before the adjudication of insolvency. The court said: "He [the principal] having procured her suretyship for his own accommodation upon his implied agreement to save her harmless therefrom, it became his duty, on November 13th, to credit her upon his account with the amount of the note." November 13th was the date when the note became due, and insolvency of the principal was not declared until December following. This statement in the opinion, and some of the facts tend to show that there were mutual and connected accounts between the principal and surety, which is not the situation of the parties in the case noW in hand. That case does, however, give support to the views expressed in Morrow v. Bright, supra; and, unless the last named case has been overruled or modified by this court, we should feel disposed to follow it. White v. Henly, 54 Mo. 596, was a suit by the administrator of an insolyent estate. The defendant set up, by way of off-set, certain notes executed by the intestate as principal, with defendant as surety. These notes were due and unpaid at the death of the intestate, and were allowed against the estate, and were paid off by the defendant surety after they were thus allowed. The court, after citing the statute which provides that, "in suits brought by administrators and executors, debts existing against their intestate or testator, and belonging to the defendant, at the time of their death, may be set-off by the defendant, in the same manner as if the action had been brought by and in the name of the deceased," proceeds to say: "As the defendant did not own the notes, and was not a creditor at the time of the intestate's death, the notes could not be pleaded or allowed as a set-off in this suit." This case is clearly in conflict with what is said in Morrow v. Bright concerning the statute just quoted. It is also said that Morrow v. Bright goes to the utmost limit of the law in allowing an equitable set-off. Now, the statute just quoted, concerning offsets where the suit is by an executor or administrator, does not exclude equitable set-offs any more than do the other sections of the statute concerning offsets in general. State v. Donegan, 94 Mo. 66, 6 S. W. Rep. 693. There is no substantial difference between the facts in Morrow v. Bright and White v. Henly; and if the last case is good law, it is difficult to see how the ruling in the former can stand. In Walker v. McKay, 2 Metc. (Ky.) 294, it was held that a surety, until he pays the money for his principal, has no available demand against the principal which amounts to a set-off or equitable discount. The case of Nettles v. Huggins, 8 Rich. Law, 273, was a case where there had been an assignment for the benefit of creditors; and it was held that a surety could not set up as a discount money paid after the assignment. See, on the same subject, Pom. Rem. (2d ed.) p. 201. To justify a set-off against an signee for the benefit of creditors, there must be a present debt due at the date of the assigment. In this respect a surety stands on no better footing than any other creditor. The defendant had no such debt against the assignor at the date of this assignment; indeed he had no such debt when this suit was com. menced. It is very true that a surety may, in equity, before he has paid the debt, compel the principal to pay it or perform the obligation. Story, Eq. Jur. (13th ed.) § 327; Pom. Eq. Jur. § 1417, note 2. But the surety is not entitled to be reimbursed until he has paid the debt or some part of it. It is also to be remembered that our assignment law prohibits preferences. It looks to the equal distribution of the propetry of the assignor. The status of the creditors is fixed by the assignment in trust for them. If the right

as

of set-off exists at that time, it continues as against the assignee. If there is at that time an equitable right in favor of a creditor to a set-off, or to any of the property assigned, that right is not disturbed by the assignment; but the equitable right must exist at that time; and this is true whether the creditor is or is not a surety. Here the defendant had no equitable set-off at the date of the assignment, and he therefore has

none now.

USURY WHAT CONSTITUTES SALE OF GOODS.-Bass v. Patterson, 8 South. Rep. 849, decided by the Supreme Court of Mississippi, is of interest on the point of what constitutes usury. It is held that under Code Miss. § 1141, declaring all interest forfeited if more than ten per cent. be stipulated, a sale of goods at an agreed price, with fifteen per cent. additional, if payment be not made in thirty days, is valid, when the intention is to make the fifteen per cent. a part of the original price. Cooper, J., says:

