way Company, and an agreement executed by said Kentucky Union Land Company with others to the Central Trust Company, a contract which it was within the power of the Kentucky Union Land Company to make; and, if so, was such contract validly and legally executed by said Kentucky Union Land Company? And, if it could be lawfully executed, what is the proper basis for proof of such claim as to amount, or what means should be taken to ascertain the said amount?

"(4) Where a creditor of the Kentucky Union Land Company holds as security for his claim any part of the assets of the Kentucky Union Land Company, is such creditor to be required to surrender or exhaust such security before proving generally against the assets of the Kentucky Union Land Company? And, in the event he shall realize upon such security, upon what basis does his claim then stand? In other words, can he prove for the whole of said claim against the general assets, or for balance left unpaid, or is he forbidden to receive any further payment until all other creditors have been made equal with him?

"(5) In the event that any creditor of the Kentucky Union Land Company has personal or other security from a corporation or individual other than the Kentucky Union Land Company, upon what basis is the claim to be computed against the Kentucky Union Land Company? Is it to be credited by such amount as may be received from such other security, and only the balance proved against the Kentucky Union Land Company, or may the whole debt be proved against the Kentucky Union Land Company, or is such creditor to be forbidden to receive any part of the assets of the Kentucky Union Land Company until all other creditors of the Kentucky Union Land Company shall have received an equal pro rata amount?

“(6) Are corporations which were organized by the Kentucky Union Land Company, all of whose stock is owned by the Kentucky Union Land Company, and all of whose assets were supplied to them by the Kentucky Union Land Company, to be considered as corporations independent of the Kentucky Union Land Company, as respects the application of securities granted by them to a creditor who is also a creditor of the Kentucky Union Land Company, or as personally bound to creditors who are also creditors of the Kentucky Union Land Company, or is such liability or such security granted by such corporations to be treated as if granted by the Kentucky Union Land Company, and subject to the same rule?

"(7) What collateral security is to be allowed J. Kennedy Tod & Co. upon their claim? Thos. Speed, Special Comr."

"Respectfully submitted.

1. Did the Kentucky Union Land Company have the power to bind itself by its contract guarantying the principal and interest of the first mortgage bonds issued by the Kentucky Union Railway Company?

The question, as presented on this record, is a question, pure and simple, as to how far the authority to execute these contracts is sustained by the corporate powers which the law has vested in this company. No question arises as to the rights of bona fide holders of these bonds, for value, and without notice of the facts that the bonds had not been indorsed upon their sale and transfer by the guarantying corporation., The general doctrine may be taken to be well settled in the courts of the United States that the powers of a corporation are such, and such only, as are conferred by the law under which it is incorporated. The charter is the measure of the power of every corporation, and by this test must every corporate act be tried. This rule, however, concedes the usual propositions applicable to every legislative act, that what is fairly implied is as much granted as if expressly enumerated. The cases

supporting this general doctrine are very numerous, and only a few need be cited: Pearce v. Railroad Co., 21 How. 441; Thomas v. Railroad Co., 101 U. S. 82; Pennsylvania R. Co. v. St. Louis, A. & T. H. R. Co., 118 U. S. 290, 6 Sup. Ct. Rep. 1094; Central Transp. Co. v. Pullman's Palace-Car Co., 139 U. S. 59, 11 Sup. Ct. Rep. 478; Maddox v. Graham, 2 Metc. (Ky.) 56; Davis v. Railroad Co., 131 Mass. 258; Marble Co. v. Harvey, 92 Tenn., 20 S. W. Rep. 427; Miller v. Insurance Co., 92 Tenn. -—--, 21 S. W. Rep. 39.

Mr. Justice Gray, in Central Transp. Co. v. Pullman's Palace-Car Co., after reviewing the decisions of the supreme court of the United States, concludes that they may be summed up thus:

"The charter of a corporation, read in the light of any general laws which are applicable, is the measure of its power, and the enumeration of those powers implies the exclusion of all others not fairly incidental. All contracts made by a corporation beyond the scope of those powers are unlawful and void, and no action can be maintained upon them in the courts, and this upon three distinct grounds: The obligation of every one contracting with a corporation to take notice of the legal limits of its powers; the interest of the stockholders not to be subjected to risks which they have never undertaken; and, above all, the interest of the public that the corporation shall not transcend the powers conferred upon it by law."

The power to execute accommodation paper, or to guaranty for accommodation the obligations of another corporation, is not expressly conferred by the charter of the land company. Ordinarily, such power is not implied from the powers conferred upon corporations, and such contracts are generally in excess of the powers of corporations, and therefore void as ultra vires, in the true sense of the term.

