debts up to and beyond the nominal capital, having paid in nothing whatever, they are held to be guilty of a legal fraud and liable to creditors to make good the minimum capital, together with interest thereon, should this be necessary to discharge the corporate debts. Upon this principle no by-law or resolution of the stockholders, as opposed to the rights of creditors, can authorize the release of the obligation of a solvent stockholder to pay for the stock taken by him, even though the release be in consideration of his surrendering his shares. So creditors of a company are not affected by private understandings between subscribers and a subscription agent, exonerating the former from the performance of that which the subscription requires. It is upon the same principle that shareholders may be held liable to the full face value of their shares notwithstanding a contract by which the company has agreed to accept a less amount as payment in full. While a contract of this nature, unless forbidden by statute,' 1 Burns v. Beck, (Ga. 1889) 10 S. E. of the country may exempt shareRep. 121. holders from liability upon stock is

2 Farnsworth v. Robbins, (1887) 36 sued fictitiously. Minn. 369.

5 In several of the American States

3 Jewell v. Rock River Paper Co., there are constitutional provisions (1882) 101 Ill. 57.

4 Scoville v. Thayer, (1882) 105 U. S. 143; Brant v. Ehlen, 59 Md. 1; Kehlor v. Lademann, (1883) 11 Mo. App. 550; Hatch v. Dana, 101 U. S. 205; Pullman v. Upton, 96 U. S. 328: Upton v. Tribilcock, 91 U. S. 45; Hawley v. Upton, 102 U. S. 314; Flinn v. Bagley, 7 Fed. Rep. 785; Sturgess v. Stetson, 1 Biss. 246; Great Western &c. Co. v. Gray, (1887) 122 Ill. 630; Crawford v. Rohrer, (1888) 59 Md. 599; Pittsburgh &c. R. Co. v. Stewart, 41 Pa. St. 54. See also Liability of Holders of Nominally Paid Up Stock," by B. F. Rex, 19 Cent. L. J. 465; "Personal Liability for Subscriptions," 2 Leg. Int. 109; monographic note by H. Budd, Jr., in 15 Am. L. Reg. N. S. 638, and note in 9 Am. Dec. 96. But see In re South Mountain &c. Co., 7 Sawy. 30, holding that the custom

declaring fictitiously paid up stock to be void. Ala. Const. (1875) art. xiv, § 6; Ark. Const. (1874) art. xii, §8; Mo. Const. (1875) art. xii, § 8; Texas Const. (1876) art. xii, § 6; La. Const. (1879) § 238; Cal. Const. (1873) art. xii, § 11; Ill. Const. (1870) art. xi, § 13; Neb. Const. (1875) art. xi, §5; Pa. Const. (1875) art. xvi, § 7. In others there are statutes to the same effect. 2 N. Y. Rev. Stat. 507, § 49: 504, § 38; 505, § 40, 41; N. Y. Session Laws. 1848, ch. 40, § 38, 40, 11, 49; Wis. Rev. Stat. (1878) § 1753; Wis. Laws of 1881, ch. 93; Mo. Gen. Stat. ch. 62, § 11. Cf. Ohio Rev. Stat. §§ 3, 313. But these provisions have been construed to be applicable only in case of the issue of entirely fictitious stock and "not intended to interfere with the usual and customary methods of raising funds by railroad companies for the purpose of

is binding as between the company and the subscriber, and will hold so long as the company remains solvent and able to meet all its obligations,' it will not stand as against the claims of corporate creditors, when the company has become insolvent. Accordingly corporate creditors may impeach the validity of an issue of stock below par made prior to their having extended credit to the company and may compel payment in full or so much as is required to satisfy their claims against the company. Even the fact that a stockholder was induced

1 Harrison v. Arkansas Valley R. company embarrassed for want of Co., 4 McCrary, 264.

to take the stock by the false representations of the president or directors of the company that it was full paid capital stock, is no defense to an action by a corporate creditor to recover the difference between the amount paid and the par value of the shares.1

