other evidence of debt with intent to enable any stockholder to withdraw any part of the money paid in by him on his stock; (5) to apply any portion of the funds of the corporation, except surplus profits, directly or indirectly, to the purchase of shares of its own stock; (6) to receive any such shares in payment or satisfaction of a debt due to the corporation; (7) to receive in exchange for the shares, notes, bonds, or other evidences of debt of the corporation, shares of the capital stock or notes, bonds or other evidences of debt issued by any other stock corporation, is guilty of a misdemeanor.1 A director, officer or agent of any corporation or joint-stock association, who knowingly receives or possesses himself of any property of that corporation or association, otherwise than in payment of a just demand, and with intent to defraud, omits to make, or to cause or direct to be made, a full and true entry thereof, in the books or accounts of the corporation or association; and a director, officer, agent or member of any corporation or joint-stock corporation, who, with intent to defraud, destroys, alters, mutilates or falsifies any of the books, papers, writings or securities belonging to the corporation or association, or makes or concurs in making any false entry, or omits or concurs in omitting to make any material entry in any book of accounts or other record or document kept by the corporation or association, is punishable by imprisonment in a State prison not exceeding ten years, and not less than three years, or by imprisonment in a county jail not exceeding one year, or by a fine not exceeding five hundred dollars, or by both such fine and imprisonment. A director, officer, or agent of any corporation or joint-stock association, who knowingly concurs in making or publishing any written report, exhibit or statement of its affairs or pecuniary condition, containing any material statement which is false, other than such as are elsewhere, by this code, specially made punishable, is guilty of a misdemeanor.3 A director of a corporation or joint-stock association must be deemed to have such a knowledge of the affairs of the corporation or association as to enable him to determine whether any act, proceeding or omission of its directors, is a violation of this chapter. A director of a corporation, or joint-stock 1 N. Y. Penal Code, § 594. 2 N. Y. Penal Code, § 602. 3 N. Y. Penal Code, § 603. N. Y. Penal Code, § 609. association, although not present at a meeting of the directors, at which any act, proceeding or omission of the directors, in violation of this chapter, occurs, must be deemed to have concurred therein, if the facts constituting such violation appear on the record or minutes of the proceedings of the board of directors, and he remains a director of the company for six months thereafter, without causing, or in writing requiring, his dissent from such illegality to be entered in the minutes of the directory. The term "director" as used in this chapter, embraces any of the persons having by law the direction or management of the affairs of a corporation, by whatever name such persons are described in its charter, or are known in law.2 § 269. Procuring withdrawal of opposition to a charter. A decision of Lord Eldon's in which he intimated that withdrawing opposition to a bill in parliament might be good consideration for a contract, has given authority to a long line of cases in which contracts between the promoters of a company and persons opposing in parliament the granting of a charter, whereby, in consideration of the opposition being withdrawn, the promoters undertake that the projected corporation shall perform certain acts for the benefit of its opponents, have been sustained, not only in equity," but at law also. Thus it has been decided that a contract of the promoters that the company will purchase certain lands if the vendor supports the bill and it becomes a law, the latter may hold the promoters liable in damages, if the company fails to take and pay for the land. Though it has also been decided that specific performance of contracts that the company is to take the 1 N. Y. Penal Code, § 611. 