732. Alterations authorized by charter.-Persons dealing with a corporation are presumed to take notice of the terms and provisions of its charter and to contract subject to the same.

Hence, if the charter expressly authorizes the company to procure or make alterations, creditors who have contracted with it while such provision was in force, cannot complain when the privilege thereby reserved is exercised.

Even where the arrangement provided for amounts to a novation, creditors are bound by it when carried out. The consent in such case is deemed to have been given in advance.1

burg R. R. Co. (N. Y.), 3 N. Y. S. R. 327; 5 Ry. & Corp. L. J. 212; 50 Hun, 397. Where a telegraph had been incorporated for a definite term of years, and had contracted with a railroad company that so long as it should exist as a telegraph company it, could erect and maintain a telegraph line within the limits of the railroad, and also that, in the event of the dissolution of the telegraph company or the suspension of operation, the railroad could take charge of the telegraph line for its own purposes until the telegraph company should resume active operations, and that no interest of the telegraph company in the line should be assignable so as to affect or impair the rights of the railroad company under the agreement, it was held that, the telegraph company having been reincorporated just prior to the expiration of its term under a new name, with new powers, and under different responsibilities, and under a charter which provided for the surrender of the old charter, its rights in and to the telegraph line were lost, and passed to the railroad company, though the new charter provided that all the property and assets of the former corporation and all its debts should devolve upon the new corporation, which for this purpose should be regarded as substituted by operation of law in place of the former corporation. Latrobe v. Western Tel. Co. (Md.), 21 A. 788.

1 The deed of settlement of an insurance company provided that upon its dissolution its assets and undertakings should be transferred to another company, and that the latter should assume the liabilities in its stead, and that the creditors of the first company should thereupon become creditors of the second. It was held that after the first company had dissolved and its assets been transferred to the second, and full notice sent to the policy holders, the latter could only claim as creditors of the transferee. In re European Assur. Soc.; Hort's Case and Grains' Case, L. R. 1. Ch. D. 307, 317; Dawe's Case, L. R. 3 Ch. D. 384. The same rule was applied where the deed of settlement provided for amalgamation and transfer to the company thus formed of the liabilities and assets of the amalgamating companies. Doman's Case L. R. 3 Ch. D. 21, 26; Crocker's Case, L. R. 3 Ch. D. 1; Harman's Case, L. R. 1 Ch. D.

§ 733. The state cannot deprive creditors of the benefit of their contracts.—What would be an impairment of the contracts of creditors if done by the members of a corporation, by means of alterations in their articles of association, and therefore ineffectual because repugnant to the constitution would be equally so, if attempted by the legislature by way of amendment or alteration of the charter. There may be no limitation upon the right of alteration and repeal so far as it affects the immediate parties thereto, the state on the one hand, and the incorporators on the other; yet the effect of a particular act of the legislature upon the contracts of membership is a distinct proposition from its effect upon the contracts of the corporation with third parties.

Whatever be its form, or ostensible purpose, a state law which, if allowed to operate, would have the effect of depriving creditors of the benefit of any of the funds upon the security of which they contracted, is to that extent unconstitutional and void.1

A power reserved in a charter or by general law to alter and repeal charters, to take away powers, and to regulate their exercise, must be considered as in contemplation by every creditor in making contracts with the corporation, and as entering into and forming a part thereof; but such reservation does not enable the state to confiscate the rights of creditors or to deprive them of recourse to the assets of the company. The state cannot, by such reserved power, discharge stockholders of a personal liability for existing debts.

1 Gibbes v. Greenville, etc., R. R. Co., 13 S. Car. 228; Curran v. State, 15 How. 314; Montgomery, etc., R. R. Co., v. Branch, 59 Ala. 139; Hawthorn v. Calef, 2 Wall. 10, infra, § 1032.

2 See Curran v. State, 15 How. 312; Baring v. Dabney, 19 Wall. 1; Dabney v. B'k of South Car. 3 S. Car. 124.

§ 734. Right of the corporation to use and dispose of its assets. We have seen that subject to the equitable lien of creditors upon the capital of a corporation, it may at any time transfer its business and funds to another corporation, or unite them with those of another or the shareholders may put an end to its existence and abandon its objects or form a new corporation to carry out such objects.1

When its property is sold and transferred or exchanged for other property in due course of business, the price of property received in return is an equivalent for that with which it has parted and is substituted for it as part of the trust fund held as security for creditors.

Creditors can only require that the transactions of the managers and agents shall be in good faith with a view to obtaining profits upon the capital invested; their right to security being subject to the general right of the corporation to carry on and manage its business through agents in the usual way.

