^Co^L UNIVERSITY LAW LIBRARY The Moak Collection PURCHASED FOR The school .of Law of Cornell university And Presented February .4, i893 IN riEnORY OF JUDGE DOUGLASS BOARDMAN •"^" P,„8T «M or THE SCHOOL By his Wife and Daughter ^.M.BOARDMAN and ELLEN D.W.LUAMS Corntll Unlvtrtlty Library KF 1448.T47 A traatlte on the liability of atockhold 3 1924 019 371 461 (Ilnrurll iCaiii i'djmil Sjibrary Cornell University Library The original of tiiis book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019371461 A TREATISE ON THE LIABILITY OF STOCKHOLDERS IN CORPORATIONS. BY SEYMOUR D. THOMPSON. ST. LOUIS: F. H. THOMAS AND COMPANY. 1879. 0^ \) ?> Entered according twraot of Oongresa, in the jpar 1879, by SBYMOUB D. THOMPSON, In the office of the Librarian of CongreBs, at Washington, St. Louis: Press of O. I. Jones cf Company, TO THE HONORABLE PHILEMON BLISS, LL.D, " The longer on this earth we live, And weigh the various qualities of men, ******* The more we see the stern, high-featured beauty Of plain devotedness to duty. Steadfast and still, nor paid with mortal praise; But finding amplest recompense For life's ungarlanded expense In work done squarely and unwasted days. For this we honor him." PREFACE. This Essay is the result of an attempt to write for the Southern Laxo Review an article on the Liability of Stock- holders. From the fact that the subject had been embraced in a single chapter in the work of Angell and Ames on Corporations, and that Field, in his later work, had not even made it the subject of a distinct chapter, I concluded that the salient points of it could be presented in a maga- zine article. A hasty search, however, discovered to me that it was one of the most litigated topics in the Law of Corporations, that this litigation is constantly expanding in this country, and that in England probably more than half the decisions arising under the Companies Acts are under petitions to charge shareholders in winding-up proceedings. I saw that the space which the writers of existing works on Corporations had been able to devote to this subject — with the exception, perhaps, of the very able work on Partnership by Sir Nathaniel Lindley — was insufficient to convey any adequate idea of the state of the law relating to it. I therefore determined to gather together all the deci- sions bearing upon the subject ; to bestow upon each sepa- rate topic connected therewith an attentive consideration ; and not to limit myself in the matter of space, but, in the best arrangement which I could devise, to treat every topic in detail. The result is that I have been obliged to exam- ine attentively and state, the doctrine of nearly 1,300 cases, (V) Vi PREFACE. and that I have found it expedient, for the proper presenta- tion of the subject, to divide it into twenty-two chapters. I found that not only in England, but in most of the American States, the subject is largely controlled by stat- utes and constitutional provisions. I caused these to be collated, intending to publish them as an appendix, but the unexpected size which this essay has reached renders it impracticable to print them in full. Instead of doing this, I have set them out in the notes in the body of the essay wherever it seemed necessary that the exact language of the statute should appear in order to give the correct understanding of some decision, or line of decisions, turning upon it. In respect of the liability of stockholders, or share- holders, as they are termed in England, there seems to be no substantial difference between an American corporation, organized without the "individual liability" of some of the States, and an English limited company. In each case, the company being wound up, the shareholder is compelled to pay what he owes on account of his shares, or so much thereof as may be necessary, for the purpose of liquidating the debts of the concern. I found the English books rich in decisions upon questions where our books are silent, and discovered that those decisions are frequently quoted as persuasive authority by our own courts. I have therefore gone largely into the English cases, but in doing so have not failed to note that the American courts proceed upon cer- tain theories which do not obtain in the courts of England. With us the capital stock of a corporation is, in the contem- plation of a court of equity, a trust-fund for the payment of its creditors ; ^ but I can find no distinct traces of such a » Fo3t, 1 10. PREFACE. Vn doctrine in the English books. Nearly all the proceedings in the American courts to charge stockholders are on behalf of creditors who are not stockholders themselves. But the object of a winding-up proceeding in England appears to be for the most part to create equality among shareholders.^ This is especially true in cases of companies of unlimited liabihty, where a creditor can make his whole debt out of any solvent shareholder he can find. In the American courts a doctrine obtains similar to that which obtains with reference to the liability of partners. A person who suffers himself to be held out as a shareholder in a corporation, so that credit has been given to the corporation on the faith of his liability as such, is concluded, when proceeded against by the creditors of the concern, from changing his position and denying that relation.^ This doctrine formerly obtained in England, where shareholders in joint-stock companies were treated as partners, but has passed almost wholly out of sight in the recent decisions in that country. With us, a receiver or assignee of an insolvent corporation repre- sents creditors, and can assert against the shareholders any right which the creditors could assert if proceeding directly against them. But the official liquidator of a company in England can only charge shareholders in the right of the company, and he cannot bring any thing into the assets of the company, for the payment of its debts, which the com- pany could not have brought in while a going concern.^ With us, a man who agrees to take shares, or who receives them when allotted to him, must pay for them.* He can- not share the benefits without shouldering the burdens, and 1 Post, II 196-199. » Post, II 160-175. » Post, II 133, 199. * Post, i 105. Vin PREFACE. our courts discharge and avoid all collateral agreements not to pay, and all devices to avoid payment.^ ■ But in England, if a man agrees to receive only " paid-up shares," although the transaction exhibits the very essence of fraud, he can- not be made to pay for them. His agreement stands or falls as an entirety. If it is valid, he cannot be made to pay, because it was agreed that he should not pay ; if it is void, he cannot be made to pay, because he is not a share- holder.^ In the view of our courts, a conveyance of shares in a failing company to an insolvent person is deemed a fraud upon the rights of creditors, and void.' But in England such a conveyance is valid if out and out, and not a mere sham.* In other words, if it actually passed title as between the transferor and the transferee, so that the latter does not continue to hold merely as a trustee for the former, and subject to his orders, it is a good transfer, no matter with what intent made. 1 think these references will be sufficient to show that the American courts, in asserting the rights of creditors of corporations against their stockholders, proceed upon higher and clearer grounds of equity than the courts of England. In reading the English cases, I have been impressed with the conclusion that the English equity judges of first instance, — the Masters of the EoUs, particularly Lord Eomilly when he held that office, and the Vice-Chancel- lors, — in dealing with these questions, endeavored to up- hold the sound maxims of equity, and that their efforts were, to a considerable extent, broken down and discour- aged by the Court of Appeal in Chancery, and even by the ' Post, II 119, 121-126. 2 Post, I 133. » Post, I 215. ♦ Post, \l 211-214, PREFACE. IX House of Lords. I have also been impressed with the conclusion that the decisions of the English courts of law, in the few cases upon this subject which have been decided there, exhibit a higher appreciation of the principles of honesty than that exhibited by the courts of equity of the same country. Perhaps, in justification of this statement, I need do no more than ask the reader to compare the judgment of Lord Campbell in Henderson v. The Royal British Bank^ with that of Lord Justice James in Car- ling's Case.^ I may be wrong in these impressions ; they have grown upon me gradually, and, if asked to do so, I could not very definitely point out the sources of them. Possibly they are the insensible result of comparing excep- tional cases, or classes of cases. On most questions the decisions of those courts convey to us the soundest instruc- tion. It would be difficult to suggest any improvement upon the doctrine of these courts upon such subjects as collusive forfeiture of shares ;^ transfers to infants,* to mar- ried women,® or to the company itself; ' the efiiect of bank- ruptcy ^ or death * upon the liability of shareholders ; and the principles upon which courts of equity should decree contribution in winding-up proceedings.' In entei'ing thus largely upon the discussion of English cases, I have en- deavored constantly to remind the reader of the distinctive theories upon which the courts of that country and those of this country proceed. 1 Post, I 149. 2 1 Ch. Div. 115; post, ? 133. 3 Post, II 194, 195. * Post, I 229. 5 Post, I 233. 6 Post, II 234-240. ' Post, II 243-245. 8 Post, i? 24=1-253. 9 Post, II 97, 98, 377. X PREFACE. The words shareholder and stockholder mean the same thing, and in the following pages are used interchangeably, as indeed they are in most of the American books. The word contributory is used in the English Companies Acts to designate any person who, in the character of a share- holder, is required, in the winding-up of a company, to contribute his proportion of the fund necessary for the liq- uidation of its debts. I have sometimes used this word in an equally general way as applied to American corpora- tions. Thus used, it has a convenient and definite mean- ing, and avoids a circumlocution. After I had commenced writing this essay, Jacob Klein, Esq., of the St. Louis bar, very kindly placed in my hands a manuscript digest of the American cases relating to the subject, prepared under his direction, for Ms professional use, by William E. Fisse, Esq., of the same bar. This digest proved to be quite accurate, methodical, and com- plete, and enabled me to gather up a number of decisions which, notwithstanding the attentive search I had previ- ously made, might otherwise have been overlooked ; and I desire to express my thanks for its assistance. I will state, in conclusion, that there are statutes in many of the States making the directors and other officers of a corporation liable to certain penalties for official de- faults. I have alluded to tliis liability only in an incidental way. If this essay is well received and found useful to the profession, I may write a monograph upon that subject hereafter. S. D. T. St. Louis, March, 1879. TABLE OF CONTENTS. PART I. Of the Natueb ajtd Extent of the Liability of Stockholders. CHAPTER I. Section Of the Nature of Corporations, and the Liability OP their Members in Equity 1-21 CHAPTER n. Of the Nature op the Liability op Stockholders under particular statutes 25-45 I. Joint and several lAability as Partners. II. Joint and several Liability as Guarantors, III. Limited several Liability. TV. Unlimited several Liability. CHAPTER HI. Construction op Statutes making Stockholders per- sonally Liable for the Corporate Debts . . . 50-62 CHAPTER IV. Constitutional Questions arising under such Statutes 65-76 CHAPTER V. Extra-territorial Force op such Statutes . . . 80-86 (xi) XU TABLE OP CONTENTS. CHAPTER VI. Section To WHAT Class of Shareholders Liability attaches ; Present and past Members 90-102 PAKT II. In what Manner and bt whom this Liability is incurred. CHAPTER VII. Section Bt an original Contract to take Shares .... 105-139 CHAPTER VIII. Of the Effect of Fraud or Mistake upon the Con- tract of Subscription and the Liability of Stock- holders 142-156 CHAPTER IX. Op Conduct estopping the Actor from denying the Eelation of Stockholder 160-175 CHAPTER X. Of the Status and Liability of Legal and Equitable Proprietors 177-183 PART III. Of the Manner in which this Liability is divested. CHAPTER XI. Section By Breach of Contract of Subscription .... 186-190 TABLE or CONTENTS. XIU CHAPTER XII. Section Bt Forfeiture of the Shares or Release or the Shareholder by Act op the Corporation . . . 193-207 CHAPTER XIII. By Transfer 210-240 I. Of Transfers in General; and herein of fraudulent, ultra vires, and unregistered Transfers. II. Of Transfers to Persons incapable of taking. CHAPTER XIV. By Bankruptcy 243-245 CHAPTER XV. By Death 248-254 PART IV. Of Remedies, Proceduke, and Defences. CHAPTER XVI. Section Of the Forum — When in Equity and when at Law 258-277 CHAPTER XVII. Of Statutes of Limitation 281-307 I. General Doctrines. n. When the Statute begins to run. III. Of certain special Statutes. CHAPTER XVIII. Of Conditions precedent to the Right to proceed against Stockholders 310-337 XIV TABLE OF CONTENTS. CHAPTER XIX. Section Of Parties 340-461 I. Wlio may sue. II. Joinder of Parties. CHAPTER XX. Or CEKTAiN Questions of Procedure and Etidencb 365-377 CHAPTER XXI. Of certain Defences to Actions against Stock- holders 880-417 I. Defence of Payment, Set-off, arid Release. II. Other Defences. CHAPTER XXII. Priorities among Creditors 420-426 TABLE OF OASES OITED. Abbott V. Aspinwall, 26 Barb. 202, JJ 37, 319, 408, 413. V. Smith, 2 "W. Bla. 949, J 26. Accidental, etc., Ins. Corp. {In re), L. R. 5 Ch. 428, I 97. Adair i.. Shaw, 1 Sch. & Lef. 262, J 13. Adderly v. Storm, 6 Hill, 624, JJ 94, 223. Adler v. Milwaukee Patent Brick Co., 13 "Wis. 57, II 10, 11, 13, 15, 353, 367. Adley v. Whitstable Co., 17 Ves. 324, I 8. Alford V. Miller, 32 Conn. 543, J 205. Allen V. Graves, L. R. 5 Q. B. 478, § 217. V. Montgomery R. Co., 11 Ala. 437, II 10, 11, 14, 15, 193, 199, 210, 265, 368. V. Sewall, 2 Wend. 327, ?| 27, 94, 274, 349. Allibone v. Hager, 46 Pa. St. 48, H 125, 283, 291. Allin's Case, L. R. 16 Eq. 449, I 211. Alsop V. Mather, 8 Conn. 584, § 251. American Bank v. Doolittle, 14 Pick. 126, 2 393. Anderson's Case, L. E. 3 Eq. 357, J 395. Andover, etc., T. Co. v. Gould, 6 Mass. 40, II 105, 193. Andrew's Case, L. R. 4 Eq. 458 ; s. c, L. R. 3 Ch. 161, I 97. Andrews v. Callender, 13 Pick. 484, II 44, 254, 376, 391. V. Murray, 33 Barb. 354, J 84. V. Ohio, etc., R. Co., 14 Ind. 169, §142. Angas's Case, 1 De G. & Sm. 560. Archer v. Rose, 3 Brews. 264, JJ 58, 342. Armstrong v. Hayward, 6 Cal. 185, § 393. Arnold v. Euggles, 1 R. I. 165, § 248. Arthur v. Commercial, etc.. Bank, 9 Smed. & M. 430, I 282. Ashton V. Burbank, 2 Dill. 435, H 70, 193. Ashworth v. Bristol, etc., R. Co., 15 L. T. (n. s.) 561, II 130, 224. Askno's Case, L. R. 9 Ch. 664, g 153. Aspinwall v. Torrance, 1 Lans. 381, § 376. Astor V. Wells, 4 Wheat. 466, § 240. Atoherson v. Troy, etc., E. Co., 6 Abb. Pr. (n. s.) 329; s. c, 1 Abb. App. Dee. 13, 2 330. Athenaeum Life Ins. Co. {In re), 4 Kay & J. 459, ? 405. V. Pooley, 1 Giff. 102 ; 5 Jur. (n. s.) 129, § 406. Attorney-General v. Aspinwall, 2 Myl. & Cr. 625, 1 15. );. Corporation of Leicester, 7 Beav. 176, 2 15. V. Kell, 2 Beav. 575, I 15. Austin V. Underwood, 37 HI. 441, 1 101. Austin's Case, L. R. 2 Eq. 435, ? 137. Ayre's Case, 25 Beav. 513, | 146. Bacon d. Robertson, 18 How. 480, § 3. Baglan Hall Colliery Co. {In re), L. R. 5 Ch. 346, I 130. Bailey v. Bancker, 8 Hill, 188, §J 262, 336, 346. V. Macauley, 19 L. J. (Q. B.) 73, 2167. (XV) XVI TABLE OF CASES CITED. Baird's Case, L. K. 5 Ch. 725, |§ 249, 250. Baker v. Atlas Bank, 9 Mete. 192, JJ 10, 281, 285, 296. V. Braman, 6 Hill, 47, J 415. Baker's Case, L. R. 7 Ch. 115, J2 228, 232. Ballston Spa Bank v. Marine Bank, 18 Wis. 490, i 366. Banet v. Alton, etc., E. Co., 13 111. 504, 2§ 105, 116. Bank of Attica ». Manufacturers', etc.. Bank, 20 N. Y. 501. Bank of Columbus v. Bruce, 17 N. T. 507, 2 237. Bank of Hindustan v. Alison, L. E. 6 C. P. 54, i 172. Bank of Muskingum v. Carpenter's Admrs., 7 Ohio, pt. 1, J 421. Bank of Poughkeepsie v. Ibbotson, 24 Wend. 473, §§ 37, 265, 266, 267, 271, 311, 349. Bank of St. Marys v. Powers, 25 Ala. 612, 2 10. V. St. John, 25 Ala. 566, §J 13, 15, 18, 19, 80, 352. Bank of United States v. Dallam, 4 Dana, 674, §§ 265, 266, 320, 365. V. Dandridge, 12. Wheat. 71, J 369. V. Daniel, 12 Pet. 132, ? 145. V. Davis, 2 Hill, 451, § 240. Bank of Utica v. Smalley, 2 Cow. 770, S 217. V. Wagner, 2 Cow. 712, ? 210. Banks v. Mitchell, 8 Yerg. Ill, | 262. Barber's Case, 5 Ch. Div. 963, § 137. Bargate v. Shortridge, 5 H. L. Cas. 297, 5§ 199, 412. Barker v. Buttress, 7 Beav. 134, | 97. V. Haskell, 9 Cush. 218, § 400. V. Stead, 3 C. B. 946, ^ 167. Barnett v. Lambert, 15 Mee. & W. 489, J 167. Barnett's Case, L. E. 19 Eq. 449, J 382. Baron De Belville's Case, L. E. 7 Eq. 11, 5J 126, 130, 132. Barrett's Case, 8 De G. J. & S. 80, g 146. Barry v. Merchants' Exchange Co., 1 Sandf. Ch. 280, ?§ 11, 19. Bartlett v. Pentland, 1 Barn. & Add. 704, U 2, 331. Barton v. Plank-road Co., 17 Barb. 397, i 237. Bassett v. St. Albans Hotel Co., 47 Vt. 313, gj 10, 11, 34, 56, 281, 293. Basshoru. Forbes, 36 Md. 154, g 75. Beach v. Smith, 28 Barb. 254, J 107. Beckett v. Houston, 32 Ind. 393, ?J 105, IDS. Bedford E. Co. v. Bowser, 48 Pa. St. 37, 2 195. Beene v. Cahawha, etc., E. Co., 8 Ala. 660, ?J 105, 193. Beers v. Haughton, 9 Pet. 359, J 73. V. Waterbury, 8 Bosw. 396, JJ 262, 386. Belcher v. Wilcox, 40 Ga. 391, §? 40, 392, 423. Belhaven's Case, 11 Jur. (n. s.) 572, §195. Bell's Case, 22 Beav. 35, J 155. Belmont v. Coleman, 21 N". Y. 96 ; s. c, 1 Bosw. 188, II 329, 330, 336. Bend v. Susquehanna Bridge Co., 6 Har. & J. 128, g 210. Bennett [Ex parte), 18 Beav. 339, J 211. Bennett's Case, 5 De G. M. & G. 284; s. t., 8 Beav. 339, § 216. Beresford's Case, 2 Mac. & G. 917, ?§ 193, 196. Bernard's Case, 5 De G. & Sm. 283, J 156. Berthold v. Goldsmith, 24 How. 536, 5168. Besley [Ex parte), 2 Mac. & G. 176 ; a. c, 2 Ha. & Tw. 375, § 167. Bethuue v. Dougherty, 30 Ga. 770, | 299. Bigelow V. Congregational Society of Middletowu, 11 Vt. 283 ; 15 Vt 370, U 8, 9. V. Elliot, 1 Cliff. 88, § 168. Biggs's Case, L. E. 1 Eq. 309, | 199. Bill V. Eichards, 2 H. & N. 311 ; 8 Jur. (n. s.) 520; 26 L. J. (Exch.) 409, 1 332. TABLE OF CASES CITED. XVll Binglinm v. Rushing, 5 Ala. 406, JJ 80, 258, 265, 277. Bird V. Hayden, 1 Rob. 383 ; s. c, 2 Abb. Pr. (n. s.) 61, I 84. Birminghiim Bnnk v. Keck, 55 How. Pr. 222, ? 400. Birmingham National Bank v. Mosser, 4 Hun, 60.5, ?? 301, 318. Birrell v. Schie, 9 Cal. 104, J 101. Bish V. Bradford, 17 Ind. 490, | 142. Bishop's Case, L. K 7 Ch. 296, H 211, 213. Black V. Zacharie, 3 How. 4S3, I 217. Black & Co.'s Case, L. R. 8 Ch. 254, l\ 382, 383, 384, 386. Black River, etc, R. Co. v. Clarke, 25 N. Y. 208, I 107. Blackburn's Case, 8 De G. M. & G. 177, I 111. Blackman v. Central R. Co., 58 Ga. 189, 2 360. Blake v. Blake, 19 Iowa, 268, J 1. II. Hinkle, 10 Yerg. 218, H 265, 311, 312, 317, 319. Blakeley's Executor's Case, 13 Beav. 133, 3 Mac. & G. 726, I 249. Blodgett V. Morrill, 20 Vt. 509, |f 122, 124. Bloxam's Case, 33 Beav. 529, I 109. Bodwell !/. Eastman, 106 Mass. 525, 2 2. Bogardus v. Rosendale Man. Co., 7 N. Y. 151, II 85, 265. Bohn V. Brown, 33 Mich. 257, H 53, 58, 334. Bonaffe v. Fowler, 7 Paige, 576, H 3, 335. Bond V. Appleton, 8 Mass. 472, H 34, 83, 90, 91, 210, 271. Bonsall v. Taylor, 1 McCord, 503, § 374. Booe V. Junction R. Co., 10 Ind. 93, J 70. Booth V. Campbell, 37 Md. 522, J 38. Bosanquet v. Shortridge, 4 Exch. 699, II 169, 217, 220. ' Boston Acid Co. v. Moring, 15 Gray, 211, I 408. Bouchaud v. Dias, 3 Denio, 238, ^ 373. Boughton V. Otis, 21 N. Y. 261, I 84. Bourne v. Freeth, 9 Barn. & Cress. 632 ; c. c, 5 Man. & R. 126, J 199. Bowas V. Pioneer Tow Line, 2 Saw- yer, 21, I 168. Boyd V. Hall, 56 Ga. 563, H 349, 381. Boynton v. Hatch, 47 N. Y. 225, J 127. Bracken v. Kennedy, 4 111. 558, I 262. V. Miller, 4 "Watts & S. 102. \ 240. Bradley v. Eyre, 11 Mee. & W. 432 ; a. c, 1 Dow. & L. 260 ; 12 L. J. (Exch.) 450, 5 332. V. Urquhart, 2 D. (n. s.) 1042, § 332. V. Warburg, 11 Mee. & W. 452 ; 2 D. (n. s.) 1059 ; 12 L. J. (Exch.) 458, § 332. Brainard v. Jones, 18 IST. Y. 35, J 374. Branch v. Baker, 53 Ga. 512, §J 40, 41, 270, 365. Brayton v. New England Coal Mining Co., 11 Gray, 493, § 403. Brett V. Beales, 1 Moo. & M. 416, g 371. Brett's Case, L. R. 6 Ch. 804, JJ 90, 97. Brewster v. Hartley, 37 Gal. 15, J 137. Bridger's Case, L. R. 4 Ch. 266 ; L. R. 9 Eq. 74, J§ 97, 122, 123, 136, 193. Briggs {Ex parte), L. R. 1 Eq. 483, J 143. Briggs V. Penniman, 8 Cow. 395, J^ 10, 11, 16, 17, 267, 310, 374, .381, 386, 422. Brigham v. Mead, 10 Allen, 245, JJ 105, 217. Brighton Arcade Co. v. Dowling, L. R. 8 C. P. 175, ?§ 382, 383, 384. Brightwell v. Mallory, 10 Yerg. 196, ii 210, 24S. Brinham v. Wellersburg Coal Co., 47 Pa. St. 49, 55 4, 56, 263, 271, 376. Brinkerhoff v. Brown, 6 Johns. Ch. 139, 5 368. Bristol V. Sandford, 12 Blatchf. 341, g 342. Bristol Canal Co. u. Amos, 1 Mau. & Sel. 569, 2 370. XVUl TABLE OP CASES CITED. Brockwell's Case, 4 Drew. 205, ? 155. Bronson v. La Crosse E. Co., 2 Wall. 283, i 360. Brookville Turnpike Co. v. MoCarty, 8 Ind. 392, § 407. Brotherhood's Case, 4 De G. T. & J. 566, 2 194. Brouwer v. Appleby, 1 Sandf. S. C. 170, J2 108, 206. Brouwer v. Hill, 1 Sandf. S. C. 629, ? 206. Brown {Ex parte), 19 Beav. 97, § 217. Brown V. Ayer, 24 Ga. 288, § 393. V. Cooke, 4 N. Y. 51, ? 206. V. Nichols, 42 N. Y. 26, J 366. V. Union Ins. Co., 3 La. An. 182, §J 3, 276, 294. Brown's Case, L. E. 9 Ch. 102, ?? 137, 138. Brownlee v. Ohio, etc., E. Co., 18 Ind. 68, ?2 142. 412. Broyles v. McCoy, 5 Sueed, 602, §§ 4, 5, 26. Bryden v. Taylor, 2 Har. & J. 396, J 352. Budd's Case, 3 De G. P. & J. 297, §? 211, 213. Buffalo, etc., E. Co. v. Cory, 6 N. Y. 75, §? 407, 413. V. Dudley, 14 N. Y. 386, §J 105, 142, 188. V. Pottle, 23 Barb. 21, ^ 116. BuUard v. Bell, 1 Mason, 289, J 285. V. Kinney, 10 Cal. 60, J 2. Bulmer's Case, 33 Beav. 435, JJ 249, 251. Bunn's Case, 2 De G. P. & J. 275, J 203. Burke v. Dublin Trunk, etc., E. Co., 37L. J. (Q. B.) 50; s. c, 16 W. E. 107 ; L. E. 3 Q. B. 47, § 332. V. Smith, 16 Wall. 390, JJ 10, 116, 117, 194. Burkinshaw v. NichoUs, 26 W. E. 821, JJ 130, 133. Burlington, etc., E. Co. v. Boestler, 15 Iowa, 555, § 116. Burlinson's Case, 3 De G. & Sm. 18, J 233. Burmester v. Nprris, 6 Exch. 796, g 186. Burnett v. Lynch, 5 Barn. & Cress. 589, § 217. Burns v. Pennell, 2 H. L. 520, ? 2. V. Thayer, 101 Mass. 426, § 101. Burr V. Wilcox, 22 N. Y. 551, JJ 105, 106, 178, 374. Burrows v. Smith, 10 N. Y. 550, g 117. Burt V. Parrar, 24 Barb. 518, ? 120. Butler V. Cole, 43 Me. 401, J 424. V. Cumpston, L. E. 7 Eq. 16, ?233. Bwlch-y-Plwm Mining Co. v. Baynes, L. E. 2 Exch. 324, § 149. Byers v. Pranklin Coal Co., 106 Mass. 131, 2 60. Cable V. McCune, 26 Mo. 371, JJ 54, 57, 58, 84. Cabot & West Springfield Bridge v, Chapin, 6 Cush. 50, § 120. Cadle V. Baker, 20 Wall. 650, ? 417. Calder v. Bull, 3 Dall. 386, § 52. Calhoun v. King, 5 Ala. 523, g 13. Calisher's Case, L. E. 5 Eq. 214, J§ 382, 384. Callender v. Painesville, etc., E. Co., 11 Ohio St. 516, J 413. Cambridge Water-Works v. Somer- ville Dyeing Co., 14 Gray, 193 ; s. c, 4 Allen, 239, §J 265, 312, 317, 368. Camden v. Doremus, .3 How. 533, | 295. Came v. Brigham, 39 Me. 35, J J 270, 328, 329, 369. Camp V. Byrne, 41 Mo. 525, J? 413, 414. Cape's Executors' Case, 2 De G. M. & G. 573, ii 2, 210. Capper's Case, L. E. 3 Ch. 458, ?§ 211, 228, 229. Carlen v. Drury, 1 Ves. & Bea. 154, §3. Carling's Case, 1 Ch. Div. 115, J§ 133, 134, 199. Carlisle v. Evansville, etc., E. Co., IS Ind. 477, § 121. V. Terre Haute, etc., E. Co., 6 Ind. 316, I 70. TABLE OF CASES CITED. XIX Carpenter v. Marine Bank, 14 Wis. 705, 52 260, 274, 851, 853, 356, 360, 361. Can- ». Le Pevre, 27 Pa. St. 413, gj 128, 134. Carrol v. Green, 92 U. S. 509, J§ 281, 285, 286. V. Hinkley, 46 Me. 81, I 62. Carver v. Braintree Man. Co., 2 Story, 432, II 51, 57, 94. Caryl v. McElrath, B Sandf. S. C. 176, ' § 203. Castellan v. Hobson, L. E. 10 Eq. 47, 52 211,217. Castello's Case, L. E. 8 Eq. 504, JJ 90, 229. Castleman v. Holmes, 4 J. J. Marsh. 5, II 37, 40, 101, 228, 259, 265, 353. Catlin V. Eagle Bank, 6 Conn. 233, § 15. Caustenu. Burke, 2 Har. & G. 295, §262. Cazeau v. Mali, 25 Barb. 578, I 142. Chadwick v. Clarke, 1 C. B. 700, g 262. Chaffin V. Cummings, 37 Me. 76, Jg 105, 106, 107, 165. Chamberlain v. Huguenot Co., 118 Mass. 536, H 56, 312, 369, 400. Chambersburg Ins. Co. v. Smith, 11 Pa. St. 120, I 220. Champion u. Memphis, etc., E. Co., 35 Miss. 692, J 190. Chapman's Case, L. E. 2 Eq. 567, I 137. Chapman & Barker's Case, L. E. 3 Eq. 361, I 179. Chappell's Case, L. E. 6 Ch. 902, g 211. Chappie's Case, 5 De G. & Sm. 400, 244. Chase v. Abbott, 20 Iowa, 154, J 101. V. Merrimack Bank, 19 Pick. 564, 55 105, 106, 164. V. Sycamore, etc., R. Co., 38 HI. 215, 55 116, 370, 371. Oheetham ». "Ward, 1 Bos. & Pul. 633, 5 393. Cheltenham, etc., E. Co. v. Daniel, 2 Q. B. 281, 5 199. Cherry v. Lamar, 58 Ga. 541, 55 287, 291. Ohesley ». Pierce, 32 N. H. 388, 55 95, 106, 107. Chester Glass Co. v. Dewey, 16 Mass. 94, 55 106, 193. Child V. Coffin, 17 Mass. 64, 55 90, 91, 219, 254. Chinnock's Case, Johns. (Eng. Ch.) 714, 55 211, 214. Chouteau Spring Co. v. Harris, 20 Mo. 382, 55 1, 210, 217. Christmas v. Eussell, 6 Wall. 290, 5 287. Chubb V. Upton, 95 U. S. 665, 55 105, 143, 189, 407. Clark's Executor's Case, Eailly's Al- bert Arbitration Cases, 223, 5 98. Clem V. Newcastle, etc., E. Co., 9 Ind. 488, 5 121. Cleveland v. Marine Bank, 17 Wis. 545, 55 265, 356, 360, 361. Clowes V. Brettel, 11 Mee. & W. 461 ; s. c, 2 D. (n. s.) 1020; 7 Jur. 219; 12 L. J. (Exoh.) 302, 5 382. Coates's Case, L. E. 17 Eq. 169, 5 130. Coburn v. Boston Papier Mach^ Co., 10 Gray, 243, 5 400. Coffin V. Collins, 17 Me. 440, 5 371. V. Eich, 45 Me. 511, 55 4, 50, 53, 62, 65, 80. Cohen V. Mutual Life Ins. Co., 50 N. Y. 610, 5 318. Cole V. Butler, 43 Me. 401, 55 374, 375, 425. V. Eyan, 52 Barb. 168, 55 105, 210. Coleman v. Spencer, 6 Blackf. 197, 5 217. V. White, 14 Wis. 700, 55 37, 260, 274, 351, 353, 356, 360, 361. Collamer v. Poster, 26 Vt. 754, 5 262. College of Physicians v. Harrison, 9 Barn. & Cress. 524, 5 62. Colquit V. Howard, 11 Ga. 556, 5 7. Commonwealth (The) v. Cochituate Bank, 3 Allen, 42, 55 65, 73, 281. Conanti). Van Schaick, 24 Barb. 87, 55 31, 71, 334, 336. Conklin v. Purman, 57 Barb. 484, 55 34, 292. XX TABLE OF CASES CITED. Connecticut, etc., R. Co. v. Bailey, 24 Vt 465, IJ 103, 114, 121. Conro v. Port Henry Iron Co., 12 Barb. 27, J 1. Oonroy v. Sullivan, 44 HI. 451, ? 57. Cooper V. Frederick, 9 Ala. 738, § 237. Corning v. McCuUough, 1 N. T. 47, ^ 31, 34, 71, 274, 281, 285. Cornwall «. Eastham, 2 Bush, 561, ? 352. Costello's Case, 2 De G. F. & J. 302, J5 211, 214. Cottle {Ex parte), 2 ilac. & G. 185, J 167. Courtcis V. Harrison, 12 How. Pr. 359 ; s. c, 3 Abb. Pr. 96 ; 1 Hilt. 109, I 366. Cowles V. Cromwell, 25 Barb. 413, J 210. Cox's Case, 33 L. J. (Ch.) 145; 4 De G.J. &S. 53, §5 ISl, 211, 240. Cox V. Gould, 4 Blfttcbf. 342, |5 60, 301, 406. Crease ». Babcock, 23 Pick. 334 ; s. c, 10 Jletc. 525, IJ 37, 39, 42, 177, 223, 351, 365, 374. Credit Foncier & Mobilier of Eng- land [Ex parte), L. R. 7 Ch. 161, ?234. Creed v. Lancaster Bank, 1 Ohio St. 1, I 228. Creyke's Case, L. R. 5 Ch. 63, J 193. Crocker u. Crime, 21 "Wend. 218, § 120. Cromford, etc., E. Co. ». Lacey, 3 Tou. & Jer. 80, I 163. Cross V. Sackett, 2 Bosw. 617, g 142. Crossman v. Penrose Ferry Bridge Co., 26 Pa. St 69, I 142. Croxton's Case, 1 De G. il. & G. 600, J 210. Crump V. United States Mining Co., 7 Gratt. 353, J 142. Crusader (The), 1 Ware, 441, J 168. CucuUu V. Union Ins. Co., 2 Rob. (La.) 571, I 276. Culver ». Third National Bank, 64 ni. 528, II 266, 268, 270, 349. Cummings «. Maxwell, 45 Me. 190, JJ 270,' 287. Cunningham v. Edgefield, etc, R, Co., 2 Head, 23, §| 121, 142, 144. Curran v. Arkansas, 5 How. 311, JJ 3, 10, 11, 18, 20. 71. Currie (Ex parte), 32 L. J. (Ch.) 57 ; s. c. 3 De G. J. & S. 367 ; 7 L. T. (X. s.) 486, 15 98, 133, 134, 138, 224. Currier v. Lebanon Slate Co., 56 N. H. 262, Jl 205, 234, 237. Curry v. Woodward, 53 Ala. 371, 5| 3, 10, 119, 277, 282, 291, 294. 350. Curtis V. Harlow, 12 Mete. 3, 5| 92, 99. Custar V. Titusville, etc, Co., 63 Pa, St. 381, 2 142. Cutter V. Middlesex Factory, 14 Pick. 483, 1 193. Dana «. Bank of United States, 5 Watts & S. 247, ? 1. Dane v. Dane Man. Co., 14 Gray, 489, §5 50, 254. V. Young, 61 Me. 160, J| 40, 217, 311, 340, 365. Daniel v. Royal British Bank, 1 H. & N. 681, '51 149, 219. Daniell's Case, 22 Beav. 43, JJ 129, 211, 234, 236. Dartmouth College v. Woodward, 4 Wheat. 636, JJ 1, 65. Dauchy v. Brown, 24 Vt 197, |§ 56, 211, 312, 313. Davidson v. Rankin, 34 Cal. 503, |J 32, 34, 53, 94, 254, 292. Davidson's Case, 8 De G. & Sm. 21, J J 122, 123. Dawes's Case, L. R. 6 Eq. 232, |J 193, 195. Dayton v. Borst, 81 N. Y. 435, ^ 105, 340, 853. Dayton, etc., R. Co. v. Hatch, 1 Dis- ney, 84, JJ 1, 116, 164. Delaware, etc. Canal Co. v. Sansom, 1 Binn. 70, § 105. Dellinger v. Tweed, 66 N. C. 206, { 57. Deming v. Bull, 10 Conn. 409, JJ 29, 90, 92, 272. De Mony 0. Johnston, 7 Ala. 51, | 258. TABLE OP CASES CITED. XXI Denny v. Kichardson, 4 Gray, 274, J 403. Dent's Case, L. R. 15 Eq. 407, g 129. Denton v. Livingston, 9 Johns. 96, g 248. De Pass's Case, 4 De G. & J. 544, JJ 210, 211, 213. Deposit, etc., Co. v. Ayscougli, 6 El. & Bl. 761 ; s. c, 2 Jur. (n. s.) 812, 5 149. Deraismes v. Merchants' Mutual Ins. Co., 1 N. Y. 371, § 208. Derrickson v. Smith, 27 N. J. L. 166, ii 82, 84. Devaynes v. Noble, 1 Meriv. 528 ; s. c, 2 Euss. & M. 495, § 254. Devereux v. Kilkenny, etc., E. Co., 1 L. M. & P. 788 ; ». c, 5 Exoh. 834; 15 Jur. 1028; 20 L. J. (Exch.) 37, I 332. Dick V. Balch, 8 Pet. 33, g 373. Dickenson v. Valpy, 10 Barn. & Cress. 128, §2 160, 199. Dillon V. Bryne, Cal. 455, § 101. Directors v. Kisch, L. K. 2 H. L. 99, §2 142, 155, 199. Disderi & Co. {In re), L. E. 11 Eq. 242, § 138. Diven v. 'Lee, 36 N. T. 302, JJ 56, 256. Dix V. Briggs, 9 Paige, 595, g 351. Dixon's Case, L. E. 5 Oh. 79, JJ 196, 197. Dobson's Case, L. E. 1 Ch. 231, J 251. Dodge V. Minnesota, etc., Co., 16 Minn. 368, 22 34, 349. Dodgson V. Scott, 2 Exch. 457 ; s. u., 6 Dow. & L. 27 ; 5 Eail. Cas. 654 ; 12 Jur. 521; 17 L. J. (Exch.) 321, 22 90, 93, 97. Dodgson's Case, 3 De G-. & Sm. 85, 2156. Doman's Case, 3 Ch. Div. 21, 2 217. Doncaster, etc.. Building Society (fn re), L. R. 3 Eq. 158, 2 95. Donworth v. Coolbaugh, 5 Iowa, 300, 2 829. Dooley v. Cheshire Glass Co., 15 Gray, 494, ii 369, 408, 413. Dorr V. Shaw, 4 Johns. Oh. 17, 2 323. Dossett V. Harding, 1 0. B. {n. s.) 524, 22 149, 219. Doubleday v. Muskett, 7 Bing. 110, g 160. Dougherty v. Western Bank of Georgia, 13 Ga. 287, 2 299. Dow V. Sayward, 12 N. H. 271, 2 2. Downes v. Ship, L. E. 3 H. L. 359, 22 150, 151, 153. Downie v. Hoover, 12 Wis. 174, 2 345. V. White, 12 Wis. 176, 22 122, 124, 345. Dozier v. Thornton, 19 6a. 325, 22 39, 270. Dr. Salmon v. The Hamborough Co., 1 Cas. in Ch. 204 ; s. c, 1 Kyd on Corp. 273, 22 16, 336. Drinkwater v. Portland Marine Ey., 18 Me. 35, 22 80, 312, 317. Drummond's Case, L. E. 4 Oh. 772, 22 126, 130. Dryden v. Kellogg, 2 Mo. App. 93, 22 58, 301, 310, 311, 318. Duckworth (/re re), L. E. 2 Ch. 581, ^^ 244, 385. Duke V. Cahawba Nav. Co., 10 Ala. 82, 22 217, 371. Dunphy v. Kleinsmith, 11 Wall. 610, 2 351. Dutcher v. Marine National Bank, 12 Blatchf. 435, 2 342. Dutchess Cotton Man. Co. v. Davis, 14 Johns. 237, ^^ 105, 193, 407. E.ikright V. Logansport, etc., R. Co., 13 Ind. 404, 2 121. Eameston v. Lyde, 1 Paige, 637, 2 366. Eardley v. Law, 12 Ad. & B. 802, 2 97. Earl of Mansfield's Case, 3 De G. & Sm. 58, 22 118, 376. East Gloucestershire E. Co. v. Bar- tholomew, L. E. 3 Exch. 15, 2 107. Eastman v. Crosby, 8 Allen, 208, 2 391. Eaton V. Aspinwall, 19 N. Y. 119; s. c, 3 Abb. Pr. 417, 22 38, 407, 408, 413, 415. Ebbett's Case, L. E. 5 Ch. 302, 22 228, 232. XXll TABLE OF CASES CITED. Edwards v. Grand Junction K. Co., 1 Myl. & Cr. 650, ? 117. V. Kearzy, 17 Alb. L. J. 846 ; s. c, 6 Cent. L. J. 391, ? 73. V. Kilkenny, etc., K. Co., S 0. B. (n. s.) 786, § 332. Elkington's Case, L. K, 2 Ch. 511, § 126. Ellis V. Schmoeck, 5 Bing. 521, J§ 142, 160. Embury v. Connor, 3 N. T. 511, ? 415. Emmet v. Reed, 8 N. Y. 312, § 206. Empire City Bank (Hatter of), 18 N. Y. 200 ; s. c, 6 Abb. Pr. 385, §? 177, 223, 258, 274, 381. Ensign v. Wands, 1 Johns. Cas. 171, ^75. Erickson v. Nesmith, 15 Gray, 221 ; s. .;., 4 Allen, 223 ; 46 N. H. 371, JJ 31, 56, 82, 85, 258, 259, 260, 270, 353, 357, 358, 371. Erie, etc., E. Co. v. Patrick, 2 Keyes, 256, ? 114. Essex Bridge Co. v. Tuttle, 2 Vt. 393, J 105. Estes V. Whipple, 12 Vt. 373, J 262. Evans v. Smallcombe, L. E. 3 H. L. 249, ?§ 197, 198. Evans's Case, L. E. 2 Ch. 427, ?§ 109, 115. Evansville, etc., E. Co. v. Posey, 12 Ind. 363, i 121. V. Shearer, 10 Ind. 244, J 116. Evarts v. Becker, 8 Paige, 506, J 357. Executors of Haslett ». Wotherspoon, 1 Strobh. Eq. 209, §§ 373, 375. Ej're's Case, 31 Beav. 177, JJ 211, 284, 236. Farnum a. Ballard Vale Machine Shop, 12 Gush. 507, JJ 827, 328. Farrow v. Bivings, 13 Eich. Eq. 25, J 376. Felling's Case, L. E. 2 Ch. 714, ^§ 187, 217. Felgate's Case, 2 De G. J. & S. 456, J 146. Ferguson v. Landram, 8 Bush, 230, g 416. Ferrao's Case, L. E. 9 Ch. 855, § 131. Ffoolta V. London, etc., E. Co., 17 Jur. 365, ? 186. Financial Corporation v. Lawrence, L. R. 4 C. P. 731, i 244. First National Bank v. Almy, 117 Mass. 476, §J 6, 26. V. Price, 33 Md. 487, §J 82, 84. Fiser v. Mississippi, etc., E. Co., 82 Miss. 359, ? 170. Fisher v. Evansville, etc., E. Co., 7 Ind. 407, i 70. V. Marvin, 47 Barb. 159, § 101. Fisk V. Keeseville Man. Co., 10 Paige, 592, 5 375. Flemyng v. Hector, 2 Mee. & W. 172, ?167. Flint V. Pierce, 99 Mass. 69, ? 4. Folger V. Columbian Ins. Co., 99 Mass. 267, J 400. Forbes's Case, L. R. 8 Ch. 768, J 137. Forbes and Judd's Case, L. E. 5 Ch. 270, ?§ 126, 139. Force v. Dahlonega, etc., Co., 22 Ga. 86, § 222. Foreman v. Bigelow, 7 Cent. L. J. 430, 5 134. Fort Edward, etc., Co. v. Payne, 17 Barb. 567, J 871. Fort Miller, etc., R. Co. v. Payne, 17 Barb. 579, § 116. Foster v. O'Blenis, 18 Mo. 88, ? 301. Pothergill's Case, L. E. 8 Ch. 270, J 130. Fowler v. Ludwig, 34 Me. 455, J 177. V. Robinson, 31 Me. 189, JJ 346, 389. Fowler's Case, L. R. 14 Eq. 316, J 137. Fox V. Clifton, 6 Bing. 776, J§ 116, 174, 199. Fox's Case, 3 De G. J. & S. 465 ; L. E. 5 Eq. 118, §g 155, 217, 370. Francis {In re), 7 N. B. R. 869 ; .s. c, 2 Sawyer, 289, J 168. Franklin v. Neate, 18 Mee. & W. 481, J 178. Franklin Glass Co. v. White, 14 Mass. 286, JJ 105, 198. Franklin Ins. Co. v. Hart, 31 Md. 59, §120. Fraser v. Little, 18 Mich. 196, § 374. TABLE OF CASES CITED. XXlll Freelandj). McCullough, 1 Denio, 444, §§ 34, 94, 101, 185, 343. Freeman v. Winchester, 10 Smed. & M. 577, ^ 193. French v. Teschemaker, 24 Cal. 840, a 4, 74, 75. Frost 1.. Saratoga Mutual Ins. Co., 5 Denio, 154, § 405. B. Walker, 60 Me. 468, gj 2, 4, 170. Fry V. Lexington E. Co., 2 Mete. (Ky.) 314, § 105. V. Eussell, 3 C. B. (n. s.) 665, g 219. Fuller V. Bennett, 2 Hare, 402, § 240. Furdoojee's Case, 3 Ch. Div. 264, g 244. Furniss v. Gilchrist, 1 Sandf. S. C. 53, § 206. Fyfe's Case, L. K. 4 Ch. 768, § 217. Galbraith v. Elder, 8 Watts, 81, g 347. Gale V. Eastman, 7 Mete. 14, g 82. Gallway v. Matthew, 10 East, 264, J 1. Galveston R. Co. v. Cowdrey, 11 Wall. 459, 2 413. Gardiner v. Post, 43 Pa. St. 19, ? 412. Garland {Ex parte), 10 Ves. 119, g 251. Garnet Gold Mining Co. v. Sutton, 3 B. & S. 321, ^J 383, 385. Garrison v. Howe, 17 N. Y. 458, |2 53, 59, 266, 349, 380. Gay V. Keys, 80 111. 430, J§ 55, 407. Gelpcke v. Blake, 15 Iowa, 387 ; s. c, 19 Iowa, 263, ^J 124, 202. General Discount Co. v. Stokes, 17 C. B. (n. s.) 765, i 244. Gentry v. Alexander, 16 Ind. 471, § 390. George v. Gardiner, 49 Ga. 441, J 287. V. Williamson, 26 Mo. 190, ? 366. Gibbon's Case, 17 How. St Tr. 810, ?371. Gibson's Case, 2 De G. & 3. 275, gg 143, 155, 156. Gilbert v. Manchester Co., 11 Wend. 627, i 217. Gilbert's Case, L. E. 5 Ch. 559, g? 210, 214, 220. Gillet V. Moody, 3 N". T. 479, § 234. Gilpin V. Howell, 5 Pa. St. 41, § 248. Gingel- {Ex parte), 8 Irish Ch. (n. s.) 174, g 155. Glaholme {Ex parte), 1 De G. & Sm. 583, g 253. Glanville's Case, L. R. 10 Eq. 479, J 211. Goddard v. Pratt, 16 Pick. 412, J 5. Gooch's Case, L. E. 8 Ch. 266 ; s. „., L. E. 14 Eq. 454, J 230. Goodrich v. Reynolds, 31 HI. 490, §2 407, 415. Gordon's Case, 3 De G. & Sm. 249, J 110. Gorman v. Pacific E. Co., 26 Mo. 452, § 369. Goshen Turnpike Co. v. Hurtin, 9 Johns. 217, 2§ 105, 107, 193. Gouthwaite {Ex parte), 3 Mac. & G. 187, § 249. Gouthwaite's Case, 3 De G. & Sm. 258, ?J 168, 249, 251. Gower's Case, L. R. 6 Eq. 77, | 194. Grace v. Smith, 2 W. Black. 998, J 168. Grady's Case, 1 De G. J. & S. 488, g 239. Graflf V. Pittsburgh, etc., R. Co., 31 Pa. St. 489, §^ 124, 163. Granger's Market Co. v. Vinson, 6 Greg. 172, J 113. Gratz V. Redd, 4 B. Mon. 193, ? 193. Gray v. Coffin, 9 Gush. 199, JJ 4, 50, 62, 65, 254, 376. V. Lewis, L. E. 8 Eq. 526, J 139. V. Monongahela Nav. Co., 2 Watts & S. 156, 5 188. Gray's Case, 1 Oh. Div. 664, § 238. Green v. Biddle, 8 Wheat. 84, J 73. Greenshield's Case, 5 De G. & Sm. 599, ? 243. Greenville, etc., E. Co. v. Coleman, 5 Rich L. 118, ? 163. Greenwood's Case, 3 De G. M. & G. 459, J 417. Grew V. Breed, 10 Mete. 569, |2 177, 249, 254, 323, 340, 394, 417. XXIV TABLE OF CASES CITED. Griffin v. Heaton, 2 Bailey, 58, J 285. Grissell V. Bristow, L. R. 3 C. P. 112, 5? 210, 217. Grissell's Case, L. K. 1 Oh. 528, ?2 382, 383, 385, 386. Grose v. Hilt, 36 Me. 22, JJ 56, 62, 375, 380, 381, 389, 391. Grund u. Tucker, 6 Zan. 70, JJ 266, 277, 329, 374. Guest V. Worcester, etc., K. Co., L. K. 4C. P. 9; 38 L. J. (C. P.) 23, §2 130, 224. Gunn V. Barry, 15 Wall. 615, J 73. Hadley v. Russell, 40 N. H. 109, JJ 85, 258, 259, 352, 376. Hager v. Cleveland, 36 Md. 436, J? 99, 120, 164, 371. Hakim's Case, L. R. 7 Ch. 296, JJ 211, 213. Hall {Ex parte), 1 M«c. & G. 307, ?J 179, 180. Hall V. Boyd, 52 Ga. 456, ? 380. V. Carey, 5 Ga. 239, I 371. V. Logan, 34 Pa. St. 331, I 262. V. Selma, etc., R. Co., 6 Ala. 741, §107. V. United States Ins. Co., 5 Gill, 484, gj 170, 217. Hall's Case, L. R. 6 Ch. 707, H 109, 194, 203. Halsey o. McLean, 12 Allen, 438, H 82, 84. Hamer's Executor's Case, 3 De G. & Sm. 279, \l 249, 251. Hamilton's (Ld. Claude) Case, L. R. 8 Ch. 548, I 137. Hamley's Case, 5 Ch. Div. 705, ^ 137. Hampson v. Wearo, 4 Iowa, 13, J§ 329, 337. Hamtramck v. Bank of Edwardsville, 2 Mo. 169, I 407. Handrahan v. Cheshire Iron- Works, 4 Allen, 396, J 327. Hanger v. Abbott, 6 Wall. 532, J 318. Hanson v. Donkersley, 87 Mich. 184, J^ 34, 35, 61, 184, 342. Harding (Ex parte), 33 L. J. (Bank.) 20, J 244. Hardy v. Merriweather, 14 Ind. 203, g 142. Harger v. McCuUough, 2 Denio, 77, ^ 4, 31, 34, 94, 96, 274. Harlem Canal Co. v. Seixas, 2 Hall, 504, I 105. Harlev v. Davis, 16 Minn. 487, g 101. Harriman v. Southern, 16 Ind. 190, § 412. Harris v. First Parish in Dorchester, 23 Pick. 112, II 258, 260, 270. V. Glenn, 56 Ga. 96, H 3, 67. Harrisburg Bank v. The Common- wealth, 26 Pa. St. 320, ? 84. Harrison v. Heathom, 6 Man. & G. 81, ? 164. V. Timmins, 4 Mee. & W. 510, § 2. Harrison's Case, L. R. 6 Ch. 286, §J 211, 213. Harrod v. Hamer, 32 Wis. 162, J 61. Hart's Case, L. R. 6 Eq. 512, ^ 228, 231. Hartford, etc., Co. v. Boorman, 12 Conn. 530, J 210. Hartford, etc., R. Co. v. Croswell, 5 Hill, 383, II 105, 186, 188. Hartford & New Hav, R. Co. v. Kennedy, 12 Conn. 499, H 105, 193. Hartridge w. Rockwell, R. M. Charlt. 260, 5 234. Harvey v. Kav, 9 Barn. & Cress. 356, J160. Harward's Case, L. R. 13 Eq. 30, J 137. Haskins v. Harding, 2 Dill. 99, JJ 302, 303. Haslett 1). Wotherspoon, 2 Rich. Eq. 399, II 4, 5, 7, 88 ; s. c, 1 Strobh. Eq. 219, II 373, 375. Hastie's Case, L. R. 4 Ch. 274, J 245. Hatch V. Burroughs, 1 Woods, 439, J 865. Hathorn v. Towle, 46 Me. 802, ? 62. Haviland v. Chace, 39 Barb. 283, ? 126. Hawes v. Anglo-Saxon Co., 101 Mass. 385, and 111 Mass. 200, H 6, 26, 829. Hawkins v. Barney's Lessee, 5 Pet- 467, I 287. TABLE OF CASES CITED. XXV Hawthorne «. Calef, 2 Wall. 10, J 71. Hawthorn's Case, 1 De G. & Sm. 571, J 97. Hayne v. Beauchamp, 5 Smed. & M. 537, I 170. Haynes v. Brown, 36 N. H. 545, |5 106, 107, 314, 369, 371. Hays V. Pittsburgh, etc., E. Co., 38 Pa. St. 81, g 163. Haywood Plank-road Co. v. Bryan, 6 Jones L. 82, ?§ 107, 162. Hazard v. Hazard, 1 Story, 375, J 168. Heacock v. Sherman, 14 Wend. 58, Head's Case, L. R. 3 Eq. 84, ? 217. Healy v. Root, 11 Pick. 389, § 82. ■ Heard v. Sibley, 52 Ga. 310, § 333. Heart v. State Bank, 2 Dev. Eq. Ill, g 248. Heaston v. Cincinnati R. Co., 16 Ind. 85, § 412. Helby's Case, L. R. 2 Eq. 167, J? 95, 210, 2S4, 297. Helm V. Swig^ett, 12 Ind. 196, ? 217. Hemming v. Maddick, L. R. 9 Eq. 175 ; s. c, L. R. 7 Ch. 395, g 179. Henderson (Ex parte), li) Beav. 107, ii 217, 234, 236. Henderson v. Railroad Co., 17 Texas, 573, § 116. V. Royal British Bank, 7 El. & Bl. 356, il 149, 199, 219. Henry v. Vermillion County, 17 Ohio, 187, J? 10, 11, 15, 126, 25S, 366. Hepburn v. Commissioners, 4 La. An. 87, J? 102, 299. Herkimer Man. Co. v. Small, 21 Wend. 273, ? 193. Herries v. Jamieson, 5 Term Rep. 556, I 26. Herron v. Vance, 17 Ind. 595, § 114. Hester v. Memphis, etc., R. Co., 32 Miss. 378, §2 188, 190. Highland Turnpike Co. v. McKean, 10 Johns. 154 ; 11 Johns. 95, gj 105, 107, 193, 371. Hightower v. Mustian, 8 Ga. 508, gj 14, 258 Hightower v. Thorntop, 8 Ga. 492, 5§ 1, 3, 10, 11, 16, 19, 193, 282, 289, 336, 340. Hill V. Prazier, 22 Pa. St. 320, JJ 84, 271, 347. V. Manchester Water-Works Co., 1 Nev. & M. 373 ; o. v., 2 Barn. & Adol. 544, 5 371. V. Simpson, 7 Ves. 152, § 13. Hill's Case, L. R. 4 Ch. 769, I 217. Hillier U.Allegheny County Ins. Co., 8 Pa. St. 470, 22 38l", 386, 387, 388. Hinds V. Canandaigua, etc., R. Co., 10 How. Pr. 487, J 366. Hitchcock V. Way, 6 Ad. & E. 943, ?62. Hitchins v. Kilkenny, etc., R. Co., 10 C. B. 160; s. c, 1 L. M. <$• P. 712 ; 15 Jur. 336 ; 20 L. J. (C. P.) 31, 2 332. Hoadley v. County Commissioners, 105 Mass. 526, J? 1, 2. Hoard v. Wilcox, 47 Pa. St. 51, ^J 56, 271, 3-50, 360. Hoare's Case, 2 John. & H. 229, 22 168, 179, 180. Hodsden v. Harridge, 2 Saund. 61, 2 285. Hole's Case, 3 De G. & Sm. 241, 2 167. HoUister Bank of Buffalo {In re), 27 N. Y. 393, 2? 37, 45. Holmes {Ex parte), 5 Cow. 426, 2 237. V. Gilliland, 41 Barb. 568, 2 413. V. Higgins, 1 Barn. & Cress. 74, 2 262. Holt's Case, 22 Beav. 48, ^ 146, 179, 201. Holyoke Bank v. Burnham, 11 Cush. 183, i^ 99, 177, 223. V. Goodman Paper Co., 9 Cush. 582, 22 56, 327, 361. Hone V. Allen, 1 Sandf. S. C. 171, 2 206. V. Polger, 1 Sandf. S. C. 177, 2 206. Houldsworth v. Evans, L. E. 3 H. L. 263, 22 197, 198, 249. Hovenden v. Lord Annesley, 2 Sch. & Lef. 629, 2 281. XXVI TABLE OF CASES CITED. Hovey r. Ten Broeck, 8 Bob. (N. Y.) 316, gj 301, 302. Howard v. Bank of England, L. R. 19 Eq. 295, J 233. Howe V. Starkweather, 17 Mass. 240, «248. Howland v. Myer, 3 N. T. 290, g 208. HuddersfieTd Canal Co. v. Buckley, 7 Term Rep. 36, § 210. Hudson V. Carman, 41 Me. 84, §§ 411, 412. Hughes V. Antietam Co., 34 Md. 316, U 120, 142. V. Bank of Somerset, 5 Litt. 45, §407. Hull Flax and Cotton Mill Co. v. Wellesby, 6 H. & N. 38, ? 171. Humber Iron- Works Co. {In re), L. R. 8 Eq. 122, J 394. Humble v. Langston, 7 Mee. & W. 517, g 217. Hume 0. Winyaw County, Carolina L. J. 217, §j 4, 258, 336. Hunt V. Rousmaniere's Administrator, 1 Pet. 1, i 145. Hurd V. Tallman, 60 Barb. 272, JJ 10, 417. Hutchins v. Now England Coal Co., 4 Allen, 580, § 86. V. State Bank, 12 Mete. 421, g 248. Hutton V. Upfill, 2 H. L. Cas. 674, J 167. Hyam's Case, 1 De G. F. & J. 75, §? 211, 214. Hfracombe R. Co. v. Devon, etc., R. Co., L. R. 2 C. P. 15; J 332. Ind's Case, L. R. 7 Ch. 485, JJ 179, 187, 217. Indiana, etc., Tp. R. Co. u. Phillips, 2 Penn. 184, §J 70, 188. Ingalls V. Cole, 47 Me. 540, ?| 53, 97, 304, 424, 425. Instone i>. Bridge Co., 2 Bibb, 576, g§ 105, 193. Ireland v. Palestine Co., 19 Ohio St, 369, 55 66. 68, 69. Irvin r. Turnpike Co., 2 Penn. 466, § 188. Isham V. Bennington Iron Co., 19 Vt. 230, 5 248. 1'. Buckingham, 49 N. Y. 216, 217. Jackson i.. Griswold, 4 Hill, 522, g 330. V. Leek, 19 Wend. 239, § 240. V. Leggett, 7 Wend. 377, g 373. V. Turquand, L. R. 4 H. L. 305, ?156. 1>. Sharp, 9 Johns. ir>2, J 240. i>. Walsh, 3 Johns. 226, g 371. V. Wiirslow, 9 Cow. 13, J 240. Jermain v. Langdon, 8 Paige, 41, § 357. V. Worth, 5 Denio, 342, § 371. Jessopp's Case, 2 De (i. & J. 638, JJ 211, 213, 234. Jewett I). Lawrenceburg, etc., R. Co., 10 Ind. 539, ? 116. Johns V. Johns, 1 Ohio St. 350, | 248. Johnson v. Crawfordsville, etc., R. Co., 11 Ind. 280, 5J 142, 145. V. Gallagher, 3 De G. F. & J. 494, §233. V. Laflin, Thompson's Nat Bank Cases, 331; 6 Cent. L. J. 124; s. c, 17 Alb. L. J. 146, §J 205, 210, 215, 234, 239, 240. V. Sonlerville Dyeing Co., 15 Gray, 216, § 400. V. Underbill, 52 N. Y. 203, |J 210, 217. Johnston u. South- Western R. Bank, 3 Strobh. Eq. 263, JJ 344, 404. Joint-Stock Discount Co. <>. Brown, L. R. 3 Eq. 139; s. c, L. R. 8 Eq. 881, § 234. Jones I'. Cincinnati Type Foundry Co., 16 Ind. 85, § 412. V. Clayton, 4 Mau. & Sel. 349, J 26. V. Pope, 1 Saund. 37, J 285. V. Terre Haute, etc., R. Co. 17 How. Pr. 229, J lOo. I'. Wiltberger, 42 Ga. 575, JJ 349, 372, 380, 392, 424. Judson «. Rossie Galena Co., 9 Paige, 598, § 94. Junction R. Co. a. Reove, 15 Ind. 236, §116. TABLE OF CASES CITED. XXVI 1 Karuth's Case, L. R. 20 Eq. 506, g 137. Keasley v. Codd, 2 Car. &P. 408, ? 4. Keene's Executor's Case, 3 De G. M. & G. 272, § 252. Kelk's Case, L. R. 9 Eq. 107, JJ 193, 198. Keller v. Leib, 1 Penn. 220, ? 347. Kelsey v. Northern Light Oil Co., 54 Barb. Ill, J 142. Kelton I). Phillips, 3 Meto. 61, § 245. Kendall (Ex parte), 17 Ves. 520, ? 323. Kennebec, etc., R. Co. v. Palmer, 34 Me. 336, § 105. V. Waters, 34 Me. 369, J 187. Kennedy ,;. Gibson, 8 Wall. 505, §5 266, 342, 357, 417. Kenosha, etc., R. Co. v. Marsh, 17 Wis. 13, § 190. Kibbey v. Jones, 7 Bush, 243, § 101. Kimbro v. Bank of Pulton, 49 Ga. 419, 5 299. Kincaid's Case, L. R. 2 Ch. 426, 5§ 1-50, 151, 153. King V. Elliott, 5 Smed. & M. 447, § 282. King's Case, L. R. 2 Ch. 714, JJ 193, 211, 213. Kingsford v. Merry, 11 Exch. 577, § 148. Kintrea {Ex parte), L. R. 5 Ch. 95, JJ 211, 214. Klein v. Alton, etc., R. Co., 13 111. 514, 2105. Kluht's Case, 3 De G. & Sm. 210, g 233. Knatchbull v. Pearnhead, 3 Myl. & Cr. 122, §§ 250, 251. Knight's Case, L. R. 2 Ch. 321, g 193. Knowlton v. Ackley, 8 Cush. 93, J§ 3, 56, 85, 258, 260, 311. Kritzer v. Woodson, 19 Mo. 327, gj 54, 84. Kuper's Assignee's Case, 3 De G. & Sm. 113, 2 244. Labouohere v. Tupper, 11 Moo. P. C. 198, § 251. Ladd V. Dudley, 45 N. H. 61, § 101. Lake Ontario, etc., Co. v. Mason, 16 N. Y. 451, Jg 105, 107. Lane v. Baker, 2 Grant Cas. 424, g 57. V. Harris, 16 Ga. 234, §§ 39, 40, 41, 312, 320, 349, 365, 380. V. Morris, 8 Ga. 468, §§ 40, 45, 53, 80, 222, 285, 320, 342, 365, 401. V. School District in Weymouth, 10 Mete. 462, J 328. Lankester's Case, L. R. 6 Ch. 905, § 211. Larrabee v. Baldwin, 35 Cal. 178, ^J 39, 43, 74, 94, 334, 380, 391, 393. Lathrop v. Kneeland, 46 Barb. 432, g 115. V. Singer, 39 Barb. 396, J 67. Lauman v. Lebanon, etc., R. Co., 80 Pa. St. 42, §? 70, 195. Lawler v. Burt, 7 Ohio St. 341, J? 84, 307. • V. Walker, 18 Ohio, 151, | 307. Lawrence v. Nelson, 21 N. Y. 158, JJ 881, 886, 388, 394. Lawrence's Case, L. R. 2 Ch. 412, J§ 150, 151, 153. Leavit v. Palmer, 3 N. Y. 19, ? 145. Leeke's Case, L. R. 6 Ch. 469, § 138. Leland v. Marsh, 16 Mass. 389, JJ 312, 825, 877. Lentilhon v. Moffat, 1 Edw. Ch. 451, g 351. Leonardsville Bank v. Willard, 25 N. Y. 574, 2 418. Levick's Case, 40 L. J. (Ch.) 180, J^ 109, 203. Levita's Case, L. R. 3 Oh. 36, § 109. Lewis V. County of St. Charles (MS.), St. Louis Court of Appeals, J 37. V. Jones, 4 Barn. & Cress. 506, J 393. V. Robertson, 13 S:.ied. & M. 558, §? 11, 170. Lexington, etc., E. Co. v. Chandler, 13 Mete. 311, 2 193. Lillard v. Porter, 2 Head, 177, ? 328. Lindsay v. Hyatt, 4 Edw. Ch. 97, JJ 281, 285, 292, 306. Lindsley v. Siraonds, 2 Abb. Pr. (n. s.) 69^ ii 303, 312. XXVlll TABLE OF CASES CITED. Litchfield Bunk v. Church, 29 Conn. 137, II 122, 142, 154. — V. Peck, 29 Conn. 884, I 154. Liverpool Boi'oiigh Bank v. Walker, 4 De G. & J. 24, ? 251. Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566, II 1, 4. Livingston v. Eoosevelt, 4 Johns. 251, 5 75. Lloyd V. Archbowle, 2 Taun. 324, I 352. ' Loan Assn. v. Topeka, 20 Wall. 663, ?52. London, etc.. Bank o. Henry, L. R. 7 Eq. 334, I 238. London & Provincial Consolidated Coal Co. [In re), 5 Ch. Div. 525, ii 109, 203. Longley v. Little, 26 Me. 162, J§ 65, 90, 92, 293. Loomis V. Tifft, 16 Barb. 541, § 318. Lord Belhavon's Case, 3 De G. & Sm. 41, 5 202. Lord Claude Hamilton's Case, L. K. 8 Ch. 548, § 137. Louisville R. Co. v. Letson, 2 How. 497, § 328. Lovegrove v. Brown, 4 Edw. Ch. 97, § 306. Lovettv. Cornwell, 6 Wend. 369, J 318. Lowber v. Mayor, 5 Abb. Pr. 268, § 366. Lowe's Case, L. R. 9 Eq. 589, ? 217. Lowry v. Fisher, 2 Bush, 70, § 101. V. Inman, 46 N. Y. 119, J 4. V. Parsons, 52 Ga. 356, ? 333. Luard's Case, 1 De G. E. & J. 533, J 233. Lucas V. De la Cour, 1 Mau. & Sel. 249, § 352. Lumsden's Case, L. E. 4 Ch. 31, JJ 228, 230, 231. Lund's Case, 27 Beav. 465, § 211. Lynch v. Johnson, 48 N. Y. 27, g 366. Lyon 0. Robbins, 46 111. 276, J 866. Maoauly v. Robinson, 18 La. An. 619, 2198. Mackenzie {Ex parte), L. R. 7Eq. 240, J 395. Mackley's Case, 1 Ch. Div. 247, g? 109, 116. Macedon, etc., Plank-road Co. v. Lnp- ham, 18 Barb. 312, ^ 116, 189. Macon, etc., R. Co. v. Vason, 52 Ga. 326, 2 291. Madison, etc., R. Co. v. Stevens, 6 Ind. 379. i 121. Magruder v. Colston, 44 Md. 849, J 223. Maguire's Case, 3 De G. & Sm. 31, § 228. Maitland's Case, 3 Gif. 28, gj 187, 167. Mallory v. Mallett, 6 Jones Eq. 345, Mandion v. Fireman's Ins. Co., 11 Rob. (La.) 177, J 211. Mangles v. Grand Collier Dock Co., 10 "sim. 519, J 122. Mann v. Cooke, 20 Conn. 178, J? 81. 124, 198, 200. p. Currie, 2 Barb. 294, JJ 198, 210. u. Pentz, 8 N. Y. 422, ?§ 10, 11, 258, 340, 351, 353. Mann's Case, L. E. 8 Ch. 459, §§ 211, 228. Mansfield Iron-Works v. Willcox, 52 Pa. St. 377, J§ 271, 350, 360. Manufacturing Co. v. Canney, 54 N. H. 295, ii 57, 314. Maroy v. Clark, 17 Mass. 830, g? 84, 76, 91, 94, 211, 215, 274, 312, 825, 826, 377. Marino's Case, L. K. 2 Ch. 596, J§ 217, 221. Marlborough Man. Co. v. Smith, 2 Conn. 579, J 217. Marquis of Aborcorn's Case, 4 De G. P. & J. 78, J 137. Marriage v. Lawrence, 8 Barn. & Aid. 142, 2 371. Marsh v. Burroughs, 1 Woods, 463, ^J 10, 15, 258, 851, 853, 354, 866, 422. Marson v. Lund, 16 Q. B. 834 ; 15 Jur. 966; 20 L.J. (Q. B.) 190, § 882. Martin v. Junction R. Co., 12 Ind. 605, 5 70. TABLE OF CASES CITED. XXIX Martin d. Pensacola, etc., R. Co., 8 Fla. 370, ii 116, 121. Martin's Case, 2 Hem. & M. 669, JJ 153, 195. Martin's Patent Anchor Co. v. Morton, L. R. 3 Q. B. 306, J 245. Mason v. Cheshire Iron- Works, 4 Allen, 398, J 327. V. Force, 30 Ga. 99, § 222. V. Hailee, 12 Wheat. 370, ? 73. Master's Case.L. R. 7 Ch. 292, §§ 211, 213. Masters v. Rossie Lead Mining Co., 2 Sandf. Ch. 301, §2 2§9, 265, 351, 367, 375, 376. Mather v. National Assurance Assn., 14 C. B. (n. s.) 676, 2 332. Matthewman's Case, L. R. 3 Kq. 781, 5 234. Matthews v. Albert, 24 Md. 527, §§ 38, 99, 224, 269, 376, 381. V. Standford, 17 Ga. 543, | 7. Maxwell's Case, 24 Beav. 321, JJ 183, 229. Mayhew's Case, 5 DeG. M. & G. 837, §210. Maynard v. Eaton, L. R. 9 Ch. 414, I 211. Mayor of London v. Mayor of Lynn, 1 H. Bhick. 214, ? 371. Mayor of Yovlc v. Pilkington, 1 Atk. 282, ? 368. McAuley v. York Mining Co., 6 Gal. 80, I 32. McBride ». Farmers' Bank, 28 Barb. 476 ; s. c, 7 Abb. Pr. 347, J 310. McCalmont v. Lawrence, 1 Bhitchf. 232, 2 366. McCarty v. Lavashe, 10 Chi. Leg. N. 342, J§ 407, 415. McClaren u. Pranciscus, 43 Mo. 452, 22 90, 91, 94, 210, 211, 215, 312. McCracken v. Mclntyre, 1 Duv. (Can- ada) 479, 2? 134, 135, 224. MoCray v. Junction R. Co., 9 Ind. 358, J 70. MoCrea v. Purmort, 16 Wend. 474, J 393. McCuUough li. Moss, 5 Denio, 567, J 94. McCully V. Pittsburgh, etc., R. Co., 32 Pa, St. 25, 2J 166, 190, 291. McDermutt v. Strong, 4 Johns. Ch. 687, § 351. McDonough v. Phelps, 15 How. Pr. 372, 55 80, 81, 83, 193, McDougald v. Bellamy, 18 Ga. 411, ?9L McEuen v. West London, etc., R. Co., L. R. 6 Ch. 655, J? 117, 217. McFadden v. Hunt, 5 Watts & S. 468, 2 262. McFarlen v. Insurance Co., 4 Denio, 392, 2 371. McHose V. Wheeler,. 45 Pa. St. 32, 2? 161, 170, 373, 407. Mclntyre v. Trustees of Union Col- lege, 6 Paige, 239, 2 375. McKellar v. Stout, 14 Iowa, 359, 2 38. McLaughlin v. Bank of Potomac, 7 How. 228, 2 101. McLaughlin v. Detroit, etc., R. Co., 8 Mich. 100, 2 105. McMahon v. Macy, 51 N. Y. 155, 22 329, 330. McRac V. Russell, 12 Ired. L. 224, § 107. Mead v. Keeler, 24 Barb. 20, 22 407, 413, 415. Moador v. Isle of Wight Ferry Co., 9 W. R. 750, 2 332'. Mcans's Appeal, 85 Pa. St. 293, 22 50, 313, 340. Meason's Estate, 4 Watts, 341, 2 248. Mechanics' Bank v. New York & New Haven R. Co., 13 N. Y. 699, 2 115. , V. Seton, 1 Pot. 309, 2 240. Mechanics' Foundry & Machine Co. V. Hall, 121 Mass. 272, 2 193. Medill V. Collier, 16 Ohio St. 599, 2 7. Megargee v. Wakefield Man. Co., 48 Pa. St. 442, 2 62. Mellish V. Robertson, 25 Vt. 603, 2 145. Merchants' Bank v. Harrison, 39 Mo. 433, 2 369. Merrick v. Reynolds Engine Co., 101 Mass. 381, 2 403. XXX TABLE OF CASES CUED, Merrick v. Van Santvoord, 3-1 N. Y. 208, J^ 80, 86. Merrill v. Bank of Suffolk, 31 Me. 57, J§ 328, 329, 835. Methodist Episcopal Church v. Pick- ett, 19 N. T. 482, J 407. Middlesex T. Co. v. Locke, 8 Mass. 268, ^§ 188, 189. V. Swan, 10 Mass. 384, J 189. Middlctown Bank v. Magill, 5 Conn. 51, §§ 4, 28, 34, 90, 92, 210, 272. Midland, etc., R. Co. v. Gordon, 16 Mee. & W. 803, § 188. Miers v. Zanesville County, 11 Ohio, 274; s. c, 13 Ohio, 197, JJ 10, 20, 258, 259, 366, 367, 421. Migotti's Case, L. E. 4 Eq. 238, ^ 139. Milburn v. Codd, 7 Barn. & Cress. 419, § 262. Mill-Dam Foundry u. Hovey, 21 Pick. 417, ^§ 57, 99. Miller v. Great Republic Ins. Co., 50 Mo. 55, J§ 210, 211, 215. V. Race, 1 Burr. 457, J 299. V. White, 7 Blackf. 491, §§ 116, 329, 330. Milliken v. Whitehouse, 49 Me. 527, §§ 101, 829. Mills V. Stewart, 41 N. T. 384, ?§ 193, 194, 199. Milwaukee B. Co. v. JField; 12 Wis. 340, §§ 116, 188. Mississippi, etc. K. Co. v. Cross, 20 Ark. 433, ? 121. V. Harris, 86 Miss. 17, JJ 166, 170. Mitchell V. Dale, 2 Har. & G. 159, § 352. Mitchell's Case, L. R. 9 Eq. 363, §5 179, 228, 231. Mokelumne Hill, etc., Co. v. Wood- bury, 14 Cal. 265, JJ 34, 85, 53, 94, 274. Moore v. Bank of Commerce, 52 Mo. 377, 2§ 1, 210, 217. V. Beelman, 27 La. An. 275, J 101. V. Rawlings, 6 C. B. (n. s.) 310, §198. V. Reynolds, 109 Mass. 473, J 360. Morgan (Ex parte), 1 Mac. & G. 225 ; s. c, 1 Ha. & Tw. 320 ; 1 De G. & Sm. 750, il 234, 285. Morgan v. New York, etc., R. Co., 10 Paige, 290, H 265, 351, 366, 367. Morgan's Case, 1 De G. & Sm. 750, H 216, 234. Morris v. Wadsworth, 11 Wend. 100 ; s. c, 17 Wend. 103, § 295. Morris's Case, L. R. 7 Ch. 200, H 97, 98. Morris Canal and Banking Co. v. Nathan, 2 Hall, 289, I 371. Morse V. Reed, 13 Meto. 62, I 400. Morton's Oase, L. R. 16 Eq. 104, g 204. Moss V. Averell, 10 N. Y. 459, ?? 31, 34, 329, 386, 343, 405, 406. V. McCullough, 5 Hill, 131, ^ 34, 329, 330, 336. V. Oakley, 2 Hill, 265, H 31, 34, 94, 210, 274, 329, 380. Moyer v. Pennsylvania Slate Co., 71 Pa. St. 293, I 50. Mrs. Matthewman's Case, L. E. 3 Eq. 781, I 234. Mudge i;. Commissioners, 10 Rob. (La.) 460, 2 3. V. Rowan, L. R. 8 Exch. 85, g 244. Mudgett V. Horrell, 33 Cal. 25, H 370, 371. Mumma v. Potomac Co., 8 Pet. 287, l\ 8, 10, 277. Munt's Case, 22 Beav. 55, H 211, 234, 236. Murray v. Albert, 24 Md. 622, § 259. Musgrave & Hart's Case, L. E. 5 Eq. 695, II 217, 221. Myers u. Irwin, 2 Serg. & R. 371, g 4. Myriok «. Dame, 9 Cush. 284, J 262. Narragansett Bank v. Atlantic Silk Co., 3 Mete. 282, ^ 369, 408. Nathan v. Whitlock, 3 Edw. Ch. 215 ; 9 Paige, 153, H 14, 124, 211, 214, 216, 340. Nation's Case, L. R. 3 Eq. 77, § 217. National Bank of Augusta o. Southern, etc., Co., 55 Ga. 36, I 360. TABLE OF CASES CITED. XXXI National Exchange Co. v. Drew, 32 Eng. Law & Eq. 1, ? 142. Neale v. Tiirton, 4 Bing. 149, J 262. Needham's Case, L. R. 4 Eq. 135, ? 97. Nesmith v. Washington Bank, 6 Pick. 324, J 217. Ness V. Angaa, 3 Exch. 805, § 169. V. Armstrong, 4 Exch. 21, ?§ 169, 249. Nevitt u. Bank of Port Gibson, 6 Smed. & M. 513, § 3. New Albany v. Burke, 11 Wall. 96, J§ 10, 117, 202, 203. New Albany R. Co. v. McCormick, 10 Ind. 499, 21 116, 217. 0. Fields, 10 Ind. 187, §§ 121, 124. New Albany, etc., R. Co. v. Slaughter, 10 Ind. 218, § 124. New Bedford, etc., Co. v. Adams, 8 Mass. 138, §J 105, 193. New Brunswick, etc., Co. v. Mug- geridge, 1 Drew& Sm. .381, J 142. New En£;land Com. Bank v. Stock- holders, 6 R. I. 154, 188, 52 4, 30, 34, 249, 250, 254, 264, 273, 312, 393. New Hampshire Central K. Co. i;. Johnson, 30 N. H. 390, ? 193. New Orleans, etc., K. Co. v. Harris, 27 Miss. 517, § 188. New York & Erie R. Co. u. Cook, 2 Sandf. S. C. 732, ? 328. Newcomb v. Reed, 12 Allen, 362, J 408. Newry, etc., R. Co. o. Moss, 14 Beav. 64, ? 178. Nicholas's Assignees (Ex parte), 2 De G. M. & G. 271, i 244. Nichols V. Bertram, 3 Pick. 342, J 65. V. Somerset & Kennebec K. Co., 43 Me. 356, § 65. Nicholson v. Janeway, 16 N. J. Eq. 285, i 26. Nickols's Case, 24 Beav. 639, § 126. Nicol's Case, 3 De G. & J. 387, §2 155, 156, 239, 240. Nixon V. Brownlow, 1 H. & N. 405, § 332. V. Green 11 Exch. 550 ; affirmed, 25 L. J ^jSxch.) 209; s. c, 3 H. & N. 686'; 27 L. J. (Exch.) 609, U 90. 93. Noble V. Callender, 20 Ohio St. 199, g 126. Norris v. Cottle, 2 H. L. Cas. 647, J 167. V. Johnson, 34 Md. 485, ?§ 88, 4^ 266, 269. 1). Morrill, 40 N. H. 395, ? 314. V. Wrenschall, 34 Md. 492, §§ 71, 99. North Carolina, etc., R. Co. u. Leach, 4 Jones L. 340, ? 121. Northern R. Co. i,. Miller, 10 Barb. 260, il 105, 193. Norton v. Hodges, 100 Mass. 241, § 4 Oakes v. Turquand, L. R. 2 H. L. 325 ; 1 Exch. 310, §§ 147, 148, 150, 151, 152, 199. Ochiltree v. The Railroad Co., 21 Wall. 249 ; vi. c, 54 Mo. 113, § 72. O'Donald v. Evansville, etc., R. Co., 14 Ind. 2.59, ? 116. Ogden V. Eolliott, 3 Term Rep. 733, §82. Ogilvie V. Knox Ins. Co., 22 How. 380, §§ 10, 15, 143, 354, 355. Ohio, etc., Ins. Co. v. Merchants', etc., Co., 11 Humph. 1, § 75. Oliver v. Liverpool, etc., Co., 100 Mass. 531, ii 1, 2, 4. Oriental Commercial Bank {Ex parte,) L. R. 3 Ch. 791, § 179. Ossipee Man. Co. v. Canney, 54 N. H. 295, 2 57, 314. Otter V. Brevoort Petroleum Co., 50 Barb. 247, ? 237. Overseers u. Sears, 22 Pick. 131, ^ 210. Owen V. Purdy, 12 Ohio St. 73, J 413. Paddon v. Bartlett, 3 Ad. & E. 884, § 62. Paine v. Stewart, 33 Conn. 516, §5 37, 45, 83, 211, 321, 349, 420. Palestine, etc., Co. v. Wooden, 13 Ohio St. 395, § 66. Palfrey v. Paulding, 7 La. An. 363, §§ 102, 369. Palmer v. Conly, 4 Denio, 374,' § 62. V. Lawrence, 3 Sandf. 161, § 105. XXXI 1 TABLE OF CASES CITED. Parbury's Case, 3 De G. & Sm. 43 ; 3 De G. P. & J. 80, a 156, 244. Parker's Case, L. R. 2 Ch. 685, J 153. Parson's Case, L. B. 8 Eq. 656, ? 229. ■Paschall v. Whitsett, 11 Ala. 473, ?J 3, 10, 277. Patterson n. "Wyomissing County, 40 Pa. St. 117, 22 35, 313, 316, 350, 403. Payne v. Bullard, 23 Miss. 90, JJ 10, 11, 282, 291. Payne's Case, L. E. 9 Eq. 223, §§ 211, 214. Payson v. Stoever, 2 Dill. 481, JJ 10, 81, 341, 417. V. Withers, 5 Biss. 269, JJ 80, 81, 143, 144, 189. Pease v. Howard, 14 Johns. 480, J 285. Peddyl v. Gwyn, 1 H. & N. 590 ; 3 Jur. (n. s.") 188; 26 L. J. (Exch.) 199, J 332. Peel's Case, L. R. 2 Ch. 674, §§ 150, 152, 153. Pell's Case, L. R. 5 Ch. 11, JJ 126, 130. Pellatt's Case, L. R. 2 Ch. 527, J J 109, 120, 126. Penninian, petitioner, 11 R. I. 333, J 73. V. Briggs, 1 Hopk. Ch. 300 ; s. c, 8 Cow. 387, 22 267, 310, 422. Penobscot R. Co. v. Duminer,-40 Me. 172, i^ 112, 116, 117. Penobscot, etc., R. Co. v. Dunn, 39 Me. 587, 2 116. Pentelow's Case, L. R. 4 Ch. 178, 2 155. People (The) v. Assessors of Water- town, 1 Hill, 620; 22 1. 2. V. Bartlett, 5 Hill, 570, 2 318. V. Commissioners of Taxes, 23 N. T. 192, 2 11. ;;. Oakland County Bank, IDougl. 282, 2 371. V. Runkle, 9 Johns. 147, 2 311- Perkins v. Church, 31 Barb. 84, J 312. Perrin v. Sargeant, 33 Vt. 84, 2 62. Perring v. Hone, 4 Bing. 28, 2 160. Perry v. Turner, 55 Mo. 518, ^^ 37, 266, 270, 310, 311, 349. Pettibone v. McGraw, 6 Mich. 441, 22 87, 45. Phelan v. Hazard, 6 Cent. L. J. 103, 22 130, 184. Phelps V. Farmers', etc.. Bank, 26 Conn. 269, 211- V. Gilchrist, 23 N. H. 266, 2 314. Philadelphia, etc., K. Co. v. Cuwell, 28 Pa. St. 329, ^^ K'i, 168. 7,. Hickman, 28 Pa. St. 318, 2 116. Phillips {In re), 18 Beav. 629, 2? 197, 240. Phillipson v. Egremont, 6 Q. B. 587; 8 Jur. 1164; 14 L. J. (Q. B.) 2.3, 2 .^.^^2. Phcenix Ins. Co. v. Hamilton, 14 Wall. 508, 2 168. Pickering {Ex parte), L. R. 4 Ch. 58, 2 244. Pickering o. Templeton, 2 Mo. App. 424, 22 105, 122, 201. Pierce v. Milwaukee Construction Co., 38 Wis. 2.53. 22 37, 353, 350, 366. Piscataqua Ferry Co. v. Jones, 39 N. H. 491, 2 107. Pitohford v. Davis, 5 Mee. & W. 2, 22 116. 118, 199. Pittsburgh, etc., R. Co. v. Byers, 32 Pa. St. 22, 2 211. V. Clarke, 29 Pa. St. 146, 2 103. 0. Gazzani, S2 Pa. St. 340, 2 108. V. Graham, 36 Pa. St 77, 2 291. P. Stewart, 41 Pa. St. 54, 2 1 i2. Planters' Bank v. Bivingsville, etc., Co., 10 Rich. L. 95, 22 33. 34, 274, 406. Planters and Merchants' Bank v. Leav- ens, 4 Ala. 753, 2 248. Pollard ». Bailey, 20 Wall. 520, 22 258, 261, 351, 354, 422. Pond V. Pittard, 2 Mee. & W. 357, 2 168. Pope V. Leonard, 115 Mass. 286, 22 352, 360, 368. V. Salamanca Oil Co., 115 Moss. 286, 2 368. Pott V. Eyton, 8 C. B. 32, 2 168. Powis u. Butler, 3 C. B. (n. s.) 645, 2? 91, 219. TABLE OF CASES CITED. XXXIH Powis V. Harding, 1 C. B. (n. s.) 533 ; §J 149, 219. Pratt V. Bacon, 10 Pick. 127, J? 37, 45. V. Topeka Bank, 12 Kan. 570, J 101. Preston v. Grand Collier Dock Co., 10 Sim. 519, 5 122. Price V. Grand Rapids K Co., 18 Ind. 1.37, ? 114. Priest V. Essex Co., 115 Mass. 380, ?§ 56, 312, 369. Prince v. Lynch, 38 Cal. 528, ? 393. Provident Savings Inst. v. Jackson Place Skating-Kink, 52 Mo. 522, il 71, 211, 214. Pryor v. Smith, 4 Bush, 379, § 101. Pugh & Sherman's Case, L. R. 13 Bq. 572, J5 149, 182, 183. Pullman v. Upton, 96 U. S. 329, JJ 189, 223, 408. Purdy's Case, 16 W. B. 660, ? 107. Queen v. Carnatic E. Co., L. E. 8 Q. B. 299, g 233. V. Victoria Park Co., 1 Q. B. 292, 215. Quiner v. Marblehead Soc. Ins. Co., 10 Mass. 476, JJ 210, 217. Ramsay's Case, 3 Ch. Div. 388, ? 97. Eankine v. Elliott, 16 N. Y. 377, JJ 340, 366, 423. Eastrick t>. Derbyshire, etc., E. Co., 9 Exch. 149 ; 7 Eail. C. 799 ; 17 Jur. 977; 23 L. J. (Exch.) 2, § 332. Eawlings v. Wickham, 3 De G. & J. 304, 2 142. Reading Industrial Man. Co. v. Graeff, 64 Pa. St. 395, ? 61. Beaveley's Case, 1 De G. & Sm. 550, ?229. Reavely {Ex parte), 1 Ha. & Tw. 118, 5 229. Reciprocity Bank (Matter of), 22 N. T. 17, 5J 161, 171, 205, 233, 234, 236, 417. Reed's Appeal, 34 Pa. St. 207, ? 240. Regina v. Derbyshire, etc., E. Co., 3 El. & Bl. 784; 18 Jur. 1054; 23 L. J. (Q. B.) 333, 2 332. Eeid I). Eatonton Co., 40 Ga. 101, JJ 4, 10, 11, 18, 19. Eeid's Case, 24 Beav. 318, ? 229. Eensselaer, etc., Co. v. Barton, 16 N. T. 457, ?§ 105, 107, 193. Eeynell v. Lewis, 15 Mee. & W. 517, J 167. Eeynolds v. Douglass, 12 Pet. 497, J 295. V. Feliciana Co., 17 La. 397, ^J 37, 349, 358. Eex V. Mothersell, 1 Stra. 93, ^ 371. Eice V. Rock Island, etc., Co., 21 111. 95, 5§ 407, 413, 415. V. Southgate, 16 Gray, 142, J 60. EicTiardson (Ex parte), 1 Buck, 209, J 251. Richardson v. Abendroth, 43 Barb. 162, i 262. Richardson's Case, L. R. 19 Bq. 566, §§ 183, 228, 229. Richmond „. Willis, 13 Gray, 182, | 377. Richmond's Executor's Case, 4 Kay & J. 305, 55 194, 234, 235. Eipley v. Sampson, 10 Pick. 371, JJ 50, 56, 193, 254. Eivanna Navigation Co. v. Dawson, 3 Gratt. 19, J 237. Eivington's Case, 3 Ch. Div. 10, g 217. Bobbins v. The Justices, 12 Gray, 225, §327. Roberts v. Albany, etc., E. Co., 25 Barb. 662, 5 366. V. Mobile & Ohio E. Co., 32 Miss. 373, 5 116. Eoberts's Case, 3 Do G. & Sm. 205 ; 2 Mac. & G. 192, JJ 116, 119, 167. Eobinson v. Bank of Darien, 18 Ga. 65, 55 20, 40, 41, 380, 381, 420, 423. B. Bidwell, 22 Cal. 379, J 75. V. Chartered Banks, L. E. 1 Eq. 32, 5 210. V. Pittsburgh, etc., E. Co., 32 Pa. St. 334, 5 124. Eobinson's Executor's Case, 6 De G. M. & G. 572, 55 249, 284. XXXIV TABLE OF CASES CITED. Kobison v. Carey, 8 Ga. 530, |§ 10, 265. Rochester v. Barnes, 26 Barb. 657, | 71. Rockville, etc., Turnpike Co. v. Tan Ness. 2 Cranch C. Ct 449, ? 413. Rogers's Case. L. R. 3 Ch. 637. il 109, llo. Roman i . Fry, 5 J. J. Jlarsh. 634, JJ 211, 218. 229. Roserelt r. Brown, 11 X. T. 151, JJ 94, 223. Rowley v. Stoddard, 7 Johns. 210, J 393. Royal British Bank v. Turquand, 6 El. & Bl. 327, § 40-5. Ruffin {Ex pai-te), 6 Yes. 119, i 26. Runnett r. Viniyak Pindurang, 9 Bombay H. C. Rep. 27, J 244. Rutland, etc, R. Co. o. Lincoln, 29 Yl 203, 1 166. Sackett'i Harbor Bank v. Blake, 3 Rich. Eq. 225, gg 83, 85, 374, 380. Sadler's Case, 8 De G. & Sm., J^ 220, 233. Saffold V. Barnes, 39 Miss. 399, ? 142. Sagory r. Dubois, 3 Sandf. Ch. 466, JJ 105, 193, 201. Sainter i-. Furgusson, 8C. B. 619; s. c, 7 Dow. & L. 301, § 331. Salem Mill-Dam Corp. c. Rope?, 9 Pick. 187, §§ 144, 193. Salmon i;. The Hamborousrh Co., 1 Sargent i. Franklin Ins. Co., 8 Pick. 90, J 217. Sargent's Case, L. R. 17 Eq. 273, g 153. Saunders's Case, 2 De G. J. & S. 101, I 233. Sawyer v. Hosg, 17 Wall. 610, || 10, "207. 237, 341, 382, 386, 887, 394. Sayles i. Blane, 14 Q. B. 205, | 217. SchaeflFer c. ilissouri Ins. Co., 46 Mo. 248, 15 105, 106, 170. Schenectady, etc, Co. v. Thatcher, 11 X. Y. 102, II 173, 188, 407. Schouton u. Kilmer, 8 How. Pr. 527, I 57. Schricker v. Ridings, 65 Mo. 203, 1 37. Schroeder's Case, L. R. 11 Eq. 131, | 130. ScoTille V. Canfield, 14 Johns. 338, | 82. Scott I.-. Berkley, 3 C. B. 925; s. c, 5 Rail C. 51"; 16 L. J. (C. P.) 107, I 112. Seamans o. Carter, 15 Wis. 54S, | 62. Searsburg Turnpike Co. u. Cutler, 6 Yt. 315, I 407. Selma, etc., R. Co. c. Tipton, 5 Ala. 787, li 10.5, 193. Semmes v. Hartford Ins. Co., 13 Wall. I08, I 318. Sewall r. Alien, 6 Wend. 335, | 274. Sewell's Case, L. R. 3 Ch. 131, || 171. 187, 217, 231. Seymour v. Sturijess. 2J X. Y. 134, || 80. 81, 83, 105. Gas. in Ch. 204; s. c. 1 Kyd on I Shacklel'ord's Case, L. R. 1 Ch. 567 i „,_,__-, " I '* Corp. 273, II It), 336. Salt Lake City National Bank c. Hen- drickst)n, 6 Reporter, 212 (Sup. Ct. X. J., 187S), I 4. Samples v. The Bank, 1 Woods, 523, I 287. Sampson v. Bowdoinham Steam Mill Corp., 36 .Me. 78, | 407. Sanford v. Board of Supervisors, 15 How. Pr. 172, 1 1. Sanger u. Upton, 91 IT. S. 60, || 11, 105, 417. Sargent t. Essex R. Co., 9 Pick. 202, I 217. llii, Shaler, eto., Co. v. Quarry Co., 34 Barb. 309, | 84. Sharpus's Case. 3 De G. & Sm. 49, | 118. Shaw V. Boylan, 16 Ind. 384, || 4, 80. r. Fisher, 2 De G, ..t Sm. 11, | 217. r. Rowley, 16 -Mee. & W. 810, | 217. Sheffield's Ca^e, Johns. (Eng. Ch.) 4-51, I loil. Sheffield, etc., R. Co. r. Woodcock, 2 Rail. C. 522. | 217. TABLE OF CASES CITED. XXXV Sheldon v. Cox, 2 Eden, 224, ? 240. Shellington v. Howland, 67 Barb. 14 ; 53 N. T. 371, ii 217, 812, 315, 318, 400. Shepherd v. Hills, 32 Eng. Law & Eq. 533, J 235. Shepherd's Case, L. R. 2 Ch. 16, J 217. Sheriff!). Oil Co., 7 Phila. 4, § 352. Sherwood v. Buffalo, etc., E. Co., 12 How. Pr. 136, J 366. Ship's Case, 2 De G. J. & S. 544, §§ 151, 152. Shortridge v. Bosanquct, 16 Beav. 84, . §5 217, 220. Sidney's Case, L. R. 13 Eq. 228, §g 109, 203. Simonds v. Estate of Powers, 28 Vt. 354, J 62. Simonson v. Spencer, 15 Wend. 548, il 34, 272, 346. Simpson's Case, L. E. 9 Eq. 91, § 153. Skinner v. White, 1 Hopk. Ch. 107, | 391. Skowliegnn Banlc v. Cutler, 49 Me. 315, ?? 177, 217. Slater's Case, 35 Beav. 391, J 211. Slaj'maker v. Gettysburg Bank, 10 Pa. St 373, ? 218. Slee V. Bloom, 5 Johns. Ch. 382 ; 19 Johns. 473, ?5 4, 10, 11, 16,-17, 194, 200, 267, 310, 329, 330, 346, 386. Slocum V. Providence Steam, etc., Co., 10 R. I. 112, 2^407,409. V. Warren, 10 R. I. 116, JJ 412, 413, 414. Small V. Herkimer Man. Co., 2 N. T. 330; s. v., 21 Wend. 273; 2 Hill, 127, II 105. 193. Smith V. Heidecker, 39 Mo. 157, 1 1-54. V. Huckabee, 53 Ala. 193, H 4, 10, 80, 258, 259, 265. V. Mutual Life Ins. Co., 14 Allen, 336, i 82. V. Natchez Steamboat Co., 1 How. (Miss.) 479, H 193, 371. V. North American Mining Co., 1 Nev. 428, J 115. V. Plank-road Co., 30 Ala. 650, 2107. Smith V. Reese River Co., L. R. 2 Eq. 264, § 142. V. Tallahassee, etc., R. Co., 30 Smith's Case, L. R. 2 Ch. 604, § 199. Ala. 650, 2 121. Snell's Case, L. R. 5 Ch. 22, H 193, 194, 203. Snow V. Peacock, 2 Car. & P. 215, g 407. Society for the Propagation of the Gospel 1). Town of Pawlet, 4 Society of Practical Knowledge v. Abbott, 2 Beav. 559, H 1, 12. Pet. 480, I 408. Sohn V. Waterson, 17 Wall. 596, J 287. South Bay Meadow Dam Co. u. Gray, 30 Me. 547, J 193. South Carolina Man. Co. v. Bank of South Carolina, 6 Rich. Eq. 227, P8. South Staffordshire R. Co. v. Burn- side, 5 Exch. 129, I 244. Southern Plank-road Co. u. Hixon, 5 Ind. 165, I 164. Southern Steam Packet Co. v. Miigrath, McMuU. Eq. 93, § 374. Southmayd v. Russ, 3 Conn. 52, \l 28, 34, 92, 272, 325. Spackman o. Evans, L. R 3. H. L, 198, II 9, 194, 196, 197, 198, 199. Spackman's Case, 34 L. J. (Ch.) 321 ; 11 Jur. (n. s.) 207, II 194, 197. Spader v. Davis, 5 Johns. Ch. 280, J 351. Spangler ti. Indiana, etc., R. Co., 21 in. 276, I 116. Sparger v. Cumpton, 54 Ga. 355, |2 3, 67. Spargo's Case, L. R. 8 Ch. 407, g 180. Sparrow v. Evansville, etc., R. Co., 7 Ind. 369, I 70. Spear v. Crawford, 14 Wend. 20, H 105, 107, 404. V. Grant, 16 Mass. 9, §J 10, 11, 18, 258. Spence v. Iowa Valley Con. Co., 36 Iowa, 407, II 4, 7. Spence's Case, 17 Beav. 203, J 251. XXXVl TABLE OF CASES CITED. Squires v. Brown, 22 How. Pr. 35, J 84. St. Louis Perpetual Ins. Co. u. Good- fellow, 9 Mo. 149, ? 217. St. Louis Railway Supplies Co. v. Harbine, 2 Mo. App. 134, § 71. Stace & Worth's Case, L. R. 4 Oh. 682, § 172. Stanhope's 1st Case, 3 De G. & Sm. 198, § 196. Stanhope's 2d Case, L. R. 1 Ch. 161, g? 194, 195. Stanley v. Stanley, 26 Me. 191, ^J 65, 76, 177, 371. State (The) v. Bailey, 16 Ind. 46, J 70. V. Perris, 42 Conn. 560, J 177. V. Franklin Bank, 10 Ohio, 91, ?248. V. Jefferson Turnpike Co., 3 Humph. 305, § 142. V. John, 5 Ohio, 217, § 82. V. Morristown Fire Assn., 23 N. J. L. 195, §5 11, 19. State Bank v. Fox, 3 Blackf. 431, § 237. State Savings Assn. v. Kellogg, 52 Mo. 583, §§ 302, 303, 310, 318, 366, 400, 424, 426. Stedman v. Eveleth, 6 Mete. 114, gj 312, 377. V. Feidler, 20 N. Y. 437, g 251. Stephenson's Case, 45 L. J. (Ch.)488, §137. Sterling Bridge Co. v. Baker, 75 111. 139, § 240. Stevens v. Rutland, etc., R. Co., 1 Am. L. Reg. 154; «. c, 29 Vt. 545, §189. V. South Devon R. Co., 13 Beav. 48, i 186. Stewart v. Dunn, 12 Mee. & W. 655, §97. V. Lay, 45 Iowa, 604, §§ 376, 401. Stewart's Case, L. R. 1 Ch. 574, §§ 151, 152, 153, 194. Stocken's Case, L. E. 3 Ch. 412, §§ 199, 374. Stokes V. Lebanon, etc., T. Co., 6 Humph. 241, § 193. Stone V. City and County Bank, 3 C. P. Div. 807, § 148. Stone V. Davidson, 56 Ga. 179, § 288. V. Wiggin, 5 Mete. 316, §§ 312, 313, 325. Stone's Case, 3 De G. & Sm. 220, § 243. Storm V. Waddle, 2 Sandf. Ch. 494, J§ 851, 366. Story V. Furman, 25 N. Y. 215, §§ 71, 73, 342, 417. Stover V. Flack, 30 N. Y. 64, §§ 179, 376. Straffon's Executor's Case, 1 De G. M. & G. 589, §§ 169, 173, 217, 220. Stroble v. Large, 3 McCord, 112, § 374. Strong V. Wheaton, 38 Barb. 616, §§ 105, 329, 330, 349, 350. Sturges i;. Burton, 8 Ohio St. 215, §84. V. Crowninshield, 4 Wheat. 200, §§ 73, 287. Sumner v. Marcy, 3 Woodb. & M. 105, §§ 80, 406. Sutton's Case, 3 De G. & Sm. 262, §§ 210, 376. Symons's Case, L. R. 5 Ch. 298, §§ 90, 229. Taft V. Ward, 106 Mass. 518, §§ 2, 86. Taite's Case, L. R. 3 Eq. 795, §§ 151, 153. Tallmadge v. Fishkill Iron Co., 4 Barb. 382, §§ 40, 127, 380, 381 382. Talory v. Jackson, Oro. Car. 513, '§ 285. Tappan v. Bailey, 4 Mete 529, §§ 2, 4. Tar River Nav. Co. v. Neal, 3 Hawlcs, 520, §§ 105, 193, 407. Tarbell v. Page, 24 111. 46, §§ 3, 9, 10, 302, 303, 407, 408. Taylor v. Hughes, 2 Jones & Lat. (Irish Ch.) 24, § 199. V. Miami Exporting Co., 7 Ohio, 162, § 237. V. Taylor, L. R. 10 Eq. 477, §§ 249, 251. Terry o. Anderson, 95 U. S. 628, | 287. V. Tubman, 92 U. S. 156, §§ 295, 299. TABLE OF CASES CITED. XXXVll Thames Tunnel Co. v. Sheldon, 6 Barn. & Cress. 841, J 108. Thayer v. Union Tool Co., 4 Gray, 75, J§ 259, 262, 263, 327, 346, 386. Thetford (Case of), 12 Vin. Abr. 90, pi. 16, ? 371. Thigpen v. Mississippi Central E. Co., 32 Miss. 347, | 121. Third National Bank v. Culver, 64 HI. 528, 5 369. Thomas v. Dakin, 22 Wend, 9-112, Thomas's Case, L. E. 13 Eq. 437, | 203. Thompson v. Brown, 4 Johns. Ch. 618, ? 251. Thomson's Case, 4 De G. J. & S. 749, J§ 110, 136. Thornton v. Lane, 11 Ga. 459, |J 285, 312, 320, 324. Thorp V. Woodhull, 1 Sandf. Ch. 411, 2107. Tinkham v. Borst, 31 Barb. 407, gj 3, 7, 9, 10, 81. Tippets V. Walker, 4 Mass. 595, ? 248. Tobacco Pipe Makers' Co. v. Wood- roffe, 8 Dow. & Ky. 530, J 414. Todd V. Emly, 8 Mee. & W. 505, § 167. Tothill's Case, L. E. 1 Ch. 85, § 137. Toucey v. Bowen, 1 Biss. 81, g 322. Townsend v. Goeway, 19 Wend. 424, 2193. Tracy v. Yeates, 18 Barb. 152, |J 94, 99, 100. Trotter v. Strong, 63 HI. 272, J 393. Troy, etc., E. Co. u. Kerr, 17 Barb. 581, §2 193, 373. V. Newton, 1 Gray, 544§ 19 3. Troy Turnpike Co. v. McChesney, 21 Wend. 296, § 193. Trustees v. Flint, 13 Mete. 539, 22 4,80. Tuckerman v. Brown, 88 N. T. 297, 2 206. V. Newhall, 17 Mass. 588, 2 393. Turquand v. Kirby, L. E. 4 Eq. 128, 22 249, 250, 289. Tyrrell v. Washburn, 6 Allen, 472, ^^ 2,4. Umsted v. Buskirk, 17 Ohio St. 113, 22 37, 258, 342, 351, 353, 360, 376, 421. Union Bank v. The State, 9 Terg. 490, 2 248. Union Horse-Shoe Works v. Lewis, 1 Abb. U. S. 518, 2 409. Union Turnpike Co. v. Jenkins, 1 Caines, 380 ; ». c, 1 Caines's Cas, 95, 2 105. United States Bank v. Stearns, 15 Wend. 315, 2 407. United States Express Co. v. Bedbury, 84 111. 459, 2 413. Unity Ins. Co. v. Cram, 48 N. H. 636, 22 411, 412. Upton V. Bumham, 3 Biss. 431 ; s. c, ibid., 520, 22 217, 218. I). Hansbrough, 3 Biss. 417, 22 119, 201, 341, 410, 417. V. Tribilcock, 91 U. S. 47, 22 105, 143, 145,, 194, 201, 207, 341. Utica Ins. Co. v. Tillman, 1 Wend. 556, 2 407. Utley V. Union Tool Co., 11 Gray, 139, 22 411, 412. Van Hoffman v. Quinoy, 4 Wall. 550, §73. Van Hook v. Whitlook, 7 Paige, 373 ; s. c, 3 Paige, 409, ^^ 57, 267, 281, 285, 310. Van Horn v. Ponda, 5 Johns. Ch. 388, 2 347. Van Eiper {Ex parte), 20 Wend. 614, 22 80, 83. Van Sandan v. Moore, 1 Euss. 458, H. Verplanck v. Mercantile Ins. Co., 1 'ih Bdw. Ch. 84, 2 234. Vice V. Anson, 1 Man. & E. 118, 22 175, 199. Vioksburg, etc., E. Co. v. McKean, 12 La. An. 638, 22 107, 121, 142. Villa V. Jonte, 17 La. An. 9, 2 26. Vose V. Grant, 15 Mass. 505, 22 10, 18, 258, 344. Vreeland v. New Jersey Stone Co., 29 N. J. Eq. 188, 22 108, 142. xxxvin TABLE OF CASES CITED. Wakeman v. Grover, 4 Paige, 23 ; s. c, 11 Wend. 187, § 366. Walburn v. Ingilby, 1 Myl. & K. 76, a 4, 5. "Wales V. Stetson, 2 Mass. 146, J 65. Walker ». Bartlett, 36 Eng. L. & Bq. 368; s. c, 18 0. B. 845, ? 217. ». Grain, 17 Barb. 119, J§ 342, 417. V. Mobile, etc., E. Co., 34 Miss. 245, § 142. V. Stillwell (MS.), § 394. Walker's Case, L. E. 2 Eq. 554, §? 210, 217, 220. Walley v. Walley, 1 Vern. 484, § 347. Wallworth i>. Holt, 4 Myl. & Cr. 619, i 12. Walter's 2d Case, 3 De G. & Sm. 244, ?§ 194, 205, 234, 235. Waltham Bank v. Waltham, 10 Mete. 334, § 248. Warburg v. Tucker, 3 Macq. H. L. Gas. 772, § 244. Ward V. GriswoldviUe Man. Co., 16 Conn. 597, g§ 11, 15. Ward V. Reeder, 2 Har. & McH. 154, J 285. V. Sealns. Co., 7 Paige, 294, § 311. Ward's Case, L. E. 3 Eq. 180, JJ 153, 217. Ward & Garfit's Case, L. E. 4 Eq. 118, J 217. Ward & Henry's Case, L. E. 2 Eq. 226, § 153. Warner v. Beers, 23 Wend. 103, § 1. V. Cammack, 37 Iowa, 642, J 57. Washington Bank v. Palmer, 2 Sandf. S. G. 686, 5 328. Waterhouse v. Jamieson, L. E. 2 H. L. Sc. 29, J 2 98, 133, 134, 135, 147, 199. Waugli V. Carver, 2 H. Black. 235; s. i>., 1 Smith Ld. Cas. 968, § 168. Wear v. Jacksonville, etc., K. Co., 24 111. 593, J 116. Webb V. Whiffin, L. K. 5 H. L. 720, 22 97, 98. Webster v. Upton, 91 U. S. 65, JJ 105, 210, 341. Webster's Case, L. R. 2 Eq. 741, J§ 151, 153. Wehrman v. Eeakirt, 1 Cin. Superior Ct. 230, IJ 211, 217, 312, 359, 874. Weigley v. The Coal Oil Co., 5 Phila. Eep. 67, 2 61. Weiss V. Mauch Chunk Iron Co., 58 Pa. St. 295, 2 61. Welles V. Cowles, 2 Conn. 567, ? 248. Wells V. Gates, 18 Barb. 557, J 2. Wert V. Crawfordsville, etc., T. Co., 19 Ind. 242, § 142. West Winsted Savings-Bank v. Eord, 27 Conn. 282, § 413. Weston's Case, L. E. 4 Ch. 20 ; L. E. 6 Eq. 17, 22 97, 210, 211, 213, 228, 229. Weymouth v. Sanborn, 43 N. H. 171, ?101. Whaley v. Dawson, 2 Sch. & Le£ 367, 2 368. Whedon v. Gorham, 38 Conn. 412, ^ 62. J Wheeler v. Frontier Bank, 23 Me. 308, 2 65. Wheelock u. Kost, 77 HI. 293, | 223. V. Moulton, 15 Vt. 519, § 248. White V. Haight, 16 N. Y. 310, J 206. White's Case, L. E. 3 Eq. 80, g§ 217, 233. Whitehouse's Case, L. E. 3 Eq. 790, 22 151. 153. White Mountains E. Co. ». Eastman, 34 N. H. 124, 22 122, 370. Whitman v. Granite Church, 24 Me. 236, 2 371. V. Porter, 107 Mass. 522, JJ 2, 391. Whitwell V. Warner, 20 Vt. 444, JJ 5, 7, 75. Wightman v. Townroe, 1 Mau. & Sel. 412, 22 168, 251. Wilkinson v. Leland, 2 Pet. 656, g 52. Wilkinson's Case, L. E. 2 Gh. 536, §3 150, 151, 153. V. Hanna, 40 Ind. 535, JJ 94, 95 210. ' Williams v. Bank of Michigan, 7 Wend. 542, ? 2. V. Harding, L. E. 1 H. L. 9, Si 243, 297. V. Pigott, 2 Exch. 204, J 167. TABLE OF CASES CITED. XXXIX Williams v. Savage Man. Co., 3 Md. Ch. 211,213. "Williams's Case, L. R. 9 Eq. 225, J J 418, i 2S7. "Wilson V. Pittsburgh, etc., Coal Co., 43 Pa. St. 434, J 329. V. The Stockholders, 43 Pa. St. 424, 5 J 234, 283. V. Viscount Curzon, 15 Mee. & W. 577, i 167. "Wilson's Case, L. E. 8 Eq. 240, JJ 228, 231. "Windham Prov. Inst. v. Sprague, 43 Vt. 502, JJ 56, 100. "Winship v. Bank of the United States, 5 Pet. 562, 2 168. "Winsor v. Savage, 9 Meto. 346, § 391. "Winter v. Muscogee Bay, 11 Ga. 438, ?190. "Wiswell V. Starr, 48 Me. 401, J 311. "Witherhead v. Allen, 4 Abb. App. Dec. 628, | 34. "Wofford V. Gains, 53 Ga. 485, g 101. "Wood V. Duke of Argyle, 6 Man. & G. 928, g 167. V. Dummer, 3 Mason, 308, ^J 10, 11, 13, 18, 19, 357, 359, 360. V. Jefferson Countj' Bank, 9 Cow. 194, 2 371. "Wood's Case, 3 De G. & J. 85, JJ 116, 118. "Woodfall's Case, 3 De G. & Sm. 63, J 130. "Woodruff V. Trapnall, 10 How. 190, 2 71. "Woodruff & Beach Iron- Works v. Chittenden, 4 Bosw. 408, JJ 262, 346, 383, 398. Woolaston's Case, 4 De G. & J. 437, ?§ 193, 198. Wooley V. Kelly, 1 Barn. & Cress. 68, g'26. Worcester Medical Inst. v. Harding, 11 Cush. 285, i 407. Worcester Turnpike Co. v. Willard, 5 Mass. 80, J§ 105, 193. Wormwell v. Hailstone, 6 Bing. 668, ?2. Worral v. Judson, 5 Barb. 210, JJ 177, 217. Wright V. Field, 7 Ind. 376, ? 274. V. McCormack, 17 Ohio St. 86, Jg 258, 275, 342, 421. V. Petrie, 1 Smed. & M. Ch. 282, ?14. V. Shelby R. Co., 16 B. Mon. 4, ? 107. Wright's Case, L. R. 7 Ch. 60, ?g 148, 153, 195. Wyatt V. Darenth "Valley R. Co., 2 0. B. (n. s.) 110, § 332. Wylam's Steam Fuel Co. v. Street, 10 Exch. 849, 2 244. Wynne v. Price, 3 De G. & Sm. 310, ?217. "5foughiogeny Shaft Co. v. Evans, 72 Pa. St. 334, 22 56, 350. Young V. Eosenbaum, 39 Cal. 646, 22 32, 34. Zabriskie v. Cleveland, etc., R. Co., 23 How. 381, 22 68, 69, 412, 413. Zulueta's Claim, L. E. 5 Ch. 444; s. c, Li. R. 9 Eq. 270, 22 205, 234. A TREATISE LIABILITY OP STOOKHOLDEES. PART I. OF THE NATUEE AND EXTENT OF THE LIABILITY OF STOCKHOLDEES. CHAPTER I. OF THE NATUEE OF CORPORATIONS, AND THE LIABILITY OF THEIR MEMBERS IN EQUITY, Section 1. What is a Corporation? 2. Differences between Corporations and Joint-stock Companies. 3. Effect of Dissolution of a Corporation upon its Debts. 4. Non-liability of Members of Corporations at Common Law. 5. Liability of Members of Joint-stock Companies afterwards incor- porated. 6. Liability of Corporators before Stock is distributed. 7. Shareholders personally liable for Frauds committed in dealing with corporate Assets. 8. Members of religious Corporations may be personally liable. 9. Contingent Liability of Shareholders in Equity. 10. Capital Stock a Trust Fund for Creditors. 11. What is Capital Stock? 12. And how pursued by Creditors. 13. Grounds on which Courts of Equity proceed. 14. Cases in which equitable Belief is invoked. 15. Grounds of equitable Relief where Stock is not paid in. 16. Equity will compel Directors to make Assessments. 1 § 1 NATURE OF STOCKHOLDERS' LIABILITT. [PART I. Section 17. Or make the Assessments by its own Methods. 18. Grounds of equitable Relief where Stock is improperly divided. 19. Bond fide Dividends of Profits. 20. If the Stockholder is a Sovereign State. 21. Conclusion. § 1. What Is a Corporation? — A corporation aggregate is a collection of individuals,^ endowed by sovereign author- ity ^ with the faculty of suing and being sued, of holding and transmitting property, and of acting as one person with ref- erence to those matters which are within the objects of its creation.^ It differs from a general partnership in respect of the following incidents : ' " Corporations aggregate are but associations of individuals." Lumpkin, J., in Hightower v. Thornton, 8 Ga. 492. "Who, in law, constitutes the com- pany, if it be not the stockholders ? " Lowe, J., in Blake v. Blake, 19 Iowa, 268. Of course it is not intended to allude in this discussion to corporations sole. It is believed that there are none such, in the United States, organized for trading purposes. 2 " A corporation can only be created and exist by sanction of the Legisla- ture." Morton, J., in Hoadley k. County Commissioners, 105 Mass. 626. » In Thomas u. Dakin, 22 Wend. 9-112, and in Warner v. Beers, 23 Wend. 103-190, the question what is a corporation was discussed with exhaustive research. " We may, in short," said Nelson, C. J., in the former case (22 Wend. 71), "conclude by saying, with the most approved authorities at this day, that the essence of a corporation consists in a capacity (1) to have perpetual suc- cession under a special name and in an artificial form; (2) to take and grant property, contract obligations, sue and be sued by its corporate name as an in- dividual ; and (3) to receive and enjoy, in common, grant* of privileges and immunities." In the same case (22 Wend. 91), Cowen, J., summed up the in- cidents of a corporation mentioned by Blackstone, as follows : " These are, in short, the receiving of peculiar laws, and the making of by-laws for itself; perpetual succession both as to its privileges and property; the having one will, as collected from the power of the majority to make by-laws ; and the being but one pei-son in law, — a person that dies not, but continues the same individual though its parts may change." The definition of Kyd has been frequently quoted : "Though many things be incident to a corporation, yet, to form the complete idea of a corporation aggregate, it is sufficient to sup- pose it vested with the three following capacities : (1) To have perpetual succession under a special denomination, and under an artificial form ; (2) to talce and grant property, to contract obligations, and to sue and be sued by its corporate name in the same manner as an individual ; (3) to re- ceive grants of privileges and im nunities, and to enjoy them in common. These alone are sufficient to the essence of a corporation." 1 Kyd on Corp. 70. The definition of Marshall, C. J., in Dartmouth College «. Woodward, 2 CH. I.J LIABILITY IN EQUITY. § 1 1. Its members may, in general, without restraint, by transferring their shares, introduce other persons in their 4 Wheat. 636, is familiar: "A corporation is an artificial being, invisi- ble, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its crea- tion confers upon it, either expressly, or as incidental to its very existence. These are such aa are supposed best calculated to effect the object for which it was created. Among the most important are immortality and, if the expression may be allowed, individuality; properties by which a perpetual succession of many persons are considered as the same, and may act as a single individual." " A corporation aggregateis a collection of individuals united in one body under such a grant of privileges as secures the succession of members without changing the identity of the body, and constitutes the members for the time being one artificial person, or legal being, capable of transacting some kind of legal business like a natural person." Bronson, J., in The People v. As- sessors of Watertown, 1 Hill, 620. The Constitution of New York, art. 8, § 1, declares that corporations may be formed under general laws; and by 2 3 it declares that the term "corporation,'' as used in that article, shall be construed to include all associations or joint-stock companies having any of the powers or privileges not possessed by individuals or partnerships. The Legislature of that state, in 1849 and also in 1854, passed laws authorizing gen- erally the formation of associations, or joint-stock companies, under the pro- visions of the Constitution, and conferred on them many of the powers and privileges not possessed by individuals or partnerships. The act of 1854 closed with the declaration that " this act shall in no court be construed to give said associations any rights and privileges as corporations." This proviso was held in conflict with the Constitution, and nugatory, and a company organized under these acts was a corporation for the purposes of taxation. Sandford v. Board of Supervisors, 15 How. Pr. 172. The fact that the Legislature has designated a given body as a corporation, or refused the application of such a designation, does not conclusively determine whether it is or is not to be deemed by the courts a corporation. Oliver v. Liverpool, etc., Co., 100 Mass. 531 ; s. c, sub nom. Liverpool Ins. Co. v. Massachusetts, 10 "Wall. 566 ; Thomas v. Dakin, 22 Wend. 103. In this last case, Cowen, J., said: "It has been impossible for me to see the force of the argument that because the Legislature have constantly avoided to call these associations, or any of their machinery, a corporation, then therefore we cannot adjudge them to be so. If they have the attributes of corporations, if they are so in the nature of things, we can no more refuse to regard them as such than we could refuse to acknowledge John or George to be natural persons because the Legislature may, in making provisions for their benefit, have been pleased to designate them as belonging to some other species. Should the Legislature expressly declare each of them to be corporations, with- out giving them corporate succession or other artificial attributes, the declara- tion would not make them so. On the other hand, even an express legislative declaration that certain associations are not included in the definition of cor- porations would not change their character, provided they should in fact be 3 § 1 NATURE OF STOCKHOLDERS' LIABILITT. [PART I. stead ; ' but the members of a general partnership contribute to the common enterprise, not only their respective shares of partnership capital, but also their personal skill and individual credit, and cannot, hence, retire from the part- nership, and introduce other persons in their stead, without the consent of their copartners. 2. The members of a general partnership are, by virtue of their status as such, agents of the partnership firm, and of each other, in all matters within the scope of the part- nership business.^ Not so the members of a corporation. They can only act about the business of the corporation in their aggregate capacity, through the agency of a commit- tee, commonly called a board of directors or a board of trustees, whom they have chosen to represent them." 3. The members of a general partnership are jointly and severally liable to pay, out of their private estates, all the clothed with all the essential powers of corporations." The writer ventures the opinion that for purposes of substantial right the aggregate body of share- holders should be deemed to be the corporation. This is the view which the English courts appear to be now taking of the registered joint-stock companies of that country, formed under recent statutes, which do not differ in substance from American corporations. Those courts have, accordingly, held that fraud- ulent and ultra vires acts of the directors of a company, assented to by the members in general meeting, became the acts of the company itself. And, as we shall see hereafter {post, J 328), the individual stockholder is for many pur- poses of substantial justice deemed to be, not a stranger to the corporation, but in privity with it. But by a Action of law, resorted to, it is believed, merely for the convenient administration of justice, the corporation is deemed to be one person, whilst the stockholders — even the whole of them taken col- lectively — are other persons. This distinction is well illustrated and discussed by Lord Langdale, M. R., in the caste of The Society of Practical Knowledge ■u. Abbott, 2 Beav. 559, where all the corporators, four in number, by mutual assent, divided the capital stock of the corporation among themselves without fully paying for it, and the corporation afterwards sustained a bill in equity against them to recover the deficiency. ' Chouteau Spring Co. ii. Harris, 20 Mo. 882 ; Moore v. Bank of Commerce, 52 Mo. 877; post, §210. ^ This, however, is not a necessaj-y incident of a partnership ; I am merely describing the more common incidents. See Gallway ti. Matthew, 10 East, 264. ' Dayton, etc., R. Co. v. Hatch, 1 Disney, 84; Dnna v. Bank of United States, 5 Watts & S. 247 ; Conro v. Port Henry Iron Co., 12 Barb. 27. 4 CH. I.] LIABILITY IN EQUITY. § 2 debts of the partnership firm.* But in the United States the members of a corporation are not, in general, liable to pay any of the corporate debts,'' unless (1) they have withheld or received some of the assets of the corporation, or (2) unless they are otherwise made liable by the terms of the charter of the corporation or by statute. § 2. Differences between Corporations and Joint-stock Companies. — An English joint-stock company resembles a corporation, in respect of the fact that by reason of the number of its members it acts by a board of directors or trustees,* and sues and is sued as one person, or in the name 1 Post, I 19. « Post, I 3. » Barnes v. Pennell, 2 H. L. 520. ""We are told," said Lord Campbell in this case, " that a joint-stock company (at least if not incorporated, and only empowered by a public act of Parliament, as this is, to sue and be sued by its officers) is in the same situation as any mercantile partnership consisting of two or three individuals carrying on business jointly under an ordinary deed of partnership or by a parol agreement among themselves of which the world is ignorant, in which case what is said or done by any one partner respecting the partnership business affects all the partners, although in violation of their agreement inter se. But why is this so! Because, carrying on business jointly under a common form, they hold out to the world that each of them has authority to manage the partnership concerns. Therefore all are bound by what each does in conducting the partnership business. All the members of the firm are liable to the bond fide holder of a bill of exchange, drawn, ac- cepted, or endorsed by any one of them. But supposing that, A., B., and C- entering into partnership, it is expressly stipulated that A. shall not draw, ac- cept, or endorse bills in the partnership name, and this stipulation is known to X., he would have no remedy against B. and C. on a bill of exchange which he had induced A. to draw, accept, or endorse. Therefore, on the principle which regulates the liability of common parties, a distinction must be made between a member of a common mercantile partnership and a shareholder in a joint-stock company. No one will contend that a joint-stock company would be liable on a bill of exchange, drawn, accepted, or endorsed by any one shareholder. Why ? Because it is known that the power of carrying on the business of the company, and of drawing, accepting, and endorsing bills of exchange, is vested exclusively in the directors. This shews that although a joint-stock company is a partnership, it is a partnership of different description, and attended with different incidents and liabilities, from a partnership constituted between u few individuals who carry on business jointly, withi equal powers and without transferable shares. All who have dealings with a joint-stock company know 5 § 2 NATURE OF STOCKHOLDERS" LIABILITY. [PART I. of an officer ; ' but, in rcspcot of tho luibility of its mcnibors for its debts, a corporation, in jioncral, dltfers from a joint- stock company as it difi'crs from a partnorsliip : the mem- bers of a joint-stock company are, in general, liable as partners.' A corporation and an English joint-stock com- that the authority to manage the business is conferred upon the directors, and that a shareholder, as such, has no power to contract for the company." For this purpose, it is wholly immaterial whether the company is incorporated or unincorporated. 1 Wordsworth on Joint-stock Co. 66; Oliver v. Liverpool, etc., Co., 100 Mass. 539; Wormwell i\ Hailstone, 6 Bing. 6(iS; Harrison v. Timmins, 4 Mee. & W. 510 ; Cape's Executors' Case, 2 De G. JI. & G. 573 ; Bartlett i\ Pent- land, 1 Barn. & Adol. 704 ; Taft v. "Ward, 106 Mass. 518. " Ang. & Ames on Corp., § 591 ; Morton, J., in Hoadley v. County Commis- sioners, 105 Mass. 526 ; Williams v. Bank of Michigan, 7 Wend. r)42 : Whitman V. Porter, 107 Mass. 522; Oliver «. Liverpool, etc., Co., 100 Mass. 589; Dow v. Sayward, 12 N. H. 271 ; Taft o. Ward, lOS Mass. 613 ; Tappan ,-. Bailey, 4 Meto. 529; Tyriull v. Washburn, 6 Allen, 472; Bod well i\ Eastman, 10 > Mass. 525; Frost u. Walker, 60 Me. 468. "Joint-stock companies," says Sir Nathaniel Lindley, in his work on Partnership, "are not pure partnerships, for their members are recognized as an aggregate body ; nor are they pure corporations, for their members are more or less liable to contribute to the debts of the col- lective whole. They are associations of persons, intermediate between corpo- rations known to the common law and ordinary partnerships, and partake of the nature of both." 1 Lindley on Part. 4. The liability or non-liability of members constitutes the most frequent test by which to determine whether a particular company is a corporation or a joint-stock company. Thus, various acts of Parliament conferred upon an insurance company most of the incidents of a corporation, but declared that such company should not be deemed to be thereby made a corporation. It was thought by an American court that the object of this reservation was to preserve the individual liability of members. Oliver v. Liverpool, etc., Co., 100 Mass. 539. So, acts of Parlia- ment which provided, in substance, that a private company might be sued in the name of the managing director as a nominal party, for and on behalf of the company, that execution so obtained should be levied upon tho surplus fund and other property of the corporation, and that tho managing directors sliould not be personally responsible in respect of contracts made by them in behalf of the company, were held to create a yuas/'-eorporntion, and the court had no power to order an execution against a director against whom » judgment had been thus recovered. Harrison v. Timmins, 4 Mee. & AV. olD. " It is clear," said Lord St. Leonardi, "tliat the law knows no difference between a common partnership of two people and a partnership of one hundred. This company is not an ordinary partnership, but one formed vimler tlie act of 7 Geo. IV. c. 46, by virtue of wliieli, though the public officer only can be sued yet all the members at the time when the judgniunt is obtained may in the 6 CH. l.J LIABILITY IN EQUITY. § 2 pany likewise resemble each other in respect of the trans- ferability of their shares, and the incident of "perpetual succession" of their members.^ In the United States, however, an unincorporated joint-stock company, although it may possess a capital stock divided into shares transfer- able at the will of the holders, do business under a name indicating that it is a corporation, act through a common agency, and not by its individual members,^ and hold its property in the name of a trustee, is deemed to be an ordi- nary partnership with respect of its relations with the public, such as the manner in which it may sue and be sued,' its liability to taxation, and the liability of its members to its creditors. Non-liability of members to creditors will not, of itself, however, determine whether an association is a corporation or not; since, as we shall see hereafter, the members of many American corporations are liable, as part- result be made liable. There is, therefore, a'great difference between a com- pany such as this taking the benefit of the Winding-up Act, and the case of a common partnership so doing. Thi^ does not, however, exclude from consid- eration the deed of partnership." Cape's Executors' Case, 2 De G. M. & G-. 573. 1 Burnes v. Pennell, 2 H. L. 520. ' Tappan v. Bailey, 4 Mete. 529. But see The People v. Assessors of "Watertown, where the free-banking companies of New York were held to be corporations. In this case Bronson, J., declared: "Whether a corporation or not, does not depend upon the number or magnitude of its powers nor the manner in which they were conferred. An association under our general laws, for a village library or to tan hides, possesses all the essential attributes of a corporation in as great perfection as the Bank of England or the East India Company. Nor is it important in what mode or by what particular agency this artificial being transacts its business. It is enough that it has a capacity to act in some form as a legal being." The People v. Assessors of Watertown, 1 Hill, 622. See Hoadley v. County Commissioners, 105 Mass. 519 ; Tyrrell v. Washburn, 6 Allen, 466 ; Taft v. Ward, 106 Mass. 518 ; Bullard „. Kinney, 10 Cal. 60. " Companies and societies which are not sanctioned expressly by the Legislature, pursuant to some general or special law, are nothing more than • ordinary partnerships, and the laws which govern them are the same." Wells o. Gates, 18 Barb. 557, per Clerke, J. ' "Whatever name," said Walworth, C, "such a company may assume and use, in the transaction of its business, it is a partnership and not a corporate designation, and every suit upon a contract with the company must be brought in the names of the several persons composing the firm." Williams v. Bank of Michigan, 7 Wend. 542. 7 § 3 NATURE OF STOCKHOLDERS* LIABILITT. [PAET I. nets , to its creditors .^ Thus an English joint-stock company, possessing the general incidents of an American corpora- tion except the non-liability of its members, and organized under acts of Parliament expressly declaring that it is not a corporation, will nevertheless be deemed a corporation in this country, for the purposes of taxation.* Indeed, there seems to be no substantial difference between an American corporation and an English " company," organized under recent statutes ; ' and I have, therefore, drawn largely from recent English decisions in illustrating the subjects em- braced in this essay. § 3. Effect of Dissolution of a Corporation upon its Debts. — A corporation, by the very terms and nature of its political existence, is subject to dissolution, either by a surrender of its corporate franchises, or by a forfeiture of them for wilful misuser or non-user. Every creditor must be presumed to understand the nature and incidents of such a body-politic, and to contract with reference to them. The existence of a private contract of a corporation cannot be invoked to fasten upon it a perpetuity of existence, contrary to public policy and the nature and objects of its charter.* Nor can a judgment be rendered or revived against a dead corporation, any more than against a dead person.* But the death of a natural person does not extinguish or impair his obligations to his creditors. On the contrary, his estate > Post, 1 25. » Oliver v. Liverpool, etc., Co., 100 Mass. 581 ; affirmed sub nom. Liverpool Ins. Co. V, Massachusetts, 10 Wall. 566. ' Dr. Brice, in his work on Ultra Vires, enumerates these statutes under the head of " Corporations by Act of Parliament," and says : " The above stat- utes, and especially the Companies Acts of 1862 and 1867, enable persons, by a very simple and speedy process, to unite themselves into, and thereby create, a corporation, for almost any and every purpose of life, commercial or other- wise." Green's Brice's Ultra Vires, 2-1. In the United States, corporations are now, for the most part, organized under similar statutes. * Mumma v. Potomno Co., 8 Pet. 287, per Story, J. » Ibid. ; Bonaffe v. Fowler, 7 Paige, 576. 8 CH. I.J LIABILITY IN EQUITY. § 3 remains answerable for his debts as fully as though he were living. So the dissolution of a corporation does not extinguish its contracts with its creditors. The obligation of those contracts survives, except such as, in the nature of the case, are incapable of a specific performance ; and the creditors may still enforce their demands against any prop- erty belonging to the corporation, which has not passed into the hands of a bona fide purchaser.' The old rule of the common law, that with the dissolution of a corporation both the debts due to it and from it are extinguished, is now thoroughly exploded.* It follows that a legislative act dis- ' Mumma v. Potomac Co., 8 Pet. 286 ; Nevitt «. Bank of Port Gibson, 6 Smed. & M. 513, 558 ; Hightower v. Thornton, 8 G-a. 486 ; Curran v. Arkan- sas, 15 How. 311 ; Tarbell v. Page, 24 111. 46 ; Bacon v. Robertson, 18 How. 480; Tinkham o. Borst, 31 Barb. 407. Statutes exist, in many of the states, imposing a personal liability upon members of a corporation in the event of its dissolution ; under which it frequently becomes a question when a corpora- tion is to be deemed dissolved. &eeposi, \l 310, 311. ' In an opinion furnished, as counsel, by Chancellor Kent, and read in the celebrated case of Nevitt v. Bank of Port Gibson, 6 Smed. & M. 520, that great jurist says : "To permit the odious and obsolete doctrine of ancient date, before moneyed institutions were introduced, to be now applied on the dissolu- tion of a bank, perhaps by its own mismanagement and abuse, so that all its assets were to be considered as dispersed to the wind, without any owner or power anywhere to collect and justly apply, would be a disgrace to any civilized state. But this cannot be supposed to take place ; the improved and enlight- ened administration of equity jurisprudence in every part of our country have taught and established sounder and juster doctrines.'' This language was quoted, with approval, by Lumpkin, J., in Hightower v. Thornton, 8 Ga. 493. "The rule of the common law," says Chancellor Kent, in his Commentaries (2 Kent's Com. 307, note), " has in fact become obsolete and odious. It never has been applied to insolvent or dissolved moneyed corporations in England. The sound doctrine now is, as shown by statutes and judicial decisions, that the capital and debts of banking and other moneyed corporations constitute a trust fund and pledge, for the payment of creditors and stockholders; and a court of equity will lay hold of the fund, and see that it be duly collected and applied. The death of a corporation no more impairs the obligation of its contracts than the death of a private person." The Supreme Court of Ala- bama held, in 1847, that a stockholder of a dissolved corporation was not liable to be garnished by a creditor. PaschaU v. Whitsett, 11 Ala. 473. But see, to the contrary effect, Curry v. "Woodward, 58 Ala. 375. An isolated case is found in North Carolina, holding that when the debts of a corporation become extinguished by the dissolution of its charter, the individual liability of the shareholders becomes extinct also. Malloy v. Mallett, 6 Jones Eq. 345. 9 § 3 NATUEE OF STOCKHOLDEES' LIABILITY. [PART I. solving a corporation, and transferring its franchises to an- other, is not unconstitutional, since it does not impair the oblioration of its contracts.^ So, it is a sound view that a man has no constitutional right not to pay his debts ; * an act of the Legishiture, compelling him so to do, does not impair the obligation of his contracts with his creditors, but gives validity to them ; and hence a statute providing that when a judgment is entered against an incorporated bank, ousting it of its franchises, its debtors shall not thereby be released from their debts and liabiUties, and prescribing a mode for collecting such debts and enforcing such liabilities, is a valid exercise of legislative power.' A statute providing for a distribution among creditors of the property of cor- porations whose charters had become forfeited was likewise valid.* On the other hand, a law distributing the property of an insolvent trading or banking corporation among its stockholders, or giving it to strangers, or seizing it to the use of the state, would as clearly impair the obligation of its contracts as a law giving to the heirs the personal effects of a deceased natural person would impair the obligation of his contracts.' It follows that a corporation cannot, by dissolving itself, defeat the rights of its creditors ; but if its officers die, resign, or refuse to act, and its shareholders neglect or refuse to appoint others in their place, a court of equity, which never allows a trust to fail for want of a trustee, will interfere, and appoint a receiver or manager ad interim for the purpose of winding up and putting an end to the concern.^ ' Mumma v. Potomac Co., 8 Pet. 281. ' Sparger v. Cumpton, 54 Ga. 355 ; Harris v. Glenn, 56 Ga. 96. « Nevitt V. Bank of Port Gibson, 6 Smed. & M. 513. ' Mudge 5). Commissioners, 10 Rob. (La.) 460. * Curran r. Arlcansas, 15 How. 312, per Curtis, J. 8 Brown v. Union Ins. Co., 8 La. An. 182 ; Curry v. Woodward, 58 Ala. 375. In Carlen v. Drury, 1 Ves. & Bea. 154, wliich involved the question of the neglect of the managers of the nssooiation of the Bankside Brewery to act, the lord chancellor said: "This court is not to be required on every occasion to take the management of every playhouse and brew-house in the 10 CH. I,j LIABILITY IN EQUITY. § 4 § 4. Non-llablllty of Members of Corporations at Com- mon Law. — The general rule of law is that the members of a corporation — that is to say, the shareholders — are not liable for the debts of the corporate body unless they are made so by statute.'' On the contrary, the members of a joint-stock company are jointly and severally liable, as partners, to pay the debts of the concern, unless their lia- bility is restricted by statute.^ In this respect the one organization is exactly the antithesis of the other. More- over, the members of a corporation cannot enlarge their liability by the passage of a by-law or resolution declaring a greater liability than that fixed by their charter or by the general law ; the majority of a corporation cannot thus bind kingdom. But if the case justified the interference of the court, it may ap- point a manager in the interim, for the purpose of winding up and putting an end to the concern. But there must be a positive necessity for the interfer- ence, arising from the refusal or neglect of the committee to act." See also Knowlton v. Ackley, 8 Cush. 93. » Shaw V. Boylan, 16 Ind. 384; Trustees v. Flint, 13 Mete. 539; Coffin v. Eich, 45 Me. 511 ; Gray v. Coffin, 9 Cush. 199 ; French v. Teschemaker, 24 Cal. 540 ; Norton v. Hodges, 100 Mass. 241 ; Salt Lake City National Bank v. Hendrickson, 6 Reporter, 212 (Supreme Court N. J., 1878) ; Oliver v. Liver- pool, etc., Co., 100 Mass. 539, per Hoar, J. ; s. c, sub nom. Liverpool Ins. Co. t. Massachusetts, 10 Wall. 575, per Miller, J. ; Myers v. Irwin, 2 Serg.' & B. 371, per Tilghman, C. J. ; Harger v. McCullough, 2 Denio, 77 ; Van Sandau ti. Moore, 1 Russ. 458 ; Thomas v. Dakin, 22 Wend. 95, per Cowen, J. ; Smith v. Huckabee, 53 Ala. 193, per Brickell, J. ; Slee v. Bloom, 19 Johns. 473, per Spencer, 0. J. It would perhaps be difficult to find a modern case in which the question whether the stockholder of a corporation is, at common law, liable to pay the debts of the concern is distinctly adjudicated ; just as it would be hard to find a case raising and adjudicating the point that at common law the real estate of a deceased person goes to his heir, and his personalty to his next of kin ; but the rule is found to have been recognized in many cases. Middletown Bank v. Magill, 5 Conn. 51, per Hosmer, C. J. ; New England Com. Bank v. Stockholders, 6 R. L 188, per Ames, C. J. ; Spence u. Iowa Valley Con. Co., 36 Iowa, 407. » Walburn v. Ingilby, 1 Myl. & K. 7fc ; Haslett v. Wotherspoon, 2 Eich. Eq. 399, 403 ; s. .>., 1 Strobh. Eq. 227 ; Broyles v. McCoy, 6 Sneed, 602 ; Frost V. Walker, 60 Me. 468 ; Tappan v. Bailey, 4 Mete. 535 ; Tyrrell v. Washburn, 6 Allen, 466. " It is important for the public to know that if persons connect themselves with a company of this description, they are every one of them liable to pay the demands upon it." Abbott, C. J., in Keasley v. Codd, 2 Car. & P. 408 ; Brinham v. Wellersburg Coal Co., 47 Pa. St. 49. 11 § 4 NATURE OF STOCKHOLDERS' LIABILITY. [PART I. the minority, contrary to the charter or the law ; ^ nor does it make any difference that the member sought to be charged signed such a by-law, unless it appears that his signature was attached for some other purpose than merely to constitute him a member of the corporation.^ But a by- law which contains a pledge of individual liability for the corporate debts, if made for the purpose of enabling the corporation to obtain a loan on the faith of it, and used for that purpose, may perhaps give a right of action against the subscribers, in favor of a party who has been induced to advance money on its credit.' Therefore, in an action of assumpsit against a member of a corporation, brought by one of its creditors to recover money lent to it, evidence was not admissible to prove that the defendant informed other creditors, when they lent money to the corporation, that its members were individually liable for its debts, and showed them a by-law of the corporation imposing such liability.* An oral promise of a member of a corporation to pay its debts will not bind him ; such promise being within the statute of frauds.* Where the individual property of stock- holders of a bank is not made liable for its debts, either absolutely or conditionally, and by a specified process, an endorsement on the bills of the bank of the words ' ' indi- vidual property of stockholders liable ' ' does not of itself give any right of action to the bill-holders against the stockholders, or against the president and cashier sio-nin Moss V. Oakley, 2 Hill, 265; Middletown Bank u. Magill, 5 Conn. 28, per Hosmer, C. J., and Brainard, J. ; post, J§ 94, 95, 99, 100. 2 Post, I 160 et seq. ' Bond o. Appleton, 8 Mass. 472 ; Middletown Bank v. Magill, 6 Conn. 28, per Curiam, Chapman, Peters, and Bristol, JJ., contra, Hosmer, C. J., and Brainard, J. ; Marcy v. Clark, 17 Mass. 330. * Post, Ch. VI. " Harger v. McCuUough, 2 Denio, 119 (overruling Moss v. McCuUough, 5 Hill, 131) ; Corning v. MoCullough, 1 N. Y. 47 ; Moss v. Averell, 10 N. Y. 449, 459 ; Southmayd v. Euss, 3 Conn. 52 ; Mokelurane Hill, etc., Co. v. Wood- bury, 14 Cal. 265 ; Davidson v. Eankin, 34 Cal. 503 ; Young v. Rosenbaum, 39 Cal. 646 ; Marcy v. Clark, 17 Mass. 330 ; Simonson v. Spencer, 15 Wend. 548. « Harger v. McCuUough, 2 Denio, 123 ; contra, Hanson v. Donkersley, 37 Mich. 184. ' Southmayd v. Euss, 3 Conn. 52 ; Planters' Bank v. Bivingsville, etc., Co., 10 Rich. L. 95 ; Simonson v. Spencer, 15 Wend. 548 ; Preeland v. McCuUough, 1 Denio, 444. One court has held that a scire facias on a judgment obtained against the corporation does not lie. Southmayd v. Russ, sup-a. The writer is unable to see the force of the reasoning by which this result is arrived at. If it proceeds upon the ground that there is no privity between the stock- 38 CH. II. J LIABILITY UNBEK PAETICDLAE STATUTES. § 35 predicated on a judgment obtained against the corporation ;* nor is the remedy against the shareholders merged in the judgment against the company.^ 4. For the same reason the statute of limitations begins to run in favor of the stock- holder from the time when the debt was contracted.' But this is not so where the statute requires the creditor to ex- haust his remedy against the corporation before he can sue the stockholder.* 5. At common law, the liability of part- ners is a joint liability ; which means that in an action at law against partners on a partnership contract all must be joined, though the execution may be levied of the estate of any one of them ; and, further, that if one partner dies, the action dies with him, and, without the aid of a statute, can- not be revived against his estate. But equity, for the pur- poses of justice, considers a partnership liability to be sev- eral as well as joint; and hence, if one partner dies, and the other becomes insolvent, a creditor of the firm may maintain a bill in equity to have satisfaction of his debt out of the deceased partner's estate; and this rule applies to the members of corporations to whom the liability of part- ners attaches.* § 35. Illustrations. — There is a case in Pennsylvania where it is said that the liability of stockholders under the holders and the corporation, as Bristol, J., stated, it is undoubtedly wrong. Post, J 328. But another court, apparently with more reason, has held that an action at law lies, in their corporate name, against the persons thus liable as partners. Planters' Bank v. Bivingsville, etc., Co., 10 Rich. L. 95. ^ Toung V. Eosenbaum, 39 Cal. 646; Davidson v. Eankin, 84 Cal. 503; Witherhead v. Allen, 4 Abb. App. Dec. 628. ^ Young V. Eosenbaum, supra; "Witherhead v. Allen, supra; Conklin v. Furman, 57 Barb. 484. See Dodge v. Minnesota, etc., Co., 16 Minn. 368. ' Davidson v. Eankin, 34 Cal. 503. The rule is the same where the officers of a corporation are made personally liable for its debts during the period of an omission on their part to perform a statutory duty. Bassett v, St. Albana Hotel Co., 47 Vt. 313. « Post, I 293. " New England Commercial Bank ». The Stockholders, 6 E. I. 154, 189; post, Ch. XV. 39 § 35 NATURE OF STOCKHOLDERS' LIABILITT. [PART I. statute of that state, passed in 1853, is secondary, not pri- mary ; collateral, not principal ; analogous to a case of guar- anty, to be enforced if the regular process in the principal contract proves fruitless, or if the corporation becomes insol- vent. The result deduced from this doctrine is that, the statute not having prescribed any form of proceeding, the court will apply the remedy usual against guarantors, and will entertain separate actions against the primary and sec- ondary debtors.^ The Supreme Court of Michigan has adopted the view that under a statute of that state, ^ making stockholders in certain corporations liable for work and labor done for the corporation, the liability of the stockholders is secondary, in the nature of that of sureties. Hence, where the laborer indulged the company in the matter of time, and accepted a promissory note in payment, and afterwards sued the company and recovered judgment thereon, he could not recover against a stockholder.' "We shall see, in another chapter,^ that the prevailing doctrine is that the liability of stockholders is so far secondary that the creditor cannot pro- ceed against them while he has recourse against the company. But the opinion of the majority of the Michigan court is an isolated view, and one manifestly tending to obstruct the policy of the statute, which was to secure to' the laborers and servants of corporations their wages. III. Limited several Liability. § 36. Nature and Divisions. — The most common lia- ' Patterson v. Wyomissing Co., 40 Pa. St. 117. » The statute, so far as is material to the question, is as follows: "The stoclfholders of all corporations founded upon this act shall be individ- ually liable for all labor performed for such corporation, which said liability may be enforced against any stockholders, by action founded on this statute, at any time after an execution shall be returned and not satisfied, or at any time after an adjudication in bankruptcy against such corporation." 1 Comp. Laws Mich. 1871, § 2852. " Hanson v. Donkersley, 37 Mich. 184. Marston, J., dissented, and his view- more nearly accords with the current of opinion. * Post, Ch. XVUI. 40 CH. II. J LIABILITY UNDEK PARTICULAR STATUTES. § 37 bility imposed by statute upon stockholders is a limited several liability, each stockholder standing liable individ- ually to creditors to a certain amount, according to the amount of stock owned by him. This liability is frequently called, on account of its several character, an individual liability ; and in some states, where it is limited to an amount equal to the amount of stock held by the member, irrespective of whether such stock has been paid in or not, it passes under the designation of double liability. This lia- bility is generally limited in two ways : 1 . To an amount equal to the shares of capital stock held by each member. 2. To an amount equal to the ratio which each man's proportion of the capital stock bears to the entire corporate indebtedness. § 37. Limited several Liability according to Stock held. — 1. Under this head, two sorts of American statutes will be found : ( 1 . ) Those declaring a liability to the extent of the capital stock subscribed and not paid in. These statutes are simply declaratory of the common law. (2.) Those declaring a liability to the extent of the stock sub- scribed, in addition to this common-law liability. Thus, under a statute maldng each stockholder liable " to double the amount of his stock, and no more," a stockholder is liable to pay up the subscription price of the stock by him held, and also to pay, for the benefit of creditors, an equal amount again ; he is not liable to pay for his stock, and twice as much more.' The distinctive characteristic of this liability is that each member stands liable for a definite sum, and no more, irrespective of the amount for which the others are liable. It is a several, unequal, and limited liability, as to which each member stands alone, except that, if he pays more than his proportion of the debts of the company, he may, as in other cases, have contribution from his fel- ' Schricker v. Eidings, 65 Mo. 208; overruling Lewis v. County of St. Charles, MS., St. Louis Court of Appeals. 41 § 37 NATURE OF STOCKHOLDERS' LIABILITY. [PAET I. low-shareliolders.^ Judgment cannot be rendered against the members jointly, or against each in solido.^ It neces- sarily follows that in those states whose policy permits a creditor to bring an action at law to enforce this liability the action is not joint, as where the members are liable as partners,' but each member must be separately sued.^ But this, as we shall see, presents no obstacle to the joining of all the members as defendants in a suit in equity ; for these courts have the power, in a proceeding in which all the members are before it, to mould their decree according to the several rights and liabilities of each member.* The rule in equity is, therefore, the reverse of that at law ; here, all members must be made parties, unless the joinder of same is shown to be impracticable.' There is, however, no inflexible rule on this subject. Thus, in a creditor's suit in equity against shareholders, in Kentucky, some of whom had not been served with process, it was held that, since their liability was several under the statute, to decree against some of them and continue the cause as to the others was not error ;' but in Louisiana the court, while holding that a judgment could not be rendered against stockholders in solido for a corporate debt, ruled that it was error to single out a portion of the stockholders and take judgment against them, and lay the cause over as to the rest.* But here the liability appears to have been that of partners, the charter providing that the stockholders should not be exempt from 1 Post, I 349. 2 Reynolds v. f eliciana Co., 17 La. 397-406. s Post, I 349. ' Paine v. Stewart, 83 Conn. 516 ; Bank of Poughkeepsie o. Ibbotson, 24 "Wend. 473 ; Abbott v. Aspinwall, 26 Barb. 202 ; Pevry v. Turner, 55 Mo. 418 ; Pettibone x,. McGraw, 6 Mich. 441 ; Re Hollister Bank of Buffalo, 27 N. T. 393 ; Pratt v. Bacon, 10 Pick. 127. 5 TJmsted v. Buskirk, 17 Ohio St. 118 ; Perry o. Turner, 55 Mo. 426, per Nap ton, J. 6 Umsted v. Buskirk, 17 Ohio St. 118 ; Pierce «. Milwaukee Co., 88 Wis. 258 ; Coleman v. White, 14 Wis. 700 ; Crease v. Babcook, 10 Mete 525. ' Castleman v. Holmes, 4 J. J. Marsh. 5. ' Reynolds v. Feliciana Co., 17 La, 897. 42 CH. II. J LIABILITY UNDER PARTICULAR STATUTES. § 38 personal responsibility for losses which might be sustained beyond the amount of the capital stock. ^ § 38. Contingent individual Liability. — Several of the states have adopted the policy of charging stockholders with a contingent personal liability for the debts of the corpora- tion. This sort of liability is generally limited in point of time, and is made to terminate on the happening of a certain event, such as the paying in of all the capital stock. An illustration of this will be found in the following statute of Maryland : " AH the stockholders of any such corporation shall be severally and individually liable to the creditors of the corporation of which they are stockholders, to an amount equal to the amount of stock held by them respect- ively, for all debts and contracts made by the corporation, until the whole amount of the capital stock fixed and limited by the corporation shall have been paid in, and a certificate thereof made and filed as prescribed in the fol- lowing section of this article ; and the capital stock so fixed and limited shall all be paid in, one-half thereof in one year, and the other half thereof in two years, from and after the incorporation of said company, or such corporation shall be dissolved." ^ This statute was held to mean that the several stockholders of a corporation are individually liable until the whole amount of its capital stock shall have been paid in, for any debts of the corporation contracted before that time ; the paying in of all the stock terminated the liability. If, therefore, the whole capital stock of a company was paid in before the trial of a suit brought by a creditor against a stockholder under this statute, the antecedent liability of the defendant having thus terminated, the plaintiff could not proceed to judgment.' These provisions were also held equally applicable to an increase of the capital stock by the 1 1 Moreau's Dig. 261. 2 Supp. to Code Md. 1868, art. 26. « Booth V. Campbell, 37 Md. 522. 43 § 38 NATURE OP stockholders' liabilitt. [part I. corporation, under a statute authorizing such increase, as to the original fixing of it in the charter ; so that until all the stock, as increased, is paid in, the members are severally liable for the corporate debts.' The amount of liability is measured by the par value of the stock held by each stock- holder, and is in no way affected by the amount of capital that may at any time remain unpaid.'^ The statute of Maryland from which the foregoing quotation is made is silent as to the creditor's remedy. The court held that he may proceed either at law' or in equity.* Under the New York statute regulating the formation of ocean steamship companies, a stockholder, even if he had fully paid up lus stock, or held by assignment fully-paid stock, was held liable for the entire amount he held, for all debts contracted while he owned the stock, not only until the stock was fully paid up, but also until the certificate thereof was duly filed.* Where a corporation entered upon the enterprise for which it was created upon a less sum of money than they had given out through the act which they had procured the Legislature to pass incorporating them, and afterwards be- came insolvent, the stockholders were held bound to make up the deficiencj^, for the benefit of creditors ; and those who were solvent were held bound to make good the deficiency created by the failure of those who were insolvent. In other words, they were held liable, to all intents and pur- poses, as partners.^ But the same coui-t afterwards held that, where there is no statutory prohibition against com- mencing business before the capital is paid in, and no fraud appears on the part of the stockholders or corporation, the solvent stockholders are not bound to make up the deficien- cies of insolvent stockholders, for the benefit of the creditors 1 Booth V. Campbell, 37 Md. 522. ' Norris v. Johnson, 34 Md. 485. 3 Ibid. * Matthews v. Albert, 24 Md. 527. <> Eaton V. Aspiiiwall, 19 N. Y. 119; s. c, 3 Abb. Pr. 417. ° Haslett V. Wotherspoon, 1 Strobh. Eq. 209. 44 CH. II. J LIABILITY UNDER PARTICULAR STATUTES. § 39 of the company.^ There are also statutes making share- holders individually liable for the debts of the corporation in consequence of the failure of the managing officers to do certain acts, — as, to file certain reports, or to publish certain statements touching their organization, the amount of their stock, the terms of its payment, etc.^ This liability, how- ever, is more commonly, and justly, attached to directors and officers than to stockholders at large.' § 39. LiiabiHty In the Proportion which the Members' Shares bear to the corporate Indebtedness. — (2) Some of the Legislatures have adopted the policy of making each stockholder of a corporation liable in the proportion which his portion of the whole capital stock bears to the whole amount of the corporate debts. To illustrate, suppose the capital stock were $100,000, and the total debts $50,000. A stockholder who owns one-tenth of all the shares of capital stock must contribute $5,000 towards paying these corporate debts, or one-half the par value of his shares, and no more. In other words, each share of stock is assessed fifty per cent. Again, suppose the capital stock to be $100,000, and the debts $200,000. A member owning one- tenth of the shares would be obliged to contribute $20,000, or twice the amount of his portion of the stock. In other words, each share of stock would be assessed 200 per cent of its par value.* The liability of stockholders under such charters and statutes differs from that of partners and members of 1 South Carolina Man. Co. v. Bank of South Carolina, 6 Rich. Eq. 227. ' Under such a statute, which provided that corporations should publish their organization, amount of stock, conditions of payment, name, place of business, etc., and that they should post up a copy of their by-laws in their office, and pro- viding, further, that a failure on the part of the company substantially to com- ply with these provisions should render the property of the stockholders liable for the debts of the corporation, it was held that a failure to post the by-laws was not such a failure to comply with the regulations as would render the stockholder liable for the corporate debts. McKellar v. Stout, 14 Iowa, 359. s Post, I 54. * Dozier v. Thornton, 19 6a. 325. 45 § 40 NATURE OF STOCKHOLDERS' LIABILITY. [PART I. joint-stock companies in this : that here each member can be called upon to pay only his proportion, although by rea- son of the insolvency of the other members some of the debts go unpaid ; ' but there a single solvent member may be obliged to pay all the debts of the firm or company, and get contribution from his copartners if they are able to re- spond. This scheme, while relieving stockholders of the onerous burdens of partners, has the advantage of maldng them interested to exert their power to prevent the extrava- gant contracting of corpoi'ate debts ; since, whatever may be the amount of each member's stock, the greater the debts, the greater his liabihty. This species of liability is not, however, likely to become a favorite of legislation, because in many cases some of the stockholders will be found insolvent or beyond the reach of process, and, since the stockholders are not sureties for each other ,^ the sums contributed by the rest will leave a portion of the corporate debts unpaid. §40. Illustrations of this I^labllity. — This liability arises under statutes and charters which read like the fol- lowing, which is taken from the charter of the late Me- chanics' Bank of Georgia: " The persons and property of the stockholders for the time being in said bank shall be pledged and bound, in proportion to the amount of shares that each individual or company may hold in said bank, for the ultimate redemption of the bills or notes issued by or from said bank during the time he, she, or they may hold such stock, in the same manner as in oommon connneroial cases, or simple cases of debt.'" Under this charter the Supreme Court of Georgia has held that bill-holders of the bank " are entitled to recover from its stockholders in the 1 Larrabee v. Baldwin, 35 Cal. 178. ' Crease i: Babcook, 10 Mete. 525 ; Lane v. Harris, 16 Q-a. 234 ; Larrabee v. Baldwin, 35 Cal. 155. ' The same liability is declai-ed by the Kevised Statutes of Maine, 1857, cb. 47, g 46. Dane v. Young, 61 Mo. 160. 46 CH. II. j LIABILITY UNDER PARTICULAR STATUTES. § 40 proportion which the amount of the shares that each indi- vidual stockholder held in the bank bore to the indebtedness of the bank to its bill-holders at the time of the commence- ment of the respective suits against the bank and its stock- holders for the redemption of the bills issued by the bank, in pursuance of the terms of its charter. In other words, whatever amount the bank was indebted to the holders of its bills, at the time of the commencement of the plaintiff's suits on their bills, the stockholders were liable to redeem, in the proportion which their respective shares of stock in the bank bore to the indebtedness of the bank to the bill-holders thereof."^ The liability thus declared is subject to be re- duced by the amount of indebtedness which the stockholder may have taken up before the commencement of the suit against him, and if he has redeemed bills of the bank to the amount of his proportionate liability, this, of course, discharges him.^ The charter of a corporation in Kentucl^v was similar in its terms. It provided that " the estate and property of all and every individual stockholder who holds or possesses stock in said corporation shall at all times be liable and subject, in law, in proportion to his or her interest therein, to pay and satisfy all debts and demands contracted by said corporation during the time he or they held stock therein, upon a failure of the incorporate funds to discharge the same." A creditor, having obtained a judgment at law against the corporation, and not succeeding in making the ' Branch v. Baker, 53 G-a. 512. Opinion of the court by Warner, C. J. Trippe, J., in a separate opinion, held that "the measure of recovery by the owners of banli-bills, in an action against the Mechanic's Bank, is to be ascer- tained from the amount of outstanding bills of the bank at the time such action is brought, and such stockholder's liability therefor is in proportion to his shares of stock in the bank, subject to be reduced by the amount of bills he has taken up before the commencement of the suit against him." In an early case in the same state the rights of bill-holders under a similar charter were said to be, "not primary and total, but secondary and proportionate." Lane v. Morris, 8 Ga. 468. 2 Ibid. ; Lane v. Harris, 16 Ga. 217 ; Belcher v. Willcox, 40 Ga. 391 ; Robin- son V. Bank of Darien, 18 Ga. 109 ; Tallmadge v. Fishkill Co., 4 Barb. 382. 47 § 41 NATURE OF STOCKHOLDERS' LIABILITY. [PAET I. whole of it by execution, filed a bill in equity against sev- eral stockholders, to compel them to pay the residue. The court, after ascertaining the sum which the complainant was entitled to, divided it among the defendants in propor- tion to the amount of their stock, and decreed against each, severally, for his proportion. This decree was affirmed by the Court of Appeals.^ § 41. Former exceptional Rule In Georgia. — A dif- ferent construction has been placed on charters of this character by the Supreme Court of Georgia, as applicable to an action at law brought by a single bill-holder against a single shareholder. Thus, a charter recited that " the persons and property of the stockholders shall be pledged and held bound, in proportion to the amount of shares and the value thereof that each individual or company may hold in said bank, for the ultimate redemption of the bills or notes issued by said bank, in the same manner as in com- mon actions of debt." In such an action the court below ruled that the plaintiff was entitled to recover only ' ' such a proportion of his bills as the stock of the defendant bears to the whole capital stock of the bank;" which meant that if the plaintiff held $1,000 of the bills, and the de- fendant held one-tenth of the shares, the plaintiff could recover only $100, or one-tenth of his demand. This doctrine was overruled by the Supreme Court, on the ground that it would operate to drive the small bill- holder to a multitude of separate actions at law against separate stockholders, to recover of each one a fractional part of the amount due him. The court, however, set- tled down upon a rule, which, while very convenient as applicable to suits at law, seems equally at variance with the language of the statute. It held that the liability of each stockholder could be enforced, in such an action, to an amount equal to the par value of his stock, and no ' Cftstleman v. Holmes, 4 J. J. Marsh. 1. 48 VI CH. II. J LIABILITY UNDER PARTICULAK STATUTES. § 42 further, — thus reducing the statute to an ordinary indi- vidual liability. The infirmity of this conclusion is very apparent when it is seen that by the terms of the very charter undergoing construction the bank was allowed to contract debts to three times the amount of its capital stock. The rule adopted by the court would operate, then, in case of an insolvent bank which had contracted the full amount of the indebtedness allowed by its charter, to satisfy only one-third of the bill-holders, — the most vigilant, and yet possibly the least meritorious. The judges who com- posed the majority of the court (Starnes and Lumpkin, JJ.) seemed to appreciate this difficulty, and to think that in equity each stockholder could be compelled to pay his proportionate share of the debts, no matter how much they exceeded the amount of the capital stock.' And this, as already seen, is the view now taken of the subject by that court in construing a similar charter.^ It was negatively recognized in the year following the date of the decision in Lane v. Morris. The question was whether the state of Georgia was liable to contribute to the payment of the bills of the Darien bank. The state owned one-half the stock of the bank, but had redeemed more than one-half its circulation. It was therefore held that the state was not liable.' § 42. Exceptional Rule in Massachusetts. — The same exceptional construction was given by the Supreme Judicial Court of Massachusetts to a statute similar in its terms to the foregoing charters. This statute provided that "the holders of stock in any bank, at the time when its charter shall expire, shall be liable, in their individual capacities, for the payment and redemption of all bills which may have ' Lane v. Harris, 16 Ga. 517. Benning, J., dissented, agreeing with the court helow. 2 See the rule in Branch v. Baker, 53 Ga. 503, as stated in the preceding section. ' Kobinson v. Bank of Darien, 18 Ga. 109. 4 49 § 42 NATURE OF STOCKHOLDEES' LIABILITT. [PAET I. been issued by said banli, and which shall remain unpaid, in proportion to the stock they may respectively hold at the dissolution of the charter." The court construed this statute as though the concluding clause, instead of reading ' ' in proportion to the amount of stock they may respect- ively hold at the dissolution of the charter," had read, " to the amount of the stock they may respectively hold at the dissolution of the charter." In other words, the liability thus created was held to be simply an individual liability to the extent of the par value of the stock held by each stockholder. "The court are, therefore, of opinion," said Sliaw, C. J., in summing up the result of theii- reasoning, " that the respective respondents are severally liable to the amount not exceeding the number of shares held by them, respectively, at $100 purchase ; to the whole amount, if necessary to satisfy the amount of outstanding bills ; other- - wise, to an amount sufficient to redeem and pay all such un- paid bills ; but they are not liable for a greater sum, although the aggregate of all such liabilities should prove insufficient to pay the whole amount of such bills." ^ This decision was rendered by a jurist of very great and deserved emi- nence. The writer, nevertheless, has the temerity to sub- mit to the candid reader that the conclusion reached is a departure from the plain import of the words used in the statute. This singular conclusion, limiting the liability of stockholders beyond the manifest intent of the Legislature, is perhaps to be accounted for by reference to the fact that, in the construction of statutes imposing a liability upon stoclcholders in excess of their general liability in equity. Chief Justice Shaw, and the court over which he presided , took the isolated position that such statutes were in deroga- tion of the common law, and hence to be strictly con- strued, — a conclusion which we shall examine in another place.^ • Crease v. Babcock, 10 Mete. 557, 560. 2 Post, 2 50 et seq. 50 CH. II.] LIABILITY UNDER PAETICULAE STATUTES. § 43 § 43. Continued — California Act of 1863. — Another illustration of ikds class of statutes will be found in the California act of 1863. This statute reads as follows : " Each stockholder shall be individually and personally lia- ble for his proportion of all the debts and liabilities of the company, contracted or incurred during the time that he was a stockholder, for the recovery of which joint and sev- eral actions may be instituted and prosecuted. In any such action, whether joint or several, it shall be competent for the defendant or defendants, or any or either of them, on the trial of the same, to offer evidence of the payment by him, or them, or either of them, of any debts or liabilities of such corporations ; and, upon proof of such payment, the same shall be taken into account, and credited to the party or parties making such payment, and judgment shall not be 'rendered against the party or parties, defendant, proving such payment, for a sum exceeding the amount of his or their proportion of the debts and liabilities of such incor- porations, after deducting therefrom the sums proven to have been paid by him, them, or any or either of them, on account thereof." ^ Under this statute, the recovery is not limited to the stockholder's proportion of each particular debt sued for ; but any creditor, whose debt is suiEcient, may collect of any stockholder the entire amount which the latter is liable to pay as his proportion of all the corporate debts, leaving him to seek contribution of his co-stock- holders. When each stockholder has paid to any one or more creditors his proportion of all the corporate debts, his liability ceases. In order to determine how much any one stockholder is liable to pay to a creditor by whom he is sued, it is necessary to find the whole amount of the indebtedness created while he was a stockholder ; and any one creditor whose demand is large enough may have judgment for the stockholder's proportion of all such corporate debts.'' 