Front Page Titles (by Subject) 57.: SAMUEL WILLISTON, THE HISTORY OF THE LAW OF BUSINESS CORPORATIONS BEFORE 1800 1 - Select Essays in Anglo-American Legal History, vol. 3
The Online Library of Liberty
A project of Liberty Fund, Inc.
57.: SAMUEL WILLISTON, THE HISTORY OF THE LAW OF BUSINESS CORPORATIONS BEFORE 1800 1 - Committee of the Association of American Law Schools, Select Essays in Anglo-American Legal History, vol. 3 
Select Essays in Anglo-American Legal History, by various authors, compiled and edited by a committee of the Association of American Law Schools, in three volumes (Boston: Little, Brown, and Company, 1909). Vol. 3.
About Liberty Fund:
Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.
The text is in the public domain.
Fair use statement:
This material is put online to further the educational goals of Liberty Fund, Inc. Unless otherwise stated in the Copyright Information section above, this material may be used freely for educational and academic purposes. It may not be used in any way for profit.
THE HISTORY OF THE LAW OF BUSINESS CORPORATIONS BEFORE 18001
THE most striking peculiarity found on first examination of the history of the law of business corporations is the fact that different kinds of corporations are treated without distinction, and, with few exceptions, as if the same rules were applicable to all alike. Subdivisions into special kinds are indeed made, but the classification is based on differences of fact rather than on differences in legal treatment. Thus, corporations are divided into sole and aggregate. Again, they are divided into ecclesiastical and lay, and lay corporations are again divided into eleemosynary and civil. But the division having been made, the older authors3 proceed to treat them all together, now and then recording some minor peculiarity of a corporation sole or of an ecclesiastical corporation with one member capable.
Municipal and business corporations, so unlike according to modern ideas, are classed together as civil corporations, and treated together along with the rest. Yet the East India Company was chartered in 1600, and other trading companies had been chartered even earlier, and between 1600 and 1800 numerous corporations were chartered, having for their objects, trade, fishing, mining, insurance, and other business purposes. To understand how it was that the law of business corporations was so connected with that of other corporations, and how it gradually became distinguished, it is necessary to understand how such corporations grew up, and in what way they were regarded when first they came into existence.
The general idea of a corporation, a fictitious legal person, distinct from the actual persons who compose it, is very old. Blackstone ascribes to Numa Pompilius the honor of originating the idea.1 Angell and Ames are of the opinion that it was known to the Greeks, and that the Romans borrowed it from them.2 Sir Henry Maine, however, shows that primitive society was regarded by its members as made up of corporate bodies, that the units “were not individuals but groups of men united by the reality or the fiction of blood relationship,” and that the family, clan, tribe, were recognized as distinct entities of society before individuals were.3 It is not surprising, therefore, to find in the Roman law the conception of corporate unity early developed. Savigny, in whose treatise4 may be found the best connected account of corporations in the Roman law, states that villages, towns, and colonies were the earliest. “But once established definitely for dependent towns, the institution of the legal person was extended little by little to cases for which one would hardly have thought of introducing it. Thus, it was applied to the old brotherhoods of priests and of artisans; then, by way of abstraction, to the State, which, under the name of fiscus, was treated as a person and placed within the jurisdiction of the court. Finally, to subjects of a purely ideal nature, such as gods and temples.” Savigny then enumerates the different kinds of corporations among the Romans. The present subject is concerned with but one of these,—the business associations. “To this class belong the old corporations of artisans who always continued to exist, and of whom some, the blacksmiths, for example, had particular privileges; also new corporations, such as the bakers of Rome, and the boatmen at Rome and in the provinces. Their interests were of the same nature, and this served as the basis of their association, but each one worked, as to-day, on his own account.”
“There were also business enterprises carried on in common and under the form of legal persons. They were ordinarily called societates. Their nature was, in general, purely contractual; they incurred obligations, and they were dissolved by the will as well as by the death of a single member. Some of them obtained the right of being a corporation, keeping always, however, the name of societates. Such were the associations for working mines, salt-works, and for collecting taxes.”1
This latter kind of corporation seems never to have become sufficiently numerous or important to exert a definite influence on the law. Perhaps the Romans were not a sufficiently commercial people to develop the uses of business corporations. In common with other associations the authorization of the supreme power of the State was needed to constitute them legal persons, though this might be given by tacit recognition;2 and the assent of the sovereign was equally necessary for dissolution. Three members were requisite for the formation of a corporation, though not for its continued existence. The rights and duties of the fictitious person corresponded closely to those of an actual person, so far as the nature of the case admitted. It could hold and deal with property, enjoy usufructus, incur obligations, and compel its members to contribute to the payment of its debts, inherit by succession either testamentary or by patronage, and take a legacy. Whether it could commit a tort was a disputed question.
After the introduction of Christianity the church found numerous applications in its own organization for the doctrines which had been developed in regard to corporations, and through the church and its officials these doctrines strongly influenced the law of England, where they were applied to the existing associations.
The earliest corporate associations in England seem to have been peace-guilds, the members of which were pledged to stand by each other for mutual protection.1 Such brother-hoods would naturally be formed by neighbors or by those exercising similar occupations. From the tendency to associate on account of proximity of residence were developed municipal corporations; from the tendency to associate on account of similarity of occupation the craft guilds grew. These two classes of corporations were the earliest regularly chartered lay corporations in England. Both of them had their counterparts in the Roman law.2 At first sight they do not seem to have much in common, but the ancient municipal corporation differed from its modern descendant. It was a real association, and membership could not be acquired simply by residing within the town limits. It exercised a minute supervision over the inhabitants,—among other things regulating trades. The guilds or companies did the same thing, only on a more restricted scale. They made by-laws governing their respective trades, which were not simply such regulations as a modern trade-union might make, since any one carrying on a trade, though not a member of the guild of that trade, was bound by its by-laws, so long as they were not opposed to the law of the land or to public policy as it was then conceived.3 In short, the guilds exercised a power similar to that exercised by the municipal corporations, and, indeed, so late as the time of Henry VI. guildated and incorporated were synonymous terms.4 Instead of having for its field all inhabitants of a district and local legislation of every character, the guild was confined to such inhabitants of the district as carried on a certain trade and to regulations suitable for that trade. So far as that trade was concerned the right of government belonged to the guild.
The first trades to become organized in this way were naturally the manual employments necessary to provide the community with the most fundamental necessities of civilized life. The weavers were the earliest. They received a charter from Henry II., “with all the freedom they had in the time of Henry I.” The goldsmiths were chartered in 1327, the mercers in 1373, the haberdashers in 1407, the fishmongers in 1433, the vintners in 1437, the merchant tailors in 1466.1
During the sixteenth century the growth of the commercial spirit, fostered by the recent discovery of the New World, the more thorough exploration of the Southern Atlantic and Indian Oceans, and the search for a North-west passage, led to the establishment and incorporation of companies of foreign adventurers, similar in all respects to the earlier guilds, except that their members were foreign instead of domestic traders. Among the earliest of these were the African Company, the Russia Company, and the Turkey Company.2 The last two were called “regulated companies;” that is, the members had a monopoly of the trade to Russia and to Turkey, but each member traded on his own account.
A more famous company was chartered by Queen Elizabeth in 1600, under the name of the Company of Merchants of London, trading to the East Indies.3 It had been found that the expense incident to fitting out ships for voyages, often taking several years for their completion, was too great to be borne easily by individual merchants, and it was one of the claims to favorable consideration which the East India Company put forward, that “noblemen, gentlemen, shopkeepers, widows, orphans, and all other subjects may be traders, and employ their capital in a joint stock.”1
Sums of various amounts were subscribed, and the profits were to be distributed in the same proportions. This joint-stock adventure was not, however, identical with the corporation. Members of the corporation were not necessarily subscribers to the joint stock, and any member could, if he liked, carry on private trade with the Indies,—a privilege belonging exclusively to members. By the charter, apprentices and sons of members were to be admitted to membership in the same way as was customary in the guilds.
The East India Company was, therefore, in its early days, like the other trading companies,—an association of a class of merchants to which was given the monopoly of carrying on a particular trade, and the right to make regulations in regard to it. Till 1614 the joint stock was subscribed for each voyage separately, and at the end of the voyage was redivided. After that, for many years, the joint stock was subscribed for a longer or shorter term of years, and at the end of each term the old stock was usually taken at a valuation by the new subscribers. Membership in the corporation, however, soon became merely a formal matter,—useless, except to those interested in the joint stock, especially as regulations were passed forbidding other members from engaging in private trading ventures to India. After 1692 no private trading of any kind was allowed except to the captains and seamen of the Company’s ships. The form, however, was still retained, and every purchaser of stock who was not a member of the Company was obliged to pay a fee of £5 for membership.
At this time (1692) there were but two other joint-stock companies of any importance in England,—the Royal African Company and the recently chartered2 Hudson’s Bay Company. The outline given above will serve to indicate their general nature and also to show how something like the modern joint-stock corporation grew out of the union of the ideas of association for the government of a particular trade by those who carried it on, and of combination of capital and mutual coöperation, suggested and made necessary by the great expense incident to carrying on trade with distant countries. But the corporation was far from being regarded as simply an organization for the more convenient prosecution of business. It was looked on as a public agency, to which had been confided the due regulation of foreign trade, just as the domestic trades were subject to the government of the guilds. In a little book, entitled “The Law of Corporations,” published anonymously in 1702,1 it is said: “The general intent and end of all civil incorporations is for better government, either general or special. The corporations for general government are those of cities and towns, mayor and citizens, mayor and burgesses, mayor and commonalty, etc. Special government is so called because it is remitted to the managers of particular things, as trade, charity, and the like, for government, whereof several companies and corporations for trade were erected, and several hospitals and houses for charity.”2
This idea that the object of a business corporation is the public one of managing and ordering the trade in which it is engaged, as well as the private one of profit for its members, may also be noticed in the charters granted to new corporations, especially in the recitals, and in the provisions usually found that the newly chartered company shall have the exclusive control of the trade intrusted to it.
