is in it? The Perrys bought his stock for cash, and transferred it to the bank to pay their debt. We presume all who transformed, bought and paid for the stock. The case of William Oliver; he became indebted for depreciated paper. No doubt he passed it on the community for value received, and others lost by its increased depreciation. To repay it, “ he sold a valuable lot to get the stock.” Verily 1 Then it was more convenient, more advantageous to the debtor to pay in “ stock ” than in lots, or in the depreciated paper of the bank; so that it would seem the stock was more a drug than “ depreciated paper.” A. hopeful concession in support of the evidence and the argument that the stock was of par value. What is the hardship of Oliver’s case? He obtained depreciated paper and put it in circulation — upon some speculation, we may well presume. To repay the amount, he sold a lot for stock — upon a second speculation, we may again presume. It would be a hardship to deprive him of the profits of these speculations 1 He made them on the faith of an “ agreement with the bank to take the stock.” Comment can not be necessary.
*The remedy sought by the complainant involves no difíi- [218 culty or injustice. It is asked that each stockholder separately restore to the bank the stock he has withdrawn. When it is thus restored, the parties may proceed to bank upon it, or to distribute it upon the whole stock, equalize the entire loss, and divide what remains among the stockholders, according to such equalization.
The statute of limitations is relied upon. We agree with the counsel who states the fact, that it can not be necessary to dwell upon this point. If the transactions complained of are untainted with fraud, the complainant can have no relief; if so tainted, the statute of limitations presents no bar.

Opinion:
Chief Justice Collett
delivered the opinion of the court:
The complainant contends that the defendants who transferred stock to the bank in payment of their debts, under the resolution of September, 1818, or of May, 1821, and who were solvent at the time they made the transfers, were unauthorized to do so; that the directors, by the charter, were not authorized to receive stock of solvent persons in payment of their debts, because it was a withdrawal of so much of the capital stock of the company. He also contends that the transfers were permitted and made fraudulently; that the purchase of the six hundred shares'of stock by Barr and his return of it to the bank were fraudulent; that, by the withdrawal, he took from the company so much of its capital stock, which the directors could not authorize.
As to the authority of the directors to receive the stock of the company in payment of the debts of the stockholders. This company was incorporated on April 15, 1803, .its charter to continue until May 1, 1843. The ostensible object of those who obtained the charter, was to purchase the agricultural and manufactured products of the country, and to transport them to foreign markets; hence the name, "Miami Exporting Company." Section 6 of the charter authorizes the appointment of agents and the making of shipments. By section 8, the company is required to vest in produce and manufactures at least one-half of the cash received on shipments. Their real object was banking; and the directors were, by the charter, designedly given most extensive powers over the funds of the company, so as to authorize them to employ the 219] whole in business other than that apparently intended *as the sole object of the incorporation. By section 5 of the charter, it is provided that the president and directors shall open and continue their office in the town of Cincinnati, " and shall have the sole management of the funds." By section 6, the president and directors are authorized " to dispose of the funds of the company in such manner as they shall think most advantageous to the company." The directors are here undoubtedly authorized to cease merchandising, and to dispose of the funds of the company in banking, in discounting notes and bills of exchange, if they think it "most advantageous." They are as undoubtedly authorized to dispose of their funds, and to employ their agents in buying and selling the stocks of other corporations, if they think this " most advantageous." It appears from the testimony in the case, that they were at one time largely and profitably employed in buying and selling the stock of the Bank of the United States. If they could so vest their funds, why have they not power to buy and sell their own stock, if they "think it most advantageous to the company?" We think they have such power; and having it, they may fix the price, the mode of purchase, and of payment. They can purchase at auction, by private sale, for cash, or notes, or other property, or on credit; or can take it in payment of debts due from stockholders, whether solvent or insolvent. To take it of solvent stockholders in payment of debts, might be more advantageous to the company than to pay for it in cash or good bills. We do not see that a purchase must necessarily be fraudulent, or that a purchase in any of these modes is necessarily a withdrawal of so much of the capital stock of the bank. When it is transferred to the bank, it becomes the property of the bank, of the remaining stockholders in proportion to their individual stock, to be managed for them by the directors, as the other stock. It is there for creditors, as much so as before the transfer; the capital stock is not lessened. On