1 Laws Cal. 1863, p. 736. ' Lairabee v. Baldwin, 35 Cal. 155. 51 § 45 NATURE OF STOCKHOLDERS' LIABILITY. [PAET I. IV. Unlimited several Liability. § 44. STature of this LiabiUty. — There *are probably no statutes under which a liability of this nature arises. The definition implies the case of a stockholder who is liable to pay all the debts of a corporation out of his individual estate, and is denied contribution from his co-stockholders. Stock- holders were, by judicial construction, subject to this liability under the early statute of Massachusetts.^ This construc- tion was wholly unnecessary, and the conclusion equally destitute of support in justice or in sense. The subject will not be pursued further. There is little danger that any American court will again remand a stockholder to a posi- tion strictly resembling that of a joint tort-feasor. § 45. Conclusion. — An attentive survey of the cases em- braced in the two preceding chapters will impress the reader with the conclusion that the various kinds of liability to which shareholders are subject may be reduced to three : 1. A joint and several liability as partners ; joint in the sense that the creditor may sue and obtain a joint judgment against all, and levy his execution upon the estates of all, — several in the sense that, after having obtained a joint judg- ment against all, he may levy his entire execution upon the estate of any one ; several in the sense that each shareholder may be called upon to pay the entire corporate indebted- ness, and joint in the sense that he may then have contribu- tion of his co-shareholders. 2. A joint and several liabil- ity, arising by force of his contract of subscription ; which simply means that he must pay, when called upon by com- petent authority, the amount to which he stands indebted to the corporation, for the benefit of its creditors. 3. In ad- dition to this, and disconnected from it, a limited joint and several liability, either ( 1 ) measured by the par value of the the stock held by him, ' or (2) by the ratio which his pro- J Stat. Mass. 1805, oh. 65 ; Andrews v. Callender, 18 Pick. 484. • Lane v. Morris, 10 Ga. 162 ; Norris v. Johnson, 34 Md. 485. 52 CH. II. J LIABILITY UNDER PARTICULAR STATUTES. § 45 portion of the outstanding stock of the corporation bears to its outstanding debts. Both of the last two species of liability — that arising by contract and that arising by statute — are said to be joint and several. The liability of shareholders to creditors is joint in two senses : 1. In that relating to procedure : the creditor may always in equity, and sometimes under the codes, proceed in one suit against all the shareholders whom he can find within the jurisdiction.^ 2. In that relating to contribution: if any shareholder has been compelled to pay more than his proportion of the out- standing corporate debts, he may maintain an action for con- tribution against his co-shareholders. The liability of a shareholder ^o creditors is several in the sense that, whether we consider his liability by contract or by statute, he is required to pay a given amount, based upon the amount of stock held by him, and no more. He stands severally liable to pay this sum, without reference to the sums his co-stock- holders may stand liable to pay. And although a creditor, to enforce this liability, may join him in an action with other shareholders,^ yet a several judgment or decree is neces- sarily rendered against each for the several portion which each is liable to pay. 1 Post, Ch. XVL 2 Generally, he cannot do this at law. Paine v. Stewart, 33 Conn. 516 ; Pet- tibone v. McGraw, 6 Mich. 441 ; Re HoUister Bank of Buffalo, 27 N. Y. 393 ; Vnii. V. Bacon, 10 Pick. 127. See post, H 849, 350. 53 § 50 NATURE OF STOCKHOLDERS' LIABILITY. [PAET I. CHAPTER III. CONSTRUCTION OF STATUTES MAKING STOCKHOLDERS PERSON- ALLY LIABLE FOR THE CORPORATE DEBTS. Section 50. Statutes creating individual Liability construed strictly. 61. Contrary View of Hr. Justice Story. 52. Doctrine of strict Construction denied. 53. Rule of sensible Construction. 54. Such Statutes, if penal, strictly construed. 55. Statute supplanting one more onerous. 56. Statutory Eemedy to be followed. 57. Meaning of the Word "Debt." 58. Continued. 59. When a Debt is deemed to have been "contracted." 60. Continued — Debt paid by Surety. 61. Debt due for Labor, Provisions, etc. 62. Such Statutes not construed as retroactive. § 50. Statutes creating individual Lilabillty construed strictly. — The courts of Massachusetts and Pennsylvania have adopted the rule that statutes creating an individual liability on the part of stockholders to pay the debts of the corporation are in derogation of the common law, and hence to be strictly construed ; ^ or, as Thompson, C. J., ex- pressed it, "not to be extended b}-- implication." "It is not to be forgotten," added this careful judge, " that this, as a rule, has no place where the intent is manifest from the words of the law." ^ In the leading case on the subject in Massachusetts, Chief Justice Shaw, in reaching this con- clusion, reasoned thus : "To create any individual liability ' Gray v. Coffin, 9 Cush. 199 ; Dane v. Dane Man. Co., 14 Gray, 489 ; Coffin V. Rich, 45 Me. 611; Mover u. Pennsylvania Slate Co., 71 Pa. St. 293; Ap- peal of Means, 85 Pa. St. 78. » Moyer v. Pennsylvania Slate Co., 71 Pa. St. 298. 54 CH. III. J CONSTRUCTION OF STATUTES. § 51 of members for the debt of a corporation, a body-politic created by law, and regarded as a legal being, distinct from that of all the members composing it, and capable of con- tracting and being contracted with as a person, is a wide de- parture from established rules of law, founded in considera- tions of public policy, and depending solely upon provisions of positive law. It is, therefore, to be construed strictly, and not extended beyond the limits to which it is plainly carried by such provisions of statute." ' Applying this rule of con- struction, under a statute providing that the person or property of a stockholder was not thereafter to be taken upon an execution issued against the corporation, "unless a summons in the action was left with the stocicholder," it was held that if, pending the determination of the question of the liability of a stockholder who had been summoned, he should die, the proceeding could not be revived against his executor.^ § 51. Contrary View of Mr. Justice Story. — Mr. Jus- tice Story, however, entertained a different view of the Massachusetts statute of 1821 relating to this subject. That statute was perhaps as broad a departure from the com- mon law as is to be found in any of the statute-books. It made each stockholder severally liable for all the corporate debts, in the following terms: "Every person who shall become a member of any manufacturing corporation which may be hereafter established in this commonwealth shall be liable, in his individual capacity, for all debts contracted durmg the time of his continuing a member of such corpo- ration." Judge Story pronounced this statute " confess- edly remedial." He said: " I agree that it is no part of the duty or functions of courts of justice to supply the de- ficiencies of legislation, or to correct mischiefs which they 1 Gray v. Coffin, 9 Cuah. 199. ' Dane v. Dane Man. Co., 14 Gray, 489. See also Ripley v. Sampson, 10 Pick. 371 ; post, I 254. 55 § 52 NATURE OF STOCICHOLDERS' LIABILITY. [PART I. have left unprovided for. That is not the question here. But the question is whether, if the words of the statute admit of two interpretations, one of which makes the legislation mcomplete for its apparent object, and the other of which will cover and redeem all the mischiefs, that should be adopted, in a statute confessedly remedial, which is the most narrow, rather than that which is the most com- prehensive, for the reason only that the latter will create an obligation or duty beyond that which is imposed by the common law.^^ § 52. Doctrine of strict Construction denied. — Whether the doctrine that courts are at liberty in any case to construe a statute strictly is sound, must obviously depend on what is understood by the term "strict construction." If we are to understand by it that where a statute is in dero- gation of the common law, and its terms obscure or ambigu- ous, courts will not presume that the Legislature intended to repeal the rules of the common law any further than its language necessarily imports, then the rule is harmless ; for it means nothing further than that it is the duty of the courts, in every case, to ascertain and carry out the will of the Legis- lature. But if it means that courts are at liberty in any case to refuse to give full effect to the intention of the Legisla- ture, where that intention is plain, or even where it is prob- able, for no other reason than that the statute invades the common law, then it is manifestly a rule which has no place in the American system of jurisprudence. Such a rule of construction is obnoxious to the charge of judicial legisla- tion, which obviously consists, not less in partially repealing existing statutes by unfriendly rules of construction, than in supplementing them by amendatory rules supposed by the courts to be needful. It is a sufficient objection to all at- tempts of this kind to say that they involve in every case an usurpation of authority. The powers of the different de- » Carver ii. Braintree Man. Co., 2 Story, 432, 437. 56 CH. III. J CONSTKUCTION OF STATUTES. § 53 partments of the American state governments are strictly defined and separated, by written constitutions ; and no power of this nature has been committed to the judiciary. In England, where the Parliament was theoretically supreme, and where it was, hence, beyond the power of the judicial courts to declare an act of Parliament void, this rule afforded perhaps the only means which the courts possessed of check- ing rash and hasty invasions of the judge-made law. But in this country, where the powers of our Legislatures are limited by written constitutions, which limitations are en- forced by the courts, and where the courts have not hesi- tated to declare that there are certain implied restraints on legislative authority in every free country,^ the same rea- sons for the rule would seem not to exist. In fact, the rule in this country seems gradually falling into disuse, and it may safely be afErmed that, where a statute is not inhibited by the written constitution, nor a palpable invasion of common right, the courts will always so construe it as to give full eifect to the intention of the Legislature. § 53. Rule of sensible Construction. — The Supreme Court of Michigan has settled upon the better rule in de- claring, in a case where it was sought to charge stockholders with a statutory liability, that it is the better way to read the provisions of the statute as the court thinks they were intended to be read, and then to apply them to the actual facts. "In pursuing this course," said Graves, J., "we must suppose that, the mind of the Legislature being spe- cially drawn to the subject of departing from the regulations of the common law in regard to the liability of corporators, and conceiving a purpose to make certain members responsi- ble for company liabilities, the extent of the departure and the class of liabilities, if less than all, and the limitations and con- ditions, if any, would naturally be indicated with some dis- ' Oalder v. Bull, 3 Dall. 386 ; Wilkinson i>. Leland, 2 Pet. 656 ; Loan Assn. »; Topeka, 20 Wall. 663. 57 § 53 NATURE OF STOCKHOLDERS' LIABIHTY. [PART I. tinctness, and "we should expect to find in the terms and arrangements of the statute, without straining or refinement, the real sense of the Legislature. "Whether in our judg- ment the Legislature went too far, or did not go far enough, is not for us to consider. The scope of our duty is to as- certain just how far the law-makers went, and then to pause precisely where they did. In studying the provisions here, with this object, we are forced to think that the expressions used to denote the conditions of the stockholder's liability are to be taken in their natural and ordinary sense." ^ "We must," said Kent, J., in a case arising under a similar statute, " take the law as we find it. TTe cannot go beyond this, and base our decision upon arguments drawn from expediency, or from what we might deem inconven- iences, or even hardships." ^ '• It is only where the words of a statute are obscure or doubtful," said the same court, in another case, " that we have any discretionary power in gi^^ng them a construction, or can take into consideration the consequences of any particular interpretation."^ In a similar case in Georgia, Lumpkin, J., said : "It is not for this court to add to or iaJce fro?n the words ot the act." * * * " We are content with the reproach implied from the old saw, that he who sticks to the letter of the statute looks only skin-deep into its meaning. If the color indi- cates the species to which it belougs, we care not to extend our researches any further. We reiterate our abhorrence of judicial legislation. The first, last, and only enquiry of the court should be. What saith the law? — and when the response is received, fearlessly to administer it, leading it I Bohn t>. Bro\vn, 33 Midi. 237. The Supreme Court of California, called upon to expound such a statute, proceeded to give it what was deemed "a just and reasonable construction." Mokelumne Hill, etc, Co. i . Woodbury, 14 Gal. 265 ; Davidson r. Rankin, 34 Gal. 505. •■ Ingalls V. Cole, 47 Me. 540. ' Coffin V. Kiel), 45 Me. 511, per Davis, J. "If the meaning of statutes is doubtful, the consequences are to be considered in the construction of them; but if the meaning be plain, no consequences are to be regarded, for that would be assuming legislative authority'." 4 Bac Abr. 652. 58 CH. III.] CONSTRUCTION- OF STATUTES. § 55 to the Legislature to cure such defects as time may have pro- duced or experience dictated."^ Further on, the same leariied judge discussed the purposes of the Legislature in making each stockholder of a bank liable to redeem his pro rata of its outstanding circulation, and pronounced it " a most commendable policy;" and said, " it is not for us to hinder and thwart its salutary operation." ^ § 54. Such Statutes, if penal, strictly construed. — There is, in the opinion of courts, more reason for the ex- istence of a rule of strict construction under statutes which seek to charge stockholders with liability for the debts of the corporation because of the omission to perform some specific acts (as in the cases below quoted), for in such cases the statutes are penal in their nature.' But even here it is believed that the rule, properly understood, and applied so as not to transcend the scope of judicial power, goes no further than to hold that, where the statute is penal, courts will hesitate more about enlarging the meaning of doubtful tei-ms than where it is remedial. Thus, under a statute making directors liable in their individual capacity for debts of the corporation contracted during their administration, above the amount of the capital stock paid in,i where a stockholder had been compelled to pay debts of the corpo- ration, the directors were not liable over to him, nor were they liable to any person unless the indebtedness existing at one time exceeded the amount of stock paid in.* § 55. Statute supplanting one more onerous. — The rule that such statutes will, in general, be strictly construed in favor of stockholders implies that if the statute was designed to relieve stockholders of an onerous burden im- ' Lane v. Morris, 8 Ga. 475. 2 Ibid. 478. ' Garrisoa v. Howe,. 17 N. Y. 458, 466; Cable v. McOune, 26 Mo. 371; post, I 83. * Kritzer v. Woodson, 19 Mo. 327. 59 § 56 NATURE OF STOCKHOLDERS' LIABILITr. [PAET I. posed by a previous statute, it will be entitled to be con- strued remedially in their favor. Such was the construc- tion placed upon a statute of Illinois relieving members of plank-road companies from liability beyond the amount of stock subscribed.^ Such, also, was the rule applicable to a statute of Massachusetts requiring stockholders to be summoned, in suits against the corporation, when it was sought to charge, them personally, and permitting them to appear and defend ; whereas the previous law allowed the creditor, upon a mere judgment against the corporation, to levy on the body and goods of any stockholder, although he had not previously had an opportunity to contest the question of his liability.^ § 56. Statutory Remedy to be followed. — The rule of strict construction already alluded to^ exacts that the reme- dies prescribed by statutes creating an individual liability on the part of officers and members of corporations for the cor- porate debts must be strictly followed ; and such is the gen- eral doctrine.* But this rule of practice does not necessarily imply a rule of strict construction. It may be made to rest on the ground that neither at law nor in equity, except as heretofore pointed out,'' are the members of a corporation liable to pay the debts of the company. Statutes im- posing such a liability, therefore, create a new right; and it is familiar doctrine that when a statute creates a new right, and at the same time prescribes the remedy by which it is to be pursued, this remedy must be exclusively fol- 1 Gay V. Keys, 30 HI. 430. ' Holyoke Bank v. Goodman Paper Co., 9 Cush. 582. » Ante, § 50. * Chamberlin t). Huguenot Co., 118 Mass. 536 ; Priest v. Essex Co., 115 Mass. 380; Ripley v. Sampson, 10 Piclc. 372; Knowlton v. Aokley, 8 Cush. 97; Grose u. Hilt, 36 Me. 22 ; Bassett v. St. Albans Hotel Co., 47 Vt. 318 ; Wind- ham Prov. Inst. V. Sprague, 43 Vt. 502 ; Dauchy o. Brown, 24 Vt. 197 ; Diven V. Lee, 86 N. Y. 302 ; ^. c, 34 How. Pr. 197 ; Youghiogeny Shaft Co. v. Evans, 72 Pa. St. 334. ' See Ch. I. 60 CH. III.] CON8TEUCTION OF STATUTES. § 56 lowed.^ "Neither at law nor in equity," said Agnew, J., " are stockliolders, contributing to the capital of an incor- porated company, individually liable for the payment of the debts of the corporation. The liability arises solely in the statutory provision. As a consequence, it is wholly gov- erned by the statute, and the rights of the party claimant under the statute must be ascertained by it." ^ In another case in the same state, Thompson, J., said: "The act of 7th of April, 1849, and supplements, providing for the in- corporation and organization of manufacturing companies, were designed to furnish an entire system in regard to the powers, rights, and liabilities of such institutions and their stockholders. These institutions are unique, partak- ing of a combination of the characteristics of corporations proper and partnerships, but neither in form nor substance precisely either. They are special, and must be governed in most, if not in every particular, exclusively by the law of their creation. Their organization is specially provided for, and must be followed ; their rights are defined, and the remedies for enforcing the obligations of the institutions are also specially provided for. Hence there is a provision for joining as defendants the corporation itself with one, or all, or any less number of the stockholders, in actions by cred- itors of these corporations. If judgment be recovered, execution is to be levied first on the joroperty of the coi-pora- tion ; if there be none, or it be insufficient, then upon that of the stockholder defendants ; who, in turn, if the debt be collected from them, are entitled to have judgment to enforce contribution ratably against the remaining stock- holders. The remedy for the collection of demands against such institutions is, therefore, statutory and special, and must be followed. This we have lately held in Brinham V. The Wellersburg Coal Company,^ in obedience to the Dauchy i>. Brown, 24 Vt. 197 ; Erickaon v. Nesmith, 15 Gray, 222. 2 Brinham v. Wellersburg Coal Co., 47 Pa. St. 49. 3 47 Pa. St. 43. 61 § 57 NATURE OF STOCKHOLDERS' LIABILITY. [PAET I. rule of the act of 1806, requiring the remedy prescribed by a statute to be followed."^ If the statute prescribes a right of action against stockholders for debts of the company, but points out no remedj^ then the proper remedy must be sought for in the common law.^ § 57. Meaning of the Word "Debt." — Illustrations of what Mr. Bishop calls "the elasticity of statutes" ' may be found in the meaning which different courts have attached to the words " debt," or the expression " debt contracted," in statutes imposing upon stockholders a personal liability to pay the corporate debts. It may be premised that, under any rule of construction, a stockholder cannot be charged with an individual liability for debts not mentioned in the statute.* Nor is he liable except for debts that might have been enforced against the company.* The remedial con- struction accorded by Mr. Justice Story to a former statute of Massachusetts ° resulted in the conclusion that the word " debt" was to be taken in its broadest sense, as embracing any just demands, wliether growing out of con- tract or out of tort.^ He therefore held it to embrace a demand against a corporation for unliquidated damages for the infringement of a patent.* The Supreme Judicial Court of Massachusetts thought that it did not admit of a reason- able doubt that the term " debt," in a statute making the members of a corporation liable for all its debts until its whole capital stock should be paid in, and a certificate thereof filed for record, embraced unliquidated damages.' ' Hoard v. Wilcox, 47 Pa. St. 51, 57. 2 Windham Prov. Inst. o. Sprague, 43 Vt. 502. ' Bishop's Cr. Law, 1st ed., ch. 6. * Ossipee Man. Co. v. Canney, 54 N. H. 295. 6 Van Hoolc v. Whitlock, 7 Paige, 373 ; s. c, 3 Paige, 409. « Ante, I 51. ' Carver o. Braintree Man. Co., 2 Story, 432, 447. 8 Ibid. » Mill-Dam Foundry v. Hovey, 21 Piclc. 417, 455. See Cable v. McCune, 26 Mo. 871, where this case is criticised. 62 CII. HI.] CONSTRUCTION OF STATUTES. § 58 This accords with the broad meaning assigned by several courts to the same words, in giving a remedial construction to statutes exempting homesteads and personal property from execution. In such a statute the word " debt," ^ and the words " debts contracted," ^ liave been held to embrace a judgment recovered in an action for slander ; and the same expression has been held to embrace a judgment for costs in an action for a tort,' and also a judgment in an action for dci'cit, since in the latter case the plaintiff might have waived the tort and sued upon the contract.* § 58. Continued. — But a strict construction of a statute making- the stockholders of a corporation jointly and sever- ally liable to pay the debts of the corporation, in conse- quence of a failure of the corporation to publish an annual notice of the corporate indebtedness,'' — the court deeming it a penal statute, — has resulted in the conclusion that the word " debt," employed in the statute, did not embrace a judgment rendered against the corporation for damages for the sinking of a steamboat, through the negligence of the agents of the corporation, while upon its docks undergo- ing repairs.' So, where a charter provided that the stock- holders of the said corporation shall be holden jointly and severally, to the nominal amount of their stock, for the pay- ment of all debts contracted by the said corporation, or by their agents, and any person or persons having any demands against the said corporation may sue any stockholder or stockholders, in any court having cognizance thereof, and recover the sanac, with costs, provided that no stockholder 1 DoUinger v. Tweed, 66 N. 0. 206. 2 Conroy v. Sullivan, U 111. 4r,t. ' Lane v. B.ikor, 2 Grant. Cas. 424 ; contra, Sohouton v. Kilmer, 8 How. Pr. 527 ; Lathrop v. Singer, 39 Barb. 396. • Wai-rier v. Cammack, 37 Iowa, 642. See Thompson on Homesteads, J 380 et seq. » Rev. Stat. Mo. 1845, p. 234, ? 18. « Cable (.. JlcCuue, 2lj Mo. 371. 63 § 58 NATURE OF STOCKHOLDERS' LIABILITY. [PART I. shall be obliged to pay more, in the whole, than the amount of stock he may hold in the said company at the time the debt accrued, it was held that an action could not be main- tained against the stockholders of the corporation for dam- ages caused by suffering one of its bridges to get out of repair.^ The Supreme Court of Michigan has reached a similar conclusion as to the meaning of the word "debt" in a statute making tlie stockholders of every incorporated company jointly and severally liable " for the debts of such company, for an amount equal to the amount of any unpaid stock in such company held by them at the time such debt was contracted," etc. The word "debt," as here used, was held not to embrace a judgment for damages against a street-railway company for an injury done to a passenger, and the stockholders could not be charged therewith. The court, as already seen,'' profess' to construe the statute fairly, so as to reach the intention of the Legislature ; but they hold that the judgment in question was in substance a judgment for a wrong done, and not for a contract broken.' A statute making the directors of corporations liable for the debts of the corporation for declaring dividends while the corporation was insolvent makes them liable only for debts arising ex contractu; and although the debt has been reduced to judgment against the corporation, the bill seeking to charge the directors must so allege.* The liability of a. (Cor- poration for a brciich of an implied warranty of title in the sale of chattels is, however, a "debt" within the meaning of a statute providing that, "if any company formed under this act dissolve, leaving debts unpaid, suits may be brought against any person or persons who were stockholders at the time of such dissolution, without jdiniiig the C(im]iany in such suit." ' Such a liability was held Lo arise wholly ex ' Heacock i\ Sherman, 14 AVcinl. 58. 2 Ante, I 53. » Bohn V. Brown, 33 Mich. 257. ' Archer «. Rose, 3 Brews, 2 i-t. <• 1 Wag. Stat. Mo. 2'J3, J il. G4 en. HI.] CONSTRUCTION OF STATUTES. § 59 contractu, and, giving the statute a strict construction, which would exclude a broad popular meaning of the word "debt," the court had no difficulty in reaching this conclusion.' § 59. When a Debt is deemed to have been '* con- tracted." — The latitude embraced between a strict and a liberal construction of such a statute is also illustrated by the construction which was put upon a statute of New York, by which corporations were required to make, publish, and file a report of their condition within twenty days after January 1st in each year, in default of which all the trustees of the company were declared to be jointly and severally liable for all the debts of the company then exist- ing, and for all that should be contracted before such report should be made.' A corporation failed to make its annual report in January, 1850, and did not comply with this re- quirement of the statute until the time for making its next annual report came around. In December, 1850, while the corporation was thus in default, the plaintiff contracted to deliver to it certain lumber, taking its notes at ninety days. The lumber does not appear to have been delivered while the company was thus in default, and it was not in default at the time when the note sued on was given. The court held that there was no " debt" in existence until the lumber was delivered. " If the statute was simply a remedial one," said the court, " it might be said that the plaintiff's case was within its equity, for the general object of the law doubtless was, besides enforcing the duty of making reports for the benefit of all concerned, to enable parties proposing to deal with the corporation to see whether they could safely do so." * * * " But the provision is highly penal, and the rules of law do not permit us to extend it by construc- tion to cases not fairly within the language." ' ' Dryden v. Kellogg, 2 Mo. App. 93. » Acts N. Y. 1848, ch. 40, § 12. » Garrison v. Howe, 17 N. T. 464, 466. 5 65 § 61 NATURE OP stockholders' LIABILITY. [PART I. § 60. Continued — Debt paid by Surety. — The liability of a principal to indemnify his surety, for any payment the latter may be compelled to make for the former, takes effect from the time when the surety becomes responsible for the debt of his principal ; so that, upon payment by the surety, the debt which the principal owes to him becomes a ' ' debt contracted" at the time when the surety became respon- sible, and not at the time of such payment.^ Applying this rule in a case where a person had accepted, for the accom- modation of a corporation, drafts payable in five and six months, which drafts he was afterwards obliged to pay, it was held the debt thereby accruing to the acceptor from the corporation was a debt contracted at the time when the drafts were accepted, within the meaning of a statute^ which provided that officers of corporations ^vho neglected to file the certificate prescribed by another provision of statute^ should be jointly and severally liable for all debts of the corporation contracted during the continuance of such violation, refusal, or neglect.* § 61. Debts due for Labor, Provisions, etc. — Statutes exist, in several of the states, making the stockholders in corporations formed under them jointly and severally liable for wages due to laborers, and for supplies and materials furnished in the prosecution of the work of the corporation. These statutes rest in the same policy as mechanic's lien laws, and, so far as the writer can see, do not appear to have been construed unfavorably to the special class of cred- itors falling fairly within their terms ; ^ but the courts have refused to extend them by construction. Thus, the owner of a planing-mill, who had done certain planing at his mill for the building of a factory for a corporation, was not 1 Kice V. Southgate, 16 Gray, 142 ; Cox v. Gould, 4 Blatchf. 342. ' Stat. Mass. 1863, ch. 246, J 2. » Stat. Mass. 1862, ch. 210. • Byers u. Prankliu Coal Co., 106 Mass. 181. " But see Hanson v. Donke'rsley, 37 Mich. 66 CH. III. J CONSTRUCTION OF STATUTES. § 61 within a statute^ making the stockholders jointly and sev- erally liable "for all debts that may be due or owing to all their laborers, servants, and apprentices." ^ So a statute of Pennsylvania made the stockholders of certain corporations "jointly and severally liable in their individual capacities only for debts due to miners, quarrymen, and other laborers employed by such companies, and for machinery, provisions, merchandise, country produce, or materials furnished for the company."' A partnership firm transferred all its assets to a corporation, to compose a part of its capital stock, agreeing to receive in payment certain shares of the com- pany's stock. The corporation was also to discharge the debts of the partnership by the issue of stock to such cred- itors. The liability of the corporation to the copartners for a breach of this agreement was not within the above statute.* "The act," said Sharswood, J., "evidently contemplated an ordinary sale and delivery to the com- pany, in the course of its usual business. To apply the provision of the law to this particular agreement would be a strange perversion of justice. Creditors of the plaintiffs, who have accepted what now turns out to be the worth- less stock of this company in payment of their debts, are to be made to pay the plaintiffs in money for their effects, which, in foro conscientice, were origiufilly their (the ^ creditors' ) own property. They are to be visited with a double loss. There are some claims the statement of which carries on its face a suiSScient answer to them."* It has been held by a nisi prius court, in Philadelphia, that the statute last quoted does not extend to a debt evidenced by a promissory note endorsed to a third person, although given for materials used by the corporation in its manufactories.* ' Kev. Stat. Wis. 1858, ch. 73, | 25. ' Harrod v. Hamer, 32 Wis. 162. 3 Penn. Act March 27, 1854 ; Pamph. Laws, 215 ; Laws Penn., 649, pi. 32. * Weiss V. Mauch Chunk Iron Co., 58 Pa. St. 295. 5 Ibid. 304. « Weigley v. The Coal Oil Co., 5 Phila. Kep. 67. 67 § 62 NATURE OF STOCKHOLDERS' LIABILITY. [PART I. But the Supreme Court of that state has held that a merchant who, upon the order of a manufacturing com- pany, furnished provisions to the hands of the company, under an arrangement by which the company took up such orders monthly, giving him their notes therefor, was en- titled to the benefit of the statute.' § 62, Not construed as retroactive. — It is familiar law that a statute will not be construed as having a retroactive effect unless the intention of the Legislature that it shall be so construed appears unmistakably in its terms. ^ This rule, of course, holds in the interpretation of a statute imposing a liability upon stockholders, which did not pre- viously exist, to pay debts of the corporation,' or diminish- ing such liability. Thus, a statute recited: "The stock- holders in all companies incorporated in pursuance of the provisions of the act to which this is a supplement, and the several supplements thereto, including this act, shall here- after be jointly and severally liable, in their individual capacities, only for debts due miners, quarrymen, and other laborers employed by such companies, and for machinery, provisions, merchandise, country produce, and utensils fur- nished for said companies, respectively, to be enforced and collected in the manner provided for in the act to which this is a supplement."* The word "incorporated," as here used, was held to mean, not incorporated at any time, but hereafter incorporated.^ But a statute of Mas- sachusetts, providing that no persons holding stock in 1 The Reading Industrial Man. Co. v. Graeff, 64 Pa. St. 395. ' Seamans v. Carter, 15 Wis. 648; Palmer v. Conly, i Denio, 374; Hitch- cock V. Way, 6 Ad. & E. 943 ; Paddon v. Bartlett, 3 Ad. & E. 884 ; College of Physicians o. Harrison, 9 Barn. & Cress. 524; Whedon v. G-orhara, 38 Conn. 412; Simonds v. Estate of Powers, 28 Vt. 354; Perrin v. Sargeant, 33 Vt. 84. » Coffin V. Rich, 45 Me. 507 ; Carrol v. Hinldoy, 46 Me. 81 ; Hathom v. Towle, 46 Me. 302. . * Penn. Act March 27, 1854, § 5. " Megargee v. Walcefield Man. Co., 48 Pa. St. 442. 68 CH. III.] CONSTRUCTION OF STATUTES. § 62 any corporation as executors, administrators, guardians, or trustees should be personally subject to any liabilities as stockholders of such corporation, but that the estate and funds in their hands should be liable in like manner and to the same extent as the deceased testator or intes- tate, or ward or person interested in such trust fund, would have been if they had respectively been living and com- petent to act, and held the same in their own names, was held to apply to existing corporations, though it did not apply to past transactions. It was not necessary, in order to reach so plain a result, to hold that statutes making stockholders liable to pay the corporate debts are in deroga- tion of the common law, and to be strictly construed. The better reason was stated by Chief Justice Shaw, when he said that the ' ' statute was future and prospective in its operation, regulating the rights of debtor and creditor as they should afterwards arise ; expressly securing any right acquired by any one against a holder of stock in any cor- poration by force of existing laws. It had no tendency to impair, or in any way affect or modify, any power, privilege, or immunity pertaining to the franchise of any corporation, and, therefore, seems to be within the just limits of legis- lative power." ^ On the other hand, a statute of Maine, prescribing that whenever stockholders in certain corpora- tions " shall have paid and satisfied any just and legal debts of such corporation, and shall produce a certificate under the hand of the treasurer of such corporation that he has paid such debt or debts, and that the .same has not been refunded to him, such stockholder shall thereby be exempt from further liability," was held to be prospective merely, since the words " shall have paid and satisfied," according to Webster's Grammar of the English Language, denote "an action which will be passed at a future time speci- fied."" ' Gray v. Coffin, 9 Cush. 192, 200. !* Grose v. Hilt, 36 Me. 25. 69 § 65 NATURE OF STOCKHOLDERS' LIABILITY. [PAKT I. CHAPTER IV- CONSTITUTIONAL QUESTIONS ARISING UNDER SUCH STATtTTES. Section 65. Constitutionality of Statutes imposing individual Liability as to future Debts. 66. Doctrine in Ohio. 67. Continued — This Vie-w examined. 68. Waiver, by Stockholder, of constitutional Immunity. 69. Evidence of such Waiver. 70. Analogous Cases — Legislative Alteration of Charter. 71. Statutes repealing Individual Liability Laws, if retroactive, void. 72. Aliter in Case of Stockholders subsequently joining. 73. Statute aflFeoting the Kemedy merely, not invalid. 74. Constitutional Guaranties securing Creditors of Corporatic.ns. 75. Creditor may waive Right to proceed against Stockholders. 76. Statutes prescribing summary Remedy. § 65. Constitutionality of Statutes imposing Individual Liability as to future Debts. — This briiisfs lis directly to consider the constitutionality of such statutes . The charter of a corporation, when ;iecepted, is a contract between the corporation and the state ; and, unless the right of legislative supervision is reserved therein, any subsequent act of the Legislature which impairs any of the substantial privileges conferred by it impairs the obligation of a contract, and is hence in conflict with the Constitution of the United States and void.^ It has been held in jMaine and IMassachusetts that a statute which makes the stockholders of an existing corporation liable for the future debts of the corporation does not infringe the chartered franchises of the corpora- tion, but merely regulates the future relations of debtor I Const. U. S., art. 1, J 10; Dartmouth College d. Woodward, i Wheat. 518; Wales V. Stetson, 2 Mass. 146; Nichols .-. Bertram, 3 Pick. 342; Nichols v. Somei-set & Kennebeck K. Co., 43 Jlo. 866. 70 CH. IV. j CONSTITUTIONAL QUESTIONS. § 66 and creditor, and is hence a yalid exercise of legislative power. ^ A statute of Massachusetts authorizing the receiv- ers of banking corporations, against which a perpetual in- junction had been ordered, to make a ratable assessment upon the stockholders of an amount sufficient to make up the probable deficiencies of funds in their hands for the re- demption of the outstanding bills, and affixing a penalty of twelve per cent per annum for non-payment of such assess- ments, has been upheld as to banks operating under pre- existing charters, on the ground that, looking to p];evious statutes affecting the liability of the shareholders of the par- ticular bank, it was a modification of the remedy merely. The court said that ' ' no constitutional legislation can operate to impose retrospectively increased personal liabilities upon the stockholders." ^ § 66. Doctrine In Ohio. — A contrary doctrine has been asserted in Ohio, with much force of reasoning, not on the ground that such a statute infringes the contract between the state and the corporation, embodied in the charter, but on the ground that it infringes the contract between the stockholder and the corporation, and hence violates the rights of the former. In support of this conclusion the court say: "In a contract between the company and a stockholder, or in aii action by the former, or its creditors, against the latter, the stockholder is to be regarded as an individual person, separate and distinct from the corpora- tion. He becomes a stockholder by virtue of a contract with the company, and he has a right to stand upon the terms of that contract, interpreted and limited by the laws under which it was made. By his contract with this company, Ireland agreed to pay a specified sum, and no 1 Gray «. Coffin, 9 Gush. 192 ; Coffin v. Eich, 45 Me. 507 ; Stanley v. Stanley, 261*6.191. Compare Longley v. Little, 26 Me. 162; "Wheeler v. Frontier Bank, 23 Me. 308; The Commonwealth v. Cochituate Bank, 3 Allen, 42. 2 The Commonwealth v. Cochituate Bank, 3 Allen, 42. 71 § 67 NATUEE OF STOCKHOLDERS* LIABILITY. [PART I. more. This sum he has fully paid, and to require him to contribute an additional amount would be to violate the contract between the parties. Let it be understood that the amount for which a stockholder becomes liable to the com- pany by his subscription is not limited by his contract, but by the discretion of the directors, or the stockholders at large, and no prudent man will subscribe for stock in a cor- poration. If such be the law, it is of little importance to the subscriber whether the amount of stock taken be large or small, because it can be indefinitely increased at the pleasure of the company, whenever the Legislature sees proper to give the power to do so. If a subscriber con- tracts to pay a sum which he deems within his means of payment, he may be called upon to contribute an amount utterly beyond those means, and which may render him bankrupt. No subscriber would be safe under such a law, or have any rule by which to determine the amount of stock he could afibrd to take. In vain would he look to the charter of the company, or to the provisions of the Consti- tution and subsisting laws of the state, to learn the nature and extent of the liability he was about to incur, if that lia- bility can, at the pleasure of the Legislature, be indefinitely increased or modified by retroactive laws." ^ § 67. Continued — This View examined. — The wi'iter cannot avoid thinking that this case is based on an errone- ous premise, namely, that for all purposes a corporation is a distinct person from the members ; whereas the sound doctrine is that they are distinct only for certain purposes of convenience in the transaction of business and in the administration of justice. The doctrine that a corporation is an intangible entity, consisting of nobody, is a mere subtlety. It is a fiction, destitute of any sulistautial foun- dation. A corporation, as already seen, is an aggregation 1 Ireland v. Palestine Co., 19 Ohio St. 869, 872, opinion by "Welch, J. This case qualiflea and limits Palestine, etc., Co. o. Wooden, 18 Ohio St. 895. 72 CH. IV. J CONSTITUTIONAL QUESTIONS. § 68 of men, and these men are the stockholders.' A contract between a stockholder and the corporation is, in substance and effect, a contract between one member and the rest of the members. Unless this conclusion is fundamentally wrong, the doctrine of the Ohio case is tantamount to saying that a body of men can, by reason of contracts which they have entered into with each other, acquire a vested right to contract future debts without paying them. The doctrine that a man has a vested right not to pay his debts cannot, it is believed, gain a foothold, even at a period when courts of justice are disposed to accord the most liberal construc- tion to statutes which have the effect to relieve debtors from their just obligations.^ § 68. "Waiver, by Stockliolder, of constitutional Im- munity. — But the Supreme Court of Ohio, while unani- mously holding that an individual liability for corporate debts cannot be imposed on a stockholder by a statute passed subsequently to the time when he became such, at the same time concede that the stockholder may waive this constitu- tional right, and become liable by his own consent.' Anal- ogy for this conclusion is found in a decision of the Supreme Court of the United States, which held that where a railroad company had endorsed the securities of another company, corporators who had acquiesced in the measure would be thereby precluded from maintaining a bill to restrain the corporation from paying the interest. The corporators rati- fied this proceeding at a general meeting, and this resolu- tion had never been rescinded. " It may be," said Mr. • Ante, ? 1 ' The statement that courts are so inclined ig home out hy the fact that stat- utes of limitation and of exemption are both treated with favor by the courts. Ang. on Lira., J 23 ; Thompson on Homesteads, J 4. But a court which had declared a homestead law retrospective in its operation, and yet not unconsti- tutional, was unable to accord to a debtor a vested right in the privilege of not paying his debts. Sparger v. Cumpton, 54 G-a. 355 ; Harris v. G-lenn, 56 G-a. 94, » Ireland v. Palestine Co., 19 Ohio St. 378. 73 § 69 NATURE or stockholders' liabilitt. [pakt I. Justice Campbell, " that among the stockholders, and within the corporation, the cause of this procrastination and hesi- tancy to act upon the subject may be estimated properly. But we are to regard the conduct of the corporation from an external position. The community at large must form their judgment of it from the acts and resolutions adopted by the authorities of the corporation and the meeting of the stock- holders, and by their acquiescence in them. These negotia- ble securities have been placed on sale in the community, accompanied by these resolutions and votes, inviting public confidence. They have circulated without an effort on the part of the corporation or corporators to restrain them, or to disabuse those who were influenced by these apparently official acts. Men have invested their money on the assur- ance they have afforded. A corporation, quite as much as an individual, is held to a careful adherence to truth in their dealings with mankind, and cannot, by their representations or silence, involve others in onerous engagements, and then defeat the calculations and claims their own conduct had superinduced.^" § 69. Evidence of such Waiver. — What will amount to a waiver, b}^ a stockholder, of this constitutional right may be gathered from a statement of facts of the Ohio case, and of the views of the court thereon. A turnpike company organized in January, 1852, under a law which did not im- pose an individual liability upon stockholders beyond the amount of their subscriptions. One Ireland became a sub- scriber, and paid his subscription. On May 3, 1852, the Legislature of Ohio passed an act providing that turnpike companies which should accept the provisions of such act should be authorized, when they found it necessary for the completion of their roads, or for the payment of in- debtedness incurred in their construction, to issue bonds for those purposes ; and the stockholders of all companies ac- ' Zabriskie v. Cleveland, etc., K. Co., 23 How. 381, 400. 74 CH. IV. J CONSTITUTIONAL QUESTIONS. § 69 cepting the act were declared to be individually liable, to the amount of their stock, for the payment of bonds so issued for the completion of the road.^ On April 8, 1856, another act' was passed, providing that in all cases where the stockholders of such companies are individually liable for the debts of the company the stockholders may, if a majority of them so determine at a meeting called for that i^urpose, be assessed upon their stock, and compelled to pay to the company their pro rata of the indebtedness of the company, not exceeding the amoimt of their stock. In 1854, the company having partly constructed its road, and being largely in debt, and without means to complete the road, the board of directors accepted the provisions of the above act, and issued and sold its bonds for the neces- sary amount to complete the road. In October, 1856, the bonds having matured, and the company being vidthout other means to pay them, in pursuance of the provisions of said act of April 8, 1856, a meeting of the stockholders was called, and, by a unanimous vote of those present, a general assessment was made upon the stockholders for the necessary amount to pay the bonds. Ireland was not pres- ent at the meeting, and did not participate in the proceed- ings or give his assent thereto. He refused to pay his assessment, and the company sued him for the same. Upon the case thus made, the court say: " There is nothing in the present case, either in the company's petition or in the bill of exceptions, to show any such assent or acquiescence on the part of Ireland. He is not shown to have been present at the meeting of the directors when the bonds were ordered to be issued, nor at the meeting of the stock- holders when the assessment was made. We cannot pre- sume his assent to these proceedings, or his acquiescence in them, from the mere fact that they took place. The bur- den of showing such assent or acquiescence rests with the company, or other party seeking to hold him liable or to ' Kev. Stat. Ohio (S. & C), 289. « Ibid. 338. 75 § 69 NATURE OF STOCKHOLDERS' LIABILITT. [PART I. estop him from denying his liability. Nor was this, in our judgment, a matter as to which the directors, or even a majority of the stockholders, were authorized by law to act for him. The power of a corporation over the rights of a stockholder, whether that power is to be exercised by the directors or a majority of the stockholders, is limited to his rights in the corporate property and corporate concerns, and does not extend to his private and individual property. As to the latter, the stockholder gives the company no authority whatever beyond the amount of his subscription, and no subsequent legislative grant of such power will be valid without his assent. This distinction between the pri- vate and corporate rights of the stockholder should never be lost sight of in construing the authorities on this subject, and its application will go far to reconcile man}- of those which appear to be conflicting. It will be observed that in Zabriskie v. Cleveland, etc., Eailroad Company,^ and, in fact, in all the authorities relied on b}"" counsel for the defendant in error, the new power sought to be exercised was confined to the assets and property of the corporation. By becom- ing a member, the stocliholder places a specified amount of his property in the common fund and subjects it to the con- trol of the company, according to its laws and regulations ; but he grants no power whatever over the remainder of his private property, which is wholly unafiected thereb}^ As to the latter, the company has no more authority than it has over the property or rights of a stranger. I apprehend the true rule in such cases to be that the power of a major- ity of the members to accept an amendment of the charter, so as to bind the minority, is confined to such modifica- tions of the charter as are reasonably within the original objects of the incorporation, and as regard the corporate property, and that in all other cases the stockholders can only be bound by their individual assent or acqui- escence." ^ 1 23 How. 381. 2 Ireland v. Palestine Co., 19 Ohio St. 373, opinion by Welcli, J. 76 CH. IV. J CONSTITUTIONAL QUESTIONS. § 70 § 70. Analogous Cases — Liegislative alteration of Charter. — An early case in Pennsylvania was decided upon like grounds. The Legislature passed an act to authorize the incorporation of a company for the purpose of making a turnpike-road between specified points ; books were opened by the commissioners appointed to take subscrip- tions of stock, at two different places on the contemplated route ; but subscriptions to an amount sufficient to authorize the granting of a cliarter were not obtained. A supplement to the original act was then passed, which divided the con- templated road into two parts, authorized the granting of two charters, and pro\T[ded that those who had originally subscribed for stock at a certain place should be members of one of the companies, and those who subscribed at another place should be members of the other. The court held that the latter act was unconstitutional, and that one of the companies organized thereunder could not recover from an original subscriber the amount of stock subscribed by him.' Many cases could be cited, the doctrine of which is more or less analogous to this case. Thus, it has been frequently held in Indiana that the relation between a corporation and a stockholder is one of contract, and hence that any legis- lative enactment which, without the assent of the stock- holder, authorizes a material change in the powers or pur- poses of the corporation, not in aid of its original object, is not binding upon him.^ Accordingly, it has been ruled in these and other cases that when, in pursuance of authority granted by an act of the Legislature, one railroad company consolidates with another, the stockholders not consenting thereto are entitled to withdraw.^ The grounds on which stockholders are entitled to claim a release from the oblisa- ' Indiana, etc., Tp. R Co. v. Phillips, 2 Penn. 184. ^ Sparrow v. Evansville, etc., E. Co., 7 Ind. 369 ; McCray v. Junction K. Co., 9 Ind. 358 ; Booe v. Junction K. Co., 10 Ind. 93 ; Martin v. Junction E. Co., 12 Ind. 605 ; The State v. Biiiley, 16 Ind. 46. ' Lauman v. Lebanon, etc., R. Co., 30 Pa. St. 42; Fisher v. Evansville, etc., K. Co., 7 Ind. 407 ; Carlisle v. Terre Haute, etc., E. Co., 6 Ind. 816. 77 § 71 NATURE OF STOCKHOLDERS' LIABILITY. [PART I. tion of their subscription where there has been a material change in the charter are very plain. By his subscription, the stockholder agrees to furnish money to be apjolied for a particular purpose. This, of course, does not bind him to furnish the money if it is to be applied to a materially dif- ferent purpose. For instance, one who has subscribed to the stock of a "life and accident" insurance company is not bound to pay his subscription after the company has been authorized, by a change in its charter, to transact the business of "fire, marine, and inland insurance."^ But the decisions do not present a uniform rule on this sub- ject. We shall see further on that the courts have, in numerous cases, held stockholders to their contracts of subscription, although the Legislature had subsequently amended the charter of the company so as materially to extend, or otherwise change, the original project, and the corporation had accepted and acted upon the amendment without the consent of the particular stockholder.^ § 71. Statutes repealing Individual Liability Laws, if retroactive, void. — It is the settled law of this country that a statute,^ or ordinance of a state constitution,* which repeals a former statute which made the stockholders of a corporation individually liable to pay the debts of the corporation, is, as respects creditors whose debts were con- tracted prior to its passage, in derogation of the Constitu- tion of the United States,^ and void. The Supreme Court of the United States have placed this conclusion upon two grounds : First, upon the gi'ound of the New York cases,' 1 AsTiton V. Burbank, 2 Dill. 435. 2 Post, II 186, 190. ' Hawthorne v. Calef, 2 Wall. 10 ; Conant v. Van Scliaick, 24 Barb. 87 ; Rochester v. Barnes, 26 Barb. 654, 657; Story v. Furmun, 25 N. Y. 216, 223; Norris v. Wrensohall, 34 Md. 492, 501. ' Provident Savings Inst. t,. Jfickson Place Skating- Rinlc, 52 Mo. 552 ; StJ Louis Railway Supplies Co. v. Harbine, 2 Mo. App. 134. ' Art. X., I 1. ' Corning u. McCullough, 1 N. Y. 47 ; Conant o. Van Schaick, 24 Barb. 87, 78 CH. IV.] CONSTITUTIONAL QUESTIONS. §72 that the stockholder made, or rather left, liable by such charters and statutes stands toward the creditors of the cor- poration in the relation of a partner, and hence of an inde- pendent contractor;' therefore, such a repealing statute impairs the obligation of the contract subsisting between him and the company's creditors. The otlier ground is that by the charter or statute subjecting the property of the stock- holder to the payment of the corporate debts the stock- holder becomes liable to the creditor in the event of the insolvency of the corporation. This security the creditor has when the debt is contracted. The repealing act does not merely modify it to his prejudice, but abolishes it altogether, and thereby impairs the obligation of his contract with the company.^ Other modifications of this doctrine are met with. The charter of a bank contained a pledge or assurance that certain funds deposited therein should be devoted to the payment of its debts. The state of Arkansas was the sole stockholder therein. An act of the Legislature devot- ing such funds to the uses of the state was held unconstitu- tional and void.' The chai-ter of a bank provided that the bills and notes of the bank should be received in payment of all debts due the state. A subsequent law repealed this provision. It was held that the state was bound to receive the outstanding bills notwithstanding the repeal.* § 72. Aliter in Case of Stockholders subsequently join- ing. — But such a repeal is valid as to stockholders subse- quently joining the company. Thus, the Constitution of Missouri imposed upon stockholders an individual liability. While this provision was in force the corporation contracted a certain indebtedness. Afterwards the ordinance imiDos- ing an individual liability for the corporate debts was re- 1 See ante, ? 29. 2 Hawthorne v. Calef, 2 Wall. 22, 23. ' Curran y. Arkansas, 15 How. 30 J. ' Woodruff 0. Trapnall, 10 How. 190. 79 § 73 NATURE OF STOCKHOLDEES' LIABILITY. [PAET I. pealed, and still later the corporation increased its stock. It was held that the creditor could not proceed under the repealed ordinance against a subscriber to the increase of stock. ^ § 73. Statute affecting the Remedy merely, not in- Talid. — Whether a given statute changing the relation of debtor and creditor reaches the contract, or affects the remedy merely, has been undoubtedly the most perplexing question of constitutional interpretation which has arisen in this country. A statute of Rhode Island made stockholders in corporations liable to arrest on execution issued upon a judgment against the corporation.^ After a stockholder had been committed to jail on an execution against the corporation, under this statute, the General Assembly passed an act which provided : ' ' No person shall hereafter be im- prisoned, or be continued in prison, nor shall the property of any such person be attached, upon an execution issued upon a judgment obtained against a corporation of which such person is or was a stockholder. All proceedings to enforce the liability of a stockholder for the debts of the corporation shall be either by suit in equity, conducted ac- cording to the practice and course of equity, or by an action of debt upon the judgment obtained against such corpora- tion ; and in any such suit or action such stockholder may. contest the validity of the claim upon which the judgment against such corporation was obtained, upon any ground upon which such corporation could have contested the same in the actioji in which such judgment was recovered.*" Upon a petition for habeas corpus to discharsje the pris- oner, it was held, after a thorough consideration of the question, that the act in question affected the creditor's remedy merely, and did not impair the obligation of the 1 Ochiltree v. The Railroad Co., 21 "Wall. 249; aflBrming s. c, hi Mo. 113. » Gen. Stat. E. I., ch. 142, I 20. • E. I. Act March 27, 1877 ; Pub'. Laws, ch. 600, JJ 1, 2. 80 CH. IV. J CONSTITUTIONAL QUESTIONS. § 73 contract in the sense of the Constitution of Rhode Island and that of the United States. Stiness, J., concurred in this view" somewhat reluctantly," and Durfee, C. J., dissented.^ Although the Supreme Court of the United States formerly held that statutes abolishing imprisonment for debt were valid as to existing contracts,'' yet later expressions of that tribunal, holding that retrospective statutes withdrawing from execution a portion of the debtor's property are in- valid,^ create grave doubts as to what conclusion that court might reach upon the question involved in this Rhode Island case, if it were brought before it.* A statute changing the ' Penniman, petitioner, 11 K. I. 333. 2 Sturges V. Crowninshield, 4 "Wheat. 200, per Marshall, C. J.; Mason u. Haile, 12 Wheat. 370 ; Beers ». Haughton, 9 Pet. 359. s Gunn V. Barry, 15 Wall. 615 ; Edwards v. Kearzj', 17 Alb. L. J. 346 ; s. c, 6 Cent. L. J. 391. * In Walker v. Whitehead, 16 Wall. 317, it is said by Mr. Justice Swayne, in delivering the opinion of the court: "The Constitution of the United States declares that no state shall pass any law impairing the obligation of contracts. These propositions may be considered consequent axioms in our jurisprudence : The laws which exist at the time and place of making a contract, and wliere it is to be performed, enter into and form a part of it. This embraces alike those which affect its validity, construction, discharge, and enforcement. Noth- ing is more material to the obligation of a contract than the means of its enforcement. The ideas of validity and remedy are inseparable, and both are parts of the obligation which is guaranteed by the Constitution against impair- ment. The obligation of a contract is the law which binds the parties to per- form their agreement. Any impairment of the obligation of a contract — the degree of impairment is immaterial. — is within the prohibition of the Consti- tution. The states may change the remedy, provided r.o substantial right secured by the contract is impaired. Whenever such a result is produced by the act in question, to that extent it is void. The states are no more permitted to impair the efficacy of a contract in this way than to attack its validity in any other manner. Against all assaults coming from that quarter," whatever guise they may assume, the contract is shielded by the Constitution. It must be left with force and effect, including the substantial means of enforcement which existed when it was made. The guarantee of the Constitution gives it protec- tion to that extent." In Van Hoffman v. Quincy, 4 Wall. 550, the same learned justice, in de- livering the opinion of the court, says: "It is also settled that the laws which subsist at the time and place of the making of a contract, and where it is to be performed, enter into it and form a part of it, as if they were expressly referred to or incorporated in its terms. This principle embraces alike those 6 81 § 73 NATURE OF STOCKHOLDERS' LIABILITY. [PART I. remedy of creditors of certain insolvent corporations to a bill in equity brought by trustees as the representatives of which affect its validity, construction, discharge, and enforcement. Illustra- tions of this proposition are found in the obligation of the debtor to pay interest after the maturity of the debt, where the contract is silent ; in the lia- bility of the drawer of a protested bill to pay exchange and damages, and in the right of the drawer and endorser to require proof of demand and notice. These are aa much incidents and conditions of the contract as if they rested upon the basis of a distinct agreement." * * * •• A statute of frauds em- bracing a preexisting parol contract, not before required to be in writing, would affect its validity. A statute declaring that the word ton should thereafter be held, in prior as well as subsequent contracts, to mean half or double the weight before prescribed, would affect its construction. A statute providing that a previous contract of indebtedness may be extinguished by a process of banliruptcy would involve its discharge ; and a statute forbidding the sale of any of the debtor's property under a judgment upon such a contract would relate to the remedy. It cannot be doubted, either upon principle or authority, that each of such laws, passed by a state, would impair the obligation of the con- tract, and the last-mentioned not less than the first. Nothing can be more ma- terial to the obligation of a contract than the means of enforcement. Without the remedy the contract may, indeed, in the sense of the law, be said not to exist, and its obligation to fall within the class of those moral and social duties which depend for their fulfilment wholly upon the will of the individual. The ideas of validity and remedy are inseparable, and both are parts of the obliga- tion which is guaranteed by the Constitution against invasion. The obligation of the contract ' is the law which binds the parties to perforin their agree- ment.' Sturges V. Crowninshield, 4 Wheat. 257. The prohibition has no reference to the degree of impairment. ' The largest and least are alike forbid- den.' " But, notwithstanding this strong language, the learned justice further on (p. 553) asserts that the states " may also exempt from sale under execution the necessary implements of agriculture, the tools of a mechanic, and articles of necessity in household furniture ; " and he quotes with approval the language of Taney, 0. J., above given, that regulations of this description have always been considered, in every civilized community, as properly belonging to the remedy, to be exercised by every sovereignty according to its own views of policy and humanity. In the earlier case of Green v. Biddle, 8 Wheat. 84, the general doctrine of the above cases was expressed by Mr. Justice Washington, as follows: "The objection to a law on the ground of its impairing the obligation of a contract can never depend upon the extent of the change which the law effects in it. Any deviation from its terms, by postponing or accelerating the period of per- formance which it prescribes, imposing conditions not expressed in the contract, or dispensing with the performance of those which are, however minute or apparently immaterial in their effect upon the contract of the parties, impairs its obligation." Still earlier, in Sturges v. Crowninshield, 4 Wheat. 197, Chief Justice Mar- 82 CH. IV. J CONSTITUTIONAL QUESTIONS. § 73 all the creditors has been held not unconstitutional, although it prevented creditors from proceeding directly, as before : shall said: "What is the obligation of a contract, and what will impair it? It would seem diflBcult to substitute words which are more intelligible or less liable to misconstruction than those which are to be explained. A contract is an agreement in which a person undertakes to do or not to do a particular thing. The law binds him to perform his undertaking; and this is, of course, the obligation of his contract. In the case at bar, the defendant has given his promissory note to pay the plaintiff on or before a certain day. The contract binds him to pay that sum on that day ; and this is its obligation. Any law which releases a part of this obligation must, in the literal sense of the word, impair it." And it was held that a state insolvent law, discharging a debtor from his contracts, was inoperative as to contracts made before its passage. But, while the Supreme Court of the United States has in so many cases repeated and given emphasis to this interpretation of the Constitution, it has also declared that "it is competent for the states to change the form of the remedy, or to modify it, or otherwise, as they may see fit, provided no substantial right secured by the contract is thereby impaired." Van Hoffman v. Quincy, 4 Wall. 553. Precisely what is meant by this shadowy reservation may never be known. It appears to be little more than a door left open for retreat, if a case shall arise in which retreat shall become necessary. "No attempt has been made,'' continues Swayne, J., in the case just quoted from (Van Hoffman u. Quincy, ui supra), " to fix definitely the line between alterations of the remedy which are to be deemed legitimate, and those which, under the form of modi- fying the remedy, impair substantial rights. Every case must be determined upon its own circumstances. Whenever the result last mentioned is produced, the act is within the prohibition of the Constitution, and, to that extent, void. If these doctrines were res Integra, the consistency and soundness of the reasoning which maintains a distinction between the contract and the remedy might well be doubted. 1 Kent's Com. 456 ; Sedgw. on Stat. & Const. Law, 652 ; Washing- ton, J., in Mason v. Haille, 12 Wheat. 379. But they rest in this court upon a foundation of authority too firm to be shaken, and they are supported by such an array of judicial names that it Is hard for the mind not to believe they are cor- rect. The doctrine upon the subject, established by the latest adjudications, renders the distinction one rather of form than substance." Nevertheless, the distinction assumed solid form in those decisions of the same court which sus- tained those laws of the states which abolished the right to imprison for debt, in their operation upon debts contracted at the time of their passage ; although this construction of the Constitution was placed upon the ground that the repealed statutes were penal rather than remedial. Van Hoffman v. Quincy, supra. " Confinement of the debtor may be a punishment for not performing his con- tract, or may be allowed as means of inducing him to perform it. But the state may refuse to inflict this punishment, or may withhold this means and leave the contract in full force. Imprisonment is no part of the contract, and simply to release the prisoner does not impair its obligation." Marshall, C. J., in Sturges v. Orowninshield, 4 Wheat. 200, 201. But in Mason v. Hailee, 12 83 § 74 NATUKB OF STOCKHOLDEES' LIABILITY. [PAET I. it did not impair the obligation of the creditor's contract, but merely affected his remedy.^ § 74. Constitutional Guaranties securing Creditors of Corporations. — The Constitutions of" several of the states contain provisions intended to secure the creditors of cor- porations by a personal liabihty of the stockholders. Thus, the Constitution of California contains the following pro- visions : ' ' Dues from corporations shall be secured by such individual liability of the corporators, and other means, as may be prescribed by law." * " Each stockholder of a cor-- poration or joint-stock association shall be individually and personally liable for his proportion of all its debts and liabilities.'"^ Construing these two sections together, the Supreme Court of California has decided that they are not self-enforcing.* In giving effect to it, the court say that the Legislature cannot enact that a stockholder shall not be liable for any of the debts of the corporation, but may pre- scribe that he shall be liable for his portion, and what that portion shall be. The hability thus imposed must operate alike on all stockholders, and the law must apply to all cor- porations. An act of the Legislature authorizing the forma- "Wheat. 378, Mr. Justice Thompson, while quoting; with approval this lan- guage of Marshall, said: " Such laws act merely upon the remedy, and that in part only. They do not take away the entire remedy, but only so far as im- prisonment forms a part of such remedy." Thus these judges placed the validity of such laws, In their retrospective operation, upon different grounds : the former, that laws granting the writ of capias ad satisfaciendum were penal, and hence not a part of the contract; the latter, that they were remedial, and not involved in the contract, because not constituting the whole remedy; while Story, J., in Beers v. Haughton, 9 Pet. 359, contented himself with the follow- ing still more general reason : " The right to imprison constitutes no part of the contract, and a discharge of the person of the party from Imprisonment does not impair the obligation of the contract, but leaves it in full force against his property and efFects." 1 Story V. Furman, 25 N. Y. 214; a. p., The Commonwealth v. Cochituate Bank, 3 Allen, 42. » Const. Cal., art 4, I 32. » Ibid., I 36. * Prench ■». Tesohemaker, 24 Cal. 518 ; Larrabee v. Baldwin, 35 Cal. 166. 84 CH. IV.J CONSTITUTIONAL QUESTIONS. § 75 tion of corporations, without attaching to the stockholders an individual liability, would, it is said, be unconstitutional, and the persons organized under such an act would acquire none of the rights of a corporation. It was therefore held that an act of the Legislature of California authorizing a municipal corporation to subscribe for stock of a railroad company, the subscription to be made upon the condition that the municipal corporation should not be liable for the debts of the company, and that the provision as to such liability should be made a part of, and be stipulated in, all contracts made by the railroad company for the construc- tion and equipment of the road, did not exempt the munic- ipal corporation from liability for the debts of the railroad company further than such exemption could be secured by persons contracting with the railroad company expressly stipulating in their contracts to waive all claims against the municipal body for the payment of the debt, and was there- fore valid.^ Such a provision, however, if unconstitutional, was not so essentially interwoven with the scope and ob- jects of the act as to invalidate its other provisions.^ It has also been held that the foregoing constitutional guar- anties were satisfied by a statute making the stockholders of corporations liable for all debts contracted while they were stockholders. There was nothing in them which re- quired each man, when he became a stockholder, to do so on the penalty of becoming personally responsible for all prior liabilities of the corporation that remained uncan- celled ; since this would make several different sets of stockholders personally responsible for the same debts, and only one set responsible for others.^ § 75. Creditor may waive Right to proceed against Stockholders. — We have seen that a stockholder may waive ' French v. Teschemaker, 24 Cal. 518. ' Robinson ». Bidwell, 22 Cal. 379. • Larrabee v. Baldwin, 35 Cal. 166. 85 . § 75 NATURE OF STOCKHOLDERS' LIABILITY. [PART I. his vested right not to be answerable personally for the debts of the corporation.^ Can a creditor also waive his risilit to seek satisfaction of his demand as;ainst a stockholder ? Whenever nothing further than a question of private right is involved, a person interested in the enforce- ment of that right may undoubtedly waive it by contract. This general rule, according to Mr. Sedgwick, holds good as well in regard to constitutions as to statutes. "A party," says that able writer, " may waive a constitutional as well as a statutory provision made for his benefit." And of this he gives many illustrations, the strongest of which is probably found in the numerous cases which hold that the right of trial by jury may be waived, though guar- anteed by the Constitution.^ There is no doubt that a person dealing with a joint-stock company or partner- ship may make a valid agreement to look for payment, not to the members individually, but only to the social funds.' And if a person chooses to deal with a part- nership or joint-stock company upon the terms that its funds, and they only, shall be available to make good his demands, he cannot afterwards depart from those terms and hold the members individually liable, as if no such restriction had been agreed to.* One eminent writer regarded it as an open question whether a creditor who had notice of the existence of a stipulation in articles of copart- nership limiting the liability of the partners could charge the partners beyond the limit so expressed on account of debts contracted of him by the firm." One respectable judge has declared, arguendo, in distinct terms, that a cred- itor would be bound by notice of such a stipulation, on the ground of having assented thereto ; ° and this seems to have 1 Ante, § 68. » Sedgw. on Const. & Stat. Law, 111. « Story on Part, i 1(34. * Lindley on Part. 302. » Story on Part., J 164. • Crocker, J., in Robinson v. Bidwell, 22 Cal. 889. 86 CH. IV.J CONSTITUTIONAL QUESTIONS. § 75 been the law in New York before the adoption by that state, from the French Code,^ of a statute permitting limited part- nerships.^ It is probable that the same rule now obtains in most of the states, as applicable to limited partnerships formed under enabling statutes like that of New York;' but as late as the year 1862 it had not obtained a foot- hold in England, except as to certain joint-stock companies created and registered in conformity with the terms of par- ticular statutes. " So inflexible is the doctrine of unlimited liability " in that country, according to Sir Nathaniel Lind- ley, " and so important is it that no doubts shall be cast upon it, that judges have frequently denounced, in the strongest terms, the conduct of those who have endeavored to inveigle the public into taking shares in concerns by asserting that ' no one shall be liable beyond the amount of his subscription. ' Nothing can be more delusive or worth- less than such statements, as applied to unincorporated bodies ; for although the subscribers themselves may stipu- late with each other for such a contracted liability, nothing is more clear than that, as to the rest of the world, each partner is liable for the whole amount of the debts of the partnership. Nor will notice that a stipulation of this kind has been entered into between the partners prevent a cred- itor from holding each of them liable to the full extent of his demand." * Whatever the rule may be as to an implied waiver by a creditor of his right to proceed for his debt against a stockholder, it has been held that this right, although secured in exiaress terms, may be waived by the creditor by express contract ; ' and it is equally free from doubt that it may be waived by conduct on the part of the 1 8 Kent's Com. 36 ; Pars, on Part. 527. ' Ensign v. Wands, 1 Johns. Cas. 171 ; Livingston v. Eoosevelt, 4 Johns. 251. » See Pars, on Part. 528. ' Lindley on Part. (1st ed.) 301. s Eobinson v. Bidwell, 22 Cal. 379, 388, per Crocker, J. ; Trench v. Tesche- maker, 24 Cal. 539 ; Basshor v. Forbes, 36 Md. 154. « Ohio, etc., Ins. Co. v. Merchants', etc., Co., 11 Humph. 1. 87 § 76 NATURE OF STOCKHOLDERS' LIABILITr. [PAET I, creditor, either at the time of making the contract,* or sub- sequently,' indicating a clear understanding between the contracting parties that the creditor is to look only to the corporate funds, and not to the individual liability of the shareholders, § 76. Statutes prescribing summary Remedy. — Stat- utes prescribing summary remedies against stockholders do not appear to be obnoxious to any constitutional objection. It has been held competent for the Legislature of Maine to pass a law making the private property of stockholders liable to be taken on execution against the company ; " and no constitutional objection to such a law was perceived in Massachusetts.^ 1 Whitwell V. Warner, 20 Vt. 425. » Stanley v. Stanley, 26 Me. 191. " Marcy v. Clark, 17 Maaa. 334, 88 CH. V.J EXTEA-TERRlTOIilAL FORCE OF STATUTES. § 80 CHAPTER V. EXTRA-TERRITORIAL FORCE OF SUCH STATUTES. Section 80. By what Law governed. 81. Liability of resident Shareholders in foreign Corporations. 82. Continued — If the Liability is statutory, what. 83. Illustrations — Where the foreign Statute is not penal. 84. Continued — "Where the foreign Statute is penal. 85. Where the foreign Statute requires a Suit in Equity against all Shareholders. 86. Liability of Members of migrating Corporation. § 80. By what Law governed. — The charter of a cor- poration or the statute under which it is organized fur- nishes the guide in determining the liability of its stock- holders to its creditors ;* and this is so where the proceeding is by a creditor of & foreign corporation against a resident stockholder ; if the stockholder is liable at all, he is, in general, liable only according to the law of the domicile of the corporation.^ This, of course, supposes that there is no legislation in the state of the stockholder's donvcile im- posing upon him a distinct liability as a stockholder in a foreign coi-poration, in view of which he has elected to as- sume that liability.^ The reason of this rule is obvious. A person guilty of no wrong ought not to be subjected to a burden or liability which he has not voluntarily assumed ; ' Bingham v. Rushing, 5 Ala. 408 ; Lane v. Morris, 8 G-a. 474 ; Shaw «. Boy- Ian, 16 Ind. 384 ; Sumner u. Marcy, 3 Woodb. & M. 105 ; Bank of St. Marys V. St. John, 25 Ala. 620 ; Smith v. Huckabee, 53 Ala. 193 ; Trustees v. Flint, 13 Mete. 589; Coffin v. Rich, 45 Me. 510. 2 Payson v. Withers, 5 Biss. 269, 278 ; Seymour v. Sturgess, 28 N. Y. 134 ; Merrick v. "Van Santvoord, 34 N. "X". 208, 210 ; McDonough v. Phelps, 15 How. Pr. 872; Ex parte Van Riper, 20 Wend. 614. • See Driiikwater o. Portland Marine Ry., 18 Me. 35. 89 § 81 NATURE OF STOCKHOLDERS' LIABILITT. [PABT I. and by accepting shares in a foreign corporation a person is rightfully supposed to have had in view the law govern- ing such corporation, and not the law of his own domicile, unless there is such a law specially applicable to his situa- tion.' On the other hand, one who accepts shares of stock in a foreign corporation takes upon himself the burden imposed by the charter of such corporation, or the law of its domicile by which it is governed. He is supposed, in a certain sense, to go into the state in which such corpora- tion is domiciled ; to cast ofl' for a time the vesture which his own state throws around him, and to put on that of such other state. Nor can he plead ignorance of such laws, any more than one can plead ignorance of the laws of another state when he makes a contract to be executed therein.' § 81. Liability of resident Sliareliolders in foreign Corporations. — If the liability of a resident stockholder of a foreign corporation rests in contract merely, as in case of the obligation to pay for shares of stock, which he enters into who has subscribed for them' or purchased them from a subscriber or holder before payment,* and if the oblia'ation thus assumed is valid and subsistiucp according to the law of the domicile of the corporation, it will be good ever3'wliere, and, upon obvious principles, will be enforced in the courts of every other state or country. And one suing in a representative capacity, such as the receiver ° or assignee in bankruptcy" of a foreign corporation, may maintain his action against the resident stockholder, if the corporation itself could have maintained it had the stock- holder been a citizen of the state in which it was domiciled.'' 1 Merrick v. Van Santvoord, 34 N. T. 208, 210. ' Payson v. Withers, 5 Biss. 269, 278. ' Post, § 105. * Post, I 210. 6 Mann v. Coolce, 20 Conn. 178. ^ Paysonv. Withers, 5 Biss. 269; Payson v. Stoever, 2 Dill. 428. ' Seymour v. Sturgess, 26 N. Y. 134 1 McDouough v. Phelps, 15 How. Pr. 372. 90 CH. V.j EXTRA-TEKEITOEIAL FORCE Or STATUTES. § 82 Thus, a stockholder of a dissolved New Jersey banking company, in possession of its assets in the state of New York, was held liable to an action by a citizen of that state, a creditor of the bank, although he might be accountable to the foreign jurisdiction in respect of such assets. " The court will not, in such a case," said Mullen, J., " disregard the rights of other parties, but it will ascertain them, and apply that portion which, after investigation, is found to belong to our own citizens.^ §82. Continued — If the Liiability is statutory, what. — If the liability of the domestic shareholder in a foreign cor- poration exists wholly by virtue of a statute of the foreign state in which such corporation is domiciled, it will be en- forced, or not, according to the laws enacted by the Legisla- ture, or the views of policy and comity entertained by the courts of the state of the shareholder's domicile. It is a case for the application of the well-understood principle of law that the legislation of one state has no operation in an- other state ex propria vigore,.h\xt only ex comitate.'^ With reference to the extent to which this comity of states will go, two general propositions, sufficient for the purposes of this discussion, may be stated : 1. If the liability sought to be enforced is in the nature of contract, and is not opposed to the legislation or public policy of the state in which it is sought to be enforced, the courts of such state will give effect to it.' 2. If the statute ci'eating such liability is ^enaZin its nature, it will not be enforced outside of the sovereignty enacting it.* 1 Tinkham v. Borst, 31 Barb. 407. 2 Erickson v. Nesmith, 15 Gray, 221, 4 Allen, 233, 46 N. H. 371 ; Smith v. Mutual Life Ins. Co., 14 Allen, 336 ; Halsey v. McLean, 12 Allen, 438 ; Gale V. Eastman, 7 Mete. 14; Healy v. Root, 11 Pick. 389; First National Bank v. Price, 33 Md. 487. ' See next section. * Derrickson v. Smith, 27 N. J. L. 166 ; First National Bank v. Price, 33 Md. 487 : Halsey «. McLean, 12 Allen, 438 ; Gale v. Eastman, 7 Mete. 14 ; Scoville V. Canfleld, 14 Johns. 338 ; Ogden v. Folliott, 3 Term Kep. 733 ; The State v. John, 5 Ohio, 217. 91 § 83 NATURE OF STOCKHOLDEES' LIABILITY. [PART I. § 83. niustrations — Wliere the foreign Statute is not penal. — Apparently following these distinctions, we find cases where the courts of different states have enforced against their own citizens, stockholders in foreign corpora- tions, a limited statute liability to creditors, in excess of any amount which might remain unpaid of their stock subscrijo- tion.' Upon like reasons, where the charter of a New Jersey bank made its directors jointly and severally liable for all its obligations, the courts of New York sustained an attach- ment against the property of one of such directors situated in New York, upon the ground of non-residence, the founda- tion of the action being an indebtedness of the bank.^ The Legislature of New York passed, in 1845, a statute to facili- tate the collection by domestic creditors of debts due by foreign corporations. It provided that, upon the return of an execution against such a corporation unsatisfied in whole or in part, the creditor might commence a suit against the subscribers to its capital stock, shareholders or stocldholders, or any or all of them, and might recover in such suit or suits any sums, to the amount due the plaintiff, " which such defendant or defendants could be liable to pay in any event in the state or government where such corporation is located.'" A plaintiff, being a judgment and execution creditor of a foreign corporation, and bringing himself within the terms of this statute, was required, in order to recover under it, to establish a present debt and liability of the corporation from the person sought to be charged ; if as a stockholder, according to the lex domicilii of the cor- poration ; if under any other contract, according to the lex loci contractus.^ If, in a proceeding under this statute, there be no proof of a statute of the state in wliich the 1 Sackett's Harbor Bank v. Blnke, 3 Rich. Eq. 225. See, also, Bond o. Ap- pleton, 8 Mass. 472 ; McDonough u. Phelps, 15 How. Pr. 372 ; Paine w. Stew- art, 33 Conn. 517. 2 Ex parte Van Riper, 20 Wend. 614. » Laws N. Y. 1845, p. 256, ch. 234. « Seymour v. Sturgess, 26 N. Y. 134. 92 CH. V.J EXTEA-TEKKITOEIAL FOECE OP STATUTES. § 85 foreign corporation is domiciled annexing a liability to stockholders, the common law will be held to apply, and determine their liability.^ In either case, the correct test is whether the action could have been sustained in the state of the domicile of the corporation if the stockholder had resided there.'' § 84. Continued — "Where the foreign Statute is pe- nal. — Statutes making directors liable to pay the debts of the corporation for failing to make and file certain described annual reports,' or making them liable for contracting or assenting to the contracting of corporate debts beyond the amount of capital paid in,* or making stockholders liable to pay fhe debts of the company in case of a failure to give a certain notice therein specified,' or liable for certain contracts of the corporation which it is forbidden by statute to make," have been held penal in their nature,^ and not to be enforced outside of the state enacting them.^ § 85. Where the foreign Statute requires a Suit in Equity against all Shareholders. — A statute of New Hampshire provided that " all legal proceedings hereafter commenced against any individual stockholder in any cor- poration in this state, for the collection of a debt against said corporation, shall be by bill in chancery, and not other- i Seymour v. Sturgess, 26 N. T. 134. ' Ibid. ; McDonough v. Phelps, 15 How. Pr. 372. " Derrickson v. Smith, 27 N. J. L. 166 ; Halsey v. McLean, 12 Allen, 438. * Pirst National Bank v. Price, 33 Md. 487. ' Cable V. McCune, 26 Mo. 371. « Lawlerv. Burt, 7 Ohio St. 341. ' Compare, on this point, Sturges v. Burton, 8 Ohio St. 215 ; Kritzerw. "Wood- son, 19 Mo. 327; Hill v. Frazier, 22 Pa. St. 320; Harrisburg Bank v. The Commonwealth, 26 Pa. St. 451 ; Andrews u. Murray, 33 Barb. 354 ; Shaler, etc., Co. V. Quarry Co., 34 Barb. 309 ; Boughton v. Otis, 21 N. T. 261 ; Squires V. Brown, 22 How. Pr. 35, 45; Bird v. Hayden, 1 Rob. 383; a. <-., 2 Abb. Pr. (n. s.)61. 8 Derrickson v. Smith, 27 N. J. L. 166 ; Halsey v. McLean, 12 Allen, 438 ; Pirst National Bank v. Price, 33 Md. 487. 93 § 85 NATURE OF STOCKHOLDERS' LIABILITY. [PAKT I. wise." Some of the shareholders in a New Hampshire cor- poration resided in Massachusetts, and an action at law was brought against one of them there in respect of a liability of the corporation. It was held that the action would not lie. To sustain it would subject the stockholders residing in Massachusetts to a greater burden than that imposed on those residing in New Hamjpshire ; since the former would be obliged to bring separate suits for contribution, while the latter would have their mutual equities adjusted in a single suit. The comity of states ought not to extend so far. Besides, if the plaintiffs were seeking to enforce a liability under authority of a statute enacted in Massa- chusetts, similar in terms to that of New Hampshire, they would be compelled to resort to equity, upon the well- settled principle that where a statute creates a right and pre- scribes a remedy, that remedy is exclusive.' Subsequently the same plaintiffs brought, in Massachusetts, a bill in equity against a number of shareholders residing there, seekinof to charge them under the New Hampshire statutes for the debts of the corporation ; but the court found insuperable diffi- culties in the way of sustaining it. Such a bill was in the nature of a general winding-up proceeding. It ouo'ht to draw into the jurisdiction of the court entertaining it all the shareholders, and the corporation itself was a necessary party defendant unless its liability had first been established by a judgment at law.^ These two decisions, taken together, ' Erickson v. Nesmith, 15 Gray, 221. In Sackett's Harbor Bank v. Blake, 3 Eich. Eq. 225, a different result was reached. In this case ji bill in equity, under the New York statute authorizing manufacturing incorporations (Act March 22, 1811), was maintained in South Curolina against a. single stock- holder, notwithstanding the objection that all the stockholders were not joined, and that the plaintiff had no right to a decree against the defendant for any thing more than contribution after the accounts necessary for the purpose had been stated. 2 Erickson o. Nesmith, 4 Allen, 233. In giving judgment in this case, Dewey, J., said: " When the statute confers a right and prescribes a remedy, that par- ticular remedy, and that only, can be pursued. The only remedy o-iven by the statute in New Hampshire is by a bill in equity. Such a bill, as it seems by the decision of the court of that state in Hadley v. Russell 40 N H 109 94 , . . , CH. v.] EXTKA-TEREITORIAL FORCE OF STATUTES. § 85 appear to have resulted in an absolute denial of justice against the stockholders of ' ' The Franklin Mills ' ' residing in Massachusetts. They will, it is thought, seldom be quoted as authority in other jurisdictions. They rest upon means a bill in belialf of all the creditors and against all the stockholders. This was so assumed in the opinion of the court in the former case between these parties. In Knowlton v. Ackley, 8 Cash. 96, this court, in denying an action at law and suggesting the remedy by bill in equity, seem to assume that the bill will lie against all the stockholders, and for the benefit of all the creditors. If this be so, we perceive at once strong reasons why such a bill should be brought in the state which created the corporation, and where the same is located, by the express terms of its charter, and where its place of business is. The effect of maintaining such a bill is to draw before the court all the creditors of the corporation, all the stockholders, and necessarily, as we should suppose, the principal debtor, the corporation itself. The fact of the resi- dence of a single stockholder in Massachusetts who might be liable in a New Hampshire corporation, in common with a hundred stockholders residing there, would upon that hypothesis transfer to our jurisdiction all such stock- holders and all the creditors, and authorize us to hear and adjust all conflicting questions as to the indebtedness of the corporation, who were stockholders, and what were the equities between them. Great practical difficulties meet us at once. There are strong reasons for holding that, in case of an existing cor- poration, the debt sought to be recovered of a stockholder should be first es- tablished by a judgment of court. If this be doubtful, it is at least necessary that before such debt be established by the proceedings in the bill in equity the corporation should have been made a party to the bill. Bogardus v. Rosendale Man. Co., 7 N. Y. 151. But we have no jurisdiction that will reach such cor- poration out of this commonwealth, and having no assets here ; and the same is true of the stockholders residing in New Hampshire. A bill in equity in Massachusetts is, therefore, not the remedy intended to be prescribed by the statute of New Hampshire creating and regulating the liability of stockhold- ers in a manufacturing company in New Hampshire. It is urged, on the part of the plaintiffs, that great practical evil may result from thus refusing to charge a party here who is an actual stockholder of a corporation in New Hampshire, but who resides without its limits. To this it may be replied that it would be a much more serious evil to hold that the whole matter of winding up the concerns of a bankrupt corporation of New Hampshire, ascertaining who are its creditors, who its stockholders, what is the amount of its assets, and how are the same to be distributed, should be transferred to the jurisdiction of Massachusetts by reason of the residence here of a single member of such corporation. There seems to be no practicable mode of dealing with such corporation and its nienibei-s, when seeking to charge the latter upon their statute liability, but to proceed in the manner prescribed by the statute cre- ating such liability, and in the local jurisdiction where the corporation was established and carries on its business, and by whose local statutes alone the liability exists." 95 § 86 NATURE OF STOCKHOLDERS' LIADILITV. [PAIIT I. a policy seemingly iistock company, a past member who ceased to be a member within a year before the commencement of the winding up cannot be placed on the list of contribu- tories until it is. proved, first, that there was, at the date of the winding-up order, some existing debt or liability of the company contracted before he ceased to be a member ; and, secondly, in the case of a limited company, that the shares formerly held by him have not been fully paid up.^ The provision in the Companies Act, 1862,^ has been held to apply to a past member who had ceased to be such by a forfeiture of his shares to the company equally as to a past member who had become such by a transfer of his shares.* § 98. Continued. — The diligent student of the English law reports will not fail to remark that the courts of that country are slow to interfere with the contracts of persons, fairly made, not being against good morals, public policy, or prohibited by positive law.' Accordingly, although, as we have seen, the legislature of that country has attached to the retiring members of joint-stock companies certain lia- bilities, this, it seems, does not prohibit the members from making a different rule for themselves in their deed of set- tlement ; * but, as we have already seen, this principle does not extend to the sanctioning of a general power on the part of members of a joint-stock company to limit their liability by contract inter se,^ and it would probably be ' Brett's Case, L. R. 6 Oh. 800. ' Weston's Case, L. E. 6 Eq. 17. 8 25 & 26 Vic. c. 89, ? 38. * Bridger's Case, L. K. 4 Oh. 266. I* Ex parte Carrie, 32 L. J. (Ch.) 57 ; "Waterhouse «. Jamieson, L. E. 2 H. L. Sc. 29. « Clarke's Executors' Case, Railly'3 Albert Arbitration Cases, 223. ' Ante, II 2, 75. 110 CH. VI. J PAST AND PRESENT STOCKHOLDERS. § 99 denied by the courts of this country altogether. It has been also held, in estimating the debts for which the B shareholders are liable, that all sums paid in respect of those debts, in the course of winding, up must be deducted ; and in estimating what sums have been so paid, the assets, in- cluding calls on the A shareholders, were to be treated as applied in payment, pari passu, of all tlie debts ;^ but this principle was denied by Lord Cairns in a case in the House of Lords, just quoted.^ § 99. Under Statutes creating joint and several IL/ia- bility until Stock paid in. — Under a statute of Massachu- setts, making the members of manufacturing companies "jointly and severally liable for all debts and contracts made by such company until the wliole amount of such capital stock shall have been paid in, and a certificate thereof shall have been made and recorded in the registry of deeds," ^ it has been held that liability attaches to all who are members at the time the liability is sought to he enforced, and not merely to those who were members at the time the debt was contracted,* although it had been previously held, on the question of the competency of a witness under a similar statute, that liability attached to those who were such when the debt was contracted.^ And it has since been held, construing the same statute, that although a member of a manufacturing company may be liable for the debts of the corporation contracted while he was a member, although he ceases to be such before the debt became payable, yet he is not liable for debts contracted before he became a member, if his membership expires before the debts become payable and action brought.^ A similar statute exists in 1 Morris' Case, L. R. 7 Ch. 200. 2 Webb D. Whiffin, L. R. 5 H. L. 739. " Mass. Stat. 1829, Cli. 5.3, ^ 6; Rev. Stat. 1836, ch. 38, J 16. * Curtis V. Harlow, 12 Mete. 3. ' Mill-Dam Foundry v. Hovey, 21 Pick. 455. ' Holyoke Bank v. Burnham, 11 Cush. 183. Ill § 99 NATURE or stockholders' liability, [part I. Maryland, under which stockholders in corporations are " severally and individually liable to the creditors of the company to an amount equal to the amount of the stock held by them, respectively, for all debts and contracts made by such company, until the whole amount of the capital stock fixed and limited by such company shall have been paid in, one-half thereof in one year and the other half thereof within two years from and after the incorporation of said company or such corporation shall be dissolved." ^ Another section of the same statute provided that "no shares shall be transferable until all previous calls thereon shall have been paid in, or shall have been declared forfeited for the non-payment of the calls thereon." This liability of the shareholder to answer to an extent equal to the par value of his shares of stock has been held to be in the nature of a contract between the shareholders and creditors, — "a debt, under the statute, due from the stockholders to the creditor, springing out of, and coexistent with, the contract be- tween the corporation and the creditor."' This being so, it followed that no act of the stockholder, done without the consent of the creditor, could exonerate him from the lia- bility thus incurred. The relation of stockholder is said to create a perfect legal obligation to pay the debts of the company until the whole capital shall have been paid in. Upon the faith of this obligation parties deal with the com- pany. The liability of a stockholder being, therefore, in the nature of a contract made between the company, the creditor, and himself, continues, and is in no manner affected by the transfer of his stock.' A similar view has been taken of a like statute in New York. The creditor is not supposed to give credit on the faith of the solvency of future stockholders. Therefore, a transfer of shares does not operate to transfer the transferor's liability for 1 Md. Act 1852, ch. .S38, I 9; Code Md., art. 26, \ 52. 2 Norris k. "Wrensphnll, 34 Md. 492. ' Hiifjer «. Cloveluiid, 36 Md. 476 ; Matthews v. Albert, 24 Md. 527. 112 CH.VI.] PAST AND PRESENT STOCKHOLDERS. § 101 debts contracted during this period .^ But this statute does not render retired shareholders liable for debts contracted subsequently to their parting with their stock.* § 100. Liability in Case corporate Indebtedness exceeds a given liimit. — There are, in some of the states, statutes making directors and shareholders personally liable for the debts of the corporation where its aggregate indebtedness is suifered to exceed a given limit, — as, three-fourths of its capital stock. These statutes are somewhat in the nature of a penalty for a wrong done to the public ; they are there- fore held to extend only to those who were directors and stockholders at the time the indebtedness was allowed to pass the prescribed limit ; for the Legislature is assumed not to have intended to visit, for the past wrong-doing of others, a punishment upon such as happen to be members at the time suit by the creditor is brought.* § 101. Effect of Renewals. — Where, by the terms of the governing statute, or by construction, the shareholders are liable for no other than those debts which were con- tracted during the time when they held their shares, the question is likely to arise. At what time is a debt to be deemed to have been contracted, when it is evidenced by a note in renewal of a previous one ? In such a case it has been held that each note given in renewal is to be regarded as a new contract and a new debt.* But this rule does not ^ Tracy v. Yates, 18 Barb. 152. ■■ Matthews v. Albert, 24 Md. 527. ' Windham Prov. Inst. u. Sprague, 43 Vt. 502 ; Tracy v. Tates, 18 Barb. 152. • Castleman v. Holmes, 4 J. J. Marsh. 1 ; Milliken v. Whitehouse, 49 Me. 527. The same ruling has been made where the question arose with reference to the statute of limitations. Fisher v. Marvin, 47 Barb. 159. On the question whether the giving of a new note in place of an old one creates a new debt, see Pryor v. Smith, 4 Bush, 379 ; Kibbey v. Jones, 7 Bush, 243 ; Ladd v. Dudley, 45 N. H. 61 ; McLaughlin v. Bank of Potomac, 7 How. 228 ; Lowry v. Fisher, 2 Bush, 70 ; Burns v. Thayer, 101 Mass. 426 ; Moore v. Beelman, 27 La. An. 275 J "Weymouth v. Sanborn, 43 N. H. 171; Pratt v. Topeka Bank, 12 Kan. 8 113 § 102 NATURE OF STOCKHOLDERS' LIABILITY. [PART I. apply in the case of a note given for a previous book-account debt ; this is not the creating of a new debt, but the giving of a higher security for an existing debt ; and, therefore, where the liability attaches to those who were shareholders at the time the debt was contracted, it is unnecessary for the declaration of a creditor, in an action at law against a shareholder, to state tliat the defendant was a shareholder when the note was given. ^ § 102. In Case of a Bank whose Capital lias been reduced. — An act of the Leo'islature authorizing the re- duction of the capital stock of a bank to the amount paid in at a certain period will exonerate tlie shareholder from any liability beyond the amount of the reduced stock, as to creditors who have become such since the reduction.^ Where the capital stock of a bank has been thus reduced, and a creditor proceeds against its shareholders, it becomes material to show the date at which his debt was con- tracted, — whether before or after the reduction. The date of the bills of the bank are not evidence upon this point ; because, as already seen, such documents are treated as money, and are constantly issued and reissued as money, and the date is therefore neither evidence of when they were last issued nor when the plaintiff became the holder of them. A subsequent holder of such bills is not vested with the rights of the first holder, so as to make the debt due to him date from the time when they were first issued.' 570; Dillon o. Bryne, 5 Cal. 455; Birrell v. Schie, 9 Cal. 104; Austin v. Un- derwood, 37 111. 441 ; WofEbrd v. Giiins, 53 Ga. 485 ; Chase v. Abbott, 20 Iowa, 154 ; Harlev v. Davis, 16 Minn. 487. ' Freeland v. McOuUougli, 1 Denio, 414, 426. ' Hepburn v. Commissioners, 4 La. An. 87; Palfrey v. Pavilding, 7 La. An. 363. » Hepburn v. Commissioners, 4 La. An. 87 ; Palfrey v. Paulding, 7 La. An. 363. These cases, it is thought, can hardly stand the test of a careful scrutiny. The Legislature passes an act in substance exonerating stockholders of banks from future assessments. Of course such an act is void as to previous cred- itors. Before the passage of the act a bank had put in circulation its notes to 114 CH. VI. J PAST AND PRESENT STOCKHOLDERS. § 102 His right of action is an original one, accruing to him directly and primarily at the moment when he becomes the bearer of the bills. He is no more affected with the rights or liabilities of an assignee than he would have been had the issue of the bill by the bank been made directly to him in the first place .^ the extent, say, of $100,000. These notes necessarily continue to circulate as money, and such are the relations of trade and of society that men must continue to take and pass them. The dishonesty which embodied itself in the act of the Legislature has characterized the conduct of the board of directors. When the tangible assets of the bank are all eaten out, and the empty shell is cracked, then there is found an indebtedness of the bank to the public of $100,000, in- curred before the passage of the act in question. This indebtedness has never been redeemed ; for when a bank receives its own bills, and does not cancel them, but immediately pays them out again as money, this is no redemption. A judicial decision, conceived in no higher spirit than that which animated the Legislature, now steps in, and says that the members of the community who unfortunately were caught in the possession of these unredeemed and dishon- ored securities at the time of the bursting of the shqjl have no redress against the shareholders, because the bank, instead of redeeming these notes, may have taken them in and passed them out again, as money, since the date of their first issue. ' Bullard v. Bell, 1 Mason, 248. 115 PART II. m WHAT MANNER AND BY WHOM THIS LIABILITY IS INCURRED. CHAPTER VII. BY AN ORIGINAL CONTRACT TO TAKE SHARES. Section 105. What amounts to a Contract to take Shares. 106. Certificate unnecessary. 107. Payment of Deposit unnecessary. 108. Parol Subscription not valid. 109. When Contract to take Shares complete under the English Statute. 110. What Facts amount to a Contract to take Shares. 111. Continued. 112. Continued. 113. Continued. 114. Each Subscription several, not joint. 115. Subscription after all Stock taken. 116. Conditional Subscription. 117. Illustrations — American Cases. 118. Continued — • English Cases. 119. Conditions as to Assessability of Shares. 120. Implied Condition that all the Stock shall be subscribed. 121. Parol Conditions void. 122. Subscriptions made for a collateral Purpose. 123. Continued. 124. Secret Arrangements with Shareholders. 125. Application of this Rule in Case of registered Companies. 126. Collateral Agreements as to Payment — Payment in Property. 127. Stock payable in specific Property. 128. Continued — Doctrine in Pennsylvania. 129. Agreements that Shares shall be deemed "fully paid up." 130. Continued — Paid-up Shares delivered in Payment of specific Property. 131. Continued. 132. Continued. 117 § 105 LIABILITY, HOW mCUREED. [PAET II. Section 133. Continued — The recent English Doctrine. 134. Conclusion. 135. A resulting Doctrine — Status of bond fide Purchaser of "paid- up Shares." 136. Continued — Shares taken by Agents of Insurance Companies, to be paid for by Commissions on Business. 137. Taking Shares to qualify as Director. 138. Continued. 139. Contract to take Shares not discharged by purchasing from Shareholder. § 105. What amounts to a Contract to take Shares. — It may be stated as a general rule, applicable to all the charters and statutory schemes of incorporation in TOgue in this country, that whoever subscribes to an unconditional agreement to take a given number of shares becomes thereby a stockholder, subject to the conditions named in the subscription paper and to those imposed by the charter or by the general law.-' The constating instrument by which persons associate themselves together as members of a cor- poration or joint-stock comj)any is usually termed in this country the articles of association, and in England the deed of settlement. It is, therefore, but another way of ex- pressing the foregoing rule to say that, in the absence of fraud,* every person who signs the articles of association or the deed of settlement, agreeing at the same time to take a certain number of shares, thereby acquires the advantages, and subjects himself to the liabilities, of a stockholder or ' Hartford & New Haven R. Co. v. Kennedy, 12 Conn. 499; Sagory v. Dubois, 3 Sandf. Ch. 466; Union Turnpike Co. v. Jenkins, 1 Caines, 380; Goshen Turnpike Co. v. Hurtin, 9 Johns. 217; Dutchess Cotton Man. Co. v. Davis, 14 Johns. 237 ; Spear v. Crawford, 14 Wend. 20 ; Highland Turnpike Co. V. MoKean, 11 Johns. 98 ; Strong v. Wheaton, 38 Barb. 616 ; Burr t>. Wil- cox, 22 N. Y. 551 ; Pickering u. Templeton, 2 Mo. App. 424 ; Beene v. Ca- hawba, etc., E. Co., 3 Ala. 660 ; Upton v. Tribilcock, 91 U. S. 47 ; Brigham V. Mead, 10 Allen, 245 ; Buffalo, etc., E. Co. v. Dudley, 14 N. T. 836 ; Sey- mour V. Sturgess, 26 N. Y. 134 ; Dayton v. Borst, 31 N. Y. 435 ; Rensselaer, etc., Co. V. Barton, 16 N. Y. 457 ; Lake Ontario, etc., Co. u. Mason, 16 N. Y. 451 ; Hartford, etc., R. Co. v. Oroswell, 5 Hill, 383 ; Northern R. Co. v. Miller, 10 Barb. 260; Kennebec, etc., R. Co. v. Palmer, 34 Me. 366; Connecticut, etc., E. Co. V. Bailey, 24 Vt. 465. » Post, Ch. vin. 118 CH. VII. J CONTRACT TO TAKE SHARES. § 105 shareholder ; ^ and this is more clear where the governing statute declares that those signing such articles shall be deemed a body corporate. '-^ The act of subscribing for shares fixes the subscriber's liability to creditors as a share- holder, although he has not paid in any part of his sub- scription, or done any act whatever as such.^ If a person orders goods to be delivered to him, a promise is implied that he will pay for them. So, if a person sub- scribes for shares of stock in a corporation or joint-stock company, a promise is implied that he will pay for them ;* and the same effect is given to the acceptance and holding of a certificate of stock,^ although, in order to constitute one a shareholder, it is not necessary that a certificate should have been issued.^ This promise may be enforced 1 Strong V. Wheaton, 38 Barb. 616; Cole v. Eyan, 52 Barb. 168; Sagory ti. Dubois, 3 Sandf. Ch. 466. 2 Strong V. Wbeaton, 38 Barb. 616. ' Spear v. Crawford, 14 Wend. 20. * Spear v. Crawford, 14 Wend. 20 ; Hartford & New Haven E. Co. v. Ken- nedy, 12 Conn. 499 ; Pry v. Lexington E. Co., 2 Mete. (Ky.) 314 ; Klein v. Alton, etc., E. Co., 13 HI. 514 ; Banet v. Alton, etc., E., Co. 13 111. 504. » Upton V. Tribilcock, 91 U. S. 48 ; Palmer u. Lawrence, 3 Sandf. 161 ; Brigham v. Mead, 10 Allen, 245. And this is so although the certificate con- tains a promise on the part of the corporation to pay interest thereon until the happening of a certain specified event. McLaughlin v. Detroit, etc., R. Co., 8 Mich. 100. Making and mailing a certificate is regarded as the issuing of it. Jones i>. Terre Haute, etc., E. Co., 17 How. Pr. 529. « Chaffin V. Cummings, 37 Me. 76 ; Chase v. Merrimack Bank, 19 Pick. 564 ; Beckett v. Houston, 32 Ind. 393 ; Buit v. Wilcox, 22 N. Y. 551 ; Schaeflfer v. Missouri Ins. Co., 46 Mo. 248. One who sells shares before the issue of the cer- tificate, agreeing to give the buyer a certificate when he gets it, has been held not bound, as between the buyer and himself, to pay an assessment laid upon the shares subsequently to the sale, and before the issuing of the certificate. Brigham v. Mead, 10 Allen, 245. Some courts, however, have held that un- less the contract of subscription contains an express promise to pay for the shares the remedy of the company to enforce payment is limited to that named in the charter, which is generally a forfeiture of the shares. Andover, etc., T. Co. V. Gould, 6 Mass. 40 ;• New Bedford, etc., T. Co. v. Adams, 8 Mass. 138 ; Pranklin Glass Co. v. White, 14 Mass. 286 ; Essex Bridge Co. v. Tuttle, 2 Vt. 393. On the other hand, an express promise, in the contract of subscription, to pay assessments on the stock will bind the subscriber, although the charter provides for a forfeiture of the stock only, in case of a failure to pay assess- ments. Connecticut, etc., E. Co. u. Bailey, 24 Vt. 465. 119 § 106 LIABILITY, HOW LNCUEKED. [PART II. by the corporation by assumpsit, or other suitable action ; ' and, in case of the insolvency of the corporation, it will be enforced by a court of equity or of bankruptcy for the benefit of its creditors.^ From the privileges and ad- vantages flowing to the subscriber in consequence of his subscription, and from its acceptance by the other asso- ciates or by the corporation, the law implies a consideration sufficient to support the contract.^ The rule is thus laid down by Selden, J., after reviewing the authorities: " Whatever may be the form or language of a subscription to the stock of an incorporated company, every person who in any manner becomes a subscriber for, or engages to take, any portion of the stock of such company, thereby assumes to pay for the same according to the conditions of the charter." * * * " Whenever the subscription papers refer to the charter of the company, the provisions of such charter are virtually incorporated in the subscription, and are to be referred to for the purposes of explanation."* "The subscription," said Gardner, J., in another case, " must be construed as if all the provisions of the statute affecting the liability of the subscriber, or his title to the stock purchased by him, were incorporated in his agreement. This has never been questioned." ^ § 106. Certiflcate unnecessary. — From the principles 1 Selma, etc., R. Co. v. Tipton, 5 Ala. 787; Beeneii;. Cahawba, etc., R. Co., 3 Ala. 660 ; Union Turnpike Co. u. Jenkins, 1 Caines, 381 ; s. c, 1 Gaines's Cas. 95; Goshen Turnpike Co. v. Hurtin, 9 Johns. 217; Dutchess Cotton Man. Co. V. Davis, 14 Johns. 238 ; Highland Turnpike Co. u. McKean, 11 Johns. 95 ; Spear v. Crawford, 14 Wend. 20; Harlem Canal Co. u. Seixas, 2 Hall, 504; Worcester Turnpike Co. v. Willard, 5. Mass. 80 ; Delaware, etc., Canal Co. v. Sansom, 1 Binn. 70 ; Instone v. Bridge Co., 2 Bibb, 576 ; Tar River Navigation Co. V. Neal, 3 Hawks, 520; Sanger v. Upton, 91 U. S. 56; Webster v. Upton, 91. U. S. 65 ; Chubb v. Upton, 95 U. S. 665. > » Ante, II 12-17 ; post, § 258 et seii. " Union Turnpike Co. v. Jenkins, 1 Caines, 381 ; G-oshen Turnpike Co. v. Hurtin, 9 Johns. 217; Dutchess Cotton Man. Co. v. Davis, 14 Johns. 238 j Kennebec, etc., R. Co. v. Palmer, 84 Me. 366. * Rensselaer, etc., Co. v. Barton, 16 N. T. 460, note. » Small V. Herkimer Man. Co., 2 N. Y. 330. 120 CH. VII.J CONTRACT TO TAKE SHARES. § 107 underljdng these cases it necessarily follows that a person who, with the assent of the trustees of a corporation, has assumed the position and duties of a stockholder may be held to the responsibilities of one, although no certificate of stock has been issued to him.^ § 107. Payment of Deposit unnecessary. — It was early held in New York that where there is a statute requiring the subscriber to do a certain act at the time of his subscrip- tion, the corporation cannot maintain an action on the con- tract of subscription without alleging the doing of the act. Thus, where the statute provided that "every subscriber shall, at the time of subscribing, pay unto either of the commissioners five dollars per share for each share so sub- scribed," it was held that a declaration on the contract must allege the payment of $5 on each share.^ No sense, however, is perceived in this ruling. A subscription will operate just as effectively to deceive the public into sub- scribing for other shares, or giving credit to the corpora- tion, whether the statutoiy earnest-money is paid or not ; ' and this rule, which simply enables a party to repudiate his contract by pleading his own default, has been denied in subsequent cases in the same state. ^ And it seems now firmly settled that a person cannot discharge himself of the responsibilities of a stockholder by showing that he never 1 Haynes v. Brown, 36 N. H. 545, 563 ; Chesley v. Pierce, 32 N. H. 402 ; Chaf- fln 1). Cummings, 37 Me. 76, 83 ; Chester Glass Co. v. Dewey, 16 Mass. 94 ; Chase V. Merrimack Bank, 19 Pick. 564 ; Burr v. Wilcox, 22 N. Y. 521 ; Schaeffer v. Missouri Ins. Co., 46 Mo. 248. The owner of stock need not have a certifi- cate thereof to entitle him to vote at an election for directors. Beckett v. Houston, 32 Ind. 393. 2 Highland Turnpike Co. «. McKean, 11 Johns. 98 ; s. p., G-oshen Turnpike Co. V. HurtiVi, 9 Johns. 217. In North Carolina, a subscriber to the stock of a corporation whose charter required the payment in cash of $5 per share at the time of subscribing gave his note for the amount. It was held that the subscription was void, and that the payee could not recover. McRae v. Rus- sel, 12 Ired. L. 224. ' Lake Ontario, etc., Co. v. Mason, 16 N. Y. 451; Rensselaer, etc., Co. v. Barton, 16 N, Y. 457, note ; Spear v. Crawford, 14 Weud. 20. 121 § 109 LIABILITY, HOW INCUEEED. [PAET II. paid the deposit or first instalment required of every sub- scriber by the charter, the articles of association, the deed of settlement, or' the general law. A person will not be thus permitted to take advantage of his own default, to the prejudice of others.^ Thus, where the act of Parliament creating a company provided that the company should not issue any share under the authority of that act, nor should any share vest in the person accepting the same, until one- fifth of the amount of the share was paid up, it was held that the word issue referred to the issuing of certificates of shares, and the word vest to the vesting of shares, so as to be property and capable of transfer ; but that the section did not make the payment of one-fifth a condition precedent to the liability, as a shareholder, of the person accepting the share. ^ § 108. Parol Subscription not valid. — It has been held that contracts of subscription must be in writing, and cannot be established by parol." The title of a transferee of stock can only be established by evidence of the same dignity.* § 109. When Contract to take Shares complete under the English Statute. — The English courts have settled upon 1 ChafiBn v. Cummings, 37 Me. 76, 83 ; Chesley v. Pierce, 32 N. H. 402 ; Haynes v. Brown, 36 N. H. 545, 563 ; McEuen «. West London, etc., Co., L. E. 6 Ch. 655 ; East Gloucestershire R. Co. o. Bartholomew, L. R. 3 Ex. 15 ; Purdey's Case, 16 W. R. 660 ; Beach v. Smith, 28 Barb. 254 ; Black River, etc., B. Co. V. Clarke, 25 N. T. 208 ; Haywood Plank-road Co. v. Bryan, 6 Jones L. 82 ; Hall v. Selma, etc., R. Co., 6 Ala. 741 ; Thorp ». Woodhull, 1 Sandf. Ch. 411 ; Vicksburg, etc., R. Co. v. McKean, 12 La. An. 638 ; "Wight v. Shelby E. Co., 16 B. Mon. 4 ; Piscataqua Ferry Co. v. Jones, 89 N. H. 491 ; Smith v. Plank- road Co., 30 Ala. 650. '■ East Gloucestershire R. Co. v, Bartholomew, L. R. 3 Ex. 15 ; Purdey's Case, 16 W. R. 660 ; McEuen v. West London, etc., Co., L. E. 6 Ch. 665. '' Pittsburgh, etc., E. Co. v. Gazzam, 32 Pa. St. 340, 348 ; Vreeland w. New Jersey Stone Co., 29 N. J. Eq. 188, 191 ; Thames Tunnel Co. v. Sheldon, 6 Barn. & Cress. 341. * Pittsburgh, etc., E. Co. v. Clarke, 29 Pa. St. 146, 152 ; Brouwer i>. Appleby, 1 Sandf. S. C. 170. 122 CH. VII. j CONTRACT TO TAKE SHAEES. § 109 the rule that, in order to make a contract to take shares complete, there must be an application for the shares, an allotment of the shares to the applicant, and a communica- tion to him of notice of the allotment.^ By the 23d section of the Companies Act, 1862, these formalities are dispensed with where a person signs the memorandum of association . This section provides that "the subscribers of the memo- randum of association of any company under this act shall be deemed to have agreed to become members of the company whose memorandum they have subscribed, and upon the registration of the company shall be entered as members on the register of members hereinafter mentioned ; and every other person who has agreed to become a member of a com- pany under this act, and whose name is entered on the regis- ter of members, shall be deemed to be a member of the company." Under this statute the uniform ruling appears to have been that signing the memorandum of association makes a person a shareholder, and consequently a contribu- tory, although no shares are in fact allotted to him.^ It was so held in one case, although a year and a half had elapsed between the signing of the memorandum and the winding up, during which time no shares had been allotted to the signer.' But this rule , of course , does not apply where there are no shares available for allotment. Thus, where-a person subscribed the memorandum of association, but took no part in its management, was never treated as a shareholder, his name was never entered on the register of shareholders, and the entire shares of capital were allotted to other per- sons, he was held not liable as a contributory.* But never- theless in a similar case, where all the shares in the first in- 1 Eoger'a Case, L. R. 3 Oh. 637 ; Pellott's Case, L. R. 2 Ch. 527, per Lord Cairns, L. J. ; distinguishing Bloxam'a Case, 33 Beav. 529 ; 12 W. R. 995. 2 Re London & Provincial Consolidated Coal Co., 5 Ch. Div. 525 ; Evans's Case, L. B. 2 Ch. 427 ; Sidney's Case, L. R. 13 Eq. 228 ; Levick'a Case, 40 L. J. (Ch.) 180; Hall's Case, L. R. 5 Ch. 707. s Levick's Case, 40 L. J. (Ch.) 180. • Maokley's Case, 1 Ch. Div. 247. 123 § 110 LIABILITY, HOW INCURRED. [PART II. stance had been allotted to other persons, yet some of the allotments had never been confirmed in the manner required by the memorandum of association, and there were, conse- quently, shares subject to allotment, the signer of the mem- orandum was put on the list of contributories.^ Facts which show that the subscriber had knowledge that his ap- plication for shares had been accepted are held equivalent to the sending of a letter of allotment. Thus, L. applied for 1,000 shares in a company, as trustee for M. No letter of allotment was sent to L., but his name was put on the register in respect of those shares, and he was advertised as a director. He attended meetings of the directors, and for two years took no steps to have his name removed from the register. He was held a contributory in respect of 1,000 shares. 2 § 110. What Facts amount to a Contract to take Shares. — What facts amount to a contract to take shares may be further illustrated by a variety of cases. A person desirous of being appointed local secretary of a company formally applied for a certain number of shares, which were allotted to him, with his knowledge, and he was duly regis- tered as holder thereof. No particular shares were appro- priated to him but only the amount which he had agreed to take. No deposit was ever paid by the applicant upon the shares for which he applied, but, by agreement between himself and the company, the payments, on application and allotment, were to be set off against his salary and commis- sions. These facts were held by the court to constitute an agreement on the part of the applicant that he would, and on the part of the company that he should, become a mem- ber of the company, as the holder of the number of shares applied for.' In another case it was provided by the deed ' Evans's Case, L. E. 2 Ch. 427. See ? 115. ' Levita's Case, L. R. 3 Ch. 36. 8 Thomson's Case, 4 De G. J. & S. 749. 124 CH. VII. J CONTRACT TO TAKE SHARES. § 110 of settlement of the corporation that no transfer of stock should be valid without the approbation of the directors, to be " manifested by entries or memorandums to that effect in the share-register book, under the signatures of two of the directors for the time being, and by like memorandums, so signed, added to or endorsed upon the copies or certifi- cates of the former entries respecting the shares in ques- tion in the share-register book ; or, instead of such last- mentioned memorandums, by such copies or certificates being delivered to the parties entitled thereto, of the new or altered entries respecting the same in the share-register book. Shares were transferred to G. by two shareholders respectively. G.*s name was entered by the secretary at the head of a page in the company's ledger, as also the number of shares transferred, both entries being made in pencil. This transfer took place November 13, 1842. The company ceased to do business on December 31, 1844, and was dissolved by a resolution of a general meeting on May 5, 1847. The entry in the ledger remained as stated until the month of August, 1847, following the dissolution, when the secretary perfected the entry so made, witli ink, and also added thereto the names of tlie transferors of said shares. G. was twice recognized as a shareholder, the only dividend which the company ever paid being paid to one D. according to his direction, and he was also summoned by the secretary, by letter, to a meeting of shareholders in July, 1845, to devise means for discharging the remaining liabil- ities of the company ; to which letter G. responded, advising for this purpose the sale of certain premises owned by the company, which letter of G. was recorded in the minutes of the meeting. The vice-chancellor, while stating that the formalities of transfer, as required by the deed of settlement of the company, had not been complied with, yet said it de- pended upon the circumstances of each particular case as to what acts would dispense with these formalities, and held that in this case G. had been accepted as a shareholder by those 125 § 112 LIABtLITr, HOW INCUEEED. [PAKT II. who had the management of the affairs of the company, and who were for this purpose competent to act as they did act.' § 111. Continued. — And where the promoters of an intended company issued their prospectus headed ' ' The Amazon Life Assurance and Loan Company and Sick Bene- fit Society," and the company was thereafter registered as " The Amazon Life Assurance and Loan Company," a per- ' son applied for shares (after such registration), addressing his application to the directors of the company as styled in the prospectus. Shares were allotted to him in the com- pany as registered, and notice was sent to him on paper headed with the registered name of the company, to which he paid no attention ; and on a further request by letter bear- ing the same heading he paid the deposit thereon. The following year the company was ordered to be wound up, and the applicant was made a contributory notwithstanding the change in the name ; for he had ample notice of that in the notices sent to him of allotment, and in fact the company had a sick-benefit department, although its registered name did not indicate it. Neither was it a defence that he had been informed at the time of his application for shares that it was a company of limited liability. This was entirely a question of law.^ § 112. Continued. — A promise in writing to take and fill a certain number of shares in a chartered company becomes, by a subsequent organization of the company and an acceptance of the subscription, a binding contract. Where the terms of the subscription required that seventy- five per centum of the estimated cost of any section of the railroad should be subscribed for by responsible persons before commencing its construction, if the subscription is 1 Gordon's Case, 8 De G. & S. 249. > Blackburn's Case, 8 De G. M. & G. 177. 126 CH. VII.] CONTRACT TO TAKE SHARES. § 112 obtained in good faith, assessments will be valid, though some of the subscriptions to make up that amount should turn out to be worthless.^ In 1837 a body of gentlemen, of whom the defendant was one, associated themselves to- gether for the purpose of establishing a steamship line. The defendant attended meetings of the company from Novem- ber, 1837, to March, 1838, as a director of the company, and his name appeared as a director in the prospectus issued in that period; but from March, 1838, he ceased to act as a director. On the following July 31st an act of Parliament was passed forming the company in ques- tion, in which act the defendant was named as a director. In July, 1839, a memorial was enrolled, but it did not contain the defendant's name, nor did he execute the com- pany's deed, although a space was left therein for his name and seal, which was filled up in lead-pencil. The defend- ant did not take any shares, the necessary number for a director's qualification being fifty. A judgment was ob- tained against the company in November, 1843, in an action begun on April 15, 1840. The court, upon these facts, stated that the only question was whether the defend- ant was a member of the company in November, 1843. It was certain that he had been a member at one period ; but the act of Parliament did not make him a member in that sense that it required an instrument of as high a nature to release him from membership. He had signed no deed, and it was competent for him to dissolve such partnership by parol ; therefore the fact that the company's deed was never presented to him for execution and he in no manner co- operated with the directors subsequent to March, 1838, was evidence sufficiently conclusive to show that he had with- drawn from the company so effectually as to escape liability upon this judgment.^ 1 Penobscot R. Co. v. Dummer, 40 Me. 172. » Scott V. Berkeley, 3 C. B. 925 ; ». c, 5 Rail. C. 51 ; 16 L. J. (C. P.) 107. 127 § 114 LIABILITY, HOW INCUKRED. [part II. § 113. Continued. — The defendant, in an action for as- sessments, had signed, as indicated below, the following printed agreement: "We, the undersigned, hereby au- thorize J. J. Imbrie, secretary of the Grangers' Market Company, to affix our names to the capital stock of the said company for the number of shares of said stock set oppo- site to our respective names. Names. No. Shares. Amount. Name of Grange. Post-office. J. S.Vinson. 5. $100. Lena. Umatilla Co., Or." Printed upon the same sheet, and above this agreement, were the articles of incorporation of the plaintiff company. This document was held sufficient to authoi-ize the sec- retary to subscribe for defendant for five shares of the capital stock of the corporation ; but an execution of this power was not sufficiently demonstrated, so as to constitute the defendant a stockholder, by the secretary writing the name of defendant in a list headed " Stockholders," in the stock-book of the corporation, and opposite the name so entered, the words "Lena," "Umatilla Co., Oregon," "5," "$100."i § 114. Eacli Subscription several, not joint. — Each subscription to the capital stock of a corporation is an inde- pendent undertaking, and is in no way affected by the terms of other subscriptions ; ^ and the obligation of each of several subscribers to the same agreement of subscription is several, and not joint. ^ Thus, A subscribed for fifty 1 Grangers' Market Co. v. Vinson, 6 Oreg. 172. This decision is given out of a desire not to overlook recent cases ; but it is thought to be clearly wrong, and deserving of slight regard. 2 Connecticut, etc., R. Co. v. Bailey, 24 Vt. 465; Erie, etc., R. Co. v. Patrick, 2 Keyes, 256. ' Price V. Grand Rapids R. Co., 18 Ind. 137 ; Herron v. Vance, 17 Ind. 595. 128 CH. VII. J CONTRACT TO TAKE SHAKES. § 115 shares in a railroad company in his own name, and for fifty others, adding the abbreviation "Exr." to his signature, saying that he would take fifty shares for an estate of which he was executor. These were separate contracts, and the pendency of a suit to enforce the former could be pleaded in abatement of a suit to enforce the latter.^ § 115. Subscription after all Stock taken. — A corpo- ration cannot increase its stock at will, in any manner or to any extent, unless it is authorized to do so by its charter or by the governing statute, and then only in the manner prescribed.^ "When a corporation has issued valid shares to the full extent of all the shares which by its constitution or by the general law it is empowered to issue, no court can order it to issue others, because in that respect its powers have been exhausted.^ When all the stock of a corporation is once subscribed for and taken, the corporation cannot issue any more unless it shall get back a portion of that which has been taken, by forfeiture or otherwise ; * and no person can then become a shareholder except by purchase from the original, or his assignee, and by having the stock transferred to him.' It was hence held, where all the stock of a corporation was subscribed for and taken at the time the articles of incorporation were filed, and the certificate of incorporation, made and filed as required by law, speci- fied the names of all the stockholders, and there was no evidence that the corporation had come into possession of any of its stock by forfeiture or otherwise, that no subse- quent subscribers, by merely writing their names in the corporation book and aflixing a number of shares to their respective names, could acquire a right to any share of its ' Erie, etc., E. Co. v. Patrick, 2 Keyes, 256. ' Lathrop v. Kneeland, 46 Barb. 432. ' Smith «. North American Mining Co., 1 Nev. 428; Mechanics' Bank o. New York & New Haven R. Co., 13 N. Y. 599. < See Evans's Case, L. R. 2 Ch. 427. ' Lathrop v. Kneeland, 46 Barb. 432. 9 129 § 116 LIABILITY, HOW INCUEEED. [PAET II stock, or become by such act stockholders of the corpora- tion, and, as such, liable for its debts. Nor does such a subscription for stock, where there is none to issue, estop the subscriber, when proceeded against by creditors of the corporation, from denying the relation of stockholder.^ § 116. Conditional Subscription. — Where a subscrip- tion is, on its face, made conditional on the doing of a cer- tain act by the corporation, unless the condition is per- formed there is no contract, and the subscriber cannot be held to the liabilities of a shareholder.^ The subscriber is entitled to notice of the performance of the condition before an action can be sustained against him on his contract,^ unless the act be one that carries notice of itself.* Of course the subscriber may subsequently waive the condition and bind himself absolutely ; ' and it has been held that this is done by executing a promissory note for the amount for which he has subscribed ; * or by paying the first instal- ' Lathrop v. Kneeland, 46 Barb. 432. To the same effect is Mackley's Case, L. E. 1 Oh. 247. 2 Port Miller, etc., E. Co. v. Payne, 17 Barb. 579 ; Chase v. Sycamore, etc., E. Co., 38 m. 215 ; Wear v. Jacksonville, etc., E. Co., 24 m. 693 ; Burke v. Smith, 16 Wall. 390; Pitchford v. Davis, 5 Mee. & W. 2; Pox v. Clifton, 6 Bing. 776 ; Eobert's Case, 3 De G. & S. 205 ; Wood's Case, 3 De G. & J. 85 ; Buffalo, etc., K. Co. v. Pottle, 23 Barb. 21 ; Macedon, etc., Plank-road Co. V. Lapham,' 18 Barb. 312; Burlington, etc., E. Co. v. Boestler, 15 Iowa, 555; Henderson v. Eailroad Co., 17 Texas, 573 ; Penobscot, etc., E. Co. v. Dummer, 40 Me. 172 ; Penobscot, etc., E. Co. v. Dunn, 39 Me. 587 ; Philadelphia, etc., E. Co. V. Hickman, 28 Pa. St. 318 ; Evansville, ete., E. Co. v. Shearer, 10 Ind. 244 ; Jewett v. Lawrenceburg, etc., E. Co., 10 Ind. 539 ; Martin v. Pensacola, etc., E. Co., 8 Pla. 370; New Albany E. Co. v. McCormick, 10 Ind. 499; Junc- tion E. Co. V. Eeeve, 15 Ind. 236 ; Milwaukee E. Co. v. Field, 12 Wis. 340 ; Dayton, etc., E. Co. v. Hatch, 1 Disney, 84; Roberts ». Mobile & Ohio E. Co., 82 Miss. 373. ' Banet v. Alton, etc., E. Co., 13 HI. 504; Spangler v. Indiana, etc, E. Co., 21 111. 276 ; Wear v. Jacksonville, etc., E. Co., 24 HI. 593 ; Chase v. Sycamore, etc., E. Co., 38 111. 218. * Chase v. Sycamore, etc., E. Co., 38 HI. 218. '■ Dayton, etc., E. Co. v. Hatch, 1 Disney, 84. » O'Donald i>. Evansville, etc., E. Co., 14 Ind. 259. But see Miller v. White, 7 Blackf. 491. 130 CH. VII.] CONTRACT TO TAKE SHAKES. § 117 ment, voting the whole stock at an election, and acting as an officer of the corporation.' The English courts hold that if the application for shares is conditional there is no con- tract, although the allotment is unconditional.' Nor is it necessary, within the meaning of this rule, that the ex- pression of the condition should be in the same letter with the application for the shares, provided they reach the directors together.' § 117. Illustrations — American Cases. — A. subscribed a given amount to the capital stock of a railway company upon the expressed condition that if B., a municipal cor- poration of which he was a citizen and tax-payer, should subscribe a given amount to the capital stock, A. might transfer all of his shares above a given amount to B., in satisfaction of his subscription. B. subscribed the given amount, and the transfer of shares from A. to B. was after- wards made. It was held that A. was not liable to creditors in respect of the shares so transferred . The transaction being a fair one, the fact that A. was a director of the corporation did not alter the case.* A. conditional agreement to take shares has been upheld when made before the fact of incor- poration, when entered into between the subscriber and a person getting up the corporation, such as in England would be called a ' ' promoter ' ' of the corporation ; the reason being that given by Lord Cottenham,^ that an incorporated company will be bound by the agreement of its individual members, acting before incorporation on its behalf, if the company has received the full benefit of the consideration for which the agreement stipulated in its behalf. But the case in which this ruling was made, though perhaps cor- I Dayton, etc., E. Co. v. Hatch, 1 Disney, 84 ; post, Ch. IX. " Shackleford's Case, L. R. 1 Ch. 567 ; Soger's Case, L. E. 3 Ch. 637. » Roger's Case, L. R. 3 Ch. 637. * Burke v. Smith, 16 Wall. 390. See New Albany v. Burke, 11 Wall. 96. 5 Edwards v. Grand Junction R. Co., 1 Myl. & Cr. 650, affirming the de- cision of Vice-Chancellor Shadwell, in the same case, 7 Sim. 337. 