At the end of the seventeenth century the advantages of corporate enterprises seem to have been realized, and acts of Parliament, authorizing the king to grant charters to various business associations, were more frequent. In 1692 the Company of Merchants of London trading to Greenland was incorporated;3 the act reciting the great importance of the Greenland trade, how it had fallen into the hands of other nations, and could only be regained by a greater undertaking than would be possible for a private individual, and the consequent necessity of a joint-stock company. In 1694 the Bank of England received its first charter.1 The act authorizing it was essentially a scheme to raise money for the government. Those who advanced money to the government were to receive a corresponding interest in the bank, the capital of which was to consist of the debt of the government. No other association of more than six persons was allowed to carry on a similar business.2 Charters were also granted about this time to the National Land Bank,3 the Royal Lustring Company,4 the Company of Mine Adventurers,5 the famous South Sea Company,6 the Royal Exchange and the London (Marine) Assurance Companies.7 In these charters also the public interest in having the undertaking prosecuted and the great expense incident thereto are mentioned. The capital of the South Sea Company, like that of the Bank, consisted of a debt due from the government on account of money loaned by private individuals.
The extravagant commercial speculations in joint-stock companies and the stock-jobbing in their shares which characterized the early part of the eighteenth century are well known. Anderson, in his “History of Commerce,”8 enumerates upwards of two hundred companies formed about the year 1720, for the prosecution of every kind of enterprise, including one for the “Insurance and Improvement of Children’s Fortunes,” and another for “Making Salt Water Fresh.” With very few exceptions, these companies were not incorporated, and in 1720 writs of scire facias were issued,9 directing an inquiry as to their right to carry on business, in usurpation of corporate powers. This put a sudden end to many of these unfortunate ventures, and the consequent collapse of the enormously inflated public credit carried down others, so that only four of the long list were still in existence when Anderson wrote,—the York Buildings Company, the two Assurance Companies mentioned above, and the English Copper Company. The speculation in shares had been too great and the expectations of profit too extravagant not to cause a correspondingly great distrust in corporate enterprises when the bubble burst, and the profits realized were found to be small and extremely variable. Adam Smith, writing in 1776 was of opinion1 that “the only trades which it seems possible for a joint-stock company to carry on successfully without an exclusive privilege, are those of which all the operations are capable of being reduced to what is called routine, or to such a uniformity of method as admits of little or no variation. Of this kind is, first, the banking trade; secondly, the trade of insurance from fire, and from sea risk and capture in time of war; thirdly, the trade of making and maintaining a navigable cut or canal; and, fourthly, the similar trade of bringing water for the supply of a great city.” To render the establishment of a joint stock reasonable, however, the author says, two other circumstances should concur: first, “that the undertaking is of greater and more general utility than the greater part of common trades; and, secondly, that it requires a greater capital than can easily be collected into a private copartnery.”
But during the latter part of the eighteenth century corporations were gradually increasing in number and importance. The need for them was felt in establishing canals, water-works, and, to some extent, in conducting the growing manufactures of the kingdom. The progress was indeed slow, and was destined to be so until the introduction of gas-lighting into all the larger cities and towns early in the present century, and later the laying of railways, created a widespread necessity for united capital.
The outline sketch just given of the growth of business corporations shows that they are not a spontaneous product, but are rather the result of a gradual development of earlier institutions, running back farther than can be traced. It would be strange if signs of this development were not found in the history of the law relating to them. The natural expectation would be, and such is in fact the case, that as to the points which modern business corporations have in common with the early guilds and municipalities, the law relating to them dates back farther than almost any other branch of the law, while as to the points which belong exclusively to the conception of the business corporation, the law has been formed very largely since 1800. And not only had a body of new law to be thus formed, but old doctrines laid down by early judges as true of all corporations, though in reality suited only to the kinds of corporations then existing, had to be discarded or adapted to changed conditions.
In the first place, then, the endeavor will be to examine the points which belong essentially to every kind of corporation, and afterwards to consider what was settled before the present century in regard to the peculiar relations arising from the nature of a business corporation.
In the case of Sutton’s Hospital,1 decided in 1612, the general law of corporations was considered at some length, and the following things were said to be “of the essence of a corporation:2 1st, Lawful authority of incorporation, and that may be by four means, viz., by the common law, as the king himself, etc.; by authority of Parliament; by the king’s charter; and by prescription. The 2d, which is of the essence of the incorporation, are persons to be incorporated, and that in two manners; viz., persons natural, or bodies incorporate and political. 3d, A name by which they are incorporated. 4th, Of a place, for without a place no incorporation can be made. 5th, By words sufficient in law, but not restrained to any certain, legal, and prescript form of words.”
This, then, was the mould in which every corporation had to be cast, regardless of what might be its nature or its purpose.
The first requirement, due authorization, existed in the Roman law as well as in the English.1 But, since corporate bodies were recognized as facts from the earliest dawn of history, when the rule became recognized that the authority of the supreme power of the State was necessary for their formation, a theory had to be found to support the old associations, which had not been formed in accordance with the rule. This was done both in Roman and in English law by recognizing that a corporation could come into existence by prescription. It is safe to say, however, that prescriptive and common-law corporations were of the older forms only, and that for the formation of business corporations, from the first, a charter from the king directly or by authority of Parliament was necessary.
Originally the power was exercised exclusively by the king; but his power to grant charters allowing exemptions or monopolies was gradually restricted, like many of his other powers, as little by little the House of Commons assumed the entire effective control of the government. The regulated Russia Company received its charter from the crown in 1555 without the consent of Parliament; so did the East India Company in 1600, the Canary Company in 1665, the Hudson Bay Company in 1670. All of these companies were given monopolies. The rights of the Russia Company and of the East India Company were afterwards regulated by statute; and the patent of the Canary Company was soon withdrawn, though not before giving rise to a test case2 on the validity of the monopoly, in which the court decided against it. The Hudson’s Bay Company continued to enjoy its charter without interference, but its right to a monopoly held good so long only as nobody cared to dispute it. After the Revolution, no doubt, it was tacitly admitted that for the validity of a charter conferring a monopoly or other special privilege an act of Parliament was necessary, though for granting the simple franchise of acting as a corporation the patent of the king was sufficient.
The last of the requisites enumerated by Coke may be regarded as included within the first. “Lawful authority of incorporation” must necessarily be given “by words sufficient in law.” The necessity for persons to compose the corporation results from the nature of things rather than from any rule of law. Perhaps the same may be said of the importance of a name. As an actual person could hardly transact business or sue and be sued in the courts without a name, so the fictitious person of a corporation rests under a similar necessity. Possibly Coke meant something more, regarding a corporation as an abstraction which would have no existence without a name. “For a corporation aggregate of many is invisible, immortal, and rests only in intendment and consideration of the law.”1 But if such was his view, it was not shared by his successors, when the tinge of scholasticism which colored all the law of the period faded away. In the case of the Dutch West India Company v. Van Moses,2 decided in 1724, it was held that the action was well brought, though no certain name had been given the company by the Dutch States, the name being that by which it was usually called; and there are numerous cases to the effect that a technical misnomer of a corporation had even less effect than the misnomer of an individual.3
When Coke wrote, it seems to have been necessary that a corporation should be named as of a certain place.4 This requirement, apparently so fanciful, is explained by the fact that the early corporations were almost all formed for local or special government of some kind, and it was consequently necessary to designate the place where the jurisdiction was to be exercised. The requisite must very early have become merely formal in case of certain classes of corporations, and might be fictitious. Thus, such names may be found as “The Hospital of St. Lazarus of Jerusalem in England” and “The Prior and Brothers of St. Mary of Mt. Carmel in England.”5 As the purpose for which corporations were instituted became more varied, and the modes of thought of lawyers became more reasonable, less stress was laid on the formality under consideration. It is hardly mentioned in “The Law of Corporations” or in Blackstone’s chapter.1 Kyd merely says, “It is generally denominated of some place;”2 and it may be assumed as true of business corporations, as well as of most others, that before the beginning of the present century there was no force in Coke’s fifth essential for the existence of a corporation other than as a matter of convenience.3
Grant, now, that a corporation was legally called into being, what abilities and disabilities was it considered to have? Coke says:4 “When a corporation is duly created all other incidents are tacitly annexed—. . . and therefore divers clauses subsequent in the charters are not of necessity, but only declaratory and might well be left out; as—
“1st. By the same to have authority, ability, and capacity to purchase, but no clause is added that they may alien, etc., and it need not, for it is an incident.
“2d. To sue and be sued, implead and be impleaded.
“3d. To have a seal; that is also declaratory, for when they are incorporated they may make or use what seal they will.
“4th. To restrain them from aliening or devising but in certain form; that is an ordinance testifying the king’s desire, but it is but a precept and does not bind in law.
“5th. That the survivors shall be a corporation; that is a good clause to oust doubts and questions which might arise, the number being certain.
