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defendant's answer and that it was part thereof that C. should procure H. to sign and seal assignments of the same to plaintiff. He also found that the bonds and mortgages were never delivered to or in possession of the mortgagees or either of them, and that no consideration other than the said sum of $6,000 was paid by or in behalf of the plaintiff or received by defendant C. or any one for said bonds and mortgages or either of them. The court held the mortgage in suit usurious and directed its cancellation.

C. Bainbridge Smith, for applt. Richard M. Bruno, for respts. Held, That as the complaint expressly averred the delivery of the bonds and mortgages to the mortgagees named therein and as the answer admitted it, it was a fact in the case and for all the purposes of the action to be taken as true, Code of Civ. Proc., § 522; 90 N. Y., 111; 46 id., 418, whether the mortgagees took the bonds and mortgages away from the place where the business was transacted or immediately handed them over to plaintiff.

It appeared that C. suggested to plaintiff that he owed H. & M. for building certain houses for him $7,000 and that by giving two mortgages, one for $4,000 and the other for $3,000, plaintiff might cash them for $6,000, which H. & M.would consent to, and so receive $1,000. C. then employed an attorney to draw the mortgages, stated to him the amounts to be stated and the names of the mortgagees, to whom, as he stated, he

Vol. 18.-No. 8a.

owed the money. He afterwards signed the mortgages and, as the pleadings admit, they were delivered to the mortgagees to secure the money due them.

Held, That from that moment the mortgage in suit had a valid inception and might be enforced by the mortgagee or sold at any price without imputation of usury. The fact that the mortgages were executed to H. & M. after a previous understanding with plaintiff that he would purchase them, although for less than their face, cannot make the purchase usurious or convert the contract of purchase into a loan of money. 90 N. Y., 549; 4 id., 225; 79 id., 224.

Also held, That as the real debt due H. was less than the mortgage given him, he could not enforce it for more than its true amount and plaintiff can have no better right. 61 N. Y., 88.

Judgment of General Term, affirming judgment for defendants, reversed and new trial granted.

Opinion by Danforth, J. All concur, except Andrews, J., not voting.

TELEGRAPH COMPANIES.

STOCK.

N. Y. COURT OF APPEALS.

Williams, respt., v. The Western Union Tel. Co., applt.

Hatch, respt., v. The Western Union Tel. Co., applt.

Decided Oct. 2, 1883.

The defendant company had authority under Chap. 319, Laws of 1875, to increase its capital stock, and the necessary action to

make a legal increase having been taken it was authorized under Chap. 568, Laws of 1870, to purchase the property, franchises, &c., of the A. & P. and Am. Union Tel. Cos., the three companies not owning precisely parallel lines or lines running between exactly the same places. Section 2, of Chap. 18, part 1, tit. 4, R. S., refers to the property capital of a corporation and not to its share capital. A stock dividend representing investments of surplus earnings is not a violation of that section. When a corporation has a surplus, the question whether a dividend shall be made, its

amount, &c., rests in the discretion of the directors, uncontrollable by the courts. A stockholder who comes into court alleging that an increase of stock was unauthorized by the articles of association has the burden to prove and establish that fact.

The defendant, the W. U. Tel. Co., had a capital stock of $41,073,410, divided into shares of $100 each. The A. & P. Tel. Co. had an authorized capital of 150,000 shares of $100 each, of which only 140,000 had been issued and were outstanding. The Am. U. Tel. Co. had a capital of $10,000,000 and owed a bonded debt of $5,000,000. These three corporations were all organized under the laws of this state. Their lines were to a large extent parallel and between the same places, but each company extended to some places that were not reached by the others. On January 11, 1881, at a conference of certain of the directors of these companies it was agreed that the W. U. Tel. Co. should purchase of the other companies all their lines, property, rights, privileges and franchises, except that of being a corporation. It was to pay to the Am. U. Tel. Co. 150,000 shares of its capital stock to be thereafter issued and