131 § 118 LIABILITY, HOW INCUERED. [PAET II, rectly decided on its peculiar facts, contains argument that is manifestly contrary to sound principles.' Where the terms of the subscription required that seventy-five per centum of the estimated cost of any sections of the rail- road should be subscribed for by responsible persons before commencing its construction, it was held that, if the sub- scription was obtained in good faith, assessments would be valid although some of the subscriptions to make up that amount should turn out to be worthless. "■' § 118. Continued — English Cases. — Before the exist- ence of the Joint-stock Companies Act of 1844,' the English courts went far in releasing persons who had ' Burrows v. Smith, ION. Y. 550. In this case articles of association had been prepared with the view of organizing a banlciiig company under the general banking law of New York. In these articles commissioners were named to obtain subscriptions to the capital stock. These commissioners ob- tained certain subscriptions, payable in bonds secured by mortgages upon the farms of the subscribers, upon the faith of a promise that the bank, when or- ganized, would advance the necessary money to pay off the prior encum- brances upon their lands, so that their bonds and mortgages might be accepted in payment of stock. The persona named subscribed regularly to the certifi- cate of incorporation, the number of shares tnl;oii by each being affixed to his name. The bank never advanced the money to these subscribers to pay off the prior mortgages on thoir farms, according to the condition of their sub- scription; but the bank did business for about four years, declaring and pay- ing dividends to its shareholders, but not paying any to these subscribers, who appear not to have been recognized as such. Meantime the bonds and mort- gages given by them in payment of their stock were held first by the promoter of the bank, who had received them, then by an agent of the comptroller of the state, and then by the bank. The bank becoming insolvent, they passed into the hands of a receiver, who brought suit on them. It appeared that all the creditors of the bank had been satisfied. The only questions arising re- lated, therefore, to the rights of shareholders inter se. It was held that, the bank having failed to perform the condition on which the subscription was made, there was no contract. The other shareholders, whose rights alone were concerned, were bound by the conduct of the corporation in its refusal to recognize those subscribers as shareholders. The infirmity of the case con- sists in the fact that the subscription, on its face, was absolute and regular, and that the condition for the non-performance of which it was discharged was a mere parol agreement, without doubt unlawful. » Penobscot, etc., K. Co. v. Dummer, 40 Me. 172. » 7 & 8 Viet. c. 110. 132 CH. VII. J CONTRACT TO TAKE SHAEE8. § 118 agreed to take shares on the faith of certain representations as to the capital of the company, which representations were not fulfilled, in cases where it did not appear that creditors had given credit on the faith of such subsciibers being members. Thus, in one case the prospectus of a com- pany stated that the capital would be 10,000 shares, of £25 each. Only 1,400 of the shares were taken. The direc- tors commenced operations on this capital. The defend- ant had previously applied for shares, and paid the deposit thereon. After biiilding operations commenced, a call was made, which the defendant paid. On the trial of this case the jury were instructed that, without evidence that the defendant knew and assented to the works being carried on with a smaller capital than that which was originally pro- posed, he would not be bound by the contract of the direc- tors. This ruling was sustained on appeal, Alderson, B., saying: "The authority given by the subscribers to the directors is a conditional one, depending on the terms of the prospectus being fulfilled. In this case that condition had not been fulfilled, and therefore the defendant is not bound by the contract of the directors."^ But an allottee who had paid his deposit on shares in a company which was afterwards completely registered under the above act was not, under the Joint-stock Companies Winding-up Act, 1848, entitled to be excluded from the list of contributories on the ground that a condition expressed on the scrip cer- tificate, that the capital would be £10,000 in 4,000 shares, had not been fulfilled, and that 2,600 shares only had been subscribed for.' But where a person, being applied to to become a member of a committee of a provisionally regis- tered railway company, consented by a letter, with a post- script to the efiect that the acceptance should be taken subject to his approval of the plans, and that he should be held free from all liability, and he afterwards attended a meeting at > Pitchford v. Davis, 5 Mee. & W. 2. » Sharpus'a Case, 3 De Q-. & S. 49 ; Earl of Mansfield's Case, 3 De G. & S. 58. 133 § 119 LIABILITr, HOW INCURRED. [PART II. which the managing committee was appointed, it was held that the qualififeation contained in the postscript was an inte- gral part of the acceptance, and that he was not liable to be put on the list of contribute ries.^ Where a person ap- plied in writing for shares in a joint-stock company, but on the expressed condition that he should have the sup- plying of certain articles required by the company, and the shares were allotted to him, but the company never came to a definite arrangement as to the supplying of the articles, and he never paid a deposit, Signed articles, nor did any act amounting to an unqualified acceptance of the shares, it was held that he could not be made a contribu- tory.2 § 119. Conditions as to Assessabllity of Shares. — An exception to the foregoing doctrine has been declared in a case where the contract of subscription and the stock certifi- cate expressed the condition that a balance of eighty per cent unpaid on the stock was to be paid on the call of the directors, when ordered by a vote of a majority of the stockholders themselves. With such contracts of subscrip- tion subsisting, most of the balance of eighty per cent not having been called in, the company became bankrupt, and its assignee in bankruptcy proceeded against its shareholders to enforce calls made by the court of bankruptcy. The stockholders claimed that they could not be made liable in any other way than by a call ordered by a majority of them- selves, as provided in the subscription contract; that the authority to assess could not be delegated so as to be effect- ually exercised by the court, or by any one else ; that there was no power vested in any court, or body of men, or direc- tors, to assess the stockholders, unless they directed or consented to it- themselves. "This," said Hopkins, J., "presents certainly a novel question, being nothing more ' Robert's Case, 3 De G-. & S. 205 ; affirmed on appeal, 2 Mac. & G. 192. » Wood's Case, 3 De G. & J. 85. 134 CH. VII.] CONTRACT TO TAKE SHARES. § 120 nor less than a claim that a party may legally and morally owe a debt, and yet frame a contract so that its payment shall be wholly discretionary, and not subject to be en- forced in the courts without his consent. It is not necessary to decide whether a provision of that kind would not be contrary to the principles of remedial justice as between the parties themselves, and therefore void ; but whether so or not, the attempt to set up such a defence as against the creditors of the company, who have entered into contracts with it without knowledge of any such stipulation, and whose only means of obtaining payment is by compelling stockholders to pay the balance due upon their stock, is without a parallel in judicial proceedings. Such a scheme I do not think ever has or ever can receive the sanction of the Legislature or of the courts." The defence was accord- ingly disallowed.^ The doctrine applies where, by the terms of the contract, the subscriptions are made payable upon the call of the company. The company becoming insolvent, a court of equity will step in and enforce the payment of the amount subscribed, although no call has been made.* § 120. Implied Condition that all tlie Stock sball be subscribed. — As a general rule, where, on the organiza- tion of a corporation, the number pf shares of the capital stock and the sum to be paid for each share are agreed upon and inserted in the agreement of subscription, the subscribers are not bound to pay their subscriptions until the requisite number of shares is filled up by subscriptions. ** The same rule applies where the company is incorporated under a general law which requires that the amount of its stock and the number and denomination of its shares shall be stated in a recorded certificate. Here no valid assess- 1 Upton V, Hansbrough, 3 Biss. 417, 423. 2 Curry v. Woodward, 53 Ala. 371. Ante, I 15. s Cabot & West Springlield Bridge v. Chapin, 6 Cush. 50. Compare Frank- lin Ins. Co. o. Hart, 31 Md. 59 ; Crocker v. Crane, 21 Wend. 218. 135 § 121 LIABILITY, HOW INCURRED. [PART II. ments can be made on subscribers until the whole capital stock is taken, unless there be a provision to that effect either in the recorded certificate or in the general law under which the company is incorporated, and in such a case the subscription may be considered to that extent conditional.^ This rule, stated in more general terms, is that where a cor- poration is formed, or attempted to be formed, under general statutes, the inchoate proceedings do not ripen into a cor- poration until all the requirements of the statute, even the filing of the articles in the ofiice of the secretary of state, are complied with. Until this is done, a subscription to the articles is a mere proposition to take the number of shares specified of the capital stock of the company thereafter to be formed, and is not a binding promise to pay. The obli- gation is inchoate merely, and can never become of force unless the corporation goes into effect in the mode pointed out by the statute.^ In either case, however, the subscribers may waive the condition, and, with their assent, the com- pany may not only organize, but do all other things inci- dent to and necessary for the prosecution of the particular business for which it was incorporated. This waiver may be either express or implied from the acts and declarations of the subscribers. If, knowing that the whole capital stock has not been taken, they attend meetings of the com- pany, cooperate in the votes for the expenditure of money for the purchase of property, for the making of contracts, and for other acts which could only be properly done upon the assumption that the subscribers intended to proceed with the stock partially, paid up, they will be estopped from setting up such a defence.^ § 121. Parol Conditions void Upon familiar grounds, parol representations or agreements, not amountiag to fraud, • Hager «. Cleveland, 86 Md. 476. Compare Hughes v. Antietam Co., 34 Md. 816. 2 Burt 1). Farrar, 24 Barb. 518 : 1 Kedf. on Eys., g 18, note 2. ' Hager v. Cleveland, 36 Md. 476. 136 CH. VII. J CONTRACT TO TAKE SHARES. § 121 made at the time of subscribing for stoclc, inconsistent with the terms of the written contract of subscription, are void, and evidence of tliem will not be received.' Upon like grounds, parol declarations of officers of a company, made on public occasions, if admissible at all to invalidate a stock sub- scription, cannot avail a subscriber who does not show that such declarations amounted to fraud on the part of the com- pany, inducing errors on his part when he subscribed.^ This rule has been applied where the subscriber to the stock of a railway company sought to avoid his liability on the ground of the violation of a contemporaneous parol agreement as to the route of the proposed road,^ or that the subscription was not to be binding unless the road was completed to a certain point.* By becoming a subscriber, a contract is entered into to pay calls at such times and in such sums as may be appointed and required by the provisions of the charter ; therefore a parol agreement, contemporaneous with the subscription, fixing a time for pa3'^ment variant from that fixed in the charter itself, is void.^ Nor is it a defence to an action for calls that the subscription was procured on the faith of another person taking stock in the company, unless such subscription was fraudulently procured, and the subscriber has not failed promptly to repudiate the fraud upon discovery of it.^ The general question of the effect of fraud m procuring subscriptions, and the rights of shareholders inter se, is discussed in the next chapter. ' Connecticut, etc., K. Co. v. Bailey, 24 Vt. 465; Mississippi, etc., E. Co. v. Cross, 20 Ark. 443 ; Evansville, etc., K. Co. u. Posey, 12 Ind. 363 ; New Albany K. Co. V. Fields, 10 Ind. 187 : Eakright v. Logansport, etc., K. Co., 13 Ind. 404 ; Clem V. Newcastle, etc., R. Co., 9 Ind. 488 ; Carlisle v. Evansville, etc., R. Co., 13 Ind. 477; Smith v. Tallahassee, etc., R. Co., 30 Ala. 650; Cunningham v. Edgefield, etc., E. Co., 2 Head, 23 ; North Carolina, etc., E. Co. v. Leach, 4 Jones L. 340. ' Vicksburg, etc., E. E. v. McKean, 12 La. An. 638 ; Martin v. Pensacola E. Co., 8 Pla. 370. Compare Mississippi, etc., E. Co. u. Cross, 20 Ark. 443; Cun- ningham V. Edgefield, etc., R. Co., 2 Head, 23. ' North Carolina, etc., R. Co. v. Leach, 4 Jones L. 340. * Madison, etc., E. Co. a. Stevens, 6 Ind. 379. ' Thigpen v. Mississippi Central R. Co., 32 Miss. 347. • Cunningham v. Edgefield, etc., E. Co., 2 Head, 23. 137 § 122 LIABILITY, HOW INCUERED. [PAET II. § 122. Subscriptions made for a collateral Purpose. — Upon like grounds, where, in order to obtain the passage of an act of Parliament inaugurating a stock company, it was necessary to show to the House of Lords that three-fourths of the shares had been subscribed, certain persons sub- scribed for shares in order to make up the deficiency, upon an agreement that they should be held in trust for the com- pany. Suit having been brought by the directors for a call made upon one of these shares, Vice-Chancellor Shadwell was asked to enjoin the action on the ground that the sub- scription was a mere fraud upon the legislature. But he treated the subscription as valid, and subsequent proceed- ings, whereby it was attempted to avoid it, were held void.^ So it has been correctly held that a subscriber cannot plead, when sought to be charged by creditors of the corporation, that he became such at the request of an agent of the com- pany, merely as an inducement to others to subscribe. Such a proceeding is alike condemned by law and good morals.^ And where, at the time of the subscription, an agreement was entered into to the eftcct that the subscriber might after- wards be released as to a portion of his shares, it was held that although as l)ctween the parties themselves botli in- struments would be construed together as parts of a single contract, yet, in favor of innocent persons deceived by the fraud, the subscription would be held good and the agree- ment of release void.^ This principle was held appli- cable in a suit for calls by the coi-poration against a share- holder with whom such a bargain had been made, the court treating the fraudulent release as void against innocent shareholders. " In the subscription of each person," said the court, " every other subscriber has a direct interest. 1 Mangles v. Grand Collier Dock Co., 10 Sim. 519. And see Preston v. Grand Collier Dock Co., 2 Kail. C. 335. 2 Pickering v. Templeton, 2 Mo. App. 426; Downie v. White, 12 Wis. 176; White Mountain R. R. v. Eastman, 34 N". H. 124 ; Blodgett r. Morrill, 20 Vt. 509 ; Davidson's Case, 3 De G. & W. 21 ; Bridger's Cose, L. R. 9 Eq. 74; Litch- field Bank v. Church, 29 Conn. 137. ' White Mountains R. R. o. Eastman, 34 N. H. 124, 140. 138 CH. VII.] CONTRACT TO TAICE SHARES. § 123 Their respective subscriptions are contributions or advance- ments for a common object. The action of each in his sub- scription may be supposed to be influenced by that of the others, and every subscription to be based upon the ground that the others are what upon their face they purport to be."i § 123. Continued. — So, the manager of a banking com- pany in which he held shares induced a friend, D., living in the country, to subscribe the company's deed for 100 shares, upon the understanding, of which a minute was entered in the company's books, that all the shares that should not be transferred by him to other parties should be transferred for him by the directors, and that he should receive noth- ing nor incur any liability in respect of the shares. After disposing of thirty shares, the purchase-money for which was paid to the directors, D., in pursuance of the arrange- ment, transferred the remainder back to the manager, by assigning them to him and his successors in office. He never received or paid any thing in respect of the shares ; and, eight years after the last transaction, the afiairs of the com- pany were wound up under the Joint-stock Companies Winding-up Act, 1848. It was held by Vice-Chancellor Shadwell that the eifect of the transaction was to hold out D. as a partner, to induce others to become members of the company, and that he was properly placed on the list as a contributory.^ And in another case, B., the local agent of an insurance company, being requested by the manager to take shares in order to induce other persons to become shareholders, offered to apply for 100 shares on condition that he should not be called upon to pay any thing for the shares, but that all payments on the shares should be de- ducted out of his commission on shares sold by him ; and upon being told by the manager of the company that he ' White Mountains R. R. v. Eastman, 34 N. H. 141, per Sawyer, J. ' Davidson's Case, 3 De G. & S. 21. 139 § 124 LIABILITY, HOW INCURKED. [PART II. would "be allowed the privilege of paying them up as con- venient," he sent in a formal application for 100 shares, which were duly allotted to him, and he was informed of the allotment, and was registered as the holder of the shares ; but he never paid any money on application or allotment, or any calls. The vice-chancellor held that the deliberate representation to others that he was a shareholder, when, according to his own view, he was not really a shareholder, for the purpose of inducing them to take shares, was a false representation, according to his own statement of his case, which, as between himself and the other shareholders, pre- cluded him from the right to deny that he was what he represented himself to be.* § 124. Secret Arrangements witli Shareholders. — It is but another way of stating the doctrine of the two preced- ing sections to say that any secret arrangement between the agents of the corporation and a subscriber for shares, to the effect that his subscription shall be merely colorable, or dischargeable on part payment, or whereby the burden which the latter assumes is rendered less onerous than what it purports to be, is vx)id as a fraud upon creditors and other subscribers, and such a subscriber will be held to the respon- sibilities of a bond fide shareholder.^ This is illustrated where the directors of an insurance company agreed among themselves to take a majority of the stock, and to give their stock-notes for the same, secured by an hypothecation of the stock; and, after the company had become greatly em- barrassed, one of the directors agreed with the president to give him $6,000 if he would take his stock and substitute his own note in lieu of the stock-note of such director, which was done accordingly. This the court held to be a fraud 1 Bridger's Case, L. E. 9 Eq. 74. ' Mann v. Cooke, 20 Conn. 179, 187 ; Robinson v. Pittsburgh, etc., R. Co., 32 Pa. St. 334 ; Graff v. Pittsburgh, etc., R. Co., 31 Pa. St. 489 ; New Albany, etc., E. Co. V. Fields, 10 Ind. 187 ; New Albany, etc., E. Co. v. Slaughter, 10 Ind. 218; Downie v. White, 12 Wis. 176; Blodgett o. Morrill, 20 Vt 509. 140 CH. VII.] CONTRACT TO TAKE SHAKES. § 125 upon the creditors of the company and the other stock- holders who had paid for their stock, and that the receiver who had been appointed to wind up the affairs of the com- pany was entitled to recover the amount of the stock-note of the director, thus given up, with the exception of the sum which had actually been paid by the president to the com- pany out of the $6,000 received by him as a premium upon his purchase.* Nor will equity reform a contract of sub- scription to the capital stock of a corporation by inserting therein a contemporaneous parol agreement making the sub- scription conditional upon the corporation doing a certain thing, such as locating its railroad on a particular route. ^ Nor can such an agreement be set up as a defence under a plea oi failure of consideration; for while it is competent to show by extrinsic evidence the absence, failure, or ille- gality of a contract in writing, or that the consideration is greater or less than that specified, yet it is not competent to show a consideration adverse to the one expressed on the face of the instrument.' § 125. Application of this Rule in Case of registered Companies. — This doctrine acquires additional force in case of a corporation organized under a general law which requires the public recordation of a certificate showing the capital stock subscribed, the amount paid in, to whom paid, the value of the shares into which the stock is divided, the residence of the subscribers, and the number of shares by each subscribed ; and no reason is perceived why the same rule should not have obtained under the English Com- panies Acts, which contain provisions for the public regis- tration of a similar memorandum of association. The obvious purpose of such statutory provisions is to compel a corporation, before it can commence to do business as ' Nathan v. Whitlock, 9 Paige, 152. » Gelpcke v. Blake, 15 Iowa, 387 ; s. c, 19 Iowa, 263. » Gelpcke v. Blake, 19 Iowa, 263. 141 § 125 LIABILITY, HOW INCURRED. [PART II. such, to advertise to the public those facts which show the amount of confidence which may be reposed in the con- cern, and the security to which the public may look in giving it credit. This being so, the familiar rules which have grown up in the American courts in giving effect to other registration laws are of obvious application here. The creditor is entitled to confide in the truth of the regis- tered memorandum. Those who have suffered themselves to be thus, by a solemn and public act, held out as share- holders are estopped, as against the public, to deny the existence of that relation. Nor can the rights of creditors be affected by any undisclosed agreement between the cor- poration and its shareholders at variance with the terms of this recorded declaration. Any other rule would convert such statute into a snare, instead of a protection to the pub- lic.^ Thus, where the registered certificate showed that a given amount of stocli had been subscribed for, of which a given sum remained unpaid, it was no defence for stock- holders, in an action against them by creditors, to show that this unpaid balance represented stock subscribed for by them as agents of the corporation, to be sold by the com- pany when in need of funds. ^ So, where the stockholders of tlie company sued represented one-third of a larger com- pany, whose property and stock had been divided into three portions, the defendants taking one-third of the original stock as the capital of their new organization, the certificate thereof setting forth the reduction of the capital stock, and that so much was paid, leaving a balance unpaid, cannot be contradicted by showing tliat the stock was all paid ; nor did knowledge by the plaintiffs of the division of the original company prevent them from recovering from the defendants for tlie full amount of stock unpaid, after failure to recover from the company of which they were members.' 1 Allibone v. Hager, 46 Pa. St. 48. 2 Ibid. » Ibid. 142 ClI. VII.] CONTRACT TO TAKE SHARES. § 126 § 126. Collateral Agreements as to Payment — Pay- ment In Property. — Neither can a subscriber for shares in a railroad company which is not autlaorized to receive lands or goods in payment for its shares, in an action against him by a creditor of tlie company, set up a collateral written agreement with the company to tlie effect tliat the amount of his subscription was to be paid in land,^ or tliat a part of it was to be paid in goods .^ Nor could a person wlio signed a deed of settlement of a joint-stock company, as an uncon- ditional subscriber to 350 shares, escape liability as a con- tributory in respect of such shares on the ground that the provisional directors had agreed to give him for his services as promoter of the company £2,500 out of the funds of the company, and paid-up shares of the company to the value of £2,500. The case proceeds on the ground that various shareholders had subsequently signed the deed, presumably on the faith of this one being a shareholder, and that share- holders were not bound by an agreement of which they had no knowledge.' Upon a similar principle it has been held that payment by a special partner in goods, of the amount agreed to be contributed by him, is not a compliance with the statute respecting limited partnerships ; it must be paid in cash.* The English courts have, however, upheld con- tracts of subscription payable in specified property, settling down upon the broad doctrine that payment may be either "in money or in money' s worth . " ° But where there was an agreement to take shares and to pay for them in goods, and the company became incajDable of performing the condition on its part, — that is, became incapable of taking the goods, by 1 Noble V. Callender, 20 Ohio St. 199. 2 Henry v. Vermillion, etc., R. Co., 17 Ohio, 187. » Nickoll's Case, 24 Beav. 639. •■ Haviland v. Chace, 39 Barb. 283. 5 Pell's Case, L. E. 5 Ch. 11; Drummond's Case, L. E. 4 Ch. 772; Baron De Beville's Case, L. E. 7 Eq. 11 ; Forbes and Judd's Case, L. E. 5 Ch. 270. These cases appear to resolve the doubts expressed in Pellatt's Case, L. E. 2 Ch. 527. 143 § 127 LIABILITY, HOW INCUKKED. [PAKT II. reason of being wound up, — it was held that the subscriber was released, and could not be made a contributory.^ The case in which this result was reached was heard before Lords Justices Turner and Lord Cairns, on appeal from a decision of Vice-Chancellor Wood, whose decree they affirmed. It is difficult to distinguish this case from another appeal heard before the same lords justices a few days be- fore, which resulted in a diflFerent conclusion. There, a mercantile firm were induced by the promoter of a corpora- tion to subscribe for 150 shares in a hotel company, of the par value of £10 each, upon the faith of an agreement that they should pay but £30 per share in cash, and the rest in electro-plated cutlery, they stipulating, aiid the promoter agreeing, to have a resolution passed to the effect that they should not be called upon to sign the articles of association of the company. In short, the substance of the agreement was that they should take these shares, pay a stipulated instalment in cash, the rest in goods at a certain price, when ordered by the company, and that they should not incur any other liability as shareholders. This agreement was subsequently ratified by the board of directors ; the firm in question received the certificates, their name was entered upon the register, the goods were never ordered, but the company having been ordered to be wound up, it was held that they must go upon the list of contributories.^ § 127. Stock payable in specific Property. — It is ob- vious that a rigid rule applied to stock subscriptions payable in specific property, discharging the conditions as to pay- ment and making the subscription payable absolutely in money, would in many cases impede the organization of useful corporations, and thus be detrimental to the business interests of the country, without producing any correspond- ing security to creditors. Accordingly, some of the states 1 Pellatt's Case, L. E. 2 Oh. 527. » Elkington's Case, L. E. 2 Ch. 511. 144 CH. VII. J CONTEACT TO TAKE SHARES. § 128 have enacted statutes like the following, relating to corpora- tions for manufacturing, mining, mechanical, and chemical purposes, found on the statute-books of New York : " The trustees of such company may purchase mines, manufac- tories, and other property necessary for their business, and issue stock to the amount of the value thereof in payment therefor ; and the stock so issued shall be declared and taken to be faU stock, and not liable to any further calls ; neither shall the holders thereof be liable for any further payments under the provisions of the tenth section of said act ; but in all statements and reports of the company, to be published, this stock shall not be stated or reported as being issued for cash paid into the company, but shall be reported in this respect according to the fact." ^ This sec- tion has been construed to include the original capital stock of companies, as well as any increase of it ; and when a subscriber has made a subscription payable in property embraced in the terms of the statute, he is discharged from further liability. But this rule is of course subject to the exception that the transaction may be impeached for fraud, and that the stockholder may be charged at the suit of a creditor by showing that the property turned in was of less value than the price at which it was turned in ; and it seems that a showing of this kind may be made without any allegation of fraud.' The same point was ruled by the Supreme Court of New York before the passage of the statute in question.' § 128. Continued — Doctrine in Pennsylvania. — There is a case in Pennsylvania where the charter of a coal com- pany authorized it to "purchase land not exceeding one thousand acres," and to employ its capital in "pui'chasing and holding the lands aforesaid, with the imj^rovements," 1 3 Edm. Stat, at Large (2d ed.), 741, oh. 333, g 2. 2 Boynton v. Hatch, 47 N. Y. 225. » Tailmadge v. Fishkill Iron Co., 4 Barb. 382. 10 145 § 128 LIABILITY, HOW INCURRED. [PART II. etc. This was held sufficient to authorize the company to purchase of a third person certain coal lands, a harbor, and land adjacent thereto, and to issue their stock in payment of such lands at their appraised value, under an arrange- ment by which the members paid for the lands and took corresponding credits on account of the sums due for the stock held by them, such credits paying such stock in fiill. This done, no further power existed on the part of the com- pany to levy a further assessment upon its shareholders, even though the lands turned out not to have been worth the sum at which they were appraised. It followed that a creditor of the company could not maintain an action against a stockholder, treating his stock as not fully paid, — noth- ing appearing to show fraud in the transaction.^ 1 Carr v. Le Fevre, 27 Pa. St. 413. This case was evidently imperfectly tried. It was an action at law, resulting in a special verdict. This verdict fails to show what seems to the writer a very important fact, namely, what, or how much, the several shareholders gave to the vendor of the lands in payment for them; whether they paid him money, and, if so, how much, or whether they transferred to him other shares which they had agreed to call " paid-up shares." The fact is, this case, on its facts, presents a concern typical of many other mining and manufacturing companies, whose scheme of organization is honey-combed with fraud, both as against subsequent creditors and purchasers of shares. I shall therefore give so much of the opinion of the court, by Lewis, P. J., as relates to this question: "This is an action by the holder of several bonds of the 'Chartiers Goal Company' against a stockholder in said company, to recover a sum alleged to be due and unpaid on subscription to the stock. The action is brought under that clause in the charter which declares that ' each stockholder shall be liable, in his individual capacity, for the debts and performance of all contracts entered into by said company, to the amount of the balance unpaid on the stock of said stockholder, so that the subscribed stock of said company, whether paid in or not, shall be liable for said debts and contracts.' Pub. Laws 1850, p. 940. The defendant below alleged that the stock taken by him was paid up in full, and the special verdict finds the facts in the case. We are to decide whether the facts so found amount to a payment or not. It appears from the verdict of the jury that 250 shares were sub- scribed by the defendant on the 7th day of February, 1850, the par value of which amounted in the aggregate to $5,000. It further appears from the entries in the stock-ledger of the company, set forth in the verdict, that con- veyances of coal land in fee, contracts for coal land, contracts for harbor, and lands at harbor, etc., as per conveyances and assignments of Z. W. Remington to the company, were 'valued and appraised at, and receipted for, by Z. "W. Eem- 146 CH. VII.J CONTEACT TO TAKE SHAKES. § 129 § 129. Agreements that Shares shall be deemed "fully paid up." — Among the many devices which have been resorted to by the members of corporations to escape the ington to the original subscribers to the capital stoolj of the company.' The amount credited to S. Watson Carr on this account, for money receipted for by Z. W. Remington, is $2,500. The residue of Mr. Carr's subscription was paid in cash. The jury find that each stockholder paid in cash only $10 on each share, and was credited on the books with the additional sum of $10 per share 'in the lands and contracts aforesaid.' There is nothing in the special verdict tending to show that there was any fraud in this transaction. The charter authorized the company to 'purchase land not exceeding one thousand acres,' and 'to employ its capital in purchasing and holding the lands aforesaid, with the im- provements,' etc. There was, therefore, nothing in this arrangement with Rem- ington which exceeded the corporate powers of the company. The corporation, being indebted to Remington for the lands necessary for its business operations, was bound to collect the subscriptions to its stock and to pay the money over to Remington in satisfaction of that debt. A payment by the stockholders directly to Remington, with the assent of the corporation, produced the same result, and was, in law, a good pa3rment pro tanto on their several subscriptions to the stock. In making their contract with Remington the parties took the precaution to have the lands ' valued and appraised.' We are bound to pre- sume that this was fairly done. There is nothing in the verdict to repel this presumption. It is true that the preamble to the resolutions of the 11th of March, 1852, two years after the payment, states that ' on the organization of the company a, prospective value or estimate was placed on contracts and lands conveyed to the company by Z. W. Remington, and that, contrary to the esti- mates at the time of the organization of the company, $100,000 in cash sub- scriptions prove insufficient to carry out the plans and purposes contemplated by this charter.' What has Mr. Carr to do with an error in the judgment of the company in regard to the value of their purchase from Remington? If through errors of judgment in carrying on their business they find themselves unable to 'carry out their plans,' vehat is that to him? If they took lands at a ' prospective value,' never realized, it is nothing more than many individuals and corporations have done before. Such an error in management, or in their judgment of the value of a purchase, made without fraud, forms no ground for rescinding the contract. Even if Mr. Carr had been the owner of an interest with Remington in the lands conveyed to the company, the contract could not be rescinded without his consent. But, as we understand the verdict, it does not appear that Mr. Carr had any interest in the lands whatever. We infer from the facts stated in it that he satisfied $2,500 of Remington's claim against the corporation, and, in consideration of doing so, received a credit for an equal amount on his subscription to the stock. This transaction was neither illegal nor improper. It could not be invalidated by the subsequent discovery that the company had made a bad bargain with Remington. Noth- ing short of Mr. Carr's voluntary consent could give validity to the resolutions of the 11th March, 1852, invalidating the payment made by him through 147 § 129 LIABILITr, HOW INCURRED. [PART II. liability assumed by their contracts of subscription, perhaps the most common, and at the same time the most shallow and ineffective, has been for the members to agree among themselves that their shares shall be deemed to be " fully paid up," when in fact they have not been so paid. Even in England, where these questions are generally considered solely with reference to the rights of the shareholders inter se,i such agreements, as between the original parties and their privies, have been declared invalid by the courts.^ Thus, where one of the original articles of association was that the shares allotted to certain individuals, among them the subscriber in question, should be deemed fully paid up ; and this subscriber proved that it was a part of the original agreement, upon the formation of the company, that the 100 shares for which he had subscribed should be so considered ; that he signed the memorandum and articles of association upon the faith and in consideration of having the shares allotted to him as fully paid up ; that no prospectus of the company ever was issued ; that the company was never ad- vertised to the public ; that no shares were ever subscribed for by the public ; and that the whole of the shares allotted Remington. No inference can be drawn from his presence when the resolu- tions were adopted, beyond that of his assent to them as a whole. If he did assent to them as a whole, he had certainly a right to avail himself of the provisions made for those who were 'unable, or neglected,' to pay a second time. The verdict finds that he belongs to that class, and that he tendered his old certificate, and offered to receive a new one for one-half the amount, according to the resolutions, and that this was refused by the president of the company. We are of opinion that Mr. Carr's subscription to the stock of the company was paid up in full by cash for one-half of it, and the arrangement with Remington for the other half; that the resolutions of the 11th March, 1852, invalidating that payment, are binding only on those who consented to them; that the presence of Mr. Carr when the resolutions were adopted authorizes no other inference than that he assented to them as a whole, and that he has fully complied, or offered to comply, with the terms of the resolu- tion which provided for cases like his own." Carr v. Le Fevre, 27 Pa. St. 413, opinion by Lewis, P. J. ' Ante, I 133 ; post, I 240. 2 Daniell's Case, 1 De G. & J. 372 ; s. c, 22 Beav. 43 ; 23 Beav. 568 ; Dent's Case, L. B. 15 Eq. 407. 148 CH. VII.] CONTRACT TO TAKE SHARES. § 129 were allotted as fully paid up ; — the company being wound up, it was held by Sir W. M. James, L. J., that he must be put on the list of contributories. " Certain persons," said the learned justice, "bound themselves, by the memo- randum of association, to take shares and to pay for them ; and the question is, whether it was competent to them to introduce an article into the articles of association which in fact and in terms says that, notwithstanding those persons did undertake, by subscribing the memorandum and the arti- cles of association, to take and pay for shares, they shall not be called upon to pay one farthing for them. It appears to me that the article is about as substantial an alteration of the memorandum as it is possible to conceive, — such an alteration as is not permitted by section 12 of the Com- panies Act, 1862,* and therefore I am of opinion that Dent is liable for the call."^ In another case, the directors of a company allotted to themselves a number of shares, by a resolution providing that the shares so allotted were to be treated as having been paid up in full. An order was shortly afterwards made for the winding up of the coriipany, and a call having been made, one of the directors who had accepted shares under the resolution applied to be relieved from calls until the other shareholders had paid up their shares in full, which none of them had done. It was argued on behalf of such stockholder that the shareholders could not claim against him except on the footing of the resolu- tion, and that, if they claimed against him upon that footing, ' This section reads as follows: "Any company limited by shares may so far modify the conditions contained in its memorandum of association, if authorized to do so by its regulations as originally framed, or as altered by special resolution, in manner hereinafter mentioned, as to increase its capital by the issue of new shares of such amount as it thinks expedient, or to con- solidate and divide its capital into shares of larger amount than its existing shares, or to convert its paid-up shares into stock ; but, save as aforesaid, and save as is hereinafter provided in the case of a change of name, no alteration shall be made by any company in the conditions contained in its memorandum of association." 2 Dent's Case, L. K 15 Eq. 407. 149 § 130 LIABILITY, HOW INCURRED. [PAET II. they must take the resolution as it stood, and treat him as the holder of fully-paid shares. But the Lord Justice Turner did not concur in this argument, and stated that by this appropriation of shares they were prevented from being disposed of for the benefit of the company; and having become possessed of these shares through a breach of trust, they could not dictate on what terms they should hold them.i § 130. Continued — Paid-up Shares delivered in Pay- ment of specific Property. — But it is to be inferred from what has elsewhere been seen ^ that this rule does not apply where non-assessable shares have been delivered to a person in payment of the piltchase-price of property sold to the corporation ; ' for hereof the property delivered is a fair equivalent for the par vafln.e of the shares, and such as the company may lawfully pik-chase, the shares delivered in payment are, in point of fact, "fully paid-up shares."* Nor does it apply where shares have been issued, as paid up, to a creditor of the company, as security for advances.* Upon this subject the English Court of Chancery seems to have agreed to a doctrine thus happily expressed by Lord Eomilly, M. R. : "A person cannot sign the memorandum of association for shares generally, and afterwards say that some or all of them are paid-up shares, unless money or money's worth was actually paid by him, or on his behalf, for those particular shares ; and also if he sign the memo- randum of association in respect of shares there stated to be paid-up shares, while they are not really paid up, he ' Daniell'a Case, 1 De G. & J. 372, affirming the decision of Sir John Eomilly, M. R., 22 Beav. 43; 23 Beav. 568. 2 Ante, § 127. ' Pell's Case, L. E. 5 Ch. 11 ; Drummond's Case, L. E. 4 Oh. 772 ; "Woodfall'a Case, 8 De G. & Sm. 63. 4 Phelan v. Hazard, 6 Cent. L. J. 109 ; Re Baglan Hall Colliery Co., L. E. 6 Ch. 846; Schroeder's Case, L. E. 11 Eq. 131. " Guest V. Worcester, etc., E. Co., L. E. 4 C. P. 9 ; Ashworth u. Bristol, etc., E. Co., 16 L. T. (n. s.) 561. 150 CH. VII.] CONTRACT TO TAKE SHAKES. § 130 will, in my opinion, be liable to pay the amount due on the shares." ^ " That is to say," said Lord Justice Giffard, in a subsequent case, — in which he declared the above language " perfectly accurate," — " if a man contracts to take shares he must pay for them, to use a homely phrase, in meal or in malt ; he must either pay in money or in money's worth. If he pays in one or the other, that will be a satisfaction ; " and in conclusion the learned justice formulated his views in the following very simple proposition, which, as already seen,^ corresponds closely to the doctrine of the American courts : "A man who signs the memorandum of associa- tion agrees to become a shareholder, and, so long as there are shares that can be allotted to him, he must fulfil that obligation." ' This rule, founded on good sense and busi- ness convenience, has been adhered, to by the English equity judges so far that, where there was a statute providing that " every .share in every company shall be deemed and taken to have been issued, and to be held subject to the pajTnent of the whole amount thereof in cash, unless the same shall have been otherwise determined by a contract duly made in writing, and filed with the registrar of joint-stock com- panies, at and before the issue of such shares,"* a credit by the company to a shareholder on account of a convey- ance to them of specific property such as they were author- ized to purchase was deemed a payment in cash.^ The lords justices, in reaching this conclusion, proceeded upon the idea that the statute did not require a proceeding so senseless as that the company should hand over to the vendor of property which they were entitled to purchase a check in payment of it, and that he should hand back to them another check in payment of the shares which he 1 Baron De Beyille's Case, L. E. 7 Eq. 14. » Ante, i 105. 3 Drummond's Case, L. R. 4 Ch. 778, 780. * Companies Act, 1867 (30 & 31 Vict. c. 131), § 25. 6 Coates's Case. L. R. 17 Eq. 169 ; Spargo's Case, L. R. 8 Ch. 407. 151 § 131 LIABILITY, HOW INCUERED. [PART U. proposed to purchase from them.* Accordingly the rule was laid down, notwithstanding this statute, that in a pro- ceeding to charge a shareholder as a contributory any evi- dence that will support a plea of accord and satisfaction will present a good defence.* In a late case in the House of Lords, Lord Blackburn understood the above statute to mean no more than that no contract for the issue of fully paid-up shares, without payment of their amount in cash, is to be valid unless it be in writing and be filed in the proper office, and that, in the absence of registration, the full value of the shares remains due ; but, continued he, it does not say that the full amount shall be deemed to be payable by any subsequent holder for value, even though he receives a certificate stating that the shares have been fully paid up.' §131. Continued. — The doctrine that payment for shares may be either in money or money's worth was practically illustrated in a case where it was, in eifect, held that the shares subscribed for by A. might be paid up by a credit given at the request of B., upon a judgment recov- ered against the company by B. Thus, B. recovei'ed a judg- ment for £3,900 against a company in which A. was a share- holder. It was agreed between B. and the comjpany that this judgment should be settled by the payment of £3,200 in bills of exchange, and placing to the credit of shares standing in A.'s name £700, so as to make these shares fully paid up. An application to have A. placed upon the list of contributories, on the ground that his shares were not fully paid up, was successfully resisted. The court regarded the transaction as exactly the same thing as if B. had received from the company the £700 in bank-notes, and then B. had said, " I wish to pay up the shares of my > Fothergill's Case, L. R. 8 Cli. 270. a Ibid. ; Spargo's Ciise, L. R. 8 Cli. 407. 8 Burldnshaw v. NiohoUs, 26 W. R. 821. 152 CH. VII. j CONTRACT TO TAKE SHARES. § 132 friend A.; there is the £700 in bank-notes back again." The fact that A. owed B. nothing, and the arrangement was made simply as an obligation to A., cut no figure in the case.^ § 132. Contimied. — It would, however, be a misstate- ment of the views of Lord Romilly to allow tliem to rest in the sentences above quoted from his judgment. The case before him really turned upon the construction of the 14th section of the Companies Act, 1862 ; ^ and the view of Lord Romilly was that he could not make a distinction between one set of shares and another unless the dis- tinction appeared on the memorandum of association. " But," said he, " if the distinction is already made on the memorandum of association, and the shareholder signs (for example) in respect of 100 shares generally, and in respect of 100 paid-up shares, then, though he is a con- tributory in respect of the first 100 shares, he is not, in my opinion, a contributory in respect of the 100 paid-up shares. Either the directors of the company had power to enter into ^ Ferrao's Case, L. K. 9 Ch. 355. 2 This section reads as follows: "The memorandum of association may, in the case of a company limited by shares, and shall, in the case of a com- pany limited by guarantee or unlimited, be accompanied, when registered, by articles of association signed by the subscribers to the memorandum of asso- ciation, and prescribing such regulations for the company as the subscribers to the memorandum of association deem expedient. The articles shall be ex- pressed in separate paragraphs, numbered arithmetically. They may adopt all or any of the provisions contained in the table marked 'A,' in the first schedule hereto. They shall, in the case of a company, whether limited b}' guarantee or unlimited, that has a capital divided into shares, state the amount of capital ■with which the company proposes to be registered ; and in the case of a com- pany, -whether limited by guarantee or unlimited, that has not a capital divided into shares, state the number of members with which the company proposes to be registered, for the purpose of enabling the registrar [of joint- stock companies in general] to determine the fees payable on registration. In a company limited by guarantee or unlimited, and having a capital divided into shares, each subscriber shall take one share, at least, and shall write op- posite to his name in the memorandum of association the number of shares he takes." 153 § 133 LIABILITY, HOW INCURRED. [PART II. a contract to give him paid-up shares, or they had not ; in neither case does it appear to me that he can be made liable in respect of the paid-up shares. If they had the power, and he had the paid-up shares in respect of which the con- tract was made, he could not, being a holder of paid-up shares, be put on the list of contributories except by his own consent. If they had not the power, the shares are nothing, and no shareholder is deceived, because he had no- tice of the transaction. The 100 shares for which he has subscribed without qualification are sufficient to satisfy the statute. But when he subscribes for paid-up shares alone, and they are not paid up, then the subscriber is liable to calls on all the shares, and will be made a contributory accordingly ; because, as I have remarked, no distinction can be made between shares which appear on the memoran- dum of association to be all in the same category. Of course he will be allowed on account all moneys paid by him in respect of such shares, or money's worth given for them. Such a case is quite distinct from one where the contribu- tory subscribes for a number of shares generally, and for another number of shares as paid up ; for the latter set the contributory cannot bo made liable."^ § 133. Continued — The recent Engrlish Doctrine. — More recently the doctrine has sprung up in England that, upon the winding up of a company, the rights of the cred- itors can only be enforced through the official liquidator, against the shareholders, in the right of the company. If, then, the company is estopped by its own contract from asserting that the shares are not fully paid up, the official liquidator representing creditors will be in the same situa- tion. It results that where the members of the company, in organizing it, agreed that the shares were to be deemed fully paid, or paid to a given extent, and the company was so registered, the official liquidator will not be permitted to » Baron De Boville's Case, L. R. 7 Eq. 11. 154 CH. VII.J CONTRACT TO TAKE SHARES. § 134 show that the shares were not paid as so represented, for the purpose of charging the shareholders as contributories. This conclusion, wholly subversive, it would seem, of the rights of creditors, is made to rest upon the ground that, the shareholders having made one contract for themselves, the courts cannot make another for them. ^ It is a breach of trust for the directors to issue such shares, and the per- son receiving them with knowledge is liable as a participator in the wrong ; but he cannot be capriciously punished by being required to do what he has not agreed to do, — pay for the shares in full. It seems that the company or its representative can proceed against him to recover the shares, or whatever damage it has sustained through the perpetra- tion of the wrong. The effect of such an act is not to make the share-taker liable ex contractu for the nominal value of the shares, but to make him liable ex delicto for their real value .^ § 134. Conclusion. — The whole discussion resolves it- self into the following conclusions : A corporation may take in payment of its shares any property which it may lawfully purchase. Such a transaction is not ultra vires or void, but is valid and binding upon the original share-takers and upon the corporation, unless it is rescinded or set aside for fraud. While such a contract stands unimpeached, the courts, even where the rights of creditors are involved, will treat that as payment which the parties have agreed should be payment.^ ' Waterhouae v. Jaraieson, L. E. 2 H. L. Sc. 29 ; Ex parte Currie, 32 L. J. (Ch.) 57; s. c, 3 De G. J. & S. 367; 7 L. T. (n. s.) 486; Carling's Case, 1 Ch. Div. 115; Burkinshaw v. Nicholls, 26 "W. K. 821, House of Lords, 1878. 2 Carling's Case, 1 Ch. Div. 115. ' Phelan v. Hazard, 6 Cent. L. J. 109 ; "Waterhouse v. Jamieson, L. K. 2 H. L. Sc. 29; Ex parte Currie, 32 L. J. (Ch.) 57; s. o., 3 De G. J. & S. 367, 7 L. T. (n. s.) 486 ; Carling's Case, 1 Ch. Div. 115 ; McCracken v. Mclntyre, 1 Duv. (Canada) 479 ; Foreman v. Bigelow, 7 Cent. L. J. 430 (U. S. Cir. Ct. Mass., Clifford and Lowell, JJ.) ; Carr v. Le Pevre, 27 Pa. St. 413. 155 § 135 LIABIIilXr, HOW INCURRED. [PART II. § 135. A resulting Doctrine — Status of bona flde Pur- chaser of "paid-up" Shares. — It follows that where a corporation issues shares as paid up, treats them as such, and as such puts them on the market, a person who inno- cently purchases them, under the belief that they are paid up, will not beconae chargeable with a liability to the creditors of the corporation in case the representations of the company should turn out to be false. Such a person is not required to suspect fraud or to institute enquiries Miiere all seems fair and conformable to the requirements of the law.^ Thus, a Scotch company whose nominal capital was £105,000 announced that £100,000 had been paid up, and that only £5,000 could be called for. Belying upon this representation, a gentleman, resident in London, purchased, as a transferee, 300 shares, and paid his proportion of the outstanding £5,000 to the company. The liquidator alleged that this gentleman knew, or ought to have known, that the company was a bubble, and proposed to make a call upon him of £30 for each of his shares. The House of Lords (reversing the decree below) held that the liquidator was wrong, the shareholder having done all that could be legiti- mately demanded of him under his contract.' In the Cana- dian case cited above, certain shares in a company incor- porated by letters-patent issued under 27 & 28 Vict. c. 23, were allotted, by a resolution passed at a special general meeting of the shareholders, to themselves, in pro- portion to the number of shares held by them at that time, at forty per cent discount deducted from their nominal value, and scrip was issued for them as fully paid up. G., under this arrangement, was allotted nine shares, which were subsequently assigned to the defendant, for value, as fully paid up. The defendant enquired of the secretary of the company, who also informed him that they were fully paid- 1 Waterhouse v. Jamieson, L. E. 2 H. L. So. 29 ; J[cCracken v. Mclntyre, 1 Duv. (Canada) 479 ; Foreman r. Bigelow, 7 Cont. L. J. 430. ^ Waterhouse v. Jamieson, L. R. 2 H. L. So. 29. 156 CH. VII. J CONTRACT TO TAKE SHARES. § 136 up shares, and he accepted them in good faith as such, and about a year afterwards became a director in the company. The shares appeared as fully paid up on the certificates of transfer, whilst on each counterfoil in the share-book the amount mentioned was, "Shares, two at $300 ^$600." The Supreme Court of Canada held (reversing the judgment of the Court of Appeals for Ontario) that the defendant, having purchased the shares in good feith, without notice, from an original holder under the 27 & 28 Vict. c. 23, as shares fully paid up, was not liable to an execution creditor of the company, whose execution had been returned nulla bona, for the amount unpaid upon the shares.^ So, in the late case of Foreman v. Bigelow,^ certain shares in a mining company were issued, as fully paid-up shares, in exchange for mineral lands. The^ lands were worth far less than the nominal value of the shares, and the transaction was clearly fraudulent. But it was formal and regular on its face ; the books of the company showed that the shares ^vere fully paid for ; and there was nothing to apprise an innocent pur- chaser that such was not the fact, and nothing to put him on enquiry. Some of these shares were innocently pur- chased by the defendants, in open market. The company becoming bankrupt, its assignee filed a bill in equity against the defendants, setting out these facts, and praying for an account of the extei:it to which their shares of stock had been paid for, and the manner of payment. The court held that the bill must be dismissed. " Innocent purchasers of shares are not liable in such a case, but the remedy of the corporation is against the guilty perpetrators of the fraud, in their individual capacity." § 136. Continued — Shares taken by Agents of Insur- ance Companies, to be paid for by Commissions on ' McCracken v. Mclntyre, 1 Duv. (Canada) 479. 2 Keported in 7 Cent. L. J. 430, from the U. S. Cir. Ct. Pist. Mass. This case was heard before Mr. Justice Cliiford and Hon. John Lowell, district judge, the opinion, being delivered by the former, October 7, 1878. 157 § 137 LIABILITY, HOW INCUKEED, [PART II. Business. — Insurance companies, in order to dispose of their shares, have frequently resorted to the device of ap- pointing local agents on condition that they would take a certain number of shares, to be paid for in commissions on the business done for the company by them. These agreements have generally been held collateral to an abso- lute contract to take shares, and the subscribers have been put upon the list of contributories.^ § 137. Taking Shares to qualify as Director. — Where it is necessary to hold a certain number of shares in order to be qualified to act as a director, it has been held that the mere fact that a person accepts the office of a director does not make him a shareholder in respect of the number of shares necessary to qualify him so to act ; it merely implies an agreement that he will qualify himself within a rea- sonable time ; and he may so qualify himself by purchasing shares from other members as well as from the company.' 1 Thomson's Case, 4 De G-. J. & S. 749 ; s. c, 84 L. J. (Ch.) 525 ; Bridger's Case, L. E. 9 Eq. 74. 2 Brown's Case, L. K. 9 Ch. 102 ; Karuth's Case, L. E. 20 Eq. 506 ; Marquis of Abeicorn's Case, 4 De G. P. & J. 78 ; Hamley's Case, 5 Ch. Div. 705 ; Barber's Case, 5 Ch. Div. 963. See also Porbes's Case, L. E. 8 Oh. 768 ; Chap- man's Case, L. E. 2 Eq. 567; Lord Claud Hamilton's Case, L. E. 8 Ch. 548; Maitland's Case, 8 Gif. 28. In Tothill's Case, L. E. 1 Ch. 86, a director of a company, in which fifty shares was the necessary qualification of a director, signed the articles of association as a holder of twenty-five shares, but applied for and paid the deposit on fifty shares. A resolution was passed at a meeting of the directors, which incidentally recited the list of share- holders, and among them this director as the holder of fifty shares. No allot- ment of the shares was made. The director was not present at the meeting at which the resolution was passed, and denied all knowledge of the resolution, although he was present at the next subsequent meeting. In the absence of proof that the minutes of the previous meeting were duly read and confirmed at the subsequent meeting (which, it appears, was not always done), the lords justices held that the director should be a contributory only in respect of the twenty-five shares for which he had executed the memorandum of association. In Austin's Case, L. E. 2 Eq. 485, the promoter of a bank invited Austin to become one of the board of directors, and a prospectus (marked " prelimi- nary and private," in which his, Austin's, name appeared as a director) was shown to him. To this proposition Austin assented, provided he should be 158 CH. VII. J COXTllACT TO TAKK SHARES. § 137 But the English courts have several times held that where a person accepts the office of director, and is advertised and acts as such for a considerable length of time, he will be held as a contributory in respect of the number of shares necessary to qualify him to act as such.^ In his decision in Harward's Case,* Vice-Chan cellor Malins proceeded on the broad ground that if a man knows that, by the constitution of the company, the qualification of a director is a certain number of shares, it is an implied contract with the share- holders that if he acts as director he must take at least that number of shares.' " I cannot," said he, " part with this case without expressing my strong opinion, which ought to be universally known by gentlemen, whether they are com- mercial men or otherwise, that they will not be permitted by the law of this country to sit at a board of directors upon the understanding that they are to receive their remunera- tion as directory, and if the affair is profitable take the profit, but if losses occur they are not to be liable." The decision of Vice-Chancellor Malins in which this language satisfied that a certain proportion of the capital had been subscribed, and that certain persons named in the prospectus as directors would actually join the board. With a view of ascertaining the correctness of statements contained in the prospectus, Austin attended a board meeting, and so far identified himself with the board as to sign a check for £500 with another director. Stock was taken by others (in at least one instance) on the faith of statements contained in the prospectus to which his name was attached as a director. On receiving, a few days after the meeting, a letter of allotment of the shares necessary to qualify him as a director, Austin at once returned it, declining, at the same time, to act as director, as he was not satisfied upon the two points stipulated for by him. The secretary wrote back, stating that his "resignation" had been accepted. Austin had nothing more to do with the bank. In considering these facts, the vice-chancellor pronounced this a very doubtful case ; but, in view of the fact that the letter of allotment was promptly returned, thought that it must be taken that the whole matter was not finally concluded, and that his name, therefore, must be removed from the list of contributories. ' Harward's Case, L. E. 13 Eq. 30 ; Stephenson's Case, 45 L. J. (Ch.) 488 ; Powler's Case, L. R. 14 Eq. 316. ' Harward's Case, L. E. 13 Eq. 80. ' See his language in Lord Claud Hamilton's Case, L. E. 8 Ch. 548, note, where he thus explains Harward's Case. 159 § 138 LIABILITY, HOW INCUKEED. [PAET II. was employed was reversed by the lords justices, upon a construction of a resolution passed by the company relating to the qualification of directors ;' but the wholesome doctrine thus expressed was not denied. Language, if possible, more strong was used, in an earlier case, by Vice-Chancellor Bacon. "In my opinion," said he, "the case is as plain as any thing can be. Being named as a director, he became liable to take twenty-five shares. By acting as a director he recognized his liability in that respect. That is indelible." ^ § 138. Continued. — Where, prior to the formation of a company, the provisional directors had agreed to take 100 shares each, to execute the articles and memorandum of association when ready, and" to act as directors of the com- pany, and the articles provided that the subscribers of the memorandum should be deemed to be directors until others were appointed, and that each director should hold at least 100 shares, it was held that they were contributories to the extent of their respective qualification shares. The deci- 1 Lord Claud Hamilton's Case, L. R. 8 Ch. 548. ' Fowler's Case, L. R. 14 Eq. 316. In this case the articles of association provided that no person should be eligible as director unless at the time of his appointment he should hold twenty-five shares. On February 14, 1867, the directors of the company were appointed, and at the same time it was resolved to allot twenty-five shares to each of the persons named as directors. One of these directors who had consented to act as such, but in ignorance, as he stated, that any shares had been allotted to him, and under the mistaken impression that the necessary qualification was twenty £2o shares, and not twenty-five £20 shares, applied, March 1, 1867, for twenty shares, which were allotted to him. He attended meetings and acted as director until just before November, 1867, at which date the company was ordered to be wound up. His name having been placed upon the list of contributories for forty-five shares, he made application to be relieved as to twenty shares. It appeared that he was present at the next meeting subsequent to the allotment of the twenty-five shares, but believed he was not present during the readino- of the minutes of the previous meeting. He stated that he did not become aware of the allotment of the twenty-five shares until June, 1867. The vice-chancellor considered that the circumstances of the allotment of the twenty-five shares were such that he ought to have known they were allotted; and, as he had applied for twenty other shares, he must remain upon the contributory list for the whole forty-five. 160 CH. VII. J CONTRACT TO TAKE SHARES. § 138 sion was placed on the ground that, it having been the duty of the provisional directors themselves to appoint directors, and default having been made by them in so appointing, they were to be deemed in equity as having appointed them- selves, and were chargeable accordingly.^ Nor is it to be inferred that if a person consents to become a director, and has allotted to him the number of shares necessary for his qualification, and in fact acts as a director, an agreement will not be implied to accept the shares.^ The true result to be drawn from the English authorities, as stated by Lord Selborne, is "that the fact of a man accepting the place of director, for which the possession of a certain number of shares is a necessary qualification, is most material in determining whether he shall or shall not be permitted to repudiate, as unauthorized by himself, the registration of shares which, in the ordinary course of the business of the company, have actually been placed in his name, and which were needful for his qualification."^ A mere colorable de- vice, the efiect of which is that the company itself furnishes the money necessary to purchase and pay for the qualifying shares of a board of directors, will be set aside in equity ; such shares will be deemed not to have been paid for, and the directors will be put upon the list of contributories ac- cordingly.* 1 Currie'9 Case, 8 De G. J. & S. 367; s. c, 32 L. J. (Cb.) 424. 2 Brown's Case, L. K. 9 Ch. 110, per Mellish, L. J. ; Leeke's Case, L. E. 6 Ch. 469. ' L. K. 9 Ch. 107. ' Re Disderi & Co., L. E. 11 Eq. 242. In this case a company was formed to purchase and carry on the business of D. The shares were of £10 each, and were to be paid up in full on acceptance. The qualification of the directors was twenty-five shares each, and by the articles of association £170,000 in paid-up shares of the company was the limit in price beyond which the directors were not to go in the purchase. Great difficulty was ex- perienced in finding the eight necessary directors who were willing to qualify as such by taking twenty-five shares. Finally, eight persons agreed to act as directors on having their qualification found. The first meeting of the com- pany took place on June 22d, at which these gentlemen acted as direc- tors, and their names were entered on the list for the twenty-five shares 11 161 § 139 LIABILITY, HOW INCUEEBD. [pART II. § 139. Contract to take Shares not discharged by pur- chasing from Shareholder. — A contract to take shares of a company is not discharged by purchasing the same number required for the qualiflcation of each of them. On June 25th they signed the contract for the purchase of the business of D. The consideration was £168,000 in fully-paid shares of the company and £2,000 in cash. At this time the directors paid for their shares, and the company paid the £2,000 in cash to D. by the following arrangement: The directors having agreed to serve only on condition that their shares were found by D., his agent drew eight checks in the name of D. for £250 each, one of which he handed to each of the direc- tors, who passed over the same by endorsement to the secretary of the company in payment of their shares. The directors' shares were then entered as fully paid up. The secretary of the company then handed the eight checks to D.'s agent, who drew up and signed a receipt for £2,000 paid by the com- pany on their purchase, according to the contract. The company was subse- quently ordered to be wound up, and the directors having been placed upon the list of contributories, on the ground that nothing had ever been paid upon their shares, the directors applied to have their names struck off. The vice- chancellor (Malins) was unable to see that the transfer of checks constituted a payment for the shares of the directors. He does not appear to have brought his mind down to a consideration of the details of the transaction, but he denounced it in heated language as "unworthy of a school-boy," "a ridiculous farce," and the directors as "creatures, dummies, and nominees" of D., the vendor. He considered that these eight persons were bound to take shares before acting as directors, and that, at least, they were now to be treated as persons who, having agreed to take shai-es, had not paid them up, and that they must pay them up in full. It is not clear to the author that the transaction merited the epithets of the learned vice-chancellor. On the contrary, it seems bon&fide throughout. In fact, D. foregoes £2,000 of the price agreed upon in order that the purchase of his business may be consummated. If the price paid for D.'s business had been exorbitant, and the directors had wilfully violated their trust in contract- ing to pay the same, and as a consideration for such breach of trust the direc- tors' qualification of shares had been supplied as above, it is obvious the transaction could not stand. But such was not the case ; the price paid was within the limit prescribed by the articles of association, and nobody could be found who would consent to serve as director unless his qualiflcation of shares was found. The vice-chancellor, in this case, based his decision on the authority of Gray V. Lewis, L. K. 8 Eq. 526. In this case the Lafltte Company was formed, to purchase the business of the Paris Bank of Lafitte. The Paris Bank de- clined to transfer its business to the company until 40,000 shares should have been subscribed for. To effect this object, the International Contract Com- pany guaranteed a subscription of the requisite number of shares. The latter company then applied to the National Bank to discount their bills for £280,000, which they agreed to do on the guarantee of the Lafltte Company that they 162 CH. VII.] CONTEACT TO TAKE SHAKES. § 139 of paid-up shares of another member; for this is taking shares from another member, and not from the company. Thus, where M. subscribed the memorandum of a com- pany for five shares, and, eight months afterwards, five fully paid-up shares, which the company had agreed to allot to C. as part of the purchase-money of property sold by them to C, were, by C.'s direction, allotted to M., and the company was wound up, it was held that M. was a contrib- utory in respect of five shares on which nothing had been paid.^ would leave in their hands whatever money should he paid in for shares, to the amount of the advance. The money was thereupon transferred to the credit of the Contract Company, who provided shareholders and paid the deposits out of the advances by the hank. In order to procure a settling-day on the stock-exchange, the hank certified that the £230,000 had been deposited with them in payment of shares. The Lafitte Company, by their articles of association, were prohibited from purchasing their own shares. The Lafitte Company was ordered to be wound up, having never acquired the business of the Paris Bank. A shareholder of the Lafitte Company filed a bill against the directors of that company, and against the National Bank, praying for the restoration of the £230,000 to the Lafitte Company by its directors and the National Bank. The vice-chancellor (Malins) held that the directors of the Lafitte Company had acted ultra vires, and committed a breach of trust in applying the funds of the company in repaying the money so advanced by the bank ; and that the bank, having been participators in the breach of trust, must refund the amount. 1 Migotti's Case, L. K. 4 Eq. 238. The same ruling was made on similar facts in Porbea and Judd's Case, L. B. 5 Ch. 270. 163 § 142 LIABILITY, HOW INCUEKED. [PAKT II. CHAPTER VIIL or THE EFFECT OF FRAUD OR MISTAKE UPON THE CONTRACT OF SUBSCRIPTION AND THE LIABILITY OF STOCJtHOLDEKS. Section 142. Subscriptions obtained by Fraud. 143. Continued. 144. Subscriptions given in Consequence of Mistake or Ignorance. 146. Continued — Fraudulent Promise of Something unlawful — Igno- rance of Law. 146. Doctrine of the English Courts. 147. Continued — Doctrine of Cakes v. Turquand. 148. Doctrine of Cakes v. Turquand, continued. 149. Continued — Henderson v. Koyal British Bank. 150. Diligence required of Subscriber. 151. Illustrations — Variance between Prospectus and Memorandum. 152. Notice of such Variance. 153. Rectification of Register. 154. Shareholders in Pari Delicto. 155. Illustrations of Fraud and other Circumstances affecting Sub- scriptions — Subscribers released. 156. Illustrations of Fraud and other Circumstances affecting Sub- scriptions — Subscribers not released. § 142. Subscriptions obtained by Fraud. — •« The rule is universal that whatever fraud creates, justice will de- stroy.'" Contracts to take stock in a corporation stand upon the same footing as all other conventional obligations. If induced by fraud, they create no obligation, and the in- jured party has a right to have them abrogated.' '« Con- tracts of this description between an individual and a com- pany, so far as misrepresentation or suppression of the truth is concerned, are to be treated like the contracts be- tween any two individuals. If one man makes a false state- ' Runyon V. C, in Vroelaud v. New Jersey Stone Co., 29 N. J Eq 190 > Ibid. 164 CH. VIII.] EFFECT OF FRAUD OR MISTAKE. § 142 ment, whicli misleads another, the way in which that is to be treated affords the example for the way in which a con- tract is to be treated where a company makes a false state- ment which misleads an individual." ^ In the cases in which these expressions are found, the question arose wholly 6e- tween the contracting parties, — the company and the sub- scriber ; and these obvious rules of justice have received application in many cases where the company had brought an action to recover calls on a stock subscription fraudu- lently obtained, or where the subscriber had exhibited a bill in equity to cancel such a subscription.^ But as we advance 1 Lord Eomilly, in Directors v. Kisoh, L. K. 2 H. L. 99, 125; Smith v. Reese River Co., L. R. 2 Eq. 264. ^ Cunningham v. Edgefield, etc., E. Co., 2 Head, 23 ; Directors v. Kisch, L. R. 2 H. L. 99 ; New Brunswick, etc., Co. a. M uggeridge, 1 Drew. & Sm. 381 ; Rawlins v. Wickham, 8 De G. & J. 301 ; National Exchange Co. v. Drew, 32 Eng. Law & Eq. 1. A subscriber cannot, as between himself and the company, avoid his subscription on the ground that the agent who procured his subscription had obtained from an influential person in the neighborhood a colorable subscription, with the secret understanding that he was not to be bound thereby, unless it also appeared that he relied on that fact and was induced thereby to make the subscription. Walker v. Mobile, etc., R. Co., 34 Miss. 245. Nor that he made false statements as to the amount of stock subscribed, and as to the time when the railroad would be completed. Brownlee o. Ohio, etc., R. Co., 18 Ind. 68; Bish v. Bradford, 17 Ind. 490; Hardy v. Merriweather, 14 Ind. 203 ; Andrews v. Ohio, etc., R. Co., 14 Ind. 169. Nor that he falsely represented that another railroad company would furnish the iron for the railroad proposed, or lend its credit for the purpose of obtaining it. Johnson v. Orawfordsville, etc., R. Co., 11 Ind. 280. Nor will a fraudulent representation made by one of the company's officers at a public meeting and in the presence of a majority of the board of directors, but not made in pursuance of any authority from, or resolution of, the board, dis- charge a subscriber. Buffalo, etc., R. Co. v. Dudley, 14 N. Y. 337. The following facts, however, have been held sufficient to avoid stock sub- scriptions as between the parties or their assignees: That the defendant, an illiterate person, was induced to subscribe upon the promise that he would not be required, according to the conditions embraced in the articles of association, to pay for his stock until the amount of $20,000 had been subscribed, which amount never was subscribed. Wert v. Crawfordsville, etc., T. Co., 19 Ind. 242. A parol condition to the subscription of stock to a railroad company will not, if falsely but not fraudulently represented to have been complied with, or if violated, invalidate the subscription, because it forms no part of the written con- tract of the parties. Cunningham ». Edgefield, etc., E. Co., 2 Head, 23. Such 165 § 142 LIABILITY, HOW INCUKRED. [PART II. in this enquiry -we shall see that the application of this rule has been generally denied where the company has become insolvent, and where the subscriber has been called upon to declarations made by officers of a company on public occasions, if admissible at all to invalidate a subscription for stock, cannot avail a subscriber who does not show that such declarations amounted to a fraud on the part of the com- pany, inducing error on his own part when he subscribed. Vicksburg, etc., E. K. V. McKean, 12 La. An. 638. A false or fraudulent representation by an agent or commissioner appointed to obtain subscriptions to the stock of the company will avoid the subscription ; but a mistaken estimate, by such officer, of a contemplated improvement will not have that eifect. Grossman ». Penrose Ferry Bridge Co., 26 Pa. St. 69. In order to avoid a contract of subscription, it must appear to have been made upon the faith of false repre- sentations in regard to a matter of fact material to the success of the enterprise. The mere holding out, by an agent, of flattering prospects is no ground for avoidance. Hughes v. Antietam Man. Co., 84. Md. 316. And where the pros- pectus mentioned several pieces of property which the company was to pur- chase for the prosecution of the enterprise, the fact that the company failed to acquire one of these pieces (a very inconsiderable portion in proportion to the whole), through defect in the title thereto, was not a circumstance sufficient to invalidate a subscription made on the faith of such prospectus, in the absence of fraud or misrepresentation. Kelsey v. Northern Light Oil Co., 54 Barb. 111. Exaggerated representations made to a subscriber by an agent of a company, as to matters open to investigation, are mere expressions of opinion, and, as such, will not invalidate a subscription. Walker v. Mobile, etc., B. Co., 84 Miss. 245 ; Andrews v. Ohio, etc., E. Co., 14 Ind. 169. Eepresentations to a subscriber that another corporation would assist in the enterprise plainly in- volves the right of such company to do so under its charter, and such company not having such right, this constitutes no ground for a release from subscrip- tion. Johnson v. Crawfordsville, etc., E. Co., 11 Ind. 280. Where represen- tations made by an agent, to obtain subscriptions are a part of a scheme of fraud participated in by the officers authorized to manage its affairs, or where they are such as the agent may reasonably be presumed by the subscriber to have the authority of the corporation to make, his representations may be given in evidence to show the fraud by means of which the subscription was procured. A representation by an agent that he will release a subscription that he is taking does not afford a presumption of such authority. Custar v. Titusville, etc., Co., 63 Pa. St. 881 ; Saffold v. Barnes, 89 Misa. 899 ; Litchfield Bank v. Church, 29 Conn. 137. The fraudulent over-issue of stock, whereby the genuine stock is rendered valueless, and a holder of such genuine stock is induced to take shares in such over-issue of stock, constitutes a good cause of action against the officers of the company implicated in such transaction. Oazeau v. Mali, 25 Barb. 578. Likewise, there is in substance no difference between certain specified frauds practised to defraud the public generally and frauds brought to beiir personally upon a party, whereby he is induced to pui-- chase stock in a company. " There is no wrong or fraud which the directors of 166 CH. VIII.] EFFECT OP FRAUD OK MISTAKE. § 143 fulfil his contract for the benefit of creditors. We shall furthermore discover that the rule is subject to two dis- tinct exceptions : 1 . Where the subscriber has been guilty of negligence in informing himself of the actual facts. 2. Where, in consequence of his delay in repudiating the con- tract, innocent third parties, shareholders or creditors, have acquired rights which would be prejudiced by its rescission.^ § 143. Continued. — The Supreme Court of the United States has several times adjudged that in a siiit brought by creditors, or by a person representing them, — such as an assignee in bankruptcy, — against stockholders, to recover the amount of their unpaid subscriptions, it is no defence that the stockholder was induced to become such by false and fraudulent representations made by the corporation or by , its agent.* In these cases, however, the question was so a joint-stocl?: company, incorporated or otherwise, can commit which cannot be redressed by appropriate and adequate remedies." Cross v. Sackett, 2 Bosw. 617. So, a condition precedent to » subscription must be complied with bond fide. Thus, where the governor of a state was authorized to subscribe for stock in a company upon notification in writing that ten per cent of the subscriptions had been paid in, — which was, in fact, paid in, but immediately returned to the subscribers, to be paid in labor upon the corporate work, — and the governor was notified by the board of directors that such ten per cent of the subscriptions had been paid in, the state was held to be not bound by a subscription made on the credit of such certificate of the directors. The State V. Jefi'erson Turnpike Co., 3 Humph. 305. If, in written proposals for a, sale of stock in a mining company, representations are contained false as to any material fact, by which the purchasers have been misled to their injury, and in which they are presumed to have trusted to the vendors, then the contract founded upon such representations is void, whether the vendors knew the representations to be false at the time they were made or not, and whether made with a fraudulent intent or not. Crump v. United States Min- ing Co., 7 Gratt. 353. See also Directors, etc., v. Kisch, L. K. 3 H. L. 99. ' Directors v. Kisch, L. R. 2 H. L. 99 ; Ex parte Briggs, L. E. 1 Eq. 483. In Ellis V. Schmoeck, 5 Bing. 521, the defendants had purchased the scrip of a mining company originated in fraud, and had attended one meeting of the company; but they never signed the partnership deed, were innocent of the fraud, and transferred their scrip before the plaintiff brought his suit, which was an action for goods sold to the company after the defendants had pur- chased their scrip. It was held that they were liable. " Ogilvie V. Knox Ins. Co., 22 How. 380 ; Upton v. Tribilcock, 91 U. S. 45 ; Chubb V. Upton, 95 U. S. 667 ; s. p., Payson v. Withers, 5 Biss. 269. 167 § 143 LIABILITY, HOW INCURRED. [PART II. complicated by circumstances of acquiescence and laches on the part of the defendant, that we doubt whether it can be stated in the broad terms above given, without qualification ; and, after an examination of the cases, we incline to think that the correct doctrine, at least as applied to a subscrip- tion to an increase of stock, is that stated by Mr. Justice Miller, in a dissenting opinion, namely, that " where an agent of an existing corporation procures a subscription of additional stock in it by fraudulent representations, the fraud can be relied on as a defence to a suit for the unpaid instalments, when suit is brought by the corporation ; and that if the stockholder has in reasonable time repudiated the contract, and ofi'ered to rescind before the insolvency or bankruptcy of the corporation, the defence is valid against the assignee of the corporation."* It has been held, in England, that where persons have been led to become part- ners to an undertaking by means of false and fraudulent representations contained in a prospectus, if they, with knowledge of the fraud, continue to be members, and act as such, they cannot afterwards come into a court of law and claim to have back their deposit or calls, on the ground of their not being members by reason of the fraud practised upon them.' In a case where this principle was professedly applied, but which seems to violate it, it appeared that certain persons had been induced to execute the deed of set- tlement of a company, as shareholders, by a representation made by the promoters of the company, who were entrusted with the deed for the purpose of obtaining signatures to it, that two specified individuals would execute it ; and this representation, though honestly made, proved erroneous, and on learning this the subscribers named repudiated their liability as shareholders, but assented to a proposal to transfer their shares to others. It was held that they were contributories.' > TJpton V. Triblloock, 91 U. S. 55. In this view Waite, 0. J., and Bradley, J., concurred. ' So stated by the Lord Chancellor, in Gibson's Case, 2 De Q-. & J. 284. » Gibson's Case, 2 De G. & J. 275. 168 CH. VIII. J EFFECT OF FRAUD OR MISTAKE. § 145 § 144. Subscriptions given in Consequence of Mistake or Ignorance. — The grounds upon which courts of equity proceed in reforming contracts in consequence of mistake are familiar. The mistake must be mutual ; and the courts, in reforming the contract and enforcing it as reformed, do no more than bring about the result whicli the contracting parties themselves intended.^ It has been held that where individuals, having a design to be incorporated for the pur- pose of creating a water-power, cause surveys and esti- mates to be made of the water-power which can be created, and thereupon represent it to be greater than it really is, but without any intention to deceive, persons who subscribe for stock in the corporation on the faith of such representa- tions, and agree to be personally liable for assessments, can- not avoid the contract on the ground of the mistalie.^ But it is said, in a Tennessee case, that if a person is induced to take stock in a railway company by false representa- tions which are not fraudulent, and which form no part of the contract of subscription, he is not entitled to be relieved from the payment of the amount of his subscription. If, however, he acts on such re]Dresentations, to his injury, he is entitled to relief, although they may have been inno- cently made.^ Both of these cases, however, arose between the company and the shareholders. It is no defence for the stockholder to show ignorance of the condition and circum- stances of the company when his subscription was taken.* If the company is governed by the laws of a foreign state, a person who subscribes for shares of its stock is bound to know the law of such foreign state.* § 145. Continued — Fraudulent Promise of Something unlawful — Ignorance of Law. — The case against the 1 1 Bishop on Con., ? 238. ' Salem Mill-Dam Corp. v. Eopes, 9 Pick. 187. = Cunningham v. Edgefield, etc., R. Co., 2 Head, 23. * Paysou i;. Withers, 5 Biss. 269. » Ibid. 169 § 146 LIABILITT, HOW INCUKEED. [PAKT n. stockholder becomes stronger where the fraudulent induce- ment on the faith of which he consented to subscribe con- sisted of a promise to do something which the corporation could not lawfully perform. Such a representation is one on which the party has no right, in any event, to rely ; and if he does so, it is his own folly, from the consequences of which the law will not relieve him ; ^ since every one is held bound to know the law, — a principle which prevails in courts of equity as well as in those of common law.^ " The law," said Mr. Justice Hunt, in the first case, " is presumed to be equally within the knowledge of all parties. That a stock- holder may relieve himself from his contract by proof that he was misinformed as to the eftect of his contract when he made it, would be a disastrous doctrine. That a defendant who could not, by contract, lawfully relieve himself from liability as a stockholder can accomplish that result by proof that it was fraudulently represented to him that he could so relieve himself, would be strange indeed.'" o § 146. Doctrine of the English Courts. — The English courts have, from the first, leaned strongly against the view that one who has become a subscriber to shares in a com- pany can escape the responsibilities of that situation by showing that he was induced to subscribe by false and fraudulent representations. Some of those cases have traced a distinction between fraud committed by the agent of a company and fraud committed by the company itself. They have supposed that the agent of a corporation is not its agent for the purpose of committing a fraud, and have therefore concluded that it is .not bound by his false repre- sentations. But they have at the same time conceded that ' Upton V. Tribilcook, 91 U. S. 50 ; Johnson v. Crawfordsville, etc., R. Co., 11 Ind. 280. ^ Upton V. Tribilcock, 91 U. S. 50 ; Bank of United States v. Daniel, 12 Pet. 132 ; Hunt v. Rouamaniere's Administrator, 1 Pet. 1 ; Mellish. v. Robertson, 25 Vt. 603 ; Leavit v. Palmer, 3 N. Y. 19. » Upton V. Tribilcook, 91 U. S. 50, 170 CH. VIII.] BFrBCT OF FRAUD OK MISTAKE. § 147 the company would be answerable for his false representa- tions if acquiesced in at a general meeting. When, there- fore, a person was induced to take shares in a company, insolvent at the time, by false representations contained in a report of its directors and false accounts submitted by them at a general meeting, and, having discovered the com- pany to be insolvent, he repudiated the shares, it was held that he was not a contributory.' But where A. became a shareholder and director in a company on the representa- tion of one of its directors that it was in a flourishing con- dition, whereas it was on the verge of insolvency, it was held by the same learned judge that the misrepresen- tation, not being that of the company, did not relieve him from being a contributory.^ So, where a person was in- duced to take shares by a promise of a promoter of the company, which promise was not kept, he was nevertheless a contributory, his remedy being only against the person who made the promise.^ Whilst the results reached in these cases are, no doubt, in conformity with the general current of the authorities, English and American, there is now little room to doubt that the ground taken by Lord Romilly, and other English equity judges, that a corpora- tion is not bound by the fraud of its agent, is, where no other rights are concerned than those of the company and the person defrauded, fundamentally wrong ; because, as corporations and joint-stock companies can only act through agents, it gives them an immunity in the commission of fraud, not extended to individuals. § 147. Continued — Doctrine of Oakes v. Turquand. — The efforts of those judges to arrive at a settled rule upon this subject culminated in the great case of Oakes v. Tur- ' Ayre's Case, 25 Beav. 513, Sir John Eomilly, M. E. 2 Holt's Case, 22 Beav. 48. To the same effect see Barrett's Case, 8 De Q-. J. & S. 30. » Felgate's Case, 2 De G-. J. & S. 456. 171 § 147 LIABILITY, HOW INCURRED. [PART II. quand, decided in the House of Lords in 1867.^ In that case a person applied, on the faith of statements in a pros- pectus, for shares in a limited-liability company. They were allotted to him, and his name was put upon the register of shareholders. At the end of nine months the company failed, and was ordered to be wound up. The subscriber then applied to have his name removed from the list of con- tributories ; but it was held by Lords Chelmsford, Cranworth, and Colonsay, affirming the doctrine of Vice-Chancellor Malins, that this could not be done. This case may be appealed to as announcing the following doctrines : 1. A contract induced by fraud is not void, but voidable ; and therefore, though the persons who by their fraud induced it may not enforce it, yet other persons may, in consequence of it, acquire interests and rights which they may enforce against the party who has been so induced to enter into it. 2. When a person has been, by the fraudulent misrepre- sentations of directors, or by their fraudulent concealment of facts, drawn into a contract to purchase shares in a company, the directors cannot enforce the contract against him, but he may rescind it. But he must do this within a reasonable time. He cannot, after a failure of the company, relieve himself from liability to contribute to the payment of its debts on the ground that he has been ignorant of some- thing which, with proper diligence, he might have known. 3. The direct remedy of a creditor of an incorporated com- pany is solely against the company, and not against its indi- vidual members, as upon a contract with them. But thouo-h, as between the company and the member, the member mio-ht have a good legal or equitable defence to a call upon himself, he may still be liable to contribute to the assets of the com- pany for the purpose of satisfying the company's creditors.' > L. K. 2 H. L. 825. " This doctrine has been overturned by "Waterhouse v. Jamieson, L. E. 2 H. L. So. 29, where it is held that the official liquidator, representing creditors, proceeds against shareholders only in right of the company. 172 CH. Vm. j EFFECT OF FRAUD OR MISTAKE. § 148 § 148. Doctrine of Oakes v. Turquand, continued. — In a case decided in the English Court of Appeal in 1877,^ the three lords justices before whom the appeal was heard, Bramwell, Brett, and Cotton, concurred in the view that the doctrine of Oakes v. Turquand' is that a person who has been induced to take shares by fraudulent misrepresentations or concealment cannot, after the company has become insolvent and ordered to be wound up, repudiate his liability as a contributory. Bramwell, L. J., understood the doctrine of that case to be this : • ' Where a company is shown by a winding-up to be insolvent, and where the remedies of the creditors, who have trusted the company upon the strength of the uncalled capital and of the names upon the register, would be iuterfered with by the withdrawal of members, the power to rescind a contract to take shares is gone." ' "I doubt," said he, " whether a shareholder is liable upon the ground of estoppel. I think his liability depends upon a principle similar to that upon which the decision in Kings- ford V. Merry* proceeded. It was there held that if the owner of goods sells them owing to a fraudulent representa- tion, and if before he discovers the fraud another person acquires some claim to them, he cannot afterwards rescind the contract. And I think it clear, upon the authorities, that, wherever the rights of other persons intervene, a contract to take shares, though induced by fraud, cannot be rescinded." * » * «< I think" * * * " the principle of Oakes v. Turquand shows that where a company is being wound up, either compulsorily, voluntarily, or under the su- pervision of the court, it is too late to rescind a contract to take shares, although that contract has been induced by fraud."' "In my opinion," said Brett, L. J., " Oakes v. Turquand really decided that, upon the true construction of 1 Stone V. City and County Bank, 3 C. P. Div. 282. 2 L. R. 2 H. L. 325. s Stone V. City and County Bank, 3 C. P. Div. 307. • 11 Exch. 577. » Ibid. 308, 309. 173 § 148 LIABILITY, HOW INCURRED. [PART II, the Companies Act, 1862, the members of a company, although they have been induced to take shares by fraud, are prevented from rescinding their contracts after the winding- up has commenced. A voluntary winding-up commences when the resolution to wind up is passed ; and therefore after that time a shareholder cannot escape from liability to con- tribute to the payment of the company's debts." • * * " In my opinion, the judgment in Oakes v. Turquand did not proceed upon the ground of estoppel, nor did it proceed upon the ground that a compulsory winding-up, or a wind- ing-up under supervision, is to be considered as in the nature of a bankruptcy, and that a voluntary winding-up is to be considered as in the nature of an administration suit. I am of opinion that the judgment in Oakes v. Turquand cannot be said to be a decision as between a shareholder and creditors, but that it was a decision between a shareholder and the liquidator of the company, represeuting the company ; the true reason of the decision seems to me to be that the exist- ence of the creditors prevents a member, although he has been induced to take his shares by fraud, from rescinding his contract after the commencement of a winding-up under the Companies Act, 1862, whatever may be the nature of that winding-up ; and if he continues a member, and if his name remains upon the register, of course he can be made a contributory. The reasoning in Oakes v. Turquand seems to me to apply just as much to a voluntary winding-up as to a compulsory winding-up, or a winding-up under supervision ; none of these kinds of winding-up are to be deemed bank- ruptcies ; they are all modes of dealing with companies in difficulties, to be substituted for proceedings in bankruptcy, and they all fall within the principle of Oakes v. Tur- quand." ^ <' According to Oakes v. Turquand," said Cotton, L. J., "nopersonwho, atthecommencementof the winding- up, IS de facto a member, — that is, who has, by a contract not previously avoided, become a member, — can withdraw 1 11 Exoh. 310-812. 174 CH. VIII.] EFTECT OF FEAUD OR MISTAKE. § 149 from the distribution for the benefit of the creditors any part of the company's assets, either by recalling money paid by him to the company or by taking himself off the list of contributories, — that is to say, by taking himself out of the category of those liable to pay further calls ; in consequence of the distribution of assets amongst the creditors, a member cannot insist upon the equity, which he might otherwise have claimed, to be relieved from his contract with the company." ^ The same view of the scope of Oakes v. Tur- quand was taken, in another case, by Lord Hatherley. "As regards the shareholders," said he, " all they are entitled to, according to Oakes v. Turquand, is that the status of any subscriber shall not be altered after the date of the winding-up." ^ " I take it to be perfectly clear," said Vice- Chancellor Malins, " since the case of Oakes v. Turquand, that where there is a question of whether a man is a con- tributory or not, no misconduct of the company, or false representation or misrepresentation made by them as a means of inducing him to take shares, will relieve him from bearing the responsibility which he, at all events, owes to creditors, whatever effect it may have between himself and other shareholders."^ § 149. Continued — Henderson v. Royal British Bank. — The doctrine underlying Oakes v. Turquand,* and upon which the vice-chancellor and two of the law lords ' con- fessedly based their judgments, received for the first time a clear exposition, in England, in the case of Henderson v. The Koyal British Bank, decided in the Court of Queen's Bench in 1857.* In that case a creditor of a joint-stock bank, having prosecuted his claim to judgment, and his ex- ' 11 Exch. 314. ' Wright's Case, L. K. 7 Oh. 60. » Pugh & Sharman's Case, L. E. 13 Bq. 572. ' L. E. 2 H. L. 325. ' Lords Chelmsford and Cranworth. « 7 El. & Bl. 356. 175 § 149 LIABILITY, HOW INCUKEED. [PAKT H. ecution being ineffectual, sought to charge a shareholder under the provisions of a statute which has many counter- parts in this country.^ It was held that the shareholder could not resist the claim on the ground that he had been induced to become such by fraud on the part of the bank, and that he had repudiated the shares after the bank became bankrupt, but soon after the discovery of the fraud, the judgment creditor being no party to the fraud. The following is the judgment of Lord Campbell, C. J. : ' ' This was an application for leave to take out execution against a shareholder ; and the proposed answer to the application was that the shareholder had been induced by fraud to take the shares. He had remained a share- holder for some time, and received dividends, and acted in all respects as a shareholder until the Royal British Bank stopped payment, and until its bankruptcy ; and he then gave notice that he was no longer a shareholder, and, as far as he could, disaffirmed the contract under which he became a shareholder, as being induced by the fraud of the directors ; he demanded back all the moneys he had paid, and, being a depositor himself, he demanded the deposit and all the advances. The question is whether, if it were established that this fraud had been practised upon him, it could be an answer to this application. If there were any doubt about it, we should not make this rule absolute ; but we should direct a scire facias to issue, so that the question might be raised on the record. We entertained no doubt on the argument ; but being informed that similar applica- tions had been made to the Courts of Common Pleas and Exchequer, and that rules were depending in those courts, we thought that, upon a matter of this sort, it would be well if we had a conference with the other judges before our judgment was given. That conference has taken place, and the judges are unanimously of opinion that this can be no answer to the application, either upon principle or » 7 & 8 Viot ^. 113, 1 10. 176 CH. VIII.] EFFECT OF FEAUD OR MISTAKE. § 149 authority. This is an application by a creditor, who, upon the faith of the party who was then a shareholder, and who held himself out to the world as a shareholder, and being one, gave credit to the bank. He has obtained judgment against the bank. There were no assets of the bank as a company. And the application now is that execution may issue against that party individually. It would be mon- strous to say that he, having become a partner and a share- holder, and having held himself out to the world as such, and having so remained until the concern stopped payment, could, by repudiating the shares on the ground that he had been defrauded, make himself no longer a shareholder, and thus get rid of his liability to the creditors of the bank, who had given credit to it on the faith that he was a share- holder. It would be monstrous injustice, and contrary tp all principle. Whether he could say that with regard to other shareholders, not privy to the fraud, we need not say ; there may be some difficulty about that. But that is not the question we have to determine, which is simply whether this is an answer to a creditor who has given trust upon the faith of his being a shareholder. Suppose this were a com- mon partnership, and that there was credit given to the firm ; would it be any answer to an action by the creditor against one of the partners that the defendant was fraudulently in- duced by the other partners to become a partner? Inter se, that might be considered, but as between the firm and a creditor it is a matter wholly immaterial. Now, the party here admits that he is a shareholder, and acted as such until the bank stopped payment. His name was placed on the register, and remains on the register. There is some irregularity in that register ; but we are of opinion that all that is said in the statutes as to the manner in which the register shall be intituled and made up is only directory, and not conditional, and that he was bound, at all events prima facie, by his name appearing on the register, not- withstanding those errors. The rule will therefore be 12 177 § 150 LIABILITY, HOW INCURRED. [PART II. absolute." ^ This decision was considered so satisfactory that it was followed without comment by the Court of Common Pleas * and the Court of Exchequer.' § 150. Diligence required of Subscriber. — Many deci- sions emphasize the doctrine of Oakes v. Turquand,* that where a person has been drawn into a contract to take shares in consequence of certain representations, he must proceed with diligence to ascertain the truth or falsehood of such representations in order to entitle him to a rescission of his contract.^ In another case,' cited, with approval, by Lord Chelmsford, in Oakes v. Turquand,^ and in Downes v. Ship,* Lord Cairns used the following language: "It is his bounden duty, at the earliest practicable moment, to ascertain what is the charter or title deed under which the company in which he has agreed to become a shareholder is carrying on business. If the memorandum and articles of association are in existence when he applies for shares, and if he agrees to take his shares on the footing of the 1 Henderson v. Koyal British Bank, 7 El. & Bl. 356. « Dossett V. Harding, 1 0. B. (n. s.) 524 ; Powis v. Harding, 1 C. B. (n. s.) 53S. ' Daniell v. Koyal British Bank, 1 H. & N. 681. In Deposit, etc., Co. v. Ayscough, 6 El. & Bl. 761, s. v., 2 Jur. (n. s.) 812, determined in the Queen's Bench in 1856, before Lord Campbell, C. J., a plea to an action for calls, that the subscription was induced by the fraud of the plaintiff, was held bad for not averring that the defendant had repudiated the contract, and had done nothing under it to make him liable as a shareholder. In Bwlch-y-Plwm Mining Co. v. Baynes, L. R. 2 Exch. 324, determined in the Court of Exchequer in 1867, before Chief Baron Kelly and Barons Martin and Bramwell, the defendant to a similar action pleaded that he had been induced to become a shareholder by the frauds of the plaintiff's ; that he had never recognized, since notice of the fraud, any rights or liabilities in him as such shareholder, nor received any benefit from his shares, and that within a reasonable time after notice of the fraud he had repudiated the shares, and given notice to the plaintiffs of his repudiation. It was held that this was a good plea. * L. K. 2 H. L. 325. ' Lawrence's Case, L. B. 2 Ch. 412 ; Kincaid's Case, L. R. 2 Oh. 426 ; Wil- kinson's Case, L. R. 2 Ch. 536. « Peel's Case, L. R. 2 Oh. 674, 684. ' L. R. 2 H. L. 352. « L. R. 8 H. L. 359. 178 ClI. VIII. J EFFECT OF FRAUD OR MISTAKE. § 151 memorandum and articles of association (which would seem to be the case here), then 1 think that he ought to be held bound to look to the memorandum and articles of associa- tion before he applies for shares. But where the memo- randum and articles of association are not in existence at the time of application, I think that, at the very latest, when he receives his allotment of shares he ought to satisfy himself that there is nothing in the memorandum or articles of association to which he desires to make any objection."^ *§ 151. Illustrations — Variance between Prospectus and Memorandum. — Perhaps the most frequent illustra- tions of this, to be met with in the English cases, are those cases in which subscribers have attempted to rescind their contract of subscription on account of a variance between the prospectus, on the faith of which they gave their sub- scription, and the memorandum, or contract of association under which the company was organized. A substantial variance between these instruments releases the shareholder. Here the English cases unite with the American ^ in holding that a person who has agreed to become a shareholder in a company of a certain description cannot, as a matter of common right, be held bound to the responsibilities of a shareholder in a company of a different description.' But, ag stated in the last section, this rule supposes that the subscriber himself has been guilty of no fault. He must proceed with diligence, and without unreasonable delay, to ascertain the true facts of the case ; and if he finds a substantial variance between the prospectus and memo- randum of association, he will be entitled to a rescission of his contract, provided he proceeds with diligence and in the proper manner to secure it ; otherwise, in the event 1 L. E. 2 Ch. 674, 684. 2 Ante, I 132 ; post, ? 186 et seq. ' Ship's Case, 2 De G. J. & S. 544; Stewart's Case, L. R. 1 Oh. 574; Web- ster's Case, L. E. 2 Eq. 741 ; Oakes v. Turquand, L. B. 2 H. L. 325 ; Downea V. Ship, L. R. 3 H. L. 343. 179 § 152 LIABILITY, HOW INCURRED. [PAET II. of the company being wonnd up, he will be put upon the list of contributories.^ The variance, however, must be substantial; a mere difference between the language of the prospectus and that of the memorandum will not relieve him from liability. The obligations incurred under the two documents must be substantially different.' This doctrine of diligence applies as between the subscriber and another shareholder, or between the subscriber and the official liquidator, but it does not apply in a contest between the shareholder and the person who proposed the prospectus and afterwards issued the memorandum of asso- ciation.' § 152. Notice of such Variance. — It has been held in one case that the fact that a subscriber attended a meeting of the shareholders for the purpose of correcting a variance between the prospectus and memorandum of the association on a point of minor importance, but on account of which the stock-exchange had refused to appoint a settling-day, was not of itself sufficient to fix the subscriber with notice of other and more important variances, he swearing positively that he did not know of them.* But this ruling becomes immaterial in view of the rule of diligence laid down in the last section; for, after the lapse of a reasonable time to enable the subscriber to inform himself of the facts, he will be conclusively presumed to have known, or, what is the same in effect, he will be charged with the consequences of such knowledge.^ "I think," said Lord Chelmsford, in Oakes v. Turquand,* " that persons who have taken shares 1 Lawrence's Case, L. R. 2 Ch. 412 ; Kincaid's Case, L. R. 2 Oh. 426 ; Wilk- inson's Case, L. R. 2 Ch. 536 ; Peel's Case, L. R. 2 Ch. 674 ; Oakes v. Turquand, L. R. 2 H. L. 325 ; Downes v. Ship, L. R. 3 H. L. 348 ; Whitehouse'a Case, L. R. 3 Eq. 790 ; Taite's Case, L. R. 3 Eq. 795. 2 Downea v. Ship, L. R. 3 H. L. 843. » Ibid. * Stewart's Case, L. R. 1 Oh. 574. » Peel's Case, L. R. 2 Ch. 674 ; Oakes v. Turquand, L. R. 2 H. L. 825. • L. R. 2 H. L. 851. 180 CH. VIII.] EFFECT OF FRAUD OK MISTAKE. § 153 in a company are bound to make themselves acquainted with the memorandum of association, which is the basis upon which the company is established. If they fail to do so, and the objects of the company are extended beyond those described in the prospectus (a fact which may be easily ascertained), the persons who have so taken shares on the faith of the prospectus ought, in my opinion, to be held to be bound by acquiescence. In Ship's case^ the judges partly proceeded on the oath of the party that he never had notice of the extension of the objects of the com- pany. However true this may be, it depends entirely upon the party's own assertion; and the answer to it is, 'You might have made yourself acquainted with the proceedings of the company, and ought to have done so.' " § 153. Rectification of Register. — The English Com- panies Act, 1862, § 35, has supplied a remedy to a person whose name has been wrongfully placed on the register of a company, by permitting him to apply to any superior court of law or equity for a rectification of the register. It has been held that if a person's name has been wrongfully placed on the registry of a joint-stock company, he must resort to this remedy to have it removed. It is not in the power of the directors, by simply removing his name from the registry, to indemnify him against the liability arising from such wrongful use of his name ;^ but this doctrine is obviously unsound.' The grounds on which subscribers have frequently applied for a rectification of the register has been that of substantial variances between the prospectus and memorandum of association, as seen in the last section.* 1 2 De &. J. & S. 544. 2 Martin's Case, 2 Hem. & M. 669. 8 Wright's Case, 7 Ch. 55. * In the following cases subscribers succeeded in procuring the removal of their names from the register on this ground : Stewart's Case, L. K. 1 Ch. 574 ; Downes v. Ship, L. E. 8 H. L. 343 ; Webster's Case, L. R. 2 Eq. 741. In the following cases such applications were refused on account of laches: Law- 181 § 154 LIABILITY, HOW INCURRED. [PART II. Applications of this kind have been also made on other grounds, and have been generally refused.^ § 154. Shareholders in Pari Delicto. — It is said in a case in Indiana that if the directors of a corporation should receive subscriptions for stock which had been fraudulently obtained, subscribers who were parties to the fraud would be bound by it.^ The obvious principle here suggested is well illustrated by a case in Connecticut, where a bank was fraudulently gotten up, under a lawful charter, by per- sons who induced the defendant to subscribe for a portion of the stock, representing to him that his subscription would be merely nominal, and that he would not be required to pay for the stock. The bank was organized, issued a large amount of bills, and soon after failed and passed into the hands of receivers. In a suit brought by the receivers in the name of the bank against the defendant, on his sub- scription, it was held that he could not avail himself, in defence, of the fraudulent character of the bank, or of the misrepresentations under which he had been induced to sub- scribe for the stock. He, with his associates, constituted the bank, and he therefore shared with them in the fraud of the bank on the public.^ The same court, however, held that this doctrine did not apply in a suit by a receiver of the same bank against one who had given his note to the bank for five shares of its stock, transferred to him under an arrangement with the bank, soon after its organization, by one of the original subscribers to its stock. He did not stand on the footing of the original corporators, who had rence's Case, L. K. 2 Ch. 412; Kincaid's Case, L. R. 2 Ch. 426; "Wilkinson's Case, L. R. 2 Ch. 536 ; Peel's Case, L. R. 2 Ch. 674 ; Whitehouse's Case, L. R. 3 Eq. 790 ; Taite's Case, L. R. 3 Eq. 796. 1 Simpson's Case, L. R. 9 Eq. 91 ; Ward's Case, L. R. 3 Ex. 180 ; Ward & Henry's Case, L. R. 2 Eq. 220 ; L. R. 2 Ch. 431 ; Sargent's Case, L. R. 17 Eq. 273 ; Askno's Case, L. R. 9 Ch. 6(34 ; I'arker's Case, L. E. 2 Ch. 685. ' Southern Plank-road Co. v. Hixon, 5 Ind. 165, 169. » Litchfield Bank v. Church, 29 Conn. 137. 182 CH. VIII.] EFFECT OP FRAUD OR MISTAKE. § 155 participated in the seheme of fraud under which the bank was organized, but in the relation of a third person defrauded by them, and he could set up, even as against the receiver, the fraudulent representations by which he was induced to give the note.^ It has been held that a stockholder who has accepted the charter of a corporation and assisted in putting it in operation cannot show, when proceeded against by one of its creditors, that its charter was obtained by fraud, or that he was induced to subscribe by fraudulent representations.^ § 155. Illustrations of Fraud and other Circumstances affecting Subscriptions — Subscribers released. — 1. At the close of a year the directors of a company made a re- port of the condition of its affairs, totally misrepresenting the state of the company, showing its business and condi- tion to be flourishing, when in fact all, or nearly all, of its capital had been wasted, and it was utterly insolvent. This report was presented in the following February to a meeting of stockholders, and m the same month the directors obtained a supplemental charter authorizing the creation of new shares. The report of the directors was on exhibition at the office of the company, and was published in the newspapers. On the faith of this report, B., who had seen it at the office, but whether in the newspapers did not appear, took some of the new shares, and afterwards re- ceived dividends thereon. The company having been wound up, the application of the official manager to place B.'s name upon the list of contributories was successfully resisted on the ground that the fraud of the directors had been sanc- tioned by the company, for the reason that the report of the directors, after it got into circulation, must be considered as the report of the company.' ' Litchfield Bank v. Peck, 29 Conn. 384. See ante, I 134i ' Smith V. Heideoker, 39 Mo. 157. ' Brockwell's Case, 4 Drew. 205. This case was noticed hy the lord chancellor in Gibson's Case, 2 De G. & J. 275, where its authority was not recognized ; and in Nicol's Case, 3 De G-. & J. 387, it was expressly overruled. 183 § 155 LIABILITY, HOW INCURRED. [PART II. 2. Likewise, the following state of facts constituted such a fraud by a director that it could be imputed to the com- pany : C. was the sole director of a banking company in Ireland, by reason of the resignation of the remainder of the board. In order to induce parties in England to become stockholders, he published a totally false and fraudulent report of the board of directors, purporting to have been sub- mitted to the stockholders at their annual general meeting, and an equally false balance-sheet to correspond, showing a prosperous condition of the affairs of the company. Par- ties in England were thereby induced to become purchasers of shares, as they supposed, of shareholders ; but, in reality, hitherto unappropriated shares were issued to them. On the winding up of this company the name of one of these shareholders was placed upon the list of contributories, and his application to have it removed was sustained ; the court not disputing the principle that directors cannot be con- sidered as agents of a body of stockholders to commit a fraud, but denying its application to this case, where the question was not whether a director is the agent of share- holders to commit a fraud, but whether, where a contract is entered into by the person sought to be bound, by reason of the fraud and misrepresentation of the director, the shareholders are at liberty to say, " The director is our agent to bind you, but he is not our agent to bind us."^ 3. In another case, a radical change having been an- nounced by the directors in the plan of business as set forth in the prospectus of the company, a holder of 120 shares, which he had taken upon the faith of the represen- tations in the prospectus, wrote to the secretary, demanding the return of his deposit and declining to have any thine further to do with the company. The deposit was returned, but his name still remained on the register of shareholders. On the winding up of the company, seventeen months afterwards, his name was placed upon the list of contrib- utories, and on application the Master of the Rolls ordered 1 Ex parte Ginger, 5 Irish Cli. (n. s.) 174. 184 CH. VIII. J EFFECT OF FRAUD OR MISTAKE. § 155 it to be removed, on the ground that he had been diligent iu demanding the return of his deposit, and might have com- pelled the removal of his name at the time his deposit was returned, had he been aware that it was retained upon the register.^ 4. Similarly, a party applied for ten shares in a company, and, according to their practice of allotment, paid £1 per share at the time of application, and was informed by the secretary that the directors would allot to him ten shares on condition that he paid £2 additional on each share within one week ; which he did not do, for the reason that before the expiration of the week he discovered mis- representations in the prospectus. He demanded the return of his deposit, declined to pay any thing more upon the shares, and defended an action brought against him by the company for calls. On the winding up of the company (at which time the action for calls was pending) it ap- peared that the applicant's name had been placed upon the share-register of the company as of the date when the directors passed upon his application, though there was some doubt whether it was actually entered upon that date. The court held that the contract in question must be con- sidered to have been in fieri until the end of the week, before which time the applicant repudiated it. He had continued consistent in his repudiation of it, and there- fore he ought not to be made a contributory of the com- pany.' 5. And so, in a case of gross misrepresentation and con- cealment in the prospectus of a company, which might have been discovered upon examination of the articles of asso- ciation of the company and contracts made by them, which were open to inspection on demand, a party, having received the prospectus by mail, applied for shares and paid a de- posit thereon. It was held that his neglect to make such 1 Fox's Case, L. R. 5Eq. 118. » Pentelow's Case, L. B. 4 Cb. 178. 185 § 156 LIABILITY, HOW INCUKBED. [PAET II. enquiry and examination — he having never signed the arti- cles of association, but relying upon the representations in the prospectus — was no answer to his demand to be re- lieved from the contract.' 6. But even where shares have been taken and the articles of association signed, if it is a case of a company formed bond fide to carry into effect a particular project, and it has become ob\'ious, from the existence of debts and the absence of funds, that the project will not succeed, and the company is in such a situation that it cannot carry on its affairs, and no intention of attempting to do so remains, but the only questions are, what is the amount of the liabili- ties of the company, and how are they to be discharged ; and under these circumstances the directors, with a view of relieving themselves and the other shareholders from those liabilities, and to get other persons to participate in them, issue representations which they know to be false, in order to induce other persons to become shareholders, not for the purpose of carrying on the concern, but really for the purpose of paying a portion of their debts ; — persons becom- ing shareholders under such circumstances cannot be com- pelled to contribute.* § 156. Illustrations of Fraud and other Circumstances affecting Subscriptions — Subscribers not released. — 1. The promoters of a company induced several parties to become shareholders, and to sign the memorandum of asso- ciation, on the faith of their express representation that certain other parties had agreed to become directors in the company. This representation, though honestly made, after- wards proved to be false, as the persons in question refused to have any thing to do with the company. This fact becoming known to the subscribers, they did not expressly repudiate their subscription, though complaining loudly to ' Directors, etc., v. Kiach, L. R. 2 H, L. 99. ' Bell's Case, 22 Beav. 35. 186 CH. VIII.] EFFECT OF FEAUD OK MISTAKE. § 156 the promoters that the representation on the faith of which they signed had not been complied with. They treated themselves as owners of shares, and endeavored to transfer them to others. The court held that they were not entitled to relief, especially as others had executed the company's deed and taken shares therein since the memorandum was signed by these parties, and probably on the faith of their subscription. They should not have relied so implicitly on the representation, but should have seen it fulfilled before signing themselves.^ 2. And where a director in a company solicited a person to become a shareholder, made false representations to him as to its condition, and at the same time exhibited to him a printed report of the directors, embodying a balance-sheet and profit-and-loss account rendered to the company, and approved by the company at an annual meeting, these cir- cumstances did not constitute a case of fraud sufficiently strong to relieve the shareholder from his liability ; for, by the act of Parliament under which the company in question was established, such reports of directors and balance-sheets were for the information of shareholders only, and if the directors publish them to induce persons to take shares, they are exceeding the limits of their duty. Moreover, in the present case no authority from the board of directors was shown to have been exercised by the single director who communicated with the shareholder and exhibited to him the printed report and balance-sheet ; besides, the subscriber, though having the means of discovering the fraud, had received one dividend, and never expressly repudiated the transaction until the company ceased to do business.^ 3. A person, being a holder of twenty shares, purchased thirty more from executors, in regard to which he never executed any deed of transfer, as required by the company's deed of settlement, though he received dividends upon these 1 Gibson'3 Case, 2 De G. & J. 275. » Nicol's Case, 3 De G. & J. 387. 187 § 156 LIABILITY, HOW INCUREED. [PART II. thirty shares, and a certificate from the company that he ■was the owner of fifty shares. He afterwards wrote to the manager for information as to the condition of the company, who informed him, among other things, that " dividends are now payable half-yearly, and 3rou will be entitled to one for the last half-j^ear, which will probably bo paid in March." This statement was wilfully ialse, as the capital of the company had been long since lost. The shareholder then purchased fifty additional shares (in fact, but without his knowledge) from the directors : they were shares forfeited by previous owners. As to these fifty shares he did not execute the requisite deed of settlement, but as upon the others received dividends for a sliort time, and a certificate that he was the owner of 100 shares. Upon these facts the court decided to allow his name to be retained upon the list of contribute rics, as, all parties concurring, they were competent to waive the formality of a deed of transfer. The misrepresentation of the directors afforded no ground for relief, as directors cannot be agents of a company for this purpose.^ 4. This principle was affirmed under the following state of facts : D. purchased, through a broker, 100 shares in a joint-stock company, fifty each from two parties. He, together with one of the vendors and the manager of the company, executed a deed of transfer of five shares only, paid the purchase-money for the 100 shares to the broker, and received two certificates from the company as evidence that he was duly entered on the books of the company as the owner of 100 shares. No dividends were roccivcd by D., and the following year the company was ordered to be wound up. D. , after payment of sundry iist^ossmonts, asked that he be relieved from his liability on the ninety-five shares, suggesting that the whole traiisailion of purchase was fraudulent as to him, and not complete as to (lie ninety- five shares. The court reg;irdod the 100 shares as the 1 Bernard's Case, 5 De G. & Sm. 288. 188 CH. VIII.] EFFECT OF FRAUD OR MISTAKE. § 156 subject of a single contract, and governed by the terms of the deed in respect of the five shares ; and as to the sugges- tion of fraud by the directors, ruled as in the preceding case. D. was therefore retained as a contributory, without quali- fication, in respect of the 100 shares.' 5. The following case of gross fraud on the part of the directors of a company did not constitute ground for the relief of persons who had been thereby inveigled into becom- insr shareholders in the concern : S. came to the office of the company and took five shares of its stock, executing the company's deed therefor. The deed being exceedingly voluminous, he did not read it, but was informed by the company's secretary, in response to his particular enquiry, that the deed contained a clause providing against any liability beyond the paid-up value of the shares. He after- wards took fifteen shares more, on the repeated assurance of limited liability, again executing the deed without reading it. The deed, as registered according to statute, contained no such limited-liability clause. The deed which S. executed on these occasions did contain such a clause, but it was on a false sheet, and fraudulently inserted by one of the directors. S. received dividends for four or five years after- wards on his shares, until the company was wound up. The court, in view of these circumstances, directed that his name be retained upon the list of contributories, on the ground that it was the duty of a shareholder to make himself acquainted with the contents of the deed as registered.^ 6. In another case the directors of a banking company, in February, 1864, issued a report declaring a dividend of fifteen per cent upon the shares, and a bonus of ten per cent, and a large addition to the reserve fund. In June, 1864, they ofiered to the shareholders the option of taking (according to the proportion of shares held by each share- ' Dodgsoa's Case, 3 De Gr. & Sm. 85. » Sheffield's Case, Johns. (Eng. Ch.) 451. 189 § 156 LIABILITY, HOW INCURIIED. [PABT II. holder) certain reserved shares at a promium. On Sep- tember 19, 1864, the company stopped pajniient. Share- holders who liad taken these reserved shares endeavored, upon these facts, to show this issue of shares to have been made upon fraudulent misrepresentations. The lord chancellor (Hatherley), while admitting that the manner of conducting the business of the bank was "ex- tremely hazardous and reckless," thought there was noth- ing in the glowing report of the directors in February, or the evidence adduced in respect of it, to satisfy the court that any misrepresentation whatever was made by the directors ; or, if it was so made, that it was made to their knowledge, or with such a degree of carelessness and negli- gence on their part, in inspecting the accounts and concerns of the comiaany, as to amount to a necessary implication of knowledge on their part of the representations being false. It was therefore unnecessary to consider how far the law would be applicable to a case of this kind if such misrepre- sentation of the directors had been established.' 7. Application was made for shares in a railway companv, the prospectus of which contained false and fraudulent state- ments. The shares were allotted and the deposit-money paid. On account of this payment a receipt was given, which could be exchanged for scrip certificates on the execu- tion of the subscribers' agreement and the Parliamentary contract. These documents were never executed by the allottee of the shai-es in question. The projected enterprise was never carried out. The vice-chancellor (Shad well), on application of the person to whom shares had been thus allotted to have his name removed from the list of contrib- utories, ruled that his remedy was an action for damages against the parties who had practised the fraud, but that the contract of subscription was not void. He felt constrained so to rule, as it was a just inference that there were various 1 Jackson v. Turquand, L. K. i H. L. 305. 190 CH. VIII. J EFFECT OF FKAXID OR MISTAKE. § 156 persons in the same situation, as innocent as the applicant in question. Were it established that this applicant was the only person, of those interested in this company, who had been duped and defrauded by the misrepresentations, the case might be different.^ 1 Parbury's Case, 8 De G-. & Sm. 43. 191 § 160 LIABILITY, HOW INCUIiBED. [PART II. CHAPTER IX. OF CONBUCT AS ESTOPPING THE ACTOR FROM DENYING THE RELATION OF STOCKHOLDER. Section 160. General Doctrine. 161. Continued — Tiie American Doctrine — Illustrations. 162. Illustrations continued — Paying Calls, serving as Director, attending Meetings. 163. Continued — Paying Calls, serving as Director, etc. 164. Illustrations continued. 165. Conduct ratifying Agreement to take Stock in future Company. 166. Conduct ratifying Subscription by unauthorized Person. 167. Acting as Member of provisional Committee. 168. Receiving Dividends. 169. Continued — Exceptional Cases. 170. Paying Calls. 171. Estoppel to deny Validity of Shares. 172. Accepting Shares in new Company after attempted Amalga- mation. 173. Non-compliance with Formalities. 174. Limitations of the foregoing Doctrine — The Person must be held out as Shareholder with his Knowledge. 175. Continued — And the Advances must be made on his Credit, § 160. General Doctrine. — A great many cases are found, mostly in this country, where persons, by suffering themselves to be held out to the public as shai'eholders, or by acting as such, have been held estopped to deny that relation. The rule has, no doubt, arisen from the analogy of the corresponding rule relating to partners, or members of joint-stock companies. In England, before the recent Companies Acts, such companies were regai-ded simply as enlarged partnership firms ; the English judges insensibly applied to them this rule of the law of partnerships, and from this it was easily borrowed by the American judges and applied to our chartered corporations. It has been so 192 CH. IX.] BY CONDUCT. § 161 applied in this country, both where the contest was between a creditor of a corporation and a person alleged to be a shareholder, and also between the company itself and persons sought to be charged by it as shareholders, in actions for calls. It is obvious that if, in any case, in a con- test between the corporation itself and one sought to be charged as a shareholder, he will be held estopped by his conduct to deny that relation, such estoppel will, for stronger reasons, arise against him where the contest is between him and creditors of the company, who may have given credit on the faith of his responsibility as a member. It is perhaps noteworthy that in the cases which have arisen under the recent English Companies Acts little trace of this doctrine is found. Indeed, it has almost entirely passed out of view in recent cases, and those courts seem to have settled down upon the idea that a person is or is not a shareholder accordingly as he has or has not contracted to be so ; that the rights of creditors can only be enforced against him in the right of the company ; and that, unless he has made a contract for himself such as charges him with the obligations of a shareholder, the courts will not make one for him.' The old English and the present American decisions seem to rest upon a much higher plane of hon- esty. The modern notion seems almost wholly to ignore the rights of creditors, and affords the amplest facilities for fraud. The numerous English cases where the question of estoppel has arisen with reference to joint-stock partnerships are thought to fall somewhat outside the scope of this deci- sion, and have not, therefore, been collected in this essay.' § 161. Continued — The American Doctrine — Illus- trations. — The American courts hold that if a person pur- 1 Ante, I 132. ' See, however, Dickinson v. Valpy, 10 Bam. & Cress. 128 ; Harvey o. Kay, 9 Barn. & Cress. 356 ; Ellis v. Schmoeck, 5 Bing. 521 ; Doubleday v. Muskett, 7 Bing. 110; Perring v. Hone, 4 Bing. 28. 13 193 § 162 LIABILITY, HOW INCUERED. [PART II. chases stock, and suffers his name to appear upon the books of the association, he will not be heard to impeach his own title. He will not be allowed to accept the benefits without shouldering the burdens. This principle has been well set forth in a case arising under the New York banking law : " No doubt a person may show, in exoneration of himself, that his name has been placed on the books without his con- sent. But if a party makes an actual purchase of shares, whether from the bank or an individual holder, and volun- tarily allows himself, in this manner, to be represented to the woi'ld as a stockholder, he must take the responsibilities of that situation. He comes within the terms and policy of the act. His title may be imperfect. Equities may exist between him and other parties ; the shares may be in dis- pute ; they may be claimed by some one else, in hostility to his own right. The statute has no regard to such ques- tions. The person who has caused or allcwed his title to be registered on the books cannot deny tie truth of that representation, and disavow the ownership when it ceases to be a benefit and comes to be a burden."^ Thus, if a person named in the certificate and charter as a member afterwards acts as such, or, on discovering the use of his name as a member, does not personally disavow it, he can- not evade liability as a member by showing that he was not one in fact, and never paid in any stock. The dis- avowal must be immediate, or he will, as between himself and creditors, be deemed to have ratified the relation. This rule was applied where the attorney of a judgment creditor of a corporation had accepted stock in satisfaction of the judgment, and the principal had not disavowed the act.' § 162. Illustrations continued — Paying Calls, serv- ing as Director, attending Meetings. — So, where a sub- scriber to the capital stock of a railroad company, who had 1 Matter of Reciprocity Bank, 22 N. Y. 17, per Oomstodc, 0. J. » McHoao V. Wlieoler, 45 Pa. St. 82. 194 CH. IX. J BY CONDUCT. § 163 been released from the obligation of his subscription, sub- sequently voted at the annual meeting for directors, was himself a director, acted as a director and as a stockholder, and paid money to the company, these acts, it was said, standing alone, would warrant the inference that he had resumed his original obligation as a stockholder ; but they were deemed to be shorn of their importance in the partic- ular case, since a special contract accounting for them was shown. The special contract was a parol promise of the president of the corporation that the company would take the amount of the subscriber's liability in cross-ties when the railroad should be constructed through his land ; and as the case was an action by the company to enforce the payment of the subscription, the case was probably decided correctly.^ So, where the charter of a company directed that a certain percentage should be paid at the time of making subscriptions to its stock, but the com- pany organized, and permitted a subscriber to participate in its meetings and in the regulation of its affairs with- out paying such percentage, it was held, in a suit by the corporation for calls, that he could not afterwards disavow his membership and refuse to pay his subscription.