“6th. If the revenues increase, that they shall be used to increase the number of the poor, etc.; that is also explanatory.
“8th. To make ordinances; that is requisite for the good order and government of the poor, etc., but not to the essence of the incorporation.
“10th. The license to purchase in mortmain is necessary for the maintenance and support of the poor, for without revenues they cannot live, and without a license in mortmain they cannot lawfully purchase revenues, and yet that is not of the essence of the corporation, for the corporation is perfect without it.”
This list of attributes laid down by Coke as necessarily belonging to all corporations is quoted with approval in “The Law of Corporations.”1 It is given by Blackstone in substance, though altered to the following form:2 —
The incidents which are tacitly annexed to every corporation as soon as it is duly erected are—
“1st. To have perpetual succession. This is the very end of its incorporation, for there cannot be a succession forever without an incorporation, and therefore all aggregate corporations have a power necessarily implied of electing members in the room of such as go off.
“2d. To sue or be sued, implead or be impleaded, grant or receive, by its corporate name, and do all other acts as natural persons may.
“3d. To purchase lands and hold them for the benefit of themselves and their successors, which two are consequential of the former.
“4th. To have a common seal. . . .
“5th. To make by-laws or private statutes for the better government of the corporation, which are binding on themselves, unless contrary to the law of the realm, and then they are void.”
The enumeration of Blackstone is given without substantial alteration by Kyd,3 though he adds that the last two powers are unnecessary for a corporation sole, and that the right to make by-laws is not inseparably incident to all kinds of corporations aggregate, for there are some to which rules may be prescribed; and, further, that the list is not exhaustive. The first three capacities are reducible to this, that the fictitious person of the corporation shall have, in general, the capacity of acting as an actual person, so far as the nature of the case admits. Such must have been the recognized law ever since corporations, as we understand the word, existed; for the conception of a corporation as a legal person, a conception going back farther than can be definitely traced, involves necessarily the consequence that before the law the corporation shall be treated like any other person. To this consequence there is a necessary exception in regard to such rights and duties as require an actual person for their subject.
The right and the necessity of having a corporate seal was probably in its origin simply the result of treating a corporation in the same way as an individual. The great antiquity of the custom of using seals is well known. It prevailed among the Jews and Persians,1 as well as among the Romans. It was spread over all the countries whose systems of law were borrowed from the Romans, and it was introduced into England by the Normans.2
In England, owing to the generally prevailing illiteracy, the use of the seal became the ordinary way of indicating the maker of a charter. The practice, apparently, was not the result of a desire for peculiar solemnity, but merely for identification. The use and object of a corporate seal may be assumed to have been the same as of an individual seal. It is true that Blackstone3 finds a reason for its use in the fact that “a corporation, being an invisible body, cannot manifest its intentions by any personal act or oral discourse; it therefore acts and speaks only by its common seal.” But this reason, besides bearing on its face indications of having been invented after the fact, goes altogether too far. A corporation has no hand with which to affix its seal, and if it may perform that act by an agent, there is no reason in the nature of things why it should not do anything else by the same instrumentality.4 And in the Roman law the use of a common seal was only a possible, not a necessary, way for a corporation to act.
When writing became a general accomplishment, the use of a seal for private documents was reserved for instruments of a peculiarly formal or solemn character. That a similar transition did not take place in the use of the seal of a corporation may be ascribed to the natural conservatism of a number of men acting in a body, and to the fact that from the character of early corporations the inconvenience of sealing all corporate contracts was not likely to be felt. However this may be, it was a rule of law well settled before business corporations came into existence that a corporation could only act by deed under its common seal. To the rule some slight exceptions were allowed, but only in few cases. Such a restriction could not fail to be extremely embarrassing to corporations, when they afterwards sprang up, the object of which was to carry on trade; and the development of the law on this point in regard to such corporations shows not so much a growth of legal doctrine, as an endeavor to do away with the inconvenient restraint imposed on all aggregate corporations, which had its origin when guilds and municipal and ecclesiastical associations were the only corporate bodies,—an endeavor that met with but indifferent success.1
The general rule seems to have been well settled in the fifteenth century, and it also appears that there were some slight exceptions to it.2 Just what these were, was by no means definitely marked out. In Y. B. 4 Hy. VII. 17 b, one of the judges, Townsend, said: “A body corporate cannot make a feoffment or lease or anything relating to their inheritance without deed, but of offices and things which pertain to servants they can. For they can appoint plowmen and servants of husbandry without deed, and butlers and cooks and things of that kind, and can depute their servants to do anything without deed. They can do this because it is not in disinheritance of the corporation, but only by way of service, and it is the common course to justify by command of the body corporate, and not show anything from it.” Brian, however, was of a contrary opinion, saying, “A body corporate can do none of those things without deed.” Townsend’s opinion undoubtedly made more sweeping exceptions than were afterwards allowed, but his statement that a corporation could appoint a cook or butler without a deed was for centuries cited as indicating the extent of the power of acting without using the corporate seal.1 In Y. B. 7 Hy. VII. 9, it was held that the defendant in an action of trespass could not justify as acting for a corporation without showing authority by deed. Wood adds: “But of little things the law is otherwise, for it would be infinite if each little act was by deed, as, a command to their servants, to light a candle in church, or to make a fire, or such things.” With this the court with one exception agreed. This statement of the law is based on a principle which continued to be decisive in the eighteenth as in the sixteenth century. In transactions which from their nature could be done under seal only with great inconvenience, the formality of sealing was dispensed with. The inconvenience might arise from the pettiness of the act, or from its being of every-day occurrence and necessity, or from the importance of immediate action. The exception was wrested by common sense from the scope of the rule.
Accordingly, when business corporations arose, it must have been tacitly admitted that the daily business need not all be transacted under seal. For instance, the bills of the Bank and of the East India Company were never sealed. The right to make such bills was afterward defended and explained as necessarily implied in the powers given them by Parliament. These corporations “could not carry on their business without the making of such instruments, and they would cease to be bills or notes if under seal. It is clear, however, that this indulgence is not allowed by law to be extended beyond cases of absolute necessity.”2
A more difficult point was raised in 1717, in the case of Rex v. Bigg,1 the leading case before the present century on the extent to which a business corporation could act without the use of its seal. Bigg was charged with felony in altering a bank-note signed by one Adams, an officer of the bank. It was objected that Adams did not have authority under the seal of the bank to affix his name, and that consequently the altered instrument was not a valid obligation, and the prisoner was not guilty of forgery. The argument of Peere Williams for the prisoner is fully given, and the cases which he cites seem to bear him out in his contention that such an agent could not be appointed without deed; but a majority of the Court held the prisoner guilty of felony. No opinion is given. It must be admitted that the decision involved some extension of the old rule that a cook or butler or servant for some petty purpose could be retained without a sealed instrument, but after this the law was settled that the regular servants and agents of a business corporation were to be regarded in a similar way.2
But, granting this, how far could an agent of such a corporation act in its behalf without a deed? As mentioned above, a corporation, the charter of which authorized it to carry on a business that required for its proper exercise the issue of bills and notes, did not need to affix the common seal to such obligations. Undoubtedly, also, a large amount of routine business was transacted entirely by parol, and there is no case reported where a transaction executed on both sides was set aside because the corporation did not act by deed. But, for the rest, it may at least be said that till after the first quarter of the present century had passed, no unsealed executory contract was binding on either party;3 and it is probable, also, that in a partially executed transaction no special agreement was valid without seal. On the other hand, if the transaction was such as of itself gave rise to an obligation, it could be enforced; forfeitures and tolls could be recovered in assumpsit;4 if land were demised without deed, and the lessee occupied the premises, he was liable for rent in an action for use and occupation; and similarly, no doubt, if goods were bought or sold by a corporation and delivery was made, the vendee could have been forced to return or pay for them.1
The courts were sometimes able to mitigate the hardships which followed from the necessity of doing everything under seal, by presuming, as a matter of pleading, that when performance by a corporation was averred, performance with all necessary formalities was intended,2 and partial relief was given in special instances by act of Parliament;3 but at best it would be hard to find a more striking instance of a rule of law which arose from the customs prevailing in an entirely different state of society still maintaining itself when every reason for its existence had ceased, and its only effect was to produce injustice.