§ 119. Exceptions to the foregoing rule. While unpaid instalments on stock ordinarily constitute a trust fund for the payment of the corporate debts, yet where shares have been issued to a subscriber, and settled for by him under an ar rangement made in good faith with the company, it is not in the power of a creditor in all cases and as a matter of right, to disturb the arrangement so made on the ground that in the light of subsequent events it was a disadvantageous one.2 Persons extending credit to a corporation, may, of course, consent not to hold the shareholders personally liable or may agree to hold them liable only to a limited extent. And per

consistent with the views of the supreme court in Hawley v. Upton, and a decree must therefore be entered for the complainant." Union &c. Co. v. Frear &c. Co., 97 Ill. 537, and cases there reviewed; Christensen v. Eno, (1887) 106 N. Y. 97; Eyerman v. Krieckhaus, 7 Mo. App. 455; Fisher v. Seligman, 7 Mo. App. 383; Skrainka v. Allen, 7 Mo. App. 434; Pickering v. Templeton, 2 Mo. App. 424; Hinkling v. Wilson, 104 Ill. 54; Northrop v. Bushnell, 38 Conn. 498; Mann v. Cooke, 20 Conn. 178. The stockholders can not be compelled to pay more of the balance due upon their shares than is sufficient to satisfy the claims of the corporate creditors. Scoville v. Thayer, 105 U. S. 143, 155. Cf. Slee v. Bloom, 19

Johns. 456.

S. C. 34 L. J. Ch. 436; Halkett v. Merchant Traders' Assoc., (1849) 13 Q. B. 960; s. c. 29 L. J. Q. B. 59; Hassell v. Merchant Traders' Assoc., 4 Ex. 525; Evans v. Coventry, (1854) 3 Drew, 75; s. c. 5 De G. M. & G. 911; s. c. 8 De G. M. & G. 835; s. c. 25 L. J. Ch. 834; Talbot's Case, (1852) 5 De G. & Sm. 386; s. c. 21 L. J. Ch. 846; Reid v. Allan, (1849) 4 Ex. 326; s. c. 19 L. J. Ex. 39; Addison v. Mayor of Preston, 12 C. B. 108. Cf. In re Independent Assurance Co., Ex parte Cope, 1 Sim. (N. S.) 54; Sunderland Marine Ins. Co. v. Kearney, (1851) 16 Q. B. 925; s. c. 20 Q. B. 417; Pedell v. Gwynn, (1857) 1 Hurl. & N. 590; s. c. 26 L. J. Ex. 199; Gordon v. Sea, Fire & Life Assurance Soc., (1857) 1 Hurl. & N. 599; s. c. 29 L. J. Ex. 202; Hess v. Werts,

1 Briggs v. Cornwall, 9 Daly, 436; (1818) 4 Serg. & R. 361; Shelford on Wood's Ry. Law, § 56.

2 Coit v. North Carolina Gold Amalgamating Co., (1883) 14 Fed. Rep. 12.

In re State Fire Insurance Co., (1863) 1 Hem. & M. 457; s. c. 1 De G. J. & S. 634; s. c. 35 L. J. Ch. 834;

Joint Stock Companies, (2d London ed.) 4; Lindley on Partnerships, 377; In re Athenæum Life Assurance Co., (1858) 4 Kay & J. 517; s. c. 3 De G. & J. 660; s. c. 27 L. J. Ch. 798.

sons dealing with a corporation by contracting with it after having acquired knowledge of arrangements which limit the liability of the subscribers to pay the full amount of the capital stock, may thus estop themselves from asserting any right to compel the stockholders to contribute the full amount of their subscriptions in discharge of the corporate obligations.' So a corporate creditor can not object to an issue below par of new capital stock, the increase having been made after he had extended credit to the company; for in such a case he can not be presumed to have acted upon the faith of the increased capital stock being issued for its full face value. Again when the strict construction of a statute prohibiting attempted exemptions from the full payment for shares of stock, will work a positive injury to creditors for whose protection it was intended, the court will apply a liberal construction in accordance with the spirit of the enactment. Thus in a case where a creditor of an insolvent corporation accepted, in payment of his claim, the valueless stock of the company to an amount in excess of the debt due him, it was held that he should not be held liable to corporate creditors, the arrangement being to their advantage, diminishing the corporate liabilities without a corresponding diminution of assets.

