dissenting.
This corporation, like every other joint stock association, presents two compacts, viz. : That between the State and the company, and that between the company and the stockholders. The primary question is whether those compacts, one or both of them, have been violated. The charter of the company authorized them “to issue certificates of stock representing the value of their property in such form, and. *181•subject to such regulations as they might from time to time by ■their by-laws prescribe.” This provision constitutes at once a limitation of the powers of the corporation, and. an agreement establishing the rights of the stockholders, and their respective interests in the corporate property. The amount of stock which the company might issue in the first instance was fixed by the value of the property then owned by them. When the company determined that the value of their property was $10,000,000, and issued stock to that amount, their power to issue stock for the time being at least was exhausted. After that act they had no power to issue more stock, except for more property purchased, •and then only for the value thereof. (Boynton v. Hatch, 47 N. Y., 225; Schenck v. Andrews, 57 id. 133.) The specification of the limitation mentioned operated as an implied prohibition of the issuing of stock in excess thereof. (People v. Utica Ins. Co., 15 Johns. R., 383-384.)
The company has made no additional purchases of property. If, therefore, the transaction which the plaintiff assails be m legal •effect an issue of additional stock, it was illegal, because (1) it was not issued for property purchased, but for money advanced; and (2), because for each sum of five dollars advanced, stock amounting to $100 was issued. In determining the legal character of the transaction, we are to regard its substantive effect, and not be misled by the form in which it was clothed. The transaction was simply this. A stockholder who advanced five dollars to the corporation on each share of stock held by him received a new certificate entitling him to an annual dividend, ratably with the other stockholders, who united with him in making the advances of seven per cent of the not earnings of the corporation, and also entitling him to his previous interest as a stockholder, viz., a ratable interest in the corporate property, and a ratable share of the earnings of the corporation after deducting said dividend of seven per cent. Such is the legal effect of the certificate. The regular and formal mode of completing such a transaction would have been to give to each stockholder who made advances two certificates ; one representing his interest in the earnings of the corporation only, and another representing his interest in its property, including its earnings. If the cpmpany had received *182money from a stranger in payment for preferred stock of that kind, lie w'ould have received a certificate in the form first mentioned. Putting the substance of both certificates in one paper makes no difference ; for the holder of it acquired all the rights of a preferred stockholder, and at the same time retained all those of a common stockholder, excluding the dividend mentioned. In either case the amount of capital stock is increased. That part of the certificate which sets forth the preference, in legal significance, is equivalent to a separate certificate entitling the holder to the number of shares of preferred stock named in it. Each preferred stockholder, therefore, holds in legal effect two certificates, one which gives him a certain number of shares of the stock originally issued, and another, which gives him the same number of shares of preferred stock. The amount of such preferred stock issued was greatly in excess of the money received. It seems to be clear that preferred stock like that in question, assuming it to be valid, is “ stock ” in the technical sense of the prohibition mentioned. It entitles the holder to an exclusive interest in the earnings of the corporation in consideration of a contribution of capital. To that extent the corporation holds the property in trust for him. Although his interest will cease entirely when the corporate existence terminates, while . that of the common stockholder in the corporate property will continue, yet such fact and the inequality of interest in the earnings constitues the only difference between them, and that is not a decisive one. If it were it would be equally decisive to show that the interest of the common stockholder is no longer “stock." Eor the right to share ratably in the' earnings of a corporation is quite as essential an attribute of stock, as the right to' share ratably in a division of the corpus of the corporate property, upon the winding up of the corporation. Ordinarily both rights are inseparable incidents of the ownership of the stock of a corporation, but either may legally exist separately from the other, and when that is the case it appropriately falls under the denomination of stock.
The proceeding for issuing the preferred stock was had without specific notice thereof. In no point of view could absent stockholders be bound without such notice, unless they waived it. It *183seems to me to be a reductio ad absurdum. to say that at a corporate meeting, held under a general notice, absent stockholders can be bound by acts which are intended to impair, and which, if valid, do impair their interests in the corporate property. It is urged that the transaction can be sustained as a means of raising money. That is only another way of saying that a corporation has power to borrow money, upon-an agreement to pay for the use thereof, interest at the rate of seventy dollars a year for each sum of five dollars advanced, conditional only upon the corporation’s earning so much. The answer is, that the transaction was not an exercise of the power to borrow money. If it were, a court of equity may, .and should avoid it, at the instance of proper parties, as an unconscionable agreement. If such a transaction should be allowed to stand all protection of stockholders against corporate acts ultra vires, or fraudulent, would soon disappear.