^ So, a person desiring to become a shareholder in a railway com- pany authorized one of the commissioners who had been appointed to take stock to subscribe for him ; his name was entered by another commissioner, who acted as clerk ; the entry was certified by all the commissioners, and he afterwards voted by proxy as a shareholder. It was held, in an action by the company for calls, that he was liable.' § 163. Continued — Paying Calls, serving as Director, etc. — So, a person who had paid six several instalments on shares in a company, who had transferred shares to others, who had acted as a director and president of the company, 1 Pittsburgh, etc., K. Co. v. Stewart, 41 Pa. St. 54. ' Haywood, etc., Co. v. Bryan, 6 Jones L. 82. See ante, J 107, ' Greenville, etc., E. Co. v. Coleman, 5 Kich. L. 118. 195 § 163 LIABILITY, HOW INCURRED. [PART II. and had otherwise held himself out as a member, whereby he had induced official personages and private subscribers to act for his benefit, was estopped, in an action by the company for calls, from denying that relation ; and it was deemed wholly immaterial whether he had signed the sub- scription-books or not. "Such," said the court, " is the genuine nature of estoppels, to exclude the ti'uth."^ Serv- ing as director of a railroad company after the commissioner had reported to the governor of the state the names of the subscribers, including that of the person in question ; serving as judge at a meeting of stockholders, holding himself out as the owner of a stated number of shares, offering to transfer some of them, and an active participa- tion in a movement to procure a municipal subscription ; — these acts were held to be, not merely evidential of an orig- inal subscription, but conclusive, estopping the pei-sons so acting from denying the relation.' So, an act of Parliament,' to enable a company to build a railway, prescribed the form of action against the proprietors for calls, and enacted that it should only be necessary to prove that the defendant was a proprietor, and that the calls had been made in pur- suance of the act. It also recited that a sum of money had been subscribed by the proprietors under a contract binding their heirs ; whereas, in fact, such sum had not been sub- scribed, and no contract under seal had been executed by the proprietors. It was held, in an action for calls, that a defendant who, with knowledge of the misrecital, had paid previous calls and acted as a proprietor, was estopped from questioning the validity of the act on the ground of the mis- recital, and that it was not incumbent upon the plaintiff to show that the defendant had executed a contract under seal, in order to prove that he was a proprietor within the meaning of the act.* 1 Graff V. Pittaburgh, etc., E. Co., 81 Pn. St. 489. ' Hays V. Pittsburgh, etc., K. Co., 88 Pa. St. 81. • 6 Goo. IV. c. 80. * Cromford, etc., B. Co. v. Lacey, 8 You. & J. 80. 196 CH. «X. j BY CONDUCT. § 165 § 164. Illustrations continued. — It may be added that the Superior Court of Cincinnati — a tribunal of recognized ability, though not of final jurisdiction — has sustained by an able argument its judgment to the effect that a person who has paid an instalment on stock allotted to him, and voted at a meeting of the corporation, is concluded from denying that he is a stockholder.' Upon analogous grounds, where a New England parish had voted that a certain person should be a member, and he had attended and had voted at the parish meetings, and had acted as trustee of the parish funds, he was held to be a member, so that his body could be taken in execution for a debt of the parish, although he had not filed any certificate of membership, in pursuance of the terms of certain statutes.^ So, it has been held in Maryland that one who actively participates in the organi- zation of a company, attends its meetings, serves as a director, is privy to the contracting of a debt by the com- pany, will not be heard to deny that he is a shareholder, in an action to enforce his individual liability as such.' Attending, in the character of shareholder, a meeting of the members of a joint-stock company, at which important business was transacted, has been held suJBBcient primd facie evidence that the party was a shareholder to charge him with an engagement entered into' by a majority of the shareholders present at a subsequent meeting which the shareholder in question did not attend.* § 165. Conduct ratifying Agreement to take Stock in future Company. — Upon similar grounds, a person named as a corporator in the charter of a company, who signs a paper agreeing to take stock in a company to be thereafter organized, and who attends meetings of the company when organized, takes part in its proceedings, offsets, in a settle- ' Dayton, etc., R. Co. v. Hatch, 1 Disney, 84 • Chase v. Merrimack Bank, 19 Pick. 564. • Hager v. Cleveland, 36 Md. 476. • Harrison v. Heathorn, 6 Man. & G. 81. 197 § 167 LIABILITY, HOW INCURRED. [PART II. ment with the corporation, the amount due for his shares against an indebtedness of the corporation to him, is deemed by his conduct to have made himself a stockholder, so that a creditor may charge him in that relation for the company's debt, without showing that he was a stockholder from the company's books or from the sheriff's return.^ § 166. Conduct ratifying Subscription by unautborized Person. — Where a mere intermeddler subscribes the name of a person to the capital stock of a corporation, this act, of course, does not in any manner bind him ; but it is not wholly void ; it is cajjable of ratification : and, although mere declarations made to strangers by the party whose name had been thus unwarrantably used, to the effect that he had taken such shares, have been held insufficient, after his decease, to fix upon him the character of a stockholder so as to charge his estate,^ yet a different effect has been ascribed to conduct tending to show that such person as- sumed the relation of stockholder and exercised the rights thereto appertaining ; — as, where he authorized a proxy to vote his shares at a corporate election,' or remained silent for a long period after being informed that his name had been thus used,* or, long afterwards demanded and sued for dividends, alleging that the subscription was authorized by him,° or, after being informed that his name had been entered as a shareholder and his deposit paid by another, frequently promised to pay the instalments due on his shares.^ § 167. Acting as Member of provisional Committee. — After much diversity of opinion,' the English courts have 1 Chaffin V. Cummings, 37 Me. 76. ' Rutland, etc., R Co. i>. Lincoln, 29 Vt. 208. » McCully V. Pittsburgh, etc., R. Co., 32 Pa. St. 25. * Philadelphia, etc., R. Co. ... Oowell, 28 Pa. St 329. » Ibid. * Mississippi, etc., R. Co. v. Harris, 88 Miss. 17. ' Reynell v. Lewis, 15 Mee. & \V. 517 ; Wilson p. Viscount Curzon, 15 Mee. & W. 577; Barnett o. Lambert, lo Mee. & \V. 489; Barker v. Stead, 8 C. B. 946 ; Bailey v. Macaulay, 19 L. .J. (Q. B.; 73 ; Flemyng v. Hector, 2 Mee. & 198 CH. IX. J BY CONDUCT. § 168 settled down upon the doctrine that the mere fact that a person acts as a member of a provisional committee, created for the purpose of getting up a joint-stock company, does not make him liable as a contributory in the event of the company being wound up.' This rule was applied in case of a provisional director and committee-man to whom fifty shares had been allotted, who had attended the meetings and taken part in the proceedings, but who had never signed the subscription contract.^ But a provisional committee- man who had accepted shares in the company was liable to be made a contributory, though he did not pay the deposit.' And where a provisional committee-man de- clined to take the shares allotted to him, and gave author- ity to the secretary of the company to withdraw his name from the list of the provisional committee, which, however, was not done ; and although no shares were allotted to him, he continued to attend meetings of the committee and took part in the proceedings, and paid various sums of money, in pursuance of resolutions passed at those meetings, towards liquidating the liabilities of the company, he was held liable as a contributory.* § 168. Receiving Dividends. — Participation in the profits of a trading concern renders a man liable as a partner to third persons, whatever may be the stipulation of the partners inter se;^ " for he who receives a share of "W. 172; Todd v. Emly, 8 Mee. & W. 505; Wood v. Duke of Argyll, 6 Man. & G. 928; Williams v. Pigott, 2 Excji. 204; Ex parte Besley, 2 Mao. & G-. 176; s. c, 2 Ha. & Tw. 375. • Norria a. Cottle, 2 H. L. Cas. 647, affirming Ex parte Cottle, 2 Mac. & G. 185; Robert's Case, 3 De G. & Sm. 205; affirmed, 2 Mac. & G. 192; Hole's Case, De G. & Sm. 241. ' Maitland's Case, 3 GifF. 28. » Hutton V. Upfill, 2 H. L. Cas. 674. * Ex parte Besley, 2 Mao. & G. 176, affirming s. c, 8 De G. & Sm. 224. 5 Grace v. Smith, 2 W. Black. 998 ; Waugh v. Carver, 2 H. Black. 235 ; s. c, 1 Smith's Ld. Cas. 968 ; Pott v. Eyton, 3 C. B. 32 ; Wightman v. Town- roe, 1 Mau. & Sel. 412 ; Pond v. Pittard, 2 Mee. & W. 357 ; Berthold v. Gold- smith, 24 How. 536, 542 ; Re Francis, 7 N. B. K. 359 ; a. u., 2 Sawyer, 289. 199 § 169 LIABILITT, HOW INCDEKED. [PAET II. the profits receives a part of that fund upon which tlie creditors of the concern have a right to rely for payment, and is, therefore, to be made liable to losses, although he may have expressly stipulated for exemption from them."^ This general rule is, however, subject to very important qualifications, which it will not be necessary to notice here.* The analogous rule is that one who participates in the profits of a corporation by receiving dividends is held to be a shareholder,' and the equities attaching to his title are things with which the company and its creditors in general have nothing to do. He may hold as a jDledgee* or as trustee for others,^ and yet he will be a contributory. § 169. Continued — Exceptional Cases. — But this rule has not been universally applied. Thus, where the govern- ing statute gave the option to the husband of a female shareholder, or to the executor of a deceased shareholder, to become a member on complying with certain requisites, and a husband received dividends and receipted for them in the name of his wife, and attended meetings at which none but shareholders were entitled to be present,* and where an executor received a dividend which accrued after the death of his testator,^ neither of them was held liable to respond to creditors of the company. These cases, and also Bosan- quet V. Shortridge, elsewhere cited,' cannot, it is thought, be appealed to as establishing an exception to the general 1 Tindall, 0. J., in Pott v. Eyton, 8 C. B. 82. « See Bowas v. Pioneer Tow Line, 2 Sawyer, 21 ; Hazard v. Hazard, 1 Story, 875 ; The Crusader, 1 Ware, 441 ; Bigelow v. Elliot, 1 Cliff. 33 ; Winship v. Bank of United States, 6 Pet. 562, 674 ; Phoenix Ins. Co. v. Hamilton, 14 Wall. 508. ' Hoare'.? Case, 2 .John. & H. 229 ; Gouthwaite's Case, 8 De G. & Sm. 258 ; Philadelphia, etc., R. Co. v. Cowell, 28 Pa. St. 829, * Post, I 2!:8. 5 Post, \l 179, 180. « Ness V. Angas, 3 Exoh. 805. ' Ness V. Armstrong, 4 Exch. 21. > 6 Exch. i;98. 200 CH. IX.J BY CONDUCT. § 170 rule just stated. In a well-reasoned case in equity, involv- ing similar questions, they were treated by Lord St. Leon- ards as depending upon the terms of a particular statute,' which, though referring to equitable as well as legal liabili- ties, did not furnish a particular remedy for equitable liabilities. A man could not, he thought, be proceeded against by scire facias under the particular provisions of that act, unless it could be shown that he was legally liable as a member.^ § 170. Paying Calls. — Paying calls will estop an original subscriber for shares,^ or an unregistered transferee,* from denying his liability in a suit for future calls ; for, by thus contributing to the actual working capital of the company, the contributor becomes entitled to share in its profits, if any should be made ; and, as a consequence, becomes, in case of a joint-stock company, a partner in the concern, and, as such, liable to its creditors.' On the other hand, one who subscribes for stock in a company is a stockholder although he may have failed to pay calls thereon ; * he can- not, of course, plead his own default in discharge of his contract.' Conduct on the part of A. ratifying the act of B. in subscribing for shares of railway stock for A. and paying the necessary deposit on it has been successfully appealed to fix A. with liabihty as a stockholder.* 1 7 Geo. rV. c. 46. « StraflFon's Executor's Case, 1 De G. M. & G. 589. » Frost V. Walker, 60 Me. 468. ' Hall V. United States Ins. Co., 5 Gill, 484; Mississippi, etc., R. Co. v. Harris, 36 Miss. 17. ^ Frost V. Walker, 60 Me. 468, per Walton, J. As seen in preceding sec- tions (2 162 et seq.), paying calls, in connection with other circumstances, fixes a person conclusively with the liabilities of a stockholder. ' Schaeffer v. Missouri Home Ins. Co., 46 Mo. 248 ; McHose v. Wheeler, 45 Pa. St. 32. ' Ante, I 160. Contra, Fiser v. Mississippi, etc., K. Co., 32 Miss. 359 ; Hayne V. Beauohamp, 5 Smed. & M. 537; Lewis «. Robertson, 13 Smed. & M. 538. 8 Mississippi, etc., R. Co. ». Harris, 36 Miss. 17. 201 § 172 LIABIIilTT, HOW mCUBEED. [PAKT II. § 171. Estoppel to deny Validity of Shares. — A person who accepts shares in a company, executes the deed of settlement, for several years receives dividends declared on the shares, and, after the company has been ordered to be wound up, is called on as a contributory, is estopped by his contract and by his conduct from denying the validity of the shares.* So, where the directors of a company made an unauthorized issue of shares beyond their capital, but their acts were afterwards ratified by the company at a general meeting, the allottees of such shares were bound by the confirmatory resolution, and, on the winding up of the company, were rightly placed on the list of contributories.* So, it has been held in this country that one who purchases shares in a corporation, and knowingly suffers his name to appear on the books as a shareholder, cannot, in a pro- ceeding to enforce his individual liability, under a statute providing that the word " stockholder " shall be understood to mean, not only such persons as appear from the books of the corporation to be such, but also every equitable owner, impeach his own title by showing that the stock was im- properly purchased by the corporation and issued to him.' § 172. Accepting Shares in new Company after at- tempted Amalgamation. — Where an amalgamation of two companies has been attempted, and, in pursuance of the scheme of amalgamation, certain shareholders of the A. company apply for and have allotted to them their quota of shares in the B. company, and the amalgamation is afterwards judicially determined to be void, such shareholders of the A. company will not be estopped, by their conduct or acquies- cence in the arrangement, from afterwards denying that they are shareholders in the B. company.* Nor, in case of 1 Hull I'lax and Cotton Mill Co. v. Wellesby, 6 H. & N. 88. > Sewell's Case, L. E. 3 Ch. 181. • Matter of Keciprocity Bank, 22 N. Y. 9, 17. « Bank of Hindustan v. Alison, L. K. 6 0. P. 54. 202 CH. IX. J BY CONDUCT. § 174 a void amalgamation, will the fact that two of the directors of the selling company, to whom shares had been allotted in exchange for shares in the purchasing company, acted under the terms of the agreement as directors of the pur- chasing company, estop them from denying their liability as contributories of the purchasing company.* § 173. !Non-compliance with Formalities. — It was held by Lord St. Leonards, in a well-considered case, that if directors, not following the formalities prescribed by the deed of settlement, adopted, in respect of a particular transaction, and for the purpose of constituting share- holders, a new rule of proceeding, and a party treats him- self, and is treated by the directors, as a shareholder by virtue of such a transaction, it is not competent to the directors subsequently to repudiate the transaction on the ground of non-compliance with the formalities required by the deed of settlement.^ Upon like grounds a subscriber to the stock in a proposed company, who is present at the first election and is there elected a director, and acts as such, will* not afterwards be permitted, in a suit against him by the company for a call, to deny the validity of its organization on the ground that no notice of such elec- tion was given, and that some of the subscribers did not attend.^ § 174. Lilmitations of the foregoing Doctrine — The Person must be held out as Shareholder with his Knowl- edge. — In the foregoing cases the persons charged as share- holders without reference to whether they had contracted to become so either actively interested themselves in the affairs of the corporation, or else knowingly permitted themselves to be held out to the public as shareholders. 1 Stace & Worth's Case, L. K. 4 Ch. 682. » Straffon's Executors' Case, 1 De G-. M. & G. 576. • Schenectady, etc., Co. v. Thatcher, 11 N. T. 102. See post, J 407 el seq. 203 § 174 LIABILITY, HOW INCURRED. [PAET II. If a person not actually entitled to share in the profits of the company is held out as a shareholder without his knowledge or consent, of course this does not make him such. This is illustrated by a leading English case, where certain parties applied for shares, paid the first deposit, omitted to pay the second instalment, and did not there- after in any manner interfere with the concern. The direc- tors advertised, after the time for paying the second instal- ment had elapsed, that persons who had omitted to pay had forfeited their interest in the concern. These parties were subsequently sued in assumpsit for a debt of the company. The plaintiff contended that he had given the credit on the faith of the names of these shareholders being included in a book which the secretary of the company exhibited to him, at the company's counting-house, purporting to be a copy of the list of shareholders, — about 200 names arranged alphabetically, one leaf being assigned to each letter of the alphabet. This book the plaintiff had examined, though it did not appear that he had seen the names of the defend- ants therein. On these facts Tindal, C. J., held that the defendants were not liable ; for, in the first place, -there was no evidence that the defendants knew of the existence of any copy of the list at the counting-house ; still less any evidence that such list was made up or shown to any one with their permission or knowledge. In his view, the holding one's self out to the world as a partner, as contra- distinguished from the actual relation of partnership, im- ports at least the voluntary act of the party so holding himself out. The persons, therefore, who contracted with the directors must rest upon the security of the directors who made such contract, and of those subscribers who, by executing the deed, have declared themselves partners, and of any who have, by their subsequent conduct, recognized and adopted the acts and contracts of the directors, none of which acts could be imputed to the defendants. ^ I Pox V. Clifton, 6 Bing. 776. 204 CH. IX.J BY CONDUCT. § 175 § 175. And the Advances must be made on Ms Credit. — There is one case — and there are possibly others — which goes to the length of holding that it must affirmatively appear that the advances were made to the company on the personal credit of the shareholder sought to be charged. Lady Anson paid money for shares in a mine to B., describing himself as treasurer of the mine, and received from persons calling themselves directors a memorandum purporting that she was a proprietor of shares, and that her name was entered in the "cost-book." She, in writing and in conversation, acknowledged herself to be a share- holder, and received money from B., as treasurer, on account of supposed profits. An action was brought against her, as a shareholder, for supplies furnished the mine. It was not disputed that the defendant had regarded herself as a share- holder in the mine. Nevertheless the court held that not to be the question in the case ; but, first, whether she actually had any interest in the mine, such that she could call upon the parties working the mine to account to her for a portion of the profits made, supposing profits had been made ; or, secondly, supposing she had no interest in the mine, whether the supplies had been furnished on her personal credit. Neither of these points being made out, the plaintifi was nonsuited, and, ( :i argument, the rule made absolute.^ ' Vice V. Anson, 1 Man. & R. 113. This case can, however, hardly be con- sidered as authority. It has often been " distinguished " by the English judges in subsequent cases. One or two odd cases of this kind are to be met with in the books, upon reading which one can hardly divest his mind of the impres- sion that the sex or social position of the party sought to be charged, or both, liave outbalanced a colorless administration of justice. 205 § 178 LIABILITY, BY WHOM INCUKKBD. [PAKT II. CHAPTER X. OF THE STATUS AND LIABILITY OF LEGAL AND EQUITABLE PKOPEIETOK8. Section 177. General Rule. 178. Legal Owner liable. 179. Trustees. 180. Illustration. 181. Taking Shares in Name of a flctitioua Trustee. 182. Or in Name of a fictitious Person. 183. Or in the Name of Persons non sui jwis. § 177. General Rule. — The general rule is that a person whose name appears on the books of a corporation is a shareholder, both as to the corporation and as to the public' An extensive examination of the cases constantly brings us back to this idea, — an idea based on the most salutary considerations ; which gives meaning and value to the registry of shareholders kept by the corporation ; noti- fying creditors of the names which stand as guarantors of the corporate ventures, and of the extent of their several liability ; and notifying shareholders of the names to whom they may look for contributions to the common burden. § 178. Legal Owner liable. — Unless the rule has been changed by statute, liability to pay calls and to respond, in the event of insolvency, to creditors, .ittaches to the holder of the legal title only ; the courts will not look beyond the ' The State v. Ferris, 42 Conn. 560 ; Skowegan Bank v. Outler, 49 Me. 815 ; Matter of Empire City Bank, 18 N. Y. 200 ; s. c, 6 Abb. Pr. 886 ; Holyoke Bank V. Burnham, 11 Gush. 183; Crease i>. Bnbcock, 10 Mete. 526; Grew v. Bree, 10 Meto. 569 ; Stanley v. Stanley, 26 Me. 191 ; Worrall v. Judson, 5 Barb. 210; Fowler v. Ludwig, 84 Me. 455. 206 CH. X.] LEGAL AND EQUITABLE OWNERS. § 179 registered shareholder, nor enquire under what equities he holds. There are many illustrations of this, some of which have been separately considered. A., holding stock as a trustee for B., must himself pay the assessments or respond as a contributory, and look to B. for reimbursement.^ A., holding the stock of B. as collateral security, if registered as the legal owner, is likewise held to the liabilities of a stock- holder, and if he suffers a loss which B. ought to have suffered, that is a matter between him and B.* A. has transferred his shares to B., and B. has not caused the transfer to be registered. B.'s position is like that of a man holding land by a bond for a deed — he is the equitable owner merely. A. is still the legal owner ; he must pay assessments or respond to creditors, and look to B. for con- tribution.' A. has mortgaged his shares to B., and they still stand in the name of A. A bill in equity by the company to compel B. to pay calls upon them cannot be sus- tained.* A. transfers shares to B. upon a trust to secure C, who has made a loan of money to A., and B. dies insolvent. The company cannot compel C. to pay the arrears due on the shares." This does not, however, necessarily exclude the idea that the equitable owner may be liable to creditors, should they elect to proceed against him ; as, where stock was allotted to A. for B., at the request of the latter, who paid all the instalments, but whose name did not appear on the books, he was chargeable by creditors for debts of the corporation.* § 179. Trustees. — This general rule is well illustrated by numerous cases where shares have been taken by one person in the name of another, to be held in trust for him- ' Post, next section. 2 Post, I 223. See Pranklin v. Neate, 13 Mee. & W. 481. 8 Post, \ 217. * Newry, etc., E. Co., v. Moss, 14 Beav. 64. 6 Ibid. 6 Burr V. Wilcox, 22 N. Y. 651. 207 § 179 LIABILITY, BY WHOM INCURRED. [PAET II. self,^ or where they are taken by a nominee of the company, to be held in trust for the company.* In either case the nominal holder or trustee in whose name the shares are registered is, in the event of a winding-up, put on the list of contributories. If he is injured by this, he must seek contribution of his cestui que trust." This supposes, of » Mitchell's Case, L. K. 9 Eq. 363; Holt's Case, 1 Sim. (n. s.) 389; Ind's Case, L. R. 7 Ch. 4^5. , 2 Chapman & Barker's Case, L. R. 3 Eq. 361 ; Hoare's Case, 2 John. & H. 229 ; Ex parte Oriental Commercial Bank, L. E. 3 Ch. 791 ; Hemming v. Maddick, L. R. 9 Eq 175 ; s. c, L. R. 7 Ch. 395 ; Mitchell's Case, L. R. 9 Eq. 363 ; post, I 234 et seq. ' Ex parte Oriental Commercial Bank, L. R. 3 Ch. 791 ; Hemming t. Maddick, L. R. 9 Eq. 175 ; s. u., L. E. 7 Ch. 395 ; Stover v. Plack, 30 N. Y. 64. In Hemming v. Maddick, L. R. 9 Eq. 175, it heing desired to show upon the stock- exchange that 1,000 more shares had been taken than actually had been sub- scribed for up to a certain date, an arrangement was made by which each of four persons, of whom the plaintiff was one, agreed, in consideration of twenty-five guineas each, to apply for 250 shares each, and the defendant agreed to pay the application and allotment-money. The shares were accord- ingly allotted. The plaintiff, at the same time, as a part of the agreement, executed a transfer in blank, which he gave to the defendant, and the transfer was afterwards filled up with the name of the transferee ; but the directors refused to register the transfer, and the plaintiff's name remained on the register. The company having been ordered to be wound up one year afterwards, the plaintiff instituted this suit for indemnity. The lords justices were of the opinion that, the trust having been clearly established, the plaintiff was entitled to indemnity from his cestui que trust, which might be enforced by the official liquidator in a suit in the name of the trustee, who had compromised with the liquidator for his liability on the shares, upon terms including a stipulation that the liquidator should be at liberty to continue the suit. In Stover v. Plack, 30 N. Y. 64, by a verbal agreement between S. and P. it was agreed that S. should subscribe for $1,000 of the capital stock of a manufacturing corpora- tion, one-half of which should belong to each ; that S. should hold the same on joint account and receive the dividends thereon, P. to pay the interest annually on $500, one-half the amount paid ; that when S. should want the 8500, he was to notify P. ; and if P. did not pay, S. should sell the stock, and P. would pay the difference between the sum received on such sale and the par value of the stock. S. accordingly subscribed for $1,000 of the stock in his own name, and paid therefor. It was part of the bargain that the agreement should be put in writing, but it never was. A few years later the company became insolvent, and the stockholders being called upon to pay an amount of debts equal to the stock held by them, S. paid $1,000. The contract had never been reduced to writing, but F. had repeatedly recognized his liability thereunder. On these facts the court held that P. had clearly waived the per- 208 CH. X.] LEGAL AND EQUITABLE OWNERS. § 179 course, that the shares have been placed in the name of the trustee or nominee with his consent. If done without his consent, it will not bind him unless subsequently ratified.' And if he be a person incapable of consenting, — as, an infant, — he is allowed a reasonable time to affirm or dis- affirm after becoming sui jxiris."^ It also supposes that there has been a completed transfer to the trustee or nominee.' There are, in some of the states, statutes which exempt executors, guardians, and other trustees of express trusts from personal liability on account of stock held by them in their fiduciary capacity. These statutes, however, have no application to such a case as arises where one person formance of this condition, and also that, the company having become insol- vent and the stock worthless, S. was not bound to sell it; and F. must be liable for one-half the price paid for the stock, and for one-half the amount paid thereon in discharge of the debts of the company. 1 Chapman & Barker's Case, L. K. 3 Eq. 366. 2 Post, 2 231 ; Mitchell's Case, L. R. 9 Eq. 363. ' Thus, a widow possessing shares in a joint-stock company as representing her deceased husband, in whose name the shares stood, on the occasion of her second marriage assigned the shares by deed to a trustee for herself, but no transfer of the shares, according to the deed of settlement of the company, was ever made, and the shares continued to stand on the books of the company in the name of her deceased husband. The lord chancellor (Cottenham) refused to hold the trustee liable as a contributory, there being no other evidence to show that he had in any way connected himself with the company, except the circumstance that he had communicated to the company the fact of the deed of assignment, and had received dividends and signed receipts for the same on behalf of the widow, but never in terms as " trustee." Ex -parte Hall, 1 Mac. & Gr. 307. See, in connection with this case, Hoare's Case, 2 John. & H. 229. " One person may, if he pleases," said Lord Komilly, " become a trustee for another. He knows the consequences of so doing. He knows that he becomes personally liable for the calls, and that he is personally liable to be made a contributory. There are two sets of rights; one is as between himself and the person whom I may call the cestui que trust, and the other is as between himself and the company. As between himself and the company, he is a shareholder and a contributory, and cannot resist any thing; but as between himself and the person for whose benefit he agreed to take them, he has a right over as against him; that is to say, he has a right to call upon him who is the real owner of the shares to make good any sums of money which he may have to pay for the calls, or for contributions, or for the like." Mitchell's Case, L. E. 9 Eq. 366. 14 209 § 181 LIABILITY, BY WHOM INCUKRED. [PART II. subscribes for stock in his own name in pursuance of a secret engagement to hold it, in whole or in part, for another.' § 180. Illustration. — The deed of settlement of a com- pany provided that no deed of transfer should be deemed complete, and no person should be registered as a share- holder, until he had executed the deed of settlement ; and that the company should not be bound to recognize an equitable title, but that the persons to whom shares should be legally assigned should be considered the absolute assignees. Certain shares were settled upon the holder's wife and their children, and a notice of transfer to the trustees was duly given to the company by the settlor. The trustees never executed the deed of settlement of the company, and no transfer deed was ever executed, but the names of the trustees were registered and retained as share- holders, with the word " trustees " added in the margin, and they also gave receipts for dividends as trustees. The vice- chancellor (Wood) held that the trustees were liable as contributories, to the full extent, and that they could not be put on the list as trustees, liable only to the extent of the trust estate ; that it had been settled, over and over again, that any irregularity in a transfer of shares was cured by receipt of dividends or other benefits from the shares ; that the word ' ' trustees ' ' only indicated that they were the legal owners of the shares, though without a beneficial interest in them ; that if they were compelled to respond beyond their capacity as trustees, they must look to the cestui que trust for indemnity.^ § 181. Taking Shares in Ifame of fictitious Trustee. — Cases frequently occur where, for some reason peculiar to 1 Stover V. Plack, 30 N. Y. 64; post § 248 ei seg. ' Hoare'a Case, 2 John. & H. 229. Ex parte Hall, 1 Mac. & G. 307, ante, g 179, the facts of which were exceedingly close upon this case, was carefully distinguished , 210 CII. X.J LEGAL AND EQUITABLE OWNERS. § 182 their situation, persons take shares in companies in the names of other persons, under a private engagement that their nominees are to hold for them. Such arrangements are not necessarily fraudulent or objectionable on moral grounds. A Frenchman, for instance, would readily under- stand why a French nobleman, desiring to invest a portion of his income in shares of a joint-stock company, should take them in the name of his steward or bailiff. In the absence of fraudulent representations as to the condition in life of the nominee, such trusts are sustained, for reasons already given ; but where the trust is merely fictitious, a court of equity will hold the real beneficiary as a contribu- tory. Thus, the owner of 300 shares in a mining company persuaded two persons to take 200 of these shares between them, for the purpose of deluding the public into the belief that there was a greater number of members of this com- pany than in fact existed. It was understood between the parties that all calls on these 200 shares were to be paid by the real owner of them, and that the holders of them were to derive no benefit from them. The holders of these shares never attended any meetings of the company, or received any circulars for calling them. The lords justices held that under these circumstances the holders of the 200 shares, being mere nominees of the real owner, for a deceit- ful purpose, were not to be regarded as ordinary trustees, at least under the 200th section of the Companies Act of 1862 (and they were not prepared to say that without this act it would be otherwise) , and therefore that the owner of the 300 shares must be made a contributory for the whole amount.^ § 182. Or in the Name of a fictitious Person. — The subscribing for shares in the name of a fictitious or non- existent person is an obvious fraud upon the rights of creditors and other shareholders ; since, if such a proceeding 1 Cox's 0.i=u, 4 De U. J. & ti. 63. 211 § 183 LIABILITY, BY WHOM INCURRED. [PART II. were sanctioned, it would result that there would always be a person ready to share the profits in the event of pros- perity, but, in the event of disaster, no one at hand to respond to creditors or to share the losses with honest shareholders. The courts defeat such roguish devices, by discovering the name of the real subscriber and putting him on the list of contributories.^ § 183. Or in the Name of Persons non sui juris. — The same principle applies where a person, in order to evade liability as a shareholder while enjoying the benefits, takes shares in the name of a person incapable of contract- ing, — as, an infant,^ or a married woman.' As we shall see hereafter, the same principle applies, and is illustrated by a more numerous class of cases, where a shareholder, in order to escape liability, transfers his shares to a person insolvent or non sui juris.* But where a father applied for shares on the part of his infant son, and paid the deposit, and the company refused to allow him to execute the deed on behalf of his son, and the father did no further act, he was held not liable as a contributory.^ 1 Pugh & Sharman's Case, L. E. 13 Eq. 566. » Richardson's Case, L. R. 19 Eq. 588. " Pugh & Sharman's Case, L. R. 13 Eq. 566. * Post, I 111 et seq. 5 Maxwell's Case, 24 Beav. 321. 212 PART III. OF THE MANNER IN WHICH THIS LIABILITY IS DIVESTED, Scope of this Subdivision. — The liability of a share- holder may be divested in the following ways : I. By breach of the contract of subscription on the part of the corporation. II. By forfeiture or release by the act of the corporation. III. By sale, or gift, and transfer. IV. By bankruptcy. V. By deiith. Each of these will form the subject of a separate chapter. CHAPTER XL BY BREACH OF CONTRACT OF SUBSCRIPTION. Section 186. Breach of Contract of Subscription by Corporation — Legis- lative Alteration of Contract. 187. Illustrations — Change in Denomination of Shares. 188. Continued — Change of Name — Enlargement of Project — Alteration of Charter — Change of Koute. 189. Continued — Effect of an Increase of the Capital Stock upon previous Subscriptions. 190. Continued — Abandonment of the Enterprise. § 186. Breach of Contract of Subscription by Corpo- ration — Legislative Alteration of Contract. — Where the contract of subscription contains inter-dependent covenants, a substantial breach of its conditions by the corporation will, where the rights of third persons are not concerned, 213 § 187 DIVESTITURE OF LIABILITY. [PAET III. release the subscriber.^ The usual application of this rule obtains in England where the prospectus of a joint-stock company holds out certain promises to subscribers, on the faith of which they put down their names, and the mem- orandum, when drawn up, so far departs from the pro- spectus as to make substantially a different contract." It is illustrated by a large class of American and some English cases, where the charter of the corporation has defined the proposed project, and, after subscriptions to its stock have been obtained, has been departed from or enlarged, either by an amendment of the Legislature or by the act of the company itself. The courts, in numerous cases of this kind which have come before them (generally actions by the corporations against their stockholders for calls), have held the latter to their contract of subscription, unless the deviation from the original project has been substantial and prejudicial to their interests. The English courts have gone further, and have qualified the rule that a majority cannot bind the minority in a joint-stock company as to acts not contemplated by the common contract,^ by holding that it does not apply to corporate companies organized under sanction of Parliament for an undertaking involving ^m6Z»c interests and duties.* § 187. Illustrations — Change ta Denomination of Shares. — The fact that the denomination of shares has been changed, if the shares are capable of being traced and identified, is no objection to their validity, and no reason why their holder should not, in the event of a winding-up, be placed on the list of contributories.' Where the original ' Hartford, etc., E. Co. ■». Croawell, 5 Hill, 383. . a Ante, I 151. • Burmester v. Norris, 6 Exch. 796. * Pfooka V. London, etc., R. Co., 17 Jur. 865 ; Stevens r. South Devon R. Co., 13 Beav. 48. 6 Sewall'a Caae, L. R. 3 Oh. 131 ; Feiling'a Case, L. R. 2 Oh. 714. Compare Ind'3 Case, L. R. 7 Oh. 485. 214 CH. XI,] BY BREACH OF CONTEACT. § 188 charter provided that the capital stock should be divided into shares of $200 each, and a subscriber took four shares of this denomination, and afterwards the charter was changed, dividing the capital stock into shares of $100 each, which act was accepted by the corporation, and four shares were assigned the subscriber, for which he paid in part, he was deemed to have assented to the change.* § 188. Continued — Change of Name — Enlargement of Project — Alteration of Charter — Change of Route. — Thus, a mere change in the name of the corporation has been held insufficient to discharge the shareholder.^ Nor did an increase of the capital of a plank-road company, and an application of the funds so raised to the construction of a branch road, in pursuance of an act of the Legislature passed since the contract of subscription.^ Nor did a subse- quent legislative amendment of the charter of a railway company, changing its name, and authorizing an increase of its capital and an extension of its road ; and this whether the alteration was beneficial to the stockholders or not, it having been duly made, and without any fraud on the part of the company.* Nor did a subsequent act of the Legis- lature, changing the location of a turnpike road ; the governing principle here declared being that the benefit which results to individual property by the incorporation of a company and the location of a road does not, in contem- plation of law, enter into the consideration of the contract of subscription, and that such subscriptions are necessarily subject to the power of the Legislature to change the location of the road, where the contrary is not expressly stipulated." Nor did a subsequent alteration of the charter of a naviga- ' Kennebec, etc., R. Co. v. Waters, 34 Me. 369. » Buffalo, etc., E. Co. v. Dudley, 14 N. Y. 336 ; Milwaukee, etc., E. Co. v. Field, 12 Wis. 340. » Schenectady, etc., R. Co. v. Thatcher, 11 N. Y. 102. « Buffalo, etc., E. Co. v. Dudley, 14 N. Y. 336. ' Irvin V. Turnpike Co., 2 Penn. 466, opinion by Gibson, C. J. 215 § 189 DIVESTITUEE OF LIABILITT. [PART III. tion company, extending its privileges, although its liabilities might thereby be extended.^ Nor did a subsequent act of Parliament, authorizing a railway company to buy and work a canal from M. to A., and to make a railway from D. to M. only, when the contract of subsciiption provided for forming a company to make a railway " from D. to M., and thence to A."^ But a material change in the route of a railway company has been held sufficient to discharge a sub- scriber ; he was bound to pay for the purpose of constructing the particular road in which he had consented to become a stockholder, and when the route which was fixed when he became a subscriber was materially chatiged, he had a right to consider the enterprise to which he had bound himself as abandoned and his contract at an end.^ § 189. Continued — Effect of an Increase of the Capital Stock upon previous Subscriptions. — Upon like grounds, where the charter of an insurance company recited, "the capital stock shall be $1,000,000, and may be increased to not exceeding $5,000,000, at the discretion of the stock- holders," and, after a person had subscribed for a given number of shares, the Legislature amended the charter by declaring, " the board of directors shall have power to increase the capital stock of said company from time to time, in their discretion," a subsequent increase made by the directors under tlie power thus conferred was not such a change in the contract of subscription as the Legislature was prohibited from authorizing, and did not discharge the shareholder. In the view of the courts, the Legislature has a limited power of control over the charters of companies which it has granted, and every shareholder is presumed ' Gray v. Monongahela Nav. Co., 2 Watts & S. 156. " Midland, etc., Ry. Co. v. Gordon, 16 Mee. & W. 803. ' Hester i>. Memphis, etc., K. Co., 82 Miss. 378. Many other cases are found tending to establish the same doctrine : Middlesex T. Co. v. Looke, 8 Mass. 268; Hartford, etc., R. Co. d. Croswell, 6 Hill, 383; Indiana, etc., T. Co. v. Phillips, 2 Penn. 184; New Orleans, etc., R. Co. v. Harris, 27 Miss. 517. 216 CH. XI. J BY BREACH OF CONTKACT. § 189 to take his shares subject thereto.^ It has accordingly been said that whether the capital stock of a company has been properly increased is a question which the state alone can raise ; ^ at least, such a defence cannot be set up under a plea of non assumpsit.^ A shareholder who, after the cap- ital stock of the company has been increased, retains his shares and participates in the profits is estopped by his conduct*' from claiming exemption from the responsibilities of his contract after the company has become insolvent.* Courts will, no doubt, listen more readily to such a defence when urged by the shareholder in a suit against him by the corporation for calls. Thus, where the directors of a plank- road company, after the formation of the company, extend the main line of the road beyond the point originally speci- ■ Payson v. Withers, 5 Biss. 269. " I do not think," said Drummond, J., in tViis case, "that a change of such vague and indefinite phr.aseology as this, as to the manner in which the capital of a corporation is to be Increased, would give the right to a subscriber to the stock to declare that the contract which he had made for his subscription, and under which he paid a certain portion, and agreed to pay the remainder when the necessity for its payment appeared, was at an end. It seems to me that it was one of the implied conditions upon which he entered into his agreement, that the power of the Legislature might be exercised to vary, in that way, the manner in which the capital stock should be increased. It may be conceded that there are limitations to the power of the Legislature in such a case as this : that the Legislature may go so far in changing, altering, or revolutionizing the whole scope and spirit of the orig- . inal charter, by amendments, as to authorize a stockholder to say that he has not entered into that contract, that his obligations have ceased by the wrong- ful acts of the Legislature ; but while that is true, it is also true that, to a cer- tain extent, the terms of a grant are subject to the control of the Legislature, and every stockholder takes his shares subject to that control, and subject also to the control of those who manage its a£fairs, namely, the board of directors. And, therefore, when the Legislature has acted in such a manner as this, and has merely declared that, instead of the stock being increased by the corpora- tion at the discretion of the stockholders, it shall be increased by the resolution or act of the board of directors, it is not such a change, in my opinion, as would authorize a subscriber to say that his contract is at an end." Payson v. Withers, 5 Biss. 276. 2 Pullman v. Upton, 96 U. S. 329, per Mr. Justice Strong. ' Judgm., ibid. 4 Ante, I 168. 6 Ibid.; Chubb «. Upton, 95 U. S. 665. 217 § 190 DIVESTITURE OF LIABILITY. [PAKT III. fied, and increase its capital stock, without the written con- sent of the persons owning two-thirds of the capital stock, or a majority of the inspectors, etc., as provided by the 1st section of the Plank-Eoad Act,^ such acts are unauthor- ized and illegal, and exonerate the original stockholders from all liability to pay their subscriptions. Nor will the fact that the stockholder participates in the proceedings of the company to extend the road, and retains his stock after the extension has been made, and then sells the same for a valuable consideration to a third person, estop him from denying his liability to pay his subscription.^ § 190. Continued — An Abandonment of the Enterprise for which the corporation was organized, — as, by failing to commence the undertaking within the time prescribed by its charter,^ and refunding some of the subscriptions ; * or, in case of a railroad company, locating the road on an entirely different route,^ — will discharge the stockholder, 1 Laws N. Y. 1849, ch. 250. ' Macedon, etc., Plank-road Co. v. Lapham, 18 Barb. 312 ; Middlesex T. Co. V. Lock, 8 Mass. 268; Middlesex T. Co. v. Swan, 10 Mass. 384; titevens v. Rutland, etc., R. Co., 1 Am. L. Reg. 154 ; s. c, 29 Vt. 545. » McCully V. Pittsburgh, etc., R. Co., 32 Pa. St. 25. * Ibid. ' Hester v. Memphis, etc., E. Co., 32 Miss. 378 ; Winter v. Muscogee By., 11 Ga. 438; Keno-;ha, etc., R. Co. u. Marsh, 17 Wis. 13; Champion i;. Memphis, etc., R. Co., 35 Miss. 692 218 CH. XII.] BY FOBTEITOKE OR RELEASE. § 193 CHAPTER XII. BY FORFEITURE OF THE SHARES OR RELEASE OF THE SHARE- HOLDER BY ACT OF THE CORPORATION. Section 193. Forfeiture of Shares releases Stockholder. 194. Exceptions — Collusive Forfeitures. 195. Collusive Forfeitures, continued. 196. Ultra vires Forfeitures. 197. Effect of Acquiescence and Laches. 198. Continued— The English Doctrine. 199. Distinction between the American and English Cases. 200. Illustrations. 201. Arrangements between Corporation and Stockholder, releasing Stockholder, void as to Creditors. 202. But bonCtfide Compromises with Shareholders are valid. 203. Illustrations of the foregoing Doctrine. 204. Discharge by new Contract. 205. Corporation purchasing its own Shares, 206. Fraudulent withdrawal of Premium Notes given to Mutual In- surance Company. 207. Stock paid up and Money loaned back to Stockholder. § 193. Forfeiture of Shares releases Stockholder. — The fact that the charter or statute ^nder which a corpora- tion is organized gives the corporation the right to declare the shares of a stockholder forfeited for non-payment of the assessments due thereon does not, in most of the states, deprive the corporation of the right to maintain an action against the stockholder on the contract of subscrip- tion;^ nor, after the insolvency of the corporation, is the 1 Goshen Turnpike Co. v. Hurtin, 9 Johns. 217; Dutchess Cotton Man. Co. V. Davis, 14 Johns. 238 ; Beene v. Cahawba, etc., E. Co., 3 Ala. 660 ; Selma, etc., R. Co. u. Tipton, 5 Ala. 787 ; Instone v. Frankfort Bridge Co., 2 Bibb, 576 ; Troy, etc., K. Co. v. Kerr, 17 Barb. 581 ; Rensselaer, etc., Co. v. Bar- ton, 16 N. Y. 459, note ; Troy Turnpike Co. v. McChesney, 21 Wend. 296 ; 219 § 193 DIVESTITURE OF LIABILITY. [PART III. existence of such a right a valid defence on the part of the stockholder against creditors,' the power thus given to forfeit shares being merely a cumulative remedy.^ In such cases the corporation has an election between two Herkimer Man. Co. v. Small, 21 Wend. 273 ; Northern K. Co. v. Miller, 10 Barb. 260; Mann v. Cooke, 20 Conn. 178; Freeman v. Winchester, 10 Smed. & M. 577 ; Stokes v. Lebanon, etc., T. Co., 6 Humph. 241. Contra, Worcester Turjipike Co. i^. Willard, 5 Mass. 80 ; Andover, etc., T. Co. o. Gould, 6 Mass. 40 ; Chester Glass Co. v. Dewey, 16 Mass. 94 ; New Bedford, etc.. Turnpike Co. v. Adams, 8 Mass. 138 ; Franklin Glass Co. v. Alexander, 2 N. H. 380 ; New Hamp- shire Central R. Co. v. Johnson, 30 N. H. 390. In this last case the Supreme Court of New Hampshire, after an examination of the authorities, concluded the true rule to be this : " Where a party makes an express promise to pay the assessments, he is answerable to the corporation upon such promise for all legal assessments, and may be compelled to its performance by action at law, before resorting to a sale of the shares. It is a personal undertaking, beyond the terms of the charter. Where, on the other hand, he only agrees to take a specified number of shares, without promising expressly to pay assessments, then resort must first be had to a sale of the shai-es to pay the assessments, before an action at law can be maintained. His agreement simply to take the shares is an agreement upon the faith of the charter, and by it alone is he to be governed, so far as his shares are to be affected. He takes them upon the conditions and law of the charter. They exist only by virtue of the charter, and are to be governed by the provisions therein contained." Where the con- tract of subscription contains an express promise to pay the assessments, and the conditions of the subscription have been performed, by all the authorities an action of assumpsit, or other like action, can be maintained in the first instance, without a proceeding to forfeit the shares, or a declaration of for- feiture, sale of them, or other equivalent act. South Bay Meadow Dam Co. v. Gray, 30 Me. 547; Smith v. Natchez Steamboat Co., 1 How. (Miss.) 479; Salem Mill-Dam Corp. v. Ropes, 6 Pick. 23 ; Townsend v. Goewey, 19 Wend. 424 ; Dutchess Cotton Man. Co. v. Davis, 14 Johns. 238 ; Worcester Turnpike Co. V. Willard, 5 Mass. 80 ; Andover, etc., T. Co. v. Gould, 6 Mass. 40. 1 Mann v. Currie, 2 Barb. 294 ; Hightower v. Thornton, 8 Ga. 502 ; Sagory v. Dubois, 3 Sandf. Ch. 466. ' Mann v. Currie, 2 Barb. 294 ; McDonough v. Phelps, 15 How. Pr. 372 ; Hightower v. Thornton, 8 Ga. 502 ; Instone v. Frankfort Bridge Co., 2 Bibb, 577; Tar River Nav. Co. v. Noal, 3 Hawks, 520; Highland Turnpike Co. v. McKean, 11 Johns. 98; Hartford, etc., R. Co. v. Kennedy, 12 Conn. 499; Dutchess Cotton Man. Co. v. Davis, 14 Johns. 238; Herkimer Man. Co. v. Small, 21 Wend. 273 ; Troy Turnpike Co. v. JMcChesney, 21 Wend. 296 ; Beene V. Cahawba, etc., R. Co., 3 Ala. 660 ; Selma, etc., R. Co. v. Tipton, 5 Ala. 789 ; Gratz V. Redd, 4 B. Mon, 193 ; Goshen Turnpike Co. ti. Hurtin, 9 Johns. 217 ; Troy, etc., R. Co. v. Kerr, 17 Barb. 681. 220 CH. XII. J BY FORFEITUKE OR RELEASE. § 193 remedies : it may either declare a forfeiture, or it may bring an action at law for the amount due. If it declares a forfeiture, the relation between the shareholder and the cor- poration is thereby terminated and his contract of subscrip- tion cancelled ; and neither the corporation ^ nor its cred- itors '^ can proceed against him for the remaining instal- ments due under such contract. To this rule there are exceptions, growing out of the provisions of statutes like the Railway Acts of Massachusetts, which expressly provide for a sale of shares by auction in case of non-payment of assess- ments, and that the shareholder shall be personally liable for the deficiency.' The rule that a forfeiture of shares terminates a stockholder's liability to creditors has been carried so far, in New York, as to hold that after forfeiture a stockholder is not liable for debts contracted while he was a stockholder.* Under the English Joint-stock Companies Acts a similar rule obtains. After the shares of a member have been forfeited by the directors, in pursuance of the terms of the deed of settlement, he cannot, in the event of the insolvency of the company, be put upon the list of con- tributories ,^ unless insolvency supervenes within one year after forfeiture, in which case, by the terms of the Com- 1 Small V. Herkimer Man. Co., 2 N. Y. 330, overruling s. c, 21 Wend. 273, and 2 Hill, 127; Andover, etc.. Turnpike Co. v. Gould, 6 Mass. 40; Franklin Glass Co. V. "White, 14 Mass. 236 ; Chester Glass Co. i>. Dewey, 16 Mass. 94 ; Eipley v. Sampson, 10 Pick. 371 ; Cutler v. Middlesex Factory, 14 Pick. 483 ; Mechanics' Foundry and Machine Co. v. Hall, 121 Mass. 272 ; Ashton v. Bur- bank, 2 Dill. 435 ; King's Case, L. E. 2 Ch. 714, 719, 731 ; Knight's Case, L. K. 2 Ch. 321. » Allen V. Montgomery E. Co., 11 Ala. 450; Mills v. Stewart, 41 N. T. 384 (Hunt, C. J., and Woodruff, J., dissenting), affirming s. c, 62 Barh. 444; Maeauly v. Eohinson, 18 La. An. 619. •' Eev. Stat. Mass. 1836, ch. 39, J 53 ; Gen. Stat. Mass. 1860, ch. 63, ? 9. See Lexington, etc.,K. Co. ti. Chandler, 13 Mete. 311; Troy, etc., E. Co. v. Newton, 1 Gray, 544. • Mills V. Stewart, 41 N. T. 384. 6 Woollaston's Case, 4 De G. & J. 437 ; Beresford's Case, 2 Mac. & G. 197 ; Kelk's Case, L. E. 9 Eq. 107 ; Dawes's Case, L. E. 6 Bq. 232 ; Snell's Case, L. E. 5 Oh. 22. 221 § 194 DIVESTITURE OF LIABILITT. [PAKT III. panies Act, 1862,^ he will be liable to contribute as a past member? § 194. Exceptions — Collusive Forfeitures. — When the shares of a member of a corporation are forfeited for any cause, unless the statute or other governing instrument makes the forfeiture take the shape of the foreclosure of a mortgage or the sale of a pledge, they fall back into the o-eneral property of the corporation and become merged therein, so that the corporation is at liberty to issue and sell new shares in their stead. It is obvious that if the company is prosperous and its stock at par, a forfeiture of shares, although, as just seen, it has the effect to release the delinquent shareholder from liability to creditors, does not impair its available assets ; since new shares may be sold in their place, and the company also gains what the delinquent member had paid on the old. But if the com- pany is in failing circumstances, so that, by reason of want of credit, it is unable to sell shares issued in place of those forfeited, ever}^ forfeiture of shares impairs the security available for the satisfaction of creditors ; since it releases the shareholder from the obligation of paying future assess- ments. It necessarily follows that a forfeiture of shares, made in a condition of insolvency or of impaired credit, ought not to release the shareholder from the obligation to make good the amount which he has subscribed to the joint 1 25 & 2S Viot. 0. 89, \ 38. The statute reads: "In the event of a com- pany formed under this act being wound up, every present and past member of such company shall be liable to contribute to the assets of the company, to an amount sufficient for payment of the debts and liabilities of the company, and the costs, chai'ges, and expenses of the winding-up, and for the payment of such sums as may be required for the adjustment of the rights of the contrihu- tories amongst themselves, with the qualifications following (that is to say) : 1. No past member shall be liable to contribute to the assets of the company if he has ceased to be a member for a period of one year or upwards prior to the commencement of the whiding-up." » Creyke's Case, L. R. 5 Ch. 63 ; Bridger's Case, L. E. 4 Ch. 266. 222 CH. XII.] BY FORFEITURE OR RELEASE. § 194 stock or common fund on which the company has obtained credit. Accordingly, it has been held in England that a forfeiture of shares made under such circumstances, by collusion between the shareholder and the board of direc- tors, will not release the shareholder from liability to con- tribute in the event of a winding-up ; ' and the same prin- ciple has been recognized'* and acted on in this country. ' Richmond's Executor's Case, 4 Kay & J. 305, 325 ; Spaekman's Case, 11 Jur. (n. s.) 207 ; s. c, sub nom. Spackman v. Evans, L. K. 3 H. L. 171 ; Stan- hope's 2d Case, L. R. 1 Ch. 161, overruling (it seems) Brotherhood's Case, 4 De G. E. & J. 566. And see Stewart's Case, L. R. 1 Ch. 510; Gowers's Case, Tj. E. 6 Eq. 77 ; Walter's 2d Case, 3 De G. & Sm. 244. As to what amounts to a valid forfeiture or release of a shareholder under the English Companies Act, 1862, see, in addition to the foregoing, Snell's Case, L. R. 5 Ch. 22 ; Hall's Case, L. R. 5 Ch. 707. A clause in the deed of settlement of a joint-stock company to the effect that, in all cases not provided for by that or any supple- mental deed of settlement, the directors may act in such a manner as to promote the interests and welfare of the retiring company has been held not to enable the directors to cancel the shares of a retiring director, so as to exempt him from future responsibility as a contributory. Stanhope's Case, 3 De G. & Sm. 198. 2 "If the judge had found that this forfeiture was made by collusion and fraud between the directors of the company and the respondent, his liability would not cease." Murray, J., in Mills v. Stewart, 41 N. Y. 386. " Should they [the directors] forfeit it [shares] for the purpose of defrauding the corpo- ration or any creditors, such forfeiture would for that reason be set aside." Grover, J., in same case, 41 N. Y. 390. In Burke v. Smith, 16 Wall. 394, Mr. Justice Strong uses the following language : " It must also be conceded that, if the company has, in fraud of its creditors, released subscribers to its stock from the payment of their subscriptions, the release is inoperative to protect those subscribers against claims of creditors. Under the law of the state [Indiana] all railroad companies are required to have a subscription to their capital stock not less than $1,000 for every mile of their proposed roads before they may exercise corporate powers. This requirement is intended as a pro- tection to the public and to the creditors of the companies. And it is clear that the directors of a company organized under the law have no power to destroy it, to give away its funds, or deprive it of any means which it possesses to accomplish the purposes for which it was incorporated. The stock sub- scribed is the capital of the company, — its means for performing its duty to the commonwealth and to those who deal with it. Accordingly, it has been settled by very numerous decisions that the directors of a company are incompetent to release an original subscriber to its capital stock, or to make any arrange- ment with him by which the company, its creditors, or the state shall lose any of the benefit of his subscription. Every such arrangement is regarded, in equity, not merely as ultra vires, but as a fraud upon the other stockholders, upon the public, and upon the creditors of the company." Burke v. Smith, 223 § 194 DIVESTITURE OF LIABILITY. [PART III. The American decisions, from the leading case in New York^ to the present time, present a clear and uniform expression of opinion on this question. 16 Wall. 394. " The capital stock of a moneyed corporation," said Mr. Justice Hunt, in Upton v. Tribilcock, 91 U. S. 47, "is a fund for the payment of its debts. It is a trust fund, of which the directors are the trustees. It is a trust fund to be maniiged for the benefit of its shareholders durinsi; its life, and for the benefit of its creditors in the event of its dissolution. This duty is a sacred one, and ciuniot be disregarded. Its violation will not be undertaken by any just-minded man, and will not be permitted by the courts. The idea that the ciipital of a corporation is a foot-ball to be thrown into tlie niiirket for the purposes of speculation, that its value may be elevated or depressed to advance the interests of its managers, is a modern and wielded invention. Equally unsound is the opinion that the obligation of a subscriber to pay his subscrip- tion may be released or surrendered to him by the trustees of the company. This has been often attempted, but never successfully. The capital paid in, and promised to be paid in, is a fund which the trustees cannot squander or give awa)-. They are bound to call in what is unpaid, and carefully to husband it when received." 1 Slee I.'. Bloom, 19 Johns. 456, 476. Thus, in assumpsit brought by a corpo- ration against a stockholder to recover the amount due on his shares, it appeared that the board of directors had, by resolution, purchased for the company from this and other subsci-ibers their shares, and, on behalf of the company, assumed the payment of their subscriptions ; that the stock had been surrendered to the company, the subscriptions declared null and void, and released, and the secretary directed to cancel them. The court below charged the jury that if the company had assets sufficient to pay their debts, this can- cellation of stock was valid and released the defendant. "Prom this," said Strong, J., in giving the judgment of the Supreme Court, " we entirely dis- sent. The directors of the company then in office wore its agents, with limited powers, the extent of which the defendant was bound to know. Their duties were to conduct its affairs to the furtherance of the ends for which the company was created. They had no power to destroy it, to give away its funds, or to deprive it of any of its means to accomplish the full purpose for which it was chartered. The creditors were not the only persons who had interests and rights at stake. The stockholders who had paid their subscriptions or bought their stoclc, and the commonwealth, by whom the charter had been granted, were at least equally intere^ed. The railroad was unfinished, and the com- monwealth had a right to demand that all the resources, riglits. and credits of the company should be devoted to its completion. An unfinished road was useless to the remaining stockholders, and it was a wrong to them to render their stock valueless by extinguishing that which was necessary and which should have been applied to the object for which the Legislature gave the com- pany its being. Directors of a railroad company are trustees for all the stock- holders, and, in a very just sense, for the commonwealth. It is an abuse of their trust, wholly unauthorized, and at war witli the design of the charter, to 224 CH. XII.] By rOKFEITURE OE RELEASE. § 195 § 195. Collusive Forfeitures, continued. — Tt was deemed no argument to support the validity of a collusive forfeiture that the deed of settlemeut authorized the board of direc- tors to compromise disputed claims ; nor that the other shareholders, having access to the books, might have known it, and must be deemed, after a lapse of considerable time, to have assented to it.^ Where, however, the directors had power to compromise -disputed claims, and there was a bond fide question as to whether a particular person had ever been a shareholder, and the directors released him on paying a certain amount, this release was sustained, and the person so released was held not liable as a contributory.^ An English court has even held that where a forfeiture of shares has been validly made by the directors, before the commencement of winding-up proceedings, the liquidators cannot, under section 131 of the Companies Act, 18()2, cancel such forfeiture. Accordingly, where the directors of a company had forfeited the shares of D. for non-payment of calls, after the passing of a preliminary resolution to wind up, and before its confirmation, and the liquidators had subsequently agreed with D. to cancel the forfeiture, it was held that the forfeiture was valid, that the liquidators had no power to cancel it, and that D. could not be made a contributory.' A cancellation of shares by the directors, where the shareholder has valid grounds to claim cancella- tion, has been held good and efiectual, although the shareholder claimed such cancellation on invalid grounds.* single out some of the stock subscribers and release them from their liability. No such authority in them has ever been recognized. It certainly was not in Lauman v. The Lebanon Valley K. Co., 6 Casey [36 Pa. St.] 42, nor in any of the cases cited by the defendant in error. It is supported neither by authoriiy nor reason. The instruction given to the jury was, therefore, entirely errone- ous." Bedford R. Co. v. Bowser, 48 Pa. St. 37. 1 Stanhope's 2d Case, L. R. 1 Ch. 101. = Belhaven's Case, 11 .lur. (n. 8.) 572. 3 Dawes's Case, L. R. 6 Eq. 282. ' Wright's Case, L. R. 7 Ch. 55, distinguishing Martin's Case, 2 Hem. & M. 669. 16 225 § 196 DIVESTITURE OF LIABILITY. [PART III. § 196. Ultra vires Forfeitures. — If the charter or gov- erning statute of a corporation, or in England the deed of settlement of a joint-stock company, does not authorize the board of directors to forfeit the shares of a member for a given cause or in a given manner, then a forfeiture for such cause or in such manner, will be set aside as ultra vires, and the shareholder will be put upon the list of contributories.* On this subject the established doctrine in England is said to be that where a joint-stock company is trading under a deed, shares can only be forfeited or transferred in the mode pointed out in the deed.^ The English courts place this rule on the ground that such a forfeiture is a fraud upon the other members ; the American courts place it upon the higher ground that it is a fraud upon creditors. Thus, in a leading case in the House of Lords upon this question. Lord Cranworth, after reciting the provisions of the deed of settlement of a joint-stock company giving the directors power to forfeit shares for non-payment of calls, said : "These provisions are strong to show that the power to declare shares forfeited was intended only to give to the directors additional means of compelling payment of calls, or other money due from the shareholder to the company by virtue of the deed. The shares are, in substance, made a security to the company for the money from time to time becoming due from the shareholder. The duty of the directors, when a call is made, is to compel every share- holder to pay to the company the amount due from him in respect to that call ; and they are guilty of a breach of their duty to the company if they do not take all reasonable means for enforcing that payment. In the present case it has never been even suggested that the appellant was ' Dixon's Case, L. E. 5 Ch. 79 ; Spackman v. Evans, L. R. 3 H. L. 171 ; Stanhope's 1st Case, 3 De G. & Sm. 198. 2 Beresford's Case, 2 Mac. & G. 200, per Mr. Baron Bolfe, Ld. Comr. But this doctrine does not apply to a case where a party, holding what are inac- curately called shares, has never executed the deed, so as to be strictly a share- holder. Ibid. 226 CH. XII. J BY FORFEITURE OR RELEASE. § 196 insolvent ; that he was not perfectly able to pay the full 30s. per share, which was the amount of his call ; and it was a plain breach of trust in the directors to take, in discharge of money due from the appellant, shares over which they had power as a security only for the money due, but which shares they knew to be valueless. They were bound, as trustees for the body of shareholders, to enforce payment of the whole 30s. per share, and for that purpose to take all proper legal proceedings, unless they bond fide believed that he was not in circumstances which would enable him to pay the sum for which he was sued ; and there has never been even a suggestion that this was the case." ^ Further on. Lord Cranworth represents a shareholder, under such circumstances, as entitled to say: " I became a shareholder, relying on the names of those who were engaged with me in this partnership ; I delegated the management to certain directors, with defined powers and duties ; it was part of t^e stipulations of the deed of partnership that none of my fellow-shareholders should quit the partnership except by substituting in his place some other person approved by the directors ; this was, I thought, a sufficient security to me that, in the event of my being called on by a creditor who, having recovered judgment against the company, should proceed to enforce payment against me, I had solvent partners from whom I might obtain contribution ; and now I find that, without any authority from me, you, the directors, have taken on yourselves to enable several of my partners to withdraw from the partnership by a proceeding which I never author- ized." ' Lord St. Leonards, in the same case, dismissed from consideration altogether any claim set up on the part of the creditors or the official manager in their behalf. In his opinion, the question was to be decided between the company and the retiring shareholder. 1 Spackman v. Evans, L. K. 3 H. L. 186. 2 Ibid. 190. 227 § 197 DIVESTITUEE OF LIABILITY. [pART III. § 197. Effect of Acquiescence and !Laclies. — These views are in strict accordance with the genius of the decisions of English chancery courts, under their various winding-up acts. An unlimited English joint-stock company, as already seen,^ differs from an American corporation in respect of the fact that the former is nothing but a numerous partner- ship, each member being liable in solido for all the debts of the concern. As the persons who embark in such enterprises are generally solvent investors, the suggestion that creditors will fail of their dues is seldom met with ; but, on the other hand, the courts hold that the primary object of their various winding-up acts is to secure contribution and equality among the shareholders inter se} The other shareholders being, then, in the contemplation of the English courts, in general the only persons entitled to complain of the with- drawal of a member contrary to the terms of the deed of settlement, it follows that if, after knowledge of such a withdrawal, or circumstances which ought to charge them with knowledge, they stand by and do not complain, they should be taken as having acquiesced in it. This doctrine has been agreed upon by the English equity judges and law lords with reference to what was known as the "Chip- penham Compromise," entered into between some of the members of the Agriculturists' Cattle Assurance Company who wished to retire from the company, and others who wished to remain in it, whereby, by the payment of a certain assessment, those members who wished to do so were per- mitted by the directors to retire ; ^ but in giving effect to it in Spackman's case, it was held, affirming the decision of Lord Chancellor Westbury,* and reversing that of the Master of the Rolls, that after the lapse of even twelve years all • Ante, ? 2. » This was at least so under the act of 1848. lie Phillips, 18 Beav. 629; post, J 199. ' Spac'kman v. Evans, L. R. 8 H. L. 171 ; Evans v. Smallcombe, L. R. 8 H. L. 249 ; Houldsworth v. Evans, L. R. 3 H. L. 268 ; Dixon's Case, L. R. 5 Ch. 79. • 84 L. J. (Ch.) 321. 228 CH. XII.] BY FORFEITDRE OR RELEASE. § 198 the shareholders were not to be deemed as having had notice of it and as having acquiesced in it, and the retiring share- holder was put upon the list of contributories.^ § 198. Continued — The English Doctrine stated. — The doctrine declared by these English authoritative cases may be thus stated : 1. A forfeiture by the directors of the shares of a member, not in accordance with the terms of the deed of settlement, is ultra vires, and voidable at the instance of a dissenting member. 2. But though thus voidable, if all the members had knowledge or sufficient means of loiowledge of it, and acquiesced in it for a number of years, they will be deemed to have ratified it ; and, in the event of the future insol- vency of the company, the retiring member will not be put upon the list of contributories. 3. If, however, the forfeiture was ultra vires, and the proof does not raise a clear presumption of knowledge and acquiescence on the part of all the shareholders, in the event of subsequent insolvency, even after the lapse of several years, the retiring member will be put upon the list of contributories. 4. If the pretended forfeiture is attended with circum- stances of collusion and fraudulent concealment, no lapse of time will prevent a restoration of the retiring member to his liability as a contributory.^ ' Spackmau u. Evans, L. K 3 H. L. 249, Lords St. Leonards and EomlUy dissenting. ^ In the very elaborately discussed case of Spackman v. Evans, Lord Chan- cellor Westbury reversed the Master of the Rolls, and placed Spackman on the list of contributories, on the ground that it was a case of suppression, conceal- ment, and fraud. 34 L. J. (Oh.) 321. On appeal, the Lords unanimously agreed that the forfeiture was ultra vires, but that it was not a case of suppression, concealment, or fraud ; but they affirmed the decree of Lord Westbury, on the ground that the evidence did not show knowledge on the part of all the share- holders from which the House could infer a ratification of the act of the directors. The case in judgment cannot be better summarized than in the following head-note of the able official reporter of the House of Lords, Mr. 229 § 198 DIVESTITURE OF LIABILITY. [PAKT III. 5. If, however, the declaration of forfeiture, though not strictly regular, complies substantially with the deed of Clark: "A joint-stock company was formed; a deed of settlement was executed, which had in it various clauses as to the admission and withdrawal of shareholders, and the transfer and forfeiture of shares. On difiSculties arising in its business, a proposition was made to allow, on certain conditions, dissenting shareholders to retire on the forfeiture of their shares. This proposal, of which distinct notice had been given to all, was adopted at a public meeting of the shareholders. A shareholder who owned shares both by allotment and pur- chase, and who had executed the deed of settlement, dissented from these conditions, and sought by proceedings in chancery to have the company wound up. He was not successful in the attempt. An action was brought against him for overdue calls. He defended the action. After a time, and while the litigation with him was still going on, the directors entered into an agreement with him to allow him to retire, upon conditions which were not those named in the deed of settlement, nor in the proposal agreed to at the public meeting. No notice of these conditions thus entered into with this shareholder was shown to have been communicated to the other shareholders, but the fact of this shareholder's retirement was known to them, and there was no imputation of any fraudulent concealment. The name of the shareholder (who had performed all the conditions on which leave to retire was granted to him) was removed from the list of shareholders at the end of 1849. Changes were afterwards made in the mode of carrying on the company's business, and dividends were received; but he was not informed of the changes, he never received a dividend, and he never waa called on to take, and never did take, any part in the affairs of the company. In 1861 the company was ordered to be wound up. Held (dissenting, Lord St. Leonards and Lord Eomilly), that his name was rightly placed on the list of contributories." In Evans v, Smallcombe, L. K. 3 H. L. 249 (aflBrming Lord Komilly, Master of the Rolls, in L. R. 3 Eq. 769), the reporter summarizes the judgment of the Lords, as follows: "An arrangement [sic the previous case] allowing membei-s of a company to retire from the company, under certain conditions therein agreed to by a public meeting of the shareholders, convened after due notice to all the shareholders, is not in itself valid, unless made in accordance with the provisions of the deed of settlement ; and if not assented to, directly or indirectly, after due notice, by all the shareholders, may be impeached by any one of them. But if the means of notice to all appear suflSoient, so as to raise a clear presumption of knowledge and acquiescence, and the arrangement is left unimpeached bj- any one for a great many years, the shareholder who has been allowed to retire, and whose name has been removed from the lists of the company, will be held to be relieved from his liability as a shareholder. (Dissenting, Lord Chelmsford.) The arrangement was, in this case, adopted and acted on, with this single exception, that the retiring shareholder did not at once pay the sum for which he was liable, but was allowed to give a bill for the amount, which bill was paid at maturity. The directors then passed a resolution declaring his shares cancelled, and his name was removed from the lists. Held (dissenting, Lord Chelmsford), 230 CH. XH.J BY rOKFEITURE OK RELEASE. § 199 settlement, the retiring member will not be put upon the list of contributories.^ § 199. Distinction between tlie American and English Cases. — The English courts, in their earlier cases, applied to persons whom creditors sought to charge as shareholders of such companies the familiar rule which obtains in other cases of partnership, namely, that a person who holds himself out to the public as a partner in a company, or who knowingly suffers himself to be so held out by others, is chargeable as a partner, in favor of any person who has given credit on the faith of his being such.^ There were then two classes of shareholders: 1. Shareholders by contract, who were entitled to claim as against their co- shareholders the benefits accruing to them as such. 2. Shareholders by conduct or estoppel, who, while not entitled that his name could not, after the lapse of years, be put upon the list of contributories." The reporter thus states the judgment of the Lords in Houldsworth v. Evans, L. R. 3 H. L. 263 : " Where a general meeting of the shareholders of a company had agreed to certain conditions on which dissenting members were to be allowed to retire from the company, one of which fixed the date at which assent to the arrangement was to be declared; held, that that date was an essential part of the proceeding, and that the directors had no power, after the expiration of that date, to receive proposals and enter into arrangements with any member who desired to retire, but had not expressed his wish to do so within the stipulated time. But {per Lord Cranworth) where shareholders know that their directors have been exceeding their legal powers, and take no steps in the matter, but allow the things done to remain unim- peached for years, they must be taken to have retrospectively sanctioned what has been done." ' Woollaston's Case, 4 De G. & J. 437. As to what facts amount to an effectual forfeiture of shares, see Kelk's Case, L. E. 9 Bq. 107 ; Biggs' Case, L. E. 1 Eq. 309 ; Moore v. Eawlins, 8 C. B. (n. s.) 310. Where the articles of asso- ciation made a shareholder liable, notwithstanding a forfeiture of his shares, to pay to the company all calls owing on such shares at the time of such for- feiture, this did not make him liable to pay interest on a call for which his shares had been forfeited. Stocken's Case, L. E. 3 Ch. 412. ' Pitchford v. Davis, 5 Mee. & W. 2 ; Pox v. Clifton, 6 Bing. 776 ; s. c, 9 Bing. 115; Dickinson ii. Valpy, 10 Barn. & Cress. HI, per Parke, J.; s. c, 5 Man. & R. 12S ; Bourne v. Freeth, 9 Barn. & Cress. 632 ; s. v., 4 Man. & B. 572 ; Vice v. Lady Anson, 7 Barn. & Cress. 409. 231 § 199 DIVESTITURE OF LIABILITY. [PART III. to claim the rights of shareholders as against the members of a company, were chargeable with the liabilities attaching to such a situation, in favor of its creditors. Little trace of this principle is found in the numerous cases which have arisen under the various acts for the regulation of joint- stock companies which have been in force in that country since 1844. The American courts, however, still proceed upon the theory that a person may become chargeable as a stockholder by conduct which has operated to deceive cred- itors, though not entitled to claim the rights of a stock- holder as against the corporation or its members.^ The English cases given in the preceding sections arose under the statutes named, and the American practitioner will be deceived by them unless he bears clearly in mind the dis- tinctive theories on which the English and American cases now proceed. There, although in some instances the doc- trine is still recognized that a person may become a share- holder by conduct, though not such by contract with the company, that he will be estopped to deny that relation when to do so will prejudice creditors,^ yet there is no contract between the creditors of the company and the shareholders ; the contract of the creditor is with the com- pany only ; he can, in general, only claim to be paid out of the assets of the company, including what the company have a right to bring into the assets.^ But in this country the broader and juster rule is more frequently applied, that although the subscription by the stockholder makes him a contractor with the corporation, upon the terms prescribed 1 Ante, I 160 et seq. ' Lord St. Leonards, in Spackman v. Evans, L. R. 8 H. L. 197 ; Lord Denman, C. J., in Cheltenham, etc., R. Co. v. Daniel, 2 Q. B. 281 ; Taylor r. Hughes, 2 Jones & Lat. (Irish Ch.) 24; Bargate v. Shortridge, 5 H. L. Cas. 297; Hender- son V. Koyal British Bank, 7 El. & Bl. 356 ; Oakes v. Turquand, L. R. 2 H. L. 32.5. See ante, § 197. ' Smith's Case, L. R. 2 Ch. 604 ; Directors u. Kisch, L. R. 2 H. L. 99 ; Water- house V. Jamieson, L. R. 2 H. L. Sc. 29 ; Carling's Case, 1 Ch. Div. 115. 232 CH. XII.] BY FORFEITURE OR RELEASE. § 201 by the act creating it, yet this contract cannot he discharsred or modified by consent of the contracting parties where the rights of others will be prejudiced thereby} § 200. ninstrations. — Tlius, a resolution or by-law allowing shareholders, on paying thirty per cent of what was due on their subscriptions, to retire from the company has been held void as to creditors.^ And where the only creditor was a trustee of the corporation, and protested against such a resolution, though he accepted the money raised under it, and was present at a subsequent meeting when the application of the money was directed, to which he assented, this was held not a ratification by him of the by-law or resolution. But in this same case a by-law or resolution that any stockholder paying fifty per cent on his shares should be discharged from all future calls on his subscription, other than proceeding by way of forfeiture, the sole creditor, himself a trustee, being present at the passage of the same, and consenting thereto, has been held valid ; and those who complied with its terms before the dissolution of the corporation were held to be discharged from all responsibility to such creditor.^ So, an arrange- ment made by the president of a corporation with a share- holder, to the efl^ect that the latter should pay one-half of what was due on his subscription and be released as to the whole, was void as to creditors, and, the company becom- ing insolvent, its receiver maintained a bill for the unpaid balance.* § 201, Arrangements between Corporation and Stock- holder, releasing Stockholder, void as to Creditors. — ' Recognized in Allen v. Montgomery R. Co., 11 Ala. 450, and in Mills v. Stewart, 41 N. Y. 384. And see the following sections, where the American cases illustrating this doctrine are fuUv considered. 2 Slee D. Bloom, 19 Johns. 456. » Slee V. Bloom, 19 Johns. 4.56. * Mann v. Cooke, 20 Conn. 178. 233 § 201 DIVESTITURE OP LIABILITY. [PAKT III. Following out these views, the American courts have steadily annulled all arrangements between corporations and their stockholders whereby the latter were sought to be released from their liability to creditors. Thus, it has been held that a resolution by the directors of a corpora- tion that no further calls should be made on account of stock subscribed was void, and a receiver of the corpora- tion could proceed in equity to compel payment of what was due on account of such subscriptions to the capital stock. ^ So, a resolution passed by the directors of an insur- ance company releasing the stockholders from the payment of balances remaining unpaid on their stock, in accordance with which the certificates of shares were stamped "non- assessable," was held void as against policy-holders who had insured in the company without knowledge of the ex- istence of such an agreement.^ This being so, the mere fact that the word ' ' unassessable ' ' is printed on the certifi- cates of shares given to a member does not impair his obli- gation to pay the amount due on such shares, created by the acceptance and the holding of such certificate. At most, its legal effect is said to be a stipulation against liability from further assessment or taxation after the entire one hundred per centum of the subscription shall have been paid.^ Nor, under the Missouri statute of individual liabil- ity, will the delivery by a corporation to its shareholders of certificates of paid-up stock, when in fact only part of the par value has been paid, prevent a creditor of the corpora- tion, who can show this fact, from having execution against the shareholder.* So, in an English case, a resolution rescinding a contract of subscription after other subscribers have put their names on the books on the faith of it is void as to them ; and, whatever may have been the 1 Siijjory 1). Dubois, 3 Sandf. Ch. 466. ' Upton V. Hansbrough, 3 Biss. 417, 427. » Upton V. Tribilcock, 91 U. S. 45. * Pickering v. Templeton, 2 Mo. App. 424. 234 CH. XII.] BY FOEFEITURE OE RELEASE. § 202 reason which moved the subscriber to execute it, he remains a contributory.^ § 202. But bona fide Compromises with Shareholders are valid. — This doctrine does not extend so far as to annul a bond fide compromise of a question fairly in dispute, made between a corporation and one whom it claims to hold liable as a stockholder,^ nor a compromise which becomes necessary to save the company from hopeless embarrass- ment.' And one respectable American court has gone so far as to hold, in a case not directly involving the rights of creditors, that it is competent for a corporation, if acting in good faith, to release a shareholder from the obligation of his subscription ; and that, if the shareholder is after- wards sued on his contract of subscription, he can plead such release without showing specially the consent of other shareholders, or of creditors. This case proceeds upon two ideas : first, that as to the stockholders, they are, as members of the company, concluded by its acts ; second, that it will be time enough to look out for the rights of the creditors when the court is judicially advised by the plead- ings that their rights are in danger.* 1 Holt's Case, 1 Sim. (n. s.) 389. In this case the managing director of a company had certain shares awarded to him by the provisional directors, in consideration of his services, and as he was the covenantee in the deed of settlement, and consequently unable to covenant with himself, his brother, at his request, executed the deed as the holder of the shares. Several other per- sons took stock after this circumstance, and executed the deed of settlement as required. Afterwards the directors rescinded the resolution by which they had awarded the shares, and the managing director delivered up the certificates for the shares to them. The vice-chancellor held that the brother had neither transferred nor forfeited the shares, as the holder of which he had executed the deed; and since by executing it he impliedly entered into obligations with all the other persons who did so to bear the common liability of the under- taking, he should be held to it upon a winding-up of the company. 2 Lord Belhaven's Case, 3 De G. J. & S. 41. " New Albany v. Burke, 11 Wall. 96. * Gelpcke v. Blake, 19 Iowa, 263, 267. 235 § 203 DIVESTITURE OF LIABILITY. [PART III. § 203. Forfeitures — Illustrations of the foregoing Doc- trines. — 1. In a case arising under a clause in articles of association which provided that " the directors may, if they think fit, accept the surrender or forfeiture of his shares by any shareholder desirous of surrendering or forfeiting them, on such terms as the directors may think fit," a subscriber of the memorandum of association of the company, who was also a director, applied for the number of shares for which he had subscribed, and paid the deposit on them. Before any shares had been allotted to him, or his name had been entered on the share-register, he withdrew from the office of director and applied to have his application for shares cancelled. The directors cancelled the appli- cation and returned the deposit. It was held (reversing the decision of the Master of the Eolls) that it was not material that this subscriber had not been entered as a member on the register of members, which, in strictness, ought to have been done, and that for all purposes of the act he was a shareholder, and ought not to be made a contributory.* 2. But where the articles of association contained a provi- sion similar in all respects to that just recited, and, further, a clause prohibiting the board of directors from purchas- ing or dealing in any shares of the company, it was held to be an act ultra vires of the directors and the company to release one of the board from all liability with respect to 250 shares, which had not been allotted to him, of 500 shares subscribed for by him in the memorandum of asso- ciation. A deed of release and indemnity in respect of such shares was not an acceptance of a surrender and for- feiture under the articles of association, but was a dealing in shares by the company.^ 3. However, a similar transaction was held to be not ultra 1 Snell'3 Case, L. E. 5 Ch. 22. » Hall's Case, L. R. 5 Ch. 707. 236 CH. XII. j BY FOEFEITUEE OR RELEASE. § 203 vires of the board of directors when by the articles of association they were empowered "to enter into, alter, rescind, or abandon contracts in such manner as they should think fit," and, moreover, the company, by another provi- sion, was permitted to decrease its capital by reduction or cancellation of unissued or forfeited shares. A person had agreed to take 1,000 shares, at the rate of fifty shares per month, on the faith of his position as secretary of the com- pany. He continued so to take shares until he had taken 850 in number, when he resigned his position as secretaiy, for which he received a salary of £105 per annum, in con- sideration of being relieved from fui-ther payments of the remaining 150 shares which he had agreed to take, and a resolution of the board of directors was passed in accord- ance therewith. The Master of the Rolls was of the opinion that under the article set forth tbe board of directors had power to relieve the subscriber in respect of his contract for shares, and that they had done so.^ 4. But where the articles of association vested no power in the board of directors to accept a surrender of shares, the following circumstances were held not to constitute one of the excepted cases to the ordinary rule that if persons sign a memorandum of association, and nothing has been done to relieve them of the responsibility they are under in consequence of so doing, they must be placed upon the list of contributories. Upon the formation of a company, nine persons signed the memorandum of association. At a preliminary meeting a resolution was passed that no shares be allotted to three of the subscribers to the articles, and, with their consent, the deposit-money was repaid to them. None of their names were entered on the register of mem- bers, nor were they afterwards in any way connected with the company. In opposition to the application to have these subscribers placed upon the list of contributories, the 1 Thomas's Case, L. E. 13 Eq. 437. 237 § 203 DIVESTITURE OF LIABILITY. [PAET III. counsel relied upon Snell's case ;' but Malins, V.-C, pointed out that in Snell's case the subscriber to the memorandum was removed fronti the list of contributories, not for the rea- son that he had not been a shareholder (because it was said expressly that he was), but that he had ceased to be so upon the strict exercise of the power vested in the directors to ac- cept the surrender of the shares. The subscribers in ques- tion were therefore placed upon the list of contributories.* 5. The circumstances of Levick's case' furnish an illus- tration of one of the strictest applications of the liability growing out of a simple subscription to a memorandum of association. Levick signed the memorandum of association of a company for fifty shares, in January, 1866. The com- pany was registered on January 18, 1866. Directors were appointed on February 24, 1866. The company was wound up on September 23, 1867. No shares were ever allotted to Mr. Levick in respect of his subscription. He made no application for shares, except as above mentioned, and never acted as a director of the company. The vice-chan- cellor, under this statement of facts, indicated that, during the period from the registration of the company to the appointment of the directors, the effect of the signing of the memorandum was to make the subscriber a director until another board of directors was appointed, and that it was the duty of Mr. Levick, as such director, or of the sub- sequently appointed board, to place his name upon the list of shareholders. Neither the counsel nor the court, in this case, were aware of any case in which a person who had signed a memorandum of association for any number of shares did not become absolutely bound to take those shares, no delay operating as a bar to putting the name on the register of shareholders. The twenty months' delay, there- 1 L. R. 5 Ch. 22. 2 Re London & Provincial Consolidated Goal Co., 5 Ch. Div. 525. ' 40 L. J. (Ch.) 180. 238 CH. XII.] BY FORFEITURE OR RELEASE. § 203 fore, from the formation of this company to the winding-up, could not relieve the subscriber from liability. The decision was placed upon grounds of policy as well as of principle, viz. : that persons should know that they cannot subscribe a memorandum of association to form a company, and become members of it, without incurring the responsibility of shareholders. The principles enunciated in Levick's case had a striking application in Sidney's case,^ on account of the greater lapse of time from the formation of the company to the winding-up, and the distinct and positive withdrawal of the subscriber from the company. The cir- cumstances were that, in 1865, Sidney agreed to become a director of a company, and signed the memorandum for 200 shares. The articles of association empowered the direc- tors to decline to commence business unless two-thirds of the capital were subscribed. Sidney having unsuccessfully opposed a resolution to commence business, notwithstanding two-thirds of the capital had not been subscribed, on Janu- ary 3, 1866, his resignation as director was accepted, and his name was never placed upon the list of shareholders. In February, 1870, the company was ordered to be wound up ; and, there being a large number of unallotted shares, Sidney was placed on the list of contributories for the 200 shares as originally subscribed for by him. This action was sustained by the court on the principle of Levick's case ; the court saying that there was no way of getting rid of the liability incurred by signing the memorandum of association except by taking the shares and then making a valid transfer.^ 6. A shareholder in a completely registered company being in prison, two of the directors, being desirous to procure his discharge, entered into an agreement with one of his creditors, by which he agreed to accept 1,500 shares in part payment of his debt, and to consent to the debtor's discharge. The two directors stated that thoy were author- 1 h. R. 13 Eq. 228. » Levick's Case, 40 L. J. (Ch.) 180. 239 § 203 DIVESTITURE OF LIABILITT. [PAET III, izecl by the shareholder and the company to transfer the shares, and declared the shares to be transferable by delivery, agreeing that, if it should appear that the shares could not be legally vested in the creditor without his executing the deed of settlement, they would pay him £1,500. They handed over to him scrip certificates for 1,500 shares, which described the company as only provi- sionally registered, and purported to be transferable by delivery. The directors placed this transferee on the reg- ister of shareholders without his knowledge, and also entered the transfer, but it did not appear that any deed of transfer had ever been executed, and the transferee never executed the deed of settlement or any deed of accession to it. An order was afterwards made for winding up the company. On these facts it was held that the creditor had agreed to take only such shares as should be transferable by delivery, on which he could receive dividends without any consequent liability. The shares in question were not such shares. This transferee had received no dividends on these shares, nor did it appear that he had caused damage or prejudice to the company or any person by claiming or representing himself to be a stockholder therein. The order of the Master of the Rolls making him a contributory was therefore discharged.' 7. A city subscribed $200,000 to the stock of a railroad company, and issued bonds for a part of the subscription, the remaining bonds to be issued upon the comijletion of the road to a certain point. The bonds thus issued were pledged by the company to creditors, to secure an indebted- ness of less than one-half their nominal value. The validity of the issue of these bonds was denied by tax-payers, who filed bills to enjoin the levy of a tax to pay the interest thereon. The bonds being thus depreciated in market value, it became evident that if they were sold, as threat- ened by the creditors, they would not satisfy the debts for I Bunn's Case. 2 De G. F. & J. 275. 240 CH. XII.] BY FORFEITURE OR RELEASE. § 204 which they were pledged. The company became embar- rassed, and, as they could never comply with the conditions necessary to a further issue of bonds by the city, the city entered into negotiations with the company for the pur- cliasc of the bonds which it had issued. These bonds, to the amount of $193,000, were purchased by the city from the company, the consideration being the payment of sundry indebtedness, and $3G,000 to creditors who held a portion of the bonds as collateral security. This purchase was made September 8, 1857, and on January 29, 1868, the transaction was assailed as ultra vires on the part of the city authorities, by judgment creditors of the corpora- tion, who filed their bill to set aside the arrangement. The Supreme Court of the United States decided that this arrangement was not a modification of the subscription previously made, or a bonus given for a release, but rather a purchase of the city debt, not beyond the power of the contracting paities, and not fraudulent as to creditors of the corporation, since the evidence was uncontradicted that it was deemed, at tire time, an advantageous sale or arrangement for the company ; and, moreover, it was not made in secret, but, on the contrary, the ordinance of tlie city was published at the time. Besides, the laches of the complainants were fatal to their bill.^ § 204. Discharge by new Contract. — A person agreed to take shares in a company incorporated under an act of Parliament providing that the company should not issue any share, nor should any share vest in the person accepting the same, unless at least one-fifth of the amount of the share had been paid. Under the agreement twenty-five shares of £20 each were issued to the applicant, and he gave his check to the secretary of the Cf)mpany for £100 ; but this check was never presented to the bankers, nor was any payment ever made by the shareholder in respect of the 1 New Albany v. Burke, 11 Wall. 96. 241 § 205 DIVESTITURE OF LIABILITT, [pAET III. shares. After holding these shares for over a year, he transferred them, which transfer was duly registered, and the name of the transferor removed from the register of shareholders. The company was subsequently ordered to be wound up, and the name of the transferor was placed upon the list of contributories. On an application to rectify the list, the lord chancellor (Selborne) stated that if the first holder of these shares paid £100 upon them the transfer was valid. If this payment was not made, the transfer was invalid, for the shares did not vest. Could he, then, be made a contributory by reason of his agreement to take shares? This agreement rested wholly in fieri, and was capable of being discharged by a fresh agreement. The transfer, having been accepted by the company, was such an agi-eement, operating as a new contract between the transferor, the transferee, and the company. The original holder of the shares was therefore discharged from liability as a con- tributory.^ § 205. Corporation purchasing its own Shares. — Upon like grounds, it has been held that an arrangement by which a stockliolder surrenders his shares to the corporation does not exonerate him from a statutory liability to creditors. The fact that the governing statute provides that the stock- holder may exonerate himself from liability on account of existing debts by a bond fide transfer of the stock on the books to a resident of the state, of full age, does not enable the stockholder to exonerate himself by transferring the stock to the corporation itself. The purchaser of the stock must be one who succeeds to a liability, distinct from and in addition to that of the corporation.^ 1 Morton's Case, L. R. 16 Eq. 104. 2 Matter of Reciprocity Bank, '22 N. T. 18. To the same effect are "Wal- ter's 2d Case, 3 De G. & Sm. 244 : Johnson v. Laflin, 6 Cent. L. J. 124 ; s. c, 17 Alb. L. J. 146 ; Thompson's National Bank Cases, 331 ; Currier v. Lebanon Slate Co., 56 N. H. 262. See Zulueta's Claim, L. R. 6 Ch. 444, reversing s. c, L. R. 9 Eq. 270. In Alford v. Miller, 32 Conn. 543, it appeared that the directors 242 CH. XII. J BT FORFEITURE OR RELEASE. § 206 § 206 . Fraudulent Withdrawal of Premium Notes given to Mutual Insurance Company. — The premium notes given by members of mutual insurance companies under the New York statute of 1849, ch. 308, are deemed to con- stitute a fund for the security of creditors, in lieu of capital stock ; they are payable absolutely, and may be collected without anj' allegation of losses, and without an assess- meiit ; ' hence an agreement made by the president of such a company, on receiving such a note, that it should be given up at maturity,^ or that another note of less value should be substituted for it,' has been held void. If such a note passes to a receiver of the company, he may sue and recover on it ; * if it has been given up to the maker, in pur- suance of such an agreement, the receiver may maintain trover for it against the maker," who may sue and recover its amount.' In such a case, where it appeared that the of a savings and building association, who had borrowed all the money of the association and severally given their notes for the amounts loaned, and for a bonus in each case, in addition, agreed with a stocliholder, whose stock they wished to buy in and extinguish, to give one of the notes in exchange for the stock. After the agreement, but before the note was delivered, the directors voted that the amount of the bonus in each case should be cancelled and en- dorsed on the note. No endorsement was, however, made upon the note de- livered to the stockholder, who conveyed the stock with no knowledge of the arrangement. The court held that the agreement among the directors was a fraud upon the association, and of no effect ; that if it were not so, the director whose note was delivered to the stockholder must be regarded as either waiving his claim to the release of the bonus or as committing a fraud upon the stock- holder, and that, in either view, he had no equitable claim to a deduction of the amount of the bonus from the note. ' Purniss v. Gilchrist, 1 Sandf. S. C. 58 ; Brouwer v. Hill, 1 Sandf. S. C. 629 Brouwer v. Appleby, 1 Sandf. S. 0. 158 ; Hone v. Allen, 1 Sandf. S. 0. 171 Hone V. Folger, 1 Sandf. S. C. 177 ; Caryl v. McElrath, 3 Sandf. S. C. 176 Deraismes v. Merchants' Mutual Ins. Co., 1 N. Y. 371 ; Howland v. Myer, 3 N. Y. 290 ; Brown v. Cooke, 4 N. Y. 51 ; Emmet v. Keed, 8 N. Y. 312 ; White V. Haight, 16 N. Y. 310. ' Brouwer v. Appleby, 1 Sandf. S. C. 158 ; Hone v. Allen, 1 Sandf. S. C. 171 ; Brouwer v. Hill, 1 Sandf. S. C. 629. » Tuckerman v. Brown, 38 N. Y. 297. * Brouwer v. Appleby, 1 Sandf. S. C. 158. » Brouwer v. Hill, 1 Sandf. S. C. 629. 6 Tuckerman v. Brown, 33 N. Y. 297. 243 § 207 DIVESTITURE OF LIABILITT. [PAET HI. principal object of giving the note was to take out a large policy, on which to vote for trustees at an approaching election ; that it was given with an intent and expectation by the maker that it would appear in the company's annual statement as one of the assets, and figure as one of the securities held for the protection of dealers, and it did so appear with the maker's knowledge ; and the jury found that it was not an open policy note given in reference to business ; — it was held that the maker was liable on it to the company, as a note held for the security of its deal- ers, and that it must be regarded in law either as a note lent by the maker to the company for that purpose, or as a note given under the charter provision in that behalf.^ So, where a joint-stock insurance company desired to reorganize on the mutual plan, and it was necessary, under the statute, to exhibit to the comptroller notes given in advance of pre- miums to the extent of $100,000, and a note was given for the purpose of enabling the company to exhibit this amount of assets to the comptroller, and so pass the necessary examination, with the secret understanding that it should be returned to the owner and a note of lesser amount sub- stituted for it, which was afterwards done, — this transaction was held to be a fraud upon the law ; the makers of the fictitious note continued liable thereon, although it had been delivered up and destroyed.^ § 207. Stock paid up and Money loaned back to Stock- holder. — The capital stock of a corporation being a trust fund for the security of creditors,' this trust cannot be defeated by a simulated payment of the stock subscription, nor by anj' thing short of an actual payment in good faith.* An arrangement by which the stock is nominally paid and the money immediately taken back as a loan to the stockholder » Brouwer v. Hill, 1 Sandf. S. C, 629. « Tuckermnn v. Brown, 33 N. T. 297. ' Ante, I 10. * Upton V. Tribilcock, 91 U. S. 46. 244 CH. XII.] BY FORFEITURE OR RELEASE. § 207 is a device to change the debt from a debt impressed with the character of a trust to an ordinary loan, and is not a valid payment as against creditors of the corporation, though it may be good as between the company and the stockholder.^ > Sawyer v. Hoag, 17 Wall. 610 ; a. e., 1 Cent. L. J. 43. In this case an insurance company was organized under a charter which authorized it to commence business on a capital stock of $100,000, with $10,000 paid in, and the remainder secured by notes, or mortgages of real estate, or otherwise. Sawyer subscribed for fifty shares, of the par value of $100 each, and gave his check for the full amount, namely, $5,000. He took the check of the company for $4,2 )0, being the amount of his subscription less the fifteen per cent required of each stockholder to be paid in cash, and he gave his note for the amount of the latter check, with good collateral security for its payment, with interest at seven per cent per annum. Sawyer and the company, by Its oflScers, agreed to call this latter transaction a loan, and the checlc of Sawyer payment in full of his stock. On the books of the company, and in all other respects as between themselves, it was treated as payment of the subscription and a loan of money. Mr. Justice Miller, delivering the opinion of the court, held that this could not be done, saying: "It is the intent and purpose of the transaction which forbids it to be treated as a valid payment. It is the change of the character of the debt from one of a stock subscription unpaid to that of a loan of money. The debt ceases by this operation, if effectual, to be the trust fund to which creditors can look, and becomes ordinary assets, with which tha directors may deal as they choose." Sawyer i>. Hoag, 17 Wall. 610. 245 § 210 DIVESTITURE OF LIABILITY. [PAET lU. CHAPTER XIII. BY TEANSFER. /. Of Transfers in General; and herein of fraudulent, ultra vires, and unregistered Transfers. SECTioir 210. Eight to transfer Shares. 211. Fraudulent Transfer of Shares. 212. Illustrations of the English Doctrine. 213. Cases in which the Transfer was held good because out and out 214. Cases in which the Transfer was held void because a Sham. 215. The American Doctrine. 216. Ultra vires Transfers. 217. Unregistered Transfers. 218. Purchaser taking Assignment in blank. 219. In case of a public Registration of Shareholders. 220. Prohibited Transfers. 221. Transfers imperfectly executed. 222. Statutory Provisions respecting Notice of Transfer. 223. Transferees holding Stock as collateral Security. 224. Effect of Company pledging its unissued Shares. II. Of Transfers to Persons incapable of taking. Sectioh- 227. Divisions of the Subject. 228. Infant Transferees. 229. What if Company wound up during Minority. 230. Effect of Transfer through an Infant to an Adult. 231. Ratification after Majority. 232. Continued. 233. Married Woman. 234. Transfers of Shares to the Company itself void. 235. Illustrations. 236. Continued. 237. Exceptions to this Rule. 238. Cases depending on special Circumstances. 239. Want of Knowledge on part of Transferor. 240. Continued. I. Of Transfers in General; and herein of fraudulent, ultra vires, and unregistered Transfers. § 210. Right to transfer Shares The leading diflFerence between a corporation or joint-stock company and a simple 246 CH. XIII. J BY TRANSFER. § 210 partnership discovers itself in the fact that the members of the former may freely transfer their shares to strangers, introducing the latter in their stead ; ^ whereas, if a member of a simple partnership sells out his interest, this amounts to a dissolution of the firm.'' It has been doubted, where the charter was silent as to the time and manner in which stock might be transferred, whether a member could, by transferring his stock, discharge himself of liability to the company or to creditors.' But the general rule is that shares of stock are personal property, and may be trans- ferred like any other property, unless the transfer is restrained by the charter or articles of association, and that a bond fide transfer terminates the liability of the transferor either to the company or to creditors.* The transferee succeeds, not only to the rights, but also to the liabilities of the transferor ; he is bound to pay the unpaid purchase- money of the stock as it shall be called for by the directors," and, in the event of the insolvency of the coqaoration, he is liable to contribute to the payment of its debts, in like manner as if he were an original subscriber.* This con- ' Ante, I 1 ; Allen v. Montgomery R. Co., 11 Ala. 451 ; Overseers v. Sears, 22 Pick. 131 ; Cole v. Ryan. 52 Barb. 168 ; Brightwell v. Mallory, 10 Yerg. 196 ; Wes- ton's Case, L. R. 4 Ch. 20; Johnson v. Laflin, 6 Cent. L. J. 124; Gilbert's Case, L. R. 5 Ch. 559. See Bank of Attica v. Manufacturers,' etc.. Bank, 20 N. Y. 501. ' Middletown Bank v. Magill, 5 Conn. 28, 68. ' Allen V. Montgomery R. Co. 11 Ala. 451. * Chouteau Spring Co. v. Harris, 20 Mo. 382 ; Middletown Bank v. Magill, 5 Conn. 28, 68; Cole v. Ryan, 52 Barb. 168; Cowles v. Cromwell, 25 Barb. 413; Miller v. Great Republic Ins. Co., 50 Mo. 55 ; McClaren v. Franciscus, 43 Mo. 452; Johnson v. Underbill, 52 N. Y. 203; Grissell v. Bristowe, L. R. 8 C. P. 112 ; Huddersfield Canal Co. v. Buckley, 7 Term Rep. 36 ; Croxton's Case, 1 De G. M. & G. 600 ; Johnson v. Laflin, 6 Cent. L. J. 124 ; Sutton's Case, 3 De G. & Sm. 262; Mayhew's Case, 5 De G. M. & G. 837. Contra, Moss o. Oakley, 2 Hill, 265 ; Bond v. Appleton, 8 Mass. 472 ; Williams v. Hanna, 40 Ind. 535. See Ch. VI. 6 Ang. & Ames on Corp., § 534 ; Redf. on Rys., ? 53 ; Hartford, etc., Co. v. Boorman, 12 Conn. 530; Huddersfleld Canal Co. v. Bucldey, 7 Term Rep. 36; Bend v. Susquehanna Bridge Co., 6 Har. & J. 123 ; Hall v. United States Ins. Co., 5 Gill, 484. « Webster v. Upton, 91 U. S. 65 ; De Pass's Case, 4 De G. & J. 544 ; Cape's Executor's Case, 2 De G. M. & G. 562 ; Mann v. Currie, 2 Barb. 294. 247 § 210 DIVESTITURE OF LIABILITY. [PART III. elusion rests upon plain grounds. As already seen,* the law implies a promise by the original holder or subscriber to pay the full par value of his shares when it may be called for. His assignee, by having the stock transferred to him on the company's books, comes into privity with the com- panj'^, and assumes the same liability.* If, however, the constitution of the company provides that transferors shall continue liable for obligations of the company accruing prior to their transfer, they continue liable accordingly, until the statute of limitations has run in their favor." The power to regulate transfers of stock, conferred by the by-laws of a corporation upon its directors, does not empower the directors to restrain such transfers, even to an insolvent. "Stock," said Leonard, J., "in incorijorated joint-stock companies like the present, is always treated as property, without any declaration in the charter to that efiect ; and when such a provision is inserted, it is considered merely as cumulative, except so far as it designates the peculiar character of the property, whether real or personal. One of the incidents of property is its transferability ; our idea of property, dominion over a thing, including in it the power of disposing of it at pleasure ; and, of course, the power of disposing of this stock, like the power of disposing of any other property, is incident of common right to the owner- ship of it ; and the words of the charter, ' transferable on the books of the company,' are treated as merely cumulative, pointing out one mode of transfer, but not excluding other modes, where no exclusive words are used. The Legislature may grant corporate power to restrain this transferability, but unless it is exjDressly given, it does not exist ; and, in favor of the power of disposing, the courts generally con- strue clauses affecting this right with a view to the particular purpose for which they are inserted, and give them effect to > Ante, ? 105. ' Webster v. Upton, 91 TT. S. 69, per Mr. Justice Strong. « Helby's Case, L. E. 2 Eq. 167. 248 CH. XIII.] Br TRANSFER. § 211 that extent only."^ The right of alienation is an incident of property, and hence a by-law of a banlc prohibiting the alienation of its stock, or putting restrictions thereon, has been held void, as being in restraint of trade.' This is in accordance with the doctrine laid down by the English Court of Appeal in Chancery, reversing Lord Eorailly, M. E. It was there held that the directors of a company have no discretionary power, independently of powers expressely given tliem by the articles of association, to refuse to register a transfer which has been bond fide made. Therefore, where a transferee gave an address at which he was only an occa- sional visitor, it was held that the directors were bound to register the transfer, although the company was at the time in difficulties, and the shares were sold by the transferor in order to get rid of his liabilities.^ But where the constitu- tion of the company requires the approval of the board of directors in order to tlie validity of a transfer, a court will not deprive them of the right to act upon the matter in the first instance, nor substitute its discretion for theirs.* And where the deed of settlement of a banking company declared that no person should be entitled to become a transferee of shares unless he was approved of by the court of directors, it was held that the directors must not exer- cise the power to restrain transfers uiireasonably, and that they would be controlled in this respect by a court of equity.* § 211. Fraudulent Transfer of Shares. — The general = right of a shareholder to transfer his sliares is subject to'^ this limitation : that a fraudulent transfer, made with a view to avoid his liability to the company or to creditors, is ' Chouteau Spring Co. v. Harris, 20 Mo. 382. Citing Bank of Utica v. "Wager, 2 Cow. 712 ; Quiner v. Marblehead Social Ins. Co., 10 Mass. 476. » Moore v. Banlc of Commerce, 52 Mo. 877. » Weston's Case, L. E. 4 Ch. 20. * Wallier's Case, L. R. 2 Eq. 554. » Eobinson v. Chartered Banlj, L. E. 1 Eq. 32. 24=9 § 211 DIVESTITURE OF LIABILITY, [PAKT III. void, and leaves him still liable.^ It will be necessary, how- ever, to qualify a proposition thus stated in a very general way. After much consideration of this subject, the English courts have settled upon the rule that a man may transfer his shares to a man of straw, at a time when the company is in a failing condition, for the sole purpose of escaping liability, and for a nominal consideration merely, or as a mere gift ; aud, if the transfer is out and out, — is not merely colorable, a sham, tlie transferee remaining a trustee for the trans- feror, — the device will be successful; the transferor will escape liability as a contributory, and honest shareholders and creditors will suffer accordingly.^ But if the transac- tion is merely colorable, if in fact the transferee is a mere nominee of the transferor, so that, as between themselves, there has been no real transfer, but in the event of the company becoming ^jrosperous the transferor would par- ticipate in the profits, the transfer will be held for nought, and the transferor will be put upon the list of contribu- tories.^ If, in addition to this, the constitution of the com- • Marcy v. Clftvk, 17 Mass. 330 ; McClaven v. Franciscus, 43 Mo. 452 ; Miller u. Great Republic Ins. Co., 50 !\Io. 55; Provident Savings Institution v. Jack- son Place Skatin_-Sinl<, 52 Mo. 557; Nathan u. Whitlock, 9 Paige, 152, affirm- ing s. u., 3 Edw. Cli. 215; Paine v. Stewart, 33 Conn. 516; Dauchy ti. Brown, 24 Vt. 197, 210 ; Roman v. Fry, 5 ,J. J. Marsh. 634 ; Mandion u. Fireman's Ins. Co., 11 Rob. (La.) 177; Wehrman v. Reakirt, 1 Cin. Superior Ct. 230; Chin- nock's Case, Johns. (Eng. Ch.) 714; Costello's Case, 2 De G-. F. & J. 302; Budd's Ca>e, 3 De G. F. & J. 297; Ex parte Bennett, 18 Beav. 339; Lund's Case, 27 Beav. 465; Eyre's Case, 31 Beav. 177; Daniell's Case, 22 Beav. 43; Munts's Case, 22 Beav. 55; Cox's Case, 33 L.J. (Ch.) 145; Payne's Case, L. R. 9 Eq. 223; Williams's Case, L. R. 9 Eq. 225, note; Capper's Case, L. R. 3 Ch. 4-58; Mann's Case, L. R. 3 Ch. 459, note; Castellan v. Hobson, L. R. 10 Eq. 47. Compare Jessopp's Case, 2 De G. & J. 638; Slater's Cjse, 35 Beav. 391 ; King's Case, L. R. 6 Ch. 196 ; Harrison's Case, L. R. 6 Ch. 28i) ; Master's Case, L. R. 7 Ch. 292; Hakim's Case, L. R. 7 Ch. 296, note; Bishop's Case, L. R. 7 Ch. 296, note ; Mitchell's Case, L. R. 9 Eq. 363 ; Maynard v. Eaton, L. R. 9 Ch. 414. 2 Master's Case, L. R. 7 Ch. 292 ; Hakim's Case, L. R. 7 Ch. 296, note ; Harri- son's Case, L. R. 6 Ch. 286; AVilliams's Case. 1 Ch. Div. 576; King's Case, L. R. 6 Ch. 196 ; Weston's Case, L. R. 4 Ch. 20 ; De Pass's Case, 4 De G. & J. 544. » Budd's Case, 3 De G. F. & J. 297 ; Chinnock's Case, Johns. (Eng. Ch.) 714 ; Costello's Case, 2 De G. F. & J. 802 ; Hyam's Case, 1 De G. F. & J. 75. 250 CH. XIII.] BY TEANSFEE. § 211 pany gives the directors the right to veto a transfer, and they are induced to consent to it by misrepresentations of the transferor, the case becomes still clearer.^ In such a case, it is assumed that if the truth had been told to the directors they would have disallowed the transfer, and a court of equity will not allow falsehood thus to become successful.^ On the other hand, where the board of direc- tors possess this power, it is their duty to enquire into the responsibility of the transferee, and if his name and address are correctly given, and they make no such enquiry, the English courts find in this circumstance an additional reason for treating the transfer as valid.' The rule that one » Ex parte Kintrea, L. E. 5 Ch. 95. 2 Payne's Case, L. E. 9 Eq. 223; Williams's Case, L. E. 9 Eq. 225, note. In this case twenty shares were transferred, nominally in consideration of £45, by a shareholder to a person who was described as "of Blenheim Terrace, in the city of Bristol, public accountant." The transfer was registered, and the transferee's name inserted on the register. The company having been subse- quently wound up, the liquidators found, upon applying for payment of calls, that the transferee was a clerk in the employ of the transferor, at a salary of 23s. per week, and that no consideration had been paid for the transfer, the trans- feree, in fact, alleging that the shares were an out and out gift to him. The vicj-ohancellor (James) said: "In this case the directors had power to refuse to transfer if they did not approve the transferee. If the truth had been told them, it would have been their duty to exercise the power and refuse the transfer. If on the face of the transfer it had been stated that there was no consideration, that the shares were transferred merely by way of gift to the transferee, and if the transferee's proper description had been given, as the clerk of the broker engaged in the transaction, it would have been the direc- tors' duty (and I must assume they would have done their duty) to refuse the transfer. I am of opinion that the misdescription was designed, and that the market value of £45 was put in, and a description apparently of a man of some position was put into the deed, for the purpose of deceiving the directors, and by that deceit obtaining their assent to the transfer. That falsehood vitiates the whole transaction. If it be said that I have no evidence that the falsehood was successful, that it is possible, and, from what took place in another case, probable, that, if the falsehood had not been told, the directors still would have done what they did, I do not think a court of equity is in the habit of considering that a falsehood is not to be looked at because if the truth had been told the same thing might have resulted. In this case it was told, as all falsehoods are told, for the purpose of deception. The directors were deceived, and they have a right to say we will have the transaction set aside." s Williams's Case, 1 Ch. Div. 576. 251 § 211 DIVESTITURE OF LIABILITT. [PART HI. who has transferred his shares colorably to an irresponsible person, to escape liability, remains a contributory is not displaced by the fact tliat the constitution of tlie company declares that trusts shall not be recognized, and that the person on the register shall be deemed the beneficial owner of the shares.^ The rule is thus expressed by Sir Nathaniel Liudley: "Notwithstanding there is a complete transfer, the transferor will be held a contributory if the evidence shows, not only that the transfer was made to get rid of a liability, but that the transfer was not a real transaction, and was not intended to divest the interest of tiie trans- feror, and to render the transferee the bond fide owner of the shares, but that the transferee held them subject to the orders of the transferor; and although it cannot, perhaps, be denied that in the cases in question the relation of trustee and cestui que trust was created, it is obvious that the sole object of the trust was to screen the transferor from liabil- ity. The cases show that such devices will not have the effect desired by those who practise them." ^ This language was quoted in an important case by the Lord Justice James, to ^vhom it appeared to express the result of the cases cor- rectly.^ It was held by Lord Romilly, M. R., under the Winding-up Act, 1848, that where shares in a company are transfei'red in the interval between the jaresentation of a jietition for winding-up and the date of the winding-up order, the transferor, and not the transferee, is the proper person to be settled upon the list of contributories. Although tliis decision jDrofessedly follows the language of a statute,* the reasoning is so broad that I think it may be ' Chinnock's Case, Johnson (Eng. Ch.) 714. = Liiidloy on Part. (2cl ed.) \-\bi. 3 King's Case, L. R. 6 Oli. 199. ' By section 3 of this statute (11 & 12 Vict. c. 45) it is enacted, among other things, as follows: "The word 'company' shall mean any partnership, asso- ciation, or company, corporate or incorporate, to which this act applies. The word 'member' shall mean any person entitled to a share of the assets or accruing profits of any such company at the time of presenting the petition for dissolving the same, or winding up the affairs thereof, under this act. The 252 CH. XIII. J BY TEANSFEE. § 212 appealed to in support of the general doctrine that after the commencement against a company of proceedings in bank- ruptcy, or in liquidation, the power of members to escape liability by transferring their shares is at an end.' The company then, in the language of other cases, ceases to be "a going concern;" and when this has taken place, when the company has "stopped," — as, by transferring all its assets and business to another company, so that it is vir- tually dissolved, — then the courts of equity of that country deny to its shareholders tlie privilege of cheating its cred- itors and their co-shareholders by transferring their shares to a man of straw ; but they put it on the ground, not of fraud, but that there are no shares to transfer, and that the provisions of the deed of settlement relating to the transfer of shares have become exhausted.^ §212. Illustrations of the English Doctrine. — The American practitioner may be curious to know where the English courts have drawn the dividing line between an out and out transfer of shares to a person incapable of respond- ing as a shareholder, made for the purpose of cheating creditors and co-shareholders, "which is valid, and a transfer made to a like man of straw, with a like corrupt motive, but which is void because made upon a secret agree- ment between the fraudulent transferor and the fraudulent man of straw, that the latter is to hold as trustee for the former. Let us, therefore, look at the facts of the cases. word 'contributory' shall include every member of a company, and also every other person liable to contribute to tiie payment of any of the debts, liabilities, or losses thereof, whether as heir, devisee, executor, or administrator of a deceased member, or as a former member of the same, or as heir, devisee, executor, or administrator of a former member of the same, deceased, or otherwise howsoever." 1 Glanville'9 Case, L. R. 10 Eq. 479. ' Lankester's Case, L. R. 6 Ch. 905. note ; Chappell's Case, L. R. 6 Ch. 902, Sir G. Mellish, L. J., dissenting ; AUin's Case, L. R. 16 Eq. 449, before Lord Selborne, L. C. 253 § 213 DIVESTITURE OF LIABILITY. [PART III. § 213. Cases In which the Transfer was held good because out and out. — 1. Jessopp's Case} Jessopp was a director and shareholder in a company which had become embarrassed, and he was desirous of having it wound up. The majority of the direc- tors, however, negatived a motion for having it wound up, and entered into an arrangement with one Sheridan for the purpose of bringing its affairs into a more prosperous state. By this arrangement Sheridan was to have a number of shares transferred to him, or to parties named by him, and was to have powers and privileges which it was a breach of duty to give him. Jessopp did not, in his capacity of director, concur in or assent to this arrangement, but he transferred all his shares to a party named by Sheridan. There was no consideration for this transfer. On the contrary, it appeared in evidence that Jessopp was a creditor of the company to a large amount, and that he gave up the debt that was due him to be credited by way of further call on the shares transferred. The consent of the directors to the transfer was not requisite. The court was satisfied on the evidence that the transaction was fairly and honestly intended ; the only question was whether it could be impeached by reason of the connection with Sheridan. The conclusion reached was that the transfer ought to be upheld, as it was a fair result of the eiddence that the transfer of these shares did not induce the arrangement with Sheridan, but that the arrange- ment induced the transfer; and therefore the breach of duty, assuming that there was one, was not the result of the transfer. The order of the vice-chancellor placing the name of Jessopp upon the list of contributories was dis- charged. 2. De Pass's Case.^ An unincorporated trading company was established, in 1835, upon the terms contained in the prospectus, but which contained no provision as to the » 2 De G. & J. 638. =■ 4 De G. & J. 544. 254 CH. Xni.] BY TRANSFER. § 213 transfer of shares. In 1852 the directors issued certificates of new shares (as by the prospectus they were empowered to do) ill tlie following form: " Tlie holder of this CQrtifi- cate is entitled to sliares, of £10 each, in the Mexican and South American Company, on wliicli £9 per share has been paid." Tlie shares were throughout treated as being, as they appeared by the certificates to be, trans- ferable by delivery. DePass held 250 shares, for which he had paid £1,750. On November 24, 1857, an order was made for the winding-up of the company. On the 8th instant De Pass handed the certificates for these shares to his clerk, without having previously communicated with him on the subject, saying that he might have them for a sovereign, which the clerk paid and at once accepted the shares. Nothing further passed between them on the sub- ject, and it was positively deposed to by De Pass that there was no understanding between him and his clerk that De Pass should retain any interest in the shares, nor any understanding that the clerk should be indemnified against his liabilities in respect of them. The clerk retained the shares about three weeks, and then sold them to another person in the employ of De Pass. The £1 paid for these shares by the clerk was considerably below their value, as it was in evidence that as late as November 18th and 23d of the same year, shares of this company sold in the market for l^d. per share. The counsel for De Pass admitted that this transfer was made in order to escape from liability upon the shares, and contended that he was entitled to make it for that purpose ; that De Pass had never received a dividend, and was never in communication with the com- pany. The Lord Justice Turner, delivering the opinion of the court (reversing the decision of the Master of the Kolls), thought that there could be no equity on the part of the other shareholders to insist upon De Pass retaining the shares. It was a suspicious circumstance, as to the bond fides of the transfer, that at a considerably later date 255 § 213 DIVESTITURE OF LIABILITT. [PART III. shares of this company sold in the market at a much higher price than that paid on the transfer in question ; but, after a most searchin"' investioiation and consideration of the evi- dence, he could come to no other conclusion than that on November 8th the shares were absolutely and bond fide parted with by De Pass, out and out, and therefore after that date he was not liable in respect thereof. 3. Weston s Case} Weston was the holder of eighty-five shares of stock in a company which was not in a flourishing condition, but, on the contrary, was being carried on by the directors " under a letter of license from the cred- itors." On June 18, 18G6, a transfer of fifty of these shares was executed to one B., and on the following day the transfer was left at the company's office for i-egistra- tion. On July 19th of the same year a petition was pre- sented for the ■\vinding-up of the companj''; and, a resolu- tion having been passed to that effect upon November 14th following, it was confirmed upon the 30th of that month. On August 9th of the same year Weston transferred the remainder of his shares, and the certificate of transfer was sent to the oflice the next day for registration. Neither of the above transfers were registered as requested. The directors declined to register the first on the ground that the address given of the transferee was one at which he was only an occasional visitor; and the second, on the mere suspicion that the transfer was not bondfi.de, but made with a view to escaping hability on the shares. The articles of association of the company contained only one clause empowering the directors to refuse to register transfers, and that only in certain specified cases. The Master of the Rolls considered that the board of directors had a "-on- eral power to refuse to register shares, acting in the inter- ests of the shareholders, — as, for example, of transferees who were ready to take dividends if there were any to bo » L. R. 4 Ch. 20. 256 CH. XIII.J BY TRANSFER. § 213 paid, but who could not pay calls if any were to be made. But, on appeal, the lords justices stated that the articles of association must contain some clause granting to the board of directors the general power of rejection of members ; otherwise, transfers were unlimited by the general law. All the formalities of transfer had been complied with in both instances in this case. The objection to the first case of transfer was without merit ; otherwise, no lodger or person of unsettled habits could become a shareholder. And, as for the second, a mere suspicion of mala fides in transfer was not sufficient ; the grounds of it should be alleged; otherwise, it must be assumed to be bond fide. 4. Harrison's Case} Harrison, a holder of a large num- • ber of shares in a company, being desirous of getting rid of his shares, transferred them out and out, for a nominal con- sideration, to his clerk. The directors, who had power to refuse to register transfers, declined to register the transfer unless Harrison guaranteed the payment of a call which they were about to make, and also (as they contended) all future calls. Accordingly he orally gave such guarantee, and the transfer was passed and the transferee registered as a shareholder. Harrison paid the call when made, and the company was afterwards wound up. An application was made to substitute the name of Harrison for that of his transferee upon the list of contributories. The lords jus- tices held the transfer and the contemporaneous bargain with the directors to be valid. Said James, L. J. : " I am at a loss to see, if that was done hond fide by the direc- tors, how it is possible to say that it was ultra vires; or that, being intra vires, it was in any way a breach of duty or a breach of trust on the part of the directors which can affect Mr. Harrison as an accomplice in that breach of trust." The application was therefore denied, but expressly with- out deciding whether, upon the oral agreement before men- ' L. E. 6 Ch. 286. 17 257 § 213 DIVESTITURE OF LIABILITT. [PART III. tioned, Harrison could be held liable for future calls bevond the one he had paid, or, if so liable, how that liability was to be enforced. 5. King's Oase} Two officei's of a company, — one, the manager and a large shareholder, the other, the secretary, — being desirous of speculating in the shares of their com- pany, which were then at a low figure, but averse to the public becoming aware of the fact that officers of the com- pany were purchasing its shares, bought on joint account 210 shares of a broker, who, by their direction, transferred the shares to V., who was a clerk in the manager's office. The transfer was registered. Seventy of these shares were afterwards sold, leaving 140 standing in the name of V. The opinion of Lord Justice James was that, as this was a company in which the directors had not the power to reject a transferee, if all the facts had been communicated to the company at the time, and the transferee had paid the calls upon the shares proposed to be transferred, and if the transfer, having been accepted by him, had been sent by him or by his authority to the secretary, it would have been the plain duty of the company, and it would have been the plain ministerial duty of the secretary, to have registered that man, and that man only, as the owner of the shares in question. And further, upon the evidence he was of the opinion that the arrangement was not for the sole purpose of screening a transferor from liability, but merely that they might honestly traffic in the shares of the company without it being known, to the detriment of the company, that they were so doing. And Mellish, L. J., said that if the transfer was set aside, the former shareholder became a contributory, but confessed he had great difficulty in seeing how, if a person has never been a shareholder, and has never contracted with the company that he "would become a shareholder, a court of equity has any right to make such a person a contributory at all. 1 L. E. 6 Ch. 196. 258 CH. XIII.] BY TKAN8FER. § 213 6. Master's Case} Twelve days before a banking com- pany stopped payment, one of the shareholders trans- ferred, for a nominal consideration, to his son-in-law, a journeyman butcher, 280 shares, on which £15 a share had been paid and £35 was payable, and which was then salable at £6 to £8 a share. In the transfer deed the transferee was described a "gentleman." The transfer was duly registered by the company. The shareholder admitted that he made the transfer for the purpose of avoiding the liability incurred by holding this stock, and also stated that the transfer was intended as a bond fide gift, without reservation of any interest to himself; and the transferee also testified that the transfer was absolute. An application was made, nearly five years after the transfer, to have the name of the transferor substituted for that of the transferee on the list of contributories. The lords justices reversed the decision of the vice-chancellor grant- ing the application. They stated that, in the absence of evidence, fraud in the transfer could not be assumed or inferred. And as to the misrepresentation of the rank of the transferee, the term "gentleman " was the "vaguest of vague descriptions." The residence of the transferee was given, and the directors might have known, or could easily have found out, what class of persons was likely to be living there. The transfer was made by the transferor's broker, himself a director in the company, and it was quite likely that the description was inserted by the broker, who, knowing the transferee to be a son-in-law of the transferor, who was possessed of considerable property, presumed that he might be entitled to the description. 