a division of the profits, the dividends which would have been assigned to the owner of the stock, had he not transferred, would be assigned to the bank, and held as other corporate property by the stockholders who had not transferred. Whether this is done by calculating the dividend on the whole stock of the bank, and then dividing the sum set apart for the stock assigned to the bank, among the holders of stock who had not transferred; pr whether, by one operation, the whole sum to be paid, in dividends, is divided among those who had not transferred, the result would *be the same. The [220 directors took the first method in apportioning the dividends, as to the stock transferred to the company in 1816, and the last as to the stock transferred under the resolution of 1818. There has been no dividend declared or paid by the bank since the transfers under the resolutions of May, 1821. The last dividend was in April, 1821. O. M. Spencer, president of the company when these resolutions were passed, testifies that the reason for passing the resolution of 1818 was to collect the debts of the bank, to lessen the stock, and thereby increase the dividends of those who did not transfer. The directors, in 1823, when they consolidated the stock, did not notice that owned by the company. The reasons which induced the directors to purchase, or the manner in which they treated or disposed of the stock, can not affect the seller. The transfer neither destroyed nor lessened its value. If the directors, when the transfers were made, charged the amount to the contingent fund, the dividends of the remaining stockholders were immediately increased as much as though the stock had been lessened so much; if not, and it was taken from the current profits of the bank, the first dividends would be diminished, but the subsequent ones increased. If no charge was made to any fund, the stockholders received too great a dividend, and thus withdrew so much of the capital stock. If so, Taylor, who received his dividends as long as any other stockholder, has no reason to complain of those who transferred, if the transfers were made in good faith. The answers all deny that they were fraudulent, and there is no proof of their being so. The stock was selling at from five to ten per cent, above par in August, 1818. In September after, the bank was embarrassed by its debts, due to the United States Bank; most of the stockholders were indebted to the bank and embarrassed, and many were insolvent. The directors, under these circumstances, resolved to take its own stock, at par, from those indebted to the bank. This resolution was known to the stockholders generally. Taylor himself was informed of it by the president of the bank, and of the reasons for passing it. He then owed to the bank the debt which he now owes; stock was then selling at par. It was nearly four months after, before more than three thousand dollars woi'th of stock was transferred in payment of debts. If fraud was designed, why did not those who intended it, avail themselves of the opportunity offered to commit it? All the other banks in the city resorted to the same expedient to sus221] tain their credit. *The directors who passed the resolutions of 1818 must have been stockholders. Seven of the eleven directors, who constituted the whole board, had been continued in the directory from 1816. Ten of them were re-elected in 1819, and nine in 1820. If the resolution of 1818, and the transfers made under it, had been a fraud on the other stockholders; or if, under the circumstances of the bank, its passage and continuance in force for near a year had manifested even a want of ordinary judgment, so large a proportion of these directors would not have been elected in 1820.
The resolution of 1821 authorized any shareholder to assign half his stock in payment of his accommodation notes. It was repealed two months after its passage. The stock was to be taken at par; it had then fallen below par, but less than the notes of the bank in which these debts were payable. That many who transferred stock were solvent, and by the transfer did better for themselves than those did who retained their stock, is now manifest, but we can not infer from these premises that the transfers were fraudulent. The bank had, years before, imprudently extended its discounts and issues of paper; it had not reserved a sufficient contingent fund, but had probably paid too large dividends; undisclosed frauds may'have been practiced. It was failing, and the directors resorted to these expedients to save it. Directors of other banks resorted to the same, but they had not that effect. Events have shown that they were, perhaps, unwise. But it would now be manifestly unjust to compel those who transferred under these resolutions to take back their stock and pay the debts for which it was transferred, to relieve the stockholders who did not think proper to transfer. The stock has since fallen and our currency become good. These stockholders, as to these shares, have not since had any representation in the directory of the bank. Why did not Taylor transfer? He knew of the resolution of 1818, and he then owed the debt to the bank for which he is now pressed. He probably believed that the bank, by the measures it was taking, would be able to declare large dividends; to resell the stock it was taking in at an advance, and that therefore it would be better for him not to transfer. In 1820 he voted for nine of the eleven directors who passed the resolution of 1818.
