a profit thereon upon the sale to such corporation of such works, and are not accountable therefor, especially where the transaction is advantageous to the corporation, has been ratified by a unanimous vote at a shareholders' meeting, and an opportunity is given the shareholders to rescind, with full knowledge of all the facts, and where opportunity was also given to the corporation to erect such works before their construction was undertaken by the directors. Such contracts will be scrutinized in equity, and will be set aside if not made in the utmost fairness and good faith. So far from being void ab initio, such contracts are good as against third persons, who are not in a position to set up the rights of the corporation by way of defense against them. guished. Wilson v. Leary, 120 N. C. 90, 38 L. R. A. 240, 58 Am. St. Rep. 778, 26 S. E. 630.

It seems to be otherwise with respect of the real estate of public-service corporations.

Although an act incorporating a turnpike company vests it, upon complying with prescribed conditions, with title to the land over which the road passes, nevertheless such title must be considered as vested solely for the purposes of a road, and when such road is abandoned the land reverts to the original owners. Hooker v. Utica & M. Turnp. Road Co. 12 Wend. 371.

A turnpike corporation loses title to its lands by reversion back to its grantor or his heirs upon its dissolution, when there is no provision in its charter, or some other statute, to avert such a consequence. Bingham v. Weiderwax, 1 N. Y. 509.

Especially does this appear to be the case when lands have been taken by condemnation under the power of eminent domain.

See the cases in point, cited in the note on The nature of a railroad, whether real or personal property, appended to the case of Webster Lumber Co. v. Keystone Lumber & Min. Co. 66 L. R. A. 33.

But this class of cases constitutes an exception to the prevalent rule.

The common-law doctrine that, upon dissolution, the property of a corporation reverted to the Crown, has never been recognized in the United States. Bolles V. Crescent Drug & Chemical Co. 53 N. J. Eq. 614, 32 Atl. 1061.

The rule is specially applicable where, although the director received a profit out of the transaction, the contract was made in good faith, was not improvident, had been performed, and the corporation had received the benefit of its performance, under which circumstances it has been held that it could not be undone by a receiver subsequently appointed for the corporation." On the same subject, Clark & M. on Private Corporations, at § 761c, pp. 2304, 2305, says: "This doctrine is not recognized in all ju risdictions, nor in most jurisdictions. On the contrary, most of the courts have held that a director or other officer of a corporation is not precluded from lending it money and taking a mortgage or other security, selling it property, or purchasing property tion are a fund for the payment of its debts. Curran v. Arkansas, 15 How. 304, 14 L. ed. 705.

When an act of incorporation is repealed equity takes charge of all the property and effects which survive the dissolution, and administers them as a trust fund primarily for the benefit of the creditors. If anything is left it goes to the stockholders. Shields v. Ohio, 95 U. S. 319, 24 L. ed. 357.

When a corporation is virtually dead, although its term of existence limited by law has not expired, and it has property and assets which cannot be used in carrying out the purposes of the corporation, a court of equity has jurisdiction to distribute such property and assets among its members upon such basis as is just. Stamm v. Northwestern Mut. Ben. Asso. 65 Mich. 317, 32 N. W. 710.

The dissolution of a corporation cannot deprive its creditors or stockholders of their rights in its property; and, if the common law affords them no adequate remedy, they may obtain relief in equity. Folger v. Columbian Ins. Co. 99 Mass. 267, 96 Am. Dec. 747.

The property of a dissolved corporation is liable only in equity for the claims of creditors. Smith v. Huckabee, 53 Ala. 195.

The property of a dissolved corporation is subject to a trust in favor of creditors. Montgomery & W. P. R. Co. v. Branch, 59 Ala..153; Nelson v. Hubbard, 96 Ala. 244, 17 L. R. A. 377, 11 So. 430.

A court which never allows a trust to fail for want of a trustee will see to the execution of the trust charged upon the assets of an insolvent corporation for the payment of its creditors, although by the dissolution of the cor

changed. Shamokin Valley & P. R. Co. v. Malone, 85 Pa. 25.