7. Halcim's Oase.^ A shareholder, being apprehensive of liability in respectof his shares, transferred the shares to his clerk, and made a stipulation that the clerk should not transfer these shares within six months, and, as a security I L. E. 7 Ch. 292. ' L. E. 7 Oh. 296, note. 259 § 213 DIVESTITUEE OF LIABILITY. [PAET III. against such transfer, the certificates of the stock trans- ferred were handed back to the transferor, to remain in his custody for the stipulated period. The company was after- wards wound up, and an application was made to have the transferor's name substituted for that of the transferee. The Lord Justice Giffard thought the transfer was made with the object, purpose, and intent of the shareholder ceasing to have any property whatever in the shares, and that when it was taken into consideration that the trans- feror controlled the disposition of the stock for six months after said transfer, and, consistently therevrith, retained the certificates in his possession, it was impossible to reach any other conclusion. The application was denied. 8. Bishop's Case} A company was formed in 1864, in which Bishop became the holder of twenty-five shares. In April, 1865, he executed a deed of transfer to one Thomas, an illiterate and poor person, described in the deed as a "gentleman." This transfer was accompanied by a bond of indemnity in respect of all the consequences of said transfer. The deed of transfer professing to convey the twenty-five shares in question did not identify them by their numbers, the space for such numbers having been left blank, and filled in at a subsequent time. The transferee, being unable to write, could not execute the deed of transfer ; and, at his request, his name was signed thereto by a clerk of the transferor. The transferor wrote to the company requesting that all circulars and communications relating to the shares should be sent through himself to the transferee. Also, when a dividend was declared, that dividend was made payable to the transferee. The money, however, was received for the transferee by the transferor's bankers. The Lord Justice Selwyn thought that these •' trifling circum- stances " were insufficient to show maid fides, fraud, or concealment in the trjinsaction. If any weight were given to the naisdescription of the transferee as " gentleman," it ' L. R. 7 Oh. 296, note. 260 CH. XIH. ] BT TRANSFER, § 213 would invalidate a large number of transfers. As for the numbers of the shares, which were omitted from the deed, it was perfectly clear that the transferor owned only twenty-fiye shares in the company, which he intended to convey and did convey ; therefore the circumstance of the numbers being inserted afterwards was perfectly immaterial. The fact that the deed was acted upon by both parties and the company, disposed of the question of imperfect execution by the transferee. As the intervention of some banker was necessary to the payment of the dividend, there was nothing unreasonable in the explanation that the transferee, for this purpose, "availed himself of the agency" of the transferor, who had a banker. The Lord Justice Giffard thought that, according to the articles of association, the company could not have rejected the transferee, because they had no power indiscriminately, or even for the reason assigned, to reject him. 9. Williams's Gase} Shares were purchased, on the stock- exchange, in a joint-stock company. On discovering that the vendor was a director in the company, the purchaser gave as the name of the transferee that of a foreman in his employment at weekly wages of two guineas ; and in the transfer the foreman was described as a " gentleman," and his address was given at the works where the purchaser carried on his business. According to the articles of associ- ation, a transfer could not be made without the approval of the board, and the transfer to the foreman was laid before the board and approved. Within two months of the date when the approval was given, the company was ordered to be wound up. The foreman was at first placed on the list of contributories, but afterwards, on the facts of the transfer having become known, application was made to have the name of the foreman substituted with that of the purchaser. This application was denied, the Master of the Rolls saying that there was nothing to prevent the directors from knowing 1 1 Ch. Div. 576. 261 § 214 DIVESTITURE OF LIABILITY. [PART III. the truth, because they had got the right address aud could have ascertained whether the transferee was a " gentleman " or not. Whether he had any means or was without means was not material ; but a person who is described as a ♦' gentleman " may be a man without occupation, and he is. certainly less likely to pay than anybody else. "It is a description of all others to caU for an enquiry, because it is so indefinite and elastic." § 214. Cases in which the Transfer was held void because a Sham. — 1. Chinnock's Case} Prior to January, 1855, Chinnock was the holder of 500 shares in a company. On January 23d of the same year he executed a transfer of these shares to his clerk. The consideration stated in the deed was £500, and the ad valorem stamp for that amount ^\as affixed. The shares were thereupon transferred on the register to the clerk. It appeared in evidence that Chinnock paid for the stamp ; that in reality nothing was paid by the clerk for the shares. A dividend which had accrued before the trans- fer was applied for by the clerk, was refused him on the ground that he was not the owner of the shares at the time it accrued, and therefore it was paid to Chinnock. Another dividend was declared in June, 1855, and paid by check to the clerk, who handed the check to Chinnock' s cashier, by whom it was entered in Chinnock' s private cash-book as " in- terest upon Athenaeum [the company in question] shares." Chinnock stated in evidence that he intended the shares as a gift to his clerk, without reservation, — that the consider- ation of £500 was piit in simply to fill up the blank line ; in which statements he was substantiated by the clerk ; but, upon cross-examination, the clerk stated that if he had ever realized any thing from a sale of the shares, he should have l)een obliged to hand over the proceeds to Chinnock if he saw fit to demand them. Upon these facts the vice-chan- ' Johns. (Eng. Ch.) 714. 202 CH. XIII. J BY TRANSFER. § 214 cellor thought it impossible to doubt that the clerk held the shares as the trustee of his employer, and, therefore, the transferor could not be relieved of his liability, although the articles of association of the company declared that trusts should not be recognized, and that the person on the register should be deemed the beneficial owner of the shares. 2. HyaTtCs Case} A mining company, the shares in which passed by delivery of the certificates, being in difficulties, a shareholder, who was desirous of avoiding liability, deliv- ered his shares to a broker, and shortly afterwards intro- duced him to a person desirous of purchasing, who bought them at the market price, and paid for them by handing to the broker some bank-shares standing in his name, which the broker sold ; and, after retaining the price of the min- ing-shares, handed over the balance to the purchaser. The certificates of the mining-shares were at the same time deliv- ered to the purchaser. A few days afterwards an order was made for winding up the mining company. The purchaser of the mining-shares proved to be a clerk of the share- holder in question, and upon investigation it turned out that the bank-shares which had been given in payment, though standing in the clerk's name, belonged to his employer, the shareholder. The lord chancellor, while admitting the rule, as established by the decisions, to be that if it was proved that the shareholder parted with all interest in the shares, although it was for the express pur- pose of getting rid of his liability, and although he knew the shares were of no value, and although he knew the transferee was a man of straw, he would be absolved from liability and entitled to have his name removed from the list of contributories ; yet the transaction in the present case was a contrivance on the part of the shareholder, for the purpose of enabling him to get rid of his liability, if there should be liability cast upon him by reason of this being a 1 ] De G. F. & J. 75. 263 § 214 DIVESTITURE OF LIABILITY. [PABT III. losing concern, but if by some unforeseen possibility an advantage should ai'ise, to claim the benefit that might be claimed from his still being actually a shareholder in the company. The application of the shareholder, therefore, to have his name removed from the list of contributories was denied. 3. Gostello's Case.''- A shareholder in a company which had got into difficulties, being anxious to rid himself of 300 shares, put them into the hands of a broker for sale. The market value of the shares was nominally 2s. 6d. per share, but it was found impossible to bring into the market any thing like 300 shares at this price. Finding that a price could not be got for the shares in the market, the shareholder sold them to his father, a broken-up stock- broker, a pensioner on the charity of this and two other of his sons. The shares were sold for the nominal sum of 2d. or 3d. per share. The son, having received the money, handed it to the broker, remarking that he might have sold the shares to his father himself, but the employment of a broker in the matter made it more regular. The father, at the time of the purchase, told the broker that he happened to have money enough to make the purchase, as he had just won a small wager. In his testimony he admitted that he procured the money from some friends, — his two other sons. The court considered the transaction, as developed by the evidence, to be a sham from the beginning, and that the original shareholder had not satisfied the onus cast upon him by the law, in all these cases, to show the bona fides of the transfer. "The transaction must have been such as to require something to give it an honest appearance," if the sou thought the intervention of a broker necessary ' ' to make it more regular." 4. Budd's Oase.^ A solicitor who was a shareholder in an incorporated company, knowing it to be in difficulties, J 2 De G. F. & J. 302. » 3 Do G. F. & J. 2U7. 264 CH. XIII.] BT TRANSFER. § 214 transferred his shares to his farm bailiff, a man with- out property and on wages of a guinea per week. The transfer purported to be made for £50, but nothing was ever paid, nor did the transferee agree to pay any sum. The transferor admitted that he had made the transfer to get rid of his liability, and that he had asked the trans- feree to take tlie shares off his hands. He also stated that he had informed the transferee (who had no other advice) that the company was in difficulties ; that the shares were worthless, and that a liability might attach to the owner- ship. The transferee stated that he had never looked upon himself as the owner ; that he had always considered that the shares were merely put into his name to serve some purpose of the transferor's, and that he had always under- stood that he should be indemnified. The company having been ordered to be wound up, the transferor, as solicitor of the transferee, but without communication with him, made an offer to contribute a large sum towards the debts of the company to escape all further liability. He admitted that this sum was to have come out of his own pocket. Upon this statement -of facts, the counsel for the solicitor could not contend that this was an out and out transfer and sale of the shares ; but they did contend that the transfer had, at least, created the bailiff trustee, and that, as between himself and the other shareholders, he was the only person liable. The court admitted that he might be a trustee, but in truth he was merely the nominee and instrument of the transferor, and under such circumstances the transferor ought to be retained on the list of contributories. 5. Payne's Cdse} A company being in difficulties, a shareholder, for the purpose of ridding himself of the lia- bility upon his shares, executed a transfer of the same, for the stated consideration of £17, to a person described as being a " gentleman." The transfer was sent by the share- holder's broker to the office of the company, where it was 1 L. E. 9 Eq. 223. 266 § 214 DIVESTITURE OF LIABILITY. [PAET III. registered, and the transferee's name was placed on the reg- ister of members. Shortly afterwards a voluntary winding- up was resolved upon. Three years afterwards it was discovered that the transferee, at the date of the transfer, was a clerk on a salary of 25s. a week, in the same office with the transferor, and that the real consideration was not £17 paid by the transferee to the transferor, but £5 paid by the transferor to the transferee, to induce the latter to execute the deed. By a clause in the articles of association the directors had the power to refuse to register a transfer if they did not approve of the transferee. The vice-chan- cellor, under these circumstances, stated that there had been a misstatement to the directors, which was intended to mislead them, and did mislead them, and he could not imagine that it made any difference whether the falsehood came from the transferor or his broker, through wliom the transfer was made. It would have been the duty of the directors, had the facts of this transfer been known, to refuse to register the same. He was obliged to assume that the directors would have done their duty, and there- fore the name of the transferee upon the list of contribu- tories must be substituted by that of the transferor. 6. Ux parte Kintrea} A shareholder in a company which was in difficulties, but whose shares had still a market value, transferred them by deed, in consideration of a sum ex- pressed therein to be paid, being about the market price. No sum was, in fact, paid, nor had there been au}'^ previous contract of sale, the shareholder haAang brought the deed of transfer to the transferee, a relative, and asked him to execute it, saying it was a deed of transfer of shares to him, but saying nothing more. The transferee was a ship's steward, whose wages were £1 per week. The transfer was duly registered, the directors, who had a power of declining to receive any transfer, not objecting, and the transferee was entered on the registry of niembers. A few > L. E. 5 Ch. au. 2(50 CH. XIII. J BT TRANSFER. § 214 weeks afterwards an order was made to wind up the com- pany. Application was made, on the foregoing facts becom- ing known, to rectify the register by restoring the name of the transferor ; and, as in Payne's case,^ the court held that, had these facts been known to the directors at the time of the transfer, it would have been their duty to have rejected the transferee, which the court must presume they would have done ; and even if, by arrangement between the direc- tors and the transferor, the former had assented to the transfer, the transaction would have been a fraud upon the company, — a colorable transaction which the court would not allow to stand. 7. Gilbert's Case? By the articles of association of a com- pany the directors had power to refuse to register a transfer of shares until the calls due on them were paid. But this rule was not to apply to a transfer which had been lodged for registration before the call was declared. On April 17th the directors agreed to make a call, in order to prevent the transfer of numerous shares, which was threatened by some of the shareholders ; but, upon various pretexts, the declaration of the call was postponed until the 23d instant, when it was formally made. On the 18th instant one of the directors transferred some of his shares to his clerk, at the market price, promising him that if a call was made he would lend him money to meet it. The transfer was left for registration on the same day, and registered on the 20th instant, the other directors having knowledge of the trans- action. The company was afterwards wound up. The official liquidator disregarded the transfer, and substi- tuted the transferor's name on the contributory list, in which he was sustained in an appeal to the lords justices, Giffard, L. J., saying : "I have no hesitation in saying that I can find but one reason why the directors did not make the call on that day, and that reason was that their duty 1 L. E. 9 Eq. 223. = L. R. 5 Ch. 559. 267 § 215 DIVESTITURE OF LIABILITY. [PART III. and their interests lay in totally opposite directions ; and if persons having to exercise a fiduciary power choose to place themselves in a position that their interests pull one way while their duty is plainly to do something quite different, and for that reason they abstain from exercising that power, they must be held to all the same consequences as though that power had been exercised." Had the call been made on the 17th, beyond all question the shares could not have been transferred as they were. § 215. The American Doctrine. — I think the American doctrine on this subject may fairly be summed up as follows : A transfer of shares in a failing corporation, made by the transferor with the purpose of escaping his liability as a shareholder, to a person who, from any cause, is incapable of responding in respect of such liability, is void as to creditors of the company and as to other shareholders, although as between the transferor and the transferee the transfer may have been out and out.^ This conclusion necessarily results from the American doctrine that the capital stock of a corporation is a trust fund for the security and benefit of creditors.^ This fund consisting not only of money which has been paid in on account of stock subscrip- tions, but also of money which subscribers have agreed to pay in,' it is obvious that a court of equity will not allow that portion of it which consists of unpaid subscriptions to be frittered away by the transfer of shares from solvent to insolvent persons, with the mere purpose of escaping the obligations arising out of the contract of subscription and accruing to creditors. Such an arrangement cannot stand, even if done with the consent of the board of directors, ' Nathan v. Whitlock, 8 Edw. Oh. 215 ; affirtoed on appeal, 9 Paige, 152 ; Provident Savings Inst. v. Jackson Place Skating-Rink, 52 Mo. 557 ; McClaren ■17. Pranciscus, 43 Mo. 452 ; Miller v. Great Republic Ins. Co., 50 Mo. 55 ; Marcy V. Clark, 17 Mass. 380. » Ante, I 10. • Ante, I 11. 268 CH. XIII.] BY TRANSFER. § 215 because the giving of such consent would involve a breach of trust on their part.^ It will be observed, upon a reading of the American cases, that they lay the principal stress on the question of an intent on the part of the transferor to escape liability.^ This intent is generally incapable of direct proof, for the reason that a person who will make a fraudu- lent conveyance to escape liability to creditors will seldom hesitate to commit the necessary perjury to sustain it. It must, therefore, be inferred from circumstances. The cir- cumstance that the corporation or the transferee, or both, were at the time notoriously insolvent would, it should seem, be sufficient to warrant the inference of such an intent.^ On the other hand, it is obvious that the circum- stance that the corporation was "a going concern," its solvency unsuspected by the public, would tend to overcome 1 Nathan v. Whitlock, 3 Edw. Ch. 215 ; affirmed on appeal, 9 Paige, 152. ^ "We cannot doubt," said Parker, C. J., "that a transfer of an interest in the stock of such corporation, not bond fide, but for the purpose of defeating the creditors of the company, is fraudulent and void. Otherwise the whole- some provision of the statute for the security of creditors would be unavailing at the very time and in the very circumstances in which it was intended to operate." Marcy v. Clark, 17 Mass. 334. "While we maintain the right of a shareholder to dispose of his shares absolutely," said Dillon, J., in a well- considered case, hereafter examined, "by an out and out sale and registered transfer, and thus escape liability, provided the sale is made bond fide, and the purchaser is In law capable of assuming the liabilities of the transferor, yet this does not involve the right to transfer shares for a fraudulent purpose, or under circumstances which the transferor knows will make the transfer, if it is sustained, work a fraud upon other shareholders, or upon the creditors of the bank." Johnson u. Laflin, 6 Cent. L. J. 131. "The law is well settled, the point is very clear," said Wagner, J., in one of his best judgments, "that no member can exonerate himself from liability or defeat the claims of creditors by transferring his interest to an insolvent person or bankrupt. The members of a corporation, therefore, who would be liable, if they continued members, to the creditors of the corporation, may still be treated as members if they have disposed of their interest to an insolvent, or with the view of exonerating themselves from their personal liability." McClaren v. Franciscus, 43 Mo. 467 ; quoted with approval in Provident Savings Inst. v. Jackson Place Skating- Bink, 52 Mo. 558. ' "If the stockholder knew of the insolvency at the time of the transfer, it would be very strong evidence of fraud, and it would be hard to resist the con- clusion that such transfer was made in bad faith." Adams, J., in Miller v. Great Republic Lis. Co., 50 Mo. 57. 269 § 216 DIVESTITURE OF LIABILITY. [PART III. the presumption of fraudulent intent ; since in such cases there is, prima facie, an unrestricted right to transfer to persons capable of taking.' Nor is the transferor bound at his peril to know that the transferee is solvent. Such a requirement would put upon the transfer of corporate shares a diflFerent rule from that which obtains with reference to the transferability of other property.^ § 216. Ultra vires Transfers. — Transfers made to a nominee of the directors, in pursuance of arrangements between discontented members and the directors, whereby the former are permitted to retire from the company, have been generally treated as involving acts inconsistent with the duty of the directors and beyond their power, and such transferors have been held liable as contributories.' Thus, at an extraordinary general meetiiig of a company, resolu- tions were passed for raising sums on loan notes ; and one of the resolutions provided that if any shareholder should be desirous of retiring, the directors should be at liberty to purchase his shares at a stipulated price, on his investing an amount not less than the purchase-money for his shares, ' Johnson v. Laflin, 6 Cent. L. J. 131. 2 Miller v. Great Republic Ins. Co., 50 Mo. 67. On this point Adams, J., said : " It is a universal principle of common law that the absolute ownership of property carries with it the right to transfer or dispose of it as the owner may see proper. He cannot do this so as to defeat the claims of honest creditors. In a c!\se like this a creditor has no claim against a stockholder until he has exhausted his remedy against the company ; or, rather, his claim com- mences from the time he issues his execution against the company. If, before any execution be issued, the stockholder shall have honestly, and without any intention to defeat the creditors of the company, sold and transferred his stock, the mere fact that the purchaser was insolvent at the time is not sufficient to hold such stockholder liable for the debts. The question in such case is whether the transfer was fraudulent and void as to the creditors of the company. If the stockholder knew of the insolvency at the time of the transfer, it would be very strong evidence of fraud, and it would bo hard to resist the conclusion that such a transfer was made in bad faith." ' Morgan's Case, 1 De G. & Sm. 750; Bennett's Case, 5 De G. M. & G. 284; a. c, 18 Beav. 839; Nathan v. Whitlock, 8 Edw. Ch. 215; affirmed on appeal, 9 I. 270 CH. XIII. BY TRANSFER. § 216 and taking the loan note of the company, payable in five years, with interest for both the price of his shares and the loan. Copies of these resolutions were forwarded to all the shareholders, and some of them transferred their shares upon the terms proposed, making the stipulated advances and taking loan notes. The powers of the directors under the deed of settlement did not authorize them to enter into this arrangement. The company was five years afterwards wound up. The question arose whether the shareholders who had availed themselves of this arrangement were to be regarded as contributories in any event whatever. The vice-chancellor (Bruce) expressly stated that he did not decide the question whether such shareholders were liable to unsatisfied creditors of the company who became cred- itors after these shareholders had transferred their shares to the company, but affirmed the action of the master in settling their names upon the list of contributories, with a qualification, however, as regarded losses which had been incurred since the transfer of shares to the directors. On appeal, this 'view was affirmed, the lord chancellor (Cotten- ham) stating that it was quite possible that, as regarded stockholders who were cognizant of the arrangement, but did not enter into it, an equity might arise against them to prevent them from calling upon the stockholders who accepted the arrangement to contribute towards losses in- curred subsequent to the date of such acceptance ; and as to their being released from the company, he said : " Now, this is a company ; it is no corporation ; it is a mere part- nership ; and although the majority of the partners may bind the minority upon every point the deed authorizes, by their common contract, yet they have no authority to bind the minority on any matter that is not within the common contract." And as to the company being bound by five years' acquiescence in the arrangement as executed, his lordship stated that he could not enter into & consideration of that question unless it was proved that every individual 271 § 216 DIVESTITCEE OF LIABILITY. [PAET III. constituting the company was present at the meeting author- izing the arrangement, which he did not understand to be the case.i Similarly, the deed of settlement of a joint- stock company provided for the transfer of shares with the consent and approval of the directors, and for the purchase, out of the funds of the company, of shares from share- holders by the directors, with the consent of a general meet- ing. The lessor of mines worked by the company, and his son B. (one of the directors), had a large claim against the company, for payment of which out of the funds of the com- pany the deed of settlement provided. Another son was also a director in the company. A large number of share- holders, being dissatisfied, wished to retire, and an arrange- ment was made between them and the directors that they should be allowed to transfer their shares, for a nominal consideration, to B. and another director, on the payment of a large sum of money, considerably exceeding the amount due for calls. The transfers were accordingly made, and, as a part of the transaction, the lessor and his son B. exe- cuted releases to the retiring shareholders from all liability in respect of their claims. A large portion of the money paid by the retiring shareholders was applied in payment of the claims of the lessor and his son ; and there was evidence to show that the arrangement could not have been efi'ected except upon the terms of making such payment, and that the retiring shareholders were cognizant of the transaction. The Master of the EoUs held the transaction to be incon- sistent vdth the duty and beyond the power of the directors, as trustees for the company, saying: " I believe it to be of essential importance that all persons who accept the office of directors should be made to understand what their duties and liabilities are ; and especially that it is their bounden duty to do the best they can for the company, totally regardless of their own private and individual interests ' Morfijftn's Case, 1 De G. & Sm. 750. 272 CH. XIII. J BY TRANSFER. § 217 and benefit." On appeal, this decision was affirmed, the lord justice (Knight Bruce) saying that to the argument that the arrangement was for the benefit of the company, as affording the means of discharging the claims of the lessor and his son, it was a sufficient answer that, " unless the directors had the power to make the arrangement, it was for each shareholder to judge of what was most for his benefit, and the directors had no power to determine that question." ^ § 217. Unregistered Transfers. — A transfer of shares, not perfected as required by the charter, statute, articles of association, or deed of settlement governing the corpora- tion or company, though valid between the parties,^ does not, in general, divest the transferor of his liability as a stockholder to creditors.' The registration of sharehold- ers being intended for the protection ^of the public,* one 1 Bennett's Case, 5 De G. M. & G-. 284 ; s. .-., 18 Beav. 339. 2 Johnson v. Underbill, 52 IST. Y. 203 ; Duke v. Cahawba Nav. Co., 10 Ala. 82 ; Shepherd's Case, L. R. 2 Ch. 16 ; Sheffield, etc., K. Co. v. Woodcock,. 2 Railw. Gas. 522 ; Castellan v. Hobson, L. E. 10 Eq. 47 ; Hall v. United States Ins. Co., 5 Gill, 484 ; Chouteau Spring Co. v. Harris, 20 Mo. 382 : St. Louis Perpetual Ins. Co. V. Goodfellow, 9 Mo. 149 ; Moore v. Bank of Commerce, 52 Mo. 377, 379 ; Gilbert v. Manchester Co., 11 Wend. 627 ; Bank of Utica i>. Smalley, 2 Cow. 770 ; Quiner v. Marblehead Social Ins. Co., 10 Mass. 476 ; Sargent u. Essex E. Co., 9 Pick. 202 ; Nesmith v. Washington Bank, 6 Pick. 324 ; Sar- gent V. Franklin Ins. Co., 8 Pick. 90 ; McEuen v. West London, etc., Co., L. E. 6 Ch. 655 ; Brigham v. Mead, 10 Allen, 245 ; Shaw v. Rowley, 16 Mee. & W. 810 ; Walker v. Bartlett, 36 Eng. L. & Eq. 368 ; s. c, 18 G. B. 845. An assignment not made in conformity with the law governing the corporation will pass an equitable title, which will bind all persons having notice of it. Black v. Zacharie, 3 How. 483. 3 Shellington v. Howland. 53 N. T. 371; Worrall v. Judson, 5 Barb. 210; Dane o. Young, 61 Me. 160 ; Wehrman v. Eeakirt, 1 Cin. Superior Ct. 230, 237; Marino's Case, L. E. 2 Ch. 596; Musgrave & Hart's Case, L. E. 5 Eq. 695; Walker's Case, L. E. 6 Eq. 30; McEuen v. West London, etc., Co., L. E. 6 Ch. 655. Contra, Wehrman v. Reakirt, 1 Cin. Superior Ct. 230, 237. • The rule is intended for the benefit of the company also ; and hence, as between the transferee and the company, unless his own transfer is made upon the books of the company he is not a stockholder. The mere fact that he owns the certificate of stock does not make him a stockholder. Helm v. Swiggett, 12 Ind. 196 ; Coleman v. Spencer, 5 Blackf. 197 ; New Albany, etc., E. Co. 0. McCormick, 10 Ind. 499 ; Marlborough Man. Co. v. Smith, 2 Conn. 579. 18 273 § 217 DIVESTITUEE OP LIABILITY. [PAKT III. who has parted with his shares, and yet suffers his name to remain on the register, remains a stockholder by conduct or estoppel, upon familiar grounds already discussed.^ And where the governing statute provides that transfers can only be made by deed and by alteration of the register, and a shareholder transfers his shares in another way, although the company recognize the transfer by receiving assessments from the transferee, this, it has been held in England, does not discharge the transferor from liability to the company as a shareholder. If this were not so, the wholesome re- quirement of the law might be entirely eluded ; and any person who examined the register, whether a creditor who wished to know the names of the shareholders, or a share- holder who wished to know the names of his co-share- holders, would be entirely deceived.^ But a contrary doc- trine has been held in one of the United States courts by a judge of reputation, since deceased.^ This rule, however, ought not to be accepted without limitation ; and I appre- hend that the qualification put upon it by Sir John Eomilly, M. E., that where the transferor has done all in his power to complete the formality of the transfer he is discharged from liability as a shareholder,* cannot be successfully ob- jected to ; and the rule now obtaining in England seems even less stringent : a transferor who has negligently suf- fered his name to remain on the register will be held as a contributory,^ but one whose name remains there not- ' Ante, Ch. LX. » McEuen v. West London, etc., Co., L. R. 6 Oh. 655. ' Upton V. Burnham, 3 Biss. 431, per Hopkins, J. See also s. c, ibid. 520, per Blodgett, J. ; Isham v. Buckingham, 49 N. Y. 216. * Shovtridge v. Bosanquet, 16 Beav. 84; White's Case, L. E. 3 Eq. 86; Ward's Case, L. R. 2 Eq. 223 ; Ex parte Henderson, 19 Beav. 107. But see Bosanquet v. Shortridge, 4 Exch. 699. 5 Head's Case, L. R. 3 Eq. 84; White's Case, L. R. 3 Eq. 86; Walker's Case, L. E. 6 Eq. 30. In Shepherd's Case, L. R. 2 Ch. 16, a stockholder exe- cuted a transfer of shares in December, 1865. The transfer, according to .the articles of association, required the sanction of the directors, who might refuse it in certain cases. The transfer was not left at the office for approval till March 3, 1866. In the ordinary course of business the directors met once a week. Their last meeting had been on March 1st, and their next was to be on 274 CH. XIII. J BY TRANSFER. § 217 withstanding he has been guilty of no laches, will not.' And where the directors have power to refuse to register a transfer, it is settled that they must exercise this power in a reasonable manner. If they have an objection to a trans- feree, whose transfer is rendered in the ordinary course of business, they should at once take the objection. If they delay unreasonably, and in the meantime the company goes into liquidation, the court will, in pursuance of authority given by statute,^ rectify the register by striking off the the Sth. On March 3d, however, a special meeting was held, at which time the directors found a, large accumulation of transfers, and accordingly pstssed a resolution that the transfers then in the office should not be registered without the express sanction of the directors. On March 7th a petition was presented for the winding-up of the company. The lords justices held that the direc- tors, under the provision in the articles of association, were entitled only to a reasonable length of time for the consideration of transfers, but they could not say that any unnecessary delay had taken place from the fact that the transfer of these shares was not acted upon between March 3d and the date of the presentation of the petition for the winding-up. 1 Fyfe's Case, L. R. 4 Oh. 768 ; Nation's Case, L. R. 3 Eq. 77 ; Hill's Case, L. R. 4 Ch. 769, note ; Ward & Garflt's Case, L. R. 4 Eq. 188. ' Companies Act, 1862, J 35: "If the name of any person is, without sufficient cause, entered in or omitted from the register of members of any company under this act, or if default is made or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a mem- ber of the company, the person or member aggrieved, or any member of the company, or the company itself, may, as respects companies registered in England or Ireland, by motion in any of her majesty's superior courts of law or equity, or by application to a judge sitting in chambers, or to the vice- warden of the stannaries in the case of companies subject to his jurisdiction, and as respects companies registered in Scotland by summary petition to the Court of Session, or in such other manner as the said courts may direct, apply for an order of the court that the register may be rectified ; and the court may either refuse such application, with or without costs, to be paid by the appli- cant, or it may, if satisfied of the justice of the case, make an order for the rectification of the register, and may direct the company to pay all the costs of such motion, application, or petition, and any damages the party aggrieved may have sustained. The court may, in any proceeding under this section, decide on any question relating to the title of any person who is a party to such proceeding to have his name entered in or omitted from the register, whether such question arises between two or more members or alleged mem- bers, or between any members or alleged members and the company; and generally the court may, in any such proceeding, decide any question that it may be necessary or expedient to decide for the rectification of the register ; 275 § 217 DIVESTITURE OF LIABILITY. [PAET III. name of the transferor and substituting that of the trans- feree.i If there is a &owd fide controversy as to whether a person is a shareholder, and, in order to settle it, the direc- tors suffer him to retire and to transfer his shares to a nominee of their own, and his name is not, in pursuance of the arrangement, taken off the register, he will not be held as a contributory if it appears that he was not originally liable as a shareholder. This is the explanation given by Lord Romilly, in Wallcer's case,^ of his previous decision in Fox's case ;^ but it is unsatisfactory, for it loses sight of the question of diligence or laches on the part of the retiring shareholder.* This rule applies with increased force where the transferor is a director. He is in a very different posi- tion from that of an ordinary shareholder ; for he has the means of seeing that all the formalities of transfer required by the constitution of the company are complied with, and he is therefore bound, in transferring his shares, to see to the regularity of the transfer. If he fails in this, he remains a contributory.'' The same principle has been applied where provided that the court, if a court of common law, may direct an issue to be tried, in which any question of law may be raised, and a writ of error or ap- peal, in the manner directed by ' The Common-Law Procedure Act, 1854,' shall lie." ' Lowe's Case, L. E. 9 Eq. 589 ; Nation's Case, L. K. 3 Eq. 77. ' L. E. 6 Eq. 34. » L. E. 5 Eq. 118. * One or two exceptional cases have been found which seem to touch this subject. By a private act of Parliament, transfers of shares in a certain com- pany were required to be enrolled in chancery. This company desiring to consolidate with another company, a, majority of its shareholders transferred their shares to trustees for such other company. Some of tiiese transfers were not enrolled in chancery until four years afterwards, but it was held that the enrollment was sufficient, and the transferors were released from liability for the debts of the first eompan3^ Eivington's Case, 3 Ch. Div. 10. Other of these transfers were never enrolled in chancery ; and yet it was held that it would be useless to malce such a shareholder a contributory, as he would, under the act, receive back from the company all that he paid into it; besides, since his transfer was valid according to the constitution of the company, the act prevented him from being liable to pay the debts of the company. Do- man's Case, 3 Ch. Div. 21. ' Ex parte Brown, 19 Beav. 97. 276 CH. XIII. j BY TRANSFER. § 217 the auditor of a failing company transferred his shares to the managing director under circumstances of doubtful good faith, and where the requisite formalities were not attended to.* And where the vendor in an unregistered transfer of shares, not being himself in fault, has been obliged to pay debts of the corporation in consequence of the failure of his vendee to register the transfer, he may recover from his vendee the amount so paid, in an appro- priate action ;'^ since "the very essence of a contract of sale and purchase in the case of shares is that one party shall divest himself of, and the other acquire, in the name of him- self, the ownership of the shares, and that the seller shall relinquish and be relieved from, and the purchaser assume, all future benefits and liabilities in respect of the shares.'" The seller, therefore, stands under an implied obligation to indemnify the purchaser against future calls.* It does not follow, however, that the transferee of shares can escape liability in consequence of informalities attending the trans- fer. If the transaction is good in substance, and he- has treated himself as a shareholder, and has been treated as such by the directors, upon grounds already discussed,* he makes himself a shareholder by conduct, and hence a contributory. ° Thus, it has been held that the transferee ' Ex parte Henderson, 19 Beav. 107. 2 Johnson v. Underbill, 52 N. Y. 203 ; Castellan v. Hotson, L. E. 10 Eq. 47 ; "Walker v. Bartlett, 36 Eng. L. & Eq. 368 ; s. c, 18 C. B. 845 ; Wynne v. Price, 8 De G-. & Sm. 310, overruling, in part. Humble v. Langston, 7 Mee. & W. 517, and following Burnett v. Lynch, 5 Barn. & Cress. 589, where an assignment had been made by deed-poll, subject to the covenants in a lease, and it was held that the lessee might maintain an action on the case against the assignee for having neglected to perform the covenants named in the lease, whereby he had sus- tained damage. Compare Sayles v. Blane, 14 Q. B. 205 ; Shaw v. Fisher, 2 De Or. & Sm. 11; Brigham v. Mead, 10 Allen, 245; Shaw v. Kowley, 16 Mee. & W. 810. » Grissell ». Bristowe, L. R. 3 C.P. 112, per Bovill, C. J. « Allen V. Graves, L. E. 5 Q. B. 478 ; Walker v. Bartlett, 18 C. B. 845. Contra, Humble v. Langston, 7 Mee. & W. 517. ' Ante, Ch. IS. " Straffon's Executor's Case, 1 De G-. M. & G. 576. But see Sknowhegan Bank v. Cutler, 49 Me. 315 ; Upton v. Burnham, 3 Biss. 431 ; s. u., ibid. 520. 277 § 218 DIVESTITURE OF LIABILITY. [PART III. in a transfer not made in conformity with the by-laws may become fixed with liability in his new relation, if he has been recognized as a member by the company and regis- tered as such, of which recognition slight evidence will be sufficient. This conclusion is placed on the ground that a provision in the by-laws of a company requiring transfers of its stock to be made only on its books is for the benefit of the company, and may be waived by it ; and if waived at the request of the transferee, or with his assent, he becomes a stockholder, and directly liable to future assess- ments.^ Neither is an error in distinguishing the number of shares material, provided the transferor has that number of shares. Accordingly, when fifty shares bearing particu- lar numbers were transferred by the chairman of a com- pany to A., as trustee for the company, and A.'s name was placed on the register in respect of those shares, and it appeared that the transferor had at the time no shares bearing those numbers, though he had fifty shares bearing other numbers, it was held that A. must go on the list of contributories for fifty shares. The numbers of shares were merely a directory for the purpose of tracing title to the shares, into which creditors were not expected to look. It was sufficient that they found his name on the register in respect of fifty shares.* § 218. Purchaser taking Assignment in Blank. — It has been held that one who purchases stock, taking an assignment in blank, if recognized as a member by the company, may be liable to future assessments, and, after ' Upton V. Burnham, 8 Biss. 431, opinion by Hoplcins, J. But on the sec- ond trial of thi3 case by the same court, before Blodgett, J., the question as to whether the transferee ever authorized, assented to, or waived the formal transfer of the stocl? to him, upon the books of tho company, was held to be immaterial, and instructions to that effect asked by the defendant were refused. Ibid. 520, per Blodgett, J. » Ind's Case, L. R. 7 Ch. 486. Compare Sewell's Case, L. K. 3 Ch. 131 ; Felling's Case, L. E. 2 Ch. 714. 278 CH. XIII. J BY TRANSFER. § 219 insolvency, may be forced to respond for the benefit of creditors. ^ § 219. In Case of a public Kegistration of Sharehold- ers. — Statutes have long existed in England requiring a public registration of the names and residences of share- holders in banking and other companies, together with other facts designed to afford information to the public concerning the solvency of such companies ; and there are such statutes in the United States. These statutes have been construed by the English courts of law in much the same way as our courts have construed our statutes relating to the registration of land titles. As between creditors and shareholders the register is. conclusive. Thus, the act of 1844 "to regulate joint-stoCk banks in England" required a filing at the London stamp-office of " an account or memo- rial" stating certain facts ^ among them " the names and places of abode of all the members of such company, as the same respectively shall appear on the books of such com- pany." ^ Another section" required the filing at the stamp office "from time to time, as-oocasion shall require," of " a further account or memorial," containing, among other things, " the name or names of any person or persons who shall have ceased to be members of such company, and also the name or names of any person or persons who shall have become a member or members of such company, either in addition to, or instead of, any former member or members thereof." Another section* provided " that the persons whose names shall appear from time to time in the then last delivered memorial, and their legal representatives, shall be liable to all legal proceedings under this act, as existing shareholders of the company, and shall be entitled to be » Upton V. Bumliam, 3 Biss. 431 ; a. c, 3 Biss. 520. !> 7 & 8 Vict. c. 113, 1 16. » Ibid., 2 17. * Ibid., i 21. 279 § 220 DIVESTITURE OF LIABILITY. [PAET III. reimbursed, as such existing shareholders only, out of the funds or property of the company, for all losses sustained in consequence thereof." In a proceeding under another section of the same statute, by a judgment creditor of the company for execution against a shareholder, it has been held that a shareholder whose name appeared as such on the last-delivered memorial was liable, although he had subsequently made a bond fide transfer of his shares, and the transfer deed had been duly executed by the transferee and registered in the proper office of the company.^ But if, at the time of the delivery of the last memorial, the person whose name appeared thereon was dead, he was not charge- able under the statute as a shareholder, nor could a creditor have execution against his personal representatives.^ The 16th section of the above act has several times been held to be directory only. Therefore, an inaccuracy in the heading of the memorial, reciting the wrong statute, did not prevent its being evidence against the persons named therein as shareholders.' § 220. Prohibited Transfers. — If, however, the consti- tution or governing statute of a joint-stock company exacts a condition precedent to a valid transfer of shares, — as, that the consent of the directors shall have been obtained, or that the transferor shall have paid all assessments,* — a trans- fer without the performance of this condition, not being good between the transferor and the company, leaves him, of course, liable to its creditors.' If, hoAvever, this condi- tion precedent is exacted, not by the constitution of the 1 Dossett V. Harding, 1 0. B. [s. s.) 524; Pry v. Russell, 8 C. B. (n. s.) 665. ' Powis V. Butler, 3 0. B. (n. s.) 645; affirmed in Exch. Oh., 4 C. B. (n. s.) 469. Compare Child v. Coffin, 17 Mass. 64. ' Powis V. Harding, 1 C. B. (n, s.) 533 ; Henderson v. Royal British Bank, 7 El. & Bl. 356 ; Daniell v. Royal British Bank, 1 H. & N. 681. < Gilbert's Case, L. R. 5 ck 559. ' Bosanquet v.- Shortridge, 4 Exch. 699 ; Walker's Case, L. R. 2 Eq. 554. But see Shortridge v. Bosanquet, 16 Beav. 84; Strafton's Executor's Case, 1 De G. M. & G. 676 ; Sadler's Case, 8 De G. & Sm. 86. 280 CH. XIII. J BY TKANSFER. § 222 company, but by a by-law merely, it may be waived by a contrary usage on the part of the company. Thus, where a by-law required the consent of the directors to a transfer of stock by a person indebted to the company, but in the practice of the company such cases were never brought before the board, the transfer by such a stockholder, made without their consent, but according to the usage of the com- pany, was good against the company.^ § 221. Transfers imperfectly executed. — Where the constitution of a company requires that a transfer of shares be executed by both parties, Und it is not executed by the transferee, the English courts, carrying out the principles embodied in a previous section,* will not, under sections 35 and 98 of the Companies Act, 1862, rectify the register, but will put the transferor on the list of contributories, and leave the transferor and transferee to their remedies against each other.' § 222. Statutory Provisions respecting Notice of Trans- fer. — Upon princiiDles already announced, it is obvious that if the governing statute exacts that a transferor of stock shall give public notice of the transfer in a prescribed manner, a person transferring his shares cannot escape Ha- bility to creditors without showing affirmatively that such notice was given. It was so held where the section of a statute relating to the transfer of shares contained the proviso that " such stockholders shall give notice once a month, for six months, of such transfer, immediately there- after, in two newspapers in or nearest to the place where such bank or corporation shall keep the principal office."* But where the charter of a bank rendered stockholders 1 Chambersburg Ins. Co. v. Smith, 11 Pa. St. 120. 2 Ante, I 153. ' Marino's Case, L. E. 2 Oh. 596 ; Musgrave & Hart's Case, L. P.. 5 Eq. 193. * Force v. Dahlonega, etc., Co., 22 Ga. 86 ; Mason v. Force, 30 Ga. 99. 281 § 223 DIVESTITUEE OF LIABILITY. [PART III. liable, after a transfer of stock, unless sixty days' notice of the sale had been given in one of the public gazettes of the state, and provided tlie transfer had been made six months before the failure of the corporation, all the stockholders who had given notice in the terms of the act were exempt, unless the failure had occurred within six mouths thereafter, and all other stockholders were liable for tlae redemption of the bills, whether they had transferred their shares or not.* § 223. Transferees holding Stock as collateral Secu- rity. — It is well settled that one to whom stock has been transferred in pledge, or as collateral security for money loaned, and who appears on the register of the corporation as the owner of the stock, is, in the event of insolvency of the corporation, chargeable as a stockholder for the benefit of creditors.^ The reason why the courts so hold, briefly, is that a man cannot become the legal owner of stock, receive dividends, vote at elections, and enjoy all other rights appertaining to the ownership of it, without shoulder- ing the liabilities attaching to such a position. Another good reason is that he will not be suffered to hold himself out to the public as the owner of stock and afterwards deny that relation.' Besides, if creditors were compelled to look beyond the legal title, they could never know against whom to proceed, and it would embarrass them in the pursuit of their rights to compel them to enquire into equities which might exist between the stockholder and some third per- son.* Nor is it material that there is a statute providing that the term " stockholder " "shall apply, not only to such persons as appear by the books of the corporation or ' Lane v. Morris, 8 Ga. 468. ' Adderly v. Storm, 6 Hill, 624 ; Rosevelt v. Brown, 11 N. Y. 148 ; Matter of Empire City Bunk, 18 N. Y. 199, 228; Holyoke Bank «. Burnham, 11 Cush. 183; Miigrudor v. Colston, 44 Md. 349; Crease v. Baboook, 10 Moto. 525, 546) Wiieelock v. Kost, 77 111. 296 ; Pullman ». Upton, 96 U. S. 823. » Adderly v. Storm, 6 Hill, 624. « Ibise, L. R. 9 Eq. 863. ' Lumaden's Ciise, L. R. 4 Ch. 81. 290 CH. XIII.] BY TRANSFER. § 232 fraud, and if the court came to the conclusion that an infant had applied for shares with the intention of keeping them if the company succeeded, and repudiating them on the ground of infancy if it did not succeed, he would probably be held fixed with the same liabilities as if he had been of age when he applied for them." At any rate, he regarded the circum- stance of transfer to be a clear admission of ownership. On appeal, the Lord Justice Giffard did not rely on the transfer as a reason for holding him to be a contributory, but so held l^ecause he had acquiesced for a long period in being on the register.^ In October, 1865, C. purchased shares in a com- pany, and had them transferred to B. as trustee for him, and B.'s name was put on the register. In March, 1866, the company was ordered to be wound up. At the time of the transfer B. was an infant, and he did not come of age until September, 1867. In December, 1867, B.'s name was set- tled on the list of contributories ; and in January, 1868, a call was made,' notice of which was sent to B. On receipt of the notice, B. repudiated the shares, and the official liquidator took out a summons to remove his name from the list, but afterwards abandoned the summons. In April, 1871, B., at the request of the official liquidator, wrote a letter authorizing him, in consideration of his not proceeding against B. under the call, to use B.'s name in taldng pro- ceedings against C, the real owner of the shares. After- wards B. applied to have his name removed from the list of contributories. The lords justices thought that, the shares having been once distinctly repudiated by B., and that repudiation acted on by the company, the subsequent letter of April, 1871, did not show that B. was aware that his name remained on the list during these three years, and could not operate as a retraction of that repudiation ; and accordingly ordered his name to be removed from the list. ' Ebbetts's Case, L. E. 5 Ch. 802. » Baker's Case, L. B. 7 Oh. 115. 291 § 233 DIVESTITUEE OF LIABILITr. [PART III. § 233. Married Woman. — 2. No general rule can be suggested, applicable to the different states of the Union, as to the effect of a contract of a married woman to take shares in a corporation, and her liability in respect of such an engagement, it being a question which refers itself, in each state, to the local law. In England it seems that if a mar- ried woman, having separate property, enters into a pecu- niary engagement, whether by ordering goods or otherwise, which, if she were a feme sole, would constitute her a debtor, and, in entering into such an engagement, she pur- ports to contract, not for her husband, but for herself, and on the credit of her separate estate, and it is so intended by her and so understood b}^ the person with whom she is contracting, an obligation is thereby created for which the person with whom she contracts has a right to make her separate estate liable ; and the question whether the obliga- tion was contracted in this manner must depend upon the facts and circumstances of each particular case.^ These rules have been held applicable to a married woman holding shares in a joint-stock company. There is held to be noth- ing in the nature of such a company, in the absence of any special provision of its constitution,^ to prevent a married woman from being a shareholder in her ovn\ right, so as to bind her separate estate. Therefore, M^iere a married woman, having a separate estate, contracted to take shaves in her own name in a joint-stock company, which was after- wards wound up, Vice-Chancellor Kindersloy, being of opinion that the contract was entered into on the credit of her separate estate, and that the deed of settlement did not exclude married women from being shareholders so as to bind their separate estate, placed the married woman on the list of contributories in her own right, so as to bind her ' Johnson «. Gallagher, 3 De G. F. & J. 494 ; Mrs. Mathewman's Case, L. E. a Eq. 781, 787. ^ t uch as appears to have controlled in Angas's Case, 1 De G. & Sm. 560. 292 CH. XIII. J BY TKANSFER. § 234 separate estate.^ "Where the status of a married woman remains as at common law, if she owned the stock before her coverture, after which time her husband reduced it into his possession, in the event of the insolvency of the corporation, he, of course, will be liable to creditors ; but where he did not thus reduce the shares to his possession, but allowed the wife to receive the dividends, she was held responsible to the creditors of the corporation under a gen- eral statute making shareholders individually liable.^ This ruling, however, seems contrary to the general tenor of the English cases, which hold that where a man marries a shareholder and allows the shares to remain in her name, he will be a contributory in respect of them ; ^ but both husband and wife should be put on the list, since, if she survives, her liability will survive also.* But one who marries a female shareholder without reducing her shares into his possession is liable as a contributory only in respect of the liabilities of the company accruing or incurred during the coverture.^ Upon grounds fully stated elsewhere,* if a married woman's shares are held by trustees for her, in the absence of statutes providing otherwise, they must respond as shareholders, and look to her for indemnity.'' § 234. Transfers of Shares to the Company itself void. — 3. The general rule is that unless the governing statute or constitution of a company authorizes it in express terms ' Mrs. Mathewman's Case, L. E. 3 Eq. 781; and so is Luard's Case, 1 De Gr. F. & J. 533. Power of married woman to transfer stock without consent of her husband ; Howard v. Bank of England, L. R. 19 Eq. 295. Mandamus awarded to compel registry of shares in the name of a married woman; The Queen v. Carnatic R. Co., L. R. 8 Q. B. 299. 2 Matter of Reciprocity Bank, 22 N. Y. 9. » Burlinson's Case, 3 De G. & Sm. 18 ; Sadler's Case, 3 De G. & Sm. 36 • White's Case, 3 De G. & Sm. 157. * Sadler's Case, 3 De G. & Sm. 3fi. 6 Kluht's Case, 3 De G. & Sm. 210. 6 Ante, i 179. ' Butler V. Cumpston, L. R. 7 Eq. 16. 293 § 234 DIVESTITURE OE LIABILITY. [PAET III. to purchase its own shares, such a purchase is ultra vires} The rule is so strong that, although power is conferred upon the company to deal in the shares of joint-stock com- panies generally, this does not authorize it to deal in its own shares.^ It is immaterial whether the transfer is made to the company itself or to a nominee of the directors, to > Zulueta's Claim, L. R. 5 Ch. 444, reversing s. c, L. E. 9 Eq. 270 ; Ex parte Credit Foncier & Mobilier of England, L. R. 7 Ch. 161 ; Morgan's Case, 1 De G. &Sm.750; s. c, 1 Mac. &G. 225; 1 Ha. &Tw.320; Matter of Reciprocity Bank, 22 N. Y. 18 ; Johnson v. Laflin, 17 Alb. L. J. 146 ; s. c, Thompson's National Bank Cases, 331 ; s. c, 6 Cent. L. J. 124 ; Currier v. Lebanon Slate Co., 56 N. H. 262. Contra, Verplanck v. Mercantile Ins. Co., 1 Edw. Ch. 84; Hartridge v. Rockwell, R. M. Charlt. 260 ; Gillet v. Moody, 3 N. Y. 479. In the New Hamp- shire case there was a statute (Gen. Stat. 1867, ch. 134, ^ 6) providing that " the corporation, at any meeting called for the purpose, may increase or reduce its capital stock and the number of shares therein ; but the capital stock, when so increased, shall not exceed the amount authorized by law ;" and further (ibid., ^ 7), " such corporation, by unanimous vote of all the shares represented at any meeting called for that purpose, or by the written consent of all the stockholders in such corporation, filed with the clerk, may increase or diminish the number of its shares, and thereby increase or diminish the par value of its shares ; but such capital stock shall not thereby be increased or diminished, and the par value of the shares shall not be fixed below fifty dol- lars." These sections wei'e construed so as to reconcile any apparent conflict therein. If a corporation desired to increase its capital, this might be done by the issue of new shares, or by increasing the par value of the old. If it desired to diminish its capital stock, that might be done by refunding to its stockholders a definite portion of each share, or by the surrender and extin- guishment of the requisite number of shares ; but neither of these steps could be taken at the expense and against the consent of one portion of the stock- holders, and for the benefit and advantage of the others. The statute ought not to be construed to work other than exact and even justice to all the share- owners. Therefore, although a resolution was adopted at a meeting of the shareholders of a company, for the purchase of a number of shares, at an exorbitant price, from one of their number who was unable to pay the assess- ments thereon, such purchase being made notwithstanding the protest of a stockholder, who left the meeting before the resolution was adopted, such shares, moreover, having little or no value in the market at the time, the court held the action of the company to be void, and that a decree should be entered requiring the company to reconvey to its transferor the shares so purchased, and to do all other things necessary to place the parties in statu quo. Cur- rier V. Lebanon Slate Co., 56 N. H. 262. Compare Joint-Stock Discount Co. V. Brown, L. R. 3 Eq. 139; s. c, L. R. 8 Eq. 881; Jessopp's Case, 2 De G. & J. 638. 2 Zulueta's Claim, L. R. 5 Ch. 444, reversing s. c, L. R. 9 Eq. 270. 294 CH. Xin.J BY TRANSFER. § 235 hold in trust for the company ; in the latter case, equally with the former, it is invalid.^ Where, then, a corporation is prohibited from purchasing its own shares, such transfers, made to a body incapable of taking, stand as if no transfer had been made ; and although equities may arise out of them as between the immediate parties to the transaction,^ yet they leave the transferor liable as a contributory in the event of a winding-up,' and responsible to creditors as a shareholder.* § 235. Illustrations. — A shareholder in a brewing com- pany sold his shares to one of the directors. His solicitor, through whom the sale was effected, had notice that the purchase was made by a director, with a view of vesting the shares in the company, to whom the director transferred them on the same day on which they were transferred to him. The shares were regularly assigned by deed executed by the shareholder to the director in whose name they were executed, in the same way as if he had been a stranger. The consideration was, however, paid by a note of hand of the company. The company's deed of settlement did not authorize the purchase of shares on behalf of the comjDany. After a lapse of seven years, on the winding-up of the company, the executors of this shareholder were made con- tributories on account of these shares, on the ground that the shareholder had executed the transfer to the director with the knowledge that the shares were to be vested in ' Daniell's Case, 22 Beav. 43 ; Munt's Case, 22 Beav. 55 ; Morgan's Case, 1 Mac. & G. 225; s. u., 1 Ha. & Tw. 320 ; 1 De G-. & Sm. 750; Eyre's Case, 31 Beav. 177 ; Kichmond's Executor's Case, 3 De G-. & Sm. 96 ; Ex parte Hen- derson, 19 Beav. 107 ; Walter's 2d Case, 3 De G. & Sm. 244. 2 Ex parte Morgan, 1 Mac. & G. 225. ' Ex parte Henderson, 19 Beav. 107 ; Eyre's Case, 31 Beav. 177 ; Ex parte Morgan, 1 Mac. & G. 225 ; Daniell's Case, 22 Beav. 43 ; Munt's Case, 22 Beav. 55 ; Richnaond's Executor's Case, 3 De G. & Sm. 9B ; Walter's 2d Case, 3 De G. & Sm. 244. * Matter of Beciprocity Bank, 22 N. Y. 18. 295 § 235 DIVESTITUEE OF LIABILITY. [PAET III. the company.^ A director of this company who had obtained his qualification of shares irregularly, by entries in the company's book, and not by regular allotment and execution of deed of settlement, was desirous, at the expiration of six months, to withdraw from the company, ceasing to be shareholder or director. At a meeting of the directors it was agreed that the shares should be taken back, and he was repaid the value of the shares in a prom- issory note, signed, as for the company, by one director in favor of another, and endorsed to the shareholder. The shares were afterwards transferred on the register from the shareholder's account to the director's account, but it did not appear that the shareholder knew to whom they were transferred ; at least, he never executed any deed of transfer. Eight years afterwards an application that he be placed upon the list of contributories was granted, the court being of the opinion that his original acquisition of the shares, though informal, was effectual, and that upon his with- drawal from the company he was aware that the purchase of the shares was by the company, and not the directors, or any one of them.^ Another shareholder in this company sold his shares to a director, in accordance with a resolution passed at an extraordinary general meeting of the company. The deed of settlement of the company provided two modes only by which a shareholder parting with his shares was relieved from subsequent responsibility. The plan adopted was not in accordance with either of these modes. The lord chancellor, in considering the resolution adopted at the general meeting, pointed out the fact that this was a company, a mere partnership, and not a corporation, and that although the majority of the partners might bind the minority upon every point which the deed by their com- mon contract authorized, yet they had no authority whatever 1 Richmond's Executor's Case, 3 De G. & Sm. 96. a Walter's 2d Case, 3 De G. & Sm. 244. 296 CH. XIII.] BY TRANSFER. § 236 to bind the minority on any matter that was not within the common contract. He was, therefore, constrained to hold that the shareholder had never been released from his lia- bility on the shares.^ § 236. Continued. — A company being in an unprosper- ous condition, and its shares worthless, the auditor sold his shares to the managing director, and gave notice, and the transfer was entered in the minute-book as approved by the directors. The transfer was, in fact, informal, having been entered and approved only by the sole director to whom the sale was made. The auditor knew that by the deed of settlement the company could not hold above a certain number of shares, and also that the business could not be transacted by less than five directors. The Master of the EoUs said that, as the shareholder had not taken the proper steps to see that the shares were formally trans- ferred, he doubted the iond fides of the transaction, and retained his name as a contributory.'' A director in a joint- stock company proposed to retire from the company and be released from all liability. The board of directors assented to this, on condition that he make a loan to the company. He did so, and transferred all his shares to some of the continuing directors. On the authority of Morgan's case,* the Master of the Rolls held the transaction to be clearly unwarranted by the deed of settlement of the company, and not binding upon the other shareholders. There- fore, on the company being wound up, he was placed upon the list of contributories.* In this same company, there being a disagreement between two sections of the directors, it was agreed that one section should retire, and transfer their shares to the continuing directors, " in favor of the 1 Ex parte Morgan, 1 Mac. & G. 225; a. c, before the vice-chancellor, 1 De G. & Sm. 750. 2 Ex parte Henderson, 19 Beav. 107. 8 Ante, i 235. * DanieU's Case, 22 Beav. 43. 297 § 236 DIVESTITURE OF LIABILITY. [PAET III. association." The shares were transferred accordingly, and were afterwards again transferred, and, at the date of the winding-up order, stood in the names of other persons. The court rejected the argument that the purchase of the shares was made by the continuing directors individually, and that, at least, the subsequent transfers to strangers were valid. The original transaction was not binding upon the shareholders, and was simply void.^ A shareholder presented a petition to wind up a company ; the directors, to stifle enquiry, bought him ofl" by taldng a transfer of his shares to a nominee of their own. None of the necessary formalities of transfer, as prescribed by the deed of settle- ment of the company, were observed. The transfer was approved by the directors, all the documents were signed at the same time, and a post-dated entry was made in the booiis of the company, to make it appear that this had been sanctioned by the nominee who was to take the trans- fer. It was also in evidence that the nominee was a mere machine in the matter, and did not believe that he was to incur any liability in respect of the shares. Upon these facts, it was the opinion of the Master of the Eolls that if the transfer had been completed with every regular form, it could not have stood in his court ; that the necessary duty which trustees owe to all their shareholders, and of which they are all aware, makes it impossible for one shareholder to connive with the directors in injuring the rest of the shareholders, and thereby, at the same time, to emancipate himself from his own Uability.^ In the state of New York, section 3 of the act of 1849, exonerating a stockholder upon his making a bond fide transfer to a resident of that state, is not satisfied by a transfer to the corporation itself. The purchaser must be one who succeeds to a personal liability distinct from and in addition to that of the stockholder." ' Hunt's Case, 22 Beav. 55. ' Eyre's Case, 31 Beav. 177. ' Matter of Keciprocity Bank, 22 N. T. 9. 298 CH. Xin.J BY TRANSFER. § 237 § 237. Exceptions to this Rule. — Authority for stating some exceptions to this rule will be found in the American cases. Thus, it has been held that a corporation may take its own stock in payment of debts owing to it, and may hold and sell stock thus acquired. * The directors have power to sell such stock and take notes for the price, under the general power which they possess of managing the cor- porate business.' So, a bequest to a corporation of its own shares has been held valid.^ But, wliilst stock thus taken by the corporation in payment or pledge does not merge so that it may not be reissued,* it cannot be voted at corporate elections ; for it is not to be tolerated that the power should thus be put into the hands of the officers of corporations of securing themselves against the possibility of removal.* An insurance company doing business under the laws of Ohio, being in full operation, with a capital of $300,000, the amount authorized by its charter, resolved, through its board of directors, that any stockholder indebted to the company on stock notes might have the privilege of paying any part or all of such indebtedness in the capital stock of the company, at a rate specified in the resolution. The Court of Appeals of New York held that this transaction was valid. The court was not aware of any common-law principle which forbids it, nor was it shown to be in contra- vention of any provision of the charter of the company, or of any other statute of Ohio.^ This decision is not only against the weight of authority, but it is incapable of vin- 1 Barton «. Plank-road Co., 17 Barb. 397; Cooper «. Frederick, 9 Ala. 738; Taylor v. Miami Exporting Co., 7 Ohio, 162 ; Bank of Columbus o. Bruce, 17 N. T. 507. 2 State Bank v. Fox, 3 Blatchf. 431 ; Williams v. Savage Man. Co., 3 Md. Ch. 418. An agreement of a corporation to sell its own shares for less than their par value has been held valid, it not appearing how the company acquired the stock. Otter o. Brevoort Petroleum Co., 50 Barb. 247. ^ Rivanna Nav. Co. u. Dawson, 3 Gratt. 19. ' Williams v. Savage Man. Co., 3 Md. Ch. 417. 6 Ex parte Holmes, 5 Cow. 426 ; Brewster v. Hartley, 37 Cal. 15. • Bank of Columbus v. Bruce, 17 N. Y. 507. 299 § 238 DIVESTITUItE OF LIABILITY. [PART III. dication upon sound piinciples. We have already seen^ that the debts due a corporation by its stockholders on their stock subscriptions are as much a part of the capital stock, which constitutes a trust fund for the security and benefit of creditors, as its tangible assets. It follows, and has been decided in almost every variety of situation, that any arrangement or manipulation which disperses this fund, or even converts it into common assets,' is void as against creditors who have giveu credit on the faith of it. And while a court of justice will probably uphold a compromise by which a company, solvent and paying dividends, receives its own stock in payment of a debt which it would other- wise lose,^ yet an arrangement by which a company receives its own stock in discharge of notes given for stock subscrip- tions scatters this trust fund into air. § 238. Cases depending' on special Circumstances. — Cases are found which indirectly involve the power of a company to purchase its own shares, or which rest upon peculiar circumstances, where the company or its repre- sentative has afterwards unsuccessfully impeached the transaction. Thus, the directors of a banking company whose articles of association provided that the directors might, without authority from the shareholders, "sell or dispose of any of the property of the company," paid out of the funds of the company £500 to a stockholder, being the amount of the premium on 1,000 shares of the com- pany, purchased by him in the market, at the request of the directors, for a person whom they had requested to join the board. The following year the company was wound up, and a suit was instituted on its behalf for the recov- ery of the £500, by the official liquidator of the company ' Ante, 2 10. » Sawyer v. Hoag, 17 Wall. 610. = Currier v. Lebanon Slate Co., 66 N. H. 2G8, per Smith, J., and other cases cited supra. 300 CH. XIII.] BT TRANSFER. § 238 against the broker, to whicli neither the directors nor the person for whom the stock was purchased were parties. The liquidator claimed that the payment was a breach of trust of which the broker had notice. The Master of the Rolls held that the transaction disclosed no taint of fraud ; that if impeached at all, it must be annulled altogether. This could not be done, as the parties now could not be put back into the same position ; and, moreover, neither the directors nOr the person for whom the stock was purchased were parties to the suit.-' In another case a company was formed for the purchase of certain iron- works. The vendor guaranteed the company a certain annual dividend. As a security for this guaranty, it was agreed, and such agree- ment was incorporated into the articles of association, that the shares which formed part of the vendor's purchase- money should be placed in the power of the company, by means of a transfer to two of the directors, as trustees for the company, but who were not to be registered as holders of the shares except by their own direction. The shares were accordingly transferred to the two directors, and the share certificates, the deed of transfer, and the certificate that the transfer deed had been registered in the books of the company were deposited with the bankers of the com- pany for safe custody, but afterwards withdrawn from them to prevent their claiming any lien. After the wind- ing-up order, the names of the two directors Avere for the first time placed on the register of shareholders and on the list of contributories. Vice-Chancellor Bacon thought that this was a proceeding " at variance with common honesty and common sense." The trustees were never upon the list of shareholders, and had their names been placed there by the company or by the directors, in violation of the contract between the parties, they would have been en- titled to have them removed.^ The court, in this case, ' London, etc., Bank v. Henry, L. R. 7 Eq. 334. ■' Gray's Case, 1 Ch. Div. 664. 301 § 239 DIVESTITURE OP LIABILITY. [PAKT III. based its decision upon the authority of Saunder's case,^ the facts of which were as follows : The local manager of a company was asked by the general manager to become a director, the qualification for which was the holding of 500 shares. Five hundred shares, held by the manager as a trustee for the company, were transferred to the local manager by deed, which he also executed. He acted as director, but he was not registered as a shareholder, never received any notice of dividends, continued to be a local manager, and never paid the price which was expressed in the deed of transfer to be paid for the shares, nor appeared to have been treated as a shareholder ; and the court was •satisfied on the evidence that he had never agreed to pur- chase the shares, but that they were transferred to him by order of the directors merely to qualify him for the direc- torship. The lords justices thought that there were only two ways of looldng at this case : the company might adopt or repudiate it. If they adopted it, they certainly could not insist upon their own trustee being made a contribu- tory. If they repudiated it, the transaction must be un- done in toto. It might be otherwise, were it shown that the local manager was privy to the breach of duty of the directors in executing the transfer, but this the evidence did not show. § 239. Want of Knowledge on Part of Transferor. — If a shareholder, in selling his shares, deals at arm's length with the company, and conveys them to a qualified person under circumstances which do not charge him with knowl- edge that the transferee is a mere trustee for the company, and he, in point of fact, has no such knowledge, the exist- ence of such a fact will not avoid the transfer and make him a contributory.* The same rule has been applied where 1 2 De G. J. & S. 101. 2 Grady's Case, 1 De G. J. & S. 488. The writer thinks that Lord "Westbury was wrong in inferring from the facts of this case that the transferor was with- out knowledge of the trusteeship of the transferee. This, however does not alter the principle on which the case proceeded. 302 CH. XIII. J BY TRANSFER. § 239 the shares were sold to a qualified person through a broker, the vendor having no knowledge of the fact that the trans- feree received them in trust for the company, or that they were purchased with the company's funds. ^ Thus, the deed of settlement of a banking company provided that shares might be transferred with the consent of the directors, but that the transfers should be registered, and that an endorsement of the registry should be made on the deed of transfer, and should be sufficient evidence of the direc- tors' consent. A shareholder placed his shares in the hands of a broker, and they were sold nominally to the solicitor of the company, but really (though without the knowledge of the shareholder) to the company itself, the purchase- money being paid out of the company's funds, and the subsequent dividends being carried to their credit. On these facts the court held that, although there was no endorsement on the transfer to the solicitor, the directors' consent was sufficiently proved, and that, on the company being wound up, the vendor ought not to be placed on the list of contributories as a jDresent shareholder.^ A holder of full-paid shares of stock in a national bank employed a broker to sell the same in the market ; the broker, without the stockholder's knowledge or direction at the time, sold the same at their market value to the president of the bank, individually, and received in payment his individual check on the bank for the purchase-price, and delivered to the pur- chaser the share certificates assigned in blank, with blank powers of attorney thereon endorsed, authorizing the trans- fer of the shares upon the books of the bank ; subsequently, after the amount of the check had been collected, but on the same day, the president, without the knowledge of the stockholder or his broker, directed the book-keeper of the bank to credit his individual account with the amount of ' Nicol's Case, 3 De G-. & J. 387 ; Johnson v. Laflir,, 6 Cent. L. J. 124 ; s. t., 17 Alb. L. J. 14fi ; Thompson's National Bank Cases, 331. ' iSficol's Case, 3 De G. & J. 387. 303 § 240 DIVESTITUEE OF LIABILITT. [PAKT III. the check which he had given for the shares, and to transfer the shares (the book-keejDer inserting his own name in the blank power of attorney to make the transfer) to him as "trustee," not specifying for whom he was trustee, and charging the sum to the "sundry stock account" of the bank, all of which was done. The bank, although it had not committed any act of insolvency, was then insolvent, but this fact was not known by the stockholder or the broker. The court (Dillon, J.) held, that although the bank, or its officers for it, were prohibited from pui'chasing its own shares,^ yet that the stockholder, having sold in good faith, without notice of the illegal purpose of the president in buying the stock, or of his intended misap- propriation of the funds of the bank in paying therefor, was not liable to pay back to the receiver of the bank the money received in payment of the shares.^ § 240. Continued. — In determining the value of these two cases, it must be borne in mind that the American case was a bill in equity brought by the official receiver of a suspended national bank against one who had been a stock- holder therein, to charge him in respect of a portion of the assets of the bank, of which he had obtained possession through a violation of law, of which it was claimed he was chargeable with notice. On the other hand, the English case was a proceeding in equity under the Winding-up Act, 1848,^ the object of which statute, as stated by Sir John Komilly, who assisted in framing the act, and as admitted in the particular case, was not to effect satisfaction for credit- ors, — a different remedy was provided for them, — but to secure contribution and equality among shareholders.* It 1 liov. Stat. U. S., § 5201. 2 Johnson v. Laflin, 6 Cent. L. J. 124; a. c, 17 Alb. L. J. 146; Thompson's National Bank Cases, 331. 3 11 & 12 Vict. u. 45. •• Re Phillips, 18 Beav. 629. See also the judgment of the vice-warden of the atannerios, in Cox's Case, 4 De G. J. & S. 53. 304 CH. XIII. ] BY TRANSFER. § 240 must also be borne in mind, in estimating the value of these two cases, that the American courts, and notably the federal courts, in administering the assets of insolvent cor- porations, proceed upon the ground that the capital stock and assets of a corporation are a trust fund for the benefit of creditors ; ^ but I can find no trace of such a doctrine in the English books. Moreover, in nearly all American corpora- tions, shareholders are subjected only to a limited liability ; whereas in nearly all the English companies, until the Companies Act, 1862, the shareholders were liable as part- ners. Tims, the shareholders in the National Banlc of the State of Missouri, which was being wound up by the receiver in Johnson v. Laflin,^ were subject to a limited several liability to the extent of the par value of each one's shares of stock ; ^ but the shareholders of the Royal British Bank, which was being wound up by the official manager in Nicol's case,* were liable in solido as partners. It is obvious, then, that in such a case the American chancellor will keep his eye steadily upon the rights of creditors. In their behalf he will work out all doubtful equities. He will, at the same time, be mindful of tlie rights of shareholders, and will so mould his decrees as to secure equal contribution among them ; or, in case of a surplus after creditors are satisfied, equal distribution. Johnson v. Laflin* was, in substance, a contest between three parties, namely, A., the body of creditors, B., a shareholder, and C, the board of directors of the corporation. The party designated as C. had stood between A. and B., in custody of a trust fund, whicli it held primarily for the benefit of A. and secondarily for the benefit of B. In violation of its trust, and contrary 1 Ante, I 10. 2 6 Cent. L. J. 124 ; s. c., 17 Alb. L. J. 146 ; Thompson's National JBank Cases, 331. 3 Kev. Stat. U. S., § -5151. * 3 De G. & J. 387. ' 6 Cent. L. J. 124; c <;., 17 Alb. L. .J. 146. 20 305 § 240 DIVESTITURE OF LIABILITY. [PART III. to the provisions of positive law, C. took a portion of this trust fund thus pledged to A. and gave it to B., getting nothing of value in return. This being the substance of the transaction, it seems clear that a court of equity ought not to permit it to stand, if it can discover any grounds on which to undo it. Again, it is a principle that where one of two inuotent persons must suffer, through the fault or fraud of a third, the loss shall fall upon the one who was the more in fault, or to whom the more negligence is imputable. Let us, tlien, see if A. and B. are in equal situations with reference to the fraud of C. 1. As already seen, A. stands towards the fund in C.'s possession in a position of higher equity than B. 2. A. is not in privity with C, but in a certain sense B. is.' 3. C. is not the, agent of A., but in a certain sense he is the agent of B. ; he is the managing agent of the body of which B. is a member and a part. 4. In re- spect of the unlawful and fraudulent act of C, A. was guilty of no negligence. Was B.in a like situation? Was it not incumbent upon him to see that the transfer of his shares, made through a broker, was made to a person capable of taking? Did he proceed with reasonable dili- gence to ascertain that fact? He proceeded with no diligence whatever. He executed and delivered to the broker through whom the transaction was effected a power of attorney in blank to transfer his shares. The broker thus received implied authority to fill the blank with whose name soever he pleased. He filled it with the name of a person who knew the real nature of the transaction. The transferor thus shut his eyes and stopped his ears. He did not know, and possibly did not care to know, to whom they were transferred. So far as his actual knowledge went, he transferred them to nobody, and got pa^' for them with nobody's money. Was not the knowledge of his ao-ent under the power of attorney imputable to himself? The ' Post, 5 329 et neq. 30li CH. XIII.] BY TRANSFER. § 240 general rule is that notice to an agent is notice to his prin- cipal.^ This rule, properly limited, charges the principal with notice of every fact coming to the knowledge of his agent which is connected with the business in which the agent is employed.^ The reasoning of Judge Dillon against the operation of this rule in such a case, founded upon the general custom of transferring shares from hand to hand by means of powers of attorney executed in blank, is cer- tainly very persu-asive ; but does it take the case out of the rule ? The business for which this agent is appointed is to execute a conveyance of shares ; he knows that the convey- ance he is about to make is unlawful ; if this knowledge is not imputable to his principal, then the rule fails. The English case' stands on a different plane of equity. The shareholders had agreed by deed of settlement that each one of them should have the power to transfer his shares in a certain manner. Nicol transferred his shares in that manner to a person sui juris, and otherwise capable of taking. He did not know, and might not with reason- able diligence have discovered, that the transferee purchased them upon a secret trust for the company, with the com- pany's money, in violation of the deed of settlement. He did what any one of his co-shareholders might have done in pursuance of the deed of settlement which they had executed ; and, the rights of creditors not being involved, there was some reason for saying that the official liquidator acting for them could not question it. ' Astor V. Wells, 4 Wheat. 466 ; Bracken v. Miller, 4 Watts & S. 102 ; Reed's Appeal, 34 Pa. St. 207; Mechanics' Bank v. Seton, 1 Pet. 309; Jackson v. Sharp, 9 Johns. 162 ; Jackson o. Winslow, 9 Cow. 13 ; Jackson v. Leek, 19 Wend. 339 ; Bank of United States o. Davis, 2 Hill, 451 ; Puller v. Beiiett, 2 Hare, 402 ; Shelden v. Cox, 2 Eden, 224; Sterling Bridge Co. v. Baker, 75 111. 13.9. 2 Wade on Notice, ? 672. " Nicol's Case, 3 De G-. & J. 387. 307 § 243 DIVESTITUUE OP LIABILITY. [PAKT III. CHAPTER XIV. BY BANKKUPrCY. Section 243. Bankruptcy of Shareholder. 244. If Company is wound up before Banlcruptcy. 245. Continued — When Discharge will not release bankrupt Share- holder. § 243. Bankruptcy of Shareholder. — Shares in a cor- poration, being property, of course pass by an assignment in bankruptcy, in common with other property of the debtor ; although it may be otherwise as to shares in a joint-stock company.' If calls are made on such shares while the company is a going concern, and it is necessary to pay them in order to save the shares from forfeiture, and it is to the interest of the bankrupt's estate that they should not be forfeited, it is jjresumed that the court of bankruptcy would, on a proper showing, direct the assignee to pay such calls .^ A sale of such shares by the assignee in bank- ' A joint-stock company being nothing more than a partnership of many members {ante, I 2), if its organization is such that its status is that of a sim- ple partnership, it is, of course, dissolved by the bankruptcy of one of its mem- bers. Greenshield's Case, 5 De G. & Sm. 599. The shares in such a company are not property; do not pass as such under an assignment in bankruptcy, as do the shares in a corporation or a company formed under an act of Parlia- ment; and hence the assignee in bankruptcy of a shareholder in such a company cannot, in the event of the winding-up of the company, be made a contributory. Ibid. » The oiBcial assignee of a banln'upt shareholder of a company paid, out of the bankrupt's estate, calls becoming due on the shares after the bankruptcy, and the creditor's assignees, in the usual course of business, signed memoranda vouching the accuracy of the official assignee's accounts, containing entries of the payments of the calls. The court held that this circumstance did not ren- der the surviving creditor's assignee liable to be placed on the list of contrib- utories in his own right as a member by survivorship. Stone's Case, 3 De G. & Sm. 220. 308 CH. XIV. J BY BANKRUPTCY. § 244 ruptcy, under order of the court of bankruptcy, would, as a general rule, on grounds already stated,^ terminate the liability of the bankrupt, and of his estate, in respect of such shares. If the company is wound up pending the bankruptcy of a shareholder, and whilst the assignee in bankruptcy is the legal holder of the shares, the assignee will be put on the list of contributories in his representa- tive capacity ; * which means that the calls made on the bankrupt shareholder, in the proceeding to wind up the company, must be proven by the receiver or liquidator of the company, in the court of bankruptcy, where he takes his dividend with other creditors of the bankrupt,' and sub- jects himself to the right of set-off, the same as any other creditor of the bankrupt.* § 244. If Company is wound up before Bankruptcy. — It may, no doubt, be stated as a general conclusion that if a company comes to an end before the bankruptcy of one of its shareholders, his certificate of discharge shields him from all liability to contribute to the debts of the company, and also to the expenses of winding it up.* This conclusion rests upon two reasons : 1 . That the assignment in bank- ruptcy operates as a complete divestiture of the bankrupt's title to the shares, as fully as though he had transferred them bond fide, for a valuable consideration, to a person 1 Ante, Ch. Xm. ' Kuper's Assignee's Case, 3 De G-. & Sm. 113. > » Re, Duckworth, L. R. 2 Ch. 581, per Lord Caims, L. J. ; Ex parte Picker- ing, L. R. 4 Ch. 58 ; Williams v. Harding, L. R. 1 H. L. 9 ; Ex parte Nicho- las's Assignees, 2 De G. M. & G. 271. Under the English Companies Act, 1862, the company should be entered as a creditor, in the court of bankruptcy, for the estimated amount of future calls as well as for calls already made. Ex parte Pickering, L. R. 4 Ch. 58. * Ibid., post, I 385. " Parbury's Case, 3 De G. F. & J. 80; Chappie's Case, 5 De G. & Sm. 400; Wylam's Steam Fuel Co. v. Street, 10 Exch. 849 ; Runnett v. Vin^yak Pdhdu- rang, 9 Bombay H. C. Kep. 27, 31. See Warburg v. Tucker, 8 Macq. H. h. Gas. 772: Ex parte Harding, 33 L. J. (Bank.) 26. 309 § 245 DIVESTITURE OF LIABILITY. [PART III. capable of taking them.i xhe bankrupt having thereby- ceased to be a shareholder, of course ceases to be liable as such, unless there is a statute or rule of construction which makes him liable as a past member.'^ 2. That the sum which the shareholder was liable to contribute for the ben- efit of creditors was a debt provable in the proceeding in bankruptcy. If both or either of these reasons fail, the rule ceases.' § 245. Continued — When Discharge will not release bankrupt Shareholder. — The authorities bearing on the ' The writer thinks that this has never been questioned in case of an Ameri- can corporation. » Ante, I 97. ' In South Staffordshire Railway Company v. Burnside, 5 Exch. 129, both of these conditions failed. The court ruled that there was no evidence of an acceptance of the shares by the assignee, and that the liability of the share- holder was not a debt provable under the then existing Bankrupt Act. 6 Geo. rV. o. 16, J5 61, 56. The court accordingly sustained an action of debt for calls, notwithstanding the shareholder's discharge in bankruptcy. The court reasoned that the legal title to the shares still remained in the bankrupt; and, besides, "to make the bankrupt's estate pay a dividend on the full amount of the sura subscribed for, when no other shareholders were yet required, nor sure to be required, to pay a call, would put him in a worse situation than the others, and would be obviously unjust." In Financial Corporation u. Law- rence, L. R. 4 C. P. 731, A., being a holder of shares in a company, executed an inspectorship deed. After the execution of this deed, a call was made on A.'8 shares. Subsequently, but before the property included in the deed had been distributed among the creditors, the winding-up of the company com- menced. It was held that the call was not barred by the deed ; the call was not provable in bankruptcy, — the liability was too uncertain (Mudge v. Rowan, L. R. 8 Exch. 85), — and, therefore, not a debt within the operation of the inspectorship deed. In Furdoonjee's Case, 8 Ch. Div. 264, shares in an English company were taken by a resident at Bombay, who became insolvent. After- wards the company was ordered to be wound up. The debtor subsequently obtained an order of discharge under an Indian act. The vice-chancellor (Bacon) held that the liability of the insolvent in respect of the shares was not a debt provable in the insolvency proceedings, and hence that it was not barred by the order of discharge ; and the name of the insolvent was ordered to be placed on the list of contributories. In General Discount Company v. Stokes, 17 C. B. (n. s.) 705, the liability of a shareholder for calls was held not to be a debt provable in bankruptcy. Under the English Bankrupt Act of 1849, a certificate of discharge was, therefore, no bar to an action by a company against a shareholder for calls. 310 CH. XIV. J BY BANKEUPTCT. § 245 subject were gone into at some length by the Court of Appeal in Chancery in Hastie's case ;' and, keeping them- selves within the limits of the case before them, the lords justices ruled that "a bankrupt must be retained as a con- tributory where the bankruptcy and the discharge precede the winding-up, where the debt is not shown to be capable of valuation, where the assignees have repudiated the shares, and they have always remained, and still remain, vested in the bankrupt.'"' ' L. R. 4 Ch. 274. 2 The Court of Queen's Bench has ruled that a shareholder in a company under the Companies Act, 18B2, who has become bankrupt and received his discharge, but retains his shares, is not discharged from liability to pay sub- sequent calls, whether made while the company is in operation or when it is being wound up ; for the covenant of the shareholder on becoming a member, under section 16, to pay the calls on his shares, is not "a contract to pay sums of money yearly, or otherwise," within section 154 of the Bankruptcy Act, 1861, so as to make the present value of their liability prOvable under that section; and section 75 of the Companies Act, 1862, which makes it "lawful, in the case of the bankruptcy of any contributory, to prove against his estata the estimated value of his liability to future calls," only applies where the bankruptcy of the contributory is contemporaneous with the winding-up of the company. Martin's Patent Anclior Co. o. Morton, L. R. 3 Q. B. 303. It has been held in Massachusetts that the qualified liability of a member of a manufacturing corporation for the debts of the corporation, under the statute of 1808, ch. 65, 5 6, was not a " debt" such as could be proved in a court of insolvency against the estate of a deceased shareholder, under a statute defin- ing the demands Which might be proved as " all deits due and payable frorti such debtor." Stat. 1838, ch. 163 ; Kelton ti. Phillips, 3 Mete. 61. The statute of 1808 made the members liable as original contractors, and execution ran against them on the judgments of the corporation, without their having any day in court. This ruling is of a piece with the ruling of the same court (post, I 254) that the estate of a deceased shareholder, whilst enjoying the profit*, could not be charged with liability under this statute. 311 § 248 DIVESTITUKE OF LIABILITY. [PAKT III. CHAPTER XV. BY DEATH. Section 248. Liability of personal Representatives of deceased Shareholders. 249. Continued. 250. Mode of enforcing Contribution from Estate of deceased Share- . holder. 251. When Executors personally Liable. 252. Whether Executor or Legatee a Contributory. 253. Executors de son Tort. 254. The American Doctrine. § 248. Liiabillty of personal Representatives of de- ceased Shareholders. — "Although ia some of the earlier American cases shares of corporations were treated as real estate,' and to obviate this rule express provisions were inserted, in railway and other charters, that the capital stock should be deemed and taken as personal estate,^ it is now well established that the shares of all corporations are per- sonal property."* Being personal property, they pass, on the death of the holder, not to his heir, but to his personal representative. ' I quote this language and the supporting authorities from one of the val- uable notes of Judge Ashbel Green to the American edition of Brice's Ultra Vires, at page 140. See Tippets v. Walker, 4 Mass. 595 ; Howe v. Stark- weather, 17 Mass. 240; Welles v. Cowles, 2 Conn. 567; Meason's Estate, 4 Watts, 341. = Citing 1 Rev. Laws N. Y. 247 ; Laws N. J. 1830, p. 83, § 17. " Citing Waltham Bank v. Waltham. 10 Mete. 334; Hutehins v. State Bank, 12 Mete. 421; Wheelock v. Moulton, 15 Vt. 519; Isham v. Benning- ton Iron Co., 19 Vt. 230; Arnold v. Ruggles, 1 R. L 165 ; Denton v. Livingston, 9 Johns. 96; Gilpin v. Howell, 5 Pa. St. 41; Slaymiiker o. Gett.vsburg Bank, 10 Pa. St. 373 ; The State v. Franklin Bank, 10 Ohio, 91 ; Johns d. Johns, 1 Ohio St. 350; Heart v. State Bank, 2 Dev. Eq. Ill ; Planters and Merchants' Bank o. Leavens, 4 Ala. 758; Union Bank o. The State, 9 Yerg. 490; Brightwell i. Mallory, 10 Yerg. 196. 312 CH. XV.j BY DEATH. § 249 § 249. Continued. — Executors or administrators of de- ceased stockholders are liable as coiitributories, not on the same principle as other trustees, but, in general,' only in respect of their trust estate. ** In England the question has often turned on the provisions of the company's deed of settlement. Thus, in Ness v. Armstrong," the deed of settle- ment of a joint-stock banldng company established under the 7 Geo. IV. c. 46, provided that the executor of a deceased shareholder should not be a member of the com- pany in respect of such shares, but should be at liberty to sell the shares, or, at his option, to become a member on complying with certain provisions, and that if he did not elect to become a member he was not to be entitled to any dividend accruing after the testator's death ; and it was held that the executor of a deceased shareholder, who received a dividend which acci-ued after the death of his testator, but had not complied with the provisions of the deed of settle- ment, was not a member for the purpose of execution against him by scire facias upon a judgment against the public officer of the company. But although an executor may not, under the constitution of the company, be a share- holder in name, and although the remedies which are given against shareholders generally may not reach him as such, yet it does not follow that he is discharged from all liability in respect of the shares of his testator. Such shares form a part of the testator's personal estate, and although his executors would not have the status of shareholders, they would still be the owners of the shares. "And it would 1 Ante, I 179. 2 Blakeley's Executor's Case, 13 Beav. 133, affirmed on appeal, 3 Mac. & G. 726 ; Ex parte Gouthwaite, 3 Mac. & G. 187 ; Bulmer's Case, 33 Beav. 435; Hamer's Executor's Case, 8 De G. & Sm. 279; Gouthwaite's Case, 3 De G. & Sra. 258; Taylor v. Taylor, L. R 10 Eq. 477; Houldsworth v. Evans, L. K. 3 H. L. 263, 282. See also Robinson's Executor's Case, 6 De G. M. & G. 572 ; Grew v. Breed, 10 Meto. 569 ; New England Commercial Bank v. The Stockholders, 6 R. I. 154, 189, » 4 Exuh. 21. 313 § 249 DIVESTITURE OF LIABItlTY. [PAET III. be a strange result of this state of things that, because they were not nominally shareholders, they were relieved from all lialiility."^ Upon this principle, although the deed of settlement provided that the shares of deceased proprietors should belong to their jiersonal representatives, " but that the executor of a deceased proprietor should not be deemed a proprietor until duly admitted as such, yet, the company being wound up, it was held that the execu- tors of a deceased proprietor were liable in that capacity to be placed on the list of contributories in respect of com- pany debts incurred subsequently to the death of their tes- tator, although they had not complied with the formalities of the deed so as to entitle them to share in the profits of the company. In other words, the estate of the deceased shareholder continued liable until a new personal liability had been created pursuant to the deed.^ The resulting doctrine has thus been formulated : In a joint-stock com- pany the presumption is that the executors of a deceased shareholder succeed to the full liability as well as to the rights of their testator. The deed of settlement is to be looked at, not to see whether it imposes such liability on the executors, but whether it takes away or limits it. The fact that by the deed of settlement executors are not entitled to the full privileges of shareholders, until they or their nominees have been registered as sliareholders, is no proof of an intention to limit their liability in their representative character. Accordingly, in the case of a joint-stock com- pany formed in 1845, where, in the opinion of the court, nothing appeared in the deed of settlement to limit the liability of the executors of a deceased shareholder, it was held (reversing the decision of the Master of the Eolls) ' Houldsworth v. Evans, L. B. 3 H. L. 263, 283, per Lord Chelmsford. '^ Blakeley's Case, 13 Beav. 133, affii'med on appeal, 3 Mac. & G-. 729. The same point was ruled, under a simiUir deed of settlement, in Ex parte Goutliwaite, 8 Mac. & G-. 187; in Baird's Case, L. E. 6 Oh. 725; and in Tur- quand i-. Kirby, L. R. 4 Eq. 123. 314 CH. XV. J BY DEATH. § 250 that their liability was not limited to debts incurred before the death of the testator.' § 250. Mode of enforcing Contribution from Estate of deceased Sliareholder. — The manner of enforcing con- tribution from the estate of a deceased shareholder for the benefit of the creditors of an insolvent corporation is a question which, to a great extent, refers itself to the pecu- liar practice of each state. In Rhode Island it has been held that a statutory liability of a stockholder for the cor- porate debts, upon the death of the stockholder, did not, at law, survive against his estate, and that no action at law could be maintained against the personal representative of such stockholder to enforce the same ; but that the estate of a deceased stockholder might be pursued by the creditor in equity, which, for the sake of the remedy, and to correct the form of the contract so as to carry out its substance, would construe it to be several as well as joint ; that in such case a court of equity would decree in favor of the creditor of the corporation on account of the personal estate of a deceased stockholder, and payment of his debt out of the surplus of the same, after the payment of the separate debts of such stockholder and of the expenses of settling his estate, without regard to the solvency or insolvency of the stockholders liable, and without reference to the state of accounts between the stockholders and the corporation, leaving the estate to seek repayment from the corporation, or contribution from those liable to it. It Avas also held that, to a bill seeking relief from the estate of a deceased stockholder, all the living stockholders and representatives of deceased stockholders liable to the debt must, as inter- ested in the account to be taken, be made parties defendant to the bill ; that, if the real assets of the deceased stock- holder are sought to be charged, his heirs at law, in case of intestacy, and his devisees, if there be a will, must also be » Baird'a Case, L. E. 5 Ch. 725. 315 § 250 DIVESTITURE OF LIABILITY. [PART III. made parties defendant to the bill ; that, as two oi* more creditors for whose claims different sets of stockholders are liable cannot unite them all in the same bill for the purpose of separate relief against those respectively liable to them, so the same creditor cannot enforce in the same bill, against the estates of deceased stockholders, different debts, for which all the estates pursued are not liable ; but that there is no objection, on the ground of multifariousness, to a creditor's seeldng, in the same bill, relief out of the estates of two or more deceased stockholders, all of which are liable to his debt.^ In an important English case, a com- pany had been ordered to be wound up under the Companies Act, 1862, and the executor of a deceased shareholder had been made a contributory. The official liquidator filed a bill, on behalf of himself and all other creditors of the testator, against the executor and the dcAasees, for the administration of the testator's estate and to enforce the calls against the real estate. It was held by Lord Romilly, M. R., that the suit was properly instituted, and that, notwithstanding a lapse of nine years from the death of the testator to the winding-up of the company, the real estate in the hands of the devisees was liable to the payment of calls. The statute of limita- tions had nothing to do with the case, for the debt did not arise until the call was made by the official liquidator.^ It was true that the debt did not exist when the testator died ; but in that respect the case did not differ from the cases where a testator has in his lifetime become surety for the due performance of a covenant, which is broken many years after his death, or where executors" of a deceased person are chargeable, long after his death, with the loss occasioned by a breach of trust committed by him.* ' New England Commercial Bank v. The Stockholders, 6 R. I. 154. ' Post, ? 290 ei aeq. « As in KnatchbuU v. Pearnhead, 3 Myl. & Or. 122. ♦ Turqiiand v. Kirby, L. R. 4 Eq. 123. Compare Baird's Case, L. R. 5 Ch. 736, where ttiis case la noticed. 316 CH. XV. J BY DEATH. § 251 § 251. "When Executors personally liable. — It has been held by the New York Court of Appeals that where the executors of an estate invest any of the funds of the testator in shares, without any authority to do so in the will, the shares are to be treated as belonging to them, and not to the estnte ; and they, and not the estate, are respon- sible as stockholders.^ It has been held by Lord Romilly, M. E., that executors of a deceased shareholder in a going and solvent company commit a breach of trust in paying a legacy without providing for the liability attaching to the testator's estate at the time of his death, in respect of such shares ; and, in the event of the company afterwards being wound up, he must pay out of his own pocket the calls made upon him as a contributory.^ Lord Romilly, M. E., has also ruled thnt executors purchasing further shares in a company are liable as contributories, not in respect of their testator's estate, but without qualification. Mr. Selwyn, arguing this question for the official manager, placed the unqualified liability of the executor upon the same prhici- ple which makes an executor who carries on the trade of his testator personally liable.' But Lord Eomilly reasoned the case thus : "I am of opinion that, with respect of these shares, they are personally liable, and that they can only look to their testator's estate for indemnity. If it were otherwise, the executor of an insolvent estate might pur- chase any number of shares, and keep them if they were profitable, but repudiate any liability if they turned out otherwise, and thus involve the company in an account of the testator's estate. They have purchased these shares, 1 Diven v. Lee, 36 N. T. 302 ; n. c, 34 How. Pr. 197. 2 Taylor v. Taj-lor, L. R. 10 Eq. 477. For another illustration of the princi- ple on which this case was decided, see Knatchbull u. Fearnhead, 3 Myl. & Cr. 122. ' Ex parte Garland, 10 Ves. 119 ; Ex parte Richardson, 1 Buck, 209 ; Alsop V. Mather, 8 Conn. 584; Stedman v. Feidler, 20 N. Y. 437; Thompson v. Brown, 4 Johns. Oh. 619, 630; Wightman v. Townroe, 1 Man. & Sel. 412; Labouchere v. Tupper, 11 Moo. P. C. 198 ; Liverpool Borough Bank v. Walker, 4 De G. & J. 24. 317 § 251 DIVESTITURE OF LIABILITY. [PAKT lU. whether with authority under the will or not is iinmateritil, and they have received dividends. They are, therefore, personally liable.^ The directors of a joint-stock company offered their reserved shares to shareholders, and the execu- tors of deceased shareholders, iu i^roportion to the amount of their original shares. Shares were accepted accordingly by certain executors. The court held (reversing the de- cision of Kindersley, V.-C. ) that executors who accepted shares must be put upon the list of contributories in their own right, and not in their representative character, saying: "It is true that they acquired the shares as executors, but the question is not in what character they acquired the shares, but upon what terms, as between themselves and ' Spence's Case, 17 Beav. 203. See also G-outhwaite's Case, 3 De Gr. & Sm. 258, where the executrix of a deceased shareholder received dividends for two years, signing the dividend receipts as executrix ; but she was not required by the directors to execute the deed of settlement, nor did she do so. The court held that, as she had participated in the profits, it was unreasonable to attrib- ute to her and the directors an intention that she was not to be liable to con- tribute to the losses in some manner; that the receipt of the dividends was sufficient evidence tliat she had contracted with the directors to be a contribu- tory ; and, further, that the directors were competent to make such a contract. But no decision was rendered as to whether she should be a contributory per- sonally or as executrix. In Hamer's Executor's Case, 3 De G. & Sm. 279, a mother and daughter were entered upon the books of a company as executrixes of a deceased shareholder. The testator by his will gave the interest, divi- dends, and produce of his personal property to the mother for life ; and, after her decease, to the daughter absolutely. After the death of the testator, the daughter received one dividend, which she handed over to her mother, and the mother received four other dividends. The company was then ordered to be wound up, shortly after which time the mother died. An effort was made to have the daughter and her husband made contributories, without reference to the amount of assets which had been received. The vice-chancellor stated that he was afraid such would be the case if it could be shown that the execu- trixes had assented to the bequest to themselves. It appearing that the daughter had never had any control over the shares, or received any benefit therefrom, she and her husband were not made such contributories. But the court held that a call was rightfully ma4e upon the daughter and her husband, payable out of the testator's personal assets, whether the conduct of the execu- trixes in suffering their testator's assets to remain in the company was a breach of trust or not; but, on it appearing that the personal assets had been fully administered, he held that she and her husband could not be put upon the list of contributories in respect of her being a devisee of real estate. 318 OH. XV.] BY DEATH. § 251 the other contributories, they held them when so acquired ; and I cannot aro the lensjth of holdins: that because a man acquires a right to shares in a company or partnership as executor he will be entitled to hold them upon any other than the ordinary terms. An executor may carry on trade as executor, but he is not the less personally liaV)le for all the debts which he may contract in the trade ; and so I take it to be in the case of executors entering iiito partnership, both as to their liability to creditors and as to the relation in which they stand towards their partners." * * * " It was argued in supjjort of this order [of Kindersley, V.-C.J that these shares were a mere accretion to the origi- nal shares, to be held as the original shares were held, and that to make these executors personally liable in respect of them would be to alter the contract on which the shares were taken ; but if, as has seemed to me to be the case, these shares, though acquired by these persons as execu- tors, ought to be taken to have been held by them in their own right, this argument does not affect the case." ^ But in another case an executrix, who was also a residuary legatee, as such legatee received certain shares of her testator, which she reported to the "legacy duty office" as being retained for her own use. The shares continued to stand on the share-regrister in the name of her testator. The name of the executrix was never introduced into the share-reg- ister, in any capacity ; neither did she execute the deed of settlement. For four years she received dividends on the shares, giving receipts as executrix, but for two years prior to the winding-up of the company she signed her name to such receipts without any qualification. This was done be- cause her name had been substituted on the list of persons entitled to dividends in lieu of the testator, but by whose direction this was done did not appear ; neither that it was done with her privity. The Master of the Eolls held that it was the duty of the company to have retained the dividends 1 Dobson's Casu, L. K. 1 Ch. 231. 319 § 252 DIVESTITURE OF LIABILITY. [PART III. until she had definitely elected to receive them either as executrix or for her own use, and complied with tlie formali- ties prescribed by the deed of settlement in such case ; that the company having failed to fix in what character she took the shares, it was not now in their power to exeroiso the option for her, and choose that which was most profitable to them.' And in New York a proceeding was had against executors by a judgment creditor to compel an accounting in respect of a judgment which had been obtained, declaring the defendants' testator to have been a stockholder in the bank, and directing tlie collection of the amount thereof out of the assets in tlie hands of his executors. It appeared from the record that it had not been ascertained that the estate was chargeable at the time the judgment was rendered, the report of the referee being that the executors individuaJJy were chargeable as stockholders, which report was ratified and confirmed by the court. The Court of Appeals held that the court, in i-endering judgment against the estate, had acted without authority, .and that the judgment was void for want of jurisdiction.* § 252. Whether Executor or Legatee a Contribu- tory. — Tlie policy of many of the unlimited joint-stock companies of England has been to prohibit, in their deeds of settlement, the free alienation of their shares without the consent of their directors.' The reason of this restric- tion is obvious : if shares could be freely transferred, irre- sponsible proprietors might be introduced in the place of responsible ones, and, in the event of the company beinf wound up, the burden of paying its debts might be cast on a few of its members. With the same objects in view, the deeds of settlement of many of those companies made the admitting of executors, administrators, or legatees as ' Bulmer's Case, 83 Beav. 485. ' Diven v. Lee, 3Pi N. Y. 302 ; ». c, 84 How. Pr. 197. • Ante, II 21B, 220. 320 CH. XV. J BY DEATH. § 254 proprietors to depend upon the approbation of the directors, and upon their executing the deed of settlement like other proprietors. Now, it has been ruled by the courts of that country that whilst a clause in the deed of settlement of a joint-stock company, however precise, may be waived by all its members, yet it cannot be waived by its directors, unless it is shown that the members have made the directors their agents for that purpose.'- 'Where, therefore, under such a deed of settlement, a shareholder bequeathed his shares, and the executor assented to the bequest, and the secretary placed the name of the legatee and her husband opposite the shares in the books of the company, but the provisions of the deed of settlement had not been complied with as to the transfer of the shares, nor was it shown that all the shareholders of the company had concurred in dispensing with such compliance, the executor was held to be the proper person to be placed on the list of contributories.^ § 253. Executors de son Tort. — Possibly a person who, without letters, has assumed to administer upon the estate of a deceased shareholder may, under an application of the rules of law relating to executors de son tort, make himself a contributory without qualification.^ § 254. The American Doctrine. — It is apprehended that the foregoing English decisions, in so far as they rest on general principles, state the law as it obtains in this country, namely, that the estate of a deceased shareholder is liable for his contributory share of the losses of the com- pany, the same as for any other of his debts, and that a court having equity powers will enforce this liability by ' Keene's Executor's Case, 3 De a. M. & G-. 272. 2 Ibid. ' This was attempted in Ex parte GHaholme, 1 De G-. & Sm. 583 (affirmed, 1 Ha. & Tw.) 121, but the case turned on the form of the master's summons, which fixed Glaholme as a contributory, as the representative of his deceased brother, upon whose shares lie had received dividends without administering. 21 321 § 254 DIVESTITURE OF LIABILITY. [PART III. appropriate methods.^ This is analogous to the settled rule that the creditor of a partnership firm may pursue the estate of one of the deceased copartners for the satisfaction of his debt.'' Two or three early Massachusetts cases holding the contrary, under a statute of that state,* are thought to be not of authority on this question. The statute gave to creditors in a certain case an execution against the body and goods of the stockholders. This was held not to give an execution against the estate of a stockholder who had died before the commencement of the action against the corporation ; for the statute was construed to apply to those only who were members of the corporation at the time of the commencement of the action.* Subsequently, the court went to the length of holding that the statute did not make the debts of the corporation a charge upon the estate of a deceased shareholder ; and, therefore, if the adminis- trator paid money as his intestate's contributory share of the debts of the corporation, he was not allowed to charge it in his administration account. But it was conceded that if the shares were valuable property, and liable to assess- ment, it might be the duty of the administrator to pay the assessments, in order to save a forfeiture. There was no suggestion that, if the company should become prosperous, the administrator would be precluded from drawing dividends in respect of his intestate's shares. This doctrine, opposed, it would seem, to the plainest notions of justice, was pro- nounced in an American court, as late as the year 1830, and by a judge of deserved eminence.^ Two years later the same court refused to sustain a suit for a contribution, by a shareholder who had paid debts of the corporation, against ' New England Commercial Bank v. The Stockholders, 6 K. I. 154, 189; Grew V. Breed, 10 Mete. 509, 576. This was assumed iu Davidson v. Eankin, 34 Cal. 503. ' Devaynos ti. Noble, 1 Meriv. 523; s. o., 2 Kuss. & M. 495. » Stat. Mass. 1808, ch. 65. * Child V. Coffin, 17 Mins. 64. ' Eipley v. Sampson, 10 i'irk. .371, opinion by Shaw, 0. J. 822 CH. XV. J BY DEATH. § 254 the executors of a deceased shareholder ; but this was placed on a ground equally destitute of justice, namely, that share- holders are not liable to contribute to one of their number who has voluntarily paid the debts of the company, unless they have engaged in writing to do so, in which case the remedy is to be sought under the written agreement. ^ As late as 1860 the same court held that where a stock- holder who has been summoned, pursuant to a statute,^ for the purpose of charging him with a debt of the corporation dies, the proceeding abates, and cannot be revived against his executor.' A justification of this ruling was sought in the language of Shaw, C. J., in a previous case, that the liability of a stockholder to pay the debts of the corporation was one ""depending solely upon the provisions of positive law," and "to be strictly construed, and not to extend beyond the limits to which it is plainly carried by such pro- visions of statute." * But in a case determined in the same court in 1846, under a statute making stockholders of banks individually liable for the redemption of their respective proportions of its bills, it was held, — Shaw, C. J., giving the opinion, — without referring to the former cases, or stating any reason for not following them, that adminis- trators of deceased shareholders were liable, as for other debts of their intestates, in their representative capacity." ' Andrews v. Callender, IS Pick. 484. 2 Stat. Mass. 1851, ch. 315. 3 Dane v. Dane Man. Co., 14 Gray, 488. ' Gray v. Coffin, 9 Cush. 199 ; ante, I 50. ' Grew V. Breed, 10 Meto. 569, 576. 323 PART IV. OF REMEDIES, PROCEDUEE, AND DEFENCES. CHAPTER XVI. OF THE rORTJH WHEN IN EQUITY AND WHEN AT LAW. Section 258. Remedy to call in unpaid A8sessments for Creditors is in Equity. 259. Keasons of the Eule. 200. In Case of a statutory individual Liability. 261. In Case of a Liability in Proportion to Stock held. 262. Where the Creditor is also a Stockholder. 263. Continued. 264. In Case of deceased Shareholders. 265. Doctrine that Equity will not relieve one who has a Remedy at Law. 266. Concurrent Remedy at Law. 267. Continued — The leading American Case. 268. Continued — Rule in Illinois. 269. Continued — Rule in Maryland. 270. Continued — Rule in Missouri, Kansas, Georgia. 271. In Pennsylvania, Remedy at Law exclusive. 272. Remedy at Law where Liability is that of a Partner. 273. Continued — Under a Statute of Rhode Island. 274. Continued — Under Statutes of New York, "Wisconsin. 275. Jurisdiction of Law ousted by Commencement of Suit in Equity. 276. Garnishment — Louisiana. 277. Continued — Alabama. § 258. Remedy to call in impaid Assessments for Creditors is in Equity. — We have seen that the doctrine that the capital stock of a corporation is a trust fund for the security and benefit of its creditors is an invention of 325 § 258 EEMEDIES, PROCEDURE, AND DEFENCES. [PART IV. courts of equity,^ and that those courts were the first to aid creditors in calling in unpaid instalments of stock to satisfy their demands against the company.^ A general view of this subject leaves no doubt that where the creditor does not seek to enforce a statutory liability, or a liability akin to that o^ partners, the appropriate forum is equity;* and where the remedy has not been enlarged by statute, some of the courts have held that this is the exclusive forum.* This rule was so strictly adhered to in one state as to deny a remedy to a creditor in a plain case of right, because there was no method known to courts of law by which he could proceed, and no court in the commonwealth having the powers of courts of equity.* In another state 1 Ante, I 10. 2 Ante, I 16. s Ante, II 10-18; Hume v. Winyaw Co., Carolina L. J. 217; Mann ». Pentz, 3 N. T. 415 ; Marsh v. Burroughs, 1 Woods, 463 ; Miers v. Zanesville Co., 11 Ohio, 273 ; s. c, 13 Ohio, 197 ; Henry v. Vermillion, etc. R., Co., 17 Ohio, 187. Therefore, a statute providing for the determination of such matters by a proceeding before a referee is not unconstitutional as denying a trial by jury, for they were always cognizable in chancery, where juries were called only on the direction of the chancellor. Matter of Empire City Bank, 18 N. T. 199, 210. See also Hightower v. Mustian, 8 Ga. 506. * Spear v. Grant, 16 Mass. 9 ; Harris v. First Parish in Dorchester, 23 Pick. 112; Knowlton v. Acldey, 8 Gush. 93; Erickson v. Nesmith, 15 Gray, 111; Smith V. Huckabee, 53 Ala. 191 ; Pollard v. Bailey, 20 Wall. 520 ; Unisted v. Buskirk, 17 Ohio St. 113. In some states the exclusive jurisdiction of equity has been declared by statute. Act N. H. June 27, 1857 ; Pamph. Laws, ch. 1962 ; Hadley v. Eussell, 40 N. H. 109. ' A banking corporation had divided its capital stock among its shareholders, leaving its notes in circulation. A shareholder was held not liable to a note- holder in an action at law. "If any remedy does exist," said the court, "it must be in a tribunal having power to act over the whole subject in an equi- table point of view, and so to adjust the various claims and various liabilities as to produce a final and just distribution of the funds equitably bound, among all who can substantiate their claims, on grounds maintainable at equity as well as at law." Spear v. Grant, 16 Mass. 9, 15. To the same effect is Vose V. Grant, 15 Mass. 505, 522, where the court said : " This is one of the numerous cases, which are constantly occurring, which show the necessity of a court of chancery for the complete distribution of justice among the people. It is the boast of the common law that it permits no wrong without furnishing a remedy ; but this is true only when there are courts competent to exercise all the judicial powers which the law requires for its due administration. A 326 CH. XVI.] THE rOBUM: LAW OR EQUITY. § 259 the rule was so much favored that it was held that a statute giving the creditor a remedy against the stockholder by garnishment, in respect of what was due by the latter on his subscription, was prospective only.-' In Ohio this doc- trine is, in substance, very clearly asserted. An action to subject the individual statute liability of stockholders, which is in excess of their contract liability,^ must be insti- tuted for the benefit of all the creditors ; and the stockhold- ers whose liability is sought to be enforced have the right to insist on their co-shareholders being made parties for the purposes of a general account, and to enforce from them contribution in proportion to their shares of stock ;^ and after such an action is brought, a single creditor cannot sue a separate shareholder.* But where a judgment creditor of an insolvent corporation commences an action against shareholders to enforce their individual liability, and, for aught that appears in the record, he is the only creditor and they the only shareholders, a demurrer to his petition will not lie.^ § 259. Reasons of the Rule. — The reasons which sup- port the view that the remedy in equity is exclusive are numerous : 1 . A resort to equity prevents a multiplicity of suits. ^ 2 . Equity is the only tribunal capable of enforcing contribution'' among shareholders, and thus, while satisfying court of chancery exercises a most important part of those judicial powers. Its duty is, not to establish new rules, unknown to the common law, for the conduct of the people or the regulation of their property, but to apply and enforce those principles of common law which cannot be enforced by the other courts." ' Bingham v. Eushing, 5 Ala. 403 ; De Mony v. Johnston, 7 Ala. 51. 2 Ante, § 25. 8 XJmsted v. Buskirk, 17 Ohio St. 113. * Wright V. McCormack, 17 Ohio St. 86. 6 XJmsted u. Buskirk, 17 Ohio St. 113. 6 Smith J). Huckabee, 53 Ala. 191. ' Post, I 376 ; Murray v. Albert, 24 Md. 522 ; Erickson v. Nesmith, 46 N. H. 871 ; Hadley v. Kussell, 40 N". H. 109 ; Masters v. Eossie Lead Mining Co., 2 Sandf. Ch. 301 ; Thayer v. Union Tool Co., 4 Gray, 75. 327 § 259 KBMEDDES, PEOCBDDEE, AND DEFENCES. [PAET IV. creditors, equalizing the burdens of the contributories. 3. Equal distribution between creditors can be decreed by no other tribunal. 4. Besides, cases of this kind frequently involve conflicting equities growing out of the fact that some of the shareholders are themselves creditors of the corpora- tion, or have unsettled demands against it ; and these a court of law is incapable of adjusting. 5. Moreover, where modern codes have not changed the practice, a court of equity is the only tribunal capable of compelling a dis- covery,^ by a defendant corporation, of the names of its stockholders, the amount of stock held by them respectively, and the extent of their respective liability. These reasons have been forcibly set forth in a late case in Alabama, by Brickell, J. : " In a court of equity, only, was the capital of the corporation treated as a trust fund, and subjected to the payment of corporate debts. If the fund could be reached at law, by legal process against the corporation, the remedy at law was adequate, and equity would not interfere. Then, legal priorities, dependent on legal remedies, would prevail. One creditor might obtain a preference in payment over another. When, however, a resort to equity became neces- sary, as the court proceeded upon the ground of a trust, attaching to all corporate debts alike, equality was equity, and no legal diligence would entitle one creditor to priority over another. The personal liability of a stockholder, to the extent of his stock, created by the statute, is for all the debts of the corporation. It does not depend on, or spring out of, contract with any or all of the creditors of the corpo- ration, or with the corporation. The statute enjoins upon him, as a duty, to pay for the satisfaction of all corjoorate debts a sum equal to the amount of his stock. The duty is owing to all creditors, and not to any particular creditor. This being the nature and character of the liability, no single creditor can be permitted to appropriate it to his ' See Miers t>. Zanesville Co., 11 Ohio, 274; Castleman i/. Holmes, i J. J. Marsh. 1. 328 CH. XVI. J THE FOEUM : LAW OK EQUITY. § 259 satisfaction, to the exclusion of other creditors, who are equal in right and equity to him. A remedy to enforce the liability cannot be pursued at law. There is no legal remedy in which all creditors can unite, and in which judgment could be pronounced, awarding to each the exact measure of his rights. There seems to us insuperable difficulties, not only technical, but founded in equity and good conscience, and in the spirit and policy of the statute creating this per- sonal liability, to the maintenance of an action at law for its enforcement. The liability is single, distinct in amount. Can it be split up into as many several causes of action as there may be creditors ? That an entire or single cause of action may not be divided or split into several is an element- ary principle. The liability arises only on the dissolution of the corporation. Until the dissolution, it is contingent. That is the event rendering it capable of enforcement. On that event it accrues for the debts of the corporation, limited to the extent of the stock. If a suit is maintainable, which creditor shall be entitled to priority, — he who first com- mences suit, or he who, by superior diligence, lirst obtains judgment? Can the stockholder, after a dissolution of the corporation, when its credit is impaired, avail himself of its condition to pay such creditors as he may choose to prefer, and thereby absolve himself from a liability due alike to all creditors ? If he is liable to a suit at law at the instance of any corporate creditor, how can this right be denied him? Can he speculate in the debts of the dissolved corporation, and avail himself of such debts as he may purchase as a set-off to his liability? To what extent can the set-off be allowed, — for the nominal value of the debts, or the sum he paid for them? Suppose the corporation really indebted to him at its dissolution, can he set off such debt against the action of a creditor, pursuing a right not derived from the corporation, and which the corporation never had capacity to enforce, because it was not due to it? The statutory liability is an additional security for the corporate debts, springing up on the dissolution of a corporation, to which 329 § 260 EEMEDIES, PEOCEDURE, AND DEFENCaES. [PAKT IV. the Legislature intended the principle that equality is equity should be applied. Any creditor of the corporation, suing for himself and on behalf of all other creditors, can enforce it. In such suits all rights and equities can be fully adjusted, and every creditor receive satisfaction of his debt, to the extent to which he is entitled. A court of law is incapable of this adjustment, and therefore the remedy is in equity only." ^ § 260. In Case of a statutory individual ILiiability. — The considerations which claim for courts of equity an exclusive jurisdiction of a proceeding to call in, for the benefit of creditors, debts due by shareholders on account of their stock subscriptions, are, as argued by Brickell, J., in the preceding case, of equal force where the liabilit}' is created by statute. In some of the states, courts of equity take exclusive jurisdiction of such cases, for the purpose of adjusting equities and preventing a multiphcity of suits. This rule has been established in Massachusetts, under a statute providing that if any loss or deficiency of the capital stock in any bank shall arise from the official mismanage- ment of the directors, the stockholders shall, in their indi- vidual capacity, be liable to pay the same.^ And where the statute gave a remedy by bill in equity, and also a right to attach the body or property of the shareholders, it was held that these remedies were exclusive ; an action at law would not lie.^ Nor can an action at law be maintained in IMassa- chusetts to enforce the personal liability of a stockholder of a corporation established in another state, for a debt of the corporation, if the laws of that state provide that the remedy against a stockholder upon a debt of the corpora- tion shall be by bill in chancery, and not otherwise.* In Wisconsin, under a statute making the stockholders of cer- • Smith V. Huckabee, 53 Ala. 191, 195. ' Harris v. First Parish of Dorchester, 23 Pick. 112. ' KnowUon v. Acldey, 8 Gush. 93. * Brickson v. Nesmith, 15 Gray, 221. 330 CH. XVI. J THE forum: LAW OK EQUITY. § 261 tain corporations " individually responsible, to the amount of their respective share or shares of stock," for all the debts and liabilities of the corporation, it has been held that the action must be by suit in equity, in which all the creditors should join, or one or more of them should sue for the benefit of all ; it should be brought against the bank and all the stockholdei'S, unless it be impossible or imprac- ticable to bring them all before the court, or unless some other sufficient cause for the omission be shown. " It is," said Dixon, C. J., "an indebtedness which a court of law has no power to regulate and adjust, and to which the jurisdiction and powers of equity are peculiarly and exclu- sively adapted."^ § 261. In Case of a ILiability in Proportion to Stock held. — The Supreme Court of the United States has held that where, by the charter of a bank, stockholders are " bound respectively for all the debts of the bank in pro- portion to their stock held therein," one creditor cannot sue a stockholder at law (there being numerous other creditors) to recover the full amount of his debt. This is especially so if the charter provides for a proceeding in chancery for the winding-up of the bank and a ratable dis- tribution of its assets. In announcing this conclusion the following views were expressed by Chief Justice Waite : " Each stockholder is bound for the debts in proportion to his stock. His liability is not limited to the par value of his stock ; neither is he bound absolutely for the payment of the full amount of that. He must pay a sum which shall bear the same proportion to the whole indebtedness that his stock bears to the whole capital, and is not required to pay more. For the purposes of this case it is not necessary to decide what effect the insolvency of any of the stook- 1 Coleman v. "White, 14 Wis. 700; a. p., Carpenter v. Marine Bank, 14 "Wis. 705, note. 331 § 262 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. holders would have upon the liability of such as are solvent. It is certain that no stockholder is liable for more than his proportion of the debts. This proportion can only be ascertained upon an account of the debts and stock, and a pro rata distribution of the indebtedness among the several stockholders. The proper action, therefore, to enforce the liability is one in which such an account can be stated and the distribution made. Such an action calls specially for the exercise of the powers of a court of equity, which can bring before it all the necessary jDarties and adjust all their rights. Every stockholder, when called upon to perform his -obligations, has the right to require that the extent thereof shall then be determined once for all, as well that which he is under to his associate stockholders as that to creditors. Otherwise, he might be made to respond to the creditors under one rule, and obtain his relief from the other stockholders under another. The provision, therefore, for a proportionate liabihty is equivalent to a provision for an appropriate form of equitable action to enforce it. The case is different from what it would be if the charter had provided generally that all stockholders should be individ- ually liable for the payment of the debts. The cases from New York cited upon the argument, and which are sup- posed to be in opposition to the view we have taken, involved the consideration of such a liability."