is a party is binding upon the corporation, but in a transaction where a corporate officer acts for himself and deals with a corporation in an unofficial manner his knowledge cannot be imputed to the corporation. 450. Vacancies and removals.-Vacancies may usually be filled by the board of directors who may fill vacancies even in their own body. In the absence of by-law, charter or statutory provision officers may not be removed at the pleasure of the board, but may be removed for good cause without special authorization. Where removal is contemplated the officer should be duly charged and given an opportunity to clear himself of the accusations. 451. Liabilities of officers.-Officers are liable for damages resulting from their negligence or wrongdoing in office. The penal laws of many states impose liabilities for various acts and omissions, as for example, failure or refusal to allow proper inspection of the stock-books, making false reports, loaning corporate funds to stockholders and misconduct at corporate elections. It was held in a recent case that directors have an active responsibility to act in behalf of the corporation. They must obtain excuse from action if on a vacation or if absent except for some good cause, as illness. If improper action is taken at a meeting a director should signify his dissent in writing on the minutes, or if absent he should do so as soon as possible.1 452. Dividends.-Dividends are the profits paid to the stockholders. The directors, honestly exercising their discretion, have the sole right to declare dividends, but after a dividend is declared, the amount apportioned to the individual stockholder becomes a debt of the corporation and the stockholder may sue for it as for any 1 Kavanaugh v. Commonwealth Trust Company, 118 N. Y. Suppl. 758. other debt. Surplus accumulated, but not apportioned as dividends at the time of the insolvency of a corporation, goes to the corporate creditors and not to the stockholders. Dividends are paid only out of surplus or net profits. "The words net profits define themselves. They mean what shall remain as the clear gains of any business venture after deducting the capital invested in the business, the expenses incurred in its conduct, and the losses sustained in its prosecution." 1 Dividends are treated as though earned when declared. Corporations are justified in relying on their registers in ascertaining the persons entitled to dividends on any particular block of stocks, but where notice of transfer is given, dividends declared subsequently must be paid to the transferee. Many corporations provide that their transfer books shall be closed a certain number of days before a dividend is declared. Such provisions are valid and secure to the transferor any dividends declared subsequent to the closing of the books. A pledgee whose name appears on the corporate books is entitled to receive the dividends, but must account therefor to his pledgor. Dividends must be declared generally on all shares of the same class of stock. An agreement to pay a fixed dividend on any class of stock is valid so long as there are any profits out of which to pay it. Directors and officers who participate in the declaration and distribution of dividends out of capital are usually civilly liable to the injured parties and may be prosecuted criminally. Surplus, however, need not be accumulated in the form of cash. If the net profits are tied up in 1 Park v. Grant, 40 N. J. Eq. 114. property, the corporation may borrow cash to distribute as dividends. Dividends may be declared to be paid in cash, in stock or in scrip, entitling the holder to receive stock or cash. Stock dividends are quite usual in public service corporations, for the reason that future dividends may not seem high though in fact representing a large interest on the stockholder's original investment. EXAMPLE 389. The X railway accumulated a surplus equal to its capital stock. It increases its capital stock and declares a 100 per cent stock dividend. Thereafter it declares a cash dividend of per cent. This dividend amounts to 14 per cent on the original investment of the railway's stockholders. It is easy to see how the problem of railway rates is affected by stock dividends. CHAPTER XXVII INTERCORPORATE RELATIONS AND DISSOLUTION OF CORPORATIONS 453. Merger of corporations.-Corporations may merge or control each other in one of five different ways: 1. Consolidation. 2. Sale. 3. Lease. 4. Corporate stock holding or control. 5. Some other form of relation usually called combination. Where two or more corporations are fused into a new corporation the process is termed consolidation. The right to consolidate depends on a statute, as does the right to merge, which term is applied to the absorption of one or more companies by another. In England the term amalgamation is usually used to denote consolidation by merger. Where the corporations about to be consolidated are residents of different states, the laws of each state must authorize the consolidation. The statutes usually limit the power of consolidation to those engaged in certain lines, e. g., mining or manufacturing, or to corporations engaged in similar forms of business. Railroads which are non-competing and whose lines are continuous or connecting are usually permitted to consolidate. Sometimes one corporation will sell out to another, the stockholders of the vendor receiving stock in the vendee corporation. This power to sell must be exer cised by the stockholders. Quasi-public corporations must perform their public duties, and therefore, cannot transfer their property without the consent of the state. Franchises, such as the franchise of eminent domain or the franchise to be a corporation, may not be sold or purchased without legislative sanction. Corporations may in effect be merged by a lease of all the property of one corporation to another. Railroads, however, often lease their property to connecting trunk lines. The subject of railway leases is usually governed by special statute, providing for the consent of a certain number of the stockholders before the lease may become operative. In private corporations where there is no special statute, the stockholders must unanimously consent to the lease of all the property of a going prosperous concern. Every member can insist on having its business managed by its own officers. He is entitled to participate in dictating the policy of the company and to receive a proportion of the profits instead of a fixed rental. Trackage contracts which give the parties thereto the joint right to use each other's tracks may be made without express authority of the state. In such contracts the parties do not obtain any right to property in the other's tracks but have a non-revocable, nonassignable and enforcible license. 454. Holding companies.-In England private corporations may deal in shares of stock of other corporations, but quasi-public corporations may not. In America corporations may not purchase stock in other companies without express legislative authority and the statutes are strictly construed. A holding company is one formed for the purpose of holding the stock of other corporations without engaging in any line of busi |