388
THE GREEN BAG
to all the shares of the institution," was held not stock but an enforceable promise to pay. In Burt v. Rattle,1 the Act of March 25, 1870, authorized a manufacturing corpo ration to issue "preferred stock" to pay debts and for working capital, and made it lawful for the corporation to guarantee dividends thereon, at a rate not exceeding the legal rate, and the final payment at a time specified, and also authorized a pro vision for its conversion into common stock, and prescribed that such preferred stock should not vote, nor be liable for debts. In an action to recover on the guaranty and mortgage given to secure the same, it was held, that the holders of the "preferred stock" were creditors and not stockholders. In these decisions we find the general tendency of the courts to give effect to the intention of the parties and to permit them to use the corporate form to define and effect the terms of their intended contract. In none of them, however, was any question of trust or fraud involved. It is undoubt edly the general understanding that our statutes and courts would not permit an abuse of this corporate form, to effect, protect or perpetuate a legal or equitable wrong. In every important instance our higher courts have promptly and effectually swept aside the corporate form to reach and prevent the intended wrong. In the case of People v. North River Sugar Refining Company,2 the New York Court of Appeals held the acts of the stock holders of different corporations in pooling their stock to be in effect a partnership between the corporations, and as such ultra vires and void, at the suit of the state. The court said at page 621 : "The abstract idea of a corporation, the legal entity, the impalpable and intangible creation of human thought, is in itself a fiction, and has been appropriately described 31 Oh. St. 116 (1876). izi N. Y. 582.
as a figure of speech. It serves very well to designate in our minds the collective action and agency of many individuals as per mitted by the law." The Supreme Court of Ohio, in reaching a similar conclusion in the case of State v. Standard Oil Company (49 Oh. St. 137), said at page 177: "The general proposition that a corpora tion is to be regarded as a legal entity, exist ing separate and apart from the natural persons composing it, is not disputed; but that the statement is a mere fiction, existing onlv in idea, is well understood by anvone ^ J who pretends to accurate knowledge on the subject." The same court, in the later case of Bank v. Treibein (59 Oh. St. 316), said, page 326: "The fiction by which an ideal legal entity is attributed to a duly formed incor porated company, is of such general utility and application, as frequently to induce the belief that it must be universal, and be in all cases adhered to, almough the greatest frauds may thereby be perpetrated under the fiction as a shield. But modern cases, sustained by the best text writers, confine the fiction to the purposes for which it was adopted, and have repudiated it in all cases where it has been insisted upon as a pro tection to fraud or any other illegal trans action." In Northern Securities Company v. United States (193 U. S. 197), the Federal Supreme Court sustained the advanced position taken by Mr. Knox, and dissolved the hold ing corporation created under a state statute for the purpose of effecting a con solidation by stock ownership between competing railroads, on the ground that its formation was in legal intent and effect a violation of the Sherman anti-trust law.1 With all these precedents in mind we approach a new state of facts in the cases we are considering, where the ownership of 1 See also Donovan v. Purtell. 216 Ill. 629, re ported with valuable note. L. R. A. New Series, 176.
