6o8
THE GREEN BAG
be affirmed. In any case the facts as to the value of the shares when issued should be stated; and the purchasers of stock, as far as possible, put, as to knowledge, into the position of the directors themselves. The mere fact that the share is christened $100 or that the certificate bears the legend "$ioo" is nothing or worse than nothing. We all well know that in this respect the legal necessity of nominal capitalization is more apt to cause misleading or inadequate or even directly untruthful representations than disclosure of the truth. In this respect as in others, the virtue of the reform, if it have any, is that it would tend to fix atten tion upon the truth of the case and to compel officers of corporations to make statements both truthful and intelligible. In the early days of railroad and business incorporation, the requirement was that capital stock should be paid in at par in cash, the same as is now required in the case of insurance or banking corporations. But it is a half century and more since the facilities and seductions of nominal capi talization led to the device of issuing shares of stock for property, theoretically at the rate of par for actual cash value. Property soon came, when sold for shares of stock, to be valued according to the hopes or even the dreams of the vendors rather than ac cording to any actual existing value. I see in the reform, as one of its great advantages, the ending of the long and multifarious and wasteful struggles over disputed valuations of assets exchanged with corporations for their shares. It has been a long and often changing antiphonal chant of courts and legislatures, now the song being of liberality to encourage business enterprise, now of rigor against promoters and original stock holders in order to protect creditors, then again of liberality, then again of rigor, and so on. The chapter of American juris prudence dealing with the full payment of charter capitalization is as unsatisfactory as it is extensive. Our sister state of New Jersey has now for years been one of the
most prolific creators of corporations. It has, however, adhered to its own long time and high standard of judicial administra tion; and the decisions of its courts in Withervee v. Baker, 25 N. J. Eq., 501, and Donald v. Am. Smelting & Refining Co. 48 At. Rep. 771, with respect to the obliga tions upon the directors or corporations issuing shares for property are wholesome. Nevertheless its statutes make the good faith of directors issuing shares a conclusive protection to them and the original stock holders against personal liability, and it is no uncommon thing for exaggerated and even fictitious estimates to be adopted in perfect good faith by business men of san guine temperaments. Under the reform for which I am arguing, the situation would be very different. If a corporation with shares already outstanding were to buy property and pay for it in its capital stock, its directors, representing its stockholders, would issue for the prop erty a number of shares which, according to the actual value of the shares already issued as then estimated by or for the stockholders, would be the equivalent of the value of the property. If the property were over valued the injury would be to the holders of the old shares, since the new shares issued on a basis of equality with theirs would be cor respondingly under valued. If, however, the property were acquired at the very formation of the corporation and the whole capital issued for it, it would be of no con sequence to any one whether more or less shares were issued, for the reason that the shares would have no nominal money value, and each share would represent only its aliquot part of the property so acquired, and each share, if it were the subject of a future sale, would be sold according to the estimate of value of such aliquot part. Every one would realize that ten thousand ten thousandth parts are no more, but pre cisely the same as a thousand one thou sandth parts or a hundred one hundredth parts.
