in profit or loss,-but, to be entitled to the summary interference of the court, he must ask for it promptly, and before the act of which he complains has become the foundation of rights or equities which must be destroyed, or greatly impaired, if the act be nullified or undone. Or, stated with greater brevity, and in its simple essence, the rule is this: If he wants protection against the consequences of an ultra vires act, he must ask for it with sufficient promptness to enable the court to do justice to him without doing injustice to others. Kent v. Mining Co., 78 N. Y. 159; Shelden Hat-Blocking Co.v.Eickemeyer Hat-Blocking Mach. Co., 90 N. Y. 607; Watts' Appeal, 78 Pa. St. 370; Kitchen v. Railroad Co., 69 Mo. 224; Taylor v. Railroad Co., 4 Woods, 575, 13 Fed. Rep. 152; Graham v. Railroad Co., 2 Macn. & G. 146.

This principal must control the decision of the present applicacation. No argument is required to show its pertinency. When the leading facts of the case are recalled, it applies itself. Whether the complainants remained inactive, to speculate upon the chances, intending to abide by the consolidation if it resulted in benefit, and, if not, to try to undo it, it is manifest that they acted precisely as they would have done if such had been their intention. Although they were fully informed of each step in the consolidation scheme, from its inception to its completion, and also of the fact that the new corporation had been organized, and was actively engaged in the prosecution of the several enterprises which had previously been carried on by the four corporations separately, yet for over three years they remained passive and inactive, and did nothing; and it is not until the new corporation has become insolvent, and all of its property is about to be sold to pay mortgages which were made and accepted while they were apparently assenting to the amalgamation, and all its consequences, that they seek to have the consolidation broken up, and the property of the corporation in which they are interested restored to it. They laid by until the new venture proved disastrous, and then, for the first time, they ask the court to undo what for over three years they had, by their inaction and delay, been apparently assenting to. Acquiescence or tacit assent, in such cases, was defined by Judge Folger in Kent v. Mining Co., supra, to mean neglect to promptly and actively condemn the unauthorized act by suit. More than a year elapsed between the formation of the new corporation and the execution of the four mortgages to the defendant. If the validity of the new corporation had been promptly challenged by suit, it is almost absolutely certain that the debts secured by those mortgages would not have been contracted. Neither the mortgages or the debts would have then existed. As it is those mortgages are

unquestionably good and valid as against the assenting stockholders. It is probable that 237 out of the 249 shares have assented. It is certain that 184 have. In this situation of affairs it is obvious, to arrest the defendant's foreclosure suit will prevent him at least for the present, from enforcing that part of his security which is good beyond question; and this must be done, if done at all, to protect the complainants in the enjoyment of a right small in both extent and value, compared with that of the defendant, and which it is not at all certain they have not irretrievably lost by their laches. The complainants, in my judgement, occupy the position described by Lord Justice Turner when he said: "Suitors cannot come for the summary interference of the court when their conduct before coming has been such as to prevent equity being done." The complainants' application will be denied, with

costs.

CHAPTER VII.

CAPITAL STOCK.

SAWYER V. HOAG.

SUPREME COURT OF THE UNITED STATES, 1873.

(17 Wall. 601.)

The Trust Fund Theory-Nature of Capital Stock.

The Lumberman's Insurance Company of Chicago, was found to be insolvent after the disastrous fire of October, 1871, and in June, 1872, a petition was filed under which it was declared bankrupt, and the appellee appointed assignee. The appellant was a stockholder in the company to the extent of fifty shares of $100 each. Among the effects of the company which came to the hands of the assignee was a note of appellant for $4,250; and when payment was demanded of him, he produced and offered to set off against this demand the certificate of an adjusted loss given by the company to one Hayes for $5,000, which had been assigned by Hayes to appellant. This certificate was given to Hayes and purchased by appellant at thirty-three per cent. of its par value on the same day, namely; January 25, 1872, after the insolvency of the company was well known, but before any proceedings in bankruptcy had been commenced. Upon the refusal of the assignee to consent to this setoff, the appellant filed the present bill in the district court to enforce the set-off in which he alleged, among other things, that the note given by him to the Insurance company was for money loaned.