This proposition rests upon two or more very evident reasons: (1) The corporate funds belong to its shareholders, and, by the very terms of the law creating it, cannot be devoted to any other purpose than those indicated by its charter and constitution. Such obligations would violate the fundamental terms of the agreement between the corporators themselves.

(2) To do so would be to exercise a power not conferred by the state, either expressly or impliedly. The state's grant of the corporate franchises is for the purpose prescribed, and the execution of such obligations would be beyond the power conferred, and therefore a diversion of the corporate purposes, as well as of the corporate funds.

(3) Such obligations rest upon no consideration, and would not, therefore, be valid. They would amount to a donation of the corporate funds, and therefore an unlawful diversion. Mor. Priv. Corp. 423; Davis v. Railroad Co., 131 Mass. 258; Madison PlankRoad Co. v. Watertown Plank-Road Co., 7 Wis. 59; McClellan v. File Works, 56 Mich. 579, 23 N. W. Rep. 321; National Park Bank v. German-American Mutual Warehouse & Security Co., 116 N. Y. 292, 22 N. E. Rep. 567; Aetna Nat. Bank v. Charter Oak Life Ins. Co., 50 Conn. 167.

But there is no inherent want of power in a business corporation, having the power to execute negotiable paper, to obligate itself

as a surety or guarantor. If such a corporation receive commercial paper or bonds in due course of business, we see no reason why, upon transferring such paper, it may not be lawful to obligate itself as indorser or guarantor. Such a contract would be a new and independent contract, and would rest upon a sufficient consideration, if entered into as a legitimate means of increasing the value of the security to be disposed of in ordinary course of business. In Railroad v. Howard the question arose as to the liability of a railroad company upon its guaranty of certain bonds issued by various counties and cities, and received by the railroad company in pay. ment of subscriptions to its stock. Upon full consideration it was held that, inasmuch as the company had received the bonds in payment of stock, it had a right to obligate itself by its own bonds for the purpose of building its road; it might lawfully, and in furtherance of its authorized purpose, guaranty such bonds, as a means of augmenting their value on the market, thus producing funds to build its road. 7 Wall. 411, 412. The power of a corporation to bind itself by a guaranty, when it does so for its own benefit, and as a means of selling at an augmented value, is generally conceded by the authorities. "In such cases," says Mr. Randolph in his work upon Commercial Paper, (volume 1, § 334,) "the guaranty is an original contract of the corporation, for its own benefit; the consideration moving to itself, and not to the person whose debt is guarantied."

Where a corporation has power to issue bonds or execute promissory notes, it will be liable upon accommodation paper, though ultra vires, if such paper comes to the hands of a bona fide holder for value, without notice. Such a holder will be entitled to stand upon the presumption that the paper was executed for value, and for a lawful purpose. Mor. Priv. Corp. § 597; Monument Nat. Bank v. Globe Works, 101 Mass. 57; Mechanics' Banking Ass'n v. New York & S. White Lead Co., 35 N. Y. 505. The principle has been thus stated:

"Where a corporation has power, under any circumstances, to issue negotiable securities, the bona fide holder has a right to presume that they were issued under circumstances which give the requisite authority, and that they are no more liable to be impeached for any infirmity, in the hands of such a holder, than any other commercial paper." City of Lexington v. Butler, 14 Wall. 296.

There being no absolute want of power in an ordinary business corporation to bind itself as a guarantor, we must next inquire as to the circumstances which will make such a contract lawful and obligatory. The cases already cited establish the proposition that if such a corporation has the power to issue bonds or other commercial securities, and becomes the holder of such bonds or securities issued by other corporations, it may indorse or guaranty them upon transferring them for the purpose of raising money to carry out any purpose for which it might borrow money.

The right of a corporation to do an act or make a contract is not always a question of law. What it may not do under some

circumstances, it may do under others. It may carry on the business it is authorized to do in the usual and customary manner that business of the same nature is carried on by individuals. "It is, therefore," says Mr. Morawetz, "impossible to decide abstractly that acts of a particular description are within or without the chartered powers of a corporation. The right of a corporation to perform an act depends, in every case, upon all the surrounding circumstances, and facts can be conceived which would render almost any act justifiable." Section 362. He further observes (and it is an eminently sensible observation) that "no rules can be framed which would be of any practicable value in determining cases of this character. * The application of the law to individual cases must always remain a matter involving the exercise of sound, practical judgment, and business experience." "Great caution," he says, "is therefore necessary in treating a decision that a corporation has or has not authority to do a particular act as a precedent to be followed in other cases." Sections 362, 392.