This statute, it will be seen, declares simply what rate of interest shall be lawful, and the consequences of stipulating for a greater rate; it does not attempt to define what usury is, or to declare that all contracts for the payment of money at a future date are usuri. ous, where the sum agreed to be paid exceeds the value of the consideration given and legal interest thereon, to the time of payment. What contracts are or are not usurious must yet be judicially determined according to the rules of law heretofore prevailing. It is a sufficiently accurate definition to say that usury is taking more than the law allows for the forbearance of a debt. Kent, J., in Van Schaick v. Edwards, 2 Johns. Cas. 364. We have accepted this definition, because it is more comprehensive than either that given by Blackstone, viz: "An unlawful contract, upon the loan of money, to receive the same again with exorbitant increase" (4 Bl. Comm. 156); or that of Bouvier (1 Bouv. Inst. 299), viz: that "usury is the illegal profit which is required by the lender of a sum of money from the borrower for its use;" or that of Mr. Parsons and Mr. Tyler, that it is "the taking of more for the use of money than the law allows" (3 Pars. Cont. 107; Tyler, Usury, 35). Under any and all circumstances, usury must be something other than a part of the debt for the forbearance of which it is reserved. The authorities are numerous and uniform that a seller of land or chattels may stipulate for a greater price on a credit sale than he would be will. ing to accept in cash, and the transaction is not rendred usurious by the fact that the credit price is in excess of the cash price and legal interest to the date of payment. Hogg v. Ruffner, 1 Black, 115; Brooks v. Avery, 4 N. Y. 225; Cutler v. Wright, 22 N. Y. 472; Graeme v. Adams, 23 Gratt. 225; Beete v. Bidgood, 7 Barn. & C. 453; Floyer v. Edwards, Cowp. 112; Brown v. Gardner, 4 Lea, 145. But where the sale is in fact at an agreed cash price, and the form of a sale on credit is resorted to for the purpose of evading the statute against usury, the transaction will be declared usurious. Quackenboss v. Sayer, 62 N. Y. 344; Thompson v. Nesbit, 2 Rich. Law, 73; Torrey v. Grant, 10 Smedes & M. 89. It is, said Judge Sharkey in the case last cited, "a question of intention." In Floyer v. Edwards, Cowy. 112 Lord Mansfield said:

"Here it appears the whole agreement was made out first, the price of the goods fixed, and a limited credit given; but the party considers further that perhaps punctual payment might not be made, and provides that in that case the buyer shall pay him so much more. There is no agreement for forbearance beyond three months. The plaintiff might have brought his action instantly, and therefore, if not paid, was at liberty to say that the buyer should pay him a greater price."

We think the court erred in refusing to permit the jury to determine whether the additional 15 per cent. was, by the contract of the parties a real part of the price of the goods sold.

OF PLEDGEE-ELECTION OF DIRECTORS.-In Re Argus Printing Co., 48 N. W. Rep. 347, the Supreme Court of North Dakota decide that the pledgee of stock in whose name it stands on the corporate records has a right to vote the stock at a meeting to elect directors, and that the pledgeor has no right to vote such stock, but a court of equity will, in a proper case, compel the pledgee to give the pledgeor a proxy. From the long and very exhaustive opinion of Corliss, C. J., we extract the following:

Where there has been no transfer of the stock on the books of the corporation a pledgee of such stock may not vote it. The beneficial ownership is still in the pledgeor, and the records of the corporation still show him to be a stockholder. In none of the cases cited in which the right to vote was adjudged to be in the pledgeor, instead of the pledgee, had there been a record of the transfer made. See McDaniels v. Manufacturing Co., 22 Vt. 274; In re Baker, 6 Wend. 509; Ex parte Wilcocks, 7 Cow. 410. Strong v. Smith, 15 Hun, 222. We have discovered an Oregon case in which the stock stood upon the books in the name of the pledgee, but the court ruled that he could not vote it because he had no authority from the pledgeor to make the transfer. This case we will refer to hereafter. In the case at bar the stock stood in the name of the representative of the pledgee upon the corporate records. Was he a bona fide stockholder within the meaning of our statute which restricts the right to vote stock to those who are bona fide holders thereof? Section 2931, Comp. Laws. It may be stated in this connection that Edwards could not vote the stock, as the stock had not stood in his name on the books of the corporotion for 10 days prior to the election. Id. If, then, the representative of the pledgee could not vote the shares, no election of directors could be held, for no one else had a right to vote it, and without its being represented at the election no election of directors could be had, for the reason that these shares constituted more than half of the capital stock. At all elections or votes had for any purpose, there must be a majority on the subscribed capital stock represented, etc. Id. No person can be chosen director without a majority vote. Section 2925, Id. At the time the legislature employed the word "stockholders" in the section prescribing the qualification of a voter at corporate meetings, that word had acquired a definite and fixed meaning, so far as a pledgee of stock was conserned. It had been repeatedly adjudged that a pledgee of stock whose transfer was upon the corpo