Although contrary to the doctrine asserted in most elementary works, and in the case of Bank of Vincennes v. State, 1 Blackf. 267, 12 Am. Dec. 234, the doctrine that, on the dissolution of a once legal corporation, its personal and real property become assets for the payment of its debts and distribution among stockholders, is right. State ex rel. Brown v. Bailey, 16 Ind. 46, 79 Am. Dec. 405.

The assets of an insolvent banking corpora

In equity a corporation is regarded as a trustee holding the corporate property for the benefit of its creditors and shareholders, which, upon its dissolution or civil death, a court of chancery will lay hold of as a trust fund and distribute for their benefit. Life Asso. of America v. Fassett, 102 Ill. 315.

When a corporation is declared insolvent it is incapacitated from doing any new business, but it still survives to discharge its liabilities. and, when that is accomplished, to make final distribution of its remaining assets. Chemical Nat. Bank v. Hartford Deposit Co. 161 U. S. 1, 40 L. ed. 595, 16 Sup. Ct. Rep. 439.

from it, or otherwise contracting or dealing with it, if for the purpose of the transaction he does not represent the corporation at all, but it is adequately represented by its other directors or officers, and the transaction is entirely free from fraud. And, by the weight of authority, a transaction between a director or other officer and the corporation, or a transaction in which a director or other officer is interested, is valid, if entirely free from fraud, even when he has acted as a member of the board in authorizing the same, if there were enough of disinterested votes in favor of the transaction to render his vote unnecessary."

Mr. Justice Miller, speaking for the court in Twin-Lick Oil Co. v. Marbury, 91 U. S. 587, 23 L. ed. 328, said: "So, when the

And, although a judicial decree may, in terms, declare a corporation dissolved, yet, if it also authorizes suits to be brought and defended in the corporate name, and conveyance of its property and effects to be made, for the purpose of winding up its business, the corporation cannot be said to be absolutely extinguished for all purposes, but, on the contrary, to be expressly kept alive so far as necessary to collect and apply its assets to the payment of its debts. Life Asso. of America v. Fassett, 102 III. 315.

In the state of New York the rule of the common law in relation to the effect of the dissolution of a corporation upon its property and debts has never been applied to business corporations, and as early as 1811 an act was passed making the directors of such a corporation trustees to settle its affairs and divide the money among the stockholders after paying the debts owing at the time of dissolution. Shayne v. Evening Post Pub. Co. 168 N. Y. 70, 55 L. R. A. 777, 85 Am. St. Rep. 654, 61 N. E. 111.

When a corporation is dissolved by a repeal of its charter, says Black, J., of the Pennsylvania supreme court, the legislature may appoint, or authorize the appointment of, a person to take charge of its assets for the use of its creditors and stockholders, and this is no more confiscation than it is confiscation to appoint an administrator for a dead man. But money, goods, or land which are or were the private property of a defunct corporation cannot be arbitrarily seized for the use of the state with out compensation paid or provided for. Erie & N. E. R. Co. v. Casey, 26 Pa. 287.

When the effects of a dissolution of a corporation are said to be the reversion of its lands to those who had granted them, and the extinguishment of the debts due either to or from the corporate body so that they are not a charge or a benefit to the members, the dictum is supported by the statutes and judgments following the suppression of the military and religious orders or the cases of dissolution of monasteries and other ecclesiastical foundations upon the death of all their members, or of donations to public bodies, such as municipal corporations. But such cases are not analogous to those of trading corporations. These hold their property in trust, first for their creditors, and next, when their debts are paid, for those who contributed in capital to the corporate enter

lender is a director, charged, with others, with the control and management of the affairs of the corporation, representing in this regard the aggregated interest of all the stockholders, his obligation, if he becomes a party to a contract with the company, to candor and fair dealing, is increased in the precise degree that his representative character has given him power and control derived from the confidence reposed in him by the stockholders who appointed him their agent. If he should be a sole director, or one of a smaller number vested with certain powers, this obligation would be still stronger, and his acts subject to more severe scrutiny, and their validity determined by more rigid principles of morality, and freedom from motives of selfishness. All this prise. Bacon v. Robertson, 18 How. 480, 15 L. ed. 499.

d. Upon debts and credits.

There have been some decisions, notably in Delaware and Mississippi, upholding the common-law doctrine that dissolution extinguishes debts, whether owing to or due from the corporation; while elsewhere the existence of the rule has been admitted, but for one or another reason it has been found not to apply.