The right to pass by-laws for the regulation of their affairs belonged to corporations in the Roman law4 from a very early period, and also in the English law. Indeed, the right is a consequence almost necessarily following from the nature of the early corporations. Institutions to which were delegated powers of government, whether ecclesiastical or secular, whether exercised over all within a certain locality or confined to those practising a particular trade, must have been allowed appropriate means of exerting their authority, and the scope of the by-laws must have been proportioned to the jurisdiction. Thus, the by-laws of a corporate town were binding on any one who came within its limits.5 The by-laws of a guild were binding not on its members only, but on such outsiders as exercised the trade which the guild governed and regulated.1 The power of making by-laws would be useless without means of enforcing them, and the imposition of penalties for failure to comply with its by-laws was within the power of a corporation, from an indefinite time.2 The farther back the examination is carried the broader seems to have been the power of punishing the refractory, extending by special charter in many cases to imprisonment as well as fine.3 By Coke’s time, however, it was settled that the power of imprisonment could not be given by letters-patent from the king, but required an act of Parliament;4 and it was further held that similar authority was needed for a by-law affixing as a penalty the forfeiture of goods;5 but that such by-laws were formally valid may be inferred from the fact that this mode of enforcement was sometimes supported as being in accordance with an immemorial custom.6 Further limitations on the power of making by-laws, which were more strictly construed as time went on, were that they must not be contrary, nor even cumulative, to the statutes of Parliament,7 nor in restraint of trade,8 nor unreasonable.9 Business corporations, when they arose, were dealt with according to the same principles. As it was well recognized that such by-laws only could be made as were in harmony with the objects for which the corporation was created,10 and as the purposes for which business corporations were chartered were as a rule definitely marked out, the scope of the right to make by-laws was correspondingly narrowed. A few of the earlier joint-stock companies were intrusted with the regulation of the trade in which they were engaged, and the by-laws of these were binding on all engaged in the trade, precisely as was the case with guilds.11 But by the change in the conception of a corporation from an institution for special government to a simple instrumentality for carrying on a large business, the right to pass by-laws was restricted to regulations for the management of the corporate business.1 Such regulations, of course, like the by-laws of municipal corporations and guilds, were void if contrary to statutory or common law, or if unreasonable. Whether a certain by-law was held unreasonable or not depended in some measure on the discretion of the court. The decision might be different when judged by the standards of the eighteenth century from what it would be if judged by modern standards. Thus, a by-law of the Hudson’s Bay Company giving itself a lien on its members’ stock for any indebtedness due from them to the Company was held valid,2 the Court saying, “All by-laws for the benefit and advantage of trade are good unless such by-laws be unreasonable or unjust; that this, in their opinion, was neither.” To-day, in a jurisdiction unfettered by authority, the conclusion would probably be otherwise.3
In addition to the doctrines which have just been considered, a few others may be mentioned as applicable to all corporations alike. In general, questions of rights and duties towards the outside world are much the same for all kinds of corporations. The law, it is said, makes no personal distinctions, and it is at least true that wherever considered practicable the fictitious legal person of a corporation, whatever its nature, was treated by the law in the same way as an actual person. On the other hand, the law regulating the relations of the members to each other and to the united body must differ according to the nature and objects of the corporation.
It has often been questioned whether a corporation could commit a tort or crime. The better opinion in the Roman law seems to have been that the question should be answered in the negative, at least whenever dolus or culpa was necessary to make the act under consideration wrongful.1 In England, however, it was very early held that corporations might be liable in actions on the case or in trespass,2 and afterwards in trover.3 But it is not likely that a corporate body would have been held liable for any tort of which actual malice or dolus was an essential part. Similarly it was held that a corporation could not be guilty of a true crime,4 that is, it could not have a criminal intent, but it could be indicted for a nuisance or for breach of a prescriptive or statutory duty, and, in general, where only the remedy was criminal in its nature.5
It was generally laid down that a corporation could not hold in trust.6 It is not very clear exactly on what reasoning the conclusion was based. There is very little to support it, except in very old cases. The view gradually became obsolete, and though there was no decision before the year 1800 definitely deciding the point, it is probable that it was recognized before that time that a corporation might hold in trust.7
The fundamental difference in the constitution of business corporations from the earlier forms which preceded them is the joint-stock capital, and most of the law peculiar to this class of corporations relates to that difference, and the consequences which follow from it. From motives of convenience it early became customary to divide the joint stock into shares of definite amounts. The nature of the interest which it was conceived the holders of such shares possessed, and their rights and duties among themselves and against the corporation, so far as these were settled or discussed by the courts before the nineteenth century, will now be treated.
The most accurate definition of the nature of the property acquired by the purchase of a share of stock in a corporation is that it is a fraction of all the rights and duties of the stockholders composing the corporation.1 Such does not seem to have been the clearly recognized view till after the beginning of the nineteenth century. The old idea was rather that the corporation held all its property strictly as a trustee, and that the shareholders were, strictly speaking, cestuis que trust, being in equity co-owners of the corporate property.2
There are several classes of cases illustrating this difference in theory. Thus, if the shareholders have in equity the same interest which the corporation has at law, a share will be real estate or personalty, according as the corporate property is real or personal. If it were personalty, as was usually the case, no question would arise, for then on any view the shares would be personalty likewise. Let it be supposed, however, that the corporate property was real estate; then, according to the view formerly prevailing, the shares must be devised and transferred according to the statutes regulating the disposition of real estate; they would be subject to the land tax; and, in short, would have to be dealt with in the same way as other equitable interests in land. Exceptions to this general rule would have to be made if special modes of transfer were prescribed by a statute of incorporation. This was generally the case; provision was ordinarily made that the title to shares should pass by transfer on the books, and also that they should be personal property.
The question arose several times in regard to the shares of the New River Water Company. The title to the real estate controlled by the company seems to have been in the individual shareholders, the company (which was incorporated) having only the management of the business.1 It was uniformly held that the shares were real estate, that they must be conveyed as such inter vivos, that a will devising them must be witnessed in the same manner as a will devising other real estate,2 and that the heir and not the personal representative of a deceased owner was entitled to shares not devised.
The cases which were thus decided were afterwards distinguished3 on the ground that the title to a large part of the real estate was in the corporators, and as to all of it the company had no power to convert it into any other sort of property, but had simply the power of managing it. The distinction, however, amounts to nothing. If the individual proprietors owned the land and the company controlled it, the proprietors had two distinct kinds of property. One was real estate, and the fact that it was occupied by a corporation was immaterial; the other was personalty, consisting of the bundle of rights belonging to the shareholders in any corporate company. Moreover, the decisions do not indicate that they were based on such a distinction.4 It was not until the decision of Bligh v. Brent,5 in 1836, that the modern view was established in England. The contention of the counsel for the plaintiff in that case, that the company held the corporate property as a trustee, and that the interest of the cestui que trust was coextensive with the legal interest of the trustee, was well warranted by the decisions which he brought forward to sustain it. Indeed, the greater part of the argument for the defendant admitted this, but contended that real estate held by a corporation for trading purposes should be treated as personalty, like that similarly held by a partnership.1
It is true that it was decided in 1781, in Weekley v. Weekley,2 that shares in the Chelsea Water Works were personalty; but no reasons are given for the decision, and it may have been based on the facts that a large part of the property of the company was personalty,3 and that the shares were generally considered personalty, and dealt with as such. Otherwise the case seems inconsistent with the cases and reasoning previously alluded to.
In the case of the King v. The Dock Company of Hull4 an attempt was made to apply conversely the principle that the property of a corporation and of its individual corporators is the same, except that the interest of the former is legal, of the latter, equitable. The act under which the company was formed5 declared that the shares of the proprietors should be considered as personal property. It was argued that this made the real estate of the corporation personalty, and hence not subject to the land tax. The Court overruled the objection, not on the ground that the property of the corporation was entirely different from that of the shareholders, but because, “as between the heir and executor, this (the real estate of the company) is to be considered as personal property, but the Legislature did not intend to alter the nature of it in any other respect.”
Another class of cases illustrating the theory now under consideration arose from the transfer of stock on the books of the company by fraud or mistake without the consent of the owner. When it is understood that the right of a shareholder is a legal right, it is obvious that such a transfer cannot affect his rights unless he is estopped to assert them.1 If, however, the legal interest is in the corporation, and the right of a shareholder is only equitable, the transferee, in the case supposed, will acquire title, though perhaps he may not be allowed to retain it. The latter view was taken in all the cases which arose prior to the year 1800. One of the earliest of them was Hildyard v. The South Sea Company and Keate.2 The plaintiff’s stock had been transferred to Keate, an innocent purchaser, under a forged power of attorney. The court decided that the plaintiff was entitled to relief, and that the loss must fall on Keate. Apparently the Court was of opinion, however, that until relief was given Keate was the actual stockholder, and not the plaintiff. Thus, it is assumed that the dividends which Keate had received were the dividends on the plaintiff’s stock, and that they must be recovered at the suit of the plaintiff, not of the company. Further, the company is directed to “take this stock from the defendant Keate and restore it to the plaintiff.” The case was afterwards overruled,3 but in a way which served rather to emphasize the theory that the legal title to all the stock of a corporation is in the corporation itself.4
In Harrison v. Pryse5 the facts were substantially the same, except that the defendant was not a purchaser for value. The company was not made a party. The plaintiff recovered the full value of his stock on the theory that it had been converted. The transfer on the books of the company, though without the plaintiff’s authority, was assumed to have divested him of his stock. Lord Hardwicke, who decided the case, was of opinion that in case the estate of the defendant proved insufficient to satisfy the plaintiff’s claim the company might be liable. “His reason was that the company must be considered as trustees for the owner at the time he purchased this stock, and as the stock had not been transferred with any privity of his, they must be considered as continuing his trustees.”
The last and most explicit of this series of cases was decided by Lord Worthington in 1765.1 The facts were the same as in Hildyard v. The South Sea Company.2 It was admitted that the plaintiff was entitled to relief, and the only question was which of the defendants should bear the loss. It was decided that it must fall on the bank. The reason given was that “a trustee, whether a private person or body corporate, must see to the reality of the authority empowering them (sic) to dispose of the trust money.” Again, it is said by the Chancellor, “I consider the admission and acceptance of the transfer as the title of the purchaser.”
Whether a contract for the sale of stock was a contract for the sale of goods, wares, or merchandise, within section 17 of the Statute of Frauds, is a question which was several times considered but not definitely decided in the eighteenth century. In Pickering v. Appleby3 the judges were divided six to six as to whether a contract for the sale of ten shares of the Company of the Copper Mines required a memorandum in writing to make it enforceable. In other cases,4 also, the point came up, but they went off on other grounds.