rate records was a "stockholder" within the meaning of the statute providing for the liability of stockholders for the debts of corporations. The general reasoning upon which these decisions were based was that the pledgee with a recorded transfer was a stockholder for the purpose of receiving dividends and voting at stockholders' meetings; and that he could not enjoy all of the benefits enjoyed by a stockholder without being subjected to a stockholder's liability. Said the court in Bank v. Case, 99 U. S. 628: "It is thoroughly established that one to whom stock has been transferred in pledge, or as collateral security for money: loaned, and who appears on the books of the corpora tion as the owner of the stock, is liable as a stockholder for the benefit of creditors. We so held inPullman v. Upton, 96 U. S. 328, and like decisions abound in the English courts, and in numerous American cases, to some of which we refer. Adderly v. Storm, 6 Hill, 624; Rosevelt v. Brown, 11 N. Y. 148; Bank v. Burnham, 11 Cush. 183; Magruder v. Colston, 44 Md. 349; Crease v. Babcock, 10 Metc. (Mass.) 535; Wheelock v. Kost, 77 Ill. 296; In re Bank, 18 N. Y. 199; Hale v. Walker, 31 Iowa, 344. For this several reasons are given. One is that he is estopped from denying his liability by voluntarily holding himself out to the public as the owner of the stock, and his denial of ownership is inconsistent with the representation he has made; another is that by taking the legal title he has released the former owner; and a third is that, after having taken the apparent ownership, and thus become entitled to receive dividends, vote at elections, and enjoy all the privileges of ownership, it would be inequitable to allow him to refuse the responsibilities. of a stockholder." In Pullman v. Upton, 96 U. S. 328,, the court said: "So in Bank v. Burnham, 11 Cush.. 183, it was decided that a transfer of stock on the books of the bank, intended merely to be held as collateral security, makes the holder liable for the bank debts. It was said that the creditor was to be considered the absolute owner, and that his arrangement with his debtor cannot change the character of the ownership." In Magruder v. Colston, 44 Md. 349, where it was held that the pledgee whose transfer was recorded was liable as a stockholder, the court said: "Stockholders are those who appear on the books of the bank as owners of shares, and who are entitled to manage its affairs, and they can only throw off the liabilities incident to that relation by transferring the stock." That the word "stockholder," as used by the legislature, was, in the absense of any qualification of its meaning, understood by the legislature to be sufficient to embrace a pledgee with a legal title to the stock because of a transfer on the books, is clear from the provisions of section 2933, Comp. Laws, expressly declaring that the holding of stock by a pledgee shall, not render the holder a stockholder, within the mean. ing of that section, rendering stockholders liable for debts of the corporation. It is significant that in. section 2931, prescribing the qualification of a voter, and declaring that he must be a bona fide stockholder, no such limitation of the meaning of the word "stockholder" is to be found. There are numerous cases in which it is said that a pledgee is a stockholder, and entitled to vote when he appears to be a stockholder on the books of the corporation. Franklin Bank v. Commercial Bank, 36 Ohio St. 350. * *In Poole v. Association, 30 Fed. Rep. 513, Judge Brewer says: "The stock was assigned as collateral for moneys advanced by B. D. Brown. It was duly transferred on the books of the company, so that they unquestionably have all the rights of stockholders." In State v. Ferris, 42 Conn. 560, a bankrupt in whose rame stock