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delivered in exchange for the 150,000 shares of the stock of the Am. U. Tel. Co., and $5,000,000 in bonds, the holder of each share of Am. U. Tel. Co. stock to receive upon surrender of the same one share of W. U. Tel. Co. stock, and the holder of each bond on surrender thereof to be entitled to shares of the W. U. Tel. Co. equal at par to the amount of the principal of his bond. To the A. & P. Tel. Co., 84,000 shares of the capital stock of the W. U. Tel. Co. for 140,000 shares of its stock. It was also provided that the shares of the Am. U. Tel. Co. and the A. & P. Tel. Co. should be duly transferred and delivered to the W. U. Tel. Co., and that that company should cause its capital stock to be increased by an addition of $38,926, 590, represented by shares of $100 each, and should distribute $15,526,590 to those then holding its shares, the same being intended to represent its investment of earnings in the purchase, construction and equipment of additional lines of wires and general plant since July 1, 1866, and the remaining sum $23,400,000 for the acquisition of the property, privilege and franchises of the other companies. That possession of the property purchased should be delivered to the W. U. Tel. Co. Feb. 24, 1881, and the shares of its capital stock delivered to the Un. Trust Co. of N. Y. for the purpose mentioned on or before that date. This agreement was approved and adopted by the directors of the W. U. Tel. Co. at a meeting held Jan. 12, 1881, and its president instructed

to call a special meeting of the stockholders to carry out and effectuate the agreement. A meet- | ing was duly called and held Feb. 5, 1881. More than three fourths in amount of the whole capital stock was represented and voted for the ratification of the agreement and to increase the capital stock of the W. U. Tel. Co. to $80,000,000. Plaintiff, who owned 100 shares, was present at this meeting and voted against ratifying the agreement and increasing the stock. On January 19, 1881, as the Special Term found, the property, franchises and privileges of the W. U. Tel. Co. were worth, over and above its indebtedness, more than the amount of its capital stock, with the addition of the par value of the shares so distributed to its stockholders, and the property, rights and franchises of the A. & P. Tel. Co. were fully and fairly worth $8,400,000, and those of the Am. U. Tel. Co. worth $15,000,000, and such on that day were the estimates of the values made by the directors of the respective companies. The actual value of the investment of the surplus earnings of the W. U. Tel. Co. as they existed January 19, 1881, was estimated by its directors, and it was their judgment that the amount of the stock to be distributed among the stockholders of the W. U. Tel. Co. represented no more than the investments of its surplus earnings since July 1, 1866, and that they were worth over $15,526,590. All the telegraph lines and appurtenances thereto mentioned in the agree

ment of January 19, 1881, belonging to the Am. U. Tel. Co. and the A. & P. Tel. Co., were on Feb. 3, 1881, delivered to and received by the W. U. Tel. Co. pursuant to the agreement. Plaintiff purchased his 100 shares of stock January 2, 1881, and since commenced this action, Feb. 14, 1881, for an injunction restraining the carrying out of the agreement which had been to a large extent carried into effect by a delivery and distribution of the stock before that date. The complaint alleged a fraudulent combination and conspiracy. The Court refused to find fraud and dismissed the complaint.

Wager Swayne, Wm. M. Evarts and A. J. Vanderpoel, for applt.

A. P. Whitehead, Robt. Sewell and John Sessions, for respts.

Held, That the defendant had authority to increase its capital stock, Laws of 1875, Chap. 319, amending § 8 of Chap. 265, Laws of 1848; that the necessary action having been taken to make a legal and lawful increase, Chap. 568 of the Laws of 1870 furnished ample authority for the purchase by defendant of the property, franchises and privileges of the other two companies and paying therefor by its stock, the three companies not owning precisely parallel lines or lines running exactly between the same places. 9 Abb. N. C., 228.

Section 2 of Chap. 18, part 1, title 4 of the Revised Statutes has reference only to the property capital of a corporation, and not to its share capital. The Legisla

saction was in good faith, there is no principle of law, no public policy and no statute that condemns a stock dividend under the circumstances. 51 Barb., 378; 57 N. Y., 196; 5 Fed. Rep., 743; 1 Div. & B. W., 445; 99 Mass., 101; 115 id., 471; 49 Penn., 270; 74 id., 83; 47 Conn., 141; L. R., 5 Eq. Cas., 239; L. R., 5 Ch. App., 621; Pierce on Law of Railroads (2d Ed.), 123.