When it-has turned out that those who transferred their stock in payment of their debts have done better by disposing of it than he has by retaining his and not paying his debt, *would it [222 not be palpably unjust to set aside these transfers for his relief, on a bill filed in 1828, nine years after they were made and had come to his knowledge? A principal who knows of a transaction of his agent, in which he exceeds his authority, and does not promptly disavow it, can not afterward do so, because it would injure unjustly him with whom the agent dealt. This is no arbitrary principle, confined to one class of agents or cases. It applies wherever injustice would be done without it. If a man sees a stranger selling his property, and does not set up his claim, the title passes to the purchaser. The directors, when dealing with one of their own body, or any other stockholder (which' is an every-day occurrence in all banks), are the agents of the stockholders as a body. The stockholder, in such a transaction, stands as a stranger to the corporation, and is subject to the same liabilities, and is undoubtedly entitled to the benefit of every principle of law or equity for his protection against the injustice of the corporation, or any of its members, of which a stranger could avail himself.
As to the six hundred shares purchased by Barr of the president and cashier of' the bank, on the day before the election of directors in May, 1821, and relinquished on the 5th of June next after, one hundred and sixtv-three of these shares were of old stock, transferred to the bank under the resolutions of 1818 and 1821. We have just decided that the directors had the right to purchase their own stock whenever they thought it would be beneficial to the bank ; if so, they undoubtedly had a right to rescind an unexecuted contract to sell, and to return the purchase money with the consent of the purchaser. The certificates for the stock had not been delivered.
Thirty-four of the new shares sold to Barr did not belong to the bank at the time of the sale; they had been before sold; the sale to him of these shares was therefore void. The other new shares were sold to Barr by the president and cashier without any other authority from the directors than that contained in the resolution of' May 3, 1814. By that resolution, a sale made by the officers was required to be submitted to the directors for their confirmation. No entry of this sale had been made in the books of the bank; no certificates had issued. The directors, it seems to us, had a i'ight to set aside this sale; it was contrary to the policy which appears to have been pursued by the directors from the passage of the resolution of 1818, to buy and not to 223] sell stock. The resolution of May, 1821, to ^receive stock in payment of debts, had been passed but a few days before, and was then in force. How, then, could the president and cashier make a sale and expect an approval? The bank had before sold more than five hundred thousand dollars worth of stock, to which sum it is claimed its capital stock was limited by the charter. If this was the case, it was the duty of the directors to disaffirm the sale. If they have done thus, can the court set it up ?
Riddle had nothing to do with this transaction. He did not vote the one hundred shares purchased in his name. Barr, Sterret, Perry, and Griffin were in the directory, composed of eleven members. The other seven directors are not to be presumed to have acted fraudulently when the purchase was rescinded, because four or five of the board were interested. Directors of all banks are called upon from day to day to decide upon the cases of their co-directors. But independent of this, these shares were taken by Barr, to be voted on the next day for directors of the bank, against the John H. Piatt ticket. Barr, Griffin, Patterson, Slerret, and Perry voted five hundred of these shares for all the directors who were elected. The lowest on this ticket had a majority over the highest in the opposition of more than five hundred votes, so that the dii'ectors elected were the same that would have been elected had none of these shares been voted. Afterward, the shares were relinquished, and the money paid upon them received back by Barr, so that the bank was in precisely the same situation it would have been had not this transaction taken place. The directors were the same, the stock the same, in the same hands, of the same value. Who, then, did it injure? How did it affect Taylor? If all the directors, and even Riddle, who would not vote his shares, were concerned with Barr in this transaction to affect the election (of which there is no evidence), they had their labor in vain. They neither benefited themselves nor injured others. If a person had lost by such a transaction, he would be entitled to redress ; no one would desire to gain. This affair, so far as Barr is concerned, is not to be commended, but censured. If it should be punished, this is not the place. A court of chancery gives relief to the injured only, if plain and adequate redress can nowhere else be obtained; and it gives it merely to the extent of the injury.
Upon the whole, the court are unanimously of opinion that the bill should be dismissed as to the corporation and the defendants *who transferred stock to the bank in payment of debts; [224 and a majority of the court are of opinion that it should be dismissed also as to Barr.