66

The owner of all the stock and bonds of a corporation does not own the corporate property. The corporate property, which includes all rights of action. and claims for damages, belongs to the corporation, and is subject to the management and control of its board of directors."

546. Difficulty in adjusting results.-Another reason founded in part upon public convenience and policy, and partly upon private right, why the interests of the legal entity should not be affected by the acts of members is that it would be impossible, in most cases, to apportion and adjust among them the damages resulting from wrongful acts, or of separating the interests of the guilty from those of non-participating members. The interest of each member is his right of ownership in the aggregate property of the corporation, and to share ratably in its net income. His fractional interest in the whole can be best protected, and in many instances can only be protected, by preserving the corporate rights in their entirety. This is especially true in the case of capital-stock corporations, whose shares are bought and sold freely in the market.

A purchaser of shares in a corporation has a right to regard the institution in whose stock he has invested, as having an interest entirely distinct from his interest or that of other holders of its stock, and to require that the value of his stock shall not be affected by any act done or obligations incurred by others. Individual members can only act in the transaction of corporate business at corporate meetings.2

creates a valid equitable lien on the property of the corporation, enforceable against him and his representatives.. Swift v. Smith, 65 Md. 428; 5 A. 534. 1 Fitzgerald v. Missouri Pac. Ry. Co., 45 F. 823 (April, 1891).

2 Davis, etc., Wheel Co. v. Davis, etc., Wagon Co., 20 Fed. Rep. 699. See also Merchants' Steam Nav. Co. v. Eastern Steamboat Co., (D. C. U. S.), 8

§ 547. When cognizance of members will be taken at law. -It must not be understood that the separate interests and relations of shareholders will never be considered in actions at law for any purpose. In determining whether authority has been given to the officers and agents for a given purpose, and whether acts by them have received subsequent ratification by the corporation, it is often necessary, even in courts of law, to identify the corporation as an aggregation of individual shareholders. In many cases the law would be unintelligible unless the real character and constitution of the corporation were considered.

The constitutionality of a statute as affecting the contracts of membership and the law relating to the consolidation and dissolution of corporations, may be mentioned as an instance.1

§ 548. Kinds of corporate interests.-There are three separate interests growing out of the creation of a corporation and connected with its operations. 1. The franchises other than that of being a corporation and of exercising corporate functions. The latter belongs to the corporators, and as we have seen cannot be interfered with, nor alienated either by the agents or by the members, though they agree unanimously so to do. 2. The collective interest of the shareholders in the property and business of the corporation which belongs to them collectively and in a and in a corporate capacity. 3. The individual interest of each shareholder.

The first of these is a public trust granted to the

Monthly Law Rep. 91; Custer v. Tompkins County Bank, 9 Pa. St. 27; Housatonic Bank v. Martin, 1 Metc. (Mass.) 294; Burt v. Batavia Paper Mfg. Co., 86 Ill. 66; B'k of Pittsburgh v. Whitehead, 10 Watts, 402; Fairfield County Turnpike Co. v. Thorp, 13 Conn. 182; In re Carew's Estate Act, 31 Beav. 39.

1 Short v. Beaudry, 56 Cal. 446; Chater v. S. F. S. R. Co., 19 Cal. 246; Bailey's Appeal, 90 Pa. St. 253.

corporate entity by the state, to which the former must account for any abuse or misuse. The second are rights in the corporate enterprise, are inseparable from it, and can only be enforced and protected in the corporate name. The third are similar in all respects to other private property interests, and are capable of being considered and enforced adversely to the collective or corporate interest. Upon consideration of these distinctions, it is plain that whatever remedies individual members may have against the agents of the corporation on behalf of, and in the name of, the corporation, and on account of individual interests, and they are numerous and adequate, there is such identity between the collective interest and that of the corporate entity, that there can be no such thing as an action between the two. Hence the actions and remedies considered in this subdivision of our subject concern. conflicts between individual interests of members and that of the corporate entity, or, which is the same, the collective interest. It has sometimes been said that when a member sues the management for breach of trust, or to restrain an ultra vires diversion of corporate funds, on behalf of himself and of all others who see fit to come in and join as co-plaintiffs, he represents the collective interest. But a thorough study of the relation of all parties in such proceeding demonstrates that, though every member became a party, each represents only his proportionate individual interests. The corporation is the only representative of the collective interest. The members in corporate meeting assembled are not the corporation, but only its agent of highest authority. Such meeting is not a unification, but only an aggregation of individual corporate interest. Indeed, the corporate entity has the naked right to join as plaintiff, but being for the time disabled from protecting itself, or of seeking redress, is, from

necessity, joined with the delinquent agent or a third party as defendant. Its right to become co-plaintiff is independent of the right of individual members so to do, but not separable from this collective right.1 We have already shown that the corporation occupies the position toward its members of a trustee.2 An analysis of the representative and fiduciary relation brings out clearly the distinction between the three interests which abide in a corporation and constitute it. It is plain that with respect to the franchises it holds of and from the state, it neither occupies to the latter an independent status, nor is bound to account as a trustee. Its relation is rather that of an agent with delegated authority of a public nature liable to be revoked by the principal for abuse, misuse or non-use.

It is true that the franchises are entrusted to the corporate entity for private as well as public benefit, and that, as concerns the private interests, they are the subject of a trust in favor of the members; but this fact does not divest the franchise of its quasi public character. Nor are the two interests, the one private, the other public, at all incompatible. This public interest is generally ignored in this connection, but its consideration here gives the best of all opportunities for a clear insight into the true nature of what constitutes a private corporation.

The shareholders cannot collectively and unanimously do that which would be an indirect destruction of the corporate function. For instance, they could not divide its entire capital among themselves, except under statutory provisions for a dissolution, and in accordance with the prescribed formalities.

1 Infra, §§ 610, 611.

2 Supra, § 545.

3 See Kohl v. Lillienthal, 81 Cal. 378; 20 P. 401; 22 P. 689.

The right to sue for the protection or enforcement of individual interests is not necessarily, nor is it usually, an equitable right. Whether the appropriate remedy be legal or equitable must ever depend upon the nature of the wrong for which redress or prevention is sought, and upon the circumstances of the particular There is nothing peculiar either in the methods of procedure or in the remedies in these actions.

case.

§ 549. When an action at law will lie.-A refusal by a corporation through its agents to pay a sum of money due as dividend already ascertained and declared is the basis for an action against the corporation to recover the same with damages or interest as the statutes or by-laws may determine, as in any other case arising between individuals or between the latter and corporations. So of a member's right to have a certificate of shares issued to him; 2 to have a transfer made upon the books upon the sale of shares; to inspect the books; to be admitted to a corporate meeting, and vote on his shares; each of these may be enforced and protected by its appropriate remedy, legal or equitable.

Sometimes the proper remedy is a writ of mandamus to compel a performance of duty by a corporate officer; sometimes by injunction to prevent threatened violation of his rights, and at another by an action for damages.

1 Jackson v. Newark P. R. Co., 31 N. J. Law, 277.

Telford & Tp. Co. v. Gerhab (Pa.), 13 A. 90.

3 Infra, § 659.

Infra, §§ 653-655.

Supra, §§ 377-9.

6 When the directors of a building and loan association declared in their report that a certain class of shares had matured, to which class plaintiff's shares belonged, it was held she was entitled to recover according to the announcement in an action brought against the corporation. Appeal of M. & W. B. Ass'n (Pa.), 7 A. 728.