When, by the expiration of the period limited in its charter for its corporate existence, a bank is dissolved, the dissolution is absolute, and a debt owing to it at the time is extinguished. Commercial Bank v. Lockwood, 2 Harr. (Del.) 8.

The case of Commercial Bank v. Lockwood, 2 Harr. (Del.) 8, was examined, criticized, and disapproved in Moultrie v. Smiley, 16 Ga. 289. The current of decisions has flowed in such a channel that it may be regarded as settled doctrine that, on the dissolution of a banking corporation, the debts due to and from it are extinguished, not by any implied condition in the contracts, but from necessity, because there is no person in whose favor, or against whom, they can be enforced. Commercial Chambers, 8 Smedes & M. 9.

Bank V.

It is the doctrine of the common-law that upon the dissolution of a corporation the debts due to and from it are extinguished. Hightower v. Thornton, 8 Ga. 486, 52 Am. Dec. 412.

That the debts of a corporation either to or from it are extinguished by its dissolution is a proposition which nobody denies. Thornton v. Lane, 11 Ga. 459.

An act of the legislature renewing the corporate powers and franchises of a banking corporation after the expiration of its charter does not revive a debt owing to it when the original charter expired. Commercial Bank v. Lockwood, 2 Harr. (Del.) 8.

The granting of a new charter to a dissolved corporation does not revive a debt extinguished by the dissolution. Port Gibson v. Moore, 13 Smedes & M. 157.

falls far short, however, of holding that no such contract can be made which will be valid, and we entertain no doubt that the defendant in this case could make a loan of money to the company; and as we have already said that the evidence shows it to have been an honest transaction for the benefit of the corporation and its shareholders, both in the rate of interest and in the security taken, we think it was valid originally, whether liable to be avoided afterwards by the company or not."

In Leavenworth County v. Chicago, R. I. & P. R. Co. 134 U. S. 688, 33 L. ed. 1064, 10 Sup. Ct. Rep. 708, the court refused to set aside the foreclosure of a mortgage on a railroad and the sale of the road made under a decree, on the ground of its having

The general current of authorities, especially the more recent ones, is altogether adverse to this doctrine.

A corporation never can dissolve itself so as to defeat any of the just rights of its creditors. Brown v. Union Ins. Co. 3 La. Ann. 177.

It is a well-settled rule that the dissolution of a corporation by liquidation or any other act of its stockholders, or by limitation, or in any mode save legislative repeal or judicial decree, does not affect the rights of creditors, and that, as to them and their right to enforce their claims or determine their validity by suit or otherwise, the corporation will be deemed to continue in existence. National Pahquioque Bank v. First Nat. Bank, 36 Conn. 325, 4 Am. Rep. 80.

The common-law doctrine that a dissolution of a corporation extinguishes its debts does not prevail in the United States. Howe v. Robinson, 20 Fla. 352.

The obligations of a corporation survive its dissolution, and are enforceable upon its assets. Whiting v. Sheboygan & F. du L. R. Co. 25 Wis. 207, 3 Am. Rep. 47.

been procured by parties sustaining a trust relation to the property, where there was no proof of collusion or fraud in fact. In Ft. Payne Rolling Mill v. Hill, 174 Mass. 224, 54 N. E. 532, the court said of a contract made between a corporation and one of its directors: "It was not illegal or void because made with a director, the only person likely to be willing to make it. In this country it very generally has been deemed impracticable to adopt a rule which absolutely prohibits such contracts." The same doctrine is announced in the case of Gay v. Fair, 175 Mass. 521, 56 N. E. 708. In the late case of United States Steel Corp. v. Hodge, 64 N. J. Eq. 807, 60 L. R. A. 742, 54 Atl. 1, the law on this subject is stated by the court of last resort in New Jersey by the courts or the legislatures. Owen V. Smith, 31 Barb. 641.

Sometimes a state provides by general statute that, upon the dissolution of a corporation, its debts may be thereafter collected, and its creditors discharged, and its assets divided among its shareholders. McCoy v. Farmer, 65 Mo. 244; Bolles v. Crescent Drug & Chemical Co. 53 N. J. Eq. 614, 32 Atl. 1061.

e. Upon contracts in general.

