PREFACE TO THE THIRD EDTTTON. logical connection with the great mass of legal rules which have been called forth by controversies relating to railroad and other business corporations. 1 However, though it is proper for the law to follow closely, and so to conform itself as to facilitate the transaction of busi- ness, there are further considerations. The law takes cogni- zance of public policy, it refuses to sanction acts contra bonos mores ; for example, dishonest modes of business. The law has heretofore regarded the amount of stock named in the charter or articles of incorporation as a representation of the amount of its capital, and the further representation which is made when stock is increased is of the same character. Heretofore courts have refused to recognize fictitious payments for stock ; that is to say, they have refused to sanction the organization or prosecution of corporate enterprises on the basis of misrepre- sentation. The reasoning of the Supreme Court of the United States in Handley v. Stutz, 2 and of the Minnesota Court in Hospes v. Northwestern Manufacturing Co., 3 is strongly put. The former case emphasizes the inconvenience it would cause if corporations could not issue stock below par ; the latter case asserts that it is all a question of actual fraud, and if any sub- sequent creditors have been misled by the fictitious issue, the court will consider their rights. But these decisions tend to remove the element of honesty from the fundamental reason for corporate organization, which is, that liability may not extend beyond the funds subscribed. For they ignore the fact that stock and subscriptions to stock constitute capital, and that there is no true analogy between the issue of stock and the borrowing of money on the best terms the borrower can make ; and they ignore the fact that the amount of stock originally set is a representation of the amount of the corporation's capital, and that a subsequent issue of stock is a representa- tion that this capital — whether impaired by loss or not — is thereby to be added to by a definite amount. Are courts to recognize as valid, because usual, this method of organizing and carrying on corporate business by the issue of " bonus " or partly paid stock ? Are they prepared to say that the formal 1 See the judicial utterances in People v. North River Sugar Refining Co., and State v. Standard Oil Co., post, § 51, note. 2 Post, § 5226. 8 Post, § 7026. vi