It is also contended that the power granted to the company, to issue certificates of stock in such form, and subject to such regulations, as they might from time to time prescribe, comprehended the power of issuing preferred stock. It is unnecessary to decide Avhether the company possessed the power at the start of providing by its by-laws, that-a portion of its original capital of $10,000,000 should be represented by certificates of stock in a form which would entitle the holder to a preference over other stockholders. But I am quite certain that the general power referred to did not authorize the company to impair the rights of stockholders, after the whole amount of stock had been issued, and the rights of the holders thereof had become vested. A stockholder in a corporation acquires an interest in the corporate property, and in the net earnings of the corporation, in proportion to the amount of stock held by him. That is the result of the compact before referred to, which exists between- the corporation and the stockholders thereof. (Hutton v. Scarboro Cliff Co., 2 Dr. & Sm., 514-521; S. C., 13 W. R., 631; Jones v. Terre Haute R. R. Co., 57 N. Y., 196-205.) The obligation of such an agreement cannot be impaired by the corporation, nor even by the Legislature, unless the right to do so has been reserved in the charter. Conceding that such right has been reserved by article 8, section 1 of the Constitution, as well as by the general provision on this subject contained in the Revised *184Statutes, it lias not been exercised by the Legislature, nor delegated to the corporation. Nor could it be delegated. (Re Oliver Lee’s Bank, 21 N. Y., 9.) The stock originally issued was not restricted by any regulation that conferred authority to impair its value, by a subsequent issue of preferred stock. A power to prescribe the form in which certificates of stock shall be issued, is not a power to alter the legal effect of the contracts thereby created. In short the power referred to is one of mere regulation, and it cannot be exercised so as to take away, or impair, the obligation of a contract, or to divest a stockholder of any substantial right to, or interest in, the corporate property or in the profits which have accrued from its use. In every charter of incorporation there are fundamental provisions, and others of a general nature, which are not fundamental. Those which grant or secure rights of property must be deemed fundamental, and they cannot for that reason be violated without the stockholders consent. Modes of proceeding are regulations only, and they may be changed from time to time without his consent. Such is the power to make by-laws, to carry out the objects of the corporation, the main object thereof being to promote, not to sacrifice or injure, the interests of its stockholders.
The preference claimed by the defendant Kent, being illegal for the reasons stated, it was void in its inception. The persons who advanced their money for it acquired no advantage over the common stockholders thereby, and their trausferrees stand in their shoes. (Ashbury R’way Carriage Co. v. Riche, L. R., 7 Eng. & Ir. App., 643; Ang. & Ames on Corp., § 393; 1 Lindley on Part., 628; Livingston v. Lynch, 4 Johns. Ch., 573.)
The case does not depend upon any principle of the law of agency, for no agency existed for an unlawful purpose. The corporation has agreed to do that which it cannot perform, without violating the law, and impairing the rights of the common stockholders, to whom it is bound by contract, as well as by the duty and obligation of a trustee. The law will not sanction the absurdity of compelling it to do acts for the benefit of a preferred stockholder’, which would involve a breach of trust against a common stockholder, and possibly a forfeiture of its charter, and which for those reasons it might be constrained immediately to annul. The *185cases which hold a corporation to its engagements, entered mto through its agents, in the exercise of an apparent authority which exceeds the real authority conferred upon them, are not applicable to this case, for the reason that here the validity of the engagements does not depend upon the power of the agent, but upon that of the principal. A man who contracts with an infant or a person under disability must abide by the incapacity of such person to do the act. He acquires no right to enforce the contract because the infant appeared to be an adult, or the other person appeared to bo free from disability. So, where he contracts directly with a corporation, ostensibly acting through the corporate body, but which has no power to enter into the contract.