The devotion of funds and subjection of corporate control to a competing railroad company by the directors being ultra vires and contrary to public policy, as tending to create a monopoly, and rendering the charters liable to forfeiture,2 creditors are entitled to an injunction to restrain the unlawful proceeding and to an accounting for any loss to themselves occasioned by such acts already consummated.3

1 Supra, § 708, 709.

2 See Infra, §§ 972, 973.

8 Langdon v. Branch (U. S. C. C. E. Dist. Ga. 1888,) 37 Fed. Rep. 449, holding that equity will enjoin the carrying out of such agreements, and will seize the assets of an insolvent construction company at the instance of persons who have loaned money to its president and sole managers to build the road on the faith of his pledge of a share of the profits deprived from the work; the company occupying as to them the relation of a derelict trustee. But the purchaser of

SECOND PROOF OF LIABILITY.

§ 735. Liability on written contracts of agents.—The decisive facts governing the question of a corporation's liability for the acts of a general agent in the performance of diversified duties are two in number: 1. Whether the act was done within the limits of the powers delegated; 2. Whether they were done in the exercise of such powers. The first of these we have already discussed. The second may be considered in determining an agent's authority to bind the corporation in writing as well as the sufficiency and validity of any given instruments executed by him, being so authorized. For where the object of the employment only is pointed out, the agent may employ the usually recognized means for its accomplishment, including the signing of obligations and negotiable instruments, when necessary and most effective for the accomplishment, of the end in view. Third parties dealing with an agent so constituted and held out, bind his principal not only with respect to his acts but also to the extent of the means employed.1 And though an instrument designed

specific property from a corporation, a steamboat, for instance, is not bound to see to the application of the price paid by the agents of the corporation to the payment of creditors or to its distribution among stockholders in the absence of fraud or notice of liens and equities. Leathers v. Janney, 41 La. 233; 6 So. 884; 6 L. R. An. 661.

1 Johnston v. Southwestern R. R. B'k, 3 Strobh. Eq. 263. Though a charter provide that all bonds, bills, notes and every other contract and engagement on behalf of the corporation shall be signed by certain officers, this does not extend to the signing of ordinary undertakings, receipts, vouchersand acquittances such as the law implies as attaching to the performance of his duties by an agent. The cashier of a bank signed simply his name to a check without designating any principal. The bank set up as a defence to its liability for the amount of the check that its charter required that all "bonds, bills, notes and contracts of every description be countersigned by the president." It was held that the appearance of the corporate name on the face of the check might be considered as evidence that it was not an individual but a corporate act, and that even if that did not appear, parol evidence was admissible to prove it. Mechanics' B'k, etc., v. B'k of Columbia, 5 Wheat. 326.

by an agent as the sealed instrument of a corporation, is fatally defective as such, it may satisfy the requirements of the statute of frauds as a writing and bind the corporation.1

§ 736. When name of principal must appear.--The rule that the name of the principal must be signed by the agent to sealed instruments to make them binding, is a rigid doctrine of the common law, and though still recognized to a certain extent, is restricted within narrow bounds and is never extended to simple contracts incident to commercial transactions, which are usually consummated with more attention to substance than to form. And if it can be collected from the whole of such instruments, that it was the intention of the parties that the principal and not merely the agent shall be bound, the court will adopt that construction, however informally such intention be expressed.2

1 Where directors of a railroad corporation, acting under a resolution of the board of directors, undertook to execute mortgage of the company's property to secure a debt contracted by them for rails used in the construction of the road, and the mortgage deed was totally defective as a conveyance, it was held that it operated to create a debt against the corporation, and that the intention of the parties being to create a lien on the company's property, the contract was given effect as an equitable mortgage. Miller et al. v. R. & W. R. R. Co., 36 Vt. 452.

2 Saltmarsh v. Spaulding, 147 Mass. 224; 17 N. E. 316; Davis v. Gemmell, 70 Md. 356; New Eng. Marine Ins. Co. v. De Wolf, 8 Pick. 56; Merchants' B'k of Macon v. Cent. B'k of Ga., 1 Kelly (Ga.) 418; Catlett v. Starr, 70 Tex. 485; 7 S. W. 844; Evans v. Wells, 22 Wend. 188. Where a note is made to one as "Pres't," and he negotiates and indorses it as president of a certain corporation, he cannot, in an action by the indorsee against him, the corporation, and the maker, be held personally liable. B'k of the University v. Hamilton, 78 Ga. 312. A mortgage by a corporation by its attorney in fact, is sufficient, if executed in the name of the corporation under the attorney's own hand and seal; and it is no objection that the seal of the corporation was not affixed thereto when it appears that the power of attorney was under seal. First Nat. B'k v. Salem, etc., Co., 39 Fed. Rep. 89. But in another case the general manager of a company had taken in his own name a lease of a building to be used by the company. It was understood that the building was to be thus occupied. It nowhere appeared in the lease that it was made for the benefit of the company.