Whether specific performance could be had of such a contract is another question which was raised in the early part of the eighteenth century, because of the enormous fluctuations in prices at that time.5 The earliest case was Cud v. Rutter,6 decided in 1719. Sir Joseph Jekyll decreed specific performance of a contract for the sale of South Sea stock, and Lord Chancellor Parker overruled the decree, his chief reason being, “Because there is no difference between this £1,000 South Sea stock and £1,000 stock which the plaintiff might have bought of any other person upon the very day.”1
There is nothing to indicate that any distinction was supposed to exist between South Sea stock, which was government stock with certain additional rights, and shares in ordinary companies. Moreover, two years later Lord Macclesfield dismissed a bill for specific performance of a contract for the sale of £1,000 stock in the York Buildings Company, which was an ordinary joint-stock corporation, on the ground that the proper remedy was at law.2
The only foundation afforded before the year 1800 for the view now prevailing in England,3 that contracts for the sale of shares, as distinguished from government stock, will be specifically performed, is the case of Colt v. Netterville,4 a bill for specific performance of a contract for the transfer of York Buildings stock, which was demurred to. Lord King overruled the demurrer, saying that the case might be “attended with such circumstances that may make it just to decree the defendant either to transfer the stock according to the express agreement, or at least to pay the difference.” This, however, is altogether too indefinite to be regarded as disapproval of the previous cases, and it may be confidently stated that the former rule on this point in England was the same as that now prevailing in this country;5 that is, in the absence of special circumstances, such contracts will not be specifically enforced.6
Though the corporation was looked upon as a trustee and the shareholders as cestuis que trust, it was of course perfectly well recognized that there were rights and obligations not incident to an ordinary trust.
The practice of keeping books to record the transfer of stock was adopted by the East India Company, perhaps from its inception, and transfer on the books was regarded as essential for passing the title. Thus in 1679, in a suit for an account against a fraudulent assignee of East India stock, the company being joined,1 the Court decree that the company “do, upon application made to them, according to their custom, transfer back the said £150 stock to the plaintiff;” and it was customary to insert in the early charters incorporating business associations, a provision that the shares might be assigned by entry in a book kept for that purpose.2 Therefore, one of the earliest well-recognized rights of a shareholder was to have his name kept upon the transfer book so long as he held stock;3 and, in consequence of the assignability of shares, to have the name of his assignee substituted, if he parted with his interest.4 It follows that if the company transferred stock, however innocently, without due authority from the owner, it was liable. Several cases arose of such transfers, where the company acted in compliance with a forged power of attorney.
In all these cases,5 it seems to have been decided or assumed that the company was bound to reinstate the original owner on its books, as well as to pay him the dividends that had accrued, though the reasoning on which these decisions were based was influenced by the notion previously adverted to, that the shareholder occupied the position of a cestui que trust.
When shares were held in trust, of course, it was the name of the trustee which appeared upon the books; he and not the beneficial owner was entitled to all the rights of a shareholder.1 This was fully recognized by the Courts; and not only this, but it was laid down that the company, after express notice that stock was held in trust, was at liberty to ignore the fact, even so far as to allow the trustee to commit a fraud on the cestui que trust unless the trust appeared on the books.2 The right to such complete disregard of equitable interests rested perhaps not so much on decisions as on dicta which may be attributed to a careless over-emphasis of the fact that the legal interest, and, in general, the entire control of stock held in trust, is in the trustee.
In case of refusal by the officers of a company to transfer on the books at the request of the owner of stock, the proper remedy was not wholly clear in the eighteenth century. In the case of King v. Douglass3 an application was made for a mandamus to compel a transfer. Lord Mansfield refused to allow this extraordinary remedy, and suggested a special action of assumpsit, and probably that action would have been held proper. Whether specific performance of the obligation would be enforced by equity was not suggested, but it is not unlikely that such a remedy would have been allowed.4
The right of a shareholder to vote at the election of officers, and in regard to by-laws for the management of a business corporation, was formerly precisely analogous to the similar right necessarily possessed by the members of all corporations from their origin, such as the members of a municipal corporation, for instance, still possess. That is, each shareholder was entitled to one vote if given by him in person. This was at first the rule in the East India Company, but, naturally enough, it soon became distasteful to the larger owners, and various changes were made at different times; for example, that only holders of £500 stock should have the right to vote, the smaller holders being allowed to pool their stock to make up the necessary amounts.5 This was simply a restriction of the suffrage. The units of which the corporation was composed were still considered to be the members, as is the case in municipal corporations and guilds,—not shares, as is the case in the modern joint-stock corporation. The gradual progress from the old view to the modern one is shown by the changes in the power of voting. It soon became usual to allow the larger holder more than one vote, and it was customarily provided in the charters how many votes should belong to the owner of a given number of shares, the owner of a large number having more votes than the owner of a few, but not proportionately more. Thus, in the Greenland Company, each subscriber of £500 had one vote, each subscriber of £1,000 or more had two votes, and in no case could a shareholder have a greater number, however great his holding might be;1 and in other charters are similar provisions. Except for some such provision, no doubt, each shareholder would have been entitled to but one vote. It did not take very great ingenuity to devise a plan by which owners of large amounts of stock could, in effect, secure a number of votes in proportion to their holdings. All that was necessary was to make temporary transfers of stock to a number of friends,—a practice called “splitting stock.” The preamble of an act passed in 17662 shows the custom at that time. It recites “certain publick companies or corporations have been instituted for the purpose of carrying on particular trades or dealings with joint stock, and the management of the affairs of such companies has been vested in their general courts, in which every member of each company possessed of such share in the stock as by the charter is limited, is qualified to give a vote or votes;” and it is further recited that “of late years a most unfair and mischievous practice has been introduced, of splitting large quantities of stock, and making separate and temporary conveyances of the parts thereof for the purpose of multiplying or making occasional votes immediately before the time of declaring a dividend, of choosing directors, or of deciding any other important question, which practice is subversive of every principle upon which the establishment of such general courts is founded, and if suffered to become general, would leave the permanent welfare of such companies liable at all times to be sacrificed to the partial and interested views of a few.” It is then provided by the act that in future members who have not held their stock for at least six months shall not vote.
As an instance of the conservatism of the English law in matters of form it may be mentioned that by the English Companies Act of 1862 the votes of shareholders are limited, so that one vote is allowed for every share up to ten, for every five shares between ten and one hundred, and for every ten shares beyond that.1 But it is now held that a shareholder may distribute his stock in lots of ten among his friends, and thereby secure, in a clumsy and troublesome way, a vote for every share.2
The right to vote by proxy was not allowed at common law, in the absence of some special authorization.3 This was often given the charter.4 Contrary to what is now generally held,5 it is very doubtful if the authority of a by-law would have been held in the last century sufficient to confer the right.6
That the directors of a corporation shall manage its affairs honestly and carefully is primarily a right of the corporation itself rather than of the individual stockholders. The question may, however, be considered in this connection.
The only authority before the present century is the case of The Charitable Corporation v. Sutton,7 decided by Lord Hardwicke. But this case is the basis, mediate or immediate, of all subsequent decisions on the point, and it is still quoted as containing an accurate exposition of the law.8 The corporation was charitable only in name, being a joint-stock corporation for lending money on pledges. By the fraud of some of the directors or “committee-men,” and by the negligence of the rest, loans were made without proper security. The bill was against the directors and other officers, “to have a satisfaction for a breach of trust, fraud, and mismanagement.” Lord Hardwicke granted the relief prayed, and a part of his decision is well worth quoting. He says, “Committee-men are most properly agents to those who employ them in this trust, and who empower them to direct and superintend the affairs of the corporation.
“In this respect they may be guilty of acts of commission or omission, of malfeasance or nonfeasance.1
“Now, where acts are executed within their authority, as repealing by-laws and making orders, in such cases, though attended with bad consequences, it will be very difficult to determine that these are breaches of trust. For it is by no means just in a judge, after bad consequences have arisen from such executions of their power, to say that they foresaw at the time what must necessarily happen, and therefore were guilty of a breach of trust.
“Next as to malfeasance and nonfeasance.
“To instance in non-attendance; if some persons are guilty of gross non-attendance, and leave the management entirely to others, they may be guilty by this means of the breaches of trust that are committed by others.
“By accepting of a trust of this sort, a person is obliged to execute it with fidelity and reasonable diligence, and it is no excuse to say that they had no benefit from it, but that it was merely honorary; and therefore they are within the case of common trustees.2
“Another objection has been made that the Court can make no decree upon these persons which will be just, for it is said that every man’s non-attendance or omission of duty is his own default, and that each particular person must bear such a proportion as is suitable to the loss arising from his particular neglect which makes it a case out of the power of this court. Now, if this doctrine should prevail, it is indeed laying the axe to the root of the tree. But if, upon inquiry before the master, there should appear to be a supine negligence in all of them, by which a gross complicated loss happens, I will never determine that they are not all liable.
“Nor will I ever determine that a Court of equity cannot lay hold of every breach of trust, let the person be guilty of it either in a private or public capacity.”
The members of any corporation were entitled to inspect the books of the corporation. The only difference between business and other corporations as to the right of inspection was this: The books of municipal corporations and guilds might be inspected by non-members under certain circumstances, because the regulations of such bodies were not binding on members alone, and consequently outsiders might be vitally interested in the corporate proceedings.1 Business corporations, on the other hand, were private, and the right of inspection belonged solely to members.2
The most important right of shareholders, the right to dividends, was of course always recognized. It is necessarily implied in the conception of a joint-stock company. No cases, however, seem to have been decided before the year 1800 which illustrate the nature of the right. The same remark applies to the right of a shareholder to share in the distribution of the capital stock if the affairs of the corporation are wound up.