A corporation by the very terms of its political existence is subject to dissolution by a surrender of its corporate franchises and by a forfeiture of them for wilful misuser or nonuser. Every creditor must be presumed to understand the nature and incidents of such a body politic, and to contract with reference to them. Mumma v. Potomac Co. 8 Pet. 281, S L. ed. 945; Washington & B. Turnp. Road v. State, 19 Md. 239.

Whoever contracts with a corporation exposes himself to losses which may arise from its dissolution, as he would with natural persons by their death. Read v. Frankfort Bank, 23 Me. 318.

A delinquent debtor of a aissolved corporation, sued upon his obligation by a trustee of the corporate property, cannot plead the extinguishment of his debt by the forfeiture of the corporate franchise. Lum v. Robertson, 6 Wall. 277, 18 L. ed. 743.

There is no question but that debts due the creditors of a corporation, as well as claims for wrongs done by it, are not lost by its dissolution, but may be enforced by proper proceedings against the assets. Walters v. Western & A. R. Co. 69 Fed. 679.

The English doctrine that, in case of the dissolution of a corporation, its personal property vests in the King, and all its unsold real estate reverts to the grantor or his heirs, while debts due to and from it are extinct, is harsh and inequitable, and has not been adopted and acted upon as the rule in this country,—at least so far as the extinguishment of debts is concerned; and it certainly has not been favored

contracts for the services of its agents by rendering performance impossible on either side: and such a result must be deemed within the contemplation of the contracting parties and an unexpressed condition of their contract inhering therein from the beginning. People v. Globe Mut. L. Ins. Co. 91 N. Y. 174.

Where a corporation surrenders its charter, ceases to exist by the efflux of time, or where its charter is decreed forfeited by a judicial tribunal of competent jurisdiction, it can neither sue nor be sued, although the obligations of its contracts survive, and may be enforced against any property which has not gone to bona fide purchasers. City Ins. Co. v. Commercial Bank, 68 Ill. 348.

The obligations of the contracts of a cor. poration survive its dissolution, and its creditors may enforce their claims against any property or estate belonging to the corporation which has not passed to bona fide purchasers. Dudley v. Price, 10 B. Mon. 84.

The obligation of contracts made whilst the corporation was in existence survives its dissolution; and the contracts may be enforced by

as follows: "The general doctrine is well established in this state that facts known, which are sufficient to put a party upon inquiry, are sufficient to charge him with all such knowledge as he would have acquired by a proper inquiry in the ordinary course of business. The rule that directors cannot lawfully enter into a contract in the benefit of which even one of their number participates without the knowledge and consent of the stockholders, is the settled law of this state. Such a contract is voidable at the option of the corporation, but is not void per se. When the facts are disclosed to the stockholders, it may be subsequently ratified by them."

As the contract was voidable, and not void per se, the principle of estoppel, according

a court of equity so far as to subject for their satisfaction any property possessed by the corporation at the time. Broughton v. Pensacola, 93 U. S. 266, 23 L. ed. 896.

The dissolution of a corporation no more impairs the obligation of its contracts than the death of a private person can be said to impair the obligation of his contracts. Mumma v. Potomac Co. 8 Pet. 286, 8 L. ed. 945.

The repeal or forfeiture of a corporate charter by an act of the legislature, although conditional upon the consent of the corporation, does not infringe the constitutional provision against impairing the obligation of contracts, notwithstanding it may deprive creditors of all opportunity to collect their debts. Mobile & O. R. Co. v. State, 29 Ala. 573.

While the obligation of the contract between a corporation and its creditor is not impaired by the repeal, by act of the legislature, of its charter, the method of obtaining indemnity for its breach is changed, and, after the enactment of the repealer, an action at law upon the contract can no longer be maintained or prosecuted, in the absence of any statute permitting it to be. Read v. Frankfort Bank, 23 Me. 318. The liquidation of a corporation has the immediate effect of terminating all its purely personal obligations, and of relegating the beneficiaries thereunder to an action in damages in keeping with its covenants. Schleider v. Dielman, 44 La. Ann. 462, 10 So. 934.