2 N. Y. Penal Code, § 614. Co. v. Stockport D. & W. Ry. Co., 24 * Vauxhall Bridge Co. v. Spencer, 2 Ry. Co., 1 Am. & Eng. R. Cas. 462. Madd. 356. 4 Doe v. London & C. Ry. Co., 1 Am. & Eng. R. Cas. 257; Stanley v. Chester & B. Ry. Co., 1 Am. & Eng. R. Cas. 58; 9 Sim. 264; Hawkes v. Eastern Counties Ry. Co., 1 De Gex, M. & G. 737; s. c. 3 De Gex & S. 314; s. c. 15 L. R. Eq. 358; s. c. 4 Eng. L. & Eq. 91; Cromford & H. P. Ry. Edwards v. Grand Junction Ry. Co., 1 Mylne & C. 650. 6 Howden v. Simpson, 1 Am, & Eng. R. Cas. 326; 1 Keen, 583; 3 Mylne & C. 95; s. c. 10 Ad. & E. 793; s. c. 3 Am. & Eng. R. Cas. 294; s. c. 9 Clark & F. 61. 7 Bland v. Crowley, 6 Ex. 522; Capper v. Lindsey, 3 H. L. Cas. 293. property only in case it is needed in the construction, can be enforced only in case it is so needed.1 These decisions have not denied that such contracts were ultra vires, while holding them not illegal. Such contracts have been enforced under color of indemnification for injury to property or to the franchises of rival companies, instead of regarding them as bribes for the procurement of favor. And there are cases, even, where, although by reason of the abandonment of the enterprise, no injury was ever sustained, the contracts to quiet opposition have been enforced. A later case, however, says of the leading cases cited in support of the above doctrine, and other similar cases following them, that although distinguishable from the case at bar, they were unsupported in principle. And where the price for property was so grossly excessive as to be patently a bribe the contract was declared ultra vires and specific performance denied. An existing company may contract to purchase land for construction after it obtains an act enabling it to build a new line, and whether the land is needed or not the contract may be enforced. In America there has been but little litigation involving the validity of contracts to quiet opposition. In New Hampshire 1 Gage v. Newmarket Ry. Co., 18 Q. B. 457; Preston v. Liverpool &c. Ry. Co., 5 H. L. Cas. 605; Scottish N. E. Ry. Co. v. Stewart, 3 Macq. 382. 2 Even when the land-owner, whose opposition has been bought off, is a member of parliament, unless it may be shown that the payment was made for the purpose of influencing his vote. Preston v. Liverpool &c. Ry. Co., 5 H. L. Cas. 605; Edwards v. Grand Junction Ry. Co., 1 Mylne & C. 650; Stanley v. Chester &c. Ry. Co., 3 Mylne & C. 773; Simpson v. Howden, 9 Clark & F. 61; Shrewsbury v. N. Staffordshire Ry. Co., 35 L. J. Ch. 156; Petre v. Eastern Counties Ry. Co., 1 Nic. H. & C. 462; Eastern Counties Ry. Co. v. Hawkes, 5 H. L. Cas. 331. 3 Gage v. Newmarket Ry. Co., 18 Q B. 457; Porcher v. Gardner, 8 Brand v. Crowley, 6 Ex. 522; Shrewsbury & B. Ry. Co. v. London & N. W. Ry. Co., 3 Macn. & G. 70; Hawkes v. Eastern Counties Ry. Co., 3 De Gex & S. 314. 5 Caledonian &c. Ry. Co. v. Trustees, 2 Macq. 391; s. c. 39 Law R. Eq. 28. 6 Preston v. Liverpool &c. Ry. Co., 5 H. L. Cas. 605. 7 Eastern Counties Ry. Co. :. Hawkes, 5 H. L. Cas. 331; Taylor v. Chichester &c. Ry. Co., L. R. 4 H. L. 628. Such a contract may be enforced after the compulsory powers of the company have terminated, as it is already in equity the owner of the land. Webb v. Liverpool &c. Ry. Co., 5 H. L. Cas. 605. the rule has been laid down that a contract, by which indemnity is guarantied to a property holder, who merely for the protection of his private interest is opposing the bill in the legislature, is valid and may be enforced, unless it be shown that the legislature was misled and thereby induced to pass the act, when otherwise it would not have done so.1 270. Promoters' liability on failure of scheme. If persons set a scheme afoot and assume to be its promoters, all expenses incurred before the scheme is in actual operation must be borne by them in the first instance and not by those who advance them money on the faith of its going on.2 Those who purchase shares