^ § 262. WTiere tlie Creditor is also a Stockliolder. — If the creditor is also a stockholder, his right to maintain an action at law may turn upon the view taken by the court of the nature of the stockholder's lialiility in the particular case. We have seen that the courts of New York have held the liability of shareholders under a particular stat- ute — the charter of the Rossie Galena Company — to resemble that of a partner. Now, it is settled that one 1 Pollavd V. Bailey, 20 Wall. 520, 524. 332 CH. XVI.] THE FOEUM: LAW OR EQUITY. § 262 pai'tner cannot maintain an action at law against his copartners for a debt due from, the firm.' By analogy to this rule, it has been held that a creditor who was a stock- holder could not maintain an action at law for the recovery of his debt against his co-shareholders,^ although the assignee of such a shareholder could.' It did not alter the case that the statute departed from the common-law rule as to part- ners by giving an action against the stockholders severally as well as jointly. It was still a case of one partner suing another for a debt due from the whole firm. Although the statute declared that ' ' any person ' ' having a demand against the company might sue, yet the Legislature did not intend by this to provide for creditors who were members, of the corporation. They did not come within the reason and policy of the law, which was made for the protection of third persons dealing with the company, and not for the benefit of the stockholders or copartners. These were left, and should in justice be left, to such remedies as had already been provided by law for the adjustment of part- nership transactions. They might go into equity for an account, and have the claims of all parties settled upon equitable principles. The statute gave the creditor an action against the stockholders jointly as well as severally ; and the same construction which would give an action to a stockholder would authorize him to sue himself, which would be absurd. Besides, when the defendant had paid the debt, he would then stand as a creditor of the company, and what was to hinder him from turning round and recov- 1 Milburn v. Codd, 7 Barn. & Cress. 419 ; Holmes v. Higgins, 1 Barn. & Cress. 74 ; Causten v. Burke, 2 Har. & G. 295 ; Neale v. Turton, 4 Bing. 149 ; Chadwick v. Clarke, 1 C. B. 700 ; Estes v. Whipple, 12 Vt. 373 ; Bracken v. Kennedy, 4 111. 558 ; Banks v. Mitchell, 8 Yerg. Ill ; Myrick v. Dame, 9 Cush. 284; Hall v. Logan, 34 Pa. St. 331; McPadden v. Hunt, 5 W. & S. 468; Collamer v. Poster, 26 Vt. 754. 2 Bailey v. Banoker, 3 Hill, 188 ; Beers v. Waterbury, 8 Bosw. 396 ; Kichard- son V. Abendroth, 43 Barb. 162 ; Thayer v. Union Tool Co., 4 Gray, 75. ' Woodruff & Beach Iron- Works o. Chittenden, 4 Bosw. 406. 333 § 263 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. ering the same money from the plaintiff as a stockholder? The language of the statute was broad enough to include the one case as well as the other ; and the equity would be just as strong in favor of allowing the defendant to recall the money after he had paid it, as it would have been in allowing the plaintiff to recover of him in the first instance. And thus the parties might alternately sue each other to the end of the chapter.^ § 263. Continued. — This process of reasoning maybe greatly shortened; it may be brought down to this: "A creditor who is a shareholder is not entitled to recover his full debt against other shareholders who are jointly and severally liable with himself ; he is only entitled to contri- bution from them in the proportion that their interest in the company bears to his. He cannot, therefore, sue them at law, but must go into equity for an accounting and a contribution.^ The Supreme Court of Pennsylvania has felt obliged, in obedience to the supposed meaning of a statute of that state,' to establish the rule that a stock- holder who is also a creditor may sue his co-stockholders at • Bailey o. Banoker, 8 Hill, 188, opinion by Bronson, J. In a case decided in the Supreme Court of New York, In 1859, it was held by Bosworth, C. J., and "Woodruff, J., that if a creditor suing a stockholder also holds stock, less in amount than that held by the person so sued, the defendant is not on any principle entitled to any greater relief than an abatement, from the liability declared by statute, of a sura equal to the amount of stock held by such plaintiff. But such a deduction thus made, unless made to one who was at the time a creditor of the company, would not exempt such plaintiff from a recovery against him in a suit subsequently brought by a creditor of the com- pany. The mere fact, therefore, that the plaintiff in a suit against the com- pany, in which a judgment was recovered against it, was a stockholder is not available as a defence, either partial or total, in an action brought by the assignee of such judgment against a stockholder, especially when it is not alleged in the answer that the plaintiff's assignor was a stockholder, nor shown at the trial how much stock he held. "Woodruff & Beach Iron-"Works v. Chit- tenden, 4 Bosw. 006. 2 Thayer v. TTiiion Tool Co., 4 Oray, 75. » 2 Brightly's Purd. Dig. 998, J 30. 334 CH. XVI.] THE FORUM : LAW OE EQUITY. § 265 law, joining with them the corporation, even where he has been compelled to pay a debt of the corporation, and his object is to enforce contribution.^ § 264. In Case of deceased Shareholders. — Where the liability of the shareholder is aldn to that of a partner, the remedy of a creditor against the estate of a deceased share- holder, as against that of a deceased partner, is exclusively in equity.'' § 265. Doctrine that Equity will not relieve one who has a Remedy at Liaw. — The elemental rule of equity jurisprudence, that a court of this character will deny its aid to a suitor who has an adequate remedy at law, except in cases of concurrent jurisdiction, applies to this subject only so far as that these courts withhold their aid to a judgment creditor of a corporation, in respect of the liability of shareholders, when there are legal assets of the corpo- ration within reach of his execution.' The general rule is that, although a creditor has a concurrent remedy against a shareholder at law, this does not oust the jurisdiction of the courts of equity.* Under the statute of Wisconsin in force in 1863 a creditor of a corporation might proceed by bill in equity, in behalf of himself and all other creditors who might choose to make themselves parties, against the corporation, jointly with its stockholders, without first obtaining a judgment at law. ^ In Massachusetts, under a statute giving in general terms a remedy against shax-eholders by bill in equity, it has been held that the creditor cannot maintain 1 Brinham v. "Wellersburg Coal Co., 47 Pa. St. 43. 2 New England Commercial. Bank v. The Stockholders, 6 R. I. 1.54, 190, where the subject is fully considered by Chief Justice Ames. See ante, J 248 et seq. 3 Allen V. Montgomery R. Co., 11 Ala. 437. * Bank of Poughkeepsie v, Ibbotson, 24 W^end. 479 ; Bank of United States V. Dallam, 4 Dana, 574. ^ Cleveland o. Marine Bank, 17 Wis. 545 ; so Smith v. Huckabee, 53 Ala. 191. 335 § 265 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. such a bill until he has recovered a judgment against the corporation at law ; ^ and the same conclusion has been reached in the absence of statute.^ And this is so although the statute, in exiDress terms, gives a remedy at law. But, in view of the fact that a proceeding in equity Avill prevent a multiplicity of suits ; that these courts alone have adequate power to enforce a ratable contribution and distribution ; and that the proceeding, on the ground of trust, to subject in the hands of stockholders that portion of the capital stock which they withheld from the company is exclusively a subject of equity cognizance, — these courts will take juris- diction, and proceed to do complete justice in a single pro- ceeding.^ Moreover, as the members of corporations are in general unknown to the public, and are constantly changing by reason of transfers, there is great propriety in maintaining the jurisdiction of equity on the ground of discovery, notwithstanding the statute gives a concurrent remedy at law.* Thus, where the charter of a private cor- poration provided that all its stockholders should be jointly and severally liable, to the nominal amount of their stock, for its debts, and that a creditor whose demand had been presented to the proper oiEcer for payment, and payment thereof refused, might sue any one or more of the stock- holders, the court held that he might, under the statutory provisions,* file his bill in equity against the company and such stockholders as he knew, in order to charge them with payment of the debt, and might pray a disco verj^ of the names and residences of the unknown stockholders, with 1 Cambridge "Water- Works v. Somerville Dyeing Co., 4 Allen, 239. ' Blake v. Hinkle, 10 Yerg. 218. ' Eobison v. Carey, 8 Ga. 527 ; Bank of United States v. Dallam, 4 Dana, 574; Castleman v. Holmes, 4 J. ,T. ilarsh. 1. Where the charter permitted creditors to sue the stockholders in any court having cognizance thereof, it was held that a suit might be commenced in equity. Masters v. Kossie Lead Mining Co., 2 Sandf. Ch. 301. * Castloman v. Holmes, 4 J. J. Marsh. 1 ; Bogardus v. Rosendale Man. Co., 7. N. Y. 147 ; post, J 3B7. s 2 Kev. Stat. 461. 336 CH. XVI.] THE FOEUM: LAW OR EQUITY. § 266 the amount of stock held by them, with a view to amend his bill by making them parties.^ The most frequent illustra- tion of this rule is that a bill in equity cannot be main- tained by a creditor, to call in for his benefit moneys due by a stockholder for his stock, until the former has exhausted his remedy against the corporation by judgment, execution, and return of nulla bona. But this rule is of so extensive an application that, with exceptions hereafter noticed,^ it exacts the same condition precedent of the creditor, as the foundation of every supplementary proceeding against the stockholder, whether in equity, at law, or a summary pro- ceeding under some special statute. § 266. Concurrent Remedy at Law. — The rule obtain- ing in some of the states, in case of a statutory liability, is that the creditor has a concurrent remedy at law.' This rule, in several cases, arises by force of statute, but where it has been declared in the silence of statutes, it has been placed on the ground that it affords a direct and inexpensive remedy by which a small creditor may collect his debt from any stockholder, to the extent of the latter's liability, leav- ing him to support the burden of a suit in equity against his co-members of the corporation for a contribution. The ' Bogardus v. Kosendale Man. Co., 7 N. T. 147, following Morgan v. New York, etc., E. Co., 10 Paige, 290. Thus, wliere the stockholders, after calls regularly made, are in default, and a statute gives a complete remedy against them by garnishment, the creditor, it has been said, cannot proceed in equity. But if there*were stockholders who were not in default to the corporation, by reason of calls not having been made, then, since the creditor would have no remedy by garnishment against them (Bingham v. Bushing, 5 Ala. 403), he could pro- ceed in equity. Allen v. Montgomery E. Co., 11 Ala. 437. 2 Post, ch! xvni. ° Bank of Poughkeepsieu.Ibbotson, 24 Wend. 479; Culver ti. Third National Bank, 64 111. 528, 538 ; Garrison v. Howe, 17 N. Y. 458 ; Norris v. Johnson, 84 Md. 485 ; Bank of United States v. Dallam, 4 Dana, 574 ; Grund v. Tucker, 5 Kan. 70, 77 ; Perry v. Turner, 55 Mo. 418. Under the National Banking Act, a suit by a receiver, to enforce the statutory liability of the shareholders, if the whole amount is sought to be recovered, must be at law ; if only a contribu- tion is required, it may be in equity. Kennedy v. Gibson, 8 Wall. 505. 22 337 § 267 REMEDIES, PKOCEDUEE, AND DEFENCES. [PAKT IV. former English statutes were founded on a policy of this kind, under which execution might be had against a share- holder upon a proceeding by scire facias after judgment against the company, execution, and a return of nulla bona; and many similar statutes exist in this country. But, after a thorough trial of this system, the practical sense of that great commercial people expressed itself in a statute under which an insolvent corporation is wound up in chancery, the court assessing its shareholders, adjusting their mutual equities, and distributing its assets ratably among all its creditors.^ A single creditor cannot now proceed at law against a shareholder, but must bring his winding-up peti- tion. § 267. Continued — The leading American Case sup- porting the doctrine of a concurrent remedy at law was decided in the former Supreme Court of New York in 1840.^ The opinion was delivered by Chief Justice Nelson, who afterwards held a distinguished career in the Supreme Court of the United States. "The seventh section," said he, referring to the statute, "provides that for all debts due and owing by the company at the time of its dissolu- tion the persons then composing it shall be individually responsible to the extent of their respective shares of stock.' It has been repeatedly held that the dissolution here spoken of, in order to subject the shareholder, may be shown short of judicial proceedings for that purpose. Having ceased to act, and being without funds and indebted, it is to be deemed dissolved so far as to give the remedy to the cred- itor.* This dissolution sub niodo being proved, the liability of the stockholder, as declared by the act, became absolute ; and I see no valid objection to the enforcement of it in a 1 Companies Act, 1862 (25 & 26 Vict. c. 89). ' Bank of Poughkeepsie «. Ibbotson, 2i Wend. 479. » 3 Kev. Stat. 222. * Citing Slee v. Bloom, 19 Johns. 456 ; Penniman «. Briggs, 1 Hopk. Ch. 800; s. c, 8 Cow. 387. 338 CH. XVI.] TffE forum: LAW OR EQDITT. § 268 court of law. There can be no greater difficulty in estab- lishing or resisting the demand there than in a court of equity, as the ground and extent of the liability are dis- tinctly given. It is true, the stockholder may be subjected to several suits ; but. he can be charged only to the extent of his stock. Beyond this his defence is as perfect in law as in equity. On payment of debts, or a personal charge in respect of them to this amount, there is an end of further liability. It was made a question, in the several cases above referred to, whether the suit in equity could be maintained on the ground of a remedy at law. The answer given con- firms the view we have taken. It is, that the creditor is entitled to contribution from all the stockholders, if requi- site to the satisfaction of his debt, and that numerous suits might become necessary. To avoid this he may resort to that court. The creditors, if more than one, may also, it seems, if they apprehend a deficiency in the fund, enforce in equity a pro rata distribution.'^ But this must be at their election. Any difficulty that may exist on the part of the stockholder in protecting himself beyond the statute liabil- ity has never been suggested as a ground for proceedings in equity. Indeed, it is clear that as to him the defence is as perfect, if not as simple, in the one court as in the other. This question has been before the chancellor in an analogous case,^ in which he held, inasmuch as the creditors had a concurrent remedy at law, the statute of limitations, appli- cable to the proceedings there, equally governed in equity." * § 268. Continued — Rule in Illinois. — A statute mak- ing the stockholders of certain corporations "liable to cred- itors of the company to an amount equal to the amount of stock held by them respectively, for all debts and contracts made by such company prior to the time when the whole ' Citing Briggs v. Penniman, 8 Cow. 387. ' Van Hook v. Whitlook, 3 Paige, 409. " Bank of Poughkeepsie v. Ibbotson, 24 "Wend. 479, opinion by Nelson C.J. 339 § 269 EEMEDIES, PKOCEDURE, AND DEFENCES. [PAET IV. amount of its capital stock shall have been paid in, and a certificate thereof made and filed," etc., has been held to create a legal liability, out of which an implied promise arose, cognizable in a court of law. It was thought no objection that the stockholder might be subjected to several suits, as he could in no event be answerable for more than the amount of his stock. ^ § 269. Continued — Rule in Maryland. — The same view has been taken of a similar statute in Maryland.^ That court, whilst concedhig what it had previously held,^ that the creditor might proceed in equity, yet saw no reason why a remedy should not also exist at law. " The ground and extent of the liability," said the court, "being distinctly given and defined, there can be no greater difficulty in establishing or resisting the demand in a coux't of law than in a court of equity. It is true, the stockholder may be subjected to several suits, but he can be charged only to the extent of his stock. By proving payment of debts, or a personal charge in respect to them, to this amount, there is ail end of further liability ; and he can show this as easily in a court of law as in equity. Again, both policy and con- venience require that the creditor should have this right ; for in case of small debts the proceeding for an account in equity would be so tedious and expensive as to destroy the value of the remedy." * 1 Culver V. Third National Bank, 64 HI. 528, 538. * Code Md., art. 26, J 52. "All the stockholdera of any such corpoTation shall be severally and individually liable to the creditors of the corporation in which they are stockholders, to an amount equal to the amount of stock held by them respectively, for all debts and contracts made by the corporation, until the whole amount of the capital stock fixed and limited by the corporation shall have been paid in, — one-half thereof in one year, and the other half thereof in two years, from and after the incorporation of said company, — or such corporation shall be dissolved." ' Matthews v. Albert, 24 Md. 527. ' Norris u. Johnson, 34 Md. 485, 490 ; opinion by Miller, J. The learned judge also said: "In Massachusetts the line of decisions is different, and it is there held that the creditor is confined to his remedy in equity. In favor of that doctrine it is said the remedy in equity is more beneficent in its operation, 340 CH. XVI.] THE forum: LAW OR EQUITY. § 270 § 270. Continued — Rule in Missouri — Kansas — Georgia. — The same rule obtains in Missouri, under a statute set out below.^ A creditor may sue any stockholder and will work less hardship on parties liable as stockholders, than an action at law; that it compels the party seeking to enforce the liability to join in the suit all the parties in interest who can be affected by the decree ; that it avoids multiplicity of suits, apportions the liability amongst all the stockholders, and In the same suit which charges them, decrees contribution, from each, of his respective share of the general burden; whereas, by an action at law each creditor may pursue his separate remedy against an individual stockholder, compel him to pay the entire debt, and place on him the burden of obtaining contribution from those equally liable with himself. Harris v. First Parish in Dorchester, 23 Pick. 112; Eriokson m. Nesmith, 15 Gray, 221. This reasoning seems to us to proceed upon the assumption that it is the duty of the courts, in determining where relief shall be had, to consult the interest and convenience of the stockholders exclusively, rather than to afford a speedy and efficient remedj' to the creditors. But the law was not enacted in the interest or for the benefit of stockholders. It imposes a liabilitj' upon them for the security and protection of creditors, and if the burden or delay of a chancery suit is to be incurred by any one, why throw it upon those for whose protection the provi- sion was made, and who trusted the corporation, relying upon this personal responsibility of its stockholders. They become stockholders in these corpora- tions voluntarily, and risk their money in them for expected gain to themselves, and with full knowledge of the nature and extent of the liability the law says they shall assume in so doing. In this way credit is given to the corporation that contracts the debts, and when debts are thus contracted we see no objec- tion to permitting any creditor to seek out any responsible stockholder and sue him at law for the debt, and place on him the burden of proceeding in equity to obtain contribution from others equally liable with himself. The creditors, as amongst themselves, may here, as in other cases, be well left to a race of diligence in the recovery of their claims, especially when the extent of the recovery as against any one stockholder is limited, and he can show that that limit has been reached, as a defence to any further suits. It is true, he may be thus compelled to pay more than his share, looking to the like responsibil- ity of other stockholders, but for this he has his remedy in equity for contribu- tion. There is no injustice in holding it is for him to seek this mode of relief, when it is considered the law has provided that all this personal liability may be avoided by paying up the capital stock at the time of subscription and formation of the corporation, or before any debts are contracted. In our opinion, the weight of reason, as well as authority, is in favor of sustaining the action, and this judgment must, therefore, be affirmed." Norris v. Johnson, 34 Md. 490, 491. ' 1 Wag. Stat. 293, J 22. " If any company formed under this act dissolve, leaving debts unpaid, suits may be brought against any person or persons who were stockholders at the time of such dissolution, without joining the com- pany in such suit; and if judgment be rendered and execution satisfied, the defendant or defendants may sue all who were stockholders at the time of dis- solution, for the recovery of the portion of such debt for which they were 341 § 270 REMEDIES, PROCEDURE, AND DEFENCaES. [PART XV. at law, and the stockholder thus compelled to pay may resort to his remedy for contribution against the others. But such a proceeding, whether at law or in equity, is not upon a joint liability, and can only reach the individual liability of each stockholder. If brought against more than one stockholder, it must necessarily be a proceeding in equity.^ The Supreme Court of Kansas has taken the same view of the question, where it arose under a statute providing that the stockholders of certain corporations should, " to the amount of the stock by them held, be jointly and severally liable for all the debts or responsibilities of such company." The court could not perceive why, when an action was given jointly and severally against a number of men, a man might not have his action against any one of them. If the stockholder thought he ought to have con- tribution, he might bring the other stockholders before the court.' In several of the states a remedy at law has been provided for by express enactment.* Thus, a bank charter of Georgia made the stockholders liable for the ultimate redemption of the bills of the bank " in the same manner as in common actions of debt." This gave the bill-holder a remedy either at law or in equity. If he elected to pro- ceed at law, he might elect any form of action appropriate to such a case and most advantageous to him, — as, the action of debt.* So, a charter making the persons and property of the stockholders liable ' ' in the same manner as in common commercial cases, or simple cases of debt," liable, and the execution upon the judgment shall direct the collection to be made from property of each stockholder respectivelj' ; and if any number of stockholders (defendants in the case) shall not have property enough to satisfy his or their portion of the execution, then the amount of deficiency shall be divided equally amongst all the remaining stoeldiolders, and collections made accordingly, deducting from the amount a sum in proportion to the amount of stock owned by the plaintiff at the time the company dissolved." ' Perry v. Turner, 55 Mo. 418, 427, pei- Napton, J. 2 Grund v. Tucker, 5 Kan. 70, 77. » Rev. Stat. Me. 1840, ch. 76, ?J 18-20; Came v. Brigham, 89 Me. 35; Cummings v. Maxwell, 45 Me. 190. * Dozier v. Thornton, 19 Ga. 825. 342 CH. XVI. J THE FOEUM: LAW OB EQUITY. § 272 warranted an action of assumpsit by a bill-holder against a stockholder, — at least, no question was made as to this form of action.^ § 271. In Pennsylvania, Remedy at Ijaw exclusive. — In Pennsylvania, under the statute relating to manufactur- ing companies,' the creditor proceeds by an action at law upon the original contract, joining the corporation and the stockholders ; ^ and he may do this even though he is him- self a creditor.* Nay, if he has been compelled to pay a debt of the corporation, and is suing for contribution, he proceeds at law against the company and his co-stockhold- ers ; the statute is held to exclude a resort to equity.* § 272. Remedy at Law where riiability Is that of a Partner. — In several cases of statutory liability resem- bling that of partners it has been held that an action at law would he.* It was so held under a statute which pro- vided that, in the event of the insolvency of a corporation, its stockholders should be responsible for its debts in their private capacity;'' and under a statute providing that the persons and property of the members of a corporation should at all times be liable for debts due by the corporation. Here a scire facias on a judgment against the corporation would not lie, for the members were original debtors, and liable in the same manner as though there had been no in- corporation.' ' Braneli v. Baker, S3 Ga. 502. 2 2 Brigbtly's Purd. Dig. 998, | 30. " Brinham v. Wellersburg Coal Co., 47 Pa. St. 43 ; Mansfield Iron-Worka V. Willcox, 52 Pa. St. 377 ; Hoard v. Wilcox, 47 Pa. St. 51 ; McHose v. Wheeler, 45 Pa. St. 32. But the corporation is not joined when a director is sued for improperly paying dividends. Hill v. Prazier, 22 Pa. St. 320. ' Brinham v. Wellersburg Coal Co., 47 Pa. St. 43. 6 Ibid. ^ See Simonson v. Spencer, 15 Wend. 548 ; Bank of Poughkeepsie v. Ibbot- son, 24 Wend. 473 ; supra, I 267. ' Deming v. Bull, 10 Conn. 409. Compare Bond v. Appleton, 8 Mass. 472. ' Southmayd v. Kuss, 3 Conn. 52. Compare Middletown Bank v. Magill, 6 Conn. 28. 343 § 274 REMEDIES, PEOCEDUEB, AND DEFENCES. [PAET IV. § 273. Continued — Under a Statute of Rhode Island. — In Ehode Island the charter of a manufacturing company provided that "all executions that shall issue against said corporation shall be levied on the property of said corpora- tion ; and for want of such property, the stockholders who were such at the time the contract was made, or liability incurred, shall be liable in their own persons and estates, as if the contract had been made or liability incurred by them personally. Stockholders shall be holden, as such, for all debts and liabilities incurred up to the time of the sale or disposal of their stock, and public notice thereof given in a newspaper printed in Newport." Under this provision the court held that a judgment creditor of the corporation, whose execution had been returned wholly unsatisfied for want of corporate property whereon to levy the same, might maintain for the recovery of his debt, against the living stockholders of the corporation liable to him, an action at law as against joint contractors for the same, in the nature of copartners, and that this, in such a contin- gency, was his appropriate remedy ; the stockholders who might be compelled to pay the debt having, under another clause of the charter, a remedy over against the corporation for the amount so paid, and against the other stockholders liable for the debt, for what they might pay over and above their just proportion of the same.-^ § 274. Continued — Under Statutes of Ifew York — Wisconsin Under the charter of a steamboat company, which declared that ' ' the members of the company shall be liable individually, in the same manner as carriers at com- mon law, for the transportation of all goods," etc., an action on the case was sustained against some of the members, there being no plea in abatement for non-joinder, — on the theory that their liability was that of partners.^ But this view has been repudiated in Wisconsin. The statute of 1 New England Commercial Bank v. The Stockholders, 6 E. I. 154. ' Allen V. Sewall, 2 Wend. 827. 344 CH. XVI. J THE FOEUM: LAW OR EQUITY. § 276 that state was one of ordinary individual liability, maldng the stockholders " individually responsible, to the amount of their respective share or shares," for all the obligations of the corporation. The court held that this liability was similar to that of copartners or members of an incorpo- rated association,' but came to the conclusion, after thor- oughly considering the subject, that an action at law would not lie, because the indebtedness of the company was one which a court of law hud no power to regulate and adjust. The remedy was by bill in equity, brought by, or on behalf of, all creditors against the corporation, and all stockholders whom it was practicable to join.^ § 275. Jurisdiction of Law ousted by Cominenceinent of Suit in Equity. — Where a suit in equity has been insti- tuted to subject the amount for which the shareholders of a corporation are liable to the common benefit of all the creditors, the very objects which induce these courts to proceed in such cases would be defeated if separate cred- itors could proceed against separate stockholders at law. It has accordingly been held, under a statute of individual liability, that where a suit in equity has been instituted for such a purpose, no creditor can institute a separate suit for the enforcement of such liability in his own behalf.^ § 276. Garnishment — Louisiana. — If the principle is conceded that a separate action may be maintained against each shareholder to enforce his liability, then there seems no good reason why a judgment creditor of the corporation ' Citing on this point Marcy v. Clark, 17 Mass. 330 ; Allen v. Sewall, 2 "Wend. 327 ; Sewall v. Allen, 6 Wend. 385 ; Moss v. Oakley, 2 Hill, 265 ; Harger v. McCuUough, 2 Denio, 119 ; Corning v. McCullough, 1 N. Y. 47 ; Matter of Empire City Bank, 18 N. Y. 218 ; Mokelumne Hill C. & M. Co. v. Woodbury, 14 Gal. 265 ; Wright u. Field, 7 Ind. 376 ; Planters' Bank v. Bivingsville Co., 10 Rich. Law, 95. '' Coleman u. White, 14 Wis. 700; Carpenter v. Marine Bank, 14 Wis. 705, note. 8 Wright B. McCormaek, 17 Ohio St. 86. 345 § 277 REMEDIES, PEOCEDXJEE, AND DEFENCES. [PART IV. might not resort to the writ of garnishment in order to obtain satisfaction of his debt out of what may be due from the stockholder to the corporation on account of his stock. Of course he could not, by this process, in the absence of a statute providing otherwise, subject the individual or statutory liability of the stockholder, because this is not an indebtedness of the shareholder to the corporation, but is a liability flowing directly from the shareholder to the cred- itor. In Louisiana this remedy has, on general grounds, been conceded to the judgment creditor of a corporation, to enable him to reach moneys due the corporation by stockholders on account of their stock, even though the directors had made no call to which the stockholders had not responded ; the court saying that the plaintiiF might exercise against the debtors all the rights which the cor- poration might exercise against them.-' But it has been subsequently held that, as to any unpaid portion of a stockholder's subscription for which the directors have not made a formal call, his liability could not be enforced by creditors of the company by process of garnishment ; they must resort to a direct action. The company itself had no action against the stockholder without a formal call, and the creditor, whose right was derivative, flowing from the company, was in no better position.'' § 277. Continued — Alabama. — In Alabama this rem- edy was early given creditors by statute, but the court thrust itself in the way of the obvious purpose of the Legis- lature, by holding that a garnishee answering that he had paid all calls made by the president and directors of the corporation upon him was entitled to his discharge ; he could not, for the same reasons given by the Louisiana court, under this process be made to pay to the creditor that portion of his subscription as to which no calls had 1 Cucullu V. Union Ins. Co., 2 Rob. (La.) 571 (1842). ■' Brown «. Union Ins. Co., 3 La. An. 177, 183. 346 CH. XVI.] THE FORUM : LAW OK EQUITY. § 277 been made.^ But this principle has been denied by the same court in a late case, and the garnishee was held liable although no calls had been made, and although, by the con- tract of subscription, the money was payable only upon the call of the company.^ In an earlier case, in the same state,' the garnishee answered that he had been informed, and believed, that the corporation had ceased to have'any legal existence previous to the issuing of the garnishment. This was held equivalent to an assertion that the corporation was dissolved, and upon this the court discharged him, holding, in accordance with the old law,* that by the disso- lution of a corporation the debts due to it were extin- guished. But this doctrine, as we have seen," is obsolete, and has been overruled in the same state." It has been held that several shareholders may be joined in the same writ, although their liability is several.' In a case of this kind, by leave of court, the garnishment was dismissed as to one of the two garnishees, and his name stricken from the process, upon plea by him that the process treated him as a joint debtor with the other, when he was separately indebted. The remaining garnishee excepted, and offered to file a written answer, to which the plaintiff objected, and required an oral answer, which was ordered at the next term, and the cause was continued from time to time, until the garnishee filed his written answer, and was afterwards examined orally. Under these circumstances, the court held that this garnishee could not afterwards object that the garnishment had been discontinued by the dismissal as to the other party, even if it had that effect, which was not conceded.* ' Bingham v. Rushing, 5 Ala. 403. 2 Curry v. Woodward, 53 Ala. 371, 877; ante, J 15. 3 Paschall v. Whitsett, 11 Ala. 472. * Mumma v. Potomac Co., 8 Pet. 281. 6 Ante, I 3. « Curry v. Woodward, 53 Ala. 371. ' IHd. 8 Ibid. 347 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. CHAPTER XYII. OF STATUTES OF LIMITATION. I. General Doctrines, Sbotiok 281. Statutes of Limitation apply both at Law and in Equity. 282. Effect of Doctrine that Capital Stock is a Trust Fund. 283. Continued. 284. Whether Stockholders' Liability is in the Nature of a Specialty Debt. 285. Continued — How in Case of statutory Liability. 286. Application of Statutes of Limitation to different Forms of Action. 287. Power of Legislature to shorten Statutes of Limitation. 288. What is the Commencement of an Action. 289. Doctrine of Stale Demand. II. When the Statute begins, to run. Section 290. General Doctrine. 291. Where the Liability is for unpaid Balances on Stock. 292. Where the Liability is that of a Partner. 293. Where the Liability is secondary. 294. Continued — Prescription under Code of Louisiana. 295. Where the Liability is in the Nature of a Guaranty of Pay- ment. 296. In Case of Liability for Mismanagement or Delinquency. 297. In favor of one who has transferred his Shares. 298. In Case of Renewals. 299. In Case of Bank-Bills. III. Of certain special Statutes. Sectioit SOI. Limitation as to Time when Suit shall be brought against Cor- poration. 802. Continued. 808. Continued. 304. Statute of Maine as to past Members. 805. Statute of Maine of Six Months. Statute of New York touching Demands of purely equitable Cognizance. 807. The Ohio Statute of March 18, 1839. 806. 348 CH. XVII.] STATUTES OF LIMITATION. § 281 J. General Doctrines. § 281. Statutes of Liimitatioii apply both at liaw and in Equity. — It was formerly thought that statutes of lim- itation were not binding upon courts of equity, but that those courts, ui discountenancing stale demands, merely acted by analogy to the periods limited in such statutes. Obviously, this doctrine could never gain a footflold in a country where all courts are bound equally by the legisla- tive will. It is not the law of this country,^ and it seems to have been abandoned in Great Britain. The subject was very fully considered by Lord Redesdale in Hovenden v. Lord Annesley,^ in which he used the following language : " It is said that courts of equity are not within the statutes of limitations. This is true in one respect; they are not within the words of the statutes, because the words apply to particular legal remedies ; but they are within the spirit and meaning of the statutes, and have been always so con- sidered. I think it is a mistake, in point of language, to say that courts of equity act merely by analogy to the statutes ; they act in obedience to them. Equity, which in all cases follows the law, acts on legal titles and legal demands, according to matters of conscience which arise, and which do not admit of the ordinary legal remedies ; nevei-theless, in thus administering justice according to the means afforded by a court of equity, it follows the law." The doctrine that courts of equity apply the statutes of limitations by analogy to suits at law has so far asserted itself, however, as to lead to the conclusion that in a suit in equity by a creditor against a shareholder, upon a debt of the corporation, the court will not treat the action as barred unless it would be barred in the courts at law, in any form of action which the creditor might have brought there.' But, ' 2 Story's Eq. Jur., ? 1520 ; Baker v. Atlas Bank, 9 Mete. 195 ; Bassett v. St. Albans Hotel Co., 47 Vt. 313, 316 ; Carrol v. Green, 92 U. S. 509, 516 ; The Com- monwealth V. Cochituate Bank, 3 Allen, 42 ; Lindsay v. Hyatt, 4 Edw. Ch. 97. ■' 2 Sch. & Lef. 629. • Van Hook v. Whitlook, 3 Paige, 409, 416. 349 § 282 EEMEDIES, PROCEDURE, AHD DEFENCES. [PAET IV. in general, a court of equity will enquire in what form of action it would have been necessary for the plaintiff to pro- ceed at law, and will apply the bar of the statute applicable to that form of action.^ § 282. Effect of Doctrine that Capital Stock is a Trust Fund. — Recurring again to the familiar American doctrine that the capital stock of a corporation is a trust fund for the benefit and security of creditors,' let us see whether the liability of a shareholder for unpaid balances due on his contract of subscription is not subject to the rule that the statute of limitations does not apply to express trusts. We have seen that in respect of such unpaid balances the stock- holder is deemed in equity to be the custodian of a portion of the capital stock of the company, or of this trust fund.* Does this make him the trustee of an express trust, of which the creditors of the corporation are the beneficiaries ? Does this establish between him and them such a fiduciary relation as prevents the statute of limitations from running in his- favor, until an open and unequivocal repudiation by him of that relation? In Georgia, Mississippi, and Alabama this question has been answered in the affirmative.* The Su- preme Court of Georgia has taken the view that such a case is one of ^^ direct trust, purely technical, not cognizable at law, but falling within the proper, peculiar, and exclusive jurisdiction of a court of equity ; and, consequently, one not subject to the presumption of payment, or satisfaction, or waiver."^ The Supreme Court of Mississippi has placed its judgment upon similar grounds. " The decisions of this court," said Clayton, J., "hold the stock subscribed ' Carrol v. Green, 92 U. S. 509 ; Lindsay v. Hyatt, 4 Edw. Ch. 104 ; Corning V. McCullough, 1 N. y. 58. "^ Ante, § 10. » Ante, ^ 9, 11. * Hightower u. Thornton, 8 Ga. 486, 502; Payne v. Bullard, 23 Miss. 88; Curry v. Woodward, 53 Ala. 376. 6 Hightower v. Thornton, 8 Ga. 486, 502. 350 CH. XVII.] STATUTES OF LIMITATION. § 282 to a bank to be in the nature of a trust fund for the pay- ment of its liabilities.^ This trust fund is usually adminis- tered by the directory, as the agent of the stockholders ; and after the payment of the stock, the directory is alone looked to for its faithful management. But before its pay- ment, the stockholders themselves are chargeable with the trust, in favor of the creditors of the bank. The stock is the fund which the creditors trust. They have no direct means of compelling its payment until they have obtained judgments at law. They become the beneficiaries of the trust by receiving the notes, and the stockholders, as the persons bound by the trust, cannot oppose the statute of limitations to their claim to have the stock paid up. If the corporation does not compel payment of the stock, the subscribers must be deemed to hold it for the corporation, subject to its call. It is a continuing, subsisting trust and confidence, to which the statute of limitations has no appli- cation. Test the principle by the converse state of facts. Suppose the stock to be all paid ; the bank to go on pros- perously ; that no dividends are declared, but the whole is permitted to accumulate until the charter is about to expire ; then, that the stockholders claim their respective amounts of stock, with the accrued profits ; but the directors refuse to pay, and interpose the statute of limitations to that part which is of more than six years' standing. No one can believe that the statute would bar in such a state of the case, because of the trust reposed. There is no adverse holding ; the stockholders compose the corporation. The same principle must govern this case."^ But, without giving an authoritative opinion on this point, the court intimated that from the time the bank ceased to elect a directory or to carry on business it might perhaps be held that there was a cessation of the trust, so that the statute ^ Citing, King v. Elliott, 5 Smed. & M. 447 ; Arthur u. Commercial, etc., Bank, 9 Smed. & M. 430. ' Payne v. Bullard, 23 Miss. 88. 351 § 283 EEMEDIES, PEOCEDUEE, AND DEFENCES. [PAKT IV, would then begin to run.^ The Supreme Court of Ala- bama, in a late case, pursues the same course of reasoning, and adopts the conjecture of the Supreme Court of Missis- sippi, that the statute would begin to run from the time of an evident disbandment of the company and cessation of business. "As long as the company was organized," said Manning, J., " and doing business, these relations between it and the stockholders, and this recognition by them of these moneys as a part of its capital, continued. During this time there was no adversary attitude or claim from which the statute of limitations could begin to run against it. And we presume no one of the stockholders imagined that if the business was prosperous, so that for six, eight, or ten years, instead of having to pay this money in, they were receiving dividends from the income, and if after- wards, in consequence of losses by fire or otherwise, it became necessary, in order to pay its policies, to raise more money than the company had, he could set up the statute of limitations in opposition to a call to pay in his stock. There would be, in such a case, by virtue of their relations and participation in the profits, an acknowledged continuing liability for it to the company. Until the call was made, or there was an evident disbandment of the company and relinquishment of business, the statute of limitations would not begin to run."^ § 283. Continued. — In an action of debt against a cor- poration and its shareholders, to enforce a contract of the former and a statutory liability of the latter, the Supreme Court of Pennsylvania has held the statute of limitations to have no application, but upon the ground that the statute governing the corporation declared a continuing liability on the part of shareholders " until the whole amount of the capital stock, as fixed and limited by the said company, ' Pdvne V. Bullard, 23 Miss. 88. ' Currv V. Woodward, 63 Ala. 371, 376. 352 CH. XVII.] STATUTES OP LIMITATION. § 284 as in the act provided, shall have been paid in, and a certifi- cate thereof shall have been recorded." ^ In an earlier case in the same state, — that of a scire facias against stock- holders, founded on a judgment against the corporation, where one defence was the statute of limitations, — the court held that they could have no defence except that they were not stockholders, and that the debt was for a loan of money .^ But this point was not specially considered ; nor can the case be quoted as holding such a rule as that the statute of limitations would not run in favor of the stock- holder from the date of the judgment against the corpora- tion. § 284. Whether Shareholder's Liahility Is in the Nat- ure of a Specialty Debt. — Many of the American states borrowed from England the statute of 21 James I. c. 16, which provides that " all actions of debt without specialty " * * * " shall be brought within six years." It was therefore a part of the early law of many of the United States that specialty debts were not within the statute of limitations. This rule, no doubt, lingers in some of the states where it has not been changed by statute ;^ and even in those states where it has been changed, the statutes gen- erally prescribe a longer period to bar specialty debts than that required to bar simple contract debts. In England, and in those states of the American Union where the statute of limitations excepts specialty debts, the courts have enacted a statute of their own by raising a presumption of payment after the lapse of twenty years.* The question whether the liability of a shareholder to respond to creditors for the debts of the corporation is in the nature of a specialty debt is therefore a material one in many of the states. This I Allibone v. Hager, 46 Pa. St. 48, 55. » Wilson V. The Stockholders, 43 Pa. St. 424. ' See Ang. on Lim., g 79 et seg. * Ibid., 2 93. 23 353 § 285 REMEDIES, PBOCEDUEE, AND DEFENCES. [PART TV. question appears to have arisen in England, for the first time, in 1856, in a case which received two argunaents before Lord Chancellor Cranworth and the lords justices, at the sec- ond of which two of the law judges, Mr. Justice Cresswell and Mr. Baron Martin, were called in. The question, as presented, was whether, a company being in process of winding-up, a call made by a master upon a shareholder, under the Winding-up Acts, was a specialty debt. It was urged that it was such a debt, since the authority to make the calls grew out of the covenants of the company's deed of settlement. But the court unanimously held otherwise, affirming the decision of Vice-Chancellor Stuart, assisted by Mr. Justice Erle.^ This, it seems, should have settled the question ; but ten years later Vice-Chancellor Kindersley held that the liability of a retired shareholder, under a deed of settlement which provided that retiring shareholders (that is, those whose shares had been transferred or for- feited) should be liable for their proi^ortion of the losses of the company incurred before they ceased to be members, was a liability by way of specialty, because the clause of the deed which constituted the contract among the shareholders was an agreement under seal,^ § 285. Continued — How in Case of statutory !Lia- bility. — It is old law that a liability founded on a statute is in the nature of a specialty.' Such a liability was, there- fore, not within the statute of James,* and in this country is subject only to the bar of the statute, or to the presumption of payment, after the lapse of twenty years. A statutory liability of the shareholders of a corporation to its creditors ' Robinson's Executor's Case, 6 De G. M. & G-. 572. ' Helby's Case, L. R. 2 Eq. 167. ' Com. Dig., Temps (Or. 15); Jonea v. Pope, 1 Saund. 37; Hodsden u. Har- ridge, 2 Saund. 61, (55 ; Tiilory v. Jackson, Cro. Car. 513 ; Bullard o. Bell, 1 Mason, 289; Shepherd v. Hills, 32 Eng. Law & Eq. 533; Pease i>. Howard, 14 Johns. 480; Griffin u. Heaton, 2 Bailey, 58; Ward v. Reeder, 2 Har. & McH. 154; Lane v. Morris, 10 Ga. 162; Thorntoa b. Lane, 11 Ga. 459. * 21 Jas. L c. 16, g 3. 354 CH. XVII.] STATUTES OF LIMITATION. § 286 has been held to be in the nature of a specialty, and within this rule.^ But this doctrine has been lately denied by the Supreme Court of the United States, in a case which, it is thought, must be regarded as overruling BuUard v. Bell,^ which was pressed upon the attention of the court.' Tlie word "specialty" and the words "contract under seal ' ' are convertible terms ; * and yet where the Legislature, instead of using the word specialty, as in the statute of James, provided that "all actions of debt founded upon any contractor liability Jio< under seal" * * * " shall be commenced within six years," etc., it was held that it was the intention of the Legislature not to exclude any statutory liability. "Here," said the court, "the words ' contracts under seal ' and ' liability ' are plain words, the meaning of which is too obvious and clear to be misunderstood ; and if the Legislature intended to except from the operation of the statute liabilities created by statute, it must be pre- sumed that it would have been so expressed."^ § 286. Application of Statutes of liimitatlon to dif- ferent Forms of Action. — There lingers yet, in some of the states, a system under which a different period of limita- ' Bullard v. Bell, 1 Mason, 289 ; Thornton v. Lane, 11 G-a. 459, 502 ; Lane V. Morris, 10 Ga. 162. ' 1 Mason, 243. s Carrol v. Green, 92 U. S. 509, 515. It has been held in New York that the section of the statute of limitations of that state limiting the bringing of actions to three years for any forfeiture or cause, upon any statute made or to be made, the benefit or suit whereof was given to the party aggrieved, did not embrace actions for statutory liabilities, such as actions given to creditors against stoclcholders, but was limited to private actions on penal statutes. Van Hook v. Whitlock, 26 Wend, 43 ; Lindsay v. Hyatt, 4 Edw. Ch. 97 ; Cor- ning V. McCuUough, 1 N. T. 47, overruling Preeland v. McCuUough, 1 Denio, 414. Such demands were subject to the statute of six years. Ibid. This view proceeds upon a theory of the New York courts, already alluded to, that stockholders are liable, in an original and primary sense, like partners, and that their liability is not created by statute. Ante, § 26 et seq. * Baker v. Atlas Bank, 9 Meto. 197, per Wilde, J. "Nothing is a specialty but a writing under seal." Thornton v. Lane, 11 Ga. 502, per Lumpkin, J. Baker v. Atlas Bank, 9 Mete. 182. - 355 § 287 REMEDIES, PEOCEDUEE, AND DEFENCES. [PART IV. tions will be found applicable to different forms of action at law ; and a considerable portion of the standard American work on the limitation of actions is devoted to a discussion of this subject.^ A late case in the Supreme Court of the United States, which went from South Carolina, and which involved a construction of the statute of that state, passed in the year 1712, which is somewhat similar to the statute of James I.,^ calls the subject again to mind. In a learned opinion by Mr. Justice Swayne, the court held that the lia^ bility of stockholders is not an action grounded on a stat- ute, and hence in the nature of a specialty, but is an action on the case, and as such, under the statute in question, barred in four years.' § 287. Power of Liegislature to shorten Statutes of Ijimitation. — It is the settled law of this country that an enactment reducing the time prescribed by statutes of lim- itation in force when the right of action accrued is not unconstitutional, as impairing the obligation of contracts, provided a reasonable time be given for the commencement of a suit before tlie bar of the statute takes effect.* "In all such cases," says Waite, C. J., "the question is one of reasonableness ; and we have therefore only to consider ^ Ang. on Lim., passim. ' The statute provided "that" * * * "all actions of account, and upon the case (other than such account as concerns the trade of merchandise)," * * * " all actions of debt grounded upon any lending or contract without specialty, all actions of debt for arrearages of rent reserved by indenture, all actions of covenant," * * * "which shall be sued or brought at any time after the ratification of this act, shall be commenced and sued within the time of limitation hereafter expressed, and not after; that is to say, the said actions upon the case other than for slander, and the said actions for ac- counts" * * * "and the said actions for" * * * "debts," * * * " within three years next after the ratification of this act, or within four years next after the cause of such actions or suits, and not after." See Ang. on Lim. (App.) 97, 98. ' Carrol v. Green, 92 U. S. 509. ♦ Terry v. Anderson, 95 U. S. 628 ; Sohn v. Waterson, 17 "Wall. 596 ; Christ- mas V. Russell, 5 Wall. 290 ; Sturges v. Crowninshield, 4 Wheat. 122 ; Haw- kins V. Barney's Lessee, 6 Pet. 457. 356 CH. XVII. I STATUTES OF LIMITATION § 287 "whether the time allowed in the statute is, under all the circumstances, reasonable. Of that the Legislature is pri- marily the judge ; and we cannot overrule the decision of that department of the government unless a palpable error has been committed. In judging of that, we must place ourselves in the position of the legislators, and must measure the time of limitation in the midst of the circumstances which surrounded them, as neai'ly as possible ; for what is reasonable in a particular case depends upon its particular facts." ^ In this view the following statute of Georgia, passed nine monllis and seventeen days before the bar named in it would attach, was held not unconstitutional: "That all actions on bonds or other instruments under seal, and all suits for the enforcement of rights accruing to individuals or corporations under the statute or acts of incorporation, or in any way by operation of law, which accrued prior to the 1st of June, 1865, not now barred, shall be brought by the 1st of January, 1870, or the right of the party, plaintiff or claimant, and all right of action for its enforcement, shall be forever barred." * The Supreme Court of Georgia^ and 1 Terry v. Anderson, 95 TJ. S. 633. * Terry t). Anderson, 95 U. S. 633. The chief justice expressed, on the partic- ular case, the following views : " The liability to be enforced in this case is that of a stocliholder, under an act of incorporation, for the ultimate redemption of the bills of a bank swept away by the disasters of a civil war which had involved nearly all of the people of the state in heavy pecuniary misfortunes. Already the holders of such bills had nearly four years within which to enforce their rights. Ever since the close of the war the bills had ceased to pass from hand to hand as money, and had become subjects of bargain and sale as merchan- dise. Both the original bill-holders and the stockholders had suffered from the same cause. The business interests of the entire people of the state had been overwhelmed by a calamity common to all. Society demanded that extraor- dinary efforts he made to get rid of extraordinary embarrassments, and permit a reorganization upon the basis of the new order of things. This clearly presented a case for legislative interference, within the just influence of con- stitutional limitations. For this purpose the obligations of old contracts could not be impaired, but their prompt enforcement could be insisted upon or an abandonment claimed. That, as we think, has been done here, and no more. At any rate, there has not been such an abuse of legislative powers as to justify judicial interference." Terry v. Anderson, 95 U. S. 628, 633. ' George v. Gardner, 49 Ga. 441. 357 § 288 REMEDIES, PEOCEDUEE, AND DEFENCES. [PART IV. the Circuit Court of the United States for the Southern District of Georgia ^ had previously reached the same con- clusion. The Supreme Court of Georgia has, however, applied to this statute the doctrine that the statute does not begin to run until a call is made, and a right of action against the shareholders thus created on behalf of the cor- poration. When, therefore, a corporation became insolvent and ceased business, leaving a portion of its stock subscrip- tion uncalled for, in respect of this, judgment creditors were not barred by the statute.^ A statute creating a rem- edy by action on the case against stockholders by creditors, in place of the remedy by scire facias on judgment against the corporation, and providing that such action on tlie case must be brought within six tnonths after the rendition of judgment against the corporation, has been upheld in Maine.' § 288. What is tlie Conimencement of an Action? — The question sometimes arises, when an action is deemed to have been commenced so as to save the bar of the statute of limitations. Under a statute of Georsria, barring actions founded on corporate liabilities in certain cases unless com- menced on or before the first day of January, 1870, it ap- peared that suit against a bank was commenced in 1866, and notice was given to stockholders by publication, under the provisions of the Georgia Code. There were a judg- ment, execution, and return of nulla bona against the bank ; upon which execution issued in June, 1869, against a stockholder, which was returned nulla bona in July, 1869, and afterwards a levy was made — presumably under the same execution, but the case is silent on this point — in August, 1870. It was held that the suit against the stock- holder began, at most, with the issue of the execution in ' Samples v. The Bank, 1 Woods, 523. ' Cherry i'. Lamar, 58 Ga. 541. » Cummings v. Maxwell, 45 Me. 190. 358 CH. XVII. J STATUTES OF lilMITATIOJST. § 291 June, 1869, and it therefore saved the bar of the statute, though not levied until after the bar would have attached.^ § 289. Doctrine of Stale Demand. — The Supreme Court of Georgia has refused to apply the doctrine of stale demand to a bill in equity to call in, for the benefit of the creditors of an insolvent corporation, the moneys due by the stock- holders on account of their subscriptions, where five years only had elapsed from the time when the legal assets of the corporation were exhausted, at which time, in the opinion of the court, the right to go into equity accrued.^ II. When the Statute begins to run. § 290. General Doctrine. — It is obvious that the statute begins to run from the date when the liability of the share- holder becomes fixed, in the sense that the creditor may, without obstruction, proceed against him. This period will be different according to the nature of the liability to which the law subjects the shareholder in a given case. § 291. "Where the Liability is for unpaid Balances on Stock. — Where the liability is for unpaid balances on stock subscriptions, there is authority for the position that the statute does not begin to run (if at all) before a notorious disbandment of the company, and cesser of business ; ^ and 1 stone V. Davidson, 56 Ga. 179. ^ Hightower v. Thornton, 8 Ga. 486, 502. See also the case of Turquand v, Kirby, L. R. 4 Eq. 123, in which case shares remained in a testator's name on the books of the company for nine years after his death, the dividends being paid to his executor, who retained the shares. On the winding-up of the com- pany, at the end of the nine years, the shares still standing in the name of the testator. Lord Komilly, M. B., held it to be clear that the statute of limitations had nothing to do with the case ; for the debt, though not existing when the testator died, did not arise till the call was made ; therefore, all the property of the testator in the hands of the executor and devisees was made liable for calls upon the winding-up, property of the testator exempt from the decree being only such as was in the hands of a purchaser for value before the date of the winding-up order. " Payne v. BuUard, 23 Miss. 88 ; Curry v. Woodward, 58 Ala. 876. 359 § 292 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. there is good sense in this view. However this may be, it is clear of doubt that in case of a comiJany which continued to transact business, and which has been a " going company," without interruption, from the time of the subscription of the stockholder until the commencement of the suit for calls, the statute would not commence to run until a call made by the stockholder to pay it ; ' and, for stronger reasons, it would not begin to run until that time, if the controversy were between a creditor of the corporation and a shareholder.^ But if a trust relation is deemed to subsist between the shareholders and creditors, such as prevents the statute from running,' it is difficult to see how a refusal of shareholders to pay calls to the company would set the statute in motion as against creditors, — a fact of which they might have no knowledge.* It has been held, however, that as between the company and a stockholder, by analogy to the statute of limitations, where work on a railroad had not been prosecuted accord- ing to the requirements of the act of incorporation, and no calls made within' six years from the date of the subscrijj- tion for stock, a presumption of abandonment of the under- taking arose in favor of the subscriber, and that the lapse of six years was a bar to the remedy by call, and to a suit to recover the instalments so called for.^ § 292. Where the Liiability is that of a Partner, the liability of the shareholder and that of the comjjany are coordinate ; the liability of each accrues at the time of the maturity of the debt or breach of the contract, for it is at this time that the creditor's cause of action accrues.* Thus, a statute of California provided as follows: "Each • Macon, etc., R. Co. v. Vason, 52 Ga. 826. 2 Cherry v. Lamar, 58 Ga. 541 ; Curry v. Woodward, 53 Ala. 876, » Ante, § 282. * Allibone v. Hager, 46 Pa. St. 48, 54. ' MoCuUy u. Pittsburgh, etc., R. Co., 32 Pa. St. 25; Pittsburgh, etc., R. Co. V. Byers, 32 Pa. St. 22; Pittsburgh, etc., R. Co. v. Graham, 36 Pa. St. 77. « Conklin v. Furmau, 57 Barb. 484. 3G0 CH. XVII.] STATUTES OF LIMITATION. § 293 stockholder shall be individually and personally liable for his proportion of all the debts and liabilities of the com- pany contracted or incurred during the time that he was a stockholder, for the recovery of which joint and several actions may be instituted and prosecuted." This statute, as we have secn,^ has been held to create a liability similar to that of a partner or principal debtor. Under it the cause of action against the stockholder accrues at the same time that it accrues against the principal debtor ; and, therefore, the statute begins to run from the date when the creditor could have brought his suit against the corporation.^ A similar view, it will be remembered, has been taken of statutes of the same nature in New York,^ and it is there held that the statute begins to run at the same time in favor of the share- holder as in favor of the corporation, — that is, when the debt is due, or the contract is broken.* § 293. When his Liability is Secondary. — But where, as in most cases, the liability of the shareholder is in the nature of a guaranty, secondary to that of the company, the law exacting as a condition precedent that the creditor shall exhaust his remedy against the company before he can attack the shareholder, obviously the statute does not begin to run until such period as, by an ineffectual prose- cution of his claim against the corporation, or by the happening of some event which will excuse further proceed- ings against it, such as a dissolution or bankruptcy, the road is open for a direct proceeding against the creditor. To illustrate : The cause of action against the stockholder, under a statute of Maine, was held not to accrue until a failure by a creditor to obtain the amount of his judg- ment from the corporate property by a due course of pro- ceedings for that purpose.^ There are, however, confusing 1 Ante, § 32. ' Davidson v. Eankin, 34 Cal. 503. » Ante, i 31. ' Lindsay v. Hyatt, 4 Edw. Ch. 97. 6 Longley v. Little, 26 Me. 162. 361 § 294 EEMEDIES, PROCEDURE, AI^D DEFENCES. [PART IV. decisions on this subject. Thus, under the statutes of New York, just adverted to, where the statute begins to run at the same time in favor of the stockholder and the corporation, it is necessary, before suing the stockholder, for the creditor to exhaust his remedy against the corporation by judgment, execution, and return of nulla bona; although the action against him is not upon the judgment, but on the original contract.^ The Supreme Court of Vermont has held that the statute of six years, of that state, begins to run against a bill in equity by a creditor, for the purpose of calling in moneys due on account of unpaid stock, from the time of the accrual of the liability of the stockholder to pay such subscriptions, and of the corresponding right of the company to enforce their collection against the stock- holder.^ § 294. Code of Liouisiana — Continued — Prescription under. — An analogous rule has been declared, under the Code of Louisiana, applicable to a proceeding by a creditor against a shareholder, in the nature of garnishment. The creditor coiild not .succeed if more than ten years had elapsed since the maturity of the last instalment due on the stock and before the commencement of the proceed- ings. The grounds on which the court proceeded in arriv- ing at this result are thus given in its opinion, delivered by Eost, J.: "More than ten years had elapsed from the maturity of the last instalment before the institution of these proceedings against him. Article 3508 of the Civil Code provides that all personal actions, except those enu- merated in the title of the prescription, are prescribed by ten years if the creditor be present, and by twenty years if he be absent. The French text is : « Toutes les actions personelles generalement quel conques.' The disposition is as universal as language can make it. The directors of the company had their choice either to consider the stock as » Post, J 336. • Baasett v. St. Albans Hotel Co., 47 Vt. 313. 362 CH. XVII. j STATUTES OF LIMITATION. § 294 forfeited, on the non-payment of the instalments at the periods fixed by the charter, or to sue for those instalments. They neglected to act in the matter. Supposing this neglect to have originated in fraudulent motives on their part and that of the shareholders, the creditors of the company were not remediless ; they might have caused the company to be administered, and the calls necessary to pay them to be made and enforced. The prescription which operates a release from debt does not require that the debtor should produce any title, or that he should be in good faith. The neglect of the creditor alone operates the prescription. When he is present, and his silence has continued ten years, the law presumes payment ; that presumption is juris et de jure; and the statement of the garnishee in this case that, according to his recollection, only the cash payment of $5 per share was made, will not avail against it.'^ Good faith not being required for this class of prescriptions, the relation which existed between the garnishee and the defendants can be no obstacle to it. It was formerly maintained by Dunod, and other civilians, that when there is in a contract reciprocal and synallagamatic conventions, as long as the contract is executed by one of the parties the other cannot refuse to execute it on his part, under the pretext of prescription, even if those conventions should be accidental. This was called the rule of correlatives. An attempt was made to have it inserted in the Napoleon Code, but it failed, and the rule forms no part of the law of prescription either in France or with us. We must hold, therefore, that the relations of parties under a con- tract or a charter do not affect the general law on this subject."^ But the learned judge goes on to say that where no period is fixed for the payment of a balance due 1 Citing Civil Code, arts. 3494, 3496. '^ Brown v. Union Ins. Co., 3 La. An. 177, 182, citing 2 Troplong, Prescrip- tion, 534. 363 § 295 REMEDIES, PEOCEDUKE, AST) DEFEXCES. [PAET IV. on a stock subscription, no pi-escription can accrue against a direct action by a creditor of the company ; ^ and this creates a sensible distinction between this and the Vermont case. This view is in conformity with that of the Supreme Court of Alabama, in a recent case, where it is held that until a call is made, or there is an evident disbandmeut of the company and a relinquishment of business, the statute will not besiin to run ao;ainst a creditor.^ § 295. Wliere the Liiabllity is in the Nature of a Guar- anty of Payment. — Under a bank charter of Georgia, pro- viding that the individual property of the stockholders should be bound for the ultimate redemption of the bills issued by the bank, in proportion to the number of shares held by them respectively, the Supreme Court of the United States has adopted the view that it was unneces- sary first to exhaust the assets of the bank by legal pro- ceedings before a right of action accrued to a bill-holder ao;ainst a shareholder. The case was thouo-ht not to be so much like that of a guaranty of the collection of a debt, where a previous proceeding against the principal debtor is required, as like a guaranty of payment, where resort may be had at once to the guarantor without a previous pro- ceeding against the principal.' The court reasoned that a judgment and execution unsatisfied are merely evidence of insolvency and inability to collect. The fact might be established as well by other evidence ; among other modes, by an assignment and continued suspension of business, or other notorious indications.* The court, therefore, con- cluded that the liability for the ' ' ultimate redemption of the ' Brown v. Uuion Ins. Co., 8 La. An. 183. » Curry v. Woodward, 53 Ala. 371, 376. ' See, on this point, Morris r. Wadsworth, 11 "Wend. 100; ^. v., 17 Wend. 103; 2 Pars, on Notes & Bills, 142, U3; Brandt on Suretyship. J§ llUI, 170. * See, on this point, Camden c. Doremus. 3 How. 533 ; Reynolds v. Douglass, 12 Pet. 497 ; 2 Am. Ld. Gas. 134 ; post, l\ 310, 812. 364 CH. XVII.J STATUTES OF LIMITATION. § 297 bills, if properly enforced, arose when the bank refused or ceased to redeem, and was notoriously and continuously insolvent." ^ § 296. In Case of !Lial)ility for Mismanagement or Delinquency. — Under a statute providing that " if any loss or deficiency of the capital stock in any bank shall arise from the official mismanagement of the directors, the stockholders at the time of such mismanagement shall, in their individual capacities, be liable to pay the same," ^ it has been held that the statute begins to run from the time of the happening of the loss or deficiency in respect of which the liability is created.' § 297. In favor of one who has transferred his Shares. — Suppose the governing statute or constitution of a com- 1 Terry v. Tubman, 92 TJ. S. 156, opinion by Mr. Justice Hunt. ' Eev. Stat. Mass. 1836, ch. 36, ? 30. ' Baker v. Atlas Bank, 9 Mete. 182, 195. In this case the following lan- guage is found in the opinion of the court, by Wilde, J. : "It was then argued by the plaintitf' s counsel that the statute did not begin to run until the plain- tiff's right to sue in equity accrued, which was not before the receivers of the bank refused to commence an action for their benefit. But, if this argument would hold good, the plaintiffs might delay their application to the directors of the bank, or the receivers, for any length of time, and the statute would be inoperative and nugatory. It has also been argued that the statute did not begin to run until it was first ascertained what would be paid by the assets of the bank. But we think that suits might be commenced against the bank and against the stockholders at the same time, and that the suits might go on pari passu. But there is another and a conclusive answer to both of these argu- ments. The demand sought to be enforced in this suit was a debt alleged to be due to the bank. Whenever, therefore, the bank became insolvent by the loss of its capital stock, an action accrued to the bank, according to the construc- tion of the 30th section, which is contended for by the plaintiff's counsel, to recover a sum from the stockholders, respectively, equal to each one's share of the stock. The statute, therefore, began to run, in strictness, immediately on the loss of the capital stock, and certainly when the bank stopped payment; and after the lapse of six years from that time the debt was barred, and as effectually as though it had been actually paid. So, also, if after the insolvency of the bank the stockholders became directly liable to the creditors, the plain- tiff's right of action accrued immediately upon the loss of the whole capital stock, and the statute of limitations is a bar to the plaintiff's demand in any form of action." Baker v. Atlas Bank, 9 Mete. 182, 197. 365 § 298 EEMEOrES, PROCEDURE, AND DEFENCES. [PART IV. pany makes a retiriug shareholder liable for his proportion of the losses of the company incurred up to the time of his ceasing to be a shareholder, when does the statute of limi- tations begin to run in his favor ? At the time when the company became liable to pay the debt, or at the time when he ceased to be a member ? An English vice-chancellor has held that the statute begins to run from the time when he transferred his shares, in respect of any loss of the com- pany accruing prior to that time, although the amount of the liability may not have been ascertained until long after- wards.^ § 298. In Case of Renewals. — As already seen," the discounting of a new note and the application of the pro- ceeds realized from it to the payment of a former note extinguishes the old debt and creates a new one. Such a transaction is not a mere change of securities, — the taking of a new note in the place of the old one, — but a discount and a payment of money upon the strength of the new security, by means of which the old obligation is dis- charged, given up, and surrendered, so as to render it in- effective for any purpose. Under such circumstances, the contract does not relate back to the time when the first note was discounted ; but, the old one having been paid and taken up, the debt will be deemed to have been contracted when the new note was given. And if a debt thus con- tracted by a manufacturing corporation by the gi^^ng of a new note is payable within one year after the date of such ' Helby's Case, L. K. 2 Eq. 167. It was held by the House of Lords, in 1866, reversing Lord Chancellor Westbury (33 L. J., Bank., 26), that liability to debts of a joint-stock company, incurred in 1849, by a person then becoming a shareholder of the company and signhig the deed of settlement, which ex- pressly created that liability, made him a debtor at the moment the debts were contracted by the company; hence calls on him made in 1862 and 1863, under the authority of a winding-up order, to pay money in respect of those debts, did not themselves constitute "a debt contracted alter the passing of the act, 1861," but amounted merely to an enforcement of the liability incurred when ho became a shareholder. Williams o. Harding, L. R. 1 H. L. 9. » Ante, I 101. 366 CH. XVII.] STATUTES OF LIMITATION. § 299 new note, and a suit is brought on the note against the company within one year after the same becomes due, the stockholders are personally liable. § 299. In Case of Bank-Bills It is well settled that statutes of limitation have no application to bank-bills, cir- culating as money} The reason of the rule, as stated by Lord Mansfield, and often reiterated, is " that these notes are not like bills of exchange, mere securities or documents for debts, nor are they so esteemed ; but are treated as money in the ordinary course and transactions of business, by the general consent of mankind."^ Moreover, their date is no evidence of the time when they were issued, since they are being continually returned to the bank and reissued by it.' So long as they continue to circulate as money, it would be, therefore, impossible to fix upon a time for the statute to begin to run.* But if the notes have ceased to circulate as 1 Miller v. Race, 1 Burr. 457 ; Dougherty v. "Western Bank of Georgia, 13 Ga. 287; Bethune v. Dougherty, 30 Ga. 770; Kimbro v. Bank of Fulton, 49 Ga. 419. ' Miller v. Race, 1 Burr. 457. ' Hepburn v. Commissioners, 4 La. An. 87. * Dougherty v. Western Bank of Georgia, 13 Ga. 287, 299 ; Kimbro v. Bank of Fulton, 49 Ga. 419, 421. "How," said Nesbit, J., in the former case, "can a limitation be applied to that which, without much perversion of truth, may be said to be like Melchisedec, — without beginning of days or end of life? It has no beginning on its face, for its date is no evidence of the time when it was issued. It may bear date to-day and may be issued to-morrow, or next year; or it may be issued to-day and returned to-morrow, and reissued the next day. Or it may not be issued at all until after it is barred by time, commencing to run from its date. If it could be barred at all, it would seem that the starting- point of the statute ought to be the time of its issue. And how shall the world so know that as to exercise a necessary diligence by suing within time. Nor has it an end of life, because it is never overdue. If, as Judge Story says, it is never overdue, no matter when issued or how often reissued, but is always an immature representative of a legal tender, when shall the statute com- mence to run? Shall it be said, from the time of a demand and refusal to redeem? If so, then an insolvent bank, by which I mean a bank which is un:ible to redeem its bills, is upon a bcttcir footing than one whose credit is good, — that is to say, the former is protected by the statute, and the latter is not." Dougherty v. Western Bank of Georgia, 13 Ga. 287, 299. 367 § 301 REMEDIES, PROCEDURE, AND DEFENCES. [PAET IV. currency, have ceased to be taken iia and received by the bank, and have ceased to be considered as money in the ordinary sense of tliat term, then the reason for the rule ceases, and witli it the rule itself. They no longer have a distinctive character, as compared vs^ith other contracts, such as exempts them from the operation of statutes of limitation.^ Applying this doctrine, the Supreme Court of the United States has held, under a Georgia bank charter ■which provided that the individual property of the stock- holders should be bound for the ultimate redemption of the bills, in proportion to the number of the shares held by them respectively, that the liability of the stockholders commenced, not when the assets of the bank had been ad- ministered under an assignment law, nor after demand of payment of the particular bills and refusal, but when the bank refused or ceased to redeem its circulation generally, and was notoriously and continuously insolvent.^ III. Of certain special Statutes. § 301. lilmitation as to Time when Suit sliall be brought ag-ainst Corporation. — If a creditor could delay suing the corporation until the period of the statute of limitations relating to his demand had nearly run, and could then, perhaps after a tedious litigation against the corpora- tion, secure a judgment in consequence of which he would be entitled to a new lease of time as against the share- holders, in effect subjecting them to the operation of a double statute of limitations, the inconveniences which would arise in some instances would be great. With the view, it seems, of obviating this, the Legislatures of several states have enacted statutes like the following : " No stock- holder shall be jDcrsonally liable for the payment of any debt contracted by any company " * * * " which is not to be paid within one year from the time the debt is » Kimbro v. Bank of Fulton, 49 Ga. 419; Terry v. Tubman, 92 U. S. 156. » Terry v. Tubman, 92 U. S. 156. 368 CH. XVII. ] STATUTES OP LIMITATION. § 302 contracted, nor (unless a suit for such debt shall be brought against such company) within one year after the debt shall become due." ^ By analogy to the rule which obtains in the interpretation of the statute of frauds,^ this statute has been held not to apply to a demand which may accrue at any time, and which, therefore, may be enforced within one year, — such as a claim for a breach of warranty of title in a sale of chattels.^ But it hag been held that a contract by a corporation to indemnify an agent for purchasing certain real estate for it was a contract not to be performed within one year from the time the debt was contracted, and within the statute ; and therefore stockholders could not be charged in consequence of it.* A similar statute in New York has been held to apply to a debt due upon a contract of hiring at a stated sum per year, payable in monthly or quarterly instalments, where the period of service was indefinite and could be terminated by either party at pleas- ure. The most that the defendant could claim in such a case was that the statute commenced to run from the expira- tion of each year. If, therefore, any of the wages which constituted the cause of action fell due on the 31st of De- cember of a given year, and suit was not brought witliin a year thereafter, they would be barred by the statute ; but the statute would not apply to such instalments as fell due within a year prior to the commencement of the action.^ § 302. Continued. — It is not necessary, in the view of the Missouri courts, in order to obviate the bar of this stat- ute, to bring suit against the corporation on the demand within one year after it became due, where the bankruptcy or dissolution of the corporation render such a suit a vain 1 1 Wag. Stat. Mo. 336, I 13. 2 See Foster v. McO'Blenis, 18 Mo. 88. ' Dryden v. Kellogg, 2 Mo. App. 87. * Cox V. Gould, 4 Blatchf. 341. » Hovey «. Ten Broeek, 3 Rob. (N. Y.) 316. 24 369 § 303 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. proceeding ; ^ but the Supreme Court of Illinois has taken the opposite view, ^ and, it seems, upon reasons which are not without support in the authorities ; for it is a familiar rule in the administration of statutes of limitation that, unless the Legislature has made a given exception to such a statute, the courts cannot make it.' The Missouri statute above quoted has been held to apply so as to bar the sum- mary remedy by motion, given by another statute, even as respects unpaid subscriptions, unless the creditor brought his suit against the company on which his judgment was obtained within one year after the debt became due ; but whether the creditor might not have a remedy in equity against a stockholder to enforce payment of his stock, to which the statute would not be applicable, the court left undetermined.* Where the plaintiff brought suit against the corporation, on the debt, in one of the courts of the state within a year, and took a nonsuit, and within a year thereafter, but more than a year after his debt fell due, brought a new suit in the federal court and recovered judg- ment, it was held that he was barred, by lapse of time, of the right to enforce a summary personal liability on the part of stockholders.^ § 303. Continued. — The peculiarity of these statutes seems to be that although the plaintiff's demand may have been reduced to judgment against the corporation, yet this judgment will not entitle him to proceed against the stock- holder unless the suit upon which it was founded was com- menced within a year from the time the debt of the corpora- ' Hovey v. Ten Broeck, 3 Eot. (N. Y.) 316 ; State Savings Assn. v. Kellogg, 52 Mo. 583. ^ 2 Tarbell v. Page, 24 111. 46. It was here held that the fact that the com- pany was insolvent did not excuse the bringing of suit against it within the year. 3 See Ang. on Lim. (6th ed.), §§ 23, 29, 485, 487, 488, and authorities there cited. * Haakins v. Harding, 2 Dill. 99, 106. « Ibid. 370 CH. XVn.] STATUTES OP LIMITATION. § 304 tion to him fell due.' The condition precedent, it will be seen, does not necessarily require that suit against the cor- poration should have proceeded to judgment. It is the bringing of the suit against the corporation within the period named that gives the creditor the right to proceed against the stockholder. This being a material fact, essen- tial to his recovery, he must, in a suit against a stockholder, aver its performance, in his declaration or petition, or it will be obnoxious to a demurrer.^ If, as the Missouri courts hold,^ and the Illinois court, in one particular, denies,* cir- cumstances may intervene which will excuse the bringing of suit against the corporation, by a parity of reasoning it would seem necessary to aver the existence of such cir- cumstances, in order to excuse the bringing of suit. Such a statute has, however, in New York been construed as requiring the recovery of a judgment and the return of execution unsatisfied in the suit thus brought against the corporation by the creditor. Hence, as there held, in an action against stockholders the complaint must allege judg- ment against the corporation unsatisfied ; it is not suflicient to allege, in accordance with the terms of the statute, that a suit for the collection of the debt was brought against the company within one year after the debt became due.* § 304. Statute of Maine as to past Members. — It re- mains to consider briefly the construction placed upon cer- tain special statutes of limitation relating to this subject. A statute of Maine, after declaring the liability of share- holders to the creditors of the corporation, continues : " And such liability shall continue, notwithstanding any ' Haskins v. Harding, 2 Dill. 99. 2 Tarbell v. Page, 24 HI. 47. ' State Savings Assn. v. Kellogg, 52 Mo. 583 ; Dryden v. Kellogg, 2 Mo. App. 87, 95. ' Tarbell v. Page, 24 HI. 47. So held in Birmingham National Bank v. Mosser, 14 Hun, 605. ' Lindsley v. Simonds, 2 Abb. Pr. (n. s.) 69. 371 , § 305 REMEDIES, PROCEDURE, AKD DEFENCES. [PART IV. subsequent transfer of such stock, for the term of one year after the record of the transfer thereof on the books of the corporation, and for the term of six months after judgment recovered against such corporation in any suit commenced within the year aforesaid."^ The object of the Legislature in passing this statute was to check the abuse of solvent shareholders escaping liability by transferring their shares when they discovered that the corporation was in extremis. It was founded in the same policy as the similar provision of the English Companies Act, 1862, already considered.^ It was not, therefore, construed as a general statute of limitation, nor did it refer to a stockholder who had never parted with his stock, but only to those whose stock had been transferred, and the transfer recorded ;^ nor was the nature of this limitation changed by the statute of 1844, chapter 109.* § 305. Statute of Maine of Six Months. — Under the Revised Statutes of Maine ^ it is provided : "At any time within six months after the return of an execution against a corporation, recovered on a debt for which any stockholder is liable under the preceding section, unsatisfied in whole or in part, for want of attachable property of the coqjoration, the plaintiff in such execution may make demand of any stockholder of such corporation to disclose and show to the officer having such execution attachable property of such corporation sufficient to satisfy the execution." And, further:* "After demand as aforesaid, the execution cred- itor may have an action on the case against such stock- holder, to recover of him individually the amount of his execution and costs, or the deficiency thereof, iiot exceeding ' Rev. Stat. Me. 1840, ch. 76, § 18. 2 Ante, § 97. 3 Ingalls V. Cole, 47 Me. 530. * Ibid. ' Kev. Stat. 1857, ch. 46, J 25. « Ibid., I 26. 372 CH. XVII.] STATUTES OF LIMITATION. § 306 the amount for which said stockholder is liable by section twenty-four. Such action must be commenced within six months after the date of the rendition of judgment against the corporation." In a case arising under these provisions the proper procedure was stated to be : 1. That the officer holdhig the creditor's execution against the corporation make a return thereon that it is unsatisfied, in wliole or in part, for want of attachable property of the corporation. 2. That after the return of such execution, and before the expiration of six months after the date of the rendition of judgment against the corporation, notwithstanding the six months guaranteed by section twenty-five, the creditor make demand of the stockholder to disclose and show to the officer having such execution attachable property of such corporation sufficient to satisfy the execution. 3. That after such demand, and within six months after the date of the rendition of judgment against the corporation, the cred- itor sue the stockholder in case. The time within which demand may be made begins to run from the return of the officer upon the execution, and not from the return day thereof.^ § 306. Statute of Ifew York touching Demands of purely equitable Cognizance. — By a statute of New York, the time for commencing suits in the courts of chancery was expressly limited, in cases of a concui-rent remedy at law, to the time allowed for bringing actions in a court of law ; and in all other cases, of exclusive cognizance in equity, to ten years. ^ The demand of the creditor of a corporation against a shareholder was not of a purely equi- table character, since an action at law would lie upon it ;^ it was, therefore, subject to the statute of six years.* 1 Lovegi'ove v. Brown, 60 Me. 592. » 1 Kev. Stat. N. Y. 1830, p. 301, U 49-52. » Ante, I 267. « Lindsay v. Hyatt, 4 Edw. Ch. 97. 373 § 307 EEMEDIES, PROOEDUEE, AND DEFENCES. [PAET IV. § 307. The Ohio Statute of March 18, 1839, which provided, in substance, that any company or association, except a bank incorporated by the laws of the state, which should under any pretence issue any sort of paper intended to circulate as money, should be deemed an unauthorized bank, within the meaning of the act of January 27, 1816, ' ' to prohibit the issuing and circulating of unauthorized bank paper." This last statute made the stockholders, share- holders, and partners of unauthorized banks jointly and sev- erally liable for the payment of the debts of such banks. In an action under these statutes against the directors and share- holders of an unauthorized bank, upon certain of its notes, it was held that the defendants were not liable as makers, but that their liability rested upon the statute, and was in the nature of a penalty for a tort, and therefore the four years' limitation applicable to actions not otherwise enumer- ated in the statute of limitations created a bar to such an action.^ 1 Lawler v. Burt, 7 Ohio St. 340, overruling Lawler v. Walker, 18 Ohio, 151. 374 CH. XVIII. J CONDITIONS PEEOEDENT. § 310 CHAPTER XVIIL OF CONDITIONS PRECEDENT TO THE EIGHT TO PEOGEED AGAINST STOCKHOLDEES. Sectioh 310. Dissolution of Corporation — What works a Dissolution. 311. What works a Dissolution, continued — How pleaded. 312. Exhaustion of Remedy against Corporation. 313. Illustrations. 314. Illustrations, continued — Demand upon corporate Officers. 315. Commencement of Suit against Corporation within a given Time. 316. Exceptional Rule in Pennsylvania, 317. Judgment against Corporation. 318. Bankruptcy of Corporation. 319. Continued — Insolvency and Abandonment of Franchise. 320. Judgment, Fieri, Facias, and Nulla Bona. 321. Appointment of a Receiver. 322. Exhaustion of Deposits made with the State. 323. Proof of Claim before Receiver. 324. Exhaustion of equitable Assets before statutory Liability. 325. Exception to the foregoing Rules. 326. Summary Remedy not unconstitutional. 327. But Proceeding without Notice not favored. 328. Tet Stockholder not entitled to contest the Merits. 329. And yet Judgment against Corporation conclusive. 330. Continued — Contrary Rule in New York. 331. Continued — Former Practice in England. 332. Continued — Under Companies Clauses Consolidation Act. 383. Continued — Execution against Stockholder and "Illegality" in Georgia. 334. Where the Stockholder is Liable only for a particular Class of Debts. 335. If Corporation has been dissolved. 336. Whether Suit against Stockholder is upon Judgment or original Demand. 337. Conclusiveness of Judgment in Supplementary Proceeding against Stockholder. § 310. Dissolution of Corporation ^ Wliat works a Dissolution. — Statutes have existed, in some of the states, 375 § 310 REMEDIES, PEOCEDUEE, AND DEFENCES. [PAET IV. providing that for all debts of certain corporations, due and owing at the time of their dissolution, the persons then com- posing such company should be liable to the extent of their respective shares of stock, and no further.^ With such a statute in force, an insolvent corporation would cease to exercise its franchises and fade out of existence, and when creditors proceeded against the stockholders to enforce their individual liability, the latter would plead that the corporation was not dissolved, because there had been no direct proceeding to forfeit its franchises, resulting in a judg- ment of dissolution. The courts met this by holding that if a corporation suffer acts to be done which destroy the end and object for which it was created, this is a dissolution within the meaning of the statute.^ Of this nature was a failure to elect trustees or to transact other business at a regular annual meeting, and the suffering of a sale of all the corporate property under an execution.^ Under the same rule a manufacturing company, without funds or prop- erty, utterly bankrupt, which had done no business and exercised none of its powers for some years, was held to be dissolved.* Similar views obtain in Missouri. A statute I Rev. Laws, N. Y. 247 ; 1 Wag. Stat. 293, J 22. See Van Hook v. Whit- lock, 3 Paige, 409. ^ Slee V. Bloom, 19 Johns. 456 ; Briggs v. Penniman, 8 Cow. 387, affirming Penniman v. Briggs, 1 Hopk. Ch. 300; State Savings Assn. v. Kellogg, 52 Mo. 588 ; Dryden v. Kellogg, 2 Mo. App. 87 ; Perry v. Turner, 55 Mo. 418, 427. ^ Slee V. Bloom, 19 Johns. 456. * Penniman v. Briggs, 1 Hopk. Ch. 300, affirming Briggs v. Penniman, 8 Cow. 387. The reasons given by Chancellor Sanford in support of the gen- eral doctrine of this section are worth preserving. He said : " The ordinary modes of proceeding to try the rights of persons claiming corporate powers, or to obtain a judgment that a corporation has forfeited its franchises, are by scire facias and information in the nature of a writ of quo warranto. These proceedings take place on behalf of the public and in the name of the attorney- general. They are public prosecutions, which the attorney-general may insti- tute, and which he may also refuse to institute or conduct. When the judg- ment upon these proceedings is against the corporation, it is that the parties claiming corporate rights be ousted, or that the franchises claimed be seized or resumed by the sovereign. These proceedings, derived from the English law, are founded upon the principles of that law, which regards all corporate 376 CH. XVIII. J CONDITIOisrS ' PRECEDENT. §310 of tliat state provides that if any company formed under the act in question " dissolve, leaving debts unpaid, suits may be brought against any person or persons who were franchises as delegated portions of the sovereign authority. They are pro- ceedings which are adapted, as they were devised, to enforce the riglits of the public against usurpation or abuse of corporate powers. These principles and proceedings of the English law are fully applicable to many of our corpora- tions ; but they seem to have little application to the manufacturing corpora- tions formed under this statute. The true character of these corporations is justly described by Chief Justice Spencer, in the commencement of his opinion in the case of Slee v. Bloom, 19 Johns. 473. They are corporations of a new and peculiar species. They are corporations for the pursuit of a branch of industry which is open to all ; and these incorporations are themselves equally open to all who conform to the regulations of the statute. They are, in effect, mere partnerships, with some of the powers and privileges of corporations. They are, in some respects, the corporations of the English law ; but they bear a greater resemblance to the corporations of *the civil law, Which were volun- tary associations. They are little more than the limited partnerships which may now be created, under the law of April 17, 1822. The state has no interest in the question whether this manufacturing company is dissolved or not, and a public prosecution to vacate its corporate existence is a measure not within the power or control of the creditors of the company. The persons interested in the question whether this company is dissolved or not are its creditors and the stockholders from whom its debts are claimed. To require that a creditor should, by a public prosecution, obtain a formal sentence of dis- solution against the corporation before he can institute a suit against the stocJjholders would be to require of the creditor that which is beyond his power, and would frustrate the remedy against stoclsholders given by the statute. The personal responsibility of stockholders being only for debts due from the corporation at the time of its dissolution, a creditor claiming such a debt against a stockholder must show, not only a debt from the corporation, but also that the corporation is dissolved. The enquiry whether the corpora- tion is dissolved or not is as fully open in a suit by a creditor against the stock- holders as it would be in a prosecution by the attorney-general ; and when the creditor shows that the corporation is dissolved, that fact must avail him as fully as if the same fact had been established upon a public information. The right given to the creditor against the stockholders is perfect, and the remedy to enforce it must be adequate and effectual. In this manner justice is done to both parties. The stockholders are not 'rendered personally liable until the question of dissolution is properly litigated and determined between them and the creditor ; and a siiit by the creditor is the only mode in which he can assert his rights, and show that the corporation is dissolved. I am, accordingly, of opinion that it is not necessary that a judgment of ouster or dissolution should have been pronounced in any other prosecution before a creditor can maintain an action against a stockholder under this law. The question of dissolution may be litigated in a suit by the creditor against the stockholders; and, so far 377 § 311 REMEDIES, PEOCEDUEE, AND DEFENCES. [PAET IV. stockholders at the time of such dissolution, without joining the company in such suit." ^ It is not necessary, in order to constitute a dissolution within the meaning of this statute, that a dissolution should have been judicially ascertained and declared. A corporation without assets, and adjudi- cated bankrupt, is, within the meaning and policy of this statute, dissolved.* § 311. What works a Dissolution, continued — How pleaded. — On the other hand, the rule seems to be well established that a mere neglect to comply with the requisi- tions of the charter or by-laws in regard to the time of electing officers does not work a forfeiture of corporate rights and privileges.' "Within the meaning of a statute of Maine,* making each stockholder of a bank liable, upon the expiration of the charter, for the redemption of all unpaid bills, in proportion to the stock he then holds, the charter expires when an injunction against the further prosecution of business is made perpetual.* It is obvious from a read- ing of the cases that the courts frequently, as in the above cases, treat a corporation as dissolved when it is necessary to do so in order to preserve the rights of creditors, whilst under similar circumstances the corporation would be treated as the creditor is concerned, the dissolution of the company may he adjudged in such a suit. It is not necessary here to declare that this company has lost all its rights. No judgment of ouster or forfeiture can here be rendered against the corporation. The decision that this company is dissolved is now made for the purpose of justice between the parties in this suit. I apply to this case the opinion of Chief Justice Spencer in the case of Slee v. Bloom, that even if this corporation has a capacity to reorganize itself, the case has happened in which, in respect to its creditors, it is dissolved." Penniman v. Briggs, 1 Hopk. Ch. 300, 303. 1 1 Wag. Stat. 293, g 22. 2 State Savings Assn. v. Kellogg, 52 Mo. 583 ; Dryden v. Kellogg, 2 Mo. App. 87 ; PeiTy v. Turner, 55 Mo. 418, 427. s Blake v. Hinkle, 10 Yerg. 218 ; The People v. Bunkle, 9 Johns. 147 ; Knowl- toa V. Ackley, 8 Gush. 93. Compare Ward v. Sea Ins. Co., 7 Paige, 294. * Eev. Stat. Me. 1857, ch. 47, 2 46. ' Wiswell V. Starr, 48 Me. 401 ; Dane v. Young, 61 Me. 160. 378 CH. XVIII.] CONDITIONS PRECEDENT. § 312 as being still in existence if to hold it dissolved would lead to a sacrifice of such rights.^ In pleading, it is not neces- sary to allege the grounds of dissolution ; a general aver- ment of a dissolution is enough.^ But an averment, in a bill in equity, that " complainant is informed and believes that the business of said bank has been so fraudulently and negligently managed that no suit at law can be brought against it, as the stocldiolders have failed and refused to elect directors as required by the charter, and many other acts and doings have taken place contrary to the charter, whereby they are dissolved," has been held an insufficient foundation to charge the stockholders individually.' § 312. Exhaustion of Kemedy against Corporation. — Under the former statutes of Great Britain,* and under the statutory schemes of nearly all the states,* it is made a condition precedent to the right of a creditor to proceed against a stockholder that he must first have exhausted his remedy against the company.^ This rule is applied even 1 Post, I 318. ' Bank of Poughkeepsie v. Ibbotson, 24 Wend. 473; Perry u. Turner, 55 Mo. 418. » Blake ». Hinkle, 10 Yerg. 218. ' * 8 & 9 Vict. c. 16 (Companies Clauses Consolidation Act, 1845), ? 36. " Stat Mass. 1862, ch. 218, §? 3, 4 ; Stat. Mass. 1870, ch. 224, ^ 40, 42. ' MciClaren v. Pranciscus, 43 Mo. 452; Chamberlin v. Huguenot Co., 118 Mass. 536; Priest v. Essex Hat Man. Co., 115 Mass. 380; Cambridge Water- Works V. Somerville D3'eing Co., 4 Allen, 239 ; Dauchy v. Brown, 24 Vt. 197 ; Wehrman v. Eeakirt, 1 Cin. Superior Ct. 230; Shellington v. Howland, 53 N. T. 374, affirming s. c, 67 Barb. 14 ; Blake v. Hinkle, 10 Yerg. 218 ; Lindsley V. Simonds, 2 Abb. ,Pr. (n. s.) 69; New England Commercial Bank v. The Stockholders, 6 R. I. 154; Lane v. Harris, 16 Ga. 217; Thornton v. Lane, 11 Ga..459; Drinkwater v. Portland Marine Ry., 18 Me. 35. There are some confusing and contradictory cases even on so plain a subject as this. One of them is Perkins v. Church, 31 Barb. 84 (a case which ought never to have been reported), where Judge Ingraham holds, at special term, without stating his reasons, that to sustain an action against a stockholder of an incorporated com- pany, for a debt of the company, it is not necessary for the plaintiif to aver that the corporation is insolvent, except in those cases where the charter makes the liability of the stockholders depend upon the existence of such insolvency, or requires the creditor to exhaust his remedy against the cor- 379 § 313 EEMEDIES, PROCEDUEE, AND DEFENCES. [PART IV. under those statutes where the liability of the stocliholder is primary, like that of an original contractor or partner.^ Here, although under many statutes it is tolerated to have an execution against a stockholder upon a judgment against the corporation, yet no instance has been found where this has been allowed without a previous return of nulla bona as to the corporation, or other equivalent evidence of cor- porate insolvency. The doctrine of these cases is some- thing like this : although here is a partnership, a creditor must first exhaust the partnership funds, or proceed till he finds none, before he can attach the separate property of the several members. § 313. Illustrations. — Thus, under the Massachusetts statutes of 1808, cli. 65, § 6, aud 1817, ch. 183, an execu- tion against a manufacturing corporation cannot be levied on the property of its members unless there has first been a demand on the president, treasurer, or clerk of the corpora- tion, by the oflacer who holds the execution, to show him property sufficient to satisfy and pay the sum due thereon ; although, on the original writ, property of the members was attached after a default of the coi-poration to show the officer who held the writ property sufficient to satisfy the judgment which might be recovered thereon.^ So, when a charter recited " that the persons aud property of said cor- poration shall be holden to pay their debts, and when any execution shall issue against said corporation, the same may be levied on the persons or property of any individual thereof," this was held to impose on the corporation a primary, and upon the stockholder a secondary, liability. poration before proceeding against a stockholder. In other cases, where a debt is unpaid at maturity, the creditor may proceed to collect his claim either from the corporation or frpm those who, by the charter, are made responsible for the debts. 1 Marcy v. Olark, 17 Mass. 829; Stone ii. "Wiggin, 5 Mete. 316. Compare Stedman v. Eveleth, 6 Mete. 114 ; Leland v. Marsh, 16 Mass. 389. 2 Stone M. Wiggin, 5 Mete. 316. 380 CH. XVIII. j CONDITIONS PRECEDENT. § 314 A suit could not be brought originally against the stock- holders. The statute created a right, and gave a remedy for its enforcement, and, on familiar principles, that remedy must be exclusively followed. It, was necessary to proceed to judgment and execution against the corporation before attacking the stockholder.^ So, a bank charter of Penn- sylvania, which recited that "the stockholders of said company or corporation, in addition to the corporate lia- bility, shall be jointly and severally liable to the creditors of said bank, in their individual capacities, for the amount of all deposits made with said company or corporation," created a secondary liabihty on the part of shareholders, like that declared in Patterson v. Wyomissing Company,^ so that the stockholders could not be charged until the assets of the bank were first exhausted.' § 314. niustrations, continued — Demand upon cor- porate Oflacers. — A statute of New Hampshire made a demand upon the corporation, a refusal, and failure to exhibit attachable unencumbered personal property a condition precedent to a suit against a stockholder.* A demand under this statute must be personal and verbal, though it may be judicious, in order to prevent controversy, to make it in the terms of a written paper, and to leave a copy of it with the person on whom it is made. It must be made by a person authorized to receive payment. In short, it must 1 Dauchy «. Brown, 24 Vt. 197. 2 40 Pa. St. 117. ' Appeal of Means, 85 Pa. St. 75. * The statute was as follows: "No suit against any stockholder, for the collection of any such debt or liability, shall be commenced until after a legal demand of payment thereof shall have been made upon the company ; and upon such demand being made, if the officers or stockholders of such com- pany shall discharge such debt or liability, or expose unencumbered personal property of such company liable to attachment, and sufficient, etc., then no such suit shall be sustained thereon against the stockholders." Eev. Stat. N. H. 1842, ch. 146, J 3, cited in Haynes v. Brown, 36 N. H. 564. See also similar provisions in Gen. Stat. N. H. 1867, ch. 136, H 1, 2, 3. 381 § 314 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. be such a demand as will enable the officer of the corpora- tion upon whom it is made to comply with it upon the spot.^ Accordingly, the following paper, signed by the plaintiff's attorneys, and left with the officers of the corpo- ration by another person, was held not a good demand : "To the Manchester Car and Machine "Works, a corpora- tion established by law : "We hereby demand payment of you, the said corporation, of the several debts, liabilities, or demands, copies of which are hereto annexed, or that you will expose unencumbered personal property of said corpo- ration or company liable to attachment, so that the same may be attached in suits against said company for the security of said debts, liabilities, or demands, and costs." ^ This result seems very unreasonable, and is not in harmony with the conclusions of the same court in analogous cases. Thus, this court has held that no particular words are nec- essary to constitute a demand of rent, but such a demand may be made without words, written or spoken. It is enough if both parties understand that a demand is made.^ The same court has reiterated this doctrine as applicable to a case where a corporation brought suit against a share- holder for calls, and it was necessary to show a previous demand. In this view, the following letter from the stock- holder to the treasurer of the company was competent to show that a demand had been made : " I suppose you are somewhat anxious to hear from me, as it is past the time specified for the assessment to be paid. I have the money due me, and shall have it the first of next month, so thought I would not borrow or hire it for so short a time ; therefore you will excuse me for being so backward in pay- ing my proportion. I suppose you intend to start the mill again ; hope you will have good success this time, and trust you will if you get rid of the land-sharks. If you 1 Haynes v. Brown, 36 N. H. 545, 564 ; Phelps v. Gilchrist, 28 N. H. 266. » Haynes v. Brown, 36 N. H. 545, 564. 8 Norris v. Morrill, 40 N. H. 395, 401. 382 CH. XVIII.J CONDITIONS PRECEDENT. § 317 wish for any of my assistance in that respect, I will come up and do what I can."^ § 315. Commencement of Suit against Corporation within a given Time. — There are statutes, in the nature of statutes of limitation, and hence more fully considered under that head,'^ which impose, as a condition precedent to the right of a creditor to pursue a stockholder, that he shall have commenced suit against the corporation within a certain time after the contracting of the debt, generally one year.^ Such a statute is not complied with by, the com- mencement of a suit for a part of the debt. Accordingly, where a creditor brought an action against a corporation, before a justice of the peace, upon an account for work and labor, etc., amounting to $366.60, the complaint claiming $200 only (that being the extent of the justice's jurisdic- tion), and no suit had been brought against the company for the balance of the account, it was held, in an action by a creditor against a stockholder, that the recovery must be limited to $200 and interest.* § 316. Exceptional Rule in Pennsylvania. — Although under the statute of Pennsylvania ^ the corporation is the principal debtor, and the hability of the stockholder is only seqondary and collateral, yet it is unnecessary to recover a judgment against the corporation before suing the stock- holder.^ Both may be joined in the suit on the original contract.' § 317. Judgment against Corporation. — Under the Revised Statutes of Massachusetts of the year 1836, ch. Manufacturing Co. v. Canney, 54 N. H. 295, 299. 2 Ante, li 301-303. » Laws N. y. 1848, eh. 40, ^ 24 ; 2 Eev. Stat. K Y. (5th ed.) 663, § 47. « Shellington v. Howland, 67 Barb. 14 ; affirmed in 53 N. Y. 371. 5 2 Brightly's Purd. Dig. 998, § 30. " Patterson v. Wyomissing Co., 40 Pa. St. 117, ' Post, I 360. 383 § 318 REMEDIES, PROCEDURE, AND DEFENCES. [PAET IV. 38, § 31,^ a creditor cannot maintain a bill in equity against stockholders who are not officers of the corpora- tion, to compel paymeiit of his claim, until he has recov- ered judgment thereon in an action at law against the corporation, although the corporation is joined as a defend- ant in the bill. It is otherwise where officers of the com- pany become liable to creditors under another section of the statute, for a direct action is given against them.^ The private property of stockholders in corporations created in Maine after February 16, 1836, excepting banking coi'pora- tions, was not subject to attachment on a writ against the corporation. The creditor was required to obtain judgment against the corporation before he could have his remedy against the stockholders.^ This is the general rule, inde- pendently of statute, — a rule which, as elsewhere seen, rests upon the ground that equity withholds its aid where there is an adequate remedy at law.* § 318. Bankruptcy of Corporation. — But, although the statute requires the bringing of an action against the corpo- ration as a condition precedent to the right to proceed against a stockholder, yet, as the law does not require a man to do a vain thing, the courts will dispense with this requirement in a case where the corporation has been adjudged a bankrupt and a dissolution is thus brought about.^ Perhaps a better reason for this conclusion is that given by Allen, J., in the Court of Appeals of New York,* > This section reads as follows: ""When any of the said officers or stock- holders are liable, as mentioned in the two preceding sections, for the debts of any such company, the person to whom they are so liable may, instead of the proceedings mentioned in said two sections, have his remedy against the said officers or stockholders by a bill in equity in the Supreme Judicial Court" '' Cambridge Water-Works v. Somorville Dyeing Co., 4 Allen, 239. " Drinkwater v. Portland Marine Ej'., 18 Me. 36. * Ante, I 265 ; Blake v. Hinkle, 10 Yerg. 218. s State Savings Assn. v. Kellogg, 52 Mo. 583; Dryden v. Kellogg, 2 Mo. App. 87 ; Shellington v. Rowland, 53 N. Y. 371, affirming .9. t., 67 Barb. 14. Contra, Birmingham National Bank v. Mosser, 14 Hun, 605. « Shellington v. Howland, 53 N. Y. 374. 384 CH. XVIII. J CONDITIONS PRECEDENT. § 319 namely, that when the performance of a condition becomes impossible by the operation and eflPect of a statute, — that is, becomes illegal, — the performance is excused, and the rights of the party whose duty it was to perform the condition are preserved.^ "It is true," continued he, "the act of Congress did not, except as it was put in operation by the commencement of proceedings under it, prevent or make unlawful the prosecution of an action against the corpora- tion to judgment and execution ; but when made operative and effectual, a performance of the condition pi'ecedent became legally impossible. Although not essential to the validity and suiBciency of the excuse for non-performance, the proceedings in bankruptcy against the corporation were instituted by, and the prosecution of the plaintiff's action enjoined at the instance of, the defendant, who thereby him- self obstructed and prevented the performance of the condi- tion. He cannot be heard to object that a condition pre- cedent to the right of action has not been performed, the performance of which he has prevented. Com. Dig., tit. " Condition," D. 1. But it is enough that, without fault on the part of the plaintiff, the effect of judicial proceedings under a paramount law of Congress, an action against the corporation was not only legally impqssible, but, if possible, would have been fruitless." ^ § 319. Continued — Insolvency and Abandonment of Franchise. — But where a creditor's bill in equity, seeking to charge a stockholder in a bank on account of moneys due to the corporation for his stock, averred that the busi- ness of the bank had been so negligently and fraudulently managed that no suit at law could be brought against it ; that the stockholders had failed and refused to elect direc- 1 See Cohen v. Mutual Life Ins. Co., 50 N. Y. 610 ; Semmes v. Hartford Ins. Co., 13 Wall. 158 ; Hanger v. Abbott, 6 Wall. 532. 2 Shellington v. Howland, 53 N. Y. 374, citing Lovett v. Cornwell, 6 Wend. 369 ; The People v. Bartlett, 3 Hill, 570 ; Loomis v. Tifft, 16 Barb. 541. 25 385 § 319 EEMEDIES, PKOCEDURE, ANT) DEFENCES. [PAET IV. tors as required by the charter ; that many other acts had been done whereby the corporation was dissolved ; that no legal process could be served on the corporation or its officers ; and that if a judgment could be recovered at law, nothing could be obtained ; and it appeared that the gov- erning statute provided, in case of a failure of the corpora- tion to elect officers, for a demand and service of process upon its late president, cashier, or any director, — it was held that the bill must be dismissed, for the reason that the complainant had not exhausted his remedy at law. "We are of opinion," said Keese, J., in giving the judg- ment of the court, " that the bill does not sufficiently aver and show that complainant could not have attained a judg- ment at law against the bank. If he could, he ought to have done so, and, by the issuance and return of an execu- tion thereon, have ascertained that there was no corporate property out of which his judgment could be satisfied, before in this court he sought, upon the grounds stated in the bill, to render the stockholders, sued individually, responsible. The bill, upon this point, states that the complainant has been informed and believes that the business of said Bank of Fayetteville, Tennessee, has been so negligently and fraudulently managed and conducted that no suit at law can be commenced against it, as the stockholders of said bank have failed and refused to elect directors of said bank, as they were required to do by the charter, and have done many other acts contrary to the charter, whereby they are dissolved for the reasons above set forth ; by reason thereof no legal process can be served on said cor- poration, or its officers, if any there be in existence. And the complainant adds that if a judgment could be obtained at law it would not afford relief, as there are no visible effects of the said Fayetteville Bank whereon to levy an execution. By the charter of the bank, granted in 1815, the existence of the corporation will continue until the year 1841. No dissolution is alleged in the bill as the result 386 CH. XVIII. J CONDITIONS PEECEDENT. § 320 of judicial or legislative action, but the corporation is stated to have been dissolved by the non-election of officers, and other acts inconsistent with the charter. The failure to elect directors or other officers could not produce a dissolu- tion, nor could it prevent the institution of an action at law. For it is provided, with regard to this bank, by the act of 1821, ch. 197, § 5, that in such event demand shall be made and process served upon the late president, cashier, or any director. There is no averment in the bill that none of those persons who had so been officers or directors of the bank exist within the reach of process from a court of common law, but the statement is that the failure and neglect to elect directors prevents the obtain- ment of a judgment at law. Upon this ground, then, we sustain the demurrer to the bill, and affirm the decree of the Circuit Court." ^ § 320. Judgment, Fieri Facias, and Nulla Bona. — It may be stated as a general proposition, beyond which the courts have seldom gone, that no greater degree of dili- gence is required of the creditor in prosecuting his demand against the corporation, before he can proceed against the stockholder, than is implied in the recovery of a judgment against the corporation, the suing out of a writ of fieri facias against it, and a return of nulla bona thereon.^ But where the shareholder in a bank was proceeded against at law, under a provision of the charter making shareholders liable for the ultimate redemption of their proportion of the bills of the bank, the Supreme Coui-t of Georgia, after carefully balancing the question, concluded that the most reasonable rule was that a return of nulla bona should not be considered conclusive against the shareholder unless due and proper notice had been previously given him, to the end that he might, if he chose, point out corporate prop- 1 Blake v. HinHe, 10 Yerg. 218, 220. ^ ThorntouB. Lane, 11 Ga. 459, 51i; Bank of United States v. Dallam, 4 Dana, 574. 387 § 323 REMEDIES, PEOCEDUEE, AND DEFENCES. [PAET IT. erty.^ In an earlier case in the same state, an action at law against a stockholder in the same bank, the declaration alleged a judgment against the assignee of the bank and a return of nulla bona. A plea that the bank had assets, but without specifying what they were, was held void for uncertainty.^ § 321. Appointment of a Receiver. — Judgment, execu- tion, and return of nulla bona, however, constitute but one kind of proof of the insolvency of a corporation. Although this proof may have been declared sufficient by statute, yet this does not exclude other methods of proving the same fact, such as a vesting of all the assets of a corporation in the hands of a receiver, and the consequent withdrawing of them from execution.' § 322. Exhaustion of Deposits made with the State. — Many of the states have adopted the policy, both as to banks and insurance companies, of requiring a deposit of securities with an officer of the state government, for the protection of bill-holders and policy-holders. Under the Indiana statute of May 28, 1852, "to authorize and regu- late the business of general banking," and the act of March, 1855, amendatory thereto, no suit can be maintained against a stockholder in any such bank, in his individual character, for the payment of any portion of the regular notes issued by such bank, and protested for non-payment, until it is shown that the stocks deposited with the auditor of state to secure the redemption of the circulation are first ex- hausted, or that the bank is insolvent.* § 323. Proof of Claim before Receiver. — Upon like grounds, bill-holders of an insolvent bank in the hands of a ' Lane v. Harris, 16 Ga. 217, 224. ^ Lane v. Morris, 8 Ga. 468. " Paine v. Stewart, 33 Conn. 516, 531 * Toucey v. Bowen, 1 Biss. 81. 388 CH. XVIII.] CONDITIONS peecedEnt. § 324 receiver cannot recover of shareholders the amount for which each one is individually liable under a statute, with- out first proving their claim before the receiver and taking their dividend there ; if they fail so to prove their claim, they can recover of the stockholders only as much as would have remained unsatisfied if they had proved their claim and received their dividends. The rule of equity that where one creditor has a claim upon two funds, and other creditors upon one of them only, the former may be compelled to charge his claim upon the fund not chargeable with the claims of the latter, so as to leave them a larger share of the common fund,^ has no application to such a case.^ § 324. Exhaustion of equitable Assets before statutory liiability. — We have seen that the sums due by stock- holders on account of their stock subscriptions are a part of the equitable assets of the corporation, — that is, in the contemplation of courts of equity, they are a part of its capital stock.^ The individual statutory liability of stock- holders is generally a superadded fund for the security of creditors. Must the creditor exhaust the other equitable assets of the corporation before he can proceed against this superadded fund? Must he call in what is due on account of stock subscriptions before he can proceed against the stockholder to enforce his individual statutory liability? It has been held that he need not, and it is apprehended that this will not be questioned. A judgment, execution, and return of yiulla bona against the corporation furnish a sufficient foundation for a proceeding against a stockholder, under a statute making him liable for his proportionate share of the debts of the company. In such a proceeding a plea which alleges the existence of choses in action, not subject to garnishment, in the hands of a receiver of the 1 Ex parte Kendall, 17 Ves. 520; Dorr v. Shaw, 4 Johns. Ch. 17. 2 Grew V. Breed, 10 Meto. 569, 579. 8 Ante, 2 11. 389 § 326 EEMEDIES, PKOCEDUEE, AND DEFENCES. [PAET IV. corporation, of equitable assets, and of an uncalled sub- scription for stock in the hands of stockholders, was bad on demurrer.^ § 325. Exception to the foregoing Rules. — An excep- tion to the foregoing rules is found in an early case in Connecticut. In an act incorporating a manufacturing company it was provided that the persons and property of the members of the corporation should, at all times, be liable for all debts due by said corporation. A creditor brought his action of debt against the corporation, obtained judgment, and took out execution, on which there was a return of nidla bona. He then brought a scire facias against the individual members of the corporation, stating the previous proceedings. It was held that such scire facias would not lie, the members being original debtors, and liable in the same manner as though there had been no incorporation.^ But as this case stands on a peculiar statute, and is almost alone in its conclusion, it can scarcely be considered authority. It agrees in one respect with cases decided under the early Massachusetts statutes.' Here no scire facias or other process against the individual member was allowed ; but he was charged, at the peril of the creditor, on the same process which issued against the corporation.* § 326. Summary Remedy not unconstitutional. — Stat- utes which permit an execution on a judgment against a corporation to be levied of the body and goods of a stock- holder are not unconstitutional. They are not to be deemed to authorize a man's estate or body to be taken without a judgment against him, or without a hearing in the action 1 Thornton v. Lane, 11 Ga. 459, 5U. '' Southmayd v. Russ, 3 Conn. 52. 8 Stat. Mass. 1808, ch. 65, § 6; Stat. Mass. 1817, ch. 183. • Leland «. Marsh, 16 Mass. 389; Marcy v. Clark, 17 Mass. 330; Stone v. Wiggin, 5 Mete. 318. 390 CH. XVIII. J CONDITIONS PRECEDENT. § 32 7 upon which the judgment was rendered. If they were so, they would undoubtedly be void. But, on the contrary, all who are members of the corporation are virtually de- fendants in the action, and have an opportunity to be heard in the form they have chosen by joining the company. As to those who become members after judgment against the corporation, or after the debt has accrued, they voluntarily subject themselves to the inconvenience, having the means to satisfy themselves of the solvency of the company if they choose to make enquiry. They are in the same pre- dicament as those who become inhabitants of a town after a municipal liability has been incurred.^ § 327. But Proceeding' without Notice not favored. — A proceeding which subjected the body and estate of a casual shareholder in a corporation to execution for the satisfaction of a corporate debt, without notice of the suit against the corporation and an opportunity to contest the question of his liability, fell into disfavor in Massachusetts with the growth of manufactories and the consequent mul- tiplication of corporations. Accordingly, we meet with a statute in that state reading, " The person or property of any stockholder in a manufacturing corporation shall not be hereafter taken upon any execution issued against the corporation, unless the summons in the action was left with said stockholder."^ This statute did not require any change in the writ or declaration from the form previously in use in suits against corporations. It did not enable a stockholder to contest the liability, even where the corpora- tion allowed a judgment to go against it by default. The statute simply gave the stockholder so summoned the right to appear and be heard upon the question of his being a member of the corporation, instead of driving him to test the question in an action of trespass against an oflSicer who ' Marcy v. Clark, 17 Mass. 330, opinion by Parker, C. J. » Stat. Mass. 1851, oh. 315, J 1. 391 § 328 REMEDIES, PROCEDURE, AITO DEFENCES. [PART IV. had levied on his body or good^ under the former statute.* But stockholders summoned under this statute are entitled to set up a defence the substance of which is that the real plaintiff is another stockholder, and therefore disabled from suing.- They may show that the plaintiff took the note^ued on when overdue, and without consideration, and that he holds it for the sole use and benefit of the payee, M'ho is a stockholder in the corporation, and equally liable on it with themselves.^ The liability of a stockholder not summoned to appear in conformity with this statute is extinguished by the judgment against the corporation, in which the original cause of action becomes merged. This was held, however, in a case where the stockholder had ceased to be such a year before the rendition of the judg- ment against the corporation.* Nor is the liability of a person as a stockholder established merely by proof that he was summoned in the suit in which judgment was ren- dered against the corporation, and failed to appear." § 328. Yet Stockliolder not entitled to contest the Merits. — The decisions of the Massachusetts court* go no further than to deny that the statute in question interrupted the general rule which prohibited stockholders from appear- ing in suits against the corporation and contesting the merits, without first obtaining consent of the corporation, expressed in the regular mode named in its constitution or by-laws. This rule is founded in sound views of policy and convenience. If one member, or set of members, • Holyoke Bank v. Goodman Paper Man. Co., 9 Cush. 576 ; Farnum i'. Bal- ard ^'llle Machine Shop, 12 Cush. 507 ; Robbins v. The Justices, 12 Gray. 225. Several stoclcholders separately summoned, severally denying their liability, were not entitled to separate juries. Ibid. 2 Ante, I 2G2. » Thayer r. Union Tool Co., 4 Gray, 75. * Hnndriihan i'. Cheshire Iron- Works, 4 Allen, S98 ; Mason v. Cheshire Iron- Works, 4 Allen, 3fl8, ' Mason r. Cheshire Iron-Works, 4 Allen, 398. ' Ante, I 202. 392 CH. XVIII. J CONDITIONS PRECEDENT. § 329 could appear and represent the corporation, any others might do the same ; tliey might make different and incon- sistent defences, bind the corporation by their acts and admissions, against the will of the majority legally ex- pressed, and thus lead to confusion and conflict of rights.^ The courts, however, are not uniform in this view. Thus, it has been held in Maine that a stockholder in a corpora- tion against which a judgment has been recovered, and out of whose estate the execution issued thereon has been satis- fied, may bring error to reverse it.^ This led to the con- clusion, in a subsequent case, that a stockholder, when sued by a creditor upon a judgment rendered against the corpo- ration, could not take advantage of a defect in the service of process in the original suit, unless he had availed him- self of such defect in a direct proceeding to reverse the original judgment.^ § 329. And yet Judgment against Corporation conclu- sive. — But whilst the stockholder is thus denied the privi- lege of appearing and contesting the merits of a suit against the corporation, although he may be ultimately liable in respect of the judgment therein rendered, when a judgment is rendered against the corporation it establishes, as conclu- sively as any judgment can establish the matter in litigation, the liability of the corporation to pay the debt. Like any other judgment, it maybe impeached for fraud, or for want of jurisdiction, by a party entitled to question it, but it cannot be assailed collaterally by a stockholder for any ' Farnum v. Ballard Vale Machine Shop, 12 Gush. 507; Lane a. School District in Weymouth, 10 Mete. 462. The corporation is one person and the stockholders are others. Therefore, an attachment sued out against the stock- holders by name, without making the corporation a party, cannot he levied on the corporate property ; and if so levied, it creates no lien as against a subse- quent attaching creditor. Lillard v. Porter, 2 Head, 177. 2 Merrill v. Bank of Suffolk, 31 Me. 57. ' Came v. Brigham, 39 Me. 35, 39. See Washington Bank v. Palmer, 2 Sandf. S. 0. 686 ; New York & Erie R. Co. v. Cook, 2 Sandf. S. C. 732 ; Louis- ville R. Co. V. Letson, 2 How. 497, 554. 393 § 330 REMEDIES, PROCEDUEE, AND DEFENCES. [PART IV. other cause, when sought to be charged ia respect of it. It is valid until reversed in a direct proceeding, and concludes the stockholder, who is in privity with the corporation.^ Thus, the mere fact that the account annexed to the declara- tion bears date three days before the corporation first elected its officers, and consequently before it was in existence as a corporation, was not sufficient to rebut the evidence of liability afforded by the judgment itself.'' Neither can a stockholder, when sued on a judgment obtained by default against the corporation, dispute that the person who signed, as treasurer of the corporation, the note on which such judgment was obtained, was in fact the treasurer, — the evidence showing that he acted as such.' Nor will he be heard to show that the indebtedness for which the judgment was rendered against the company was a liability of the president of the company, and not of the company itself.* § 330. Continued — Contrary Rule in New York. — After many adjudications, the law upon this question in New York is still in an unsatisfactory state. The last decision on the subject which has come under the writer's notice, pronounced by the Commission of Appeals,* presents a conflict of opinion among the members of the commission, 1 Merrill v. Suffolk Bank, 31 Me. 57 ; C.ime o. Brigham, 39 Me. 35 ; Milli- ken V. Whitehouse, 49 Me. 529 ; Slee v. Bloom, 20 Johns. 669 ; Moss i\ Onklej', 2 Hill, 265; Belmont D.Coleman, 1 Bosw. 188; Donworth v. Coolbaugh, 5 Iowa, 300; Wilson v. Pittsburgh, etc., Coal Co., 48 Pa. St. 4:!4; G-rund v. Tucker, 5 Kan. 70. Contra, Moss v. McCullough, 5 Hill, 131 ; Strong v. Wheaton, 38 Barb. 616; Miller u. White, 50 N. Y. 137; McJlnhan v. Macy, 51 N. Y. 155. See Moss v. Averell, 10 N. Y. 449; Belmont i\ Coleman, 21 K. Y. 96; j(. c, 1 Bosw. 188; Hitmpson v. Weare, 4 Iowa, 13. The Kansas court, in Gr.md v. Tucker, 5 Kan. 70, hold that the judgment against the corporation is primd facie evidence against the stockholder. It was not necessary to go beyond this, for there was no rebutting evidence offered. But in its reasoning the court follows that in Slee J). Bloom, 20 Johns. 669, which is to the effect that such a judgment is conclusive. = Hrtwes V. Anglo-Saxon Co., 101 Mass. 385, 397, 8 Milliken v. Whitehouse, 49 Me. 527. * Donworth v. Coolbaugh, 5 Iowa, 300. ' McMahon v. Macy, 61 N. Y. 155, 162. 394 CH. XVIII.] CONDITIONS PEECEDENT. § 330 four of them holding that, in an action to charge stockhold- ers for the debts of the corporation, a judgment against the corporation is neither, conclusive nor prima facie evidence of the existence of the debt against the company, and three of them dissenting. In his dissenting opinion, Mr. Commis- sioner Gray gives a history of the previous conflict in the decisions upon the question in that state.^ Contempora- 1 He says : "Whether a judgment against a company is, in a separate action against a stockholder for the recovery of the same debt, evidence of the debt sued upon, presents a question which has been much litigated in this state, and yet never decided in any of its courts of last resort. As early as 1822, Spencer, C. J., as a member of the Court for the Correction of Errors, without alluding to the fact that the liability of stockholders, when sued separately, was remote, and dependent upon the contingency of the ability of the creditor to collect his debt by execution against the company, or the relation of the stockholder, when thus sued, to the company, held that, as the debt against the company was also a debt against the stockholder individually, and because the company itself was concluded by the judgment, the stockholder, when sued alone, was equally concluded. Slee t;. Bloom, 20 Johns. 669. 