The correlative duties imposed on a shareholder were fewer and simpler than his rights. In the first place, he was bound to pay to the corporation, when called upon, the amount of his share in the joint stock, or so much of it as had not been paid by prior holders. The practice of paying in instalments for stock subscribed seems to have arisen at an early date. It is referred to as common in 1723. Lord Macclesfield speaks of “the common by-laws of companies to deduct the calls out of the stocks of the members refusing to pay their calls.”3
In 1796 the question arose whether an original subscriber could avoid liability for future calls by assigning his stock.1 It was contended that the case was like the assignment of a lease, “in which, though the lessor consents to the lessee’s assigning to a third person, he does not give up his remedy against the original lessee.” The Court of King’s Bench, however, decided that assignees held the shares on the same terms as the original subscribers, and were substituted in their places. The objection that an assignment might be made to insolvent persons was met by saying that it was presumed that the undertaking was a beneficial one, and therefore the right to forfeit shares for non-payment of calls furnished a sufficient check.
No doubt it has been settled for a long time that individual members are not liable for the debts of a corporation, and it has even been said that “the personal responsibility of the stockholders is inconsistent with the nature of a body corporate;”2 yet in the Roman law it seems that if the corporation became insolvent the persons constituting it were obliged to contribute their private fortunes;3 and though it may be hazardous to assert that at common law the rule was the same in England, it is certain that, so far as the evidence goes, it points to that conclusion. This was not on any theory that the debt of the corporation was directly the debt of its members, for the contrary seems to have been well understood. For instance, in Y. B. 19 Hy. VI. 80, it was held that an action of debt being brought against the Society of Lombards, and the sheriff having distrained two individual Lombards, trespass would lie against him. “For where a corporation is impleaded they ought not to distrain any private person.” And in the case of Edmunds v. Brown4 it was held that certain members of the Company of Woodmongers, who had signed a bond as its officers, were not personally liable when the company was dissolved.5 If, however, there was an obligation running to the corporation from its members, to be answerable to the corporation for the liability of the latter to the outside world,1 this obligation would be part of its assets, which, though not available in a law court, could be reached in equity, and so indirectly the members could be forced to discharge the corporate debts. That such was the case was directly decided in the case of Dr. Salmon v. The Hamborough Company.2 This was an appeal to the Lords from the dismissal of a bill in Chancery against the Hamborough Company and some of its individual members, setting forth that the company owed the plaintiff money, but had nothing to be distrained by, and could, therefore, not be made to appear.3 The Lords ordered that the dismissal be reversed, and that if the company did not appear the bill should be taken pro confesso, and in that event, and also in case the company appeared and the plaintiff’s claim was found just, a decree should be made that the company pay; and on failure to do so for ninety days, “that the governor or deputy governor and the twenty-four assistants of the said company, or so many of them as by the tenor of their charter do constitute a quorum for the making of leviations upon the trade or members of the said company, shall make such a leviation upon every member of the said company as is to be contributary to the public charge, as shall be sufficient to satisfy the sum decreed to the plaintiff;” and in case of failure to answer these “leviations,” process of contempt should issue against them. By a note to Harvey v. East India Company,4 it may be seen that the course thus outlined was actually carried out, and the individual members were charged in their private capacities. It is true that the Hamborough Company was a regulated, not a joint-stock, corporation; but there seems to be no reason why the question should not be the same for both kinds, or that, when the case was decided, there was supposed to be any distinction. Indeed, there is no case decided before the present century which is inconsistent with the theory that members of a corporation are thus liable, though very possibly that idea became contrary to the general understanding.
In another early case1 creditors who were members of the indebted company were postponed to the other creditors. Lord Nottingham says, “That if losses must fall upon the creditors, such losses should be borne by those who were members of the company, who best knew their estates and credit, and not by strangers who were drawn in to trust the company upon the credit and countenance it had from such particular members.”
The case of Dr. Salmon v. The Hamborough Company was criticised by Fonblanque in 1793.2 It was, however, followed to its fullest extent in South Carolina so late as 1826 in a very carefully considered case, and on appeal the decision was affirmed.3 Even after 1840 the doctrine for which the case stands found support.4
The ways in which a corporation might be dissolved, and the consequences of dissolution, were fully considered by the older writers. It was laid down that a corporation might be dissolved, 1st, by act of Parliament; 2d, by the natural death of all its members; 3d, by surrender of its franchises; 4th, by forfeiture of its charter through negligence or abuse of its franchises.5 The second of these methods is inapplicable to business corporations, for the shares of the members are property and would pass to their personal representatives. Further, it should be added that a corporation may be dissolved by the expiration of the time limited in its charter.
Forfeiture of a charter was enforced by scire facias or an information in the nature of quo warranto. It is only in connection with the question of forfeiture that importance was attached to the fact that a corporation had acted in excess of the authority given by its charter. Not a trace of the modern doctrine of ultra vires is to be found before the present century.1 The other ways in which a corporation could be dissolved need no elaboration.2
Kyd says,3 “The effect of the dissolution of a corporation is, that all its lands revert to the donor, its privileges and franchises are extinguished, and the members can neither recover debts which were due to the corporation, nor be charged with debts contracted by it in their natural capacities. What becomes of the personal estate is, perhaps, not decided, but probably it vests in the crown.”
The accuracy of the statement that the lands of a dissolved corporation revert to the donor has been doubted in Gray on Perpetuities.4 After a very careful examination of authorities the learned author arrives at the conclusion that the lands would escheat, and offers the following explanation to account for the prevalence of the theory which he controverts. Most early corporations held their lands in frankalmoign, a tenure in which the lord was always the donor. Hence, on the dissolution of a corporation, its lands, though they escheated, would generally go to the donor.
The explanation is ingenious, and very likely true. It may, however, be urged that Lord Coke, to whose statements5 are to be attributed, in the main, the wide acceptance in later times of the doctrine under consideration, is not likely to have made such a palpable blunder in regard to a question of tenure. The suggestion is offered with diffidence, that a real or fancied analogy in the civil law may be the true foundation on which the doctrine rests. The early English law of corporations is borrowed almost wholly from the Roman law.1 This certainly creates an antecedent probability in favor of the suggestion offered. Domat says, “If a corporation were dissolved by order of the Prince, or otherwise, the members would take out what they had of their own in the corporation.”2 This confines the application of the rule to members; but it may have been regarded as applying to any donor of a corporation, or may, at least, have furnished an analogy.
The disposition of the personalty of a corporation on its dissolution was not discussed by the early writers, undoubtedly because of the insignificance at that time of personal property. No expression of judicial opinion on the matter is to be found. Kyd’s remark5 probably represents the generally received opinion at the time he wrote.6
The statement was made by Blackstone7 that “the debts of a corporation either to or from it are totally extinguished by its dissolution.” This remark has been repeated by later authors, and has led to some confusion. It was, undoubtedly, an error. The only authority cited to support it is Edmunds v. Brown.8 The Company of Woodmongers had been dissolved. It had given a bond to the plaintiff, which was signed by the defendants for the company. This action was debt on the bond against the individuals who signed it. The plaintiff failed, and rightly, for the bond was not executed by the defendants as individuals but for the company. The difficulty, however, was simply in the remedy which the plaintiff chose. This is evident from the case of Naylor v. Brown,1 —a suit in equity by the creditors of the Woodmongers’ Company, begun immediately after the failure of the action at law just referred to. On the dissolution of the company, the members had divided up its property. It was decreed that the property should be returned, “it being in equity still a part of the estate of the late company,” and that the debts due the plaintiffs should be discharged from the fund so formed. This important case, which seems to have been generally overlooked,2 clearly shows that the property of a dissolved corporation was liable in equity for the corporate debts, although they were unenforceable at law.
Whether debts owing to a dissolved corporation could be enforced for the benefit of the creditors or members of the corporations, or for the benefit of the State as bona vacantia, was not decided before the year 1800.
The history of the law of business corporations has thus far been treated with reference only to English decisions. In this country questions pertaining to corporations were brought before the courts in very few cases until the nineteenth century.
Pennsylvania is entitled to the honor of having chartered the first business corporation in this country,3 “The Philadelphia Contributionship for Insuring Houses from Loss by Fire.” It was a mutual insurance company, first organized in 1752, but not chartered until 1768. It was the only business corporation whose charter antedated the Declaration of Independence. The next in order of time were: “The Bank of North America,” chartered by Congress in 1781 and, the original charter having been repealed in 1785, by Pennsylvania in 1787; “The Massachusetts Bank,” chartered in 1784; “The Proprietors of Charles River Bridge,” in 1785; “The Mutual Assurance Co.” (Philadelphia), in 1786; “The Associated Manufacturing Iron Co.” (N. Y.), in 1786.
These were the only joint-stock business corporations chartered in America before 1787. After that time the number rapidly increased, especially in Massachusetts. Before the close of the century there were created in that State about fifty such bodies, at least half of them turnpike and bridge companies. In the remaining States combined, there were perhaps as many more. There was no great variety in the purposes for which these early companies were formed. Insurance, banking, turnpike roads, toll-bridges, canals, and, to a limited extent, manufacturing1 were the enterprises which they carried on.