in a company which never goes on, have paid their money upon a consideration which has failed, and may recover it at law, or in equity, as money had and received. Where an attempted organization of a steamship company does not become a corporation de jure and can not legally issue stock, the issue of stock by it will not alone make the directors liable for a fraudulent conspiracy to issue worthless stock. Nor can an intent to deceive be inferred from this circumstance and the fact that the nominal capital largely exceeds the actual. But the promoters are not personally liable if the money has been honestly applied to the expenses of promotion with the consent or acquiescence of the subscriber. If not so applied, however, the whole amount paid in to the promoters may be recovered back from any of them. Recovery must be in equity if there is an 1 Beach on Railways, § 20; Law v. Connecticut & P. Ry. Co., 46 N. H. 284; s. c. 45 N. H. 370. 2 Nockells v. Crosby, (1825) 3 Barn. & C. 814, 823; Wallstab v. Spottiswoode, (1846) 15 Mees. & W. 501, 516. Vollans v. Fletcher, 1 Ex. 20; Williams v. Salmond, 2 Kay & J. 463; Chaplin v. Clarke, 4 Ex. 402. 6 Nelson v. Luling, (1875) 62 N. Y. 645. 7 Garwood v. Ede, 17 L. J. Ex. 29; 1 Ex. 264; Clement v. Todd, 1 Ex. Nockells v. Crosby, (1825) 3 Barn. 268; Watts v. Salter, 10 C. B. 476; & C. 814, 823. Aldham v. Brown, 7 El. & B. 164; 4 Grand Trunk R. Co. v. Brodie, 9 Londesborough v. Mowatt, 23 L. J. Hare, 822. 5 Ashpitel v. Sercombe, 5 Ex. 147; Ward v. Londesborough, 12 C. B. 254; Colt v. Woolaston, 2 P. Wms. 153; Williams v. Page, 24 Beav. 654; Q. B. 38. 177; s. c. 4 El. & B. 1; In re 8 Wallstab v. Spottiswoode, 15 account to be taken and the bill may be brought in the name and on behalf of all the depositors. Otherwise he can maintain an action only in his own name, unless fraud is alleged.' Although his name appears upon the prospectus as chairman, a promoter who was not a party to the proceedings resulting in applications for shares, can not be held liable." Where suit is brought for the breach of a contract with the promoters, by the members composing the projected corporation, plaintiffs are not limited to the damages they themselves have suffered, independently of their membership of the association, but may recover damages suffered by the new organization in being unable to carry on a profitable business on account of defendants' failure to perform the contract. Where a corporation is in every respect duly organized except that its articles are not filed in the secretary of State's office, which the law requires to be done, enacting that the corporate existence shall date from such filing, a note signed by the directors as such will bind them personally and not the corporation. The managers of an association supposed by its members to have been duly incorporated, in pursuance of authority given by their associates, made expenditures and incurred liabilities on behalf of the supposed corporation. But owing to failure to file the necessary certificate it had never become a corporation and therefore the managing members became personally liable to pay all debts. And it was held that their associates were bound to share the loss with them in proportion to the stock subscribed, even though such stock had been fully paid up or double liability had been paid as in corporations. § 271. Liability of directors and promoters for false prospectuses The English Act of 1890.-A recent English statute to be cited as the "Directors Liability Act of 1890," Mees. & W. 501; Moore v. Garwood, 3 Cridland v. De Mauley, 1 De Gex 19 L. J. Ex. 15; Ashpitel v. Ser- & S. 459. combe, 19 L. J. Ex. 82. 1 Apperly v. Page, 1 Phill. Ch. 779; 46. S. C. 16 L. J. Ch. 100. 2 Ship v. Crosskill, 10 Eq. Cas. Abr. 73; Stewart v. Austin, 3 Eq. Cas. Abr. 299; Denton v. Macniel, 2 Eq. Cas. Abr. 352; Mosely v. Cressey's Co., 1 Eq. Cas. Abr. 405. * Burnside v. Doyrall, 19 L. J. Ex. 5 Abbott v. Hapgood, (Mass. 1890) 22 N. E. Rep. 907. 6 Hurt v. Salisbury, (1874) 55 Mo. 310. 7 Richardson v. Pitts, (1879) 71 Mo 128. |