stood on the books of the company was adjudged entitled to the right to vote the stock after the title to the stock had passed to the assignee in bankruptcy under the provisions of the bankrupt act. The court observed: "It has been repeatedly held by this court that the books and records of a corporation determine who are its stockholders for the time being, and who have the right to vote on the stock, although the same may have been sold or pledged as collateral security. In such cases the party who appears to be the owner by the books of the corporation has the right to be treated as a stockholder, and to vote whatever stock stands in the name." See, also, People v. Robinson, 64 Cal. 373, 1 Pac. Rep. 156; State v. Pettineli, 10 Nev. 141. Colebrooke on Collateral Securities. Section 283. In Vail v. Hamilton, 85 N. Y. 453, the action was brought to set aside a mortgage on corporate property, on the ground that it was void because two-thirds of the stockholders had not assented to it. Certain of the stock stood in the name of the pledgee on the books of the corporation. The assent of such stock was essential to the validity of the mortgage. The pledgee did not give such assent, and the court adjudged the mortgage void on the ground, among others, that the pledgee was, as to that particu. lar stock, a stockholder, and his assent was necessary because without it there was not the assent of the requisite two-thirds. In Hoppin v. Buffum, 9 R. I. 513, the court said: "The object of the stock-book, and of requiring transfers of stock to be recorded by the corporation, is for the protection of the corporation, to enable it to know who are its members, who are entitled to dividends, and for no purpose is it more important than to enable it to know who are entitled to vote in case of an election." The language of the court in Re Steam-Boat Co., 44 N. J. Law, 529, is equally emphatic on the proposition that the record determines the question who are stockholders in their dealings with the corporation, which embrace the payment and receipt of dividends, and the voting at stockholders' meeting for directors and for other purposes; although on application to a court of equity the stockholder might be compelled to give a proxy to another or to vote as such other should direct. To same effect are Coleb. Coll. Sec. § 282; 1 Mor. Priv. Corp. §§ 170, 483; Burgess v. Seligman, 107 U. S. 20-29, 2 Sup. Ct. Rep. 10. In State v. Smith, (Oreg.) 14 Pac. Rep. 814 (on rehearing, 15 Pac. Rep. 386), it was held that the pledgee, who had secured a transfer to himself of the stock on the books of the corporation under the authority of the express language of the assignment of the stock, empowering the pledgee to transfer the stock to his own name on the books, was, nevertheless, not entitled to vote the stock. But the reason for the decision has no application in this jurisdiction. The court held that the power to make the transfer on the books, al though unlimited, although without condition as to the time when it might be exercised, could not lawfully be exerted until the pledgee had destroyed the equity of the pledgeor by foreclosure. This decision is clearly opposed to that of the court in Nicollet Nat. Bank v. City Bank (Minn.), 35 N. W. Rep. 577, where the court affirmed a judgment against the defendant for conversion of stock, because it had refused to transfer the same upon its corporate books to the name of a pledgee thereof before foreclosure of the pledge, and while still a mere pledgee. This case recognizes the absolute right of the pledgee to such a transfer. Said the court: "Although the assignment to the plaintiff, was for the purpose of collateral security, the plaintiff was entitled to have the same entered on the books of the bank." To same effect,

Dayton Nat. Bank v. Merchants Nat. Bank, 37 Ohio St. 215. The right of the pledgee to insist upon a transfer upon the books at once is recognized by numerous cases. Rich v. Boyce, 39 Md. 314; Hubbell v. Drexel, 11 Fed. Rep. 115-118; Coleb. Coll. Sec. § 272; and dissenting opinion of Lord, C. J. in State v. Smith (Oreg.), 15 Pac. Rep. 137, which accords with our views.

DEFENSE OF NON-CORPORATE EX-
ISTENCE TO MUNICIPAL
AID BONDS.

In an article in a late number of this JOURNAL, we gave in outline, the defenses to which municipal aid bonds are subject, and showed in substance that want of power in the municipality to issue them is always a good defense, and, in fact, the only defense which can be set up against a bona fide holder for value, before maturity and without notice, either actual or constructive. And although, by virtue of the doctrine of estoppel, such a holder is not obliged in most instances to look beyond the question of power, there can be no estoppel in favor even of bona fide holders where there is an entire absence of power. It was also shown that when a corporation has such power to issue negotiable securities, the mere irregularities of officers in endeavoring to comply with the provisions of the statutory power, will not invalidate the bonds in the hands of bona fide holders, where notice of such defects do not appear on the face of the bonds. It is said that this want of power, where there is, in fact, an enabling statute, generally arises from one of the following causes: First, because the bonds are used for a private, and not for a public purpose. Second, because the enabling statute is in violation of some constitutional provision. Third, because the power exercised is different from that delegated. Fourth, non-compliance with the conditions imposed by the enabling act. Whether this includes all cases wherein it may fairly be contended that there is absolute want of power within the rule announced, we do not undertake to say, but as a matter of fact, the fourth cause, above stated, has been the subject of considerable debate and conflict of authority, the contention on the one hand being that the non-compliance with conditions imposed by the enabling act is a mere irregularity of officers, which by virtue

of the doctrine of estoppel is cured by recital in the bonds, and on the other, that absolute default on the part of officers to comply with conditions imposed by the enabling act is an inherent defect which vitally destroys the power to issue. The question is illustrative of the difficulty which courts have encountered in determining, in some of the cases presented, what constitutes lack of power and what mere irregularities of officers.

