A Treatise on the Law of Stock and Stockholders, as Applicable to Railroad, Banking, Insurance, Manufacturing, Commercial, Business, Turnpike, Bridge, Canal, and Other Private Corporations.

• Author: Conard, Alfred F.

Although William W. Cook is best known today as the donor of the University of Michigan Law Quadrangle, he was chiefly known during his active life as the author of the leading treatise on the law of corporations. First published in 1887, his treatise "became at once the standard work on corporation law," according to Cook's obituary notice in the Yearbook of the New York City bar.(1) A century later, when Morton Horwitz surveyed the evolution of corporation law in the late nineteenth and early twentieth centuries, he cited Cook more often than any other author of a treatise on corporations.(2)

Cook's writings on trusts, on industrial concentration, and on railroads grew out of his law practice, which began in New York City in 1882, shortly after his law school graduation, in the employment of Frederic B. Coudert.(3) Through the Coudert office Cook met John W. Mackay,(4) who had made a fortune in Nevada's Comstock lode and moved to New York in 1883(5) -- the same year in which Cook was admitted to the New York bar.(6) In 1884, Mackay co-founded the Commercial Cable Company, which laid a transatlantic cable from New York to London and the Continent.(7) When Western Union refused to relay Commercial Cable's messages in the United States, Mackay established the Postal Telegraph Company, and it proceeded to wage a price war with Western Union.(8)

Cook became Mackay's personal counsel,(9) and this association gave him the opportunity to make investments that were eventually worth millions of dollars.(10) Cook's philippic against monopolies and trusts(11) appeared at the time when Mackay was struggling to break the monopoly power of Western Union.(12) Coincidentally, the principal owner of Western Union was Jay Gould,(13) one of the notorious perpetrators of stock frauds(14) of the kind that Cook denounced in his treatise (pp. 23, 667).(15)

Mackay eventually linked Commercial Cable, Postal Telegraph, and other companies in the Mackay Companies, which owned the "entire capital stock of the Commercial Cable Co., and a majority of all of the capital stocks of a large number of telegraph, telephone, and cable companies in the United States, Canada and Europe, including the land line system known as the Postal Telegraph-Cable Co."(16) For many years prior to his retirement in 1921, Cook was general counsel for the Commercial Cable and Postal Telegraph Companies and for the Mackay Companies.(17)

COOK ON CORPORATIONS

Cook's major innovation in corporation theory was to recognize the corporate investor as a central figure of legal concern. He captured this view in the title of the first three editions of his treatise, which he called not Corporations, but Stock and Stockholders.(18) Before Cook, most authors treated private corporations less as associations of shareholders than as instruments of the state with their rights and liabilities defined by their charters.

The leading American treatise on corporation law before Cook was that of Joseph Angell and Samuel Ames, which had gone through eleven editions from 1832 to 1882.(19) Its plan of organization was very similar to that of a 1793 treatise published in London by Stewart Kyd.(20) Although Kyd purported to include joint stock companies, most of his text and citations related to nonprofit corporations that had neither stock nor stockholders. These nonprofit corporations had supplied most of the corporate litigation up to Kyd's time.

Angell and Ames's principal subjects of discussion were churches, charities, and universities, as Kyd's had been.(21) Later editions recognized that the rapid increase of "joint-stock corporations" called for separate attention,(22) but these editions included no distinct treatment of the joint stock corporation's attributes. Angell and Ames focused their attention on topics critical to religious and eleemosynary corporations such as means of creation -- prescription, common law, and legislative acts,(23) corporate capacity to acquire and alienate property,(24) and the necessity of a corporate seal to bind a corporation to a contract.(25) In these areas, the law was concerned with the relation between the corporation, viewed as a unit, and the state or outsiders with whom the corporation might deal. Angell and Ames paid scarcely and attention to the conflicting interests of a corporation's internal constituents -- its members and its managers.

Angell and Ames's text, even in the 1882 edition, remained singularly silent on the financial outrages that had occurred in railroad financing during the 1850s, 1860s, and 1870s.(26) Thousands of shares had been forged, thousands issued in violation of court orders, and thousands issued for face values far in excess of what was paid for them.(27) Angell and Ames's treatise made no mention of "stock watering," which had caused insolvencies and had probably accentuated the panics of 1857 and 1873. Their treatise gave a few pages to the rights of "members" to sue their corporations for payment of debts or dividends,(28) and to enjoin actions that are beyond the corporation's charter powers,(29) but Angell and Ames's text made no suggestion that a shareholder could sue on the corporation's behalf for officers' or directors' frauds or neglects.(30)

Some authors who preceded Cook made minor additions to the analyses of Kyd and of Angell and Ames.(31) George W. Field in 1877 introduced an exposition of the powers of directors;(32) Angell and Ames had mingled directors with other "agents" in their last edition.(33) Victor Morawetz in 1882 prophetically attacked the doctrine of ultra vires.(34) Although Cook's predecessors cited cases that arose out of the scandals of the 1850s, 1860s, and 1870s, their texts paid scant attention to the abusive practices that gave rise to the scandals.(35) Platt Potter captured the prevailing spirit of treatise writers of the age in the preface of his 1881 treatise when he wrote:

In the performance of this task, it may be needless to remark that no change in the established general principles of the law of corporations has been attempted; these principles, as found laid down in the elementary works of Blackstone and Kent, are unchanged, and will forever remain the same; they are expressed by those authors in the most simple language, and yet with classic elegance which no time will improve.(36)

No such deference to earlier authors infected the writing of William W. Cook. After recognizing that others had adequately developed some parts of the law of corporations, he observed:

As regards the important subject of Stock and Stockholders, however, there has been a singular deficiency in the text-books.... It was found that many of the most important and practical principles governing stocks had never been investigated and presented by law writers. [p. v]

Cook made it clear that it was his own analyses and his own opinions that entered into his treatise. He explained: "The plan of the work is original, and this volume is the result of a long and conscientious study of the sources of authority -- the cases themselves.... [The writer] has not hesitated to express his opinion when the occasion seemed to warrant it" (p. vi).

Cook's innovation was to focus on the rights of investors and on the abuse of investors by corporate promoters and managers. His novel title, Stock and Stockholders, signaled the change. The outrages that had been committed in railroad financing just before and after the Civil War made evident the need for a systematic approach to the rights of investors. By directing attention to the interests of investors, Cook initiated the orientation of corporation law toward the demands of capitalism.

In a radical departure from earlier literature, Cook opened his analysis of stock issuance with a vivid description of offensive practices, declaring:

It is no unusual thing for a newly organized railroad corporation to issue to a construction company, bonds and stock whose par value is many times the value of the construction work done.... Soon, however, default is made in the payment of the interest on the bonds, and this is followed by corporate insolvency, foreclosure, receivership, and reorganization. The issue of fictitiously paid up stock is the favorite device of corporate promoters, organizers, and manipulators, in carrying out their plans of realizing enormous gains from small investments, and in accumulating great fortunes at the expense of the public. [p. 23]

After this spirited introduction, Cook expounded the case law of stock issuance in prose as dull as any other legal writer's, but he introduced a new rationale for shareholders' liability. Unlike his predecessors, who had treated "capital stock" as merely the sum of shareholders' interests in the company,(37) Cook defined "capital stock" as "the sum fixed by the corporate charter as the amount paid in or to be paid in by the stockholders..." (p. 3), thus supplying a link between stockholding and liability. Cook's recognition of capital as a fixed sum enabled him to...