The corporation having transcended its powers by issuing the preferred stock, it may be restrained at the instance of the holders of common stock from giving effect to the act. Every person is presumed to know the extent of the powers of a corporation with which he deals, especially if he be a stockholder thereof. The preferred stockholders, therefore, must be held to have known, when they acquired their preference, that effect could not be given to it without a breach of trust - to the holders of common stock. The same knowledge will be imputed to their transferrees. Neither the original owners of the preferred stock, nor their transferrees, therefore, can be treated as innocent holders thereof. To make them such, it would be necessary that it be shown that they received such stock with the acquiescence of the holders of the common stock at the time they acquired the same. The preference was void as against the stockholders who did not assent thereto, if not in toto, and the right to avoid it passed with a transfer of the stock of such non-assenting stockholders. (McMahon v. Allen, 35 N. Y., 403.) Acquiescence, therefore, to bar an action by a holder of common stock must have arisen from his own acts or conduct, or at least from the acts or conduct of a previous holder of the. same stock. (Bissell v. M. S. and N. I. R. Co., 22 N. Y., 258, 275.) I am not willing to concede that evidence of the latter kind would be of any service to a preferred stockholder. But it is not necessary to decide that question, for there is no evidence in the case of any act or conduct on the part of the plaintiff Hoyt, or of any preceding holder of his stock, evincing acquies*186cence in the claims of the holders of preferred stock. If the right to avoid the preferred stock had been cut off by acquiescence, it could have been shown when that was done, and whose acquiescence did it. But no such evidence was given. The only evidence of the acts of stockholders, after the preferred stock was issued, shows their dissent from the discrimination thereby created. Evidence that both common and preferred stock have been sold at the stock exchange, under those designations, amounts to nothing as proof of acquiescence, except as respects persons who are shown to have had knowledge of such sales; nor ever then, unless it further appears that such knowledge reasonably imposed the duty of objecting on the persons to whom it was communicated. Nothing of that kind has been shown. No knowledge of dealings in preferred stock has been brought home to anybody, nor does it appear how any person might have objected to such dealings if he had been disposed to do so. To have cautioned the stock exchange would have been impertinent, and no means existed for making his objections known to actual purchasers of preferred stock. It is idle, as it seems to me, to predicate acquiescence of such evidence. Full knowledge of all material facts and circumstances, and of the rights and duties which flow from them, is essential. (29 Gr. Ev., § 197; Wall v. Cockerell, 10 H. L. Ca., 229; Kent v. Quicksilver Co., 12 Hun, 56.) The burden of proof is on him who asserts the acquiescence. Nor can a presumption of acquiescence be raised from the lapse of time. For it appears that, as soon as the common stockholders were threatened with an actual execution by the company of the contract of preference, this action was brought, and no facts were proved, which tended to show that the holders of common stock were called upon by their own interests, or by their duty towards the holders of preferred stock to act sooner. On the contrary, it appears that the issue of preferred stock, which occurred in April, 1870, was followed immediately by complaints of the proceeding on the part of the holders of common stock, and that such complaints continued to be made, from time to time, until November, 1874. It is a reasonable inference that the common stockholders abstained from litigation to enforce their rights, because the corporation manifested a disposition to accede to their demands, and because *187the amount of the net earnings of the corporation showed that there was no immediate danger ; that any injury to them by means of the preferred stock would be actually accomplished. In November, 1874, an effort was made by the corporation to remedy the wrong complained of. A resolution was adopted, at a meeting of the corporate body, to put the holders of common stock on the same footing as the holders of preferred stock. That resolution was, however, defeated by the defendant Kent. He commenced an action against the company, and obtained an injunction which restrained the latter from carrying that resolution into effect. The questions here involved were thus put in the course of litigation, which has, in various forms, been going on ever since. I am unable to find in the case any evidence that the holders of common stock have stood by, and, by their silence, induced persons to deal in preferred stock. Indeed, such dealings do not appear to have been affected by the litigation referred to, and yet every man is presumed to be attentive to what passes in the courts of justice. (Story Eq. Jur., §§ 405-406.)
The principle of equitable estoppel is a valuable one, and should not be relaxed. But I think it would require a great stretch of that principle to render it applicable to this case. (Story Eq. Jur., §§ 1530-1550.) Nor do any of the cases which have been cited afford a precedent for an application of the doctrine of equitable estoppel to the holders of common stock before us. Nor has the period prescribed by the statute of limitations expired.
The judgment in the case of Kent against this corporation certainly is not a technical bar to this action, for neither the plaintiff nor any of the holders of common stock were parties to that judgment. Whatever was there adjudicated did not affect the plaintiff or any person under whom he claims. But I think it was there correctly adjudged that the corporation had no power to issue a fresh batch of preferred stock to the prejudice of the interests of Kent. If they had not power to do that they had not power to issue preferred stock at any time to the prejudice of the holders of common stock. Either of those acts must derive its sole support from the same grant of power.
The result of the views expressed will be to afford just pro*188tection to tlie holders of common stock ; while at the same time no injustice will be done to the holders of preferred stock. For, although the corporation will not be permitted to carry the contract of preference into effect, they may and ought to be compelled to return the sums advanced to them in payment therefor to the holders of the preferred stock, with interest. The company had power to receive advances of money, and having-used the money advanced for legitimate purposes, common honesty as well as j ustice requires that they shall return it. (Whitney Arms Co. v. Barlow, 63 N. Y., 62, 68-69.)
The exceptions must be allowed, and the motion for a new trial granted, with costs to abide the event.
Judgment affirmed, with costs.