The subject of this paper suggests a question which, strange to say, is not to be found in the treatises, at least as applicable to municipal aid bonds, and which has lately arisen in two or three of the States in suits on such bonds. And it is a question which, at first blush, contains the same element of difficulty, as in the case discussed above, arising from the inability to determine, as a matter of principle, whether the facts do or do not constitute an inherent want of power, within the rule announced. The question presented is as to the power of a de facto municipality to successfully defend against its bonds upon the ground of non-corporate existence. This defect of corporation may result from an absolute want of legislative authority or power, or from the irregularities or default of officers in endeavoring to comply with the terms of its organic charter powers. In either case there is the same result, viz: a failure legally to incorporatein other words, a territorial division or collection of people which has no corporate existence de jure, and against which the State may proceed by quo warranto, to snuff out even its de facto corporate existence. But where such de facto municipality has issued its bonds, which have gotten into the hands of innocent holders for value without notice, it naturally raises a question whether the failure to become a body corporate, arising either from a want of legislative power, or from irregularities of officers, constitutes such inherent want of power in the municipality to issue the bonds as will invalidate them absolutely, or whether it is a defect which is cured by estoppel and which cannot be interposed against a bona fide holder for value without notice.

As a general proposition, in proceedings where the question, whether a corporation exists or not, arises collaterally, the courts will not permit its corporate character to be

questioned, if it appear to be acting under color of law and recognized by the State as such. Such question should be raised by the State itself, by quo warranto or other direct proceedings. Even the State, it has been held, may be precluded from raising such objections after the corporate government has been fairly established with general acquiescence and continued recognition.2

In the Michigan case last cited, Campbell, J., says: "Even in private associations the acts of parties interested may often estop them from relying on legal objections which might have availed them if not waived. But in public affairs, where the people have organized themselves under color of law into the ordinary municipal bodies, and have gone on year after year raising taxes, making improvements and exercising their usual franchises, their rights are properly regarded as depending quite as much on the acquiescence as on the regularity of their origin, and no ex post facto inquiry can be permitted to undo their corporate existence. Whatever may be the rights of individuals before such general acquiescence, the corporate standing of the community can no longer be open to question." The same doctrine has been laid down in Illinois, and in other cases from the same State, it was held that where a municipal corporation has been recognized by enactments of the general assembly, all inquiry into the original organization of the corporation is precluded. In a late case from the same State it was held that, where the question of the incorporation of a city arises collaterally, it is only necessary to show that the city is de facto a corporation. To prove its existence, it is sufficient to produce the charter, and prove acts done under

4

1 State v. Carr, 5 N. H. 367; Cooley Const. Lim. 6th. ed. 310; President, etc. v. Thompson, 20 Ill. 197; Hamilton v. President, 24 Ill. 22. These were prosecutions by municipal corporations for recovery of penalties imposed by law and where the plea of nul tiel corporation was interposed and overruled. Kayser v. Bremen, 16 Mo. 88; Kettering v. Jacksonville, 50 Ill. 39; Bird v. Perkins, 33 Mich. 28; Worley v. Harris, 82 Ind. 493.

2 State v. Leatherman, 38 Ark. 81; People v. Maynard, 15 Mich. 463.

3 See also Rumsey v. People, 19 N. Y. 41; Lanning v. Carpenter, 20 N. Y. 447.

4 Tisdale v. Town of Minonk, 46 Ill. 9; Geneva v. Cole, 61 Ill. 397.

5 People v. Farnham, 35 Ill. 562; Jamison v. People, 16 Ill. 257.

it and in conformity with it. The same principle has been recognized by the United States Supreme Court, and also in Massachusetts. In an Alabama case it was said that the repose and well being of society will not allow municipal corporations to have their organizations practically annulled in a collateral proceeding. In Indiana, the exercise of corporate powers for twenty years over a defined territory is conclusive evidence of incorporation. In Hagerstown, etc. Road Co. v. Creeger, it is said that where a corporation has gone into operation and rights have been acquired under it, every presumption should be made in favor of legal exist

ence.