Although a law authorizes the stockholders of a business corporation to dissolve it at will, and the laws of the state in this regard enter directly into its contracts, and all persons are deemed to have contracted in view of the existence and possible exercise of this power, it is nevertheless true that such a dissolution does not destroy the obligation of the corporation's contracts. The equitable rights of creditors survive the dissolution, and attach to the assets and property of the corporation in the hands of its liquidators. Ibid.

The dissolution of a solvent corporation by its own voluntary act will not relieve it from its contracts, but its assets will be liable for breaches thereof. Griffith v. Blackwater Boom & Lumber Co. 46 W. Va. 56, 33 S. E. 125.

"Even the executory contracts of a defunct corporation are not extinguished." Shields v. Ohio, 95 U. S. 319, 24 L. ed. 357.

Unless the dissolution is compulsory and involuntary. Then, even when partly performed,

to the great weight of authority, is applicable to cases of this kind, and must be given effect if the facts of this case warrant its application. The principal contract under which Thompson operated bears date June 18, 1890. Under it he began operations in the same month, and continued them until August, 1893, during which time he built a railroad, equipped it with locomotives and cars, built tramroads, rebuilt and repaired dams in the Blackwater river, and carried on the business of stocking the mill with timber under the contract upon an immense scale, using the railroad, cars, locomotives, tramroads, tools, appliances, and the booms and dams in the river for that purpose, and, as indicated by the record, practically supplied the mill with timber. In these operaexecutory contracts perish when the corporation is dissolved. Griffith v. Blackwater Boom & Lumber Co. 46 W. Va. 56, 33 S. E. 125.

When a corporation, upon petition of its stockholders and by the decree of a court, is dissolved, and thereafter neither does, nor attempts to do, any business, it becomes as entirely extinct, except so far as the statute prescribes otherwise, as if it had never existed. It is thus wholly disabled from performing its contracts, and its breach of any such contract is a total one, which entitles the other party, immediately upon the dissolution, to his whole damages, present and prospective, for the loss of his contract. Bowe v. Minnesota Milk Co. 44 Minn. 460, 47 N. W. 151.

It is not the law that when a corporation is dissolved under a statute all contracts whereby third parties hold its property are annulled and avoided; hence, a writ of assistance will not be awarded to put a receiver in possession of property of such a corporation, where persons not parties to the dissolution proceedings assert in good faith a colorable right to hold it. Musgrove v. Gray, 123 Ala. 376, 82 Am. St. Rep. 124, 26 So. 643.

When the receiver of a dissolved corporation has paid all the undisputed debts, and has funds enough left to pay all the disputed ones, and still has a large surplus for distribution to stockholders, he is bound to pay rent accrued and accruing to the end of the term under a lease for years to the corporation. People v. National Trust Co. 82 N. Y. 283.

When, at the instance of the state, and by judicial decree or operation of law, a corporation is dissolved, and its corporate existence terminated, a contract between it and an individual for the latter's services, which is in progress and has been performed upon both sides according to its terms down to the time when the corporation and its agents and servants were prohibited from carrying on the corporate business, is at an end, and cannot upon either side longer be performed; but it cannot be considered as broken by the corporation, since nothing has occurred to constitute a breach of the contract upon either side, performance being simply prevented by vis major, and hence the individual has no claim for damages against the assets of the corporation. People v. Globe Mut. L. Ins. Co. 91 N. Y. 174. A contract of a corporation with an individual for the latter's services for a term of

tions he expended nearly $300,000, according to the report of the commissioner. He resigned his position as director in 1891. Can it be possible that the directors and the stockholders, who appear to have been few in number (only six, as indicated by the record), had no knowledge of the immense expenditure Thompson was making on the faith of this contract? Whether the making of the contract was in all respects duly formal or not, the books of the company were open to them, and upon them the terms of the contract were indicated by the entries. For a long time after Thompson ceased to be a director and to have any share or part in the management of the company, they allowed him to go on without objection or notice of the disapproval years at a stipulated salary is broken when, before the expiration of the term, the corporation is adjudged insolvent, and a receiver is appointed whose duty by statute is to collect and distribute the assets, under judicial direction, to the creditors and stockholders. Spader v. Mural Decoration Mfg. Co. 47 N. J. Eq. 18, 20 Atl. 378.