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Another general principle seems properly to require a statement before we apply the law to the circumstances surrounding the transaction now to be considered: The general rule in regard to the construction of a charter is that it is to be construed strictly against the grantee; that all which is not clearly granted, either expressly or by reasonable implication, is to be held against the corporation. But, where a corporation is seeking to repudiate liability upon a contract fairly entered into, a slightly modified rule of construction was stated by Mr. Justice Brewer, which seems to be in accord with the rule of the English courts, and to have the support of natural justice. The distinguished justice said:

"The question as to whether a contract is ultra vires or not may arise in a controversy between the state and a corporation, or between the corporation and the party with whom it has assumed to contract, and it may well be that different rules of construction apply to the two cases. All grants, even grants of corporate franchises, are construed strongly in favor of the government, and against the grantee. So. when the state challenges the action of one of its corporate creations, it may insist on clear warrant for such action. It may say: Point to the letter of your authority. I abide by my contract. and protect you in the rights and franchises I have given. Abide by your contract, and assume to do no act in disregard of the duties I have imposed, or beyond the authority I have conferred.' The rule of strict construction exists in such a case. But a milder rule applies when a corporation seeks to repudiate a contract into which it has formally entered. It is not seemly for a corporation, any more than for an individual, to make a contract, and then break it; to abide by it so long as it is advantageous, and repudiate it when it becomes onerous. The courts may well say to such corporations: 'As you have called it a contract, we will do the same. As you have enjoyed the benefits when it was beneficial, you must bear the burden when it becomes onerous, unless it clearly appears that that which you have assumed to do is beyond your powers.' Chicago, R. I. & P. Ry. Co. v. Union Pac. Ry. Co., 47 Fed. Rep. 22.

In the light of these principles, let us look at the facts connected with the contract under consideration.

The Kentucky Union Land Company was incorporated under a special charter granted by the legislature of Kentucky in 1880.

Its original corporate title was, "The Central Kentucky Lumber, Mining, Manufacturing, and Transportation Company." This name was by amendment of charter in 1890, and after these bonds had been guarantied, changed to "The Kentucky Union Land Company." The original title indicated very thoroughly the large power conferred by the charter, and the composite character of the business contemplated thereunder. Under the second paragraph of the charter the corporation was declared―

"Capable in law of purchasing, selling, holding, leasing, conveying, receiving, by gift or devise, and disposing of all real and personal property and estate; making all contracts and by-laws, and doing all lawful acts necessary and proper for the business and powers hereby conferred upon them, properly incident thereto; and of suing and being sued, and have a common seal, which they may alter, abolish, or renew at pleasure; and the said company as such, shall have perpetual succession and have, enjoy, and exercise all the rights, powers, and privileges which corporations may lawfully have; and the rights, privileges and franchises given said company under the charter, or any amendments thereto, shall be for the use and benefit of said company, and its successors by gift or purchase, forever; and said company may change its name, and any other person or persons, or corporation who may become the successors of said company, by purchase and conveyance from the same, or by consolidation therewith, shall be entitled to all the benefits, and bound by all the disabilities contained in this charter and its amendments."

By section 3, authority was conferred upon

"The president and directors of said company, when authorized, so to do, by a vote of the shareholders holding a majority of the bona fide capital stock of said company, may borrow money on the credit of said company not exceeding in amount the capital stock of said company, and may issue the bonds of said company in such amounts, and payable when and where they may deem best, bearing such a rate of interest, payable annually or semi-annually, as they may determine on; and to secure said bonds and indebtedness they may mortgage the property of the said company; and upon foreclosure and sale of the same, the purchaser shall be entitled to all the rights, privileges, and franchises given in this charter, and any further amendments thereto; and said property may be purchased at said sale by any person, firm or corporation who shall by said purchase succeed to all the rights of said company as above provided."

The seventh section declares the powers of the company, and upon the proper construction of this section the validity of the guaranty in question depends. The whole section is here set out, and is as follows:

"The said company shall have the power to engage in the business of mining and manufacturing in any part of this commonwealth, and it may purchase and lease mineral and timbered lands, and contract for and purchase ore, timber, and machinery for manufacturing the same; and may open and develop mines of ore, coal, or other minerals; and may acquire by purchase or condemnation, the necessary right of way for exporting the products of the said mines and the same timber, either in their crude or manufactured state; and may establish and operate works, rolling-mills, saw-mills, and stove factories, and furniture factories, as may be expedient or necessary in the reduction and manufacturing of ores, and the manufacture of timber or implements for mining or cutting and preparing timber; and the said company may cut and prepare timber for market, and ship the same, either in logs, plank or manufactured articles; and shall have all rights, privileges, powers, and franchises necessary to the full use and enjoyment of the powers, herein granted; and may, in furtherance of the powers granted in this section, effect a temporary or permanent consolidation with any railroad or transportation