In Kansas,12 it has recently been held that the corporate character of a city cannot be questioned collaterally by a private citizen in an action to prevent the city from collecting its taxes where it is acting under color of law, when it has been a de facto city for more than fifteen years, and a law was in force under which it might have been legally incorporated and it was attempted to have been incorporated under the provisions of such law. Whether it was regularly incorporated might be determined in an action brought by the State through its proper officers, but cannot be inquired into collaterally by private citizens. In an earlier case in the same State, the court says: "Sometimes also upon grounds of public policy and not upon any grounds of equitable estoppel, parties are not allowed to question the existence of a corporation. Thus, where there is a law under which a corporation may exist, and under which the corporation in question is acting and claiming to exist, and is a corporation de facto, and the only ground for claiming that such corporation does not exist is some irregularity in its organization, private persons, whether members of the supposed corporation or not, are not allowed in collateral proceedings to question the existence of such corporation. But that is not this case."

Louisville, etc. R. Co. v. Shires, 108 Ill. 617; and see Doyle v. Village of Bradford, 90 Ill. 417; Mendota v. Thompson, 20 Ill. 197.

7 United States Bank v. Dindrige, 12 Wheat. 64.

8 Middlessed v. Davis, 3 Metc. 133.

9 Ex parte Moore, 62 Ala. 471.

10 Worley v. Harris, 82 Ind. 493.

15 Harris & J. 122.

12 Mendenhall v. Burton, 22 Pac. Rep. 558.

19 Kurtz v. Town Co., 20 Kan. 397.

In Missouri,14 it was held that if a corporation be acting under color of law, and be recognized as such by the State, its corporate character cannot be questioned collaterally. Such question should be raised by quo warranto, and the rule prevails, even though its incorporation may be affected by constitutional provisions.15 The same doctrine substantially has been laid down in Ohio,16 Minnesota, 17 Nebraska, 18 New Jersey,19 and recently in North Carolina.20

None of the cases cited above involve directly the validity of municipal bonds, most of them being prosecutions under ordinances, or suits for taxes or on express contracts, in which the defense of nul tiel corporation was interposed. But there is no feature of municipal bonds or the liability of municipalities upon them which should except them from the general rule above stated, or which should put it into the power of a municipality to raise the question of no corporate existence in a collateral proceeding involving their validity. And in view of the above authorities, we doubt whether such a question could be raised, even by the State, in a proceeding by quo warranto after lapse of time and general acquiescence;21 though, of course, such proceeding, if tenable, would not necessarily affect or conclude the rights of bond holders. But we are not without direct authority upon the question here discussed. v. Clark County, 22 the Supreme Court of Missouri, in a case involving the validity of municipal bonds, held that whether the corporation had a legal existence or not when the subscription was made, is a question that cannot be raised in a collateral proceeding. It did exist as a matter of fact, and was in the exercise of all its chartered franchises when the subscription. was made and the bonds issued. In another case,2 23 the same

14 St. Louis v. Shields, 62 Mo. 247.

In Smith

15 And see also to same effect, State Bank v. Merchants Bank, 10 Mo. 124; Frederick v. Fox, 84 Mo. 59; State v. Fuller, 96 Mo. 165; s. c. 9 S. W. Rep. 583; Matthews v. Skinner, 98 U. S. 621. 16 Blanchard v. Bissell, 11 Ohio St 96.

17 Burt v. Winona, etc. R. Co., 31 Minn. 372.

18 Village v. Albee, 24 Neb. 242.

19 State v. Wainwright, 50 N. J. L. 555.

20 Henderson v. Davis, 11 S. E. Rep. 573.

21 People v. Maynard, 15 Mich. 463; Jamison v. People, 16 Ill. 257.

22 1 Cent. L. J. 5.

23 Franklin Ave. Law Inst. v. Board of Education of the town of Roscoe, 75 Mo. 408.