When a corporation has a surplus, whether a dividend shall be made, and, if made, how much it shall be, and when and where it shall be payable, rests in the fair and honest discretion of its directors, uncontrollable by the courts. 4 Eng. L. & Eq., 118; 2 Barn. & Ald., 620; 31 N. J. L., 277; Clark's Ch., 351.

ture intended by this section to
create a property capital for the
corporation and then to keep that
intact so as to secure the solvency
of the corporation and its responsi-
bility to its creditors. The "capital
stock" as used in that section does
not mean share stock, but the
property contributed by its stock-
holders or otherwise obtained by
it, to the extent required by its
charter. 3 Zab., 195; 75 N. Y.,
211; 1 Sandf. Ch., 280. When
its property exceeds that limit
the excess is surplus, which while
it belongs to the corporation and
is a portion of its property and in
a general sense may be regarded
as a portion of its capital, in a
strictly legal sense is not a por-
tion of its capital, and is always
regarded as surplus profits. This
surplus may be divided. If it
consists of cash, it may be divided
in cash; if of property and the
property is so situated that a
division of it among the stock-
holders is practicable, a dividend
in property may be declared.
Stock dividends do not diminish
or interfere with the property of a
corporation, and hence are not
within the purview of said § 2,
and the directors of the de-
fendant did not violate that sec-
tion by the stock dividend. When
stock has been lawfully created
and is held by a corporation which
has a right to issue it for value a
stock dividend may be made, pro-
vided the stock always represents
property. As there was no fraud,
conspiracy or unlawful combina-
tion, and it must be assumed under
the findings that the whole tran-plaint, affirmed.

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A stockholder coming into court and alleging that an increase of stock was unauthorized by the articles of association, in order to maintain his allegations would have the burden to prove and establish that fact.

The defendant corporation and all its directors and the Union Trust Co. of N. Y. were made defendants. The judgment dismissing the complaint was reversed by the General Term and a new trial ordered. The corporation defendant appealed and stipulated for judgment absolute against it in case of affirmance.

Held, That it had a right to do this.

Order of General Term, granting new trial, reversed and judgment of Special Term, dismissing com

Opinion by Earl, J. All concur, except Ruger, Ch. J., and Danforth, J., taking no part.

EVIDENCE.

N.Y. SUPREME COURT. GENERAL TERM.

FOURTH DEPT.

mony did not relate to a personal transaction or communication between the witness and deceased, on the ground that the witness and deceased did not meet personally, plaintiff having been represented in the transaction by his attorney who superintended the drawing of the bond and its execution. The

Levi J. Pease v. George F. Bar- attorney acted under the immenett, ex'r.

Decided Oct., 1883.

Although the party did not meet the deceased personally in the transaction in question, but was represented by attorney who acted under his direction, yet the transaction was personal, within the statute, so far as to exclude the living party's testimony; but the attorney's testimony as to conversations with his principal was competent.

Motion by defendant for new trial on exceptions taken at Circuit, and ordered heard at General Term in the first instance.

Action on a bond executed by one Davis and his wife Azubah, defendant's testatrix, to plaintiff. The bond, which was produced at the trial, appeared on its face to have been altered by the insertion of a clause binding Mrs. Carpenter's separate estate, and the question litigated was whether the alteration was made before or after the bond was executed by her. Plaintiff was allowed, under objection, to testify in his own behalf that he was not present when the bond was signed, but that he saw it in the hands of his attorney after it was drawn and shortly before it was executed, and that it then contained the clause in question as it appeared at the trial. Plaintiff contends that the testi

diate direction of plaintiff, who was cognizant at the time of all the steps taken.

J. D. Decker, for deft.
Stull & Bennett, for plff.

Held, That plaintiff's testimony was incompetent. It was as convincing as if he had testified that the clause in question was in the instrument when the the testatrix signed it. The admission of the testimony gave plaintiff an advantage which the statute does not allow.

The giving of the bond was a personal transaction between the obligors and the obligee, within the meaning of the statute, so far as to prevent the obligee from giving testimony against the repreresentatives of the deceased obligor tending to show what was the wording of the bond at the time of its execution. 26 Hun, 617; id., 619. See 2 Abb. N. C., 9 (note); 16 W. Dig., 96.

Hill v. Herrman, 22 Hun, 456, S. C., aff'd, 85 N. Y., 639; 17 Hun, 472, distinguished.

So much of Pease's testimony, also, respecting conversations between him and his attorney prior to the execution of the bond as tended to show that the bond contained the married woman's clause

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