The assignee in his answer denied that the note was for money loaned, and avered that it was in fact for a balance due by appellant for his stock subscription which had never been paid, and insisted that such balances constitute a trust fund for the benefit of all creditors of the insolvent corporation, which cannot be made the subject of a set-off against an ordinary debt due by the company to any one of its creditors. After the general replication, the case was submitted to the district court on an agreed statement of facts. The district court decreed against the complainant, from which he appealed to the circuit court, which affirmed the decree below, and from that decree it is brought by appeal to this court.

Mr. Justice Miller: The first and most important question to be decided is, whether the indebtedness of the appellant to the Insurance company is to be treated, for the purposes of this suit, as really based on a loan of money by the company to him, or as representing his unpaid stock subscription.

The charter under which the company was organized authorized it to commence business upon a capital stock of $100,000, with $10,000 paid in, and the remainder secured by notes with mortgages on real estate or otherwise. The transaction by which the appellant professes to have paid up his stock subscription is, shortly, this: he gave to the company his check for the full amount of his subscription, namely, $5,000. He took the check of the company for $4,250, 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. The appellant and the company, by its officers, agreed to call this latter transaction a loan, and the check of the appellant payment in full of his stock; and 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. It is agreed that at this time the current rate of interest in Chicago was greater than seven per cent., and it is not stated as a fact whether these checks were ever presented and paid at any bank, or that any money was actually paid or received by either party in the transaction. It must, therefore, be treated as an agreement between the corporation, by its officers, on the one part, and the appellant, as a subscriber to the stock of the company, on the other part, to convert the debt which the latter owed to the company for his stock into a debt for the loan of money, thereby extinguishing the stock debt.

Undoubtedly this transaction, if nothing unfair was intended, was one which the parties could do effectually as far as they alone were concerned. Two private persons could thus change the nature of the indebtedness of one to the other if it was found to be mutually convenient to do so. And, in any controversy which might or could grow out of the matter between the insurance company and the appellant, we are not prepared to say that the company, as a corporate body, could deny that the stock was paid in full.

And on this consideration one of the main arguments on which the appellant seeks to reverse the decree stands. He assumes that the assignee in bankruptcy is the representative alone of the corporation, and can assert no right which it could not have asserted. The weakness of the argument is in this assumption. The assignee is the representative of the creditors as well

as the bankrupt. He is appointed by the creditors. The statute is full of authority to him to sue for and recover property, rights and credits, where the bankrupt could not have sustained the action, and to set aside as void, transactions by which the bankrupt himself would be bound. All this, of course, is in the interrest of the creditors of the bankrupt.

Had the creditors of this insolvant corporation any right to look into and assail the transaction by which the appellant claims to have paid his stock subscription?

Though it be a doctrine of modern date, we think it now well established that the capital stock of a corporation, especially its unpaid subscriptions, is a trust fund for the benefit of the general creditors of the corporation. And when we consider the rapid development of corporations as instrumentalities of the commercial and business world in the last few years, with the corresponding necessities of adapting legal principles to the new and varying exigencies of this business, it is no solid objection to such a principle that it is modern, for the occasion for it could not sooner have arisen.

The principle is fully asserted in two recent cases in this court, namely: Burke v. Smith 16 Wall., 390, and in New Albany v. Burke, 11 Wall., 96. Both these cases turned upon the doctrine we have stated, and upon the necessary inference from that doctrine, that the governing officers of a corporation cannot, by agreement or other transaction with the stockholder, release the latter from his obligation to pay, to the prejudice of its creditors, except by fair and honest dealing and for a valuable consideration.

In the latter case, a judgment creditor of an insolvent railroad company having exhausted his remedy at law, sought to enforce this principle by a bill in chancery against the stockholders. The court by affirming the right of the corporation to deal with the debt due it for stock, as with any other debt, would have ended the case without further inquiry. But asserting, on the contrary, to its full extent, that such stock debts were trust funds in their hands for the benefit of the corporate creditors, and must in all cases be dealt with as trust funds are dealt with, it was found necessary to go into an elaborate inquiry to ascertain whether a violation of the trust had been committed. And though the court find that the transaction by which the stockholders had been released was a fair and valid one, as founded on the conditions of the original subscription, the assertion of the general rule on the subject is none the less authoritative and emphatic.

In the case before us the assignee of the bankrupt, in the interrest of the creditors has a right to inquire into this conventional