When a corporation contracts to sell and deliver upon a future day merchandise, and before the time of delivery arrives is enjoined from in anywise interfering with its property, and a receiver is appointed of all its assets, performance of its contract is rendered impossible by judicial action, and the buyer has no claim for damages. Malcomson v. Wappoo Mills, 88 Fed. 680.

The court cited and followed People v. Globe Mut. L. Ins. Co. 91 N. Y. 174, and rejected Spader v. Mural Decoration Mfg. Co. 47 N. J. Eq. 18, 20 Atl. 378, but the report does not show whether the appointment of the receiver was voluntary or involuntary, or whether or not the selling corporation (if such it was, for even its corporate entity is not stated) was dissolved.

Where, upon the suspension of business and the appointment of a receiver of a dissolved corporation, a contract with it is in process of performance, and is for a time afterwards continued under direction of the court having jurisdiction of the matter, it cannot be said that there was a breach of the contract, committed by the corporation. Griffith V. Blackwater Boom & Lumber Co. 46 W. Va. 56, 33 S. E. 125. When the receiver of a dissolved corporation abandons the performance of one of its contracts by direction of the court which appointed him, after he had for a time, by the like direction, been performing it, and when at the time of his appointment the corporation was not in default thereon, the corporate assets are not liable for damages for a breach of such contract. Ibid.

While it is implied in every agreement, the performance of which depends upon the continued existence of a person or thing, that such existence will continue, and that the death of the person or destruction of the thing will terminate the obligation; and when a corporation is a party to such contract its dissolution or civil death ends it,-yet such is not the rule if such dissolution be voluntary, for it is equally an implied condition of all corporate contracts

of the contract. If, having such knowledge, they had the right to avoid the contract because he was a director at the time it was made, can they do it in such manner as to inflict upon him the loss of so much of this large expenditure as compliance with his contract, so far as he was permitted to perform it, necessitated? Having the right to deprive him of the profits which he could have made on the contract if permitted to complete it, have they also the right to punish him by depriving him of money expended under the honest belief that they, having full knowledge of all the facts, as they must be deemed to have had, and giving it to creditors, who advanced their money under the belief that the company had such financial strength as warranted that the corporation will not of its own volition try to escape the obligation of its contracts, and, if it does, equity will not recognize the dissolution or permit the dissipation of its assets untii its contracts are satisfied. Ibid. A contract between a dairyman and a corporation to run a year, whereby the company agrees to buy and furnish all the cans to carry all the milk produced by the former's kine to be delivered daily, is broken in toto by the voluntary dissolution of the corporation during the year, and the dairyman is entitled immediately to all his damages for the loss of the contract, present and prospective, for it is an entirety, and a single recovery is a bar to further actions. Bowe v. Minnesota Milk Co. 44 Minn. 460, 47 N. W. 151.

f. Upon employment contracts.

1. With officers.

The bringing of an action against a corporation, and alleging its insolvency and the appointment therein of a receiver, do not abrogate a contract for the employment of a salaried officer. Kinsman v. Fisk, 37 App. Div. 443, 56 N. Y. Supp. 33.

When a corporation makes a general assignment for creditors it is not thereby released from its express contract to pay a salary to its treasurer if he renders, or is ready to render, his services as such; and, on a reconveyance by the assignee after settlement with its creditors, he is entitled to recover his stipend. Potts v. Rose Valley Mills, 167 Pa. 310, 31 Atl. 655.

A secretary of a corporation which becomes insolvent and goes into the hands of a receiver is entitled to his salary for the balance of the year for which he was employed, less what he may earn in other employment. Hassenfus v. Philadelphia Packing & Provision Co. 15 Pa. Co. Ct. 650.

A managing director of a corporation, engaged upon a salary for a term of years, is entitled, upon the winding up of such corporation during the term, to prove up his claim for salary on the same footing as outside creditors, notwithstanding he was a shareholder in the company. His characters as stockholder and employee being quite distinct. Re Dale, L. R. 43 Ch. Div. 255, 59 L. J. Ch. N. S. 180, 62 L. T. N. S. 215.

Salary due the secretary of a corporation for services as such down to the winding up is a