The rapid growth of corporations was followed in the early decades of the nineteenth century by the judicial decision of the questions which naturally arose as to the nature of the bodies which had been created by the Legislature, their rights and duties, and the rights and duties of their stockholders. But not even a beginning of this development was made prior to the year 1800. Before that time, whatever knowledge of these matters American lawyers possessed must have been derived from the English cases and English textbooks previously considered.
[1 ]This Essay was first published in the Harvard Law Review, 1888, vol. II, pp. 105-124, 149-166, and has been revised by the author for this Collection.
[2 ]Weld Professor of Law in Harvard University. A. B. 1882, A. M., LL. B. 1888, Harvard University; draftsman of acts on Bills of Sale, etc., for the National Conference of Commissioners on Uniform State Laws, 1905-1908.
[3 ]E. g., Coke, in Sutton’s Hospital Case, 10 Rep. 1, The Law of Corporations, 1 Blacks. Com. ch. xviii., Kyd on Corporations.
[1 ]1 Blacks. Com. 468.
[2 ]Angell and Ames on Corp. (1st ed.).
[3 ]Ancient Law (4th ed.), 183.
[4 ]System des heutigen romischen Rechts, vol. ii. § 86 et seq.
[1 ]Savigny, System etc., § 88.
[2 ]Blackstone is, therefore, in error in saying (1 Com. 472) that by the civil law the voluntary association of the members was sufficient unless contrary to law—an error probably caused by the fact that penalties were imposed on certain forbidden associations in the nature of clubs for acting without the authorization of the State, and only on these.
[1 ]See History of Guilds, Luigi Brentano.
[2 ]For an account of guilds at Rome see “Les Sociétés Ouvrières à Rome,” 96 Rev. des Deux Mondes, 626, by Gaston Boissier.
[3 ]Butchers’ Company v. Morey, 1 H. Bl. 370; Kirk v. Nowill, 1 T. R. 118.
[4 ]Madox, Firma Burgi, 29.
[1 ]1 And. Hist. of Commerce, 250.
[2 ]Knight’s Hist. of England, vol. v. 39.
[3 ]What follows in regard to the East India Company is based on “The History of European Commerce with India,” by David Macpherson, London, 1812, and documents therein quoted.
[1 ]From the defence of the Company in the Privy Council, 2 And. Hist. Com. 173.
[1 ]This is the first English book wholly devoted to the subject of corporations; with the exception of a small volume by William Shepheard, published in 1659 in London, entitled: Law of Corporations, Fraternities, and Guilds.
[2 ]Law of Corporations, p. 2.
[3 ]4 and 5 Wm. III., c. 17.
[1 ]5 and 6 Wm. III., c. 31.
[2 ]By Stat. 6 Anne, c. 22, § 9.
[3 ]7 and 8 Wm. III., c. 31.
[4 ]9 and 10 Wm. III., c. 43.
[5 ]See 9 Anne, c. 24.
[6 ]9 Anne, c. 21.
[7 ]6 Geo. I., c. 18.
[8 ]9 Vol. I, (1st ed.) 291 et seq.
[9 ]And. Hist. Com., Vol. II, 296.
[1 ]Wealth of Nations, book V, ch. I, art. 5.
[1 ]10 Rep. 22 b.
[2 ]10 Rep. 29 b.
[1 ]See supra, p. 196.
[2 ]Horne v. Ivy, 1 Ventr. 47.
[1 ]Sutton’s Hospital Case, 10 Rep. 32.
[2 ]1 Stra. 612; and see the Law of Corporations, 13. Also, if the name of a corporation be changed, it retains its possessions, debts, etc. Bishop of Rochester’s Case, Owen, 73; s. c. 2 And. 107; Luttrel’s Case, 4 Rep. 87 b; Mayor of S. v. Butler, 3 Lev. 237; Haddock’s Case, 1 Ventr. 355.
[3 ]1 Kyd, 236 et seq.
[4 ]Button v. Wrightman, Cro. Eliz. 338.
[5 ]Rol. 512.
[1 ]Blacks. Com. ch. xviii.
[2 ]1 Kyd, 228.
[3 ]See Mayor of Stafford v. Bolton, 1 B. & P. 40.
[4 ]Sutton’s Hospital Case, 10 Rep. 30, citing as authority 22 Edw. IV., Grants, 30.
[1 ]P. 16.
[2 ]1 Blackst. Com. 475; also in Wood’s Inst. of the Laws of Eng., bk. I, ch. VIII.
[3 ]Vol. i. p. 60.
[1 ]2 Blackst. Com. 305; Genesis, xxxviii. 18; Esther, viii. 8; Jeremiah, xxxii. 10.
[2 ]2 Blackst. Com. 306.
[3 ]1 Com. 475.
[4 ]1 Blackst. Com. (Sharswood’s ed.) 475, n. 7.
[1 ]Taylor on Evidence (8th ed.), § 976 et seq.
[2 ]Y. Bks. 9 Edw. IV. 39, 4 Hy. VII. 17 b, 7 Hy. VII. 9.
[1 ]Horne v. Ivy, 1 Vent. 47; Dunston v. Imp. Gas Co., 3 B. & Ad. 125, 129; Tilson v. Warwick Gas Co., 4 B. & C. 962, 964.
[2 ]East London Waterworks Co. v. Bailey, 12 Moore, 532; s. c. 4 Bing. 283; and see Edie v. E. I. Co., 2 Burr. 1216, where assumpsit was brought against the Company on a bill of exchange, without objection.
[1 ]3 P. Wms. 419.
[2 ]Bac. Abr., tit. Corporation (E) 3; 1 Kyd on Corp. 26.
[3 ]East London Waterworks v. Bailey, 12 Moore, 532; s. c. 4 Bing. 283.
[4 ]The Barber Surgeons v. Pelson, 2 Lev. 252; Mayor of London v. Hunt, 3 Lev. 37; and see Parbury v. Bank of England, 2 Doug. 524, where, at the suggestion of Lord Mansfield, a special action of assumpsit was brought on account of the bank’s refusal to transfer stock on the books.
[1 ]E. I. Co. v. Glover, 1 Stra. 612.
[2 ]Edgar v. Sorell, Cro. Car. 169; Tilson v. Warwick Gas Co., 4 B. & C. 962; Rex v. Bigg, 3 P. Wms. 419.
[3 ]E. g., 11 Geo. I. c. 30, § 43, which allowed the two insurance companies recently chartered to make use of the freer pleading in vogue in the action of assumpsit when sued on their policies, which were under seal.
[4 ]Dig. xlvii. 22, lex 4.
[5 ]Cuddon v. Eastwick, 1 Salk. 193, pl. 5.
[1 ]Butchers’ Co. v. Morey, 1 H. Bl. 370; Kirk v. Nowill, 1 T. R. 118.
[2 ]The Law of Corp. 209.
[3 ]Grant on Corp. 86, especially notes d and f.
[4 ]Towle’s Case, Cro. Car. 582; Chancey’s Case, 12 Rep. 83.
[5 ]8 Rep. 125 a; Horne v. Ivy, 1 Ventr. 47; Clarke v. Tuckett, 2 Ventr. 183; Nightingale v. Bridges, 1 Show. 135.
[6 ]Clearywalk v. Constable, Cro. Eliz. 110; Sams v. Foster, Cro. Eliz. 352; s. c. Dyer, 297 b.
[7 ]Grant on Corp. 78.
[8 ]Ibid. 83.
[9 ]Ibid. 80.
[10 ]Child v. Hudson’s Bay Co., 2 P. Wms. 207; 2 Kyd on Corp. 102.
[11 ]E. g., the East India Company in its early days regulated the right of private trading with the Indies, and soon forbade it altogether. It endeavored to enforce this rule against a non-member by forfeiture of his vessel. He petitioned the House of Lords, which ordered the Company to put in its answer. The case finally resulted in a quarrel between the Lords and the Commons as to the right of the former to take jurisdiction. The Lords gave judgment for the plaintiff, but it was never executed. Macpherson, Hist. 127. See, also, Horne v. Ivy, 1 Ventr. 47.
[1 ]Child v. Hudson’s Bay Co., 2 P. Wms. 207.
[2 ]Child v. Hudson’s Bay Co., 2 P. Wms. 207, re-argued sub nom. Gibson v. Hudson’s Bay Co., 1 Stra. 645; s. c. 7 Vin. Abr. 125.
[3 ]Lowell, Transfer of Stock, § 166.
[1 ]Savigny, System, §§ 94, 95.
[2 ]See Grant on Corp. 277, 278, and notes, in which are cited many cases from the Year Books.
[3 ]Yarborough v. Bank of England, 16 East, 6.
[4 ]Anon., 12 Mod. 559; that it cannot commit treason see Vin. Abr., Corpor. Z, pl. 2.
[5 ]Grant on Corp. 283, 284.
[6 ]The authorities are collected in Gilbert on Uses, 5, 170, and Sugden’s note.
[7 ]See Atty.-Gen. v. Stafford, Barnard. Ch. 33.
[1 ]Lowell, Transfer of Stock, § 4.
[2 ]“The legal interest of all the stock is in the company, who are trustees for the several members.” Per Lord Macclesfield, Child v. Hudson’s Bay Co., 2 P. Wms. 207.
[1 ]As to the nature of the company see Bligh v. Brent, 2 Y. & C. 268.