§ 120. (c) Liability upon shares issued for property or services accepted at an over-valuation. The provision of the Iowa Code subjecting shareholders to liability for the amount of their unpaid stock," has been held to apply to a stockholder who paid his subscription by transferring a worthless patent right to the company. So also a contractor, a

1 Young v. Erie Iron Co., (1887) 65 Mich. 111, citing Robinson v. Bidwell, 22 Cal. 379; Coit v. North Carolina &c. Co., (1883) 14 Fed. Rep. 12; Morawetz on Corporations, § 829.

2 Coit v. North Carolina &c. Co., 14 Fed. Rep. 12.

Clark v. Bever, 31 Fed. Rep. 670. 4 Clark v. Bever, 31 Fed. Rep. 670. Acc. Kehlor v. Lademan, (1883) 11 Mo. App. 550. But see Jackson v. Traer, 64 Iowa, 469; s. c. 52 Am. Rep. 449, where a railroad company

issued certificates of its stock of the face value of $350,000 in satisfaction of a debt of $70,000, which it was unable otherwise to discharge, the recipients were declared liable as stockholders to the company's creditors for the eighty per cent. of the par value yet remaining. (Rothrock, C. J., and Seevers, J., however, dissenting.)

5 Iowa Code, § 1082.

6 Chisholm v. Forny, 65 Iowa, 336. See also Wetherbee v. Baker, 35 N.

part of whose remuneration for constructing the works of a corporation consisted of the company's stock at fifty per centum of its par value, has been held to be liable thereon to corporate creditors. The creditors are not bound by the contract between the company and the contractor as to the price of the works, and only to the extent of the reasonable value thereof can the latter avoid payment of the balance due on the par value of the stock. But it is generally held that per sons receiving full paid shares of a company for property accepted at an over-valuation, can not be held liable by the corporate creditors for the difference between the real value of the property and the valuation at which the company agreed to accept it. For such a transaction can not be attacked at all except for fraud, and if fraudulent, it is altogether void. The court will not make a new contract for the parties and say to the purchaser "though you have bargained for paid up shares, we will change that into a bargain to take shares not paid up and put you on the list of contributaries on that ground."

J. 501, where there was a total failure of consideration, the purchaser having no title to the property. Cf. Savage v. Bull, 17 N. J. Eq. 142; Jackson v. Traer, 64 Iowa, 469; s. c. 52 Am. Rep. 449. Boulton Carbon Co. v. Mills, (1889) 78 Iowa, 460, was an action to enforce a liability against a stockholder of a corporation to the amount of the unpaid instalments on his stock, and defendant having conceded that he paid but one-third of the par value for the stock issued to him, evidence that certain property constituting the consideration for the stock was worth more than that amount was held inadmissible.

ness of the corporation being to mine coal and to buy and sell coal lands, and the value thereof was bona fide fixed at $500,000, the whole amount of the capital stock, although the land cost only $57,000, when bought from the farmers, that they were not liable as upon unpaid stock for the debts of the corporation. Nor can any liability be imposed upon the stockholders by a resolution of the directors, subsequently made without their assent, declaring the stock unpaid.

3 Scoville v. Thayer, 105 U. S. 143, 156; Phelan v. Hazard, 5 Dill. 45; Van Cott v. Van Brunt, 82 N. Y. 535. Acc. Continental Telegraph Co. v.

1 Shickle v. Watts, (1888) 94 Mo. Nelson, 49 N. Y. Super. Ct. 197; 410.

2 In Peck v. Coalfield Coal Co., (1883) 11 Ill. App. 88, it was held, where stockholders were allowed to pay their subscriptions by conveying, or causing to be conveyed, to the corporation, coal lands, the busi

Brant v. Ehlen, 59 Md. 1; Crawford v. Rohrer, 59 Md. 599; Wood's Claim, 9 Week. Rep. 366; Barnett's Case, L. R. 18 Eq. 507; Currie's Case, 3 De Gex, J. & S. 367; Anderson's Case, 7 Ch. Div. 75.