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WHERE one person delivers personal property to another, it is called bailment.
The bailor is the person delivering the property. The bailee is the person to whom the property is delivered.
Bailments may be divided into three classes: those which are for the benefit of the bailor or some one whom he represents; those which are for the benefit of the bailee or some person whom he represents; and those which are for the benefit of both the bailor and bailee. In the first class, the bailee is required to exercise only the slightest care and is responsible only for gross negligence. In the second class, he is required to exercise the greatest care and is liable for the slightest neglect.
In the third class, he is required to exercise only ordinary care and is responsible only for ordinary neglect.
Where a person undertakes to keep another's goods without pay, if he acts in good faith and looks after the property as if it were his own, he is not responsible for the loss or injury of the goods, and is liable only for bad faith or gross negligence. But, of course, this arrangement can be varied by agreement or by circumstances. On the other hand, a man who borrows goods is responsible for the slightest negligence resulting in injury or loss. Should he use the property he borrowed for any different purpose than that for which it was lent, or permit another person to use it or keep it beyond the time limited, then he is liable for anything that may happen to the property. And he cannot keep the property as a set-off to a claim against the bailor.
The bailee has a right to the possession of the property entrusted to his care, and may sue to recover the property as against everybody but the owner. He can deliver the property only to the owner or some one authorized to receive it for him. Where he delivers the property to the person who gave it to him under the impression that he is the true owner, the bailee is not responsible to the real owner. The bailee cannot dispute the bailor's title. Common carriers, commission merchants, factors or pledgees, are all bailees who receive a benefit from the bailment, and are therefore bound to exercise ordinary care and diligence. In this connection, see the subject of Common Carriers, at page 258.
A bailee, who has received property or materials to be repaired or manufactured, has a lien upon the property for his service; so have inn-keepers, common carriers, and warehouse men for their charges.
CORPORATIONS: PERSONAL LIABILITY.
Corporations have now almost entirely displaced all other forms of business enterprises. The ease with which they are managed, and the limitation of liability of those participating in them, are probably the reasons for their great popularity and the great increase in their development. All the States in the Union now have extensive statutes regulating the formation and specially governing the actions of corporations. Persons desiring to form a corporation should seek the advice of a competent lawyer, to make sure that all acts have been done according to law and insure against heavy penalties and liabilities. What is of most importance to the average person is a clear understanding of his liability either as a stockholder, an officer, or a director of a corporation. Indeed, few people realize the possibility of losses that may come upon one from the mere assumption of the rights of a stockholder, or the acceptance of a position as an officer or director, in a corporation. Our object here is to (1) give the rights, powers, and duties of a stockholder, and his liabilities; (2) the rights, powers, and duties of a director, and his liabilities; (3) the rights, powers, and duties of an officer, and his liabilities.
In general, the stockholder is legally the man who controls the situation. The right to mortgage real estate, to reduce or increase capital stock, or to remove directors or officers, is almost always in the hands of the stockholders. They have also the right to examine the books, records, and papers of the corporation, and in general can amend or alter the charter. The stockholders elect the directors, and in some instances the officers, and have the power to amend or alter the by-laws.
Liabilities of Stockholders. The main distinction between a partnership and a corporation exists in the different liabilities of those who take part. A corporation is really an extended partnership, the stockholders representing partners. And the advantage a stockholder has over a partner is soon realized when it is noted that a stockholder, in general, is not liable in his outside property for the debts of an insolvent corporation, except for the amount of the unpaid part of the stock held by him. This is an almost universal rule in the United States. In Arizona, California, Indiana, and Minnesota, a stockholder is liable for a share of the debt proportionate to the total stock owned. In Arizona, a stockholder is proportionately liable unless especially restricted in the charter of the corporation. California and Minnesota, however, exempt manufacturing and mechanical corporations from this rule, and Indiana exempts manufacturing, mercantile, and mining corporations. In Kansas, the liability is equal to the amount of stock owned. That is, ten thousand dollars face value of stock makes the owner approximately liable for ten thousand dollars of corporation debts. In Ohio, the rule is the same for all debts contracted previous to November 23, 1903; after that date, stockholders are only liable according to the general rule. In Idaho and Louisiana (as also in Great Britain) a stockholder's liability is only limited where the word “limited” or “ ltd.” is used as part of the title on the stationery, advertising, official signs, etc. In Delaware, Nevada, and Utah the liability of the stockholder may be extended to any amount fixed upon.
In Florida, Illinois, Iowa, and Nebraska, stockholders are held liable as partners if the laws as to the organization of corporations are not strictly complied with.
In every state except Arkansas and California, a stockholder is liable in his private estate for all unpaid balances on his stock. He cannot buy stock on margin and take profits on the face value, and yet escape liability for the remainder if the corporation is insolvent. In Connecticut, a corporation has a lien on the shares, and may sell them on twenty days' notice after twice advertising. But before execution can be levied for stock (or in Massachusetts for any debt), a court judgment must be returned unsatisfied. In Connecticut, Delaware, Massachusetts, Missouri, New York, and North Carolina, the court must be satisfied that the corporation property is insufficient to satisfy the debt. In North Dakota, transfer of stock does not release from liability, nor in Georgia does transfer within six months before insolvency or dissolution of the corporation. In Kentucky
and New York, liability ceases two years after transfer; in Maine and Mississippi, after one year. In Nebraska and Illinois it is specifically stated that liability follows the stock in the hands of subscription owners; so that buyers must take special care to have a sworn statement that the stock is fully paid, or make their price to accord. In Illinois, an assignor and assignee are jointly liable; if the assignee has had notice of the fact he is liable alone. In New Hampshire, the liability continues until a sworn statement is filed that the capital stock is fully paid up. In a number of States, the stockholders thus sued for unpaid subscriptions has a right of suit against the other stockholders to enforce contributions from them; to wit: Connecticut, Florida, Indiana, Iowa, Massachusetts, New Jersey, Pennsylvania, and Rhode Island. In New York, the liability of stockholders is only for debts sued for against the corporation within two years after they become due, or for debts that have not more than two years to run originally. In Maine, the liability exists only for debts contracted within one year after the transfer. In Utah, an action must be brought within three years after the facts are discovered.
In several States, employees of a company, or those to whom it is indebted for labor, have an individual lien on the stockholders. These States are Indiana, Massachusetts, Michigan, New York, North Dakota, Oklahoma, Pennsylvania, South Dakota, Tennessee, and Wisconsin.
Powers of Directors. The affairs of every corporation are under the immediate control of its board of directors. Their powers, however, may generally be limited by inserting such limitations in the certificate of incorporation. Ordinarily, directors have the power to elect the officers, and generally may remove them at pleasure. In almost all States the board of directors may fill vacancies in their own board. On the dissolution of a corporation the directors act as trustees of the property; a few of the peculiar provisions follow: In Alabama, the directors may mortgage or convey the property of the corporation without the consent of the stockholders, to secure money borrowed or debts contracted. In Alaska and Arizona, the powers of the directors are fixed by the