[2 ]Drybutter v. Bartholomew, 2 P. Wms. 127; Townsend v. Ash, 3 Atk. 336; Stafford v. Buckley, 2 Ves. Sr. 171, 182; Swaine v. Falconer, Show. P. C. 207; Sandys v. Sibthorpe, 2 Dick. 545.
[3 ]Bligh v. Brent, 2 Y. & C. 268, 296.
[4 ]See further, Howse v. Chapman, 4 Ves. 542, where a share in the Bath navigation was held to be real estate, and also Buckeridge v. Ingram, 2 Ves. 652, as to the Avon navigation. The latter company was not, it is true, incorporated, but the decision is not based on that distinction.
[5 ]2 Y. & C. 268.
[1 ]In Wells v. Cowles, 2 Conn. 567, it was decided that turnpike shares were real estate. The argument was almost wholly confined to the question whether the property of the company was real estate or not. It was very summarily remarked that the property of the individual shareholders was of the same nature as that of the company.
[2 ]2 Y. & C. 281, note.
[3 ]It was said in Bligh v. Brent, supra, that five-sixths of the property of the company was personalty.
[4 ]1 T. R. 219.
[5 ]14 Geo. III. c. 56.
[1 ]For a careful exposition of the modern view see Lowell, Transfer of Stock.
[2 ]2 P. Wms. 76 (1722).
[3 ]Ashby v. Blackwell, Ambl. 503.
[4 ]See also Monk v. Graham, 8 Mod. 9.
[5 ]Barnard. Ch. 324 (1740).
[1 ]Ashby v. Blackwell and The Million Bank, Ambl. 503.
[2 ]2 P. Wms. 76.
[3 ]1 Com. 354, referred to in Colt v. Netterville, 2 P. Wms. 304, 308.
[4 ]Colt v. Netterville, 2 P. Wms. 304; Mussell v. Cooke, Prec. in Ch. 533. In this last case the court seemed of opinion that a memorandum was necessary.
[5 ]Caused by the expected vast profits of the South Sea Company and other “bubbles,” and the subsequent collapse of these speculations.
[6 ]1 P. Wms. 570; sub nom. Cuddee v. Rutter, 5 Vin. Abr. 538, pl. 21; sub nom. Scould v. Butter, 2 Eq. Cas. Abr. 18, pl. 8.
[1 ]See also, to the same effect, Cappur v. Harrison, Bunb. 135; Nutbrown v. Thornton, 10 Ves. 159.
[2 ]Dorison v. Westbrook, 5 Vin. Abr. 540, pl. 22.
[3 ]See Fry on Spec. Perf., part vi. ch. 1.
[4 ]2 P. Wms. 304.
[5 ]Morawetz, Corp. (2d ed.) § 218.
[6 ]It was, indeed, said by Lord Eldon in Nutbrown v. Thornton, 10 Ves. 159, after he had remarked that it was perfectly settled that the Court would not decree specific performance of an agreement to transfer stock, “In a book I have of Mr. Brown’s, I see Lord Hardwicke did that;” but there is no record of any such decision by Lord Hardwicke, and further, there is an express dictum by him to the contrary in Buxton v. Lister, 3 Atk. 383.
[1 ]Cas. temp. Finch, 430.
[2 ]See, e. g., in the case of the Greenland Company, 4 and 5 Wm. & M. c. 17, s. xxiv., in the case of the Bank of England, 5 and 6 Wm. & M. c. 20, s. xxv., in the case of the Nat. Land Bank, 7 and 8 Wm. III., c. 31, s. xvii.
[3 ]Bank of Eng. v. Moffatt, 3 Bro. C. C. 160; Johnson v. E. I. Co., Cas. temp. Finch, 430.
[4 ]Cock v. Goodfellow, 10 Mod. 489, 498, 20 Vin. Abr. 5, pl. 16.
[5 ]See supra.
[1 ]Stockdale v. South Sea Co. 1 Atk. 140; s. c. Barnard. Ch. 363; Hartga v. Bank of England, 3 Ves. 55; Bank of England v. Parsons, 5 Ves. 664.
[2 ]Stockdale v. South Sea Co. 1 Atk. 140; s. c. Barnard. Ch. 363.
[3 ]2 Doug. 524.
[4 ]See Meliorucchi v. Royal Exchange Ass. Co., 1 Eq. Cas. Abr. 8, pl. 8; Gibson v. Hudson’s Bay Company, 1 Str. 645.
[5 ]Macpherson, Hist. of Com. 125.
[1 ]4 and 5 Wm. & M., c. 17, s. xvii.
[2 ]7 Geo. III., c. 48.
[1 ]Buckley on the Companies Acts (4th ed.), 436.
[2 ]Moffat v. Farquhar, 7 Ch. D. 591, and cases therein cited.
[3 ]Phillips v. Wickham, 1 Paige Ch. 590; State v. Tudor, 5 Day 329; Taylor v. Griswold, 14 N. J. L. 222; People v. Twaddell, 18 Hun 427; Common. v. Bringhurst, 103 Pa. St. 134; Harben v. Phillips, 23 Ch. D. 14.
[4 ]E. g., the charter of the Mine Adventurers, 9 Anne, c. 24, or of the Northumberland Fishery Soc., 29 Geo. III., c. 25.
[5 ]Common. v. Bringhurst, 103 Pa. St. 134, and cases therein cited.
[6 ]See the early case of Taylor v. Griswold, 14 N. J. L. 222 (1834).
[7 ]2 Atk. 400.
[8 ]Taylor on Corp. § 619.
[1 ]Citing Domat’s Civil Law, 2d B., tit. 3, secs. 1 and 2.
[2 ]Citing Coggs v. Bernard, 1 Salk. 26.
[1 ]See Grant on Corp. 311-313.
[2 ]Charitable Corp. v. Woodcraft, Cas. temp. Hard. 130.
[3 ]Child v. Hudson’s Bay Co., 2 P. Wms. 207.
[1 ]Huddersfield Canal Co. v. Buckley, 7 T. R. 36.
[2 ]Myers v. Irwin, 2 S. & R. 371, per Tilghman, C. J.
[3 ]Ayliffe, 200, referring to code, Bk. i. tit. 3; Savigny Sys. § 92.
[4 ]1 Lev. 237.
[5 ]See also Bishop of Rochester’s Case, Owen 73; s. c. 2 And. 106; Case of the City of London, 1 Ventr. 351.
[1 ]That there was such an obligation in the Roman law see Savigny, § 92.
[2 ]Ch. Cas. 294; s. c. 6 Vin. Abr. 310.
[3 ]A distringas was the proper and only process against a corporation. Curson v. African Co., 1 Vern. 182; Harvey v. E. I. Co., 2 Vern. 395; 3 Keb. 230, pl. 8.
[4 ]2 Vern. 396.
[1 ]Naylor v. Brown, Finch, 83 (1673).
[2 ]1 Fonblanque Eq. (1st ed.) 297, note. The learned author also suggests that the Hamborough Company was not incorporated, but in Viner’s report of the case it is expressly called a corporation, and it appears that as a matter of fact it had been chartered. Ang. and Ames on Corp. (11th ed.) 42; 4 Am. Law Mag. 366, note.
[3 ]Hume v. Windyaw and Wando Canal Co., 1 Car. L. J. 217; s. c. 4 Am. L. Mag. 92.
[4 ]1 Am. Law Mag. 96, answered in 4 Am. Law Mag. 363. See also a small pamphlet by A. L. Oliver, entitled “The Origin and Nature of Corporate Powers and Individual Responsibility of the Members of Trading Corporations at Common Law,” in which the author favors the view here expressed, though on the broader, and it seems untenable, ground that a corporation is in its nature a partnership with a right to sue by one name.
[5 ]1 Blackst. Com. 485, and to the same effect, 2 Kyd, 446.
[1 ]Brice, Ultra Vires (2d ed.), x.
[2 ]They are fully discussed in 2 Kyd, 446, Grant on Corp. 295, and elsewhere.
[3 ]Vol. ii. 516.
[4 ]§§ 46-51.
[5 ]Co. Lit., 13 b; Dean and Canons of Winsor v. Webb, Godb. 211.
[1 ]Mackenzie, Studies in Roman Law, 149; Grant on Corp. 2.
[2 ]Vol. ii. bk. i. tit. 15, § 2, Par. 8.
[3 ]1 Roll. Abr. 816 a; Moore 282, 283, pl. 435; per Lord Hardwicke in Atty.-Gen. v. Gower, 9 Mod. 224, 226; per Lord Mansfield in Burgess v. Wheate, 1 W. Bl. 123, 165; Law of Corp. 300; Wood, Inst. bk. i. c. viii.; 1 Blackst. Com. 484; 2 Kyd, 516; Bell’s Principles (Scotch), § 2190.
[4 ]Johnson v. Norway, Winch, 87, and Co. Lit. 13 b, Hargrave’s note. In the case as reported no decision is given. The only authority is Hargrave’s statement that in Lord Hale’s MS. it is said that the court finally decided that the land should go to the lord, not to the donor.
[6 ]The same statement is made by counsel arguendo in Colchester v. Seaber, 3 Burr. 1868.
[7 ]1 Com. 484.
[8 ]1 Lev. 237.
[1 ]Finch, 83.
[2 ]It is not referred to by Blackstone, Kyd, Kent, Angell and Ames, Field, Taylor, Morawetz, or any other writer on the subject so far as observed.
[3 ]Laws of Pa. ch. dlxxvi.
[1 ]There were several manufacturing companies in Massachusetts, but very few in other States.