684. This opinion was afterwards referred to with apparent approbation in Moss v. Oakley, 2 Hill, 265, 267, the decision of the question not being regarded as necessary to the decision of the cases to which I have referred, but simply as the individual expression of a single judge in each case, was again presented in Moss v. McCullough, 5 Hill, 131, in which, after a full review of all the cases, and a discussion of the prin- ciple involved by Justices Cowen and Bronson, the court held, Nelson, J., concurring, that a judgment against the company was not, as against a stock- holder when sued separately for the same debt, even privtd facie evidence of the debt sued upon. The case went back and was re-tried, and, upon the same facts appearing, the plaintiff was nonsuited. Then, after the change wrought in our judicial system by the Constitution of 1846, the sa,me case was brought before the general term of the Fourth Judicial District, where a motion for a new trial prevailed, the court holding, among other things, that the judgment against the company was, in a separate action against stockholders, primS, facie evidence of the debt sued upon. 7 Barb. 279, 296. Whether a new trial was had, or what was the ultimate disposition of the case, does not appear from the reports. The question, continuing to be unsettled, came up in the Court of Appeals in March, 1860. Belmont v. Coleman, 21 N. Y. 96. So far as appears from the report of that case, seven only of the eight judges, of which it was then composed, were present. Other questions were involved. Bacon, J., who delivered the opinion of the court, held that the judgment against the company was, in a suit against a stockholder for the same debt, primci facie evidence of the debt; in this view two of his associates concurred, and four ' refused to commit themselves to the doctrine that a judgment against the corporation was even primA facie evidence against a stockholder' {ibid. 102), and the case was disposed of upon other grounds. In July, 1861, the 395 § 330 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. neously with this decision of the Commission of Appeals, the Court of Appeals held that in an action to charge the question was again presented to the Supreme Court, of which Justice Bacon was at the time the presiding justice, and it was then, by the unanimous judgment of the court, held that a judgment against the company was not even primd facie evidence in a suit against a stoclcholder for the recovery of the same debt. Strong v. Wheaton, 88 Barb. 616, 621. If, therefore, the defendant is not sustained by the weight of authority, he is certainly not so prejudiced by adjudged cases as to prevent the question presented from being considered as if it was now presented for the first time. In cases where, as the plaintiff in this case assumes it to be indispensable to his right to recover against a stockholder that he should first recover judgment against the com- pany for the same debt, after establishing the organization of the company, and that the defendant is a stockholder, three other things must be established by him, viz. ; the existence of the debt, the recovery of the judgment, and the issuing and return of execution unsatisfied. The failure of either would defeat the action. Neither of these facts are by statute made evidence of the existence of either of the other facts. In order, therefore, to determine whether, at com- mon law, the judgment against the company was evidence as against the defendant, a stockholder, in this separate action against him for the same debt, it becomes necessary to ascertain the relation which the stockholder, when thus separately sued, bears to the company. The right of the plaintiff and the liability of the defendant, when separately sued, is, in brief, this: if his debt against the company could have been collected by execution upon his judg- ment, the defendants are not liable ; but if it could not, they are. To get more clearly at the relation between the company and its stockholders, let us carry out a case suggested by Cowen, J., in Moss v. McCuUough, and suppose the statute to be silent on the subject of the individual liability of the stockholders, and, instead of a liability thus created, it had been created by contract, com- mencing with a. recital, ' That whereas the defendant is a stockholder in the company, and desirous of giving it credit; and in consideration thereof, and that the plaintiff will render services and furnish materials for the use of the company, he agreed that, in case of the failure of the plaintiff to collect of the company the sum for which he should give it credit, by judgment and execu- tion, he would, in that event, pay the debt or any deficiency that should remain, after the return of execution, to the amount of the stock held by him in the company,' it would amount to the same thing. The fact that one liability is created hy statute and the other by contract is quite immaterial ; both being subject to the same rules of interpretation, leave the parties bear- ing the same relation to each other as they would if both had been created by contract; and that relation is manifestly that of a mere guarantor that the debt is collectible of the company. Holding that relation, the judgment against the company was not even primd facie evidence in this separate suit against the defendant. Jackson v. Griswold, 4 Hill, 522, 529, 530. The only pur- pose for which the judgment could be used as evidence would be, after the existence of the debt had been established, to prove that it had been prosecuted to judgment against the company as one step requisite to establish the defeiid- 396 CH. XVIII. J CONDITIONS PEECEDENT. § 330 trustees of a manufacturing corporation, under a statute,^ with a debt of the corporation, for failing to file and publish an annual report, proof of the recovery of a judgment against the corporation for the debt was neither conclusive Txov prima facie eyid&ncQ of its validity.'' It is obvious that this decision leaves the question still unsettled, so far as it relates to actions to charge general stockholders on account of their individual liability ; for there are reasons both for and against the conclusion in the former case which do not hold good in the latter. Thus, a proceeding to charge a trustee or director under a statute making him personally liable for the debts of the company in consequence of cer- tain official defaults is penal in its nature,' and it is hence obvious that the proceedings should be taken strictly in his favor. On the other hand, he is one of the agents of the corporation, whose duty it is to defend the litigation of the company. If he has done his duty in this regard, and a judgment has gone against his principal, it would as cer- tainly go against him upon a separate litigation between him and the judgment creditor. But if he has failed in his duty to his principal in this regard, and has suffered a judgment to go against it by collusion or default, then he ought not to enjoy an advantage from his own wrong. In either event it is difficult to see the sense or justice of sub- jecting the creditor to the expense of a double litigation. ant's liability. If the judgment is even primd facie evidence, not having been made so by statute, I am unable to understand why it is not, lilje a judgment in any other case, conclusive. But assume it to be primd facie evidence of what it contains, leaving the defendant to show that the plaintiff was not in law entitled to such recovery, the judgment itself, as stated in the report of the referee, being for an inseparable part of its amount for labor and services, not performed by the plaintiff himself, furnished, as the Court of Appeals have held (Atcherson v. Troy, etc., R. Co., 6 Abb. Pr. (if. s.) 329 ; s. c, 1 Abb. App. Dec. 13), a valid objection to the recovery, had the defendant had his day in court to make it, and hence the judgment should be reversed." McMahon V. Macy, 51 N. Y. 155, 162. 1 Laws N. T. 1848, p. 57, § 12 ; 2 Rev. Stat (5th ed.) 661, J 35. ' Miller v. White, 50 N. Y. 137. s Ante, I 54. 397 § 331 EEMEDIES, PKOCEDUEE, AND DEFENCES. [PART IV. Under the present rule in New York, it has been held that to entitle a person suing for a debt due for work and labor to recover, he must prove, not only the existence of the corporation, the recovery of a judgment against it, the issuing and return of an execution unsatisfied in whole or in part, but also the performance of labor to some amount, and that the defendants are stockholders.-^ § 331. Continued — Former Practice in England. — In England the Court of Kings Bench has applied to cases of this kind the rule that whenever, by statute, a person not a party to the record is to be affected by a judgment, or where the judgment is to be such as would not be ordi- narily warranted by the previous proceedings on the record, the proper course is to enter a suggestion on the roll, so that the party to be affected may demur if the plaintiffs do not set forth facts to bring the case within the statute, or so that he may traverse these facts, if untrue.^ Thus, by statute 5 Geo. IV. c. 160, § 1, all actions brought against the St. Patrick Assurance Company of Ireland are to be prosecuted against the secretary for the time beino-, or against any member of the company, as the nominal defendant for them and on their behalf. By section 4, exe- cution upon any judgment in such action may be issued against any member or members for the time being of the company. By section 8, in case such execution against the members for the time being shall be ineffectual, the party so having obtained judgment may issue execution ao-ainst any person who was a member at the time the contract was entered into, upon which such action may have been brought; but no such execution is to be issued without leave of the court. A party having brought an action and obtained judgment against the secretary, could not lawfully 1 Strong V. Whenton, 38 Barb. 616. ' Bartlett v. PentUnd, 1 Barn. & Adol. 704. Compare Sainter v. Fergusson, 8 C. B. 619; s. u., 7 Dow. & L. 301. 398 CH. XVIII. J CONDITIONS PRECEDENT. § 332 issue execution against another member of the company without having previously, by leave of the court, suggested on the record facts to show that the party against whom he so issued execution was liable as a member of the com- pany.i § 332. Continued — Under Companies Clauses Consol- idation Act. — Section 36 of the Companies .Clauses Con- solidation Act, 1845,^ gave an execution against share- holders, but only upon an order of court, upon notice to the person sought to be charged.^ It is not enough, in order to obtain an execution against a shareholder under this act, that the plaintiff should show a fieri facias issued against the company and returned nulla bona; his affidavit must go on to allege circumstances sufficient to satisfy the court that due diligence has been used by the plaintiff to discover property of the company out of which he might obtain satisfaction of his judgment.* But it is not neces- sary for the affidavit to state in express terms that the ' Bartlett v. Pentland, 1 Barn. & Adol. 701. » 8 & 9 Vict. c. 16, I 36. » See, as to the practice under this statute, Hitchins v. Kilkenny, etc., E. Co., 10 (J. B. 160; s. c, 1 L. M. & P. 712; 15 Jur. 336; 20 L. J. (C. P.) 31; Burke v. Dublin Trunk, etc., E. Co., 37 L. J. (Q. B.) 50; s. c, 16 W. K. 107; L. E. 8 Q. B. 47 ; Edwards v. Kilkenny, etc., E. Co., 3 C. B. (n. s.) 786 ; Nixon V. Brownlow, 1 H. & N. 405 ; Ilfracombe R. Co. v. Devon, etc., E. Co., L. E. 2 C. P. 15 ; Devereux v. Killcenny, etc., E. Co., 1 L. M. & P. 788 ; s. <;., 5 Bxch. 834 ; 14 Jur. 102 ■^ ; 20 L. J. (Exch.) 37 ; Clowes v. Brettel, 11 Mee. & W. 461 ; 2 D. (n. s.) 1020; 7 Jur. 219; 12 L. J. (Exch.) 302; Mather v. National Assur- ance Assn., 14 C. B. (n. s.) 676; Wyatt v. Darenth Valley E. Co., 2 C. B. (n. s.) 1 10 ; Eastrick v. Derbyshire, etc., E. Co., 9 Exch. 149 ; 7 Eail. C. 799 ; 17 Jur. 977; 23 L. J. (Exch.) 2; Eegina v. Derbyshire, etc., E. Co., 3 El. & Bl. 784; 18 Jur. 1054; 23 L. J. (Q. B.) 333; Header «. Isle of Wight Perry Co., 9 W. R. 750; Bradley V. Eyre, 11 Mee. & V7. 432; 1 Dow. & L. 260; 12 L. J. (Exch.) 450; Bradley v. Urquhart, 2 D. (n. s.) 1012; Peddyl v. Gwyn, 1 H. & N. 590; 3 Jur. (n. s.) 188; 26 L. J. (Exch.) ,199; Bradley «. Warburg, 11 Mee. & W. 452; 2 D. (n. s.) 1059; 12 L. J. (Exch.) 458; Marson v. Lund, 16 Q. B. 344 ; 15 Jur. 966 ; 20 L. J. (Q. B.) 190 ; Bill v. Eichards, 2 H. & N. 311 ; 3 Jur. (n. s.) 520; 26 L. J. (Exch.) 409; Phillipson v. Egremont, 6 Q. B. 587; 8 Jur. 1164; 14 L. J. (Q. B.) 25. * Hitchins v. Kilkenny, etc., E. Co., 15 C. B. 459. 399 § 333 REMEDIES, PEOCEDUEE, AND DEFENCES. [PAKT IV. judgment against the company remains unsatisfied ; it is enough if that fact can be fairly inferred from what is stated, and not contradicted.-^ §333. Continued. — Execution against Stockholder and " Illegality " in Georgia. — Many statutes and char- ters provide for an execution against the stockholder upon a judgment obtained against the company. Here, although the stockholder has no day in court, and his name does not appear on the record as a defendant, yet the judgment is a judgment against him as well as against the company. And although an innocent purchaser might not be preju- diced by the lien of such a judgment, yet iu Georgia it will give the creditor obtaining it priority over subsequent judgment creditors.^ But by statute in that state, " in a judgment against a corporation, joint-stock or manufactur- ing company, under the provisions of this call, the defend- ants in execution shall be entitled to an illegality under the same rules, regulations, and restrictions as defendants in other cases."' This process called "illegality" seems to be peculiar, at least in name, to the jurisprudence of Georgia. " "When an execution against the property of any person shall issue illegally, or shall be proceeding illegally, and such execution shall be levied on property, such person may make oath in writing, and shall state the cause of such illegality, and deliver the same to the sheriff or other exe- cuting officer, as the case may be, together with bond and good security for the forthcoming of such property, as pro- vided by this Code."* This affidavit and bond are returned by the sheriff into court at the next term, and the question is then tried whether the execution was illegally issued. The only objections to the legality of the execution which may be raised under this process are thus stated : " K the 1 Hitchins v. Kilkenny, etc., R. Co., 15 C. B. 459. 2 Luwry v. Parsons, 52 Ga. 356. « Code Ga. 1873, J 3376. * Ibid., ? 3664. 400 CH. XVIII. J CONDITIONS PRECEDENT. § 334 defendant has not been served, and does not appear, he may take advantage of the defect by affidavit of illegality ; but if he has had his day in court, he cannot go behind the judgment by an affidavit of illegality."^ Now, a stock- holder against whom an execution is issued on a judgment obtained against the corporation in a suit to which he was not a party is not deemed to have had his " day in court," within the meaning of this statute ; and so favorable is the Supreme Court of Georgia to the idea of giving every man a fair hearing, that the stockholder will, in such a case, be admitted to contest the merits. The kind of " illegality" referred to in the statute first quoted^ is that authorized in personal property mortgage executions, steamboat lien executions, and similar cases, where the execution is only a mode of commencing the suit, and the defendant making the affidavit has all the rights on trial that an ordinary defendant has. He may plead, amend, and sot up his rights in full, and is not bound as to any of his personal rights by the judgment against the corporation, any more than he would have been had such a judgment been granted in the ordinary way against the company, a return of no property been made on it, and then an ordinary suit brought against him on his charter liability as security for the ulti- mate payment of the debts of the company.^ § 334. Where the Stockholder is Liable only for a particular Class of Debts. — If the stockholder is made liable only for a particular class of debts, or only for debts due to a particular class of persons, then it is necessary, under either of the foregoing rules, to go behind the judgment so far as to prove that the debt then recovered upon belonged to the class embraced in the statute. It has been so held under a statute making the stockholders of a railway company jointly 1 Code Ga. 1873, ? 3671. 2 Ibid., I 3375. " Heard v. Sibley, 52 Ga. 310. 26 401 § 335 EEJIEDIES, PROCEDURE, AND DEFENCES. [PART IV. and severally liable for moneys due by the corporation to their servants for their wages. ^ So, where the statute made the stockholder liable for all debts except loans, the stock- holder could, after judgment against the company, contest his liability, on the ground that the debt recoveroti upon was for money loaned.^ So, where the stockholder is liable only for debts of the corporation contracted at a given period,' and the record of the judgment against the corporation does not show at what period the debt therein recovered upon was contracted, evidence aliunde is necessary to fix such date ; and without such evidence the judgment is not effective to charge a stockholder.* Again, we have already seen ^ that a statute making the stockholders liable for the debts of the corporation does not, in the view of some courts, make them liable for its torts. Where the action against the corporation is for a tort, the cause of action is not so far merged in the judgment recovered by tlie plaintiff that the judgment becomes a debt of the corporation, within the meaning thus put upon such a statute ; but a court will look behind the judgment and enquire into the nature of the demand in which it was founded, and evidence aliunde is admissible for this purpose.^ § 335. If Corporation has been dissolved. — But al- though the assets of a defunct corporation are subject to be collected and administered by a court of equity for the benefit of its creditors, yet a judgment at law cannot be rendered against a dead corporation any more than against a dead man.^ A reasonable deduction from this rule is, that a judgment recovered against a corporation after it has ' Conant v. Van Schaiok, 24 Barb. 87. ' 'Wilson V. The Stockholders, 43 Pa. St. 424. » Ant.c. ^ 'Aietseq. ' Larraboa v. Baldwin, 85 Cal. 155. ' Ante, J 57 et seq. « Bohn V. Brown, 33 Mich. 257. ' Ante, § 3 ; Merrill u. Suffolk Bank, 31 Me. 57. 402 CH. XVIII.] CONDITIONS PRECEDENT. § 336 been dissolved is not even 'primd, facie evidence of a debt due from the corporation at the time of its dissolution, for the purpose of charging those who were then its stock- holders.^ The record of a void judgment, it should seem, cannot be evidence for any purpose, except, perhaps, for the purpose of proving that avoid judgment has been rendered. But, notwithstanding the dissolution of the corporation, a creditor may, in New York, sue a stockholder and recover upon his original demand.^ Neither was a note given by the vice-president of a corporation after its insolvency, under the corporate seal, evidence to charge the stock- holders after a dissolution of the corporation, without showing that it was for a debt actually due by the corpo- ration.^ § 336. Whetlier Suit against Stockholder is upon Judg- ment or original Demand. — In New York, where the rule is that the liability of a stockholder is in a qualified sense that of a partner,* it has been held that, although the statute requires that a judgment shall have been obtained against the company before an action can be prosecuted against a stockholder, yet the action against the stock- holder is on the original demand, and not on the judgment." The uniform practice in that state seems to have conformed to this view,^ and under the recent rulings in that state that the judgment is not eyen primd facie evidence of the existence of a debt of the corporation, this is necessarily so.^ In an early case in South Carolina, decided by Chan- cellor Desaussure in 1826, and affirmed by the Court of 1 Bonaffe ». bowler, 7 Paige, 576. ' Ibid. ' Ibid. * Ante, I 31 » Bailey v. Bancker, 3 Hill, 188. " Moss V. McCullough, 5 Hill, 131 ; Moss v. Averell, ION. T. 449; Belmont . Coleman, 21 N. T. 96 ; Conant v. Van Schaiok, 24 Barb. 87. ' Ante, I 380. 403 § 337 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. Errors in 1828, a bill in equity was sustained against indi- vidual coriDorators, on a contract made with the company, for a discovery of funds to satisfy the contract ; the court proceeding upon the principle that where it appears that the funds of a company are to be raised by future instal- ments, to be called for as the demands against the com- pany shall require them, equity will regard the capital as consisting of the individual credit of the corporators, and will subject them to contribute to the satisfaction of de- mands arising on contracts while they were members.^ This case, it will be remembered, much resembles the cele- brated case of Dr. Salmon v. The Hamborough Company, already examined.^ It is exceptional in respect of the fact that it does not require the creditor to exhaust his remedy at law, by judgment, execution, and return of nulla bona,^ before going into equity. It has also been questioned in so far as it holds that individual corporators may be liable for debts contracted, with their consent, beyond the amount of their capital stock.* § 337. Conclusiveness of Judgment in supplementary Proceeding against Stockholder. — Where a judgment has been obtained against a corporation, and a sujaple- mentary proceeding instituted, under a statute, to charge the stockholders individually therewith, the judgment thus obtained against the stockholders is equally conclusive ; it establishes the right of the creditor to have execution against the stockholder, and cannot be questioned by the latter in a bill to enjoin such execution.^ Thus, a statute of Iowa," relating to corporations, provided that when no corporate property could be found on which to levy execu- 1 Hume )i. Winya-w, etc., Canal Co., 1 Carolina L. J. 217. = Ante, I 16. » Ante, I 320. * Hightower v. Thornton, 8 G-a. 499, per Lumpkin, J. ' Hampson v. Weare, 4 Iowa, 13. « Act Iowa, Feb. 22, 1847, J 19 ; Stat. 1847, p. 103. 404 CH. XVIII. j CONDITIONS PRECEDENT. § 337 tion against the corporation, the acting manager, or some member of the company, might be notified to appear before the District Court of the county wliere the judgment was obtained, and state cause why the property of the indi- vidual members of the company should not be made liable. With this statute in force, a judgment was obtained against a cox'poration, execution issued, and returned nulla bona. Notice was served on the president and several of the directors to show cause why the property of the individual members of the corporation should not be made liable, and such proceedings were had that the court rendered judg- ment that execution issue against the property of the members. An execution was thereupon issued against cer- tain individuals as members of the corporation, naming them, and they sued out an injunction upon the following grounds : 1. That the private property of the members of the corporation was exempt from the execution. 2. That proceedings to render the stockholders liable should have been conducted under the Code, and not under the act of 1847. 3. That the court could not render the stockholders liable for more than the amount of their stock. 4. That they were not liable, even to the company, except upon the performance of certain previous conditions, such as the advertisement of calls for instalments. The court held that the judgment, not appealed from, that execution issue against the stockholders, was conclusive of all these ques- tions, and that the contention of the stockholders would convert a bill for an injunction into a writ of error ; but the injunction was perpetuated on the ground that the exe- cution should not have issued against the shareholders per- sonally, but that it should have run against the corporation, following the judgment with a clause that it be levied on the property of the members, leaving the levying officer to determine who the members were, and thus leaving a party levied upon, but not liable, to his proper remedy.^ ' Hampson v. Weare, 4 Iowa, 13. 405 § 340 KEMEDIES, PKOCEDUKE, AND DEFENCES. [PAKT IV. CHAPTER XIX. OF PAKTBES. I. Who may sue. Skctioit 340. In Case of Liability for Calls — Assignee, Trustee, or Keceiver of Corporation. 341. Assignee in Bankruptcy. 342. In Case of statutory Liability. 343. Endorsee. 344. Bill-holder. 345. Assignee of Stock Subscriptions. 346. Shareholder — Assignee of Shareholder. 347. Officer of Corporation. II. Joinder of Parties. Sectioh- 349. Joinder of Defendants in Actions at Law. 350. Continued. 351. Suit in Equity must be on behalf of all Creditors. 352. Continued. 353. And when against all Shareholders. 354. Continued — View of Mr. Justice Bradley. 355. Doctrine of the Supreme Court of the United States. 856. Continued — Kule in Wisconsin. 357. Limitation of the Rule that all Stockholders must be joined — Stockholders out of the Jurisdiction. 358. But Decree may be several. 359. Continued. 360. When the Corporation must be joined. 361. Conclusion — All Creditors, all Stockholders, and the Corpora- tion should be joined. I. Who may sue. § 340. In Case of liiability for Calls — Assignee, Trus- tee, or Receiver of Corporation. — Although a creditor may manitain in his own name a suit to enforce the liability of stockholders in respect of their unpaid subscriptions, yet, if a receiver has been appointed, suit should be prosecuted 406 CH. XIX. J or PARTIES. § 341 in his name, unless some sufficient excuse is given why it is not ; for, he standing in the place of the directors, the duty devolves upon him of calling in the unpaid subscriptions for the benefit of creditors. ^ Where an indebtedness of a stock- holder to the corporation for stock has been fraudulently discharged, the receiver of the corporation is the proper person to sue for its recovery.^ Under a statute of Massa- chusetts, providing that " the holders of stock in any bank, at the time when its charter shall expire, shall be liable, in their individual capacities, for the payment and redemption of all bills which may have been issued by said bank, and wliich shall remain unpaid, in proportion to the stock they may respectively hold at the dissolution of the charter," ' it has been held that a holder of bank-bills purchased by him as trustee is entitled to maintain a bill in equity in his own name, without joining the cestui que trust, against the stockholders, for himself and all other bill-holders of the bank, to enforce such liability, if it appear that the beneficial interests of the cestuis que trustent have been extinguished ; otherwise, it seems that they must be joined in order to bind them.* * § 341. Assignee in Bankruptcy. — Upon like grounds, an assignee in bankruptcy may sue to recover the amounts due by stockholders on account of their stock subscrip- 1 Hightower v. Thornton, 8 G-a. 486, 504; Banldne v. Elliott, 16 N. Y. 377. Contra, Mann v. Pentz, 3 N. Y. 415. See Nathan v. Whitlock, 9 Paige, 152 ; Dane v. Young, 61 Me. 160. But the fiict that a receiver may have been appointed of a dissolved foreign corporation will not prevent a domestic cred- itor from maintaining an action against a stockholder in this state in virrongful possession of its assets. Dayton v. Borst, 31 N. Y. 435. ' Nathan v. Whitlock, 9 Paige, 152. Under the statutes of Pennsylvania, where it is sought to make the directors and stockholders of an insolvent bank liable for its debts, the proceedings must be In the name of the assignee, and in the Court of Common Pleas of the county in which the bank is located. Appeal of Means,, 85 Pa. St. 75. ' Gen. Stat. Mass., ch. 36, § 31. * Grew V. Breed, 10 Mete. 569. 407 § 342 REMEDIES, PEOCEDUEE, AND DEFENCES. [PART IV. tions.^ Otherwise as to individual liability of stockholders or directors, under the provisions of statutes.^ The court of bankruptcy may make the assessments, and it has been held that it is discretionary with that court whether it do so with or without notice to the stockholder. At all events, in a suit by the assignee the propriety of the court's action in this regard cannot be enquired into.' § 342. In Case of statutory Liiability. — Statutes making stockholders individually liable to creditors, independently of what they owe the corporation on account of their stock, create a right flowing directly from the stockholders to cred- itors. The sums thus secured to creditors form no part of the assets of the company, but are a supplemental or super- added security for the benefit of creditors.* An attempted assignment of this security is therefore inoperative.' No action to enforce such liability can be brought by a receiver or assignee of the corporation ; such an action must be brought by one or more of the creditors.* This rule has, how- ever, in some cases been changed by statute, so as to vest in trustees the right to enfoi'pe on behalf of creditors such a statutory liability,' and it has been held that such a statute, in its application to existing contracts, is not unconstitu- tional.* It does not apply to the case of the statutory Sawyer v. Hoag, 17 Wall. 610 ; Upton v. Tribilcock, 91 IT. S. 45 ; Webster V. Upton, 91 U. S. 65 ; Payson v. Stoever, 2 Dill. 427 ; Upton v. Hansbrough, 3 Biss. 417 ; s. c, 5 Chi. Leg. N. 242. 2 Post, 5 341. ' Upton V. Hansbrough, 3 Biss. 417 ; Payson v. Stoever, 2 Dill. 427 ; Webster V. Upton, 91 U. S. 65. * Uanson v. Donkersley, .37 Mich. 184. "■ Wvii'ht V. McCcirmaclc, 17 Ohio St. 80; Umsted ,.. Buskirk, 17 Ohio St. 113; Dutoheru. Marine National Bank, 12 Blatchf. 435. " Lane v. Morris, 8 Ga. 468; Dutcheru. Marine National Bank, 12 Blatchf. 435; Bristol v. Sanford, 12 Blatchf. 341. ' Walkor v. Crain, 17 Barb. 119; Story v. Furmnn, 25 N. Y. 214, 231. " Walker?). Crain, 17 Barb, 119; Story v. Furman, 25 N. Y. 2U, 231. A partnership Arm can maintain a bill against directors for declaring a dividend 408 CH. XIX.J OF PAKTIES. § 344 liability of shareholders in national banks, arising under the 12th section of the National Banking Act.^ The receiver appointed by the comptroller of the currency is the proper party to bring such a suit, whether at law or in equity, and creditors are not propef parties to such a bill.^ § 343. Endorsee. — The endorsee of a note is entitled to sue a stockholder of a corporation, to collect the note from him, under the following statute : "The stockholders of said corporation shall be jointly and severally personally liable for the payment of all debts or demands contracted by the said corporation, or their authorized agent or agents ; and any per- son having any demand against the said corporation may sue any stockholder, director, or directors, in any court having cognizance thereof, and recover the same, with costs." ^ § 344. Bill-holder. — A bank charter of South Carolina provided that " the persons and property of the stock- holders, for the time being, of said bank shall be pledged and bound, over and above the amount of said stock paid in, in proportion to the amount of the shares that each in- dividual, copartnership, corporation, or body-politic may hold in said bank, for the ultimate redemption of the bills or notes issued by or from said bank, in the same manner as in common commercial cases, or cases of debt." This bank delivered some of its bills to A., as collateral security for advances made, or to be made, to the bank, upon an agree- ment that they were not to be put in circulation. It was held that A. was a bill-holder entitled to charge the jserson and property of the stockholders of the bank under the above provision.* Where the stockholders of an incorpo- prohibited by statute, although one member of the firm plaintiff was also a director, and is sued as defendant. Archer v. Rose, 3 Brews. 2B4. 1 13 U. S. Stat, at Large, 99 ; Kev. Stat. U. S., ^ 5151. ' Kennedy v. Gibson, 8 Wall. 49S, "8 Moss V. Averell, 10 N. Y. 449 ; Freeland v. McCullough, 1 Denio, 414. * Johnston k. South-western R. Bank, 3 Strobh. Eq. 263. 409 §346 REMEDIES, PKOCEDURE, AND DEFENCES. [PARTIV. rated bank, after the expiration of their charter, made dividends of their capital stock amongst themselves, so that there were not corporate funds enough left to redeem their outstanding bills, it was held that one who had sub- sequently come into possession of such bills could not main- tain an action, as for a tort, for the wrong thus done ; the right of action accrued, if at all, to those who were holders of the bills at the time the improper dividend was made, and could not be assigned to another person.-^ § 345 . Assignee of Stock Subscriptions. — A railroad company whose charter gives it the general power to make all contracts which its convenience and interest may require has power, in carrying out the enterprise authorized by its charter, to assign its stock subscriptions, there being nothing in j;he charter imposing any restriction in that respect. The assignee may sue the stockholder and re- cover from him the amount which he has subscribed, the same as the company might have done, — the company hav- ing made the requisite calls .^ § 346. Shareholder — Assignee of Shareholder. — We have seen that, as a general rule, a creditor who is also a stockholder cannot bring an action at law to enforce the liability of other shareholders,' though the assignee of a shareholder may.* A stockholder held a note of the com- pany, payable to B. and endorsed by him. Upon this note he recovered judgment against the company, and, his execution being returned nulla, bona, he sued the endorser and recovered judgment against him. He then assigned his judgment against the company to the endorser, who ' Vose V. Grant, 15 Mass. 505. " Downie v. Hoover, 12 "Wis. 174 ; Downie v. "White, 12 Wis. 176. ' Ante, I 262 et seq. ; Thayer v. Union Topi Co., 4 Gray, 75. To the con- trary, see Simonson u. Spencer, 15 Wend. 548 ; Fowler v. Kobinsou, 31 Me. 189 ; Slee V. Bloom, 5 Johns. Ch. 382. * Woodruff, etc., Ii-on-Works v. Chittenden, 4 Bosw. 408. 410 CH. XIX.] OF PAETIES. § 349 commenced a suit thereon for his own benefit against another stocliholder. It was held that this action could not be maintained. There ought not to have been a recov- ery against the endorser. When he was sued he should have answered: "You cannot recover from me a sum of money which I can immediately recall in an action brought against you as a stockholder of the company." ^ § 347. Officer of Corporation. — A confidential agent cannot create relations which place him in hostility to his principal.^ Upon this principle it has been held that the treasurer of a company cannot buy up a claim against it, and then maintain an action against a director, upon a statute, for improperly consenting to the declaration of a dividend.* II. Joinder of Parties. § 349. Joinder of Defendants In Actions at Law. — If, as is generally the case, the liability of stockholders is limited a,uA several, — each one standing responsible for a definite sum, and no more, — and if, under the particular statute, the practice be established that an action at law will lie, then it is clear that a separate action may be brought against each one ;* and unless the power of a court of law has been enlarged in the particular state, by statute, so that it may render a separate judgment against each of several defendants before it in one suit, accordingly as his liabihty may appear,* it is clear that stockholders thus 1 Bailey v. Bancker, 3 Hill, 188. » Galbraith v. Elder, 8 Watts, 81, 93; Walley v. "Walley, 1 Vern. 484; Van Horne v. Fonda, 5 Johns. Ch. 388, 407 ; Keller v. Leib, 1 Penn. 220, 223. « Hill V. Prazier, 22 Pa. St. 320. * Perry u. Turner, 55 Mo. 418; Bank of Pouglikeepsie v. Ibbotson, 24 "Wend. 473; Boyd v. Hall, 56 Ga, 563; Jones v. Wiltberger, 42 Ga. 575; Lane V. Harris, 16 Ga. 217 ; Paine ». Stewart, 33 Conn. 516 ; Abbott v. Aspinwall, 26 Barb. 202 ; Garrison v. Howe, 17 N. Y. 458, 463 ; Culver v. Third National Bank, 64 111. 528. ' Such a statute exists in Tennessee, reading as follows : " Such and so many judgments, joint, separate, and cross, may be rendered as may be neces- sary to the rights of the parties." Stat. Tenn. 1871, I 2974. 411 § 350 REMEDIES, PEOCEDUKE, AND DEFENCES. [PART IV. liable at law must be separately sued.^ If, however, the liability of the stockholders is primary and unlimited, like that of partners, all should be joined, for such an action is quasi ex contractu.- But here the non-joinder of other stockholders must, as in case of the non-joinder of partners, be taken advantage of by plea in abatement, or it will be too late;' or, under the Louisiana system, by exception or plea ;* or, under the present New York Code, by demurrer or answer.^ § 350. Continued. — The New York Code (and, it is presumed, other codes modelled upon it) provides'' that persons jointly liable on the same obligation or instrument, etc., may, any or all of them, be included in the same action, at the option of the plaintiff. This refers exclu- sively to demands evidenced b}' instruments of writing. It does laot embrace a demand of laborers, for their wages, against the stoclcholders of a manufacturing company, under a statute making the latter liable to pay such wages ; such demand not being so evidenced, though reduced to judg- ment against the corporation ; consequently it is necessary to join all stockholders.^ In Pennsylvania the corporation must be joined in an action by a creditor, under tbe law relating to manufacturing corporations.* But if an officer of a corporation is proceeded against at law, on a special 1 Bank of Poughkeepsie v. Ibbotson, 24 "Wend. 478 ; Perry v. Turner, 55 Mo. 418 ; Paine ». Stewart, 33 Conn. 516 ; Abbott v. Aspihwall, 20 Barb. 202, 20S. 2 Allen V. Sewall, 2 AVend. 327 ; Strong v. Wheaton, 38 Barb. 616. But see Culver V. Third National Bank, 64 111. 523, where the suit was against one only ; and Dodge v. Jlinnesota Plastic Slate Roofing Co., 16 Minn. 368, where, under a statute of unlimited liability, an action was sustained against the cor- poration and three of the stockholders. See also Reynolds v. Feliciana Steam- boat Co., 17 La. 397, 407. » Allen V. Sewall, 2 Wend. 827. ♦ Reynolds v. Feliciana Steamboat Co., 17 La. 897, 407. ' Strong V. Wheaton, 88 Barb. 628. « Ante, I 120. ' Strong 0. Wheaton, 38 Barb. 616. 8 Brightly's Purd. Dig. 998, | ;!0; Hoard o. Wilcox, 47 Pa, St. 51 ; Mansfield Irou-AVorks v. Willcox, 52 Pa. St. 377. 412 CH. XIX.] OF PARTIES. § 351 promise to pay a debt of the corporation, he must be sued separately as a guarantor ; he cannot be joined with otlier members,^ and the stockholders, or some of them, must be joined with the company.^ In a proceeding by garnish- ment, under a statute of Alabama, by a judgment creditor of a corporation, to obtain satisfaction of his judgment out of the sums due the company by certain stockholders for their stock, it has been held that, although the liability of each stockholder is several, two or more of them may be summoned in the same writ, and this does not convert the process into a proceeding against joint debtors.^ § 351. Suit in Equity must be on behalf of all Cred- itors. — The general rule is that a creditor who proceeds in chancery to subject the liability of the shareholders of an insolvent corporation must bring his bill on behalf of all other creditors, who may come in and establish their debts according to the course of a court of chancery. Whilst liens and legal priorities are preserved, he does not obtain a preference over other creditors by the filing of such a bill, but the property of the corporation, or the sums due from other shareholders in respect of their individual liability, are sequestered for the ratable benefit of all the creditors.* This does not mean that the creditor who files the bill is under any obligation to look up all the widely scattered creditors of the corporation, and get their consent to the filing of the bill, or notify them to join him in it. It has long been settled that a judgment creditor who has ex- hausted his legal remedy by an execution returned nulla bona may alone, or with other judgment creditors, file a ' Youghiogeny Shaft Co. v. Evans, 72 Pa. St. 331. 2 Mansfield Iron- Works v. Willoox, 52 Pa. St. 377. See Patterson v. Wyo- missing Co.. 40 Pa. St. 117. 5 Curry v. Woodward, 53 Ala. 371. * Morgan v. New York, etc., R. Co., 10 Paige, 2B0 ; Mann v. Pentz, 3 N. Y. 415 ; Masters v. Rossle Lead Mining Co., 2 Sandf. Ch. 301 ; Coleman v. White, 14 Wis. 700; Cr«a e v. Babcock, 10 Mete. 525; Carpenter o. Marine Bank, 14 Wis. 705, note ; Umsted v. Buskirk, 17 Ohio St. 113, 118. 413 § 352 REMEDIES, PEOCEDURE, AND DEFENCES. [PART IV. bill against persons holding property of the debtor, which, on account of fraud or the existence of a trust, cannot be reached by execution. ^ "Where a case exists in which a fund can only be divided satisfactorily among a certain class of persons, it is necessary to frame the decree in such a manner that all these persons may be brought in for their distributive shares ; but even then the bill may often be filed by any one of them on his own behalf. It is only when it appears to the court, by the subsequent pleadings or otherwise, that a distribution must be made (as, where an executor pleads want of sufficient assets), that a decree will be made for the benefit of all. In this case,** what law com- pels an equal distribution of the fund sought to be reached amongst all the creditors ? The assets in the hands of the assignee are subjected to such law, because they have been granted to him in trust for all creditors equally. But it is conceded that the unpaid capital stock is not subject to the assignment. If subjected to the demands of the com- plainants or judgment creditors, it will be exonerated pro tanto from all further demands." ^ § 352. Continued. — If the complainant is a partnership, it is not necessary to join dormant partners in the bill, but it will be sufficient if the bill is filed by the partner in whose name the business was carried on. A decree under such a bill will conclude the dormant partners as fully as ' Marsh v. Burroughs, 1 Woods, 467, per Mr. Justice Bradley, citing, to this point, McDerrautt v. Strong, 4 Johns. Ch. 687 ; Spader v. Davis, 5 Johns. Ch. 280 ; Lentilhon v. Moffat, 1 Edw. Ch. 451 ; Dix v. Briggs, 9 Paige, 595 ; Storm V. Waddell, 2 Sandf. Ch. 494; Ogilvie v. Knox Ins. Co., 22 How. 380; Dunphy V. Kleinsmith, 11 Wall. 610. 2 The creditors in this bill were proceeding under a bank charter similar to that before the Supreme Court of the United States in Pollard v. Bailey, 20 Wall. 520, which provided that the persons and property of the stockholders should at all times be liable, pledged, and bound for the redemption of the bills and notes at any time issued, in proportion to the number of shares that each individual and corporation might liold and possess.' " Marsh v. Burroughs, 1 Woods, 463, Holyper Bradley, J. 414 CH. XIX. J OF PARTIES. § 353 though they had been joined as complainants.^ The per- sonal liability of directors, under a statute, for assenting to the contracting of debts beyond the amount, of the capital stock, is individual and several, and one may be sued in equity without seeking out the others.'' A bill in equity, under the repealed Massachusetts statute of 1862, ch. 218, § 4, to enforce the liability of the officers or stockholders of a corporation, must be framed in behalf of the plaintiff and all the other creditors of the corporation, and the non- joinder of the other creditors is not excused by an allega- tion in the bill that there are no other creditors known to the plaintifi"; ' but this conclusion is founded in the terms of the statute, which provided that the judgment creditor might file a bill in equity " in behalf of himself and all other cred- itors of the corporation." A bill under the statute of Pennsylvania making the directors of a corporation person- ally liable for improperly declaring a dividend,* must, according to a decision of Brewster, J., in the Philadelphia Common Pleas, be brought on behalf of all creditors.* § 353. And when against all Shareholders. — More- over, the bill must be filed against all the shareholders,^ unless some valid excuse is shown for not bringing them in. This must necessarily be so ; otherwise, the main object of asserting the jurisdiction of equity, the equalizing of the burden of the shareholders and the preventing of the multi- 1 Bank of St. Marys v. St. John, 25 Ala. 566, 621. Compare Lloyd v. Aroh- bowle, 2 Taun. 324 ; Lucas v. De la Cour, 1 Mau. & Sel. 249 ; Bryden v. Taylor, 2 Har. & J. 396; Mitchell v. Dall, 2 Har. & G. 159. 2 Cornwall v. Eastham, 2 Bush. 561. ' Pope V. Leonard, 115 Mass. 286. ♦ Act Penn. July 18, 1863. ' Sheriff];. Oil Co., 7 Phila. 4. 6 Hadley v. Eussell, 40 N. H. 109; Eriekson v. Nesmith, 46 N. H. 371; Mann v. Pentz, 3 N. Y. 415 ; Pierce v. Milwaukee Construction Co., 38 Wis. 253 ; Adler v. Milwaukee Brick Co., 13 "Wis. 5? j Coleman v. White, 14 Wis. 700; Carpenter v. Marine Bank, 14 Wis. 705, note; TJmsted v. Buskirk, 17 Ohio St. 113, 118. Contra, Marsh v. Burroughs, 1 Woods, 463. 415 § 354 REMEDIES, PKOCEDURIE, AND DEFENCES. [PAET IV. plicity of suits, would be defeated .^ Under such a bill an account will be taken of the debts and assets of the corpo- ration, of the amount of capital not paid in, and of the amount due from each shareholder.'' A receiver appointed in a creditor's suit against a corporation cannot maintain a bill in equity against a single shareholder to collect what is unpaid on his subscription.^ In a later case, however, this principle was wholly departed from. An action analogous to an action at law was sustained by the Court of Appeals of New York, brought in that state by the receiver of an insolvent bank of New Jersey, appointed by the Chancery Court of the latter state, against a single stockholder in New York, to recover the amount of a judgment recovered against the bank by a single creditor. The objection that such an action could not be maintained against a single stockholder was not, however, made or discussed. The facts were sufficient, in any event, to take the case out of the rule, for it appeared that out of a nominal capital of $50,000 the defendant held shares of the par value of $49,750. He, therefore, was, for all purposes except legal forms, the corporation itself.* § 354. Continued — View of Mr. Justice Bradley. — A charter of Georgia made the persons and property of the stockholders at all times liable, pledged, and bound for the redemption of the bills and notes at any time issued, in proportion to the number of shares that each individual might hold and possess. Certain bill-holders, who had recovered judgments against the bank, filed a bill against certain stockholders who had not paid in full their sub- scriptions of stock, seeking a decree against the defendants for the payment of their judgments, to the amount of their unpaid subscriptions. As an excuse for not making all the 1 Ante, I 259. " Mann v. Pentz, 3 N. T. 415. » Ibid. * Dayton v. Borst, SI N. Y. 435. 416 CH. XIX.] OF PARTIES. § 355 stofkholders defendants, it was alleged that there "vvere 20,000 shares of the stock held by a great number of stock- holders residing in dift'ercnt states, — some insolvent, some dead, etc. An objection on account of non-joinder of par- ties was overruled. " A judgment creditor," said Bradley, J., " who has exhausted his legal remedy, may pursue in a court of equity any equitable interest, ti'ust, or demand of his debtor, in whosesoever hands it may be. And if the party thus reached has a remedy over against other parties for contribution or indemnity, it will be no defence to the primary suit against him that they are not parties. If a creditor were to be stayed luitil all such parties could be made to contribute their proportionate share of the liability, he might never get his money." ^ The view of Judge Bradley is based on the soundest considerations. Properly under- stood, we incline to think that it means, not that a court of equitv will not open a suit of this kind to all creditors who may choose to join and contribute ratably to the expense of the litigation, but that such a court will not compel a single creditor, in order to collect his debt of a single share- holder, the extent of whose liability is capable of definite ascertainment, to bring a general winding-up bill. § 355. Doctrine of Supreme Court of the United States. — This question Avas once before the Supreme Court of the United States. A number of creditors of an insur- ance company filed a bill, on behalf of themselves and such other creditors as might make themselves parties, against the corporation and thirty-six persons alleged to be stockholders. Thirty-two other creditors came in and made' themselves parties to the suit. An objection having been made that there was a want of proper parties, Mr. Justice Grier said: "The creditors of the corporation are seeking satisfaction out of the assets of the company to 1 Marsh v. Burroughs, 1 Woods, 463, 468 (1871). Compare Pollard v. Bailey, 20 Wall. 520. 27 417 § 357 REMEDIES, PEOCEDUBB, AND DEFENCES. [PART IV. which the defendants are debtors. If the debts attached are suiScient to pay their demands, the creditors need look no further. Tliey are not bound to settle up all the affairs of this corporation, and the equities between its various stockholders or partners, corporators or debtors. If A. is bound to pay his debt to the corporation, in order to satisfy its creditors, he cannot defend himself by pleading that these complainants might have got their satisfaction out of B. quite as well.- It is true, if it be necessary to a complete satisfaction to the complainants that the corporation be treated as an insolvent, the court may appoint a receiver, with authority to collect and receive all the debts due to the company, and administer all its assets. In this way all the other stockholders or debtors may be made to con- tribute." ^ § 356. Continued — Rule In 'Wisconsin. — In conformity with this view it has been held, in a late case in Wisconsin, that where the suit in equity is in the form of a creditor's suit, under a statute regulating that remedy, it need not be brought on behalf of all creditors nor against all stock- holders ; ^ but where the suit is brought under the statute relating to proceedings against corporations, for all creditors and against all shareholders,' a separate creditor's suit will be enjoined.* § 357. Limitation of the Rule that all Stockholders must he joined — Stockholders out of the Jurisdiction. — In the celebrated case of Wood v. Dummer,* the head-note states that it was decided that a bill in equity to charge shareholders on account of a dividend of the capital' stock 1 Ojjilvie V. Knox Ins. Co., 22 How. 380, 391. ^ riei'ce V. Milwii\ikee Construction Co., 38 Wis. 253. 2 Cleveland n. Marine Bank, 17 Wis. 54-5; Coleman w. White, 14 Wis. 700; Carpenter i\ Jlarine Bank, 14 Wis. 705, note. * Piin-co p. ^lilwaukee Construction Co., 38 Wis. 258. 6 3 Mason, 808. 418 CH. XIX.] or PARTIES. § 357 of the company improperly received by them might be maintained by some of the creditors against some of the shareholders, the impossibility of bringing all before the court being sufEcient to dispense witli the ordinary rule of making all parties in interest parties to the proceeding. But it does not appear from the report that any question was made as to a defect of parties ; and, besides, the decree of the court was so framed as to save the rights both of the stockholders before the court and of the absent cred- itors. In New Hampshire the question was presented in a manner which received mature consideration. Some of the stockholders of a New Hampshire corporation resided in Massachusetts. The plaintiff liad proceeded against them there and failed, on the ground, it would seem, that they were denied the privilege of enforcing upon the inhabitants of another state the special provisions of the laws of New Hampshire.^ He then filed a bill in New Hampshire against all the shareholders ; but many of them, residents of other states, did not appear. The court hold that it could not proceed to a decree against such as were residents of other states, nor could they be brought in by service of process unless they voluntarily chose to appear. Service on per- sons out of the jurisdiction could be made only in cases where such persons had a legal residence within the juris- diction.^ The rule tliat all parties in interest must be before the court was a rule of convenience, not of necessity. Where persons so interested were out of the jurisdiction of the court, and it was so stated in the bill and admitted by the answer, or proved, it was not necessary to make them parties ; but a decree might be made as to those over whom the court had jurisdiction, if it could be made without injustice to those who were absent.^ So, it is no objection to a bill filed by a receiver of a national bank, to enforce the statutory liability of shareholders, that stockholders named ' Erickson v. Nesmith, 15 Gray, 221 ; ;,. c, 4 Allen, 233. '' See Jevmain v. Langdon, 8 Paige, 41 ; Evarts v. Becker, 8 Paige, 506. = Erickson v. Nesmith, 46 N. H. 371. 41 y § 359 EEJIEDIES, rEOCEDUEE, AND DEFENCES. [PAKT IV. in the bill and averred to be without the jurisdiction of tho court are not made defendants.^ § 358. But Decree maybe several. — Although all the shareholders are properly united in one suit in equity, yet, under a charter making the shareholders liable severally, and not jointly, when the rule of apportionment has been ascertained and the cause pi'epared as to any one of them, there seems no good reason why he should not be required to do justice without delaying until tl:te others can be reached. It has therefore been held proper in such a case to let a decree go against a portion of the shareholders, and to continue the cause as to the others.^ So, under a statute making the stockholders of certain corporations jointly and severally liable for certain debts of the company, the liabil- ity being, in the view of the court, that of partners, it has been held that the plaintiff might have a decree against such stockholders as were properly made parties to his bill, or who had become parties thereto voluntaril}', who were found to be solvent, for the whole amount of their debt and costs, to be apportioned among them pro rata, according to the amount of stock owned by each, each jjayiug such pro- portion of the whole debt as his stock bore to the whole amount of the stock owned by solvent stockholders who were parties to the bill. But it would not do for the plaintiffs to settle upon such as they called solvent, and omit the rest ; the fact of solvency was to be settled upon proof, by the court or by a master .'' § 359. Continued. — Following the same doctrine, where the report of a referee showed that the liabilities of the corporation would be sufficient to absorb all of its assets, together with the individual lialjility of its stockholders, — » Kennedy v. Gibson, 8 Wall. 498. 2 Castleman v. Holmes, 4 J. J. Marsh. 1. But see Reynolds v. Peliciana Steamboat Co., 17 La. 397, 407, where this practice was held to be erroneous. ' Erickson v. Nesmith, 46 N. H. 371. 420 CH. XIX. J OF PARTIES. § 359 such liability being ' ' an amount equal to their stock sub- scribed, in addition to said stock," — and it appeared that a portion of the stockholders were beyond the jurisdiction of the court, and not served, and that fifty per cent of tliem were insolvent, the Superior Court of Cincinnati awarded a decree against the defendant stockholders for the full amount of the individual liability of each respectively.^ In one of the earliest American cases on this subject, a portion of the creditors brought a bill against a portion of the share- holders, alleging an unauthorized division of the capital stock, leaving debts unpaid. No question appears to liave been made as to the want of necessary parties. The bill did not allege that the other stockholders who had received dividends were insolvent or out of the jurisdiction of the court ; nor did it state what the amount of the debts of the corporation was. "The court," said Mr. Justice Story, " iu proceeding to do equity to those before it, must take care that it is not the instrument of injustice to others, who are not represented. Non constat, if the whole fund is taken from the defendants, in favor of the plaintiffs, that there will remain any solvent stockholders from whom the other creditors can claim any shai'e." * * « "Taking into consideration the manifest defects of the present bill ; the long delay in instituting the present suit (which is not accounted for in any arguments granted for tliis purpose) ; the possible, nay probable, inconveniences of some of the stockholders ; the injustice which may arise to other creditors of the bank, not before the court, by any other course : — I have come to the conclusion that our duty is best per- formed by holding the plaintiffs entitled to a decree that the defendants pay out of the dividends of the capital stock received by them so much of the debts due to the plaintiffs as the number of shares held by them in the same capital stock (viz., 320 shares) bears to tlie whole number of shares in the capital stock (viz., 2,000 shares)." '' ' Wehrman v. Eeakirt, 1 Cin. Superior Ct. 230. 2 Wood V. Dumraer, 3 Mason, 308, 322. 421 § 361 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. § 360. Wlien the Corporation must be joined. — If the proceeding is based on the original cause of action, and not on a judonient previously obtained against the corporation, there is good reason for holding that the corporation must be joined,^ and it has been held that it should be joined in any event, ^ unless it is defunct.^ Some of the statutes re- quire this ; for instance, the repealed Massachusetts act of 1862, ch. 218, § 4 ;* and in Pennsylvania the same require- ment is imposed, although the action is at law.^ So, like- wise, under the same statute,* they, or a portion of them, must be joined with the company.* But the general rule is that, unless specially authorized to do so by statute, stock- holders cannot plead and defend for the corporation when the suit is against it and they are not parties to the record.' § 361. Conclusion — All Creditors, all Shareholders, and the Corporation should be joined. — Without doubt, the sound rule of equity procedure applicable to such cases, and to be enforced within reasonable and practicable limits, has been laid down by the Supreme Court of Wis- consin : All the creditors should join, or one or more of them should sue for the benefit of all. The action should be brought against the corporation and all the stockholders, unless it be impracticable to bring them all before the 1 "The corporation should be joined, unless it has been dissolved or its assets wholly exhausted, for the reason that both creditors and stockholders are interested in closing its affairs, and in having its available property appro- priated to the payment of debts, without which there can be no final settlement and adjudication of the rights and liabilities of the parties." Coleman v. White, 14 Wis. 700, 702; s. p.. Carpenter v. Marine Bank, 14 Wis. 705, note; Cleveland ». Marine Bank, 17 Wis. 545. 2 Umsted v. Buskirk, 17 Ohio St. 113, 118. s Wood V. Dummer, 3 Mason, 308, 315. * Supp. to Gen. Stat. Mass. 1869-72, p. 173; Pope ii. Leonard, 115 Mass. 286 ; Moore «. Rey]iolds, 109 Mass. 473. = Hoard v. Wilcox, 47 Pa. St. 51. 5 2 Brightly's Purd. Dig. 998, J 30. « Mansfield Iron- Works v. WiUcox, 52 Pa. St. 377. ' Bronson «. La Crosse R. Co., 2 \V;ili. 283; Holvoke Bank r. Goodman Paper Man. Co., 9 Cush. 57G ; Blackman v. Central R. Co., 58 Ga. 189 : National Bank of A ugusta v. Southern, etc., Co., 55 Ga. 36. 422 " en. XIX. J OF PARTIES. § 361 court, or some other sufficient cause for the omission be shown. Unless the action is founded upon a judgment at law previously obtained against the corporation, and per- haps in any event, the corporation should be joined. " The creditors slaould all join, because they have a common interest in the funds to be realized ; or, if the action be com- menced by one or more of them, the complaint should be so framed that the others may come in and prove their claims before the court or a referee, and share in the distribution of the moneys received. All the stockholders should be made defendants, because they, too, have a common interest, and without their presence it is impossible to adjust their rights and liabilities, and protect them from unequal and oppressive burdens. The same reasons exist for making all the stockholders parties to such actions as in proceedings against delinquent stock subscribers to compel them to con- tribute toward the payment of the debts of an insolvent bankrupt corporation. The corporation should be joined, unless it has been dissolved or its assets wholly exhausted, for the reason that both creditors and stockholders are interested in closing its affairs, and in having its available property appropriated to the payment of debts, without which there can be no final settlement and adjudication of the rights and liabilities of the parties." ^ 1 Coleman v. White, 14 Wis. 700, 702, per Dixon, 0. J. ; s. p.. Carpenter o. Marine Bank, 14 Wis. 705, note ; Cleveland v. Marine Bank, 17 Wis. 545. 423 § 365 EEMEDIES, PEOCEDURE, AND DEFENCES. [PAET IV. CHAPTER XX. OF CERTAIN QUESTIONS OF PROCEDURE AND EVIDENCE. Section 365. Forum and Form of Action where the Liability is in Proportion to Stock held. 366. Creditor's Bill — Proceedings supplementary to Execution. 367. Discovery. 868. Multifariousness. 369. Manner of proving Existence of Corporation. 370. When the Boolcs of the Corporation are Evidence. 871. Continued. 872. Evidence of Payment. 873. Manner of proving Defendant a Stockholder. 874. Interest. 375. Costs. 376. Action by Stockholder for Contribution. 877. The Duties and Responsibilities of levying Officers. § 365. Forum and Form of Action ■where the Liiability Is in Proportion to Stock held. — We have already had occasion to consider the construction placed u^Don certain bank charters of Georgia, under which each stockholder was liable to redeem his proportionate share of the out- standing circulation.^ From the nature of this liability, it is to be inferred that the appropriate proceeding to enforce it would be to ascertain, by the taking of an account, the total amount of the indebtedness of the corporation ; then to determine who are liable to contribute as shareholders, and what is each shareholder's fractional portion of this whole capital stock. This would determine the amount which he should be called upon to contribute to the pay- ment of the corporate debts. A proceeding of this kind resembles strictly the administration of an insolvent estate, 1 Ante, 22 40, 41. 424: CH. XX.J QUESTIONS OF EVIDENCE AND PRACTICE. § 365 and obviously refers itself to a court of equity ; and it is difficult to understand how a court of law could do cona- plete justice in such a case. Nevertheless, under those bank charters single creditors have proceeded effectively at law ;' and the Court of Appeals of Kentucky declared that the Circuit Court of that state, sitting in equity, had juris- diction over a joint bill filed against all the stockholders, concuiTcntly with the cognizance of a court at law over separate actions against each of them, upon his sole and several liability.^ There is less difficulty than in ordinary cases in sustaining an action at law under such a statute or charter, brought by a bill-holder of a bank, because the total outstanding circulation of the bank is, in the absence of gross fraud on the part of its management, capable of being easily ascei-tained without calling upon all the bill-holders to come in and prove up their claims before a master. In the case cited from Massachusetts the proceeding was in equity ; ^ and, as we have seen,* this is the only form of remedy tolerated in that state. In Maine, in case of insolvent banks, the remedy is by bill in equity' brought by the receiver of the corporation ; ° but this is by force of statute.* With reference to the form of action, we find that in early cases in Georgia the action was debt; but this was doubtless controlled by the peculiar phrase- ology of the charter, making the stockholders liable to the bill-holders " as in common actions of debt."' In a later case the declaration was in assumpsit; but no question was made as to the form of action.® 1 Lane v. Morris, 8 Ga. 468; Lane v. Harris, 16 Ga. 217; Branch v. Baker, 53 Ga. 502; Hatch v. Burroughs, 1 Woods, 439. 2 Bank of United States v. Dallam, 4 Dana, 575. " Grease' ■!>. Babcock, 23 Pick. 33i; s. c, 10 Meto. 525. * Ante, I 258. ' Dane v. Young, 61 Me. 160. « Eev. Stat. Me. 1857, ch. 47, § 73. ' Lane v. Morris, 8 Ga. 468 : Lane v. Harris, 16 Ga. 217. 8 Branch v. Baker, 53 Ga. 503. 425 § 366 EEMEDIES, PROCEDURE, AND DEFENCES. [PART IV. § 366. Creditor's Bill — Proceeding-s supplementary to Execution. — The statutes of New York,' of Wisconsin,^ and probably those of some other states, provide for a pro- ceeding supplementary to execution, in the nature of a creditor's bill. The statutes of Wisconsin, in another chapter, provide for a proceeding on behalf of judgment creditors of corporations for the sequestration of their assets.^ The ditferenee between these two statutes consists in the fact that the creditor who proceeds by creditor's bill, or by the statutory proceedings in the nature of a creditor's bill, gets a preference over other creditors. The vigilant creditor acquires by the filing of his bill a lien equivalent to an actual le^y upon all the equitable assets of the debtor, and this lien is not displaced or impaired by subsequent proceedings instituted by other creditors,* even though their judgments are older than his.' But the statute giving the proceeding against corporations provides for a rataljle dis- tribution of the assets among creditors. Both of these statutes being in existence, can the creditor of a corporation 1 5 Edmond's Stat, at Large, 83, J 292. ' Rev. Stat. Wis., 1858, oh. 134, ? 88 ; 2 Taylor's Wis. Stat. 1564, g 100 ; ibid. 1566, § 103 ; Laws Wis. 1860, ch. 303, J§ 1, 2 ; 2 Taylor's \Vis. Stat. 1568, II 112, 113. 3 2 Taylor's Wis. Stat. 1732, ?? 18, 1 9. " Whenever a judgment shall be ob- tained against any corporation incorporated under the laws of this state, and an execution issued thereon shall have been returned unsatisfied in whole or in part, upon the petition of the person obtaining such judgment, or his repre- sentatives, the Circuit Court within the proper county may sequestrate the stock, property, things in action, and eflFects of such corporation, and may appoint a receiver of the same. In the final order on any such, the court shall direct a just and fair distribution of the property of such corporation, and of the pro- ceeds thereof, to be made among the fair and honest creditors of such corpora- tion, in proportion to their debts respectively, who shall be paid in the same order as provided in the case of a voluntarj- dissolution of a corporation." <■ 2 Wait's Act. & Def. 428 ; Storm v. Waddell, 2 Sandf. Ch. 494 ; Brown » Nichols, 42 N. Y. 20; Lynch v. Johnson, 48 N. Y. 27; George ii. Williumson, 26 Mo. 190; McCalmont i'. Lawrence, 1 Blatchf. 232. Compare Roberts v. Albany, etc., R. Co., 25 Barb. (iii2 ; Eameston p. I.yde, 1 Paige, 037; Wakeman 1;. Grover, 4 Paige. 23; s. c, affirmed, 11 Wend. 187. * Lyon V. Robbiiis, 40 111. 270. Contra, State Savings Assn. v. KoUogg, 63 Mo. 540. 426 CH. XX. j QUESTIONS OF EVIDENCE AND PKACTICB. § 367 proceed under the former and acquire a preference ? Or, the latter statute only being in existence, can he acquire a like preference by filing a creditor's bill? It has been held in New York that he must proceed under the latter statute on behalf of himself.* But in Wisconsin the vievy has been taken that he may proceed under the former statute, this being tlie clieaper and more direct mode, until some other creditor, proceeding under the latter section, procures an injunction against the prosecution of his suit, as therein pro- vided.^ But the safer and more preferable course is for the creditor to bring a petition under the latter statute, on behalf of himself and all other creditors who may choose to join in the action;^ and if he has commenced his proceed- ing under the former statute, he should amend his complaint by setting forth tliat the proceeding is in behalf of all cred- itors, and making all stockholders parties.* But, unless some other proceeding is given by statute, there is no doubt that the foi'm of suit in equity known as a creditor's bill, although regulated by statute, is an appropriate proceeding.^ § 367. Discovery. — Discovery, as already seen, is one of the grounds on which equity assumes jurisdiction to aid creditors of corporations against shareholders.^ A bill setting forth that a great number of individuals, whose names are unknown, but whom, when discovered, the complainants ask to be made parties, are indebted upon 1 Morgan v. New York, etc., R. Co., 10 Paige, 290 ; Sherwood v. Buffalo, etc., E. Co., 12 How. Pr. 136; Hinds v. Cauandaigua, etc., K. Co., 10 How. Pr. 487; Courtois u. Harrison, 12 How. Pr. 359; s. c.,'3 Abb. Pr. 96; 1 Hilt. 103. ' Ballston Spa Banii v. Marine Bank, 18 Wis. 490 ; Pierce v. Milwaukee Construction Co., 38 Wis. 253. See Courtois o. Harrison, 12 How. Pr. 359 ; s. c, 3 Abb. Pr. 96 ; 1 Hilt. 109 ; Lowber v. Mayor, 5 Abb. Pr. 268 ; 7 Abb. Pr. 2-18 ; McBride v. Farmers' Bank, 28 Barb. 476; s. c, 7 Abb. Pr. 347; E,aiikiuo u. Elliott, 16 N. Y. 377. ' Adler v. Milwaukee Patent Brick Co., 13 Wis. 57. ' Pierce v. Milwaulcee Construction Co., 38 Wis. 253. 5 Miers v. Zanesville Co., 11 Ohio, 273 ; s. t., 13 Ohio, 197 ; Henry v. Tormil- lion Co., 17 Ohio, 187; Marih «. Burroughs, 1 Woods, 463, 467. 8 Ante, I 259. 427 § 368 REMEDIES, PROCEDUKE, AND DEFENCES. [PART IV. subscriptions for stock, and praying that the company may set forth their names in its answer, cannot be demurred to on the ground that it is a fishing bill, and wanting in sufEcient certainty. When the liability of the defendant corporation is fixed, and no assets at law are forthcoming, the proper pi-actice is to compel it to disclose its means to 23ay the debt, especially where the nature of the resources for this purpose are pointed out in the bill, and its answers on this point are specifically required.^ After the com- plainant in such a bill has obtained such a discovery of the shareholders chargeable on behalf of the creditors, he may anend his bill and make them parties, for the purpose of charging them personally with the deficiency to the extent of their liability ; ^ or he may wait until a final decree against the corporation has been made, and its effects have been distributed among the creditors, and may then file a sup- plemental bill for the purpose of charging them personally for the deficiency, to the extent of their statutory liability.^ § 368. Multifariousness. — Every equity pleader is aware that no fixed rule can be laid down by which to deter- mine whether a given bill is or is not obnoxious to the ob- jection of multifariousness. It may be stated that, for the purpose of preventing a multiplicity of suits, a court of equity will retain a bill claiming one general right against several defendants, although there be no privity of interest between them, and although each may stand in a diff'ereut relation to the complainant from the others.* Chancellor Kent sustained a bill the object of which was to set aside fraudulent conveyances of corporate property, as well as to coerce payment of defaulting stockholders ; but he appears ' Miors V. Zanesville Co., 11 Ohio, 273. ' Morgan v. New York, etc., R. Co., 10 Paige, 290. ' Morgan v. New York, etc., R. Co., 10 Paige, 290; Masters v. Eossie Lead Mining Co., 2 Sandf. Ch. 301. * Whaley v. Dawson, 2 Sch. & Lef. 367 ; Mayor of York u. Pilkington, 1 Atk. 282. 428 CH. XX.J QUESTIONS OF EVIDENCE AND PRACTICE. § 368 to have rested his conclusion on the ground that all the de- fendants were charged \vith fraudulent practices, though in different degrees ; ^ and the Supreme Court of Alabama sustained a bill of the same nature, although it was admit- ted tliat the stockholders, as such, had no concern in the allegations of fraud affecting the deed of conveyance sought to be set aside. The decision was placed upon the ground that the object of the bill was single, namely, to reach equitable assets of the corporation, in satisfaction of the complainant's judgment at law ; and it was tliougiit to cre- ate no difficulty that these assets were of two kinds, namely, (1) those arising from the right of the corpora- tion to call in its unpaid stocic, and (2) those which miglit be produced by setting aside the alleged fraudulent convey- ance.' The Supreme Judicial Court of Massaclmsetts has, however, held that a bill seeking to charge directors of a corporation with its debts, on tlie ground tliat tliey have, in violation of a statute,' permitted its debts to exceed its capital stock, or have failed to file a certain certificate, or have filed one, knowing it to be false ; and also seeking to charge stoclcholders for such debts, under the same statute, on the ground tliat the capital stock was not duly paid in and certified, was multifarious.* But a bill is not multifarious because it charges tiiree distinct grounds of liability against officers of a corporation, — as, failing to make and file two several certificates required by statute, and also allowing the indebtedness of the corporation to exceed its capital stock.' 1 Brinkerhoff v. Brown, 6 Johns. Ch. 139. The general doctrine of this case, namely, that " a bill may be filed against several persons relative to mat- ters of the same nature, forming a connected series of acts, all intended to de- fraud and injure the plaintiffs, and in which all the defendants were more or less concerned, though not jointly in each act," was recognized and applied in Pellows v. Fellows, 4 Cow. 682. ^ Allen V. Montgomery R. Co., 11 Ala. 437, 447. ' Rev. Stat. Mass. 1836, ch. 38, I 25. * Cambridge Water-Works Co. v. Soraerville Dyeing Co., 14 Gray, 193; Pope V. Leonard, 115 Ma=is. 286. » Pope V. Salamanca Oil Co., 115 Mass. 286, 290. 429 § 369 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. § 369. Manner of proving Existence of Corporation. — Where the company has been incorporated by a special act of the Legislature, it is, in general, suiBcient to give in evi- dence the statute, and to show the actual use of the privi- leges of an incorporated company under the name design nated in the act, to entitle one to m lintain an action against the corporation.^ The acceptance of a particular statute or charter by a corporation may be proved by acts of its oiEcers from wliich such acceptance is to be inferred ; it is not indispensable to show a written instrument or vote of acceptance on the corporate books. ^ In a suit by a cred- itor of an alleged corporation to charge the defendant as a stockholder, evidence that tlie defendant was present at the organization of the company as a corporation, was elected and acted as president, and signed the note in suit as such, was held prima facie proof of the existence and organiza- tion of the corporation, and of the defendant's relation as a stockholder, the absence of other evidence being accounted for.' The existence of the corporation may be proved by producing the books of the company containing the license issued to the corporation by an officer of the state, under a statute, to enable it to act as such.* It may also be proved by a certified copy of the notice of the formation of the corporation, made in pursuance of the statute, sworn to by its president, treasurer, clerk, and directors, and recorded, as provided by the statute, in the registry of deeds.^ Evi- dence of such a recorded certificate, signed by the defend- ants, together with the fact that the association en£a2:ed in business in its corporate name, contracted debts, and filed ' Narrngansett Bank v. Atlantic Silk Co., 3 Mete. 282 ; Came v. Brigham, 39 Me. 35 ; Merchants' Bank v. Harrison, 39 Mo. 483 ; Haynes v. Brown, 36 N. H. 645. See Ang. & Ames on Corp., § 635. ^ Palfrey v. Paulding, 7 I^a. An. 365; Bank of United States v. Dandridge, 12 Wheat. 71 ; Gorman ,;. Pacific K. Co., 26 Mo. 452, 453. ' Haynes v. Brown, 36 N. H. 545. * Third National Bank v. Culver, 04 HI. 528. ' Chamberlin v. Huguenot Co., 118 Mass. 532. 430 CH. XX. J QUESTIONS OF EVIDENCE AND PKACTICE. § 370 other certificates required by law, which certificates were also signed by the defendants, declaring the corporate char- acter of the association, is conclusive of such fact in a pro- ceeding to enforce the statutory liability of the defendants as its officers .1 § 370. AVTien the Books of the Corporation are Evi- dence. — Perhaps no rule broad enough to cover all cases can be stated as to when, in an action to charge a share- holder, the books of the corporation are evidence against him. It may be stated that, as between members of a corporation, they are evidence of all corporate acts therein recorded ; but they cannot be used against a stranger to connect him with the corporation,^ unless made so hj act of the Legislature.' It is obvious that this must be the rule applied to the classes of actions we are considering. Other- wise, the secretary of a company, by entering a man's name as a shareholder on its books, might, without his knowledge or consent, make him a stockholder ; and where death or other circumstances had rendered countervailing proof impossible, this unauthorized act of another might charge him or his estate with a serious burden. Men should be allowed to make their own contracts ; the courts should not, by establisliing unreasonable rules, make con- tracts for them.* " In some cases, then, the test to be applied to the question whether the corporate records are admissible, upon these authorities, would seem to be whether the party against whom they are offered stands in such rela- tion to the corporation that he is chargeable with knowledge ' Priest V. Essex Hat Co., 115 Mass. 380. Especially so, after notice to the defendants to produce their book of records, and their failure to do so. Dooley V. Cheshire Glass Co., 15 Gray, 404. ^ Greenl. on Ev., § 493 ; Ang. & Ames on Corp., § 679 ; Chase v. Sycamore, etc., R. Co., 38 111. 215 ; Mudgett v. Horrell, 33 Cal. 25 ; Eox's Case, 3 De G. J. & S. 465. s Bristol Canal Co. v. Amos, 1 Mau. & Sel. 569. * See Mudgett v. Horrell, 33 Cal. 25. 431 § 371 EEMEDIES, PEOCEDUEB, AND DEFENCES. [PAKT IV, of the records ; whether, as to him, the books are in the nature of public books, he being connected M^th them in interest, and of which he could demand and have insi)cction as of rjo-ht ; or whether he is a mere stransfer, unconnected in interest, they being, as to him, private boolcs, the inspec- tion of which could not be compelled in his favor. In other cases the test to be applied would seem to be one not having reference to the character of the party, but to the luiture of the matter which is the sul)ject of record. In this view the test is whether the matter recorded consists of corporate acts, involving the organization or existence of the corpora- tion, or whether it is merely matter pertaining to some contract, property, or right not essentially involving the exercise of power under the corporate franchise." ^ Thus, the records kept by the clerk of a railroad corporation of the proceedings of the directors, in ordering assessments upon the shares of the capital stock, may be used as evi- dence by the corporation in a suit brought by them to recover an assessment upon the shares subscribed for by the defendant, he being one of the original grantees in the charter, and a director at the time the assessment was ordei'ed, and having exercised the privileges of a stock holder in virtue of the shares upon which the assessment was made.^ § 371. Continued. — Nor are the books of a corporation admissible against a member, as evidence of his private contracts and dealings with the company, in a suit against him by a creditor,'' — as, a "stock-book " introduced to show entries of assessments.* One who had subscribed for stock 1 White Mountains R. Co. v. Eastman, 84 N. H. 124, 137. ' Ihid. s Hiiger V. Cleveland, 36 Md. 476. * llayiics V. Brown, 86 N. H. 545, 566. This case contains the followin;; val- uable discussion of the subject by Bell, J. ; "The records of a corporation are evidence in some cases, and for some purposes. The rule generally laid down in the elementary books is that 'the books of a corporation, whether con- 432 CH. XX.] QUESTIONS OF EVIDENCE AND PRACTICE. § 371 upon the condition, expressed in the contract, that it was not to be paid until |5,000 should be first raised, was held not to be a member of the corporation so as to make the taining entries of a public or private nature, are admissible in evidence as between themselves, and not against a stranger.' 1 Saund. on PI. & Ev. 851 ; Ang. & Ames on Corp. 607 ; 2 Ph. on Ev. 295. The present case is not one where tlie parties are members of the same corporation, and it is there- fore unnecessary to enquire whether the rule is not laid down more broadl}', or with fewer qualifications, than it ought to be. There is no question that the records of a corporation are evidence of the proceedings of the corporation itself (1 Greenl. on Ev., J 493; Highland Turnpike Co. d. McKean, 10 Johns. 154; Ang. & Ames on Corp., J 679; Wood v. Jefferson Countj' Bank, 9 Cow. 194, 20-5; Ciise of Thetford, 12 Vin. Abr. 90, pi. 16; Smith v. Steamboat Co., 1 How. (Miss.) 479 ; Whitman v. G-ranite Church, 24 Me. 236 ; Coffin v. Collins, 17 Me. 440 ; The People v. Oakland County Bank, 1 Dougl. 282) ; as to its organization (Duke v. Navigation Co., 10 Ala. 82; Hall v. Carey, 5 G-a. 239; McFarlan v. Insurance Co., 4 Denio, 392) ; of its meetings, and the election of its oiEccrs and members (Gibbon's Case, 17 How. St. Tr. 810, 814) ; and of the votes and acts of the corporation and its officers, where those acts and votes are re- quired, either by the charter or by-laws, to be recorded; or where they are in fact transacted at meetings of those officers, at which there is a clerk to keep the records. To render these books admissible for these purposes, the party who introduced them must show that they are the books of the corporation, independently of what appears upon the books themselves (Whitman v. Granite Church, 24 Me. 236) ; that they have been regularly kept by the clerk, or other proper officer (12 Vin. Abr. 90, pi. 16; Highland Turnpilco Co. v. McKean, 10 Johns. 154; Eex v. Mothersell, 1 Stra. 93; 2 Ph. on Ev. 442); and if there is any thing suspicious in their appearance, or if any doubt is cast upon them by the testimony, that they were made at the times they purport to have been, and have not been made up subsequently, to answer some purpose of the cor- poration or others. But the entries in the boolcs of a corporation, relating to other matters of fact than the proceedings of the corporation, are not evidence in their favor in a controversy between them and any stranger, nor between them and a member of the corporation, holding or claiming adversely to them. 2 Saund. on PI. & Ev. 748; Ang. & Ames on Corp., J 679; 1 Greenl. on Ev., g 493. Neither are they evidence against a member of the corporation of his contracts or private dealings with the company. In that respect he is to be regarded as a stranger. 1 Pli. on Ev. 449 ; Hill v. Manchester Water- Works Co., 2 Nev. & Man. 573 ; s. c, 2 Barn. & Adol. 544. This principle was recognized in the case of Marriage v. Lawrence, 3 Barn. & Aid. 142 ; in Brett v. Beales, 1 Moo. & M. 416 ; Mayor of London v. Mayor of Lynn, 1 H. Black. 214, note c; Jermain v. Worth, 5 Denio, 342. As the books of a corporation are not evidence, as between the corporation and a member or a stranger, as to their business transactions, it follows d fortiori that they cannot be so between a member and a stranger, or between two strangers ; and the cases of Brett v. Beales, Jackson c.Walsh [3 Johns. 226], and Jermain v. Worth, before cited, are direct author- ities to this point." 433 § 373 REMEDIES, PROCEDUEE, AND DEFENCES. [PART IV. books evidence against him in a suit for calls. ^ But even if the books of a corporation could be received as presump- tive evidence to prove that a particular person was a stock- holder, such presumption may be overcome by jDarol testi- mony showing that he never accepted, but refused to accept, stock in the company.^ Parol evidence will not be heard to show that a person had, at a certain time, by transferring his shares, ceased to be a stockholder; the books of the corporation only will be looked to.' § 372. Evidence of Payment. — In a suit to charge a shareholder in a banking corporation with his proportion of its debts, where he pleads that he has paid such proportion to other depositors than the plaintiif,* he may prove such payment by producing the original evidences of deposit which he has th us taken up ; or he may do it by producing a certificate of the assignee of the bank of the fact of the indebtedness, together with the oath of the assignee that he has surrendered to such assignee such evidences of deposit, with the receipts thereon given to the defendant by the holders of them.^ § 373. Manner of proving Defendant a Stockholder. — The charter of a corporation, issued by an officer of the state under a general law, is prima facie evidence that the persons named therein were members of the corporation at the commencement of its existence.* The charter and the previous certificate required by the statute being generally public acts and publicly recorded, if any person named therein as a member afterwards acts as such, or does not ' Chase v. Sycamore, etc., R. Co., 88 HI. 215. See, as to conditional sub- scriptions. Port Edward, etc., Co. v. I'ayne, 17 Barb. 667 ; Morris Canal and Banldng Co. v. Nathan, 2 Hall, 239; ante, J 116. 2 Mudgett V. Horrell, 33 Cal. 25 ; Pox's Case, 3 De G. J. & S. 465. » Stanley v. Stanley, 26 Me. 191. * Post, I 380. ' Jones u. Wiltberger, 42 Ga. 575. " McHose V. Wheeler, 45 Pa. St. 41. 434 CH. XX. J QUESTIONS OF EVIDENCE AND PRACTICE. § 374 disavow the relation as soon as he discovers the use of liis name, he cannot, as already seen,^ evade his liability as a member merely by showing that he was not in fact a sul)- scriber, and never paid in any money on account of stock. He must immediately and publicly disavow the act, or he will be taken to have ratified it so far as relates to cred- itors.^ The Court of Errors of South Carolina has, how- ever, expressed the view that where a partnership becomes incorporated, there must be some act or expression to signify their acceptance of the charter, in order to charge the several members as corporators.' Accordingly, where it did not appear that the defendants had in any manner signified their refusal to accept a charter incorporating a voluntary association, they were held not to be corporators ; but it must be noted that they were not named in the char- ter.* But where there is no law authorizing a paper con- taining the subscription to the capital stock of a corpora- tion to be filed in the office of the secretary of state, a copy thereof, certified under the seal of the secretary of state, IS not admissible && prima facie evidence in a suit by the corporation to charge the defendant as a stockholder.* § 374. Interest. — The question whether interest will be allowed in a proceeding to charge a stockholder does not rest on precisely the same principles as the question of costs.* Of course, if the principal of the judgment, to- gether with the interest, does not exhaust the sum for which the stockholder is liable, then the judgment will carry in- terest as in other cases.' Moreover, if the creditor is kept 1 -Ante, I 160 et seq. 2 McHosp 5. Wheeler, 45 Pa. St. 41. ' Executors of Haslett v. Wotherspoon, 1 Strobh. Eq. 209, 254. * Southern Steam Packet Co. v. Magrath, McMuU. Eq. 93. » Troy, etc., R. Co. v. Kerr, 17 Barb. 581. Corapare Bouchaud v. Dias, 8 Denio, 238 ; Dick v. Balch, 8 Pet. 33 ; Jackson v. Leggett, 7 Wend. 877. ^ See next section. ' Gruud V. Tucker, 5 Kan. 70, 79. 485 § 374 EEMEDIi:S, PROCEDUKE, AND DEFENCES. [PAUT IV. out of his money through the rofusMl of the stockholder to pay when demand is made upon him, he ought to receive interest during the time he has been thus wrongfully de- layed, although such interest, together with the principal, make a sum in excess of the amount for ivhich the stock- holder otherwise would have been liable. Upon this prin- ciple it has been ruled that interest will run against the stockholder from the date of the commencement of the suit against him, although it results in charging him with a sum in excess of that for which he was individually liable.^ The Supreme Judicial Court of Maine, however, denied interest in such a case, and at the same time gave costs, though the amount of the judgment rendered was thus made to exceed $100, the amount for which the stockholder was individu- ally liable.^ The same view of the question was taken by the Court of Errors of South Carolina, in a similar case, arising under the New York statute of 1811, upon grounds stated in the note.' If the statute makes the stockholders 1 Burr V. "Wilcox, 22 N. T. 551 ; Welirman v. Reakirt, 1 Cin. Superior Ct. 230, 239. Upon like grounds, it hns been held that, aftn- default of a surety in a bond for the payment of money, the debt carries interest iit;ainst the surety, although it results in a judgment against him greater than the pen- alty of the bond. Fraser v. Little, 13 Mieh. l'.)5 ; Brainard r. .Tones, IS N. Y. 85. This, however, may not be the prevailing rule. See Sedgw. on Ihun. 425. 2 Colo V. Butler, 43 Me. 401, 405. ' Sackett's Harbor Bank c/. Blake, 3 Rieh. Eq. 225, 233. Dunkin, C. .T., gave the judgment of the court upon this point, as follows; " Strietly speal;- ing, no contract existed between the complainants and the defendants. The defendants are no parties to the notes, nor is their liability measured by the nmount of the notes. The contract is with the corporation, wliieh has an ex- istence as separate from the individuals who compose it svs those individuals have from each other. Tlie defendants might not have been members of the corporation when the debt was contracted, or when the notes were dishonored. They are rendered liable by the stringent provisions of the statute, and by nothing else. This fixes their liability, and measures the extent of it. 'For all debts due by the company at the time of its dissolution the persons then composing such company shall be individually responsible, to the extent ot their respective shares of stock in the said company, and >io further.' Accord- ing to the construction given to this clause by the New York adjudications, this amounts, substantially, to n forfeiture of so much beyond the original subscription, — so much beyond the contract of the parties, which was only to 436 CH. XX. J QUESTIONS OF EVIDENCE AND PRACTICE. § 374 liable to the creditors, each for his proportion of the cor- porate debts, then interest will not be allowed, because no stockholder can tell how much he is to pay, or to whom, until it is ascertained by a general suit in equity. Not be- ing able, therefore, to pay, or tender payment, he cannot be treated as being in default.^ pay a stipulated sum, according to the number of shares subscribed. But this extraordinary liability cannot be enforced unless required for the satisfaction of the debts of the corporation. It cannot be exceeded, although ninety cents in the dollar of those debts remain unsatisfied. If the defendants had entered into a bond in the penalty of seven thousand dollars, conditioned to pay the debts of the corporation, or to do any other act, the recovery is never permit- ted to exceed the penalty. Bonsall v. Taylor, 1 McCord, 503, was the case of a common money bond, where this principle was recognized. And in Stroble V. Large, 3 JlcCurd, 112, in an action on a bond for the performance of cove- nants, the verdict of the jury, assessing damages beyond the penalty, was set aside nisi. In both these cases the penalty was to secure the performance of the party's own contract. The statute of 1811 imposes a liability for the default of another, and expressly provides that it shall extend 'no further.' No recovery could be had against these defendants alone until it had been es- tablished that the corporation was dissolved, that the debts were unpaid, and that the other stockholders had paid in full to the extent of their liability. Those facts having been established, the complainants were entitled to a de- cree 'to'lhe extent of the shares of the stock held by the defendants, and no further.' This was seven thousand dollars. But if they had been compelled to pay other creditors, or had made advances to the company (according to Briggs 1. Penniman, 8 Cow. 387) to the amount of five thousand dollars, only two thousand dollars could be recovered. The master has fixed the amount already paid by the defendants at twenty-seven hundred and twenty- eight dollars, leaving the sum of four thousand two hundred and seventy-two dollars as still due in order to make up the sum of seven thousand dollars. It is ordered and decreed that the defendants pay to the plaintiffs, out of the trust estate, the sum of four thousand two hundred and seventy-two dollars, together with the costs of these proceedings ; and that the decree of the Cir- cuit Court be modified accordingly. In all other respects the decree is affirmed." Sackett's Harbor Bank v. Blake, 3 Rich Eq. 225, 833. 1 Crease v. Babcock, 10 Mete. 525, 568 ; Grew v. Breed, 10 Mete. 569, 577. This rule would probably not hold good under the construction placed upon similar statutes in treorgia, allowing several actions at law by any creditor against any stockholder, and sancdoning voluntary payments by the latter. Ante, g 365 ; post, J 392. For a construction of the deed of settlement of an English joint-stock company, under which it was held that a shareholder was bound to pay a call, in consequence of which his shares had been forfeited, but not interest on them, see Stocken's Case, L. R. 3 Ch. 412. . 437 § 375 REMEDIES, PEOCEDUEE, AND DEFENCES. [PAET IV. § 375. Costs. — If a stockholder is severally liable to pay the debts of the corporation to a certain amount, say $10,000, and a creditor has proceeded against him and obtained a judgment for this amount, can he oblige him to pay the costs of the proceeding? It has been held that he can ; and the ruling is put on the plain ground that it was tlie dut}^ of the stockholder to discharge himself of the amount for which he was liable, by paying it to the creditor, without putting him to the expense of a suit.^ In equity the allowance of costs in such cases rests on a variety of considerations, and probably no rule can be stated on the subject. A corporation and its members have been held liable for the costs of a suit in equity brought against them on behalf of all the creditors of the company, founded upon simple-contract debts which had passed into judgment at law, with the proviso that the amount they were decreed to pay, including such costs, should not exceed the amount of capital which they professed to have paid in, as exiiressed in their charter.^ It seems that where, for the purpose of discovery merely, officers of a corporation are made parties to a bill, the prayer of the bill should be so framed that it will distinctly appear that all the relief sought is intended to be confined to the other defendants, and that none will be asked against such officers at the hearing, even as to costs.' And, even when the discovery therebv ob- tained is used to charge such officers personally in a supple- mentary proceeding, they will be allowed the costs of their answer.* Where a bill was filed to close up the concerns of a manufacturing company which was alleged to have been dissolved, in ftict, upon a particular day, a decree was made, upon the bill taken as confessed, for the benefit of cred- ' Grose v. Hilt, 3fi Me. 22. 27 ; Cole i'. Butler, 48 Me. 401, 405. ' Executors of Haslott n. Wotherspoon, 1 Strobh. Kq. 20». ' ^Iclntyre v. Trustees of Union Collog ■. li I'liinv. l-\ i 1 12. * Masters u. Kossie Lead Mining Co., 2 Sandf. Gli. 301, 306. 438 CH. XX. J QUESTIONS OF EVIDENCE AND PRACTICE. § 376 itors, as to all debts which were due on the day of dissolu- tion, as alleged in the bill and declared in the decree. A creditor who had commenced suits to recover debts due from the corporation, and who had obtained judgments therein before the decree, but after the time of dissolution mentioned in the bill and in the decree, was held to be equitably entitled to his costs in those suits up to the time when he could have come in under the decree ; but, by the terms of the decree, costs were not allowed which had accrued subsequent to the day upon which the corporation was declared to have been dissolved in fact.^ § 376. Action by Stockholder for Contribution. — There is no doubt that a stockholder who has been compelled to pay more than his proportionate share of the debts of the company may maintain an action against his co-stockhold- ers for a contribution.^ But the right of a stockholder thus to sue is subject to the same condition precedent which attaches to the right of a creditor, or his representative, to sue one or more stockholders for a debt of the corpora- tion ; ' he must first have exhausted his remedy against the company.* This right of contribution, though in most cases asserted on general principles of equity, is, in Pennsyl- vania, said to be purely statutory, and governed wholly by the statute conferring it.^ We have seen that the right of shareholders to contribution inter se, and to have their mutHal equities adjusted without a multiplicity of suits, is the chief ground on which equity assumes jurisdiction of 1 P:sk V. Keeseville Man. Co., 10 Paige, 592. ' Aspinwall v. Torrance, 1 Lans. 381 ; Farrow v. Bivings, 13 Eich. feq. 25 ; Gray v. Coffin, 9 Cush. 192 ; Stewart v. Lay, 45 Iowa, 604, 614. See Sutton's Case, 3 De G. & Sm. 262. Contribution between A. and B., where A. holds stock on joint account of himself and B. Stover v. Plack, 30 N. -Y. 64. » Ante, 2 312. * Gray v. Coffin, 9 Cush. 192, 208. The right of contribution under the Massachusetts statute of 1808 was denied, but upon grounds incapable of vin- dicatioii. Andrews v. Callender, 13 Pick. 484. 5 Briuham v. Wellersburg Coal Co., 47 Pa. St. 49. 439 § 377 EEMEDIES, PROCEDURE, AND DErENCES. [PART IV. suits to charge shareholders ; ^ and in such a suit each share- holder may claim a contribution from the others,^ and that then- co-stockholders, so far as practicable, be made parties for this iDurposo.^ Where the liability of the shareholders is assimilated to that of partners, — and the writer thinks this rule will hold good in all cases, — contribution is decreed upon the principles which obtain in equity in winding up a partnership. If, after applying the corporate assets, there are still outstanding liabilities, the stockholders must con- tribute in proportion to their shares ; if there is a surplus, it will be divided among them in like proportion.* The manner of adjusting the equities of shareholders under the English Winding-up Act, 1848,^ was thus stated by Lord Chancellor Cotteuham : "When the master has placed on the list all the jjersons found by the evidence to have been members of the company, he then commences the process of distributing tlie payment of the losses ; but it is not to be assumed that a person whose name is placed on the list becomes liable to pay an equal share of those losses. There is a general loss to be defrayed, but the directors of the company may, in a greater or less degi-ee, have added to that loss by their mismanagement. Some of the subscribers may have sanctioned or adopted those acts of mismanage- ment ; but the body of the shareholders are not liable to contribute to the payment of expenses so improperly con- tracted, and it is for the master to ascertain and distribute the contribution according to the degrees of liability." ^ § 377. The Duties and Responsibilities of IsA^lng Officers, under the successive statutes of Massachusetts Anir, I 259. « Matthews n. Albert, 24 Md. 527. » Musters v. Ilos^ic Lead Mining Co., 2 Sandf. Oh. SOI ; Hiidley o. Russell, 40 N. H. 109; Umsted v. Busldrk, 17 Ohio St. 113. * Erickson v. Nesmith, 46 N. H. 371. 6 11 & VI Vict. c. 45. « Ex parte Eiui of Mansfield, 2 Mac. & G. 67. 4'iO CH. XX.] QUESTIONS OF EVIDENCE AND PRACTICE. § 377 making the body and estate of the stockholder liable to be taken in execution under a judgment against the corpora- tion, have been pointed out in several cases. He must necessarily be governed by directions not contained in the precept directed to him. He could not know by his pre- cept who were the individual stockholders liable thereto, and on whom the creditor elected to levy it. He must receive his information and take his directions in this re- spect from the creditor ; and the statute made it his duty to follow such directions,^ although he might require indem- nity.^ Though a creditor who had two or more demands against a manufacturing company, one only of which the stockholders were liable to pay, recovered a single judg- ment on all the demands, yet he might levy his execution on the personal property of a stockholder to the amount of the demand which the stockholders were liable to pay.^ ' Leland v. Marsh, 16 Mass. 389; Marcy v. Clark, 17 Mass. 330. 2 Stedman v. Eveleth, 6 Mete. 125. " Stedman v. Eveleth, 6 Mete. 125. See also Bichmond v. Willis, 13 Gray, 182. 441 EEilEDIES, PEOCEDUKE, AXD DEFENCES. [PAET IT. CHAPTER XXI. OF CEETADf DEFEXCES TO ACTIONS AGAINST STOCKHOLDERS. I. Defence of Payment, Set-off, and Release. Sbction 380. Payment 381. Set-off— In Case of individual Liability. 3S2. Continued- — In Case of Liability for unpaid Stock or for Calls. 383. Continued — Grounds on which tbe English Decisions proceed. 384. Continued — Special Contract for a Right of Set-off. 385. If the Shareholder is a Bankrupt. 386. Reasons which support these Rules. 387. Illustrations — Set-off under the Bankrupt Law. 388. Continued — Loss by Policy-holder cannot be set off against his Liability. 389. Continued ^ Construction of Statute of Maine — Creditor dis- charged by paying Debts of Corporation. 390. Illustrations, continued — Satisfaction of Judgment by Corpora- tion against Stockholder vacated. 391. Continued — Whether voluntary Paj-ment of corporate Debts a Defence. 392. Continued — Whether Stockholder may compound with Cred- itors. 393. Continued — Release, by a Creditor, of a particular Shareholder. 394. Whether Stockholder may prove up Claims bought at a Dis- count. 395. Company may set off Calls against its own Debt. JI. Other Defences. Sbctioit 398. Prior Judgment. 399. Prior Suit pending. 400. Bankruptcy of Corporation — Receipt of Dividend. 401. Defence of unappropriated or mis:vipropriated Assets. 402. Defence of misconduct of Receiver :ind Officers of Corporation. 403. Prior Liability of Officers — Massachusetts Statute. 404. Defence of violation of corporate Duty. 405. Defence of Ultra Vires. 406. Continued. 407. Defence of no Corporation — Estoppel to deny Validity of cor- porate Organization. 442 CH. XXI. J DEFENCES. § 380 Section 408. Illustrations, 409. Continued. 410. Continued. 411. Contrary Decisions. 412. These Decisions reviewed. 413. Continued. 414. Continued — The proper Distinction stated. 415. Defence that Act of Incorporation was unconstitutional. 416. Defence of Usury. 417. Defence of Irregularity in making Assessments. /. Defence of Payment, Set-off, and Release. § 380. Payment.^ — Eecurring to a former chapter,'' we see that the liability of a stockholder, though sometimes joint and several, like that of a partner, is, in general, sev- eral, and not joiiit.^ And, although in most of the statutes, and in the loose language of the judicial decisions, the limited statutory liability of the stockholder is said to be joint and several, yet it is clear that this means that the liability is joint only in the sense that several may be pro- ceeded against at once, and that if any one is, in any event, compelled to pay more than his shai^, he may have contri- bution from the others. Accurately speaking, this liability is several, whether it consists of unpaid instalments due upon stock held, or whether it be the superadded liability created by statute. In either case, the amount for which each stockholder is liable depends upon the amount of stock held by him ; and, although for convenience of litiga- tion all or many are joined in one proceeding, the liability of each is separately ascertained, and a several judgment or decree is rendered against each. Each stockholder, then, unless his position is that of a mere partner under some ex- ceptional statute or charter, is liable to pay, towards liquidat- ing the debts of the company, a given amount, and no more. If he has paid this amount to a creditor or creditors entitled ' Upon the question when stock is deemed to have been paid up, and as to pajTnent in specific property, see J 126 et seq. 2 Ante, § 25 et seq. » Ante, i 45. 443 § 381 EEMEDIES, PROCEDURE, AUD DEFEXCES. [PART TV. to call upon him to make such payment, his liability is at an end, and he may successfully plead such a payment when proceeded against by any other shareholder.^ But he must be careful not to make payment to one creditor where another has a prior right to, or lien upon, the sum which he is liable to pay. Such a payment will be deemed to have been made in his own wrong, and he will be compelled, notwithstanding it, to make payment to the creditor having the prior right. ^ § 381. Set-off — In Case of individual Liiability. — But whilst a stockholder may discharge himself, by paying to a creditor entitled to claim it the amount for which he is individually liable in excess of his liability for calls, he can- not do so by paying this amount to the corporation. Nor can he, in a proceeding against him by or on behalf of a creditor or creditors, set off a debt due to him by the corpo- ration.' There are, however, two or three confusing de- cisions on this point. In Briggs v. Penniman* the stock- holders were liable for the debts of the company to the amount of their respective shares of stock. Penni- man, a creditor, filed his bill in equity to enforce that liability. The defendants set up that they had severally made advances for the company, for which the company was indebted to them. One of them claimed that the company owed him a debt of $1,500, besides what was due him for advances. The chancellor directed a refer- ence to ascertain the amount of the defendants' liability, 1 Garrison v. Howe, 17 N. T. 458 ; Grose v. Hilt, 36 Me. 22 (case governed by statute) ; Jones v. Wiltberger, 42 Ga. 575 ; Tallmadge v. Fishkill Iron Co., 4 Barb. 382 ; Robinson v. Bank of Darien, 18 Ga. 65, 109 ; Hall, v. Boyd, 52 Ga. 456 ; Lane v. Harris, 16 Ga. 217 ; Sackett's Harbor Bank ». Blake, 3 Rich. Eq. 225. So by statute in California. Larrabee v. Baldwin, 35 Cal. 155. 2 Post, Ch. XXII. » Matter of Empire City Bank, 18 N. Y. 199, 227 ; Lawrence v. Nelson, 21 N. Y. 158 ; Hillier v. Allegheny County Ins. Co., 3 Pa. Bt 470 ; Matthews v. Albert, 24 Md. 527 ; Grose v. Hilt, 36 Me. 22. « 8 Cow. 390. 444 CH. XXI. J DEFENCES. § 381 and directed the master, upon the reference, to allow the defendants, respectively, such sums as they had paid on account of the debts of the company after its dissolution. Upon an appeal from this decree, Mr. Senator Spencer said: "I confess I can see no reason why the credits for sums advanced by the appellants should be restricted to a period since the dissolution of the company. The mem- bers of the company might bona fide advance money, as they allege they have done, to carry on the business of the corporation, and they are equally entitled with any other creditors to be indemnified from the funds of the company, or from the individual liability of the stock- holders." The decree was finally entered in accordance with these views. ^ In another case, — a suit in equity by several judgment creditors against directors, — determined in the Supreme Court of New York, in 1848, the liability of the defendants was created by statute, and was limited. It was held, on the authority of the last-named case, that the directors were entitled to have credited against their liability the amount of their advances for the company. " In either case," said Harris, P. J., drawing a comparison between the case before him and Briggs v. Penniman, " the law for the protection of creditors, and to induce greater carefulness in the management of the affairs of the corpora- tion, adds the limited personal liability of the stockholders or directors to the effects of the corporation itself. In either case, such limited personal liability is at an end when the stockholder or director has paid or been cliarged Avith debts to an equal amount. He can be required to jaay the amount of his liability but once ; and whether he pays that amount voluntarily, in the discharge of the debts of the corporation, or whether he is compelled to pay it upon suit brought by the corporation or any of its creditors, having paid it, he may set up such payment as a defence against 1 8 Cow. 397. 445 § 382 EEMEDIES, PKOCEDUEE, AND DEFENCES. [PAKT IV. any further liability." ^ These decisions, the last of which was by a court not of final resor^, cannot, it is thought, be supported, for reasons hereafter stated,^ unless, being suits in equity, the right of set-oif declared to exist is under- stood to mean no more than an equitable abatement of lia- bility, such as would be brought about by compelling the defendants to pay up as shareholders, and then permitting them to take their dividends as creditors. In a late case in Georgia, — a suit in equity, — where it was sought to charge a stockholder on account of his individual liability for a proportionate share of the debts of the corporation, it was- ruled that he was entitled to set off a judgment which he had obtained against the company, the same not being sub- ject to impeachment for fraud, against the cause of action against him. The court formulated its ruling in the follow- ing proposition: " If a stockholder has already paid his proportion of all the debts, or if the company bond fide owe him that proportion, it cannot be recovered from him again." ^ § 382. Continued. — In Case of IiiaMlity for unpaid Stock or for Calls. — The same rule obtains, denjdng the right of set-off, where the liability of the stockholder is for a percentage unpaid on account of his stock, and where the company is insolvent.* The like rule obtains under the English Companies Act, 1862, in respect of shareholders liable as contributories.^ There, a shareholder in a limited 1 Tallmadge «. Pishkill Iron Co., 4 Barb. 382, 391 ; Rensselaer General Term, Harris, Watson, and Parker, JJ. ; quoted with approval in Eobinson v. Bank of Darien, 18 Ga. 109. 2 Post, I 386. s Boyd V. Hall, 56 Ga. 563. * Sawyer v. Hoag, 17 Wall. 610. Contra, Tallmadge v. Pishkill Iron Co., 4 Barb. 382, 392. 6 Grissell's Case, L. R. 1 Ch. 528; Black & Co.'s Case, L. R. 8 Ch. 254; Oal- isber's Case, L. R. 5 Eq. 214 ; Barnett's Case, L. B. 19 Eq. 449. Contra, in case of a voluntary winding-up, Brighton Arcade Co. v. Dowling, L. R. 3 C. P. 175. 446 CH. XXI.] DEFENCES. § 383 company, who is also a creditor of the company, under a contract, is not, in the event of the company being wound up, entitled to set oJBf the debt due to him against the calls, nor to set off against the calls a dividend in liquidation, which may afterwards accrue to him ; but, upon payment of all calls which have become due, he is entitled to receive dividends at the same time and at the same rate with other creditors.^ This rule, however, has no application to companies where the liability of the members is unlimited; for, by the 101st section of the statute, a set-off upon an independent contest is allowed to a member of an unlimited company against a call, although the creditors have not been paid, — " evi- dently," as Lord Chelmsford thought, " because he is liable to contribute to any amount until all the liabilities of the company are satisfied, and therefore it signifies nothing to the creditors whether the set-off is allowed or not. But, with respect to a member of a company with a limited lia- bility, if a set-off were allowed against a call, it would have the effect of withdrawing altogether from the creditors part of the funds applicable to the payment of their debts." ^ The same rule has been applied in a case where the call was made before winding up. Thus, in 1873, a call to the amount of £432 was made on a shareholder of a limited company, to whom the company was indebted in the sum of £196. No part of the call was paid, and in 1874 the company was wound up under supervision of court. It was held that the debt could not be set off against the call.' § 383. Continued — Grounds on which the English Decisions proceed. — The reader should carefully note that the English equity judges do not rest these conclusions upon 1 Grissell's Case, L. R. 1 Ch. 528. 2 Ibid. 53fi. » Barnett's Case, L. E. 19 Eq. 449, discussing Calisher's Case, L. E. 5 Eq. 214. 447 § 383 REMEDIES, PROCEDURE, AND DEFENCES. [PAET IV. o general rules of equity, but upon the supposed meaning of their statute. Thus, we find them supporting their con- clusions by such reasoning as the following, resorted to by Lord Romilly: "The legislature has given the express power to allow a set-off in the case of an unlimited com- pany, and, by so doing, it must be taken to have implied that without such express provision there would be no right of set-off; and, upon the principle of the maxim Expvessio unius exdusio alterius, to have excluded, for the reason stated by the lord chancellor in Grissell's case,^ that right in the case of the contributorios of a limited company."^ It may be also noted that it was held in the Queen's Bench, m 1862, that in an action brought by the liquidators of a company against a shareholder, to recover the amount of a call on his shares, he was entitled to set off a claim against the company ; ^ but this was in obedience to the express pro- visions of a statute.* There is also a case, decided in 1868 in the English Common Pleas, which deserves a passing notice. It was held, distinguishing Grissell's case,^ that in an action by the liquidator of a limited company being voluntarily wound up under the Companies Act, 1862,^ against a con- tributory for calls, the defendant may set off a debt due to him from the company ; but the judges admit that it would be otherwise where a company is being wound up under supervision of a court. The distinction taken by the court between a voluntary winding-up and a wiuding-up under ' L. R. 1 Ch. 528. 2 Cftlisher's Case, L. R. 5 Eq. 217. ' aarnet Gold Mining Co. ,j. Sutlon, 3 B. & S. 321. ' 21 & 22 Vict. 0. 60, § 17, reading !\s follows: "In fixing tlie amount pay- able by anj' contributory, etc., he shall be debited with the amount of all debts due from him to the company, including the amount of the call, and shall be credited with all sums due to him from the company on any independent con- tract or dealing between him and the company, and the balance, after making such debit and credit as aforesaid, shall be deemed to be the sum due." 6 L. R. 1 Ch. 528. 8 25 & 28 Vict. c. 89. 448 CH. XXI. j DEFENCES. § 384 supervision was that a voluntary winding-up was prima facie for tlie purpose of settling the aifairs of the company, as among the members themselves, generally when there was no deficiency of assets ; whereas a winding-up by, or under supervision of, a court was a proceeding to realize the estate and credit of the company for the benefit of its cred- itors.^ The doctrine of this case was disapproved by Lord Chelmsford and Lords Justices Turner and Mellish, sitting in the Court of Appeal in Chancery.^ § 384. Continued — Special Contract for a Kight of Set-off. — It was at one time doubted by Lord Romilly, M. R., whether a special agreement between a shareholder and the company, to the efl'ect that he might set off money due him from the company against calls made on his shares, would be valid after an order to wind up, althougli the calls were made before that time.' But it was subsequently held by the Court of Appeal in Cliancery, by Lord Chan- cellor Selborne and the Lords Justices James and Mellish, that such an agreement would not be valid. The case was that a contractor had agreed with a company to supply them with steam-engines at a fixed price, and to take shares in the company, payment of the calls on which should not be enforced until at least two engines had been paid for, and the contractor might set off against the calls the money due to him. It is pei'ceived that this contract was, in sub- stance, to take shares and pay for them in specific property. The contractor took shares accordingly, and made two en- gines for the company, which were not taken by the com- pany or paid for. The company was afterwards ordered to be wound up, by the court, and a call was made by the liquidator. It was held that the contractor could not set off the amount due to him from the company under his ' Brighton Arcade Co. v. Cowling, L. K. 3 C. P. 175. ' Black & Co.'s Case, L. R. 8 Cli. 254. 3 Calisher's Case, L. K. 5 Kq. 214. 29 449 § 385 REJriDDIES, PROCEDURE, AND DEFENCES. [PART IV. agreement, as damages or otherwise, against the amount due by him on the calls.^ § 385. If the Shareholder is a Bankrupt. — The prin- ciple of allowing mutual debts to be set off against each other has always obtained in the statutes of bankruptcy which have existed in England ^ and in this country." This principle appears to antedate the provisions of the English statutes of bankruptcy on the subject, and to h;ive existed long before the English statute of set-off.^ Now, the princi- ple being established, in winding up a corporation, that a shareholder cannot set off a2;ainst his liabilitv as a contribu- tory a debt due him from the company, and it being equally well settled that, in collecting the estate of a bankrupt, his debtors may claim such right as against his assignee, — sup- pose that a corporation is being wound up, and is indebted to one of its shareholders, who is in bankruptcy, and such bankrupt shareholder is assessed as a contributory, will his assignee or trustees be entitled to claim a set-off as against the receiver or liquidator of the company? It has been held by the English Court of Appeal in Chancery, while conceding the correctness of the rule in Grissell's Case,^ that a right of set-off in such a case might be claimed by the trustees of the bankrupt shareholder. The case proceeds upon a comparison of the respective provisions of the two statutes applicable to the subject, — the Companies Act, 1862, § 95, and the Bankruptcy Act of 1849, § 171; and the meaning of the statutes was held to be that the liquidator of the company was to go into the court of bankruptcy and prove • Black & Co.'s Case, L. E. 8 Oh. 25i, disapproving Brighton Arcade Co. ■«. Cowling, L. E. 3 C. P. 175. 2 Stat. 12 & 18 Vict. c. 108, I 171 ; 32 & 33 Vict. o. 71, I 39. s Acts March 2, 1867, eh. 176, I 20 (14 Stat. U. S. 52fi, Eev. Stat. U. S. 5073) ; April 4, 1800, oh. 19, g 42 (2 Stat. U. S. 33) ; August 19, 1841, ch. 9, I 5 (5 Stat. U. S. 444). * 2 Geo. 11. c. 22 ; Garnet Gold Mining Co. v. Sutton, 3 B. & S. 324, per Blackburn, J. ; Christian's Bankrupt Law (2d ed.), 499, and cases cited. 6 L. E. 1 Ch. 528 ; ante, § 382. 450 CH. XXI. J DEFETOES. § 386 against the estate of the shareholder for the amount for which the latter was liable as a contributory, allowing the set-off provided for in the Bankruptcy Act ; in other words, that the rule of the Bankruptcy Act, and not that of the Companies Act, must prevail.^ § 386. Keasons whicli support these Rules. — The rea- sons which support the rules stated in the four preceding sections are very plain. 1. There can be no set-off unless the debts are mutual and in the same right.^ Now, the stat- utory individual liability of a stockholder is not a debt due by him to the company ; it is not an asset of the com- pany, and cannot, without the aid of a statute so authoriz- ing, be sued for by a receiver of the company.^ On the contrar}', it is a liability, in the nature of a guaranty or a superadded security, flowing directly from the stockholder to the creditors. Hence there is no mutuality between such a liability and a debt due by the corporation to the stockholder. The same is true when the liability is for moneys due on account of stock held by him which has not been fully paid.* Such a debt, as we have seen,^ is 1 Re Duckworth, L. R. 2 Ch. 577. ^ Sawyer v. Hoag, 17 Wall. 622. See Story's Eq. Jur. (Uth ed.) 1436a- 1437A. 3 Ante, I 342. * Black & Co.'s Case, L. E. 8 Ch. 261. "What," said Lord Chelmsford, in this case, "is the ordinary law of set-off? It is what, in the civil law, was called compensation, and simply means this: that when you have got two cross-demands, of a nature substantially the same, and due to and from A. and B. in the same right, — that is to say, when the one is a creditor in his own right, and debtor also in his own right, to the other, — the one debt may be set off against the other, at the option of the party from whom payment is demanded. But it is essential, in such cases, that the rights should be substantially the same. If they were apparently the same at law, but different in equity, set-off would not be allowed here ; nor do I suppose that, in the present state of the law, it would be allowed at common law either. But here the rights are substantially different. The moment that the winding-up takes place, the whole adminis- tration is carried on with a view to the payment of the debts of the creditors, and in the first instance to payment joarijoassM." ^ Ante, I 10. 451 § 386 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. deemed in equity a part of the capital stock of the com- pany, and is a trust fund to be devoted to the payment of all its creditors ; and hence, whilst the company, as long as it continues a going concern, may call it in, and the stock- holder, without doubt, set-off against it any demand he may have against the company, yet when the company becomes insolvent, and there is not enough to satisfy all its creditors, this trust fund manifestly cannot be appropriated by a ci'editor who is a stockholder, to the exclusive pay- ment of his own claim. ^ Substantially the same reasons are held in the English courts of equity. The winding-up acts of that country, like the bankruptcy acts, are framed on the idea of doing justice to creditors by allowing them to share pari passu. By allowing the right of set-off to a shareholder who is a creditor, he thereby obtains a prefer- ence over other ci'editors.^ 2. It is but another way of stating this principle to say that a creditor who is himself a stockholder has not a claim against one or more, or all, of his co-stockholders for the full amount of his debt, but has only a claim against them for contribution; and hence, as already seen, he cannot, in general, sue one or more of them at law, but must go into equity ;' or, if proceeded against in equity, he is entitled to an equitable allowance on account of payments made for, or advances made to, the company, on the principle of contribution.* 3. The dis- allowance of the right of set-off does the shareholder no injustice, because, if the company is insolvent, he will share pari passu with other creditors ; whereas, if there is enough to pay all the debts in full, of course his debt will be paid among the rest, and the right of set-off will ' Hillier v. Allegheny County Mutual Ins. Co., 3 Pa. St, 470; Lawrence v. Nelson, 21 N. Y. 158; Sawyer d. Hoas;, 17 Wall. 622. 2 Grissell's Case, L. E. 1 Ch. 528; Black & Co.'s Case, L. R. 8 Ch. 254. ' Ante, I 262 e.t seq.; Thayer v. Union Tool Co., 4 Gray, 75; Woodruff & Beach Iron-Works v. Chittenden, 4 Bosw. 406 ; Beers r. Waterbury, 8 Bosw. 396. * Briggs V. Penniman, 8 Cow. 387, 397 (decree) ; Slee c. Bloom, 19 Johns. 456, 485 (decreej. 452 CH. XXI.] DEFENCES. § 388 not be wanted to do justice between him and the other shareholders.^ §387. Illustrations — Set-off under the Bankrupt Law. — The Bankrupt Act of 1867, section 20, contained the following words : "In all cases of mutual debts oi' mutual credits between the parties, the account between them shall be stated, and one debt set ofl' against the other, and the balance only shall be allowed or paid ; but no set-off shall be allowed of a claim in its nature not provable against the estate. Provided, that no set-off shall be allowed, in favor of any debtor to the bankrupt, of a claim purchased by or transferred to him after the filing of the petition."^ A stockholder in an insolvent insurance company, indebted to the company on account of his stock, purchased of a policy- holder of the company, at thirty-three cents on the dollar, a certificate of an adjusted loss of the company, and claimed to have it set off by the assignee in bankruptcy of the com- pany against his liability on account of his stock. This claim having been disallowed by the assignee, the stock- holder filed a bill in equity to enforce the set-off. It was held that this bill could not be sustained. The provisions of the Bankrupt Act in question did not enlarge the doctrine of set-off, or enable a party to make a set-off in cases where the principles of legal or equitable set-off did not previously authorize it.^ § 388. Continued — Loss by Policy-holder cannot be set off against his Liability. — If, as decided in the pre- ceding case, a stockholder in an insolvent insurance coni- pany cannot buy up a loss and set it off against his liability as a contributory, by parity of reasoning, if he himself is a policy-holder, and has suffered a loss, he cannot set off his » Black & Co.'s Case, L. E. 8 Ch. 254, 261. ' Rev. Stat. U. S., § 5073. 3 Sawyer v. Hoag, 17 Wall. 610, 622. 453 § 388 REIIEDIES, PEOCEDUEE, AXD^ DEFENCES. [PART IV. loss against Ms own liability. Thus, in an action by a mutual insurance company against one of its members, on his premium note, the defendant pleaded as a set-off a loss which he had sustained on a stock of goods embraced in his policy of the plaintiff company. It appeared that a great and disastrous fire had occurred, in consequence of which it was admitted that the funds of the company would be insufficient to pay all its losses. It was held that the set-off could not be allowed. "Such a defalcation," said Gibson, C. J., " might work no injustice in ordinary circumstances, especially if all the members of the association were solvent, for there would be enough in hand to pay the current losses. But in a time of overwhelming disaster, such as occurred when the fire in question laid a third of this city in ashes, it would work most unjustly, by enabling a member who stood in the double relation of debtor and creditor to get more than his share of the insolvent fund. Where the company is bankrupt, each member is entitled to payment, not of his whole loss, but of a part of it, in the iDroportion which the amount of all the losses bears to the amount of the joint effects. If the fund is suflicient to pay ten per cent all around, he is entitled to recover ten per cent ; but by defal- cating his entire loss, he might, in effect, perhaps receive twenty. Nor could he set off his loss pro tanto. It is to be remembered that each sufferer is an insurer as well as a party insured, and that he is bound to make compensation as well as to receive it. But it is not perceived how the pro tanto amount of his loss could be ascertained before all the available securities of the company had been called in, and the demands upon it liquidated. The plain and prac- ticable plan of settling the affairs of an insolvent company of mutual insurers is to liquidate its means and its responsi- bilities separately. In this respect, also, the defalcation would fail." ^ The same principle was applied and enforced in a late case in New York, where the reeCiVor of an insol- ' Hillier v. Allegheny County Ins. Co., 3 Pa. St. 470. 454 CH. XXI. J ^ DEFENCES. § 389 vent mutual marine insurance company brought suit against a member of the company on several premium notes, against which the defendant endeavored to set off an adjusted loss due to him, from the company, on one of his ships. ^ § 389. Continued — Construction of Statute of Maine — Creditor discharged by paying Debts of Corporation. — A statute of Maine enacted that whenever any stockholder, made liable, by a previous statute, to pay debts of the cor- poration,^ had paid and satisfied any just and legal debt or debts of such corporation, and should produce a certificate, under the hand of the treasurer of such corporation, that he had paid such debt or debts, and that the same had not been refunded to him, such stockholder should thereby be exempted from further liability, etc., whether such debts should or should not have been demanded by an officer holding an execution against said corporation for such debts.' This statute was held to be ^ro6;pec<^Ve only. Thus, a stockholder, before its passage, had paid certain debts of the company, amounting to $100, and had taken the treasurer's certificate of that fact. After the passage of the act, he obtained from the treasurer of the company a new certifi- cate, to the effect that he had made payment of the corporate debts to the amount of $100. When proceeded against by a judgment creditor of the corporation, he pleaded this payment in defence. It was held that this could not be done. The payment, having been made before the passage of the act of 1851, and not to a creditor of the corporation proceeding against the defendant under the then existing law, would not avail him ; and the certificate of payment given him by the treasurer since the passage of the act was subject to explanation by parol evidence on the part of the plaintiff, showing at what time and in what manner the payment was actually made.* ' Lawrence v. Nelson, 21 N. Y. 158. ' Ruv. Stat. Me. 1810, ch. 76, H 18-20. s Act Me. 1851, ch. 110. * Grose v. Hilt, 36 Me. 22. In Powler v. Robinson, 31 Me. 189, the circum- 455 § 391 EEMEDIES, PEOCEDUKE, AND DEFENCES. [PART IV. § 390. Illustrations, continued — Satisfaction of Judg- ment by Corporation against Stockholder vacated. — The stockholders m banking companies in Indiana were, under the Constitution and statutes of that state, "individually responsible, to an amount, over and above their stock, equal to their respective shares of stock, for all debts or liabili- ties " of such banking companies.^ Gentry, a stockholder in a bank, recovered a judgment against it, and agreed with the bank that the amount for which he was thus individ- ually liable to creditors should be applied to the satisfaction of his judgment ; said, on motion of the bank, satisfaction was entered accordingly. Afterwards he appealed from this order, and the Supreme Court ordered it to be set aside. "This provision," said the court, "was intended, un- doubtedly, for the benefit of the creditors of the bank ; and we think it clear that Gentry would be liable to such cred- itors to the amount of his stock, notwithstanding he might have credited this amount upon the judgment which he held against the bank. Hence there was no consideration what- ever for his agreement to credit the amount on his judg- ment, and satisfaction should not have been entered." ^ § 391. Continued — Whether voluntary Payment of corporate Debts a Defence . — Unless there is a statute providing otherwise,^ there is some authority for stating stances were that a corporation, being indebted to the amount of seventy-five per cent of its capital stoclc, passed a vote that each stoclcholder should pay to the treasurer that proportion, in order to create a fund for discharging the debts. The plaintiff and the defendant were both stockholders. Though many of the stockholders failed to make such payment, yet both plaintiff and defendant made the stipulated payments to the treasurer, the defendant even payiiii^- twenty-five per cent more than by the resolution he was required to do. ijut as the resolution in question contained no stipulation that a stock- holder, on making the stipulated payment, should be released from the claims of creditors, the court held that the plaintiff, being a creditor of the corpora- tion, tliough he concurred in the vote, was not barred thereby from recovering against the defendant. 1 Const. Ind., art. 11,2 6; Rev. Stat. Ind. 1852, p. 158, J 2-3 ; Acts Ind. 1855, p. 39, 5 25. " trentry c. Alexander, 16 Ind. 471. ' As in Maine, post, J 425. -156 CH. XXI.] DEFENCES. § 392 that a voluntary payment of corporate debts cannot be suc- cessfully pleaded by a stockholder when afterwards sought to be charged with liability by a creditor of the corpora- tion.^ § 392. Continued — "Whether Stockholder may com povind with Creditors. — The law, however, does not favor litigation, but encourages compromises and voluntary settle- ments of controversies, when fairly made. When, by the insolvency of a corporation, the liability of a shareholder therein to pay a given amount to its creditors becomes fixed, creditors may stand greatly iu need of payment ; their respective debts, as in the case of savings-bank de- posits or laborers' wages, may be so small as not to justify the expense and trouble of litigation. Under such circum- stances there seems to be neither justice nor sense in requir- ing a shareholder, in order to discharge himself safely of 1 Andrews v. Callender, 13 Pick. 484; Grose v. Hilt, 86 Me. 22. Compare "Winsor i;. Savage, 9 Meto. 346; Eastman v. Crosby, 8 Allen, 206. Such a payment is good by statute in California. Larrabee v. Baldwin, 35 Cal. 155. A member of a manufacturing corporation in Massachusetts, who voluntarily paid a debt of the corporation for which the members were, by statutes of 1808, eh. 65, and 1817, ch. 183, personally liable, had no remedy, under those statutes, against the other members for a contribution. Andrews v. Callender, 13 Pick. 484. In New York, an association for carrying on a manufacture having failed while their buildings were in progress, one of the partners and cestuis que trust made advances, without the consent of the others, to preserve the buildings, which were afterwards sold for the common benefit. It was held by Chancellor Sanford that, in taking the accounts of the concern, he could not be credited for these advances. Skinner v. White, 1 Hopk. Ch. 107. But in a case in Massachusetts, where certain parties subscribed to an agreement to purchase and run a ferry-boat, to be owned by them in proportion to the amount set against their names, the toll to be applied to pay expenses, and any balance to be divided among them pro rata, each subscriber to have the right to sell his stock, the purchaser to have all the rights of an original subscriber, and the association to continue as long as the majority of the subscribers should determine, — the court held such subscribers to be partners, and that one of them might maintain a bill in equity against t'le others, within the jurisdic- tion of the court, to compel them to contribute to sums paid by him, although not at their request, for the use of the association, and that the amount of the liability of the defendants should be determined by an apportionment among them of the amount paid, without regard to subscribers out of the jurisdiction. Whitman v. Porter, 107 Mass. 522. 457 § 392 REMEDIES, PEOCEDUEE, AND DEFENCES. [PAET IV. his liability, to defer payment until creditors have actually proceeded against him. In those states where the rights of all creditors and all shareholders are required to be adjusted in a single suit in equity, it is supposed that a payment made by a shareholder to a particular creditor would, like an unlawful preference in bankruptcy, be treated as a pay- ment in his own wrong. But where a single creditor is at liberty to proceed against a single shareholder, acquiring a preference over other creditors as the reward of his dili- gence, no reason is perceived for prohibiting the creditor from settlina: with him until he has commenced suit. The Supreme Court of Georgia has so held, and has carried the rule very far. In the view of that court, a stockholder in a savings-bank, individually liable to a limited extent to de- positors, might, when proceeded against by a depositor, not only defend by showing that he had discharged him- self from the liability cast upon him, but it was deemed wholly immaterial to the plaintiff how that liability was discharged. Said McCoy, J. : "If he has taken up, can- celled, or destroyed an amount of deposits due, equal to his proportional share of the whole amount, he has per- formed his undertaking, — complied with the obligation the charter imposes. What is it to the plaintiff whether he has paid the full amount, or less than that, to each depositor? That is with him and them. The case of Belcher v. Wil- cox^ was a bill for the distribution of assets, too, of an insolvent corporation, which had been assigned in truxt; and we held that they were to be distributed among the holders of the bills, on principles of equity. But this is a suit upon a statutory liability. The jjarties stand upon their legal rights, and it is none of the plaintiff's business to enquire how the stockholder has settled with other depositors. All he can demand is that he shall have discharged his propor- tionate share."* But, for reasons elsewhere stated,^ after ' 40 Ga. ! 391. ^ .J(I)1CS u. . Wiltberger , 42 Ga. 578. » A.f.; 5 ;^'Jl ; post, I 420 et scg. 458 CII. XXI. J DEFENCES. § 393 suit brought by one creditor, he cannot discharge himself by making payment to another.^ § 393. Continued — Release, by a Creditor, of a par- ticular Shareholder. — It is familiar law that a release under seal, by a creditor, or obligee, of one joint or joint and several debtor or obli2;or -will discharo;e the whole. ^ A release extinguishes the obligation.^ This r,ule, however, has no application to a release, by a creditor, of guarantors or sureties. A release of them does not discharge the principal ; but, on the other hand, a release of the principal debtor, of course, releases a surety or guarantor.* What application has this doctrine to the case of a creditor of a corporation releasing the company or one of its members ? Under any view of the relation of stockholders to the cred- itors of the corporation, it is obvious that a release of the company would extinguish the debt and release all its members. ° But it has also been held that a release of a particular stockholder of a corporation, under a statute making each stockholder jointly and severally liable with the others for Ids proportion of the corporate debts,'' ope- rates as a release of this indebtedness as to all.' Such being the liability of a stockholder, a creditor of the com- pany executed to him, under seal, the following release : "I hereby release and discharge the said Francis Lynch from his proportion of said company's indebtedness to me, and this shall be said Lynch's receipt in full, to date, for his proportion and share of all indebtedness to me by said 1 Ante, I 391 ; post, I 420 et seq. 2 Cheetham v. Ward, 1 Bos. & Pul. 633; Kowley v. Stoddard, 7 Johns. 210; American Bank v. Doolittle, 14 Pick. 126 ; Tuckerman v. Newhall, 17 Mass. 583 ; Armstrong v. Hay ward, 6 Cal. 185 ; Prince v. Lynch, 88 Cal. 528. ' McCrea v. Purmort, 16 Wend. 474. * Crockett, J., in Prince u. Lynch, 38 Cal. 537 ; Trotter v. Strong, 63 111. 272 ; Brown o. Ayer, 24 Ga. 288 ; Lewis v. Jones, 4 Barn. & Cress. 506. » Crockett, J., in Prince v. Lynch, 38 Cal. 538. " Larrahoe v. Baldwin, 35 Cal. 155. ' Prince v. Lynch, 38 Cal. 538, Crockett, J., dissenting. 459 § 394 REIMEDIES, PROCEDDRE, AXD DEFENCES. [PART IV. company, and a bar to any and all suits against said Lynch for the same." The effect of this releiise ^Yas to extinguish of the total indebtedness of tlie corporation the amount thus released, leaving the particular stockholder, when sued by another creditor, liable to the extent of his proportion of the remaining indebtedness of the corporation, upon the principles stated in Larrabee v. Baldwin.^ If we rightly understand this case,^ it means this : If the total indebted- ness of the company is $10,000, and $1,000 of this indebt- edness is due to A., and B., a shareholder, is personally liable for $1,000 or more of the corporate obligation, and A. releases B. in respect of the debt of the corporation to him, this cannot be pleaded by B., when sued by otlier creditors, as a complete release of his individual liability to the extent of $1,000, but releases B., the other stock- holders, and the corporation, equall}', in respect of one- tenth of the corporate obligations. If, after the retiring of a stockholder from the corporation by the sale of his stock, and due public notice thereof as required by the chai'ter, the creditor gives up old notes, upon which the stockholder was liable, and takes new ones, especially if done for the purpose of absolving Idm from liability, and imposing it upon his successoi- in the stock, this operates as a com- plete release to him of the debt, both at law and in equit}-.^ § 394. "Wliether Stockholder may prove up Claims bouglit at a Discount. — But whilst a shareholder cannot, after the insolvency of the corporation, buy up claims against it and set them off against his liability for unpaid stock,* there seems no very clear reason, unless he is a director, or otherwise in a fiduciary relation with the company, for pro- hibiting him from buying up claims against the company 1 35 Cal. 155. » Prince v. Lynch, 38 Cal. 538. ' New England Commercial Bank v. Stockholders, 6 K. I. 154. * Ante, II 387, 388. 460 CH. XXI. J DEFENCES. § 394 at a discount, and proving them up, as a creditor, at their par vahie. This question was distinctly put to that eminent equity judge, the late Lord Romilly, M. E., and he decided, -without the expression of any doubt, that the shareliolder was entitled to do so ; ' and the same principle has been, in effect, ruled by Mr. Circuit Judge Dillon, reversing Treat, District Judge. Here a director, who had never actively participated in the affairs of the company, bought up at a discount claims against it, sued the company upon them, obtained a judg- ment bj' default, and proved for the full amount of his claim in bankruptcy. It was held that this could be done. The judgment, not being impeached for fraud, was held con- clusive of his rights as a creditor.^ If a shareholder may do this, upon clearer reasons a stranger may. Thus, where a bill-holder of an insolvent bank sought to coerce payment from the stockholders, it was no defence that he had bought the bills of a broker, under an agreement to keep them out of circulation for a time, he not having had notice, at the time, that they were improperly issued.^ Grave doubts, however, surround this subject. We have seen that stock- holders are, in general, treated as privies of the corporation,* and a tendency is discovered to treat them as occupying toward the corporation a relation in some sense fiduciary. The doctrine that the moneys due by them on their stock is a trust fund for creditors is not without an analogous relation to this tendency. This tendency is clearly exhibited in the language of the court in Sawyer u. Hoag,° where Mr. Justice Miller expressed the view that the relation of the appellant to the corporation as a stockholder was not without weight in determining the question before the court. " It is very true, ' ' said he, ' ' that by the power of the Legislature there is created in all acts of incorporation a legal entity, which can contract 1 ij; Huraber Iron- Works Co., L. K. 8 Eq. 122. ' Walker o. Stillwell (MS.). 3 Grew ». Breed, 10 Mete. 569. « A7ite, U 328. •;29. » 17 Wall. 623. 461 • § 395 REMEDIES, PROCEDURE, AND DEFENCES. [PAET IV. with its shareholders in the ordinary transactions of business as with other persons . It can buy of them , sell to them , make loans to them, and, in insurance companies, make con- tracts of insurance with them, in all of which both parties are bound by the ordinary laws of contract. The stock- holder is also relieved from personal liability for the debts of the company. But, after all, this artificial body is but the representative of its stockholders, and exists mainly for their benefit, and is governed and controlled by them through the ofiicers whom they elect ; and the interest and power of legal control of each shareholder is in exact pro- portion to the amount of his stock. It is, therefore, but just that when the interest of the public, or of strangers dealing with this corporation, is to be afl'ected by any trans- action between the stockholders who own the corporation and the corporation itself, such transaction should be sub- ject to a rigid scrutiny, and if found to be infected with any thing unfair toward such third person, calculated to injure him, or designed intentionally and inequitably to screen the stockholder from loss at the expense of the gen- eral creditor, it should be disregarded or annulled, so far as it may inequitably afiiect him." ^ § 395. Company may set off Calls against its own Debt. — But a company may, after windmg up, set off a debt due to it by a shareholder, for calls, against a debt due by it to the shareholder ; and, applying the familiar rule that an evidence of debt not negotiable can only be assigned subject to existing equities, it has been held that a share- holder cannot, after the commencement of a winding-up proceeding, assign a debt due to him by the company so as to displace the company's right of set-off. Thus, a company commenced to be wound up in December, 1866. On March 1, 1867, a shareholder assigned five debentures of the com- pany, and notice of the assignment was given to the official ' Ci tins Lawrence "• Nelson, 21 N. Y. 158. CH. XXI. j DEFENCES. § 399 liquidator on the same day. In June, 1867, and February, 1868, calls were made on the assignor for amounts exceed- ing: what was due on the debentures. The calls not havinc: been paid, it was held that the assignee was not entitled to prove against the company on the debentures.^ But it has been held that the mere intervention of a winding-up proceeding will not cut off the right of set-off of a debtor of the company who is not a shareholder. Thus, A., being liable to a bank upon his acceptance, to fall due in July, 1866, took, in the ordinary course of business, an acceptance of the bank. This acceptance fell due and was dishonored on June 10th ; on June 23d an order was made for winding up the bank. A.'s acceptance having matured in the hands of the oiEcial liquidator, it was held by Sir W. Page Wood, V.-C, that A.'s right of set-off was not interfered with by the ordinary winding-up order.^ II. Other Defences. § 398. Prior Judgment. — It follows that if a judgment has already been rendered against a stockholder, in a suit brought by or on behalf of a creditor or creditors, to the extent of his liability, he may plead such judgment as a defence to a subsequent action brought to charge him in respect of the same liability.^ § 399. Prior Suit pending. — Whether the plea of a prior action pending can avail a shareholder, when sued in respect of his individual liability, is pretty clearly settled in the negative ;* and for the reason that although, as has been declared in Maine, ^ a pending suit operates as a lien or charse, to the extent of the amount therein claimed, upon the amount for which the defendant stockholder is liable, 1 Ex parte Mackenzie, L. R. 7 Eq. 240. 2 Anderson's Case, L. R. 3 Eq. 337. ' Woodruff & Beach Iron-Works v. Chittenden, 4 Bosw. 406. * Post, I 424. 6 Ibid. 463 § 400 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. yet this lien or charge does not become fixed unless the suit is prosecuted to judgment, — an event which may never happen. Much, therefore, as the law discourages a multi- plicity of suits, it is difficult to see how the pendency of one action can be successfully pleaded in bar of another. A court, however, might, and in some cases probably would, stay proceedings in the later suit in order to await the result of the earlier, unless it should appear that the earlier was collusive, or was not being diligently prosecuted. § 400. Bankruptcy of Corporation — Receipt of Divi- dend. — By section 21 of the late Bankrupt Act,^ if a cor- poration or joint-stock company became bankrupt, no dis- charge could be granted to any such corporation or com- pany, or to any officer or member thereof. In view of tliis provision, it has been held that the bankruptcy of a corpo- ration did not dissolve it, nor did the ^jroof, by a creditor, of his claim in the court of bankruptcy prevent him from recovering a judgment against a stockholder^ for so much of his claim as remained unpaid, or against the corporation, for the purpose of charging its officers and stockliolders therewith.' The same rule obtains under the Massachusetts Statute of Insolvencj'.* The principle underlying these decisions is that neitlier a court of law nor of equity has, by virtue of its genei'al powers, jurisdiction to dissolve a cor- poration at the suit of a private person. The exercise of such a jurisdiction can only be justified by the existence of an express statute.^ There was no provision in the late Bankrupt Act to the effect that an administration of the 1 Stat. U. S. 1867, ch. 176 (Rev. Stat., J 5122). ■■^ Sliellington v. Howlaiid, 53 N. Y. 371; Birmingham Bank v. Keck, 55 How. Pr. l-l-i. ' Chamberlin v. Huguenot Co., 118 Mass. 532; Folger v. Columbian Ins. Co., 99 Muss. 267. * Stat. Mass. 1851, ch. 327; Coburn v. Boston Papier Mach(5 Co., 10 Gray, 243; Johnson o. Somervillo Dyeing- Co., lo Gray, 216. Compare Morse v. Eeed, 13 Mete. 62; Barker v. Hasljell, 9 C'ush. 218. ' Folger II. Columbian Ins. Co., 99 Mass. i;G7, 276. 464 CH. XXI. J DEFENCES. § 401 assets of a corporation in bankruptcy should have the effect to dissolve the corporation ; and therefore it would not be deemed to have such an effect where to give it such an operation would prejudice, the rights of creditors, although the contrary view would obtain where it was necessary to save their rights.^ § 401. Defence of unappropriated or misappropriated Assets. — If the corporation has otlier assets capable of being called in, sufficient to satisfy all its creditors, it is a fair inference from what has already been stated ' that its share- holders ought not to be charged with its debts, whether in respect of unpaid stock or of a superadded statutory liability. In other words, the liability of the shareholder being sec- ondary, he cannot be proceeded against while the creditor has an adequate remedy against the corporation. But where a stockholder, proceeded against at law, sets up such a defence, he must, in his plea, point out specifically the property of the corporation which remains available for the satisfaction of creditors. A plea that the plaintiff was not entitled to his action at the time it was brought, because the bank was not at the time insolvent, but had property and assets which had not been exhausted, has been held bad for uncertainty.^ The Supreme Court of Iowa, in a late case, has taken the view that where a receiver of an insolvent banking company brings action at law against one of its stockholders to recover in respect of the amount for which the latter is liable on account of payments not made on his stock, and also under a statute making him further liable to the extent of the par value of his stock, the latter cannot defend by showing that there is a large amount of uncol- lected claims in the hands of the plaintiff, the proper assets of the corporation, against solvent persons, adequate to pay 1 State Savings Assn. v. Kellogg, 52 Mo. 583 ; ante, g 318. 2 Ante, I 312. ' Lane v. Morris, 8 Ga. 468, 473. 465 § 403 EEMEDIES, PEOCEDURE, AND DEFENCES. [PART IV. all its indebtedness without calling upon its stockholders, which the plaintiff refuses and neglects to collect (after request) and to apply to the payment of such debts.'' § 402. Defence of Misconduct of Receiver and Ofllcers of Corporation. — The same court held that it would be no defence to such an action to show that almost the entire amount of the outstanding indebtedness of the corporation, a savings-bank, had been bought up by the officers of the bank at 50 cents on the dollar, they knowing that such indebtedness was illegal, because in excess of the amount which the bank was allowed to incur by its charter, — " said officers having full knowledge of the excessive indebtedness when such excessive indebtedness was so incurred and the business of said alleged corporation so mismanaged." ^ Nor would it be any defence to show that the receiver, during the time he had been acting as such, had been speculating in the indebtedness of the bank ; had purchased a large amount thereof at 50 cents on the dollar ; had appropriated the assets of the bank to take up the same at the face value thereof, pretending that the same was an indebtedness of the bank ; that he was endeavoring fraudulently to collect from the stockholders the unpaid amount of their subscrip- tions, to pay off such illegal indebtedness so held by him and the officers of the bank, all of which had been pur- chased by them at 50 cents on the dollar, with full knowl- edge that the same was illegal.^ "O" § 403. Prior Liability of OflSlcers — Massachusetts Stat- ute. — A statute of Massachusetts provided as follows : " Upon any execution issued on any judgment recovered against any corporation, the stockholders whereof are lia- ble for its debts or any part thereof, in which a demand has 1 Stewart v. Lay, 45 Iowa, 604. 2 Ibid. " Ibid. 466 CH. XXI.] DEFENCES. § 404 been made pursuant to law, and the said execution is not satisfied, tlie person or property of any officer of the said corporation at the time wlien tlie cause of action accrued, or wlien the said judgment was rendered, may be taken; and if no property of such officer can be found to satisfy the said execution, then the person or property of any stocldiolder may be talien tlaereon." ^ This statute limited the recourse of the creditor against the general stockholders to the contingency that the officer could find neitlier prop- erty of the corporation nor of any of its officers, on which to levy. When a sheriff levied an execution against the corporation, or the property of a stockholder, while there were two officers Avho had been proceeded against, he was held liable in an action of tort.^ But a stockholder, sum- moned in an action by a creditor against the corporation, could not defend tlie action as to hiriiself by sliowing that there were officers of the corporation having sufficient prop- erty to pay the claim ; since the officers might, by convey- ing away their property, evade liability before execution issued, in which case the general stockholder would become liable to execution.^ § 404. Defence of Violation of corporate Duty. — A stockholder cannot, in general, allege illegality in the acts of the corporation of which he is a member, as a bar to a recovery when sued by a creditor, — as, that the excess of lands purchased by the corporation, a canal company, had been improperly divided among the stockholders.* So, although a banking company was required by its charter to have twenty-five per cent of its capital stock paid in before it should proceed to banking, yet the non-compliance with its charter in this particular did not constitute a valid 1 Stat. Mass. 1851, ch. 315, ? 3; Gen. Stat. 1860, eh. 60, § 34. ' Denny v. Kichardson, 4 Gray, 274. 8 Brayton v. N. E. Coal Mining Co., 11 Gray, 493. * Spear v. Crawford, 14 Wend. 20. 467 § 405 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. defence, either for the corporation or for its stockholders, when sued on its bills. ^ § 405. Defence of Ultra Vires. — To consider how far a shareholder, when proceeded against by a creditor of the corporation, can defend by showing a want of power on the part of the corporation or its agents to contract the partic- ular debt, would involve questions outside of the scope of this essay. If the defence is simply tliat the contracting of the debt was iiUra vires the agent of the company, tlien the case does not present so much difficulty; for, unless the stockholders in general meeting have promptly disaffirmed, and unless the benefits received under the ultra vires con- tract have been tendered back, then, upon well-settled prin- ciples obtaining in the law of agency, a ratification will be presumed. But if the contract was ultra vires the corpora- tion itself, — if the act done was one which the whole body of stockholders, votino' unanimously in sicneral meetinjr, M'^crc uicorapetent to do, because beyond their granted powers or prohibited to them by positive law, — then the grounds on which a court will deny its aid in enforcing it are plain. But the tendency manifestly is to hold corporations and their members estopped from urging defences of this kind."'' Such defences, when successful, frequently lead to results which shock the common sense of justice of mankind. To allow members of corjDorations, either in their aggregate or several capacities, to retain the benefits flowing from an unlawful contract, and to repudiate the burdens springing from it by pleading their own unlawful conduct or that of their agents, surrounds them with immunities not in general conferred upon the other members of society. It is true 1 Johnston v. South-western R. Bank, 3 Strohh. Eq. 263. ' Moss V. Averell, 10 N. Y. 449; Frost v. Sanitoga Mutual Ins. Co., 5 Denio, 154 ; Royal British Bank v. Tui'quand, 6 El. & Bl. 827 ; Ee Athenseum Life Ins. Co., 4 Kay & J. 649. Upon the doctrine of ultra vires in general, see a brief and interesting article by Uustuvus H. Wald, Esq., of Cincinnati, in 6 Cent. L. J. 2. 468 CH. XXI.] DEFENCES. § 406 that persons dealing with corporations ought to take notice of their powers. But the position of the agent of the cor- poration and that of the outside business man are unequal in this regard. The former, in the discharge of his duties, has had occasion . to study carefully the powers of the cor- poration which he represents, and his own powers as its representative ; the latter, dealing hurriedly with many cor- porations, cannot afford the time for such investigations. In entering into an 2iUra vires contract, then, the agent of the corporation breaks the law which should govern him , know- ingly, or under circumstances which should charge him with knowledge ; but the business man with whom he deals, while technically bound to know the law, as all men are, may be guilty of a negligence slight and venial. To say that the company represented by the former shall reap the benefits of the wrong done, and that the latter shall suffer the loss, is to announce the grossest injustice. An oppor- tunity for setting up this defence is not, in general, afforded in actions to charge stockholders, because, as we have already seen,* all questions relating to the merits are, in general, concluded by the precedent judgment against the corporation.* § 406. Continued. — In New York, howevel-, where the suit to charge the stockholder is upon the original contract with the corporation, this defence has sometimes been set up. Thus, an officer of a private corporation, who had executed in its behalf a note for a piece of property sold to it by a stranger, was held, in a suit brought to charge him as a stockholder with the payment of such note, estopped from alleging a want of power in the corporation to make the purchase.' Another case arose in the same state, in 1859, in the United States Circuit Court, before > Ante, I 329. 2 Ante, Ch. XVIH. ' Moss V. Avoiell, 10 N. T. 449. 469 § 406 REMEDIES, PROCEDUKE, AND DEFENCES. [PART IV. Nelson and Hall, JJ., in whicli a stockholder successfully defended an action at law brought by a person who, under a contract of indemnity, had paid a debt of the corporation, on the ground that the contract of indemnity grew out of a transaction in fraud of a statute forbidding the corporation to moi'tgaa'e its real estate.^ In a case in the United States Circuit Court in Massachusetts, in 1847, a stockholder of a Massachusetts corporation was sued at law, and judgment obtained against the corporation in New York. The court, upon a bill to enjoin the action at law, looked into the merits of the suit which resulted in the judgment in New York, and awarded a temporary injunction. The decision was placed on two grounds. The first was that the judg- ment in New York was based on an vUra vires contract ; the second was that under the law of New York a stock- holder sued upon such a judgment would not be precluded from making a defence to the merits, and the judgment could not have in Massachusetts any greater effect than in New York.^ In a somewhat exceptional case, in South Carolina, the members of an incorporated company were liable, by their charters, as general partners. L., the act- ing member, who did all the business of the company, drew a bill of exchange in his own name, styhng himself agent of th(5 company. In an action against the members in the corporate name, charging them as drawers, the plain- tiff was nonsuited. The Court of Appeals held that it should have been submitted to the jury to determine whether L. drew the bill as the authorized agent of the company, or in his character as partner." In a similar case, certain debent- ureSj signed by the directors and sealed with the seal of a company, had been issued in contravention of the deed of settlement of the company. These debentures suhsoquently came into the possession of a bond fide holder for value, 1 Cox V. Gould, 4 Blntcbf. 341. s Sumnoi- «. M:ircy, S 'Woodli. & M. 105. ' Planters' Bank v. ISivingsvillo Co., 10 Rich. L. 95. 470 CH. XXI.] DEFENCES. § 407 without notice. Interest was paid upon them, by the board of directors, to this person ; but, upon a subsequent applica- tion for interest, the company declined to pay it, on the ground of fraud in their issue. The holder of them brought an action thereon, in the name of the person to whom they were issued, against the company for the interest. The official manager of the company, against which a winding-up order had been obtained, filed a bill for a declaration that the debentures so issued were invalid against the company, and that they might be delivered up to be cancelled, and for an injunction to restrain the action. The injunction prayed for was granted, on the ground that the holder of the debent- ures was bound to make enquiry, to a reasonable extent, as to whether the powers of the company had been duly exer- cised, which he had not done. The decree was made with- out prejudice to any proceedings which the holder might be disposed to take against those who signed the debentures, or against the pai-ties from whom he derived or purchased them.^ § 407. Defence of no Corporation — Estoppel to deny Validity of Corporate Organization. — If a person, when sued by a corporation, pleads nul tiel corporation, the produc- tion of the certificate of incorporation which has been filed, and proof oiusev, and possibly pi'oof of user alone, will be suf- ficient e\\(!ie\ice prima facie of the fact that it is a coriDorate body in fact as well as in name.^ The rule extends further : A person who has contracted with a body in writing, by a corporate name, when sued upon the instrument in the same name, is estoiDped to deny that the payee or obligee is 1 Athenseum Life Ins. Co. v. Pooley, 1 Giff. 102 ; affirmed on appeal, 5 Jur. (n. s.) 129. 2 Gray, J., in Eaton v. Aspinwall, 19 N. Y. 121 ; Snow v. Peacock, 2 Car. & P. 215 ; Dutchess Cotton Man. v. Davis, U .Toiins. 238, 245 ; United States Banlj V. Stearns, 15 Wend. 315; Utica Ins. Co. v. Tillman, 1 Wend. 556; Samp- son!). Bowdoinham Steam Mill Corp., 36 Mo. 78; Methodist Episcopal Church v. Pickett, 19 N. Y. 482 ; Searsburg Turnpike Co. v. Cutler, 6 Vt. 315, 323. 471 § 407 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. such a corporation.^ There is a saying that it is a poor rule which will not work both ways ; but this rule is not obnoxious to such a criticism. When the stockholders in a body which has acted and held itself out as a corporation are proceeded against by creditors, they are equally estopped by their own conduct from denying that they are a corpora- tion ; ^ for it would be palpably wrong to permit a defendant, who is one of the owners of the capital stock of a de facto corporation, which operates and sues for his benefit, to set up a failure of its organizers to perform a duty initiatory to its legal existence, when the plaintiff, if sued by the corpora- tion for the defendant's benefit, could not set up the same fact as a defence to the suit.' The rule has been even more broadly stated. It may be invoked against one who has subscribed for stock in a body which has attempted irregu- larly to create itself a corporation.* The same rule has been applied — and the same reasons manifestly obtain — where a note has been given to a corporation in payment of stock, has been assigned by the corporation to a third per- son, and the assignee has brought suit thereon. In such a > Rice V. Eock Island, etc., Co., 21 HI. 95; Goodrich v. Reynolds, 31 HI. 490; Dutchess Cotton Man. v. Davis, 1-t Johns. 238, 245; Hamtramck u. Bank of Edwardsville, 2 Mo. 169; Hiig-hes v. Bank of Somerset, 5 Litt. 45, 46; Tar River Nav. Co. v. Neal, 3 Hawks, 520, 536 ; Worcester Medical Inst. v. Harding, 11 Cush. 285, 239; Brookville Turnpil Goodrich v. Reynolds, 31 111. 490. » Scheaectady, etc., R. Co. v. Thatcher, 11 N. T. 102. s Mead o. Ke'eler, 24 Barb. 20. ' Merrick v. Keynolds Engine Co., 101 Mass. 381. ' Tarbell v. Page, 24 111. 46. « Dooley v. Cheshire Glass Co., 15 Gray, 494. See Boston Acid Co. v. Mor- ing, 15 Gray, 211; Newcomb v. Beed, 12 Allen, 362; Narragansett Bank v. Atlantic Silk Co., 3 Mete. 385. 473 § 409 REMEDIES, PKOCEDUEE, AND DEFENCES. [PAET IV. provided that where a certificate of incorporation should be filed, and ten per cent of the capital should be paid in, the persons named should become a body corporate, etc., a shareholder, when sued upon a corporate indebtedness, could not urge that ten per cent of the capital named had not been paid in. Such a company, though not a valid cor- poration in point of law, might carry on its enterprises, have its day in court, and divide its revenue among the holders of the shares of its capital, until the state should interpose and ask that it should be dissolved. The only real necessity for complying with the statute in relation to the payment of the ten per cent was to prevent proceedings in behalf of the people from putting an end to its corporate functions. The fact that such a company kept a public office, transacted business in its corporate name, kept the usual corporate books, upon which the defendant appeared as a shareholder before the contracting of the debt sued Tm, raised the inference that the credit was given on the faith, not only of the liabiltty^ of the corporation as such, but ultimately of the several shareholders of its capital, and the defendant was hence estopped from making such a defence.^ § 409. Continued. — Neither is it competent for a stock- holder to avoid payment of an execution levied upon his property, under the provisions of a statute of Rhode Island,^ by showing that the fee or tax required by another statute to be paid to the treasurer of the state, before its charter should take effect, had never been paid. Although, by reason of the non-paj^mont of this fee, the act of incorpora- tion never went into effect,' yet the shareholder was estopped to show this fact. Durfee, J., in giving the judg- 1 Eaton i;. Aspinwall, 19 N. Y. 119; o. p., Abbott i-. Aspinwall, 2G Barb. 202; McHose o. \Vheelei-, 45 Pa. St. 32. 2 Rev. Stat. K. I. cli. 128, JJ 11, 12. This statute requires the filinst with the town clerk of a certain annual certificate or statement, in default of which the members are jointly and sevorally liable for all debts of the oorporatioii. » Union Horse-Shoo Works i>. Lewis, 1 Abb. U. S. 618. 474 CH. XXI.] DEFENCES. § 409 ment of the court, said : ' ' The plaintiff, in order to have the relief which he seeks, ought to satisfy us, not only that his company is not a corporation, but also that he is entitled to show the fact against its creditors. We assume, as we think the bills warrant us in assuming, that the plaintiff is a stockholder in the American Steam and Gas-Pipe Com- pany, though he has done nothing as such, except laold iiis stock. The question, then, is whether a stockholder who does nothing but hold his stock is estopped, when pursued by a creditor of the supposed corporation, from denying its existence. We tlaink he is so estopped. By becoming and continuing a stockholder he holds himself out as a cor- porator, and so contributes to the belief that the company with which he is associated is a corporation. To permit a person who has so held himself out to say that he is not a corporator, when legally pursued as such, would be to per- mit him to take advantage of lais own wrong. He is like a person who, having held himself out, or suffered himself to be held out, as a copartner, may be charged with the copartnership debts. Or he is lilce a person who, without authority as executor or administrator, intermeddles with the property of a decedent, and so becomes chargeable as an executor in his own wrong. The plaintiff having assumed the character of a corporator, where he is sought to be charged as such, ought not to be heard to say that the char- acter was falsely or unlawfully assumed. The fact that he was not active in the business of the company cannot avail him ; for it is the assumption to hold the stock, as if he were a cor- porator, which makes the mischief. It might easily happen that the stockholder whose name contributed most to the credit of the supposed corporation was least active in its business, and it would be phiinly unjust to exempt him from liability to the creditors merely because of liis inactivity." * The same ruling has been made in Pennsylvania.^ 1 Slocuini). Providence Steam and Gas-Pipe Co., 10 R. I. 112, 114. ' Patterson v. Wyomissing Co., 40 Pa. St. 117. 475 § 412 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. § 410. Continued. — Upon like grounds, where an in- surance company attempted to increase its capital stock ; filed papers for that purpose in the office of the auditor of state ; received subscriptions for and sold its capital stock under such assumed increase ; received part pay- ment thereon, and incurred large liabilities upon policies of insurance bearing upon their face evidence of such increase; — this was held sufficient to constitute the com- pany a corporation de facto, so tliat neither it nor its stock- holders could object that it was not a corporation de jure, or that it had no power to issue such an increase of stock.^ § 411. Contrary Decisions. — This question, however, is not settled by a uniform line of decisions. The books present a number of opposing cases decided by courts of eminent character. Thus, it has been held in Maine that in an action to charge a shareholder with liability for the debts of a corporation the existence and organization of the com- pany must be proved. The judgment obtained apparently against the companj'^ may not be conclusive of such exist- ence and organization, in an action to which he is a stranger ; but the highest species of proof of these facts is said to be as necessary and proper in such an action as for other purposes where the existence and organization are questioned.' § 412. Tliese Decisions reviewed. — In another case,' in the Supreme Court of Rhode Island, the subject was again carefully reconsidered, and the opposing decisions • Upton ». Hansbvough, 3 Biss. 417. "To the public," said Hoplcins, J., in this case, "this company had all the external indicia of being a corporation, and legally entitled to exercise the rights and privileges it assumed to exercise. A party voluntarily taking stock in such a company is not in a position, when sued for the balance duo for such stock, for the benefit of the creditors of such company, to deny tho authority of the company to issua such stock, and to transact business lawfully." 2 Hudson V. Carman, 41 Me. 84, 88; Unity Ins. Co. v. Cram, 43 M. H. 636; Utloy V. Union Tool Co., 11 Gray, 1:59. ' Sloeum V. "Warron, 10 R. I. 116. 476 CH. XXI. J DEFENCES. § 412 were critically examined. I shall best exhibit these oppos- ing cases by quoting the language of the very learned and experienced judge who delivered the opinion in the case alluded to. Durfee, J., said: "The facts on which the question to be decided arises are these : In 1863 a public statute was passed which provided that no act of incorpora- tion granted after the passage thereof, with certain excep- tions, should take eifect until the persons therein incorpo- rated should have paid to the general treasurer the sum of one hundred dollars, if the capital limited by the act was the sum, or any less sum than one hundred thousand dol- lars. In 1867 the charter for the Providence Steam and Gas-Pipe Company was granted, the capital named being seventy-five thousand dollars. The grantees of the charter proceeded to organize under it, and to transact business as a corporation, without first paying the one hundred dollars as required. The plaintiff became a stockholder, and the defendant, Elizabeth Warren, made the loan as above stated, relying for repayment not only upon the credit of the com- pany, but also upon the personal liability of the stock- holders, and of the plaintiif, especially, as one of them. The company having failed to repay the loan, the said Eliz- abeth Warren seeks to charge the plaintiff personally as a corporator ; and the plaintiff replies that he cannot be so charged, because, by reason of the omission to pay the tax, the charter never went into effect, and consequently the supposed corporation never had any legal existence. We decided in the former case that having, by becoming a stockholder, helped to hold the company out as a corpora- tion, he could not be permitted to say, when pursued by a creditor of the company, that he and his associates or predecessors had omitted to do an act which they ought to have done before organizing as a corporation, and that in consequence of this delinquency the company was not (what it purported to be) a legally established corporation. Tho plaintiff maintains that this decision was erroneous, 477 § 412 EEJIEDIES, PROCEDURE, AND DEFENCES. [PART IV. and in support of his view relies especially upon the cases of Hudson V. Carman,^ Unity Insurance Company v. Cram,^ Utley V. Union Tool Company,' and Gardner v. Post.* We propose to consider these, and some of the other cases bear- ing upon the question, somewhat in detail. Hudson v. Car- man was an action to charge a stockholder, under the stat- ute of Maine, upon a debt due from the corporation, judg- ment thereon having been rendered against the corporation. The plaintiff offered the books of the corporation to prove its acceptance of the charter and its organization. The judge ruled that the existence and organization of the cor- poration should first be proved aliunde before the books could be introduced. To this ruling the plaintiff excepted, and his exception was sustained by the Supreme Court. It does not appear but that the corporation was duly created and organized, the question being simply by what evidence these facts should be proved. In deciding this, the court remarked — though the remark was not called for by the question before them — that in such an action it was neces- sary, if required, that the existence and organization of the corporation should be established, and that judgment against the company w.is not conclusive of such existence and organ- ization. The Unity Insurance Company v. Cram was an action upon a promissory note given by the defendant for insurance by the plaintiff company, which claimed to have formed as a corporation for mutual insurance under the New Hampshire statute. It apioeared that the compan}^ in its formation, had not observed the requirements of the statute, and the court held that it was not a corporation authorized to issue a policy of insurance, and gave judgment for the defendant. Utley v. Union Tool Company was a proceed- ing, under the Massachusetts statute of 1851, to charge cer- 1 41 Me. 84. 2 43 N. H. 636. s 11 Gniy, 139. • 43 Pn. St. 19. 478 CH. XXI. J DEFENCES. § 412 tain persons as stockholdei's of a manufacturing corpora- tion, judgment having gone against the alleged corporation by default. In the trial at nisi priuti, the court ruled that it was not necessary to prove the existence of the corpora- tion, that having been admitted by the default. An excep- tion taken to this ruling was sustained by the Supreme Judicial Court, which declared that, in such a proceeding, the burden of proof was on the plaintiff to show the legal existence of the corporation. Gardner v. Post was an ac- tion against the directors, officers, and agents of a bank, descriljed in the declaration as a corporation lawfully estab- lished, I'or unlawfully issuing notes of the denomination of $5, $10, $20, and $50, of which the plaintiff had received and held $30,000. The court held that a charter or letters- patent from the government were necessary to create the bank a body corporate, and that these not having been proved by the plaintiff, or in any manner attempted to he supplied, he failed in supporting his deplaration. The question of estoppel does not appear to have been raised in cither one of these cases ; and though we are not disposed to think that they are, on that account, of no weight as authority, we nevertheless do think that they are entitled to very much less consideration than they would have been if the question had been raised. The plaintiff also cites the cases of Harriman v. Southern,^ Jones v. Cincinnati Type Foundry Company,^ and Heaston v. Cincinnati Railroad Company.' The view expressed in these cases is that if a company organizes as a corporation where there is no law, or only an unconstitutional law, authorizing such organiza- tion, the doctrine of estoppel does not apply ; but that where there is a law under which the corporation might be rightfully organized, there the doctrine of estoppel is appli- cable, it seems to us that these cases tell rather against 1 16 Ind. 190. 2 Ibid. 85. ' Ibid. 275. 479 § 413 REMEDIES, PROCEDUEE, AND DEFENCES. [PART IV. than in favor of the plaintiff; for here there was a cliartor duly granted, and though it Avas not to go into effect until a certain tax was paid, there was nothing to prevent the grantees of the charter from paying the tax, and then organizing with perfect regularity, both in fact and in law.^ The plaintiff also cites cases in which it has been hold that a corporation, duly established as such, is not estopped from denying its liability where there is a want of jjowcr to con- tract the liability, the reason being, he says, that other- wise the powers of the corporation might be indefinitely enlarged ; and he argues that, in the case at bar, the doc- trine of estoppel is still less applicable, inasmuch as the company was acting not merely in excess of its corporate powers, but without any corporate power whatever. But in the case at bar the defect of power exists not by reason of any insufficiency of the grant, but by reason solely of a delinquency on the part of the grantees of the power ; and the estoppel, if applied, would be applied not to prevent an appeal to the charter, to show a want of authority, but to prevent the introduction of evidence by the company or its members, to prove their own delinquency. Wc do not think that in such a case there should be any hesitation to apply the doctrine of estoppel, from fear that it would lead to an indefinite enlargement of the powers of the corporation." ' § 413. Continued. — In the same case' the opinion of the court continues: " On the other hand, there are cases in which the doctrine of estoppel has been applied both in favor of and against corporations, which, for the light they throw on the question under review, are entitled to consid- eration. There are numerous cases in which it has been held that where a person has entered into a contract with a 1 Citing Brownlee v. Ohio, etc., E. Co., 18 Ind. 68. ' Siociim 1). Warren, 10 R. 1. 116, 118. Opinion byDnrfee, J., citing Bargate V. Sliortridge, 6 H. L. Caa. 297, 318 ; Zabrisliie v. Cleveland, etc., li. Co., 23 How. 381. 8 Slooura V. Warren, 10 R. I. 116, 121. 480 CH. XXI.] DEFENCES. § 413 company as a corporation, and has received the benefit of his contract, he is estopped to deny the legality of its organization.^ In Zabriskie v. Cleveland, etc., Railroad Company ^ the directors of a railroad company had entered into a guaranty which they could not legally enter into without the assent of two-thirds of the corporation, given at a called meeting, or until after the provisions of a cer- tain act had been accepted and the certificate of its accept- ance filed with the secretary of state. There was no proof of such certificate, but, the guaranty having been ratified by the corporation without dissent, the court refused, at the instance of a corporation, to enjoin its execution. The court said : ' The acceptance of these acts may be inferred from the conduct of the corporators themselves. The cor- poration have executed the powers and claimed the privi- lege conferred by them, and they cannot exonerate them- selves from the responsibility by asserting that they have not filed the evidence required by the statute to evince their decision.'^ In the United States Express Company v. Bed- bury* the company was proceeded against as a corporation, by process of garnishment, and appeared to the suit by the name of ' The United States Express Company.' One ques- tion raised related to the sufficiency of the service, which was valid only in case the company was a corporation. The court decided that the name in which they had appeared imported a corporation, and remarked : ' It seems to com- port with reason that when an association of persons assume a name which implies a corporate body, and exercise corpo- rate powers, they should not be heard to deny that they are a corporation. When they do act and contract, they are estopped from denying their corporate,liability.' In Rock- ville, etc., Turnpike Company v. Van Ness^ the charter of ' Citing Abb. Dig. Corp. 333, § 39 ei seq. ; Herman on. Estop., J 571, ' 23 How. 381. » Citing Owen v. Purdy, 12 Ohio St. 73. * 34 ni. 459. 5 2 Cranch C. Ot. 449. 31 481 § 413 EEMEDIES, PEOCEDURE, AND DEFENCES. [PAET IV. the company required that 1,500 shares of the stock should be subscribed, as a prerequisite of the organization. The defendant, a subscriber, being sued on his subscription, offered to show that the 1,500 shares had not been sub- scribed, some of the subscriptions being without authority; but it appearing that the company had been organized, the defendant himself taking part and being elected a manager, the evidence was rejected. The court said : ' It is not com- petent for any stockholder to make the objection to the existence of the corporation, inasmuch as they have elected the president and managers, and have had all the benefits of a corporation. They cannot now set up as a defence their own want of power. '^ In Galveston Railroad Coin- pany v. Cowdrey^ it was decided that bond fide holders of railroad bonds, executed in due form and by the proper officers, could not be prejudiced by the fact that the mort- gage given to secure the same was executed out of the state, or by virtue of a resolution adopted by the directors at a meeting held out of the state. Justice Bradley, in deliver- ing the opinion, said : ' We see no reason why it should not be estopped by the action of its directors in another terri- tory, when that action is the basis of negotiations by which third parties have bond fide parted with their money, and the company has received the benefits of the transaction.' The case of Camp v. Byrne' is a still stronger case. In that case the charter was granted by the state of Tennes- see, and the only organization under it was eflEected in Mis- souri. The court held that the organization of the com- pany did not constitute it a corporation ; but also held, at the same time, that the defendant, a subscriber to the stock thereof, who had given to the company, as a corpora- tion, his note for the amount of his subscription, when sued by a bond fide endorsee of the note for value before matu- 1 Citing Eice v. Eock Island, etc., E. Co., 21 111. 93 ; West Winsted Sav- ings-Bank v. Ford, 27 Conn. 282. 2 11 WftU. 459. » 41 Mo. 525. 482 CH. XXI.] DEFENCES. § 414 rity, was estopped from denying the legal existence of the corporation. In Massachusetts it has been held that a company, sued as a corporation formed under a general statute, is estopped to set up, for the purpose of defeating the action, the falseness of the certificate filed by it as a compliance with the requirements of the statute, or to avail itself of its omission to publish the certificate of its organi- zation required by the statute.^ In New York it is declared to be the law that where there is a colorable, but defective, organization under a general law, the company, by acts of user, become a corporation de facto, and no advantage can be taken of the defect, collaterally, by any person." * § 414. Continued — The proper Distinction stated. — In the same case^ the learned judge proceeds to define what seems to be the proper limit of the rule, in the following language : " It is true that these cases are not precisely like the case at bar, but they are cases which illustrate the application of the law of estoppel in respect to corpora- tions, or companies acting as corporations, or which illus- trate to what extent the corporate existence of a company acting as a corporation can be collaterally questioned. And we think it is safe to say, upon the authority of these cases, that at least where there is an act or charter in exis1>- ence under which a company, by taking the proper steps, can become a corporation, if a company does de facto organize and hold itself out as a corporation, contracting obligations as such, it cannot, when sued upon such obliga- tions by persons who have dealt with it as such in good faith, be permitted to avoid a corporate liability thereon, » Citing Dooley v. Cheshire Glass Co., 15 Gray, 494 ; Callender v. Painesville, etc., R. Co., 11 Ohio St. 516. 2 Slocum V. Warren, 10 K. I. 116, 121, opinion by Durfee, J., citing Buf- falo, etc., R. Co. V. Cary, 26 N. Y. 75; Baton o. Aspinwall, 19 N. Y. 119; Holmes J). Gilliland, 41 Barb. 568; Abbott v. Aspiiiwrtll, 211 Barb. 202; Mead V. Keeler, 21 Barb. 20; Leonardsville Bank v. Willard, 25 N. Y. 57 1. s Slocum 0. Warren, 10 K. I. 116, 121. 483 § 414 EEMEDEES, PROCEDTIRE, AND DEFEXCES. [PAKT IV. by setting up that it has not taken all the steps prescribed as conditions precedent to its legal existence as a corpora- tion. If this be so in regard to the company as a whole, we do not see why it is not equally so in regard to each member of the company individually, in so far as member- ship imports an individual liability. In this case, it is said, there was no act or charter ; but in our opinion there was a charter duly granted by the Legislature, subject only to a condition that it should not take effect until a certain act should be performed ; but inasmuch as this act could have been performed, as it ought to have been performed, by the grantees of the charter before their organization as a corporation, the case does not, in our view, substantially differ from cases which are clearly within the rule above stated. Indeed, it is frequentl}' the case that a chaiter is granted subject to an implied condition that the grant shall not take effect until it has been duly accepted ; and yet, as we have seen, the doctrine of estoppel may be applied to prevent the want of such an acceptance from operating to defeat a just claim.^ In this case the company had only to pay into the treasury of the state one hundred dollars, and all would have been right. When it organized as a corporation, and from year to year continued doing business as such, it as much as said, and each one of the stockholders as much as said, that that sum had been paid ; and now neither the company nor any one of the stock- holders ought to be heard to assert the contrary, in order to escape any liability to which he or it would have been sub- ject if the payment had been duly made. This decision is, doubtless, a hard decision for the plaintiff, and we very much regret that his situation is such that he is so severely affected by it. But hard as the decision is for the plaintiff, it only subjects him to the liability to which he would have been subjected if the tax due the state had been paid, as • Citing Camp v. Byrne, 41 Mo. 525 ; Tobacco Pipe-Makers' Co. v. Wood- roffe, 8 Dow. & Ry. 530 ; Abb. Dig., Corp., 331, J 23. 484 CH. XXI. J DEFENCES. § 415 it ought to have been paid, and, therefore, only to the lia- bility which, as an honest man, he must be presumed to have intended to incur when he connected himself with the company." § 415. Defence that Act of Incorporation was uncon- stitutional. — The principle of estoppel has been carried so far as to prevent a stockholder in a banking corporation whose charter was repugnant to the constitution of the state, and hence void, from urging that fact when sued in respect of his individual liability under the charter.' 1 McCarthy v. Lavashe, 10 CM. Leg. N. 342. Mr. Justice Walker, in giving the judgment of the court in this case, used the following language : " The cor- poration created by this enactment is authorized to perform all acts incident to a bank, except to issue notes for circulation. It may loan money, buy and sell exchange, discount paper, receive money on deposit, and issue negotiable paper. It thus possesses banking powers to a large extent, — not all, but many, and perhaps the most important. We, therefore, are clearly of the opinion that the charter is repugnant to the provisions of the Constitution of 1848. But, being unconstitutional, can the promoters and those engaged in its opera- tions be heard to say that they may relieve themselves from liability, and from all of their engagements, because the law under which they have acted is pro- hibited by the organic law? May shrewd, intelligent persons go to the General Assembly and procure a law that they should know is prohibited by the fundamental law, avail themselves of its benefits, obtain the money of the uninformed and the confiding, and then be heard to say, 'We are not incor- porated; our charter and organization are void, and we will hold your money?' Or may those who promoted the enterprise by becoming stockholders, to ena- ble the company to organize and to procure other people's money, be heard to Interpose such a defence? The presumption is that each subscriber for stock knew, at the time of subscription, that the charter contained the provision ren- dering him liable for double the sum he subscribed. And such persons could not but have known that this provision would contribute largely to give credit to the concern and greatly augment its business. The subscribers for the shares of the stock, no doubt, expected to reap large profits, and expected those profits to be greatly enhanced by this provision. It enabled them to point to it and assure individuals and the public that the institution was safe, as, if the business was not lucrative, all of the stockholders were severally liable for double the amount of their subscriptions. They thus, no doubt, did increase their busi- ness, and thus obtained money and credit which now, when the institution has proved a failure, they endeavor to avoid payment by urging that their organ- ization, and consequently their subscriptions to its stock, were void. Fair dealing would say that they should be estopped from interposing such a 485 § 416 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. § 416. Defence of Usury. — When the bills of a bank are sold by its officers on a usurious contract, a subsequent defence. The question is by no means new in the jurisprudence of this country. The question has been frequently considered in the courts, in the form here presented, or in analogous cases. See Baker v. Braman, 6 Hill, 47 ; Embury v. Connor, 3 N. T. 511 ; Eaton u. Aspinwall, 19 N. Y. 119 ; Mead c. Keeler, 24 Barb. 20; Eerguson v. Landram, 5 Bush, 230. These were all cases where the parties were held to be estopped from insisting that the organ- ization was illegal, as a law unconstitutional, because of the acts or consent of the parties ui-ging the objection. In our own court analogous questions have been presented and determined. In the case of Tarbell v. Page, 24 HI. 46, it was held that, in a suit by a creditor against a stockholder, the former could not show that the corporation had failed to file a. certificate of organization with the secretary of state ; that in a collateral proceeding the regularity of the corporate organization could not be questioned; and this is a rule of uni- form application. If, then, the plaintiff, by contracting with a body exercising the franchises of a corporation, is estopped from denying the illegality of its organization, the same reason must apply, with increased force, to prevent a stockholder in such an organization from questioning the legality of the cor- poration. That the legality of an incorporation cannot be attacked collaterally, see Rice v. Rock Island & Alton B. Co., 21 111. 93; Goodrich v. llej-iiolds 31 111. 4fl0, and numerous subsequent oases. In fact, the books abound in adjudged cases which hold that a person doing an act, or making a statement, which misleads another to his injury, shall not be permitted to question the act or the truth of the statement. So, on the same pi-inciple, appellant should be estopped, as his acts contributed to the organization of this company, and he held himself out to the world as a stockholder therein, and liable to the extent of double the amount of his subscription. Had the company not been organized, appellee would not have lost his money, and appellant thus con- tributed to that loss. In Eerguson v. Landram, 5 Bush, 230, appellants denied the validity of a tax levied under a local law, but the court held they were estopped to deny the validity of the law because they had aided in procuring its passage, or had approved it and availed of its benefits. The court held the law unconstitutional, but enforced the tax. The court say: 'Parties are estopped from denying the constitutionality of a local statute by participating in the procurement of its passage, by ratifying, acquiescing in, or appruxiiig it after its passage, and by becoming recipients of benefits under it; and all such persons are held to be liable to the tax authorized bj' such enactment, although it is unconstitutional and invalid as to all other persons.' Here appellant approved of the act, and availed himself of its benefits by subscribing for stock, and becoming entitled to exercise all of the rights and privileges of a stockholder in the corporation. Justice, moralitjf, public policy, aud pre- cedent all demand that appellant should be estopped from denying the tousti- tutionality of the law. If stockholders might show the law unconstitutional and their organization void, and all of their acts unauthorized, then all persons engaged in its organization should be held liable for tho consequences of their illegal and unauthorized acts, independent of the clause in their charter. So, 486 CH. XXI. J DEFENCES. § 417 bond fide purohasor of them is entitled to recover of the stockholders the lull nominal value thereof, under a statute making the stockholders liable for the ultimate redemption of their respective proportions of the circulation, without any deduction on account of usury. ^ § 417. Defence of Irregularity in making Assess- ments. — It may be stated as a general rule, applicable alike to suits brought by trustees of an insolvent corpora- tion appointed under statute,^ and to assignees in bank- ruptcy,^ and to the comptroller of the currency under the National Banking Act,^that objections to the mode in which such trustees or assignees have proceeded in making assess- ments upon the unpaid sliares of stockholders must be made in the court having jurisdiction of the proceedings in chief, and cannot be made for the first time by the share- holder when sued by the trustees or assignees to recover the amount so assessed. If the assessors had jurisdiction they should in no event escape liability for obtaining money without authority. Suppose these stockholders had formed a pa,TtneT3hip containing precisely the same provisions that are contained in their charter, and had put in capital stock to the same extent and the same amounts they each subscribed in shares, would any one question the legality of the organization, or the legal liability of each of the members of the firm ? We apprehend these propositions would be conceded. And if so in principle, what distinctions can be taken between the supposed case and the one at bar? Had the stockholders had written under the charter a statement that it was unconstitutional and void as a law, but that they adopted it as articles of partnership, and that each would be bound by its terms and conditions, and would pay in, for capital stock, the sums set opposite their several names, and they had signed it and specified the sums to be paid in, could it be doubted that each member would have been liable under the articles thus executed? And if so, when stripped of mere form, and substance is alone considered, this organization is in effect the same. We can perceive no well-grounded distinction. We are, therefore, of the opinion that, inde- pendent of all constitutional questions, each shareholder became liable under the charter as articles of partnership, as it operated as an agreement by each subscriber to be liable to creditors to double the amount each subscribed." 1 Grew V. Breed, 10 Mete. 569. 2 As in Hurd v. Tallman, 60 Barb. 272. ' As in Sanger v. Upton, 91 XT. S. 56 ; Payson v. Stoever, 2 Dill. 427. * Kennedy o. Gibson, 8 Wall. 505 ; Cadle v. Baker, 20 Wall. 650. 487 § 417 REMEDIES, PEOCEDUEE, AND DEFENCES. [PAET IV. to make the assessment, errors committed by them in assessing stock not liable to assessment, or in determining the amount of the assessment, should be corrected by an application to the court having charge of the bankruptcy or winding-up proceeding.^ But where the trustees have attempted to make an assessment upon stockholders with- out first having disposed, or attempted to dispose, of the property of the company, or to collect its debts, this is an objection which goes to the jurisdiction of the trustees to make the assessment at all.^ Pursuing the terms of a statute, it was accordingly held that where trustees of an insolvent corporation are acting without any direction of court, but merely under the powers conferred by the act, they must defer any assessment upon stockholders till such time as they have complied with the provisions of the act in regard to disposing of the property and collecting the liabilities, in order that it may be seen whether any, and if any, what, assessment " is necessary."' ^ Hurd V. Tallman, 60 Barb. 272; Payson v. Stoever, 2 Dill. 427; Upton v. Hangbrough, 5 Chi. Leg. N. 242 ; s. c, 3 Bias. 417 ; Sanger «. Upton, 91 U. S. 56. 2 Hurd V. Tallman, 60 Barb. 272. ' Ibid. Compare "Walker v. Grain, 17 Barb. 119; Matter of Reciprocity Bank, 22 N. Y. 9; Story v. Furman, 25 N. Y. 214; Greenwood's Case, 3 De G. M. & G. 459 488 CH. XXU. j PRIORITIES AMONG CREDITORS. § 420 CHAPTER XXII. PRIORITIES AMONG CREDITORS. Sbction 420. Priorities among Creditors. 421. Continued — Doctrine in OWo. 422. Continued — View of Mr. Justice Bradley — Doctrine of Briggs V. Penniman. 423. Continued — In Case of a Winding-up by a Keceiver. 424. Priority of Creditor first suing Stockholder. 425. Continued — Doctrine in Maine. 426. Priority of Creditor first obtaining Judgment. §420. Priorities among Creditors. — In determining what legal priorities among creditors a court in equity will preserve, there is considerable difference of opinion. Cases may arise in which this question is immaterial. Thus, in a suit to charge a resident stockholder of a foreign banking corporation, it was held that the defendant could not urge that the bill-holders of the bank were entitled to priority of payment ; since provision was made in the law governing the corporation for the payment of the bills by the auditor of the state with the avails of the securities in his hands, and non constat that they were not sufficient. If demand had been made on the defendant by the receiver for the amount for which he was made individually liable, for the purpose of paying the holders of the circulation of the bank a deficiency which the stocks in the hands of the auditor did not pay, and he had paid over to the receiver the amount so demanded, it seems that he would be entitled to plead this payment.^ In a case of this kind the Supreme Court of Georgia has laid down the rule that whenever a judicial preference has been established, that is always pre- 1 Paine v. Stewart, 33 Conn. 516, 530. 489 § 421 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. served in the distribution of assets, even in a court of equity. "Whether or not they were all equal as to equitable assets there was a conflict of authority, though it seemed that they were ; but as to legal assets, by which was meant such assets as may be reached by legal remedy or process, in contradistinction to those interests which a judgment cred- itor must go into equity to subject, it had always been held that execution creditors were entitled to priority and preference. The court therefore ordered the whole of the available assets of an insolvent bank to be paid to the oldest judgment creditors as fast as they came to hand.^ Among these assets the court included moneys accruing from the sale of lands in another state ; since such moneys were sub- ject to garnishment in the hands of the agent of the corpo- ration.^ § 421. Continued — Doctrine in Ohio. — The former Supreme Court of Ohio went further, and held that in cases of this kind the creditor pursuing in the court of chancery the equitable assets of his debtor obtained a preference, except in cases under the statute of assignments.' The vigilant creditor, pursuing his claim, acquired a preferable equity, which attached and became a specific lien by the filing of his bill.* Accordingly, where such a creditor filed a bill to discover and charge the stockholders and sequester the tolls of a turnpike company extending through differ- ent counties of the state, and under his bUl a receiver was appointed, such creditor thereby acquired a priority, and drew within the jurisdiction of the court the whole admin- ' Eotinson v. Bank of Darien, 18 Ga. 65, 108, 115. Benning, J., dissented, and on a ground which seems of force. The charter of the bunk made the persons and property of stockholders "pledged and hound for the ultimate re- demption of the bills and notes issued by and from said bank,'' etc. This, he thought, meant all the bills and notes of the bank. 2 Ibid., §?108, 100. » Miers v. Zanosville Co., 13 Ohio, 197; s. c, 11 Ohio, 273. * Ibiil. See Bank of Muskingum v. Carpenter's Admrs., 7 Ohio, 21, part 1. 4 'JO CH. XXII. J PRIORITIES AMONG CREDITORS. § 422 istration of the fund, which the receiver might control until the complainant and those permitted to become par- ties to his suit had exhausted the assets, or obtained the objects sought by his bill.^ But the present Supreme Court of that state has held that where proceedings are instituted by a part of the creditors of an insolvent corporation against the stockholders, to enforce the liability of the latter for the benefit of all the creditors, no creditor can acquire priority, or institute a separate suit for the enforcement of such liability in his own behalf.^ A suit to enforce such liability should be brought for the benefit of all creditors.' § 422. Continued — View of Mr. Justice Bradley — Doctrine of Briggs v. Pennlman. — In a case at circuit in Georgia, Mr. Justice Bradley took a difl'erent view. It was a bill in equity against certain shareholders of a bank, by certain judgment creditors, to subject the amounts due by the former to the bank on account of their stock sub- scriptions. The charter made the persons and property of the stockholders of the bank at all times pledged and bound for the redemption of any bills and notes issued at any time by the bank, in proportion to the number of shares which each one might possess. It was objected that the bill should have been filed by or on behalf of all creditors, since all were equally interested in the fund sought ; but the court overruled this objection, and intimated that there was no law compelling a ratable distribution.* In the leading case of Briggs V. Penniman^the question arose under an ordi- nary statute of individual liability. It declared that, for all debts due and owing by the company at the time of its dissolution , the persons then composing the company should 1 Miers ii. Zanesville Co., 11 Ohio, 275. 2 Wright V. McCormaok, 17 Ohio St. 86. -' Umsted v. Buskirk, 17 Ohio St. 113. ' Marsh v. Burroughs, 1 Woods, 463. But see Pollard v. Bailey, 20 Wall. 520. 5 8 Cow. 387. 491 § 423 REMEDIES, PROCEDURE, AND DEFENCES. [PART IV. be responsible to the extent of their respective shares of stock, and no farther. Woodworth, J., said that he enter- tained no doubt that where there were several creditors, the fund made liable for debts, if insufficient to discharge the whole, should be distributed ratably. But if the record failed to disclose that there were other creditors than those who had filed the bill, these were entitled to be fully paid, if the amount of the stock was sufficient. § 423. Continued — In Case of a Winding-up byi a Receiver. — Whilst, therefore, there is much authority for holding that the diligent creditor who first files his bill to set aside a fraudulent convej'ance, or subject property held in trust for his debtor, obtains thereby a preference over other creditors ; whilst the law does not favor the conclu- sion that, after an industrious man has shaken the tree, his lazy neighbor shall be permitted to pick up a portion of the fruit ; yet this principle, I apprehend, is confined to actions at law and to suits in equity in the nature of a creditor's bill. It does not apply to a case where an insol- vent corporation is wound up by means of a receiver.^ Here a court of equity will apply rules of distribution similar to those which obtain in courts of bankruptcy or in the administration of the estates of deceased persons. Creditors of equal dignity share alike, provided they bring their claims to the notice of the receiver before distribution is made ; but they may still be paid after distribution, if there are sufficient assets and no claims of higher dignity unpaid.^ A statute of Georgia provided that in case of an insolvent bank the order of paying ofi" the debts should be the same as in cases of administration, to the extent appli- cable, except where special preference or postponement was given by law.' Under this statute the receiver of an insol- 1 Eankine v. Elliott, 16 N. T. 877. ' Belcher v. Wilcox, 40 Ga. 391.' » Code Ga., J 1495. 492 CH. XXII. J PRIORITIES AMONG CREDITORS. § 424 vent bank gave notice to bill-holders that unless they pre- sented their claims within six months their right of priority would cease. It was held, by analogy to the rules which obtained in the administration of decedents' estates, that if the receiver should, after the lapse of this period of six months, distribute the fund without knowledge of the claims of other bill-holders, who had not presented their bills, he would not be personally liable, nor would the more vigilant bill-holders, who had received the money in distribution, be held liable to refund, or to contribute to those who did not give notice of their claims within six months. "^ It has been held in Georgia, on general principles of public law, that in the winding-up of an insolvent bank the state is entitled to a preference over other creditors, although the state is a stockholder.^ § 424. Priority of Creditor first suing Stockholder. — By analogy to the rule which has been declared in case of a creditor's bill, where separate actions are tolerated, the creditor of a corporation first suing a stockholder in re- spect of his individual liability acquires by the bringing of suit a preference over other creditors, which neither they nor the stockholders can defeat,' unless possibly by bring- ing a general winding-up bill.* Such a suit may be said to be an equitable attachment of the stockholder's liability, to the extent of the plaintiff creditor's claim. It follows that the stockholder cannot, after notice of such a suit, defeat the suing creditor by paying the claims of other creditors so far as to exhaust his liability. If such a power existed, the stockholder could use it as a weapon to defeat creditors altogether." 1 Belcher v. Wilcox, 40 Ga. 391. ' Eobinson v. Bank of Darien, 18 Ga. 65. ' Butler II. Cole, 43 Me. 401 ; Ingalla v. Cole, 47 Me. 541. Contra, State Savinga Assn. v. Kellogg, 63 Mo. 540. * Ante, I 351 et aeq. » Jones V. Wiltberger, 42 Ga. 575. In support of this conclusion, McCay, 493 § 425 EEMEDIES, PROCEDURE, Al^D DEFENCES. [PAKT IV. § 425. Continued — Doctrine In Maine. — A statute of Maine ^ provided that a judgment creditor of a corpora- tion, after execution returned nulla bona, might levy upon the property of any stockholder and collect therefrom an amount equal to the amount of his stock ; or he might, at his election, after such judgment, execution, and return of nulla bona, have an action on the case against any shareholder. A creditor, after laying the foundation of his suit by judgment against the corporation, execution, and return of nulla bona, brought an action on the case against a stockholder who was liable to the extent of $100. Pend- ing this action, other judgment creditors of the corporation sued out executions against the same stockholder, under the other section of the statute, and, being threatened with a levy, he paid them the amount for which he was liable. It was held that this payment was made in his own wrong, and that he could not set it up as a defence to the pending suit. The subsequently-moving creditors could not have lawfully levied their executions upon the property of the stockholder pending the suit previously commenced against him by the plaintiff creditor. In giving judgment in this case, the court said : " The general purpose of the particu- lar provision of the statute under consideration was to give additional security to the creditors of the corporations to J., said : " Let it be understood that it is in the power of a stockholder, after a suit is brought, to discharge himself hy paying his full share to others than the plaintiff in the suit, and who will dare to sue? The stockholder may say to the depositor, 'I offer you ten cents in the dollar. If you sue, I will pay my proportion to others, and you will fail in your suit.' Take the case of this very plaintiff. He was not paid; he brought suit. Mr. Wiltberger has paid his proportion, much of it since the suit was brought, to others, and the plaintiff has failed. To-morrow he sues Mr. Smith ; he does the same thing, and the depositor fails again; and so on and on, until he is made the tug which pulls everybody into port but himself; and when, at last, all are in and his share must be paid, the costs and trouble have exhausted twice the demand. What sort of a liability is this? What sort of protection is this? Could this have been contemplated by the Legislature, or by the courts, in the construction they have given these clauses? " » Rev. Stat. 1840, ch. 76, §g 18-20. 494 CH. XXII. J PRIORITIES AMONG CREDITORS. § 425 which they apply, by making the stockholders who were such when the debts were contracted, and their property, liable by due proceedings for the payment of such debts, in all cases where there should be a failure to obtain the amount from corporate property. The legislative intention to give to a creditor, who should bring his case within the provisions of the statute, security for his debt in either of the modes, at his election, which the statute provides, can- not, be doubted ; and the statute, if susceptible of it, should receive a construction which will effectuate this intent. To allow one creditor, after another, by a compliance with the statute, has laid the foundation of his right to recover of any pai'ticular stockholder to the amount of his stock, to step in, and, by electing the shorter remedy provided by the statute, thereby to defeat a pending action which the same statute had clearly authorized, would be inconsistent with the general purpose to give the security before stated, and not in harmony with the general principle running through all our statutes, which is to give to the more vigilant party, when moving in conformity to the law, the fruit appropriate to his effort. "We therefore think that a creditor who first moves and proceeds so far as to establish his right to seize the property of a stockholder, or to bring his suit, obtains a priority of right in the fund which the statute has, in effect, set apart for the payment of his debt. By such proceedings, and the institution of a suit within the period fixed by the statute, he acquires a right to recover against the stockholder to the amount of his stock, with which no other creditor subsequently moving can rightfully interfere ; and any payment made to any such subsequently-moving creditor by such stockholder must be regarded as a pay- ment in his own wrong." ^ But it is not a defence for a stockholder, when he is sued, to show that other creditors had moved against him before the plaintiff, thus laying a foundation for his liability to them; since the claims of 1 Cole V. Butler, 43 Me. 401, 403. 495 § 426 REMEDIES, PEOCEDXmE, AJTD DEFENCES. [PAKT IV. such creditors may never be prosecuted to final judgment. Nor is it enough to show that suits have been instituted and are pending on such prior claims, for those suits may not be sustained, or may be abandoned. The liability must be legally established and fixed to an amount which exhausts it, and this must be bond fide, and not colorable or fraud- ulent.-^ § 426. Priority of Creditor first obtaining Judgment. — The doctrine of the Supreme Judicial Court of Maine, cited in the previous section, has been held inapplicable to the statute of Missouri. The general rule in this state is that the institution of a suit creates no lien, unless some aux- iliary process which the law allows in certain contingencies is resorted to ; and where, upon the bankruptcy of a corpo- ration, a creditor brings an action against a stockholder without first obtaining judgment against the company, there is nothing to take the case out of the rule. Accordingly, where, in a suit brought in 1869, in which judgment had been rendered for the defendant, appealed from, and re- versed by the Supreme Court, it was pleaded in the court below that another suit had been commenced against him as a stockholder in 1870, which resulted in a judgment against him for the amount of stock held by him in the corporation, and that he was compelled to pay, and did pay, on such judg- ment the fall amount of his liability as such stockholder, it was held that the plea was a good defence to the action.* ' Ingalls V. Cole, 47 Me. 530, 542. In concluding the judgment of the court in this case, Kent, J., said: "The fund belongs to the first creditors who establish their right to it by proceedings which terminate in fixing the liability. "We do not say that a stockholder may not pay to the first or a prior creditor the amount of his stock, if he can show that the proceedings had fixed his lia- bility, and the amount was sufiicient to absorb the fund, and the payment was made in good faith, to avoid useless costs. It may be necessary to continue actions, to await the result of other cases which may or may not establish prior rights; and it is a duty of the stockholder to see that no unnecessary delay is allowed in bringing such cases to final judgment, if he would avail himself of such proceedings in defence." * State Savings Assn. o. Xellogg, 83 Mo. iiO. 496 INDEX. ABANDONMENT OF FRANCHISE. by corporation, when a condition precedent to the right to proceed against shareholders, § 319. of project for which corporation was organized, discharges stockholder, §190. ACCEPTANCE OF SHARES. by assignee in banlcruptoy in England necessary to charge him as contrib- utory, § 243. ACCOUNT. in equity will be stated by master in' ascertaining liability of stockholders, §17. taken in creditor's suit in equity against shareholders, J 353. "ACCOUNT, OR MEMORIAL." eifect of filing in the London stamp-office, § 219. effect of filing "further account or memorial," § 219. effect of clerical inaccuracy in, | 220. ACQUIESCENCE. by stockholder in ultra vires act of corporation, § 68. in contract of subscription obtained by fraud, ^ 143, 146-150. ACTION. may be maintained on contract of subscription without express promise to pay, I 105. ADMINISTRATION OF ESTATES. See Executors and Adminis- TBATOKS. ADVERTISEMENT. of notice of transfer in public gazette, when must be shown, § 222. AGENT. See Promotbr. subscription of capital stock by, validity of, § 113. stockholders not agents for the corporation, J 1. nor members of joint-stock companies, § 2. As to contract to take shares, induced by fraud of agent of corporation, see Fraud. AGREEMENTS. between members of joint-stock companies restricting their liability not valid as to creditors, § 4. 497 498 INDEX. AGREEMENTS— Continued. touching subscriptions for shares, and payment for the same. See Con- tract TO TAKE Shares ; Paid-up Shares ; Payment. AGREEMENT TO TAKE SHARES. resting in fieri does not make one a contributory, g 204. See Contract TO TAKE Shares. ALLOTMENT OE SHARES. See Contract to take Shares. AMALGAMATION OE COMPANIES. See Consolidation or Corpora- tions. ARTICLES OP ASSOCIATION. signing name to, makes the signer a shareholder, JJ 105, 109. ASSBSSABILITY OP SHARES. conditions as to, not binding upon creditors, when, g§ 15, 119. shareholder proceeded against by creditors, how far estopped to deny va- lidity of corporation, ^ 407-414. ASSESSMENTS. equity will malce, upon stockholders for the benefit of creditors ; illustra- tions, II 15-18. irregularities in making, cannot be set up as a defence by stoclcholders, J 417. ASSIGNEE IN BANKRUPTCY. of foreign corporation may maintain action against resident stockholder, 5 81. when suit to charge stockholders should be brought by, §J 340, 341. ASSIGNEE. of corporation cannot sue to enforce individual liability, § 342. of stocli; subscription entitled to sue for calls, J 3i5. ASSIGNMENT IN BLANK. purchaser taking assignment in blank becomes a shareholder, J 218. ASSIGNMENT OP SHARES. See Transfers. BANKRUPTCY. See Insoltenot. effect of the banlcruptcy of a shareholder upon his liability, § 243. shares in a corporation pass to assignee, J 243. otherwise as to shares in a joint-stock company, J 243. whether assignee justified in paying calls, § 243. sale of shares by assignee terminates bankrupt's liability, § 243. when assignee put on list of contributories, J 243. effect of putting assignee on list of contributories, ^ 243. if the company is wound up before banlcruptcy ; effect of bankrupt's discharge, § 244. when discharge will not release bankrupt shareholder, J 245. of corporation, when a condition precedent to the right to proceed against shareholders, J 318. right of sot-off where the sliareholder is a bankrupt, J 385. INDEX. 499 BANKRUPTCY — Continued. set-ofF where the corporation is in bankruptcy, J 387. of corporation does not dissolve it, J 400. nor cut off remedy of creditor against stockholder, ^ 400. BANK-BILLS. effect of endorsement upon, "individual property of stockholders lia- ble," § 4. statutes of limitation not applicable to, ^ 299. BEQUEST. to a corporation of its own -shares valid, § 237. BILL-HOLDEE. holder of bills as collateral security entitled to sue to enforce individual lia- bility, § 344. BONA FIDE PURCHASER. See Innocent Pubchaseb. BOOKS OE CORPORATION. when evidence in suits to charge stockholders, JJ 370, 371. BY-LAW. liability of stockholders cannot be enlarged by, § 4. provisions in, as to formalities of transfers may be waived, J 217. CALLS. payment of, concludes person from denying relation of stockholder, JJ 162, 163, 170. statute of limitations runs from time of, J 294 ; contra, J 291. assignee of stock subscription entitled to sue for, J 345. CAPITAL STOCK. a trust fund for creditors, J 10. consists of what, J 11. failure to pay in a prescribed amount before commencing business no de- fence by stockholder, § 408. CARRIERS. liability of members of steamboat company in New York for loss of gooda as, g 27. remedies of owner, § 27. joinder of defendants and procedure, g 27. CERTIFICATE OF INCORPORATION. defects in, no defence by stockholders, J 408. nor a failure to file a certificate, § 408. CERTIFICATE OF STOCK. not necessary in order to constitute a person a shareholder, § 103. acceptance of, makes one a stockholder, § 105. CHARTER. legislative alteration of, releases stockholder from subscription, when, J 70. unless acquiesced in by stockholder, ^ 70. 500 INDEX. CHARTER — Continued. whether charter or recorded certificate is evidence that the persons named tlierein are stockholders, § 373. COLLATERAX, SECURITY. liability of transferees holding stock as, g 223. liability of original share-takers to whom shares have been issued by the company in pledge, J 22-1. COLLUSIVE FORFEITURE. See Fokfeiture. COJIITY OF STATES. See Pkivatb International Law. COMMENCEilENT OF ACTION". what is the commencement of an action, such as arrests the running of a statute of limitations, § 288. against corporation within a given time, when » condition precedent to the right to proceed against shareholders, JJ 315, 316. COMPANY HOLDING ITS CffN SH,\JIES. stooldiolders holding shares upon secret trust for company held liable to creditors, ^ 125. effect of corporation purchasing its own shares, §§ 205, 234-240. COMPOSITION". See Compi:omise. whether shareholder may compound with some creditors, and thus dis- charge himself as to others, § 392. COMPROJnSE. See Composition. bond Jide compromises releasing stockholder upheld, JJ 195, 202. CONDUCT. waiving right to proceed against stockholder, J 75. estopping the actor from denying the relation of stockholder, §§ 160, 175. general doctrine — comparison between views of English and Ameri- can courts, § 160. American doctrine — person acting as stockholder not permitted to denj' his own title, § ](!1. illustrations — paying calls, serving as director, attending meet- ings, U 162-164. acting as member of provisional committee, J 167. receiving dividends, §168. exceptional cases, J 169. paying calls, I 170. estoppel to deny validity of shares, § 171. shareholder estopped to impeach his own title, § 171. effect of accepting shares in a new company after attempted amalgama- tion, § 172, effect of non-compliance with formalities prescribed by constitution of company, § 173. estoppel to deny validity of organization of corporation, J 173. in order to fix a person with the relation of shareholder by estoppel, he miwt have boon held out as a shareholder with his knowledge, § 174. INDEX. 501 CONDUCT — Continued. and the advunce must have been made on his credit, J 175. conduct not loolwd to as creating the relation of shareholder in the later English cases, I 199. distinction between American and English oases in this respect, ^ 199. transferor allowing his name to remain on register continues liable as stockholder, I lil7. transferee in an irregular transfer may make himself a shareholder by conduct, ^ 217. person named as corporator in charter held liable as such in the absence of disavowal, ^ 373. CONDITIONS. See Contract to take Shares; Prattd. parol conditions vai'ying contract of subscription void, ^ 121. unless amounting to fraud, g 121. CONDITIONAL SUBSCRIPTION, condition may be waived, § 116. condition that seventy-five per centum shall be paid in before commencing business, J 117. See Contract to take Shares ; Fraud. CONDITIONS PRECEDENT. to organization of company may bo waived by subscribers, § 120. such waiver expressed or implied, § 120. conduct evidencing such waiver, § 120. to the transfer of shares, effect of, ^ 220. of conditions precedent to the right to proceed against stockholders, ^§31, 310-337. dissolution of the corporation, g 810. what works such dissolution as will enable a creditor to proceed against a stockholder, H 310, 311. how dissolution pleaded, § 311. exhaustion of remedy by creditor against corporation, §§ 312-314. demand upon corporate officers, § 314. commencement of suit against corporation within a given time, J 315. exceptional rule in Pennsylvania, § 316. judgment against the corporation, J 317. bankruptcy of the corporation, ^ 318. insolvency of the corporation and abandonment of its franchise, ? 319. judgment against the corporation, fieri facias, and return of nulla bona, 22 31, 320. appointment of a receiver, § 321. in case of foreign corporation, exhaustion of deposits made with state, I 322. proof of claim before the receiver of the corporation, I 32-3. exhaustion of equitable assets before statutory liability, 2 324. exception to the foregoing rules, J 325. summary remedy against shfireholders not unconstitutional, I 328. proceeding without notice not favored, J 327. yet stockholders not entitled to contest the merits, J 328. but yet judgment against corporation concludes stockholder, § 329. 502 INDEX. CONDITIONS PRECEDENT — Continued. a contrary rule in New York, J 330. the former practice in England, ^ 321. practice under English Companies Consolidation Act, ^ 332. execution against stoclfholder and "illegality" in Georgia, ^ 333. where the stockholder ia liable only for a particular class of debts, J 334. if the corporation has been dissolved, § 335. whether suit against stockholder is upon judgment or original de- mand, I 386. conclusiveness of judgment in supplementary proceeding against stockholder, \ 337. CONSIDERATION. of contract of subscription of capital stock need not be expressed, g 105. CONSOLIDATION OP CORPORATIONS. dissenting stockholders entitled to withdraw, 2 70. CONSTITUTION OF COMPANY. See Charter ; Deed os Settlement. CONSTITUTIONAL LAW. statute keeping alive obligations of dissolved corporation does not im- pair contracts, | 8. otherwise a statute distributing its effects, leaving its debts unpaid, § 3. constitutionality of statates imposing individual liability as to future debts, ? 65. doctrine in Ohio, § 66. this doctrine examined, g 67. waiver, by stockholder, of constitutional immunity, § 68. evidence of such waver, ^ 69. legislative alteration of charter, ^ 70. statutes repealing individual liability laws, if retroactive, void, § 71. otherwise in case of stockholders subsequently joining, g 72. statute affecting the remedy merely, not invalid, ^ 73. constitutional guaranties securing creditors of corporation, ^ 74. creditor may waive right to proceed against stockholders, § 75. statutes prescribing summary remedies against stockholders not unconsti- tutional, II 76, 326. whether legislation imposing individual liability on stockholder impairs contract between stockholder and corporation, ^^ 66, 67. decisions of the Supreme Court of the United States on the distinction between statutes impairing obligation and those aff'ecting the remedy merely, examined, J 73, p. 81, note 4. Constitution of California touching liability of stockholders not self-en- forcing, J 74. in California, statute authorizing corporations without individual liability unconstitutional, § 74. but non-linbility may be stipulated for hy contract between corpora- tion and creditor, J 74. Constitution of California satisfied by making stockholders liable who were such when debt was contracted, J 74. INDEX. 503 CONSTITUTIONAL ljk.W — Continued. power of legislature to shorten statutes of limitation, § 287. unconstitutionality of statute under which corporation is organized, no de- fence on the part of the stoclcholder, J 415. CONSTRUCTION OF STATUTES. See Statutes. what is meant by strict construction, J§ 50, 52. CONTRACT TO TAKE SHARES, what amounts to, J 105. certificate unnecessary, J 106. parol subscription not valid, J 108. when contract to take shares complete under English statute, § 109. what facts amount to a contract to take shares, 2J 110-113. each subscription several, not joint, J 114. subscription after all stock taken, I 115. conditional subscription, JJ 116-123. American cases illustrating this subject, § 117. illustrations drawn from English cases, § 118. conditions as to assessability of shares, § 119. implied condition that all stock shall be subscribed, J 120. parol conditions void, § 121. subscriptions made for a collateral purpose, JJ 122, 123. secret arrangements made with shareholders, J 124. In case of registered companies, § 125. collateral agreements as to payment — payment in property, H 126- 128. agreements that shares shall be deemed fully paid up, § 129. paid-up shares delivered in exchange for specific property, §5 130-134. agreement that shares shall be considered paid up — the recent English doctrine, § 133. doctrine on the subject of payment of shares restated, § 135. shares taken by agents of insurance companies, to be paid for by commis- sions on business, J 136. effect of taking shares to qualify as director, gj 137, 138. contract to take shares not discharged by taking shares from shareholder, ?139. contracts to take shares stand on the same footing in respect of fraud as other contracts, ^ 142. distinction between right of subscriber to release, where the question arises between the subscriber and the corporation and the subscriber and creditors, § 142. discharged by subsequent legislative alteration, § 186. or by change of project, J 188. or by lapse of time, creating presumption of abandonment of enter- prise, I 190. but not by changing name of corporation, J 188. nor by increasing capital stock, JJ 188, 189. nor by changing location of railroad, etc., where deviation is not sub- stantial, II 186-188. nor by changing denomination of shares, J 187. 504 INDEX. "CONTRACTED." when n debt is deemed to have been, ^J 59, 60. CONTRACT LIABILITY. liability resting in contract enforced, overruled, J 81. CONTRIBUTION. stockholder paying more than his share may have, from the others, § 37-. mode of enforcing, from estate of deceased shareholder, J 2.50. the leading ground of equity jurisdiction, J 376. stockholder paying more than his share, entitled to sue for, JJ 37, 376. but not till remedy against corporation exhausted, J 376. principles upon which contribution is decreed in equity, g 376. under English Winding-up Act of 1848, J 376. CONTRIBUTORY. transferor in imperfectly executed transfer is, § 221. or in fraudulent, prohibited, or ultra vires transfer. See Transfer. or in transfer to person incapable of taking. See Transfer. CORPORATE MEETING. one who attends, fixed with character of stockholder, ^J 162, 163, 164. CORPORATION, definitions of, § 1. differs from a general partnership, how, § 1. non-liability of members of, § 1. differs from a joint-stock company, how, 2 2. effect of dissolution of, ^ 310 et seq. when bound by acts of its members in its behalf, J 117. manner of proving existence of, § 369. consolidation of, entitles dissenting shareholders to withdraw, J 70. COSTS. when allowed plaintiff in proceeding to charge stockholder, J 375. when costs allowed upon creditor's bill, 2 375. what costs allowed in general winding-up bill, ^ 375. CREDITORS. repea,l of individual-liability law, if retroactive, infringes rights of, and void, I 71. as to priority among. See Priority. CREDITOR'S BILL. in the absence of statute, an appropriate remedy, ^ 366. DAMAGES. whether unliquidated damages or a judgment for damages embi'aced in the woi-d " debt," in a statute of individual liability, J| 57, 58. DEALING IN SHARES. effect of the prohibition of a company dealing in its own shares, ^J 203, 205, sub-sec. 2, and H 234-240. DEATH. divestiture of liability of shareholder by, gj 248-254. INDEX. 505 "DEBT." meaning of, in a statute making stoclcholders liable, J^ 57, 58. DECEDENTS' ESTATES. See Executors and Administratoks. DECLARATIONS. See Con I'u act to take Shakes : Fraud. parol declarations made to induce subscription void, § 121. unless amounting to fraud, J 121. DECREE. form of, in equity, charging stockholders for benefit of creditors, § 17. in bill against all stockholders, is several, charging each stockholder with his proportion, J 358. DEED OP SETTLEMENT. whether covenants in, malces liability of shareholder under, in the nature of a specialty debt, so that the statute of limitations does not run, 2 284. DE FACTO CORPORATIONS. stockholders in, cannot plcud nul tiel corporation, nor urge irregularities in corporate organization, J§ 407, 414. DEFENCES. payment, set-off, and release, §§ 880-395. defence of prior judgment, ^ 398. of prior suit pending, ^ 399. of bankruptcy of corporation and receipt of dividends, ^ 400. that there are unappropriated assets of the corporation, § 401. that assets of the corporation have been misappropriated, ^ 401. that the receiver has been guilty of misconduct, g 402. that officers of the corporation have been guilty of misconduct, § 402. that there is a prior liability of officers unexhausted, g 403. that there has been a violation of corporate duty, § 404. that the contract under which the plaintiff claims is ulira vires, §J 405, 406. that there is no such corporation, ^^ 407-414. that the statute constituting the corporation was unconstitutional, §415. that the debt is tainted with usury, g 416. that the proceedings assessing the shareholders were irregular, g 417. that bill-holders are entitled to priority of payment, § 420. DEMAND. upon corporate officers by creditor, when necessary, before attacking stock- holder, 2 314. what constitutes a sufficient demand, § 314. upon corporate officers, under Massachusetts statute, before levying upon stockholders, § 313. DEPOSIT. payment of, not necessary in order to constitute one a shareholder, § 107. made by foreign insurance companies with the state, need not be exhausted before attacking shareholders, g 322. 506 INDEX. DILIGENCE. required in subscriber in obtaining rescission of contract to talce shiiros, in- duced by fraud, JJ 150-152. DIRECTORS. of corporations compelled in equity to make " leviationa " upon share- holders to satisfy creditors, J 16. \ liability of, for official defaults, ^ 38. liability of stockholders for defaults of, J 38. liability of, for contracting debts above amount of paid-up capital, J 54. taking shares to qualify «s, J 137. serving as, fixes person with character of stockholder, JJ lli2, 163. transfer of shares with consent of, where consent is necessary, J 220. waiver of right of, to prohibit transfer, J 220. consent of, when necessary to admit executors, administrators, or legatees as proprietors, ^ 252. cannot be joined in suit for ofBcial defaults, J 352. DISCHARGE OP STOCKHOLDER. by breach of contract ol' subscription, J§ 186-190. by legislative alteration of charter, |J 70, 18i>. effect of legislative alteration of contract, § 186. effect of change of denomination of shares, J 187. effect of changing name of corporation, ^ 188 effect of enlarging project for which ciir|iovaUon was organized, J 188. effect of ch.inging route of railroad or plank-road, J 188. effect of increase of capital stock, § 189. when subscriber entitled to consider the enterprise abandoned, J 190. by new contract, J 204. DISCOVERY. when, the ground of equity jurisdiction in proceedings against share- holders, § 367. bill for discovery of shareholders and their respective liabilities not a fish- ing bill, 5 367. proceedings under bill for discovery, J 367. DISSOLUTION OF CORPORATION, does not e.xtinguisli its debts, J 3. but equity will appoint trustee to wind up, § 8. when a condition precedent to the right of creditors to proceed against shareholders, J 310. what works a, § 311. dissolution, how pleaded, J 312. need not be judicially ascertained — insolvency and disbandment sufficient, ? 310. failure to elect officers does not work a, § 311. charter expires when injunction made perpetual, J "11. bankruptcy does not dissolve corporation, ^ 400. nor out off remedy against stockholders, J 400. DIVH1KNDS. improperly made recalled in equity for the benefit of creditors, J 18. INDEX. 507 DIVIDENDS — Continued. otherwise as to bond, fide dividends of profits, I 19. one who receives, concluded from denying relation of stockholder, J 168. exceptional cases, J 169. DOUBLE LIABILITY. meaning of this expression, J 36. "ELASTICITY OP STATUTES." illustration of Mr. Bishop's doctrine of, § 57. ENDORSEE. when entitled to sue to enforce individual liability, 2 343. EQUITABLE ASSETS. whether equitable assets of corporation must be exhausted before creditor entitled to proceed against shareholder upon his statutory lia- bility, I 324. distinction between legal and equitable assets in respect of priorities among creditors, § 420. EQUITIES. of creditor superior to and exclusive of those of stockholder, J 18. EQUITY. doctrine of, that capital stock is a trust fund for creditors, § 10. how this fund pursued in equity, § 12. grounds upon which such courts proceed in giving relief to creditors, ^ 13. cases in which equitable relief is invoked, I 14. ground of equitable relief where stock is not paid in, § 15. will compel directors to make assessments, ^ 16. origin of this doctrine : Dr. Salmon v. The Hamborougb Co., J 16. or make assessments by its own methods : illustrations, J 17. grounds of relief in, where stock has been improperly divided, I 18. remedy against deceased shareholder is in equity, § 250. when remedy against shareholder is in equity and when at law. See Eemedies. ESTOPPEL. See Condtjct. against shareholder, where credit has been given on the faith of a by-law enlarging liability of, J 4. doctrine of estoppel by contract applicable to corporations, | 68. evidence of waiver by stockholder of constitutional immunity against operation of statute imposing individual liability, I 69. of stockholder by judgment against corporation, H 329, 337. EVIDENCE. to support plea of payment under English statute, I 130. name on corporate books primd' facie evidence of being a shareholder, g 177. manner of proving existence of corporation, J 369. when the books of the corporation are evidence in suits to charge stock- holders, l^ 870, 371. how shareholder may prove payment, J 372. 508 INDEX. EVIDEiSrCE — Continued. manner of proving defendant a stockholder, J 373. proof ot' corporate existence, J 407. EXECUTION. of transfer of shares \>y both parties, J 221. effect of non-compliance with statute requiring, § 221. See Trans- fers. against corporation, and return of nulla bona, generally condition precedent to the right to proceed against shareholders, J 320. duties and responsibilities of officers levying executions against stock- holders under Massachusetts statutes, J 377. EXECUTORS. purchasing stock without authority, personally liable, § 251. paying legacy without provitling for future calls on shares, personally ■ liable, 251. purchasing further shares personally liable, J 251. EXECUTORS AND AD-MIXISTRATOES. of deceased shareholders liable, gj 248-254. mode of enforcing contribution from deceased shareholder's estate, J 250. when executors personally liable, § 251. whether executor or legatee a contributory, J 252. executors de son tort, J 253. the American doctrine touching the liability of the estate of a deceased shareholder, | 254. EXPIRATION OP CHARTER. See Dissolution. charter expires when injunction made perpetual, J 311. PAH^URE OP CONSIDERATION. failure to perform parol conditions varying contract of subscription is not a, J 124. See Contract to take Shares ; Praud. FICTITIOUS NOTE. given to insurance company to enable it to deceive a public officer, binds the maker, J 206. PIERI PACIAS. and return of nulla bona thereon a condition precedent to the right to pro- ceed against shareholders, J 320. See Execution. FORMS OP ACTION. See Remedies. application of statutes of limitation to ditferent forms of action, J 286. in suits at law to enforce stockholder's liability, § 365. POREION CORPORATIONS. See Private INTER^fAT^ONAL Latv. liabilitj' of domestic stockholders of, 'J^ 80-86. construction of New York statute to facilitate collection by domestic cred- itors of debts due by, § 83. PORPEITURE OF SHARES. is a cumulative remedy against shareholders, J 193. releases shareholder, § I'Jo. INDEX. 509 FOEMIITURE OP SB. AWES — Continued. but not if forfeiture is collusive, JJ 194, 195. nor if ultra vires, J 196. but such forfeitures cured by acquiescence or laches, §§ 197-200. arrangement between corporation and stoclcholder, releasing stockholder, void as to creditor, J 201 . but bond fide compromises with stockholders are valid, JJ 202, 203. discharge of stockholder by new contract, J 204. eflFect of corporation purchasing its own shares, J 205. fraudulent withdrawal of premium notes given to mutual insurance com- pany, § 206. effect of paying stoclc and taking money back as a loan, ^ 207. shares forfeited within one year of dissolution, shareholder remains a con- tributory under English Companies Act, g 19. See Present AND PAST Members. FRAUD. See Fraudulent Transfers op Shares; Forfeiture of Shares. parol declarations varying terms of subscription not amounting to, void, 5121. fraudulent conditions to induce subscriptions, ^ 121. practised upon legislature to induce granting of charter does not invalidate the subscription, ^ 122. subscriber giving subscription to defraud other persons, or the legislature, held bound by its terms. §J 121-124. arrangements as to payment of stock in goods or lands may be impeached for, ? 127. effect of, upon the contract of subscription, J 142, 143. doctrine of the English courts as to the liability of shareholders who have been induced to become such by fraud, §J 136-156. doctrine of Oakes v. Turquand, ^^ 147, 148. doctrine of Henderson v. Royal British Bank, § 149. promptness required of subscriber in discovering fraud and avoiding sub- scription, 5 150. illustrations — variance between prospectus and memorandum, ^ 151. notice of variance, J 152. rectification of register, § 153. rule where shareholders are in pari delicto, J 154. illustrations of fraud and other circumstances affecting subscriptions — subscribers released, § 155. illustrations of fraud and other circumstances affecting subscriptions — subscribers not released, ^ 156. cases illustrating the effect of fraudulent representations made by agents of corporations to induce persons to take shares, upon the right of such persons to be released where the question arises between the corporation and the subscriber, J 142, note 2, pp. 165-167. doctrine of Supreme Court of United States, ^ 143. effect of fraudulent representations inducing subscriptions to increase of capital stock, g 143. 510 INDEX. FRAUD — Continued. distinction between fraud committed by agent and fraud committed by corporation, g 146. subscriber, induced to become such by fraud, entitled to remedy against the person committing the fraud, § 147. contract induced by, not void, but voidable, g 147. can only be rescinded in a reasonable time, | 147. FEAUDDXB^TT TRANSFERS OF SHARES. in what cases leave transferee liable to creditors, §§ 211-215. the English and American doctrine on this subject JJ 212-215. FUTURE DEBTS. of corporation, stockholder may be made liable for, g 65. GUARANTY. application of statute of limitations where the liability of the stockholder is in the nature of a guaranty of payment, g 295. GUAEANTOES. shareholders liable as partners are not, § 34. liability of stockholder resembles that o^ in Pennsylvania, J 35. and in Michigan, § 35. HENDERSON v. ROYAL BRITISH BANK. doctrine of, as to the effect of contracts to take shares induced by fraud, and the effect of laches and acquiescence, J 149. HYPOTHECATION OP SHARES. transferee in pledge liable as contributory, g 223. liability continues, even after debt paid, unless stock is retransferred, §223. INCEEASE OP CAPITAL STOCK. statutes of personal liability applicable to increase of capital stock, J 38. when, constitutes company a corporation de facto, § 410. INDIVIDUAL LIABILITY. meaning of this expression, § 36. INFANTS. effect of contract of, to take shares, J 228. person purchasing shares for, when liable as a contributory, § 229. person transferring shares to, when liable as a contributory, § 229. transfers to, to escape liability, void, § 229. otherwise where shares are sold in open market and purchased by infant without the knowledge of the seller, J 229. father personating infant son is himself a contributory, g 229. effect of transferring shares through an infant to an adult, § 230. ratification by infant, after majority, of contract to take shares, J 231. such ratification presumed after acquiescence for some time, J 231. illustrations, JJ 231, 232. INDEX. 511 INFANT TRANSFEREES. See Infants. IGNORANCE OF LAW. effect of, upon the contract of subscription, §^ 144, 145, does not relieve stoclcholder from subscription, § 144. not even in case of ignorance of foreign law, J 144. INJUNCTION. in a general winding-up bill, separate suits by creditors enjoined. | 356. "ILLEGALITY." what defence stockholder may make under affidavit of, in Georgia, ^ 333. IMPRISONMENT FOR DEBT. statute discharging stockholder from imprisonment not invalic?, J 73. constitutionality of statutes abolishing imprisonment for debt, § 73. INNOCENT PURCHASER. of "paid-up shares" not liable to creditors of company, ^J 130, 135. ESTSOLVENCT. See Bankruptcy. of corporation, a condition precedent to liability of stockholders, § 29. under Connecticut statute renders stockholders liable as partners, J 29. non-liability of assignee of insolvent shareholder in Massachusetts, J 245, note 2. of corporation, puts in motion the statute of limitations in favor of share- holder, §§ 294, 295. of corporation, when a condition precedent to the right to proceed against shareholders, ^ 319. whether return oi nulla bona a sufficient proof of, J^ 320, 332. appointment of receiver is a sufficient evidence of, g 321. INSOLVENT STOCKHOLDERS. solvent stockholders not bound to make up deficiencies of, § 38. otherwise, where liability is that of partners, § 39. INSURANCE COMPANIES. effect of agents of, taking shares to be paid for by commissions on risks procured by them, g 136. INTEREST. when allowed in proceeding to charge stockholder, J 374. INTERPRETATION, "debt," II 57, 58. "contracted," when debt is deemed to have been, §J 59, 60. "laborers," "servants," and "apprentices," g 61. JOINT-STOCK COMPANY. differs from a corporation, how, § 2. members of, liable as partners, § 2. shares of, transferable like those of corporations, § 2. members of, cannot restrict their liability by agreements inter se, J 4. liability of members of, after becoming incorporated, § 5. 512 INDEX. JOINT AND SEVERAL LIABILITY AS PARTNERS. this liability of stockholders stated and illustrated, §§ 23-33. charters and statutes under which this liability arises, J 27. liability "at all times for all debts," g 28. "liable in their pi-ivate capacities," J 29. liable "personally," § 30. "jointly and severally liable," § 31. "individually and personally liable for his proportion of all the debts," etc., ? 32. proviso in charters against non-liability, § 33. leaves stockholders liable as partners, § 33. , nature and incidents of this liability restated, ^ 34. JOINT AND SEVERAL LIABILITY AS GUARANTOES. nature and incidents of this liability of stockholders, g 34. and illustrations of the same, g 35. JOINDER. See Parties. JUDICIAL LEGISLATION. strict construction of statutes frequently is, ^J 52, 53. JUDGMENT. against shareholder of foreign corporation, g 83. against corporation, when a condition precedent to the right to proceed against shareholders, § 317. concludes shareholder, ^ 329, 337. contrary rule in New York, § 330. former practice in England, 331. practice under Companies Clauses Consolidation Act, § 332. practice under affidavit of " illegality " in Georgia, | 333. where stockholder is liable only for a particular class of debts, J 334. where the corporation has been dissolved, J 835. whether suit against stockholder is upon julgment or original demand, J 336. conclusiveness of judgment against corporation in supplementary pro- ceeding against stockholder, ^ 337. judg:ment op ouster. not necessary to a dissolution of a corporation such as will enahle cred- itors to proceed against shareholders, § 310, note 4. laches. in obtaining rescission of contract to take shares induced by fraud renders the contract valid, J? 1*3, 146-150. "LAST DELIVERED MEMORIAL." persons appearing in, charged as shareholders under English act of 1844, J 219. LAW AND EQUITY. as to when proceedings to charge shareholders are at law and when in equity. See Remedies. INDEX. 513 LEGAL AND EQUITABLE SHARE-OWNERS. status and liability of, ^J 177-183. legal owner chargeable with liability, J 178. LEGATEE. of shares, when liable as a contributory, g 248. of its own shares, corporation may be, J 237. LEVYING OFFICERS. duties and responsibilities of officers levying process against stockholders under Massachusetts statute, J 377. LIABILITY. See Non-Liability. of stockholdei-s classified, J 25. joint and several as partners, JJ 26-33. joint and several as guarantors, ^J 34, 35. limited several, §J 36-43. unlimited several, JJ 44, 45. LIABILITY UNTIL STOCK PAID IN. nature and incidents of, § 38. applies to increase of capital stock, J 38. measure of par value of stock, ^ 38. proceeding to enforce, either at law or in equity, J 38. LIMITED SEVERAL LIABILITY. nature and illustrations of this kind of liability of stockholders, §5 36-43. nature and divisions of, § 36. according to amount of stock held, § 37. for each member's proportionate share of the corporate debts, §§ 39-43. illustrations of this liability, J 40. former exceptional rule in Georgia, J 41. construction of statute of Massachusetts, J 42. under California act of 1863, J 43. judgment c:vnnot be rendered against all in solido, J 45. LIMITED PARTNERSHIPS. law of, as to non-liability of limited partner, § 75. special partner cannot pay his subscription in goods, § 126. LOANS. moneys paid for shares and loaned back to stockholder leaves him liable to creditors, i 207. MAJORITY. of corporators, limit of power of, to bind minority, g 69, MARRIED WOMEN. status and liability of, as shareholders, J 233. effect of contract by, to talce shares, § 233. such contract binding if made on faith of separate estate, J 233. husband reducing shares into his possession becomes liable, ^ 233. otherwise, wife remains liable, J 233. when both husband and wife put on list of contributories, J 233. 514 INDEX. MARRIED 'WOMEN — Continued. person marrying female shareholder liable for what debts, J 233. trustees holding shares for married women liable to creditors, I 233. MATERLA.LS. construction of statutes making stockholders liable for materials and sup- plies furnished corporation, ^ 61. MEMORANDUM OF ASSOCIATION. signing, makes one a shareholder, J§ 105-109. MIGRATING CORPORATION. liability of members of a corporation which does business wholly in another state, J 86. corporation, by migrating to another state, does not disrobe itself of its franchises, J 86. nor do its members become liable for the torts of Its servants, if not liable in state of domicile of corporation, J 86. effect of chartering corporation to do business wholly in another state or country, J 86, note 2. MISAPPROPRIATION OP ASSETS. by receiver, no defence to proceeding against stockholder, J 401. MISRECITAL. in bill for charter, corporators concluded by, § 163. MISTAKE. effect of upon the contract of subscription, J 144. grounds on which courts of equity relieve in case of, J 145. MULTIFARIOUSNESS. creditor may maintain bill to charge two or more deceased stockholders, ?250. bill to charge stockholders and to set aside fraudulent conveyances of cor- porate property not multifarious, ^ 368. otherwise, bill to charge directors for ofiBcial defaults and stockholders in respect of their individual liability, § 368. bill against officers charging different grounds of liability not multifarious, 3 368. NEGLIGENCE. See Conduct. of person induced to take shares by fraud fixes his liability as contribu- tory, as to creditors, J 150. NOTICE. of stipulation between partners for non-liability, how affects creditors, J 75. of performance of condition of subscription, § 116. of variance between prospectus and memorandum, J 152. proceedings against shareholders without, not favored, J 327. but shareholder not entitled to contest the merits in suit against cor- poration, § 328. judgment against corporation concludes shareholder, ^ 329. INDEX. 515 NOTICE — Continued. construction of the provision of Massachusetts statute providing for notice to stockholders of suit against corporation, J 327. stockholder not entitled under such statute to contest the merits, J J 327, 828. but may show that plaintiff is himself a stockholder, and therefore disabled from suing, ^ 327. stockholder not summoned, his liability not merged in judgment, J 327. NOTICE OP TRANSFER. effect of unregistered transfers, J 217. in case of a public registration of shareholders, J 219. statutory provisions respecting notice of transfer, J 222. NON-LIABILITY. of members of corporations, § 1. not a test of fact of corporate existence, J 1. at common law and in equity, g i. agreements among stockholders for, void as to creditors, J 75. effect of notice of such agreement, § 75. NON-JOINDER. See Parties. NTCTLLA BONA. j udgment, fien facias and return of, as to corporation generally a condition precedent to the right to proceed against shareholders, J 320. NUL TIEL CORPORATION. defence of, by stockholders, JJ 407-414. NUMBERS. of shares immaterial, § 217. OAKES V. TURQUAND. doctrine of, on the effect of subscription to capital stock obtained by fraud, stated, II 147, 148. OFFICER OF CORPORATION. cannot purchase claim of corporation and sue upon it, J 347. prior liability of, when a defence on the part of stockholder, J 403. violation pf corporate duty no defence on the part of stockholder, J 404. OFFICIAL LIQUIDATOR. enforces rights of creditors only in the right of the company, g 133. ORGANIZATION OP CORPORATION. irregularities in, no defence on the part of stockholder, JJ 407-414. PAID-UP SHARES. See Payment. liability of holder of, under recent English doctrine, where shares have not been paid for, § 133. non-liability of innocent purchaser of, J 135. shareholders of so-called paid-up shares liable to pay par value to creditors if shares have not in fact been paid-up, ^ 201. 516 INDEX. PAEOL CONDITIONS. toucliing contract of subscription not binding, unless amounting to fraud, ? 121. not enforced in equity, § 124. PAROL SUBSCRIPTION. to the capital stock of a corporation not valid, J 108. PAKTIES. I. Jmnder of Plaintiffs. heirs and legatees necessary parties to bill to charge estate of deceased stockholder, § 250. who may sue to enforce liability of shareholder, §J 340-347. in case of liability for calls, J 340. when suit should be prosecuted by receiver, g 340. when by person holding bank-bills as trustee, § 340. when cestui que trust must be joined, J 340. when suit should be brought by assignee in bankruptcy, J 341. in case of statutory liability, J 342. endorsee of note entitled to sue, J 343. person holding bank-bills as collateral security, J 344. when suit not maintainable by, purchasing bills after insolvency and division of capital, ^ 344. assignee of stock subscription may sue for calls, § 345. shareholder may not sue at law to enforce liability of other share- holders, § 346. but his assignee may, § 346. officer of corporation cannot buy up claims of corporation and sue thereon, 2 347. //. Joinder of Defendants. in an action at law against stockholders liable as partners, ^ 27. non-joinder, how objected to, J 27. in case of several liability, stockholders sued separately at law, g 37-43, otherwise in equity, J 37. exceptions and illustrations, ^ 37. at law, shareholders cannot be joined, § 45. effect of a foreign statute requiring suit in equity against all shareholders, §85. joinder of parties defendant, §J 349-361. of defendants in cases at law, J§ 349, 350. suit in equity must be in behalf of all creditors, § 351, 352. whether against all shareholders, §5 853-357. view of Mr. Justice Bradley, J 354. doctrine of the Supreme Court of the United States, J 355. rule in Wisconsin, J 356. how, if there are stockholders out of the jurisdiction, J 357. but decree may be several, JJ 358, 359. when the corporation must be joined, § 860. conclusion that all creditors, all stockholders, and the corporation should be joined, 2 861. INDEX. 517 PAEXrES — Continued. in case of limited several liability each stockholder should be severally sued at law, § 349. but if liable as partners all should be joined, J 349. but two may be joined in the same writ of garnishment, J 350. non-joinder, how pleaded, § 349. under statutes making stockholders liable for laborers' wages, all should be joined, J 350. and in Pennsylvania the corporation also, J 350. if suit is on special promise, stockholder sued separately, J 350. dormant partners not joined in creditor's bill, J 352. nor directors, in suit for official defaults, ^ 352. in general winding-up bills, separate suits by creditors enjoined, J 356. stockholders out of the jurisdiction need not be joined, J 357. PAROL TESTIMOITY. See Contract to take Shares ; Fraud. when admissible in behalf of stockholder to contradict entries made in corporate books, ^ 371. when not admissible, J 371. PARTNERS. See Joint and Several Liabilitt as Partners. comparison between status of, and corporator, J 1. nature of the liability of, ^ 26. liability of stockholders as, stated and illustrated, JJ 26-33. PARTNERSHIP. liability of retiring member and of new member, ^ 90. difference between a, and corporation, § 1. special partner cannot pay his subscription in goods, § 126. status of partner induced to become such by fraud, § 143. right of creditor to pursue estate of deceased partner, J 254. dormant partners not joined as plaintiffs in creditor's bill, g 352. PAYMENT. of deposit not necessary to constitute one a shareholder, § 107. of shares, H 126-136. collateral agreement as to payment of shares varying the contract of sub- scription or charter, void, g 126. undisclosed agreement to pay other than in money, void, ? 126. doctrine of the English courts, that payment of shares must be in money or money's worth, I 126. effect of unexecuted agreement to pay in goods, where company becomes incapable of receiving, § 126. See J 384. policy of allowing shares to be paid for in specific property, g 127. statute of New York on this subject, § 127. arrangement for paying shares in specific property impeachable for fraud, ?126. validity of payment for stock in specific property, as illustrated by a case in Pennsylvania, J 126. agreements that shares shall be deemed fully paid up, J 129. illustrations drawn from English oases, J 129. 518 INDEX. PAYMENT — Continued. effect of delivering paid-up shares in specific property purchased by cor- poration, J 130. construction of English Companies Act, 1867, § 25, requiring payment in cash, J 130. credit given company on account of purchases of specific property is deemed a payment in cash, J 130. of corporate debts, how proved by shareholder, J 372. by shareholder of his proportion of the corporate debts a complete de- fence, J 380. unless made to one not having the prior right, J 380. when payment to the corporation no defence, J 381. unexecuted contract to pay for shares in specific property not binding, gj 126, 384. construction of statute of Maine discharging shareholder upon paying debts of corporation, ^ 389. whether » voluntary payment of corporate debts a defence by share- holder against creditors, JJ 391, 392. PAYING CALLS. estops the payor from denying the relation of stoclcholder, JJ 162, 163, 170. PENALTY. imposed on stockholders by legislature for failure to pay future assess- ments valid, J 65. PENAL STATUTES. statutes attaching to stockholders liabilities in the nature of penalties con- strued strictly, ^J 52-58. and not enforced in other states, §§ 83, 84. PERIOD AT WHICH LIABILITY ATTACHES. See Peesent aub PAST Members. PLEDGE OP SHARES. liability of pledgees to whom shares have been transferred, J 223. to whom shares have been issued by the company, J 224. PREMIUM NOTES. fraudulent withdrawal of, given to mutual insurance companies loaves maker liable, § 206. remedies against maker in such case, J 206. if such note is given for a fraudulent purpose it will be binding on the maker, J 206. PRESENT AND PAST MEMBERS. liability as partners attaches to those who were members when the debt was contracted, J 34. unless retiring members sufi'ered themselves to be held out as mem- bers, ? 84. ■when liability attaches to shareholders who were such at the time the ac- tion was brought, J 28. INDEX. '519 PRESENT AND PAST WSLMB'KRS — Continued. Constitution of Ciilifornia satisfied by malting stookliolders liable who were such when debt contracted, J 74. to what class of stockholders liability attaches, J? 92-102. under special statutes and charters, ^J 91-93. exceptional rule in some states where liability is that of partners, ii 94-96. liability of past members under English statute, JJ 97, 98. when liability attaches under statutes creating individual liability until all stock paid in, J 99. or in case corporate indebtedness exceeds a given limit, g 100. effect of renewals, J 101. in case of a bank whose capital has been reduced, ^ 102. under former English statutes, creditors required to exhaust liability against present members before attacking past members, J 97, note. PKESCRIPTION. effect of, under Louisiana Code, upon stockholder's liability, J 294. PRESUMPTION OF PAYMENT. does not arise in favor of shareholder against creditor of corporation, §283. PRINCIPAI; AND AGENT. See Aqenot. PRIORITY AMONG CREDITORS. when creditor'first suing does not obtain preference, J 351. whether creditor proceeding under statutes giving remedy supplementary to execution obtains a priority over others, J 366. stockholder sued by creditor may plead prior judgment obtained by other creditor, J 390. banking corporation cannot urge that bill-holders are entitled to priority of payment, ^ 420. judicial preferences preserved in equity, g 420. distinction between administering legal and equitable assets, J^ 420, 421. doctrine in Ohio, J 421. view of Mr. Justice Bradley, J 422. doctrine of Briggs v. Penniman, § 422. in case of winding-up by a receiver, J 423. priority of creditor first suing stockholder, JJ 423, 424. doctrine in Maine, J 425. priority of creditor first obtaining judgment, J 426. PRIOR JUDGMENT. may be pleaded by stockholder against creditor, 398. PRIOR SUIT PENDING. whether a stockholder sued by one creditor may plead the pendency of suit brought against him by another, J 399. PRIVATE INTERNATIONAL LAW. extra-territorial force of statutes of individual liability, JJ 80, 86. liability of stockholder governed by law of domicile of coi'poration, J 80. 520 INDEX. PUrVATE INTERNATION"AL LXW — Coiitiimed. if resting in oontract, good ovoryvvlu'ro, J 81. how, if statutory, J 82. how, if penal in its nature, J§ 82, 84. how, if a foreign statute requires a suit in equity against all share- holders, § 85. liahility of members of migrating corporation, ^ 86. resident members of domestic corporations liable for debts due to citizens of other states, J 86. PRIVITY. between stockholder and corporation, J 827-833. PROHIBITED TRANSFERS. See Transfers, g 220. PROJECTED COMPANY. subscription to capital stock of, a mere proposition, J 120. PROMOTER. effect of conditional agreement of, to take shares, ^ 117. PROMISSORY NOTE. given for stock, deemed a waiver of condition in subscription, J 116. PROVISIONAL COMMITTEE. acting as member of, does not make committee-man a contributory unless he accepts shares, J 1C7. PROXY. to vote stoclc, evidence that the person giving it was a stockholder at a particular time, ^ 96. QUALIFICATION SHARES. whether acting as director charges the person with liability in roapoot of the number of shares necessary to qualify him for director, J 137. effect of taking shares to qualify as director, under secret arrangement stipulating against liability as a shareholder, §g 137, 138. RATIFICATION. of contract to take shares induced by fraud presumed by lapse of time, ?? 143, 146-150. by conduct, of agreement to take stock in future company, J 165. of subscription by unauthorized person, 5? 161, 10(1. RECEIVER. of foreign corporation may maintain action against resident stockholder, J 81. appointment of, establishes right of shareholder to proceed against creditor, ?321. whether proof of claim before receiver of corporation necessary to enable creditor to proouod against sharoholdor, J 328. when suit to charge stookliolders should be brought by, JJ 840, 341. may not sue to enforce individual liability, J ;M2. otherwise, receiver under National Banking Act, § 342. INDEX. 521 RECEIVER — Continued. misappropriation of assets by, cannot be pleaded by stockholder, J 401. misconduct of, no defence in proceeding to charge stockholder, J 402. RECTIFICATION OF REGISTER. may be had in case of variance between prospectus and memorandum, J 153. REGISTRATION OP CORPORATION. effect of, on shareholder's liability, J 11. policy of statutes requiring, J 125. how considered in favor of creditors, ^ 125. rights of, not affected by undisclosed agreements, J 125. REGISTRATION OP TRANSPERS. effect of unregistered transfers of shares, J 217. in case of a public registration of shareholders, J 219. RELEASE OF SHAREHOLDER, by forfeiture. See PoRrEiTUED. or forfeiture void as against subsequent subscribers, J 201. collusive forfeiture releasing shareholder, JJ 194, 195. ultra vires release of shareholder, J 196. whether such release can be cured by acquiescence and laches, JJ 197-200. arrangements between corporation and stockholder releasing stockholder void as to creditor, J 201. but bond fide compromises with stockholder valid, JJ 202, 203. whether a release of a shareholder by one creditor is good as to others, g 393. effect of such a release, whether it releases a shareholder's liability or only a pro rata share of it, J 393. RELIGIOUS CORPORATIONS. personal liability of members of, § 8. REMEDIES. See Porm of Action. shareholders liable as partners must be sued directly, on original eon- tract, ? 28. scire facias on judgment against corporation will not lie, J 28. in case of liability as partners, may be sued at law, J 30. statutory remedy against stockholders strictly followed, § 56. statutes affecting, not invalid — illustrations, J 73. to call in impaid assessments for creditors is in equity, J 258. reasons of the rule, J 259. in case of a statutory individual liability, ^ 260. in case of a liability in proportion to stock held, ^ 261. where the creditor is also a stockholder, ^J 282, 263. in case of deceased shareholders, §J 250-264. doctrine that equity will not relieve one who has a remedy at law, J 265. where liability that of partners, action lies at law, JJ 27-34. statutes of limitation apply both at law and in equity, J 281. under Georgia bank charters, remedy was at law, J 365. form of action in such cases, J 365. whether a concurrent remedy against shareholders exists at law, 2 266. 522 INDEX. REMEDIES — Continued. the leading American coses, § 267. rule in Illinois, § 268. rule in Maryland, I 269. rvile in Slissouri, Kansas, Georgia, J 270. in Pennsylvania, remedy nt law exclusive, ^ 271. remedy at law where liability is that of a partner, J 272. under a statute of Rhode Island, J 'ITi. under statutes of New York, Wisconsin, § 274. jui'isdiction of law ousted by commencement of suit in equity, J 275. proceeding by garnishment, JJ 276, 277. RENEWALS. effect of renewing notes of corporation upon liability of stockholders who were such at the time the debt was contracted, J 101. effect of renewing indebtedness upon the op 'ration of statutes of limita- tion upon- the liability of stockholders, J 298. REPEAL. of individual-liability laws, if retroactive, void, J 71. valid as to stockholders subsequently joining, J 72. RETROSPECTIVE LAWS. See Constitutional Law. statutes not construed as retrospective, § 62. RETRANSPER. of shares hypothecated necessary to discharge liability of pledges, § 223. RESCISSION. of contract to take shares induced by fraud, J 143. SEAL. See Specialty. SECONDARY LIABILITY. oases in which liability of stockholder has been assimilated to that of guarantors or sureties, § 35. SECRET AGREEMENTS. «s to payment of shares. See Payment. with shareholders touching contract of subscription, effect of, JJ 124, 125. effect of issuing shares to qualify a person as a director, upon agreement that he shall not, in fact, be liable as a shareholder, JJ 137, 138. SET-OFF. whether stockholder sued by creditor can set off a claim against the cor- poration, J 381. in case of individual statutory liability, J 381. in case of liability for unpaid stock or calls, J 382. ditt'erenco in this respect between limited and unlimited companies, JJ 382, 383. grounds on which the English decisions proceed, J 388. special contract for the right to set off, J 384. right of sot-off whore the shareholder is a bankrupt, J 885. reasons which support the disallowance of the right of set-off, J 386. i&DEX. 523 SET-OFF — Continued. where the corporation is in hanliruptoy, § 888. loss sustained by policy-holder cannot be set-off against his liability, J 388. stockholder cannot buy up claims against insolvent corporation and set them off against his liability, 2 388. whether stockholder may buy up claims against the corporation and prove them up ivs a creditor, g 394. company may set off calls against its own debt due to stockholder, J 395. SEVERAL LIABILITY. of stockholders, limited, stated and illustrated, H 36-43. unlimited, J 44. SHARES. are personal property, g 248. and pass to personal representative, not to heir, 2 248. SHAREHOLDER. See Stockholders. if a creditor, remedy against other shareholders, J 262. SOVEREIGN STATE. status and liability of, when a stockholder in a corporation, § 20. SPECIALTY DEBTS. whether stockholder's liabilities are in the nature of, and hence not sub- ject to statutes of limitation, § 284, 285 SPECIAL PARTNER. cannot pay his subscription in goods, § 126. STALE DEMAND. application of equitable doctrine of, to stockholder's liability, J 289. STATUTES. construction of, making stockholders personally liable for the corporate debts, JJ 50-62. in some courts construed strictly, J 50. contrary view of Mr. Justice Story, § 51. doctrine of strict construction denied, ^ 52. rule of sensible construction, J 53. such statutes, if penal, strictly construed, J 54. otherwise, supplanting one more onerous, J 55. statutory remedy to be followed, § 56. illustrations — meaning of the word " debt," ^J 56, 57. when the debt is deemed to have been "contracted," J 59. debt paid by surety, g 60. debt due for labor, provisions, etc., § 61. such statutes not construed as retroactive, J 62. illustration of Mr. Bishop's doctrine of "elasticity of statutes," § 57. liability founded on, in the nature of a specialty, J 285. application of this doctrine of the statutory liability of stockholders, 3 285. 524 INDEX. STATUTES OF LTlSriTATIOX fraudulent transfer of shares does not divest liabilitv if that of partner, I 96. not applicable where debt does not arise until after call. J 250. applied both at law and in equity. J 281. effect of doctrine that capital stock is a trust fund, J§ -82. 2$3. whether liability of stockholder is in the nature of a specialty debt, § 284. how in case of statutory liability, g 285. application of statutes of limitation to ditterent forms of action, J 286. power of legislature to shorten statutes of limitation, § 287. what is the commencement of an action, such as arrests the running of a statute, J 288. doctrine of stale demand, J 2S',1. when the statute begins to run, |§ 84, 96, 290. where the liability is for unpaid balances on stock. 291 where the liability is that of a partner, J^ 34, 2ii2. where the liability is secondary, § 293. prescription under the Code of Louisiana, J 294. where the liability is in the nature of a guaranty of payment, J 295. in case of liability for mismanagement or deliiiquoncy. J 296. in favor of one wlio has transferred his shares, J 297. in case of renewals, § 298. in case of bank-bills, J 299. limitation as to time when suit shall be brought against corporation, JJ 801-303. statute of llaine as to past members, | 804. statute of Jlaine of six months, J oOo. statute of New York toucliing demands of piu'ely equitable cognizance, J 30B. statute of Ohio of March IS, 1839, § S07. effect of statute requiring creditor to commence his suit against the cor- poration within a given time in order to charge the stock- holders, § 315. STATUTE OP FRAUDS. oral promise of stockholder to pay debts of corporation not binding, | 4. STOCK. See Capital Stock. STOCKHOLDERS. not, in general, agents of the company. § 1. non-liability of, at common law, J§ 1, 4. in equity, J 4. of joint-stock companies, liability of members of, J 4. cannot enlarge their liability by by-law or resolution, J 4. effect of promise of, to pay debts of corporation, J 4. liability of, for debts incurred prior to incorporation, J 5. for frauds committed in dealing witli corporate assets, J 7. before the first allotment aird distribution of stock, J 6. in equity, J 9. the different kinds of liability of, classified, J§ 25, 45. INDEX. 525 STOCKHOLDEKS — Continued. joint and several liability of, as partners, J? 26-38. joint and several liability of, as guarantors, J^ 34, 35. limited several liability of, ^ 36-48. unlimited several liability of, J 44. liability of a state which is a stockholder in a corporation, J 20. in privity with the corporation, but not entitled to defend suits against it, ii 328, 329. how far concluded by judgment against the corporation, JJ 327-333. may not sue at law to enforce liability of otfher stockholders, JJ 262, 846. but the assignee of a stockholder may, ^ 346. not sureties for each other, J2 358, 359. may not buy up claims against the corporation and prove tiiem as creditor, P94. if a creditor, remedy against other shareholders, J 262. SUBSCRIPTION. See Conika.ct to take Shards. to capital stock, several and not joint, § 114. made for collateral purposes, JJ 122, 123. subscription of capital of projected company a mere proposition, § 120. parol conditions varying the terms of, not valid, g 121. SUMMARY REMEDIES. against stockholder not unconstitutional, JJ 76, 326. but proceedings without notice not favored, J 327. SUPPLEMENTARY PROCEEDING.- against stockholders, conclusiveness of judgment against corporation in, J 337. proceeding against shareholders supplementary to execution in the states of New York and Wisconsin, J 366. whether creditor first proceeding acquires a lien in preference to the others, ^ 366. SURETIES. shareholders liable as partners are not, ^ 34. liability of stockholders in Michigan resembles that of, § 35. extension of time discharges stockholder, when, ^ 35. stockholders are not, for each other, Jf 38, 39, 358, 359. otherwise, where liability is that of partners, § 38. debt paid by, when deemed to have been contracted, J 60 SURRENDER OF SHARES. See Porfkitukb oi' Shares. TAX. failure to pay, before commencing business no defence' by stockholders, 2 409. TAXATION. English joint-stock company doing business in America taxed as a corpo- ration, J 2. TRANSFERS. of transfers in general, including fraudulent, idtra vires, and unregistered transfers, §2 210-224. 526 INDKX. TEANSFERS — ConHmied. rijjht to transfer shares, J 210. eft'ect of fraudulent transfers of shares upon liability of stookholdor, |J 211-215. the English doctrine on this subject illustrated, I 212. English cases in which the transfer was held good because out and out, ^ 213. English cases in which the transfer was held void because a sham, J 214. the American doctrine stated, § 215. ultra vires transfers, J 216. unregistered transfers, J 217. transfers in blank, J 218. effect of a public registration of shareholders upon transfers, J 219. prohibited transfers, J 220. imperfectly executed transfers, ^ 220. statutory provisions respecting notice of transfers, § 222. effect of transfers in pledge — transferees holding stock as collateral se- curity, ^ 223. effect of company pledging its unissued shares, J 224 transfers to persons incapable of taking, J§ 227-240. divisions of the subject, J 227. of infant transferees, § 228. what, if company wound up during minority, J 223. effect of transfer through an infant to an adult, J 230. ratification after majority, §J 231, 232. transfers to married women, § 233. transfers to the company itself, |§ 284-240. effect of company recognizing a transfer irregularly made, J 217. power of directors to refuse to register a transfer, J 217. such powers subject to control of court, J 217. director, in transfering. shares, bound to see to the regularity of the transfer, J 217. and so is an auditor of the company, § 217. transferor p.aying debts of company may recover against transferee, J 217. but transferee nevertheless liable as contributory, J 217. when transferee in an irregular transfer becomes a shareholder by conduct ?217. to a nominee of the directors for the company, transferor liable, J 234. illustrations, JJ 235, 23G. exceptions to the rule, § 237. cases depending upon special circumstances, J 238. effect of a want of knowledge of the transferor, J 239. operation of the statute of limitations in favor of one who has transferred his shares, § 297. TRANSFERABILITY. of sliares one of the incidents of a corporation, J 1. TRUST FUND. capital stock is a, for orbditora, J 10. INDEX. 527 THUST F'U'S'D — Continued. how pursued by creditors in equity, §§ 12-18. grounds on which courts of equity pursued, J 13. cases in which equitable relief is invoked, § 14. grounds of equitable relief where stock is not paid in, J 15. conversion of, into ordinary assets by fraudulent device void as to cred- itors, § 207, note 1. effect of doctrine that capital stock is a, with reference to statutes of lim- itation, il 282, 283. TRUSTEES. See Execdtors and Administeatoes. holding stock for others must respond to creditors, and look to their cestui que trust for reimbursement, J 179. exception in case of executors, guardians, etc., ^ 179. illustrations, ^ 180. but if trust is fictitious, the beneficial owner is liable, § 181. so if shares are taken in name of fictitious person, J 182. or in name of persons non sui juris, § 183. stockholder an express trustee for creditors, so that statute of limitations does not run in his favoi-, J 282. under statutes, entitled to sue to enforce individual liability, § 342. ULTEA VIRES. doctrine of, considered, § 405. forfeitures of shares, |§ 19G-198. transfers of shares, § 216. transfers of shares to the company itself, in general, void, § 234, 236. exceptions to this rule, | 237. cases depending upon special circumstances, 238. effect of want of knowledge oh the part of transferee, JJ 239, 240. effect of a company pledging its unissued shares, § 224. transfers of shares to persons incapable of taking, § 227. power of director to sell shares of the company, J 237. bequest to a company of its own shares valid, § 237. purchase by a company of its own shares held good in New York, § 237; contra, § 236. whether stockholder may defend' by showing that the contracting of the debt was ultra vires, JJ 404, 406. UNAPPROPRIATED ASSETS. if corporation has, stockholder cannot be charged, § 401. UNASSESSABLE SHARES. See Paid-ot Shares ; Paymewt. effect of the word " unassessable " printed on stock certificate, § 201. UNLIQUIDATED DAMAGES. whether embraced in the *ord " debt" in a statute of individual liability, U 57, 58. UNLIMITED LIABILITY. reserved in charters, effect of, § 33. contingent upon certain events, — as, that all stock shall not be paid in, § 38. 528 INDEX. USER. of franchises evidence of corporate existence, J 407. USURY. not a defence by a stockholder, J 416. VAKI.VlSrCE BETWEEN PROSPECTUS AND MEMORANDUM. a [ground for obtaining rescission of a contract to talco shares, J 151. but shareholder must proceed with diligence, JJ 151, 152. VOLUNTARY PAYMENT. whether a defence by shareholder when proceeded against by creditors, J§ 391, 392. VOTING. at corporate meeting fixes voter with character of stockholder, J 162. WAGES. constrnction of statutes making stockholders liable for laborers' wages, J 61. wat\t:r. by stockholder of constitutional protection against retroactive law impos- ing individual liability, J 08. o\'idence of such waiver, § 69. of right to claim release from contract of subscription in consequence of legislative alteration of charter, J 70. by creditor of right to proceed against stockholders, ^ 75. of condition of subscription, J 116. of formality in transferring shares, J 217. of conditions precedent to the transfer of shares, § 220. of clauses in company's deed of settlejnent, § 262. WORDS. See Intbrprbtation. KF I4J4-8 Tij-7 j Author Vol. Thompson, Seymour Dwight. ™^ A Treatise on the Liabi 1 i ty ^°p'' of Stockholders in Corporations. Date Borrower's Name