since

Where, as is sometimes the case, stockholders are subjected, each in his private estate, to the debts of the corporation, the equity rule is transcended by the legislature, that only treats the capital stock as a trust fund, and the anomaly is introduced of a corporation composed of persons who might as well have prosecuted their enterprise without being incorporated at all.1 Under these circumstances, the stockholder derives little substantial comfort from the legal provisions sometimes inserted, which require creditors to first obtain judgment against the corporation.2

But officers and trustees of corporations are sometimes made by statute personally liable to the corporate creditors for neglect in performing their duties; and the legislative policy may wisely discriminate between the officers and shareholders of a corporation, making the latter only liable by way of sureties; while holding. the former, who manage the business and ought to know the condition of affairs, responsible in the first instance. On the other hand, the managers of the business corporation, or some outside committee which controls the creditors of an insolvent concern, will sometimes force a reorganization of the corporation, on a basis which scales down the stock or otherwise compels a virtual assessment upon the shareholders.

Statutes, again, sometimes provide for the division of the capital stock into "general stock" and "special stock; holders of the special stock being made liable for the corporate debts only to the extent of their stock, while holders of the general stock are jointly and severally liable for the corporate debts; and this arrangement is similar to that of a limited partnership with general and special partners. And once more our general statutes relating to corporations provide not unfrequently that the joint and several liability of stockholders shall extend only to specified instances.

1 See Longley v. Little, 26 Maine, 162; Abb. Dig. Corp. 400; Moss v. Oakley, 2 Hill, 269; Eaton v. Aspinwall, 19 N. Y. 119.

2 See Corning v. McCullough, 1 Comst. 47; Ang. & Ames, § 612.

3

Cambridge Waterworks v. Somerville Dyeing, &c. Co., 4 Allen, 239; Waters v. Quimby, 3 Dutch. 198.

4 See § 416.

5 See N. Y. Act of 1855, c. 290.

6 In Massachusetts a general stat

§ 514. The Same Subject. It is hardly necessary to add that all these statutes which extend the common-law responsibilities of shareholders ought to receive a strict construction. Indeed, a legislature which has reserved no power to alter a corporate charter cannot retrospectively increase the individual liability of the corporate shareholders afterwards; for this would be in violation of constitutional law. Yet, on the other hand, if a statute makes the stock of shareholders liable for the corporate debts, its subsequent repeal would be unconstitutional as respects existing creditors.2

§ 515. Liability of Stockholders for Torts of a Corporation. — The personal liability of shareholders for debts of the corporation is one thing, and for claims or demands growing out of a tort quite another. Yet, on the usual principles, where persons obtain undue advantage by fraud and deceit in a certain business, and thereby mislead bona fide creditors, they are personally liable, even though the business was carried on in the name of a corporation.3

ute provides that president and directors shall be jointly and severally liable only for consequences of consenting to a dividend which renders the corporation insolvent, or of loaning to a stockholder, or of signing false statements of the condition of the corporation. Stockholders are liable only (under certain qualifications) for debts contracted before the original capital is fully paid in; for debts due to operatives; for such amounts as may be requisite to redeem special stock, or for the payment of debts existing at the time the capital is reduced, to the extent of the sums withdrawn and paid to stockholders. Stockholders and officers are not liable until judgment is recovered against the corporation and returned unsatisfied. The statute expression is quite cautious on most of these points. Mass. Pub. Sts. (1882) c. 106, § 60. Statutes of this character, with variations of expression, are to be found in most, if not all, of the United States.

1 Ang. & Ames, § 767; Sherman v. Smith, 1 Black, 587.

2 Hawthorne v. Calef, 2 Wall. 10.

See further, on this subject of individual statutory liability, Morawetz, §§ 606-628, and cases cited; Hawthorne v. Calef, 2 Wall. 10; Pollard v. Bailey, 20 Wall. 520; Terry v. Little, 101 U. S. 216. That one is not liable as a "stockholder," within the meaning of such acts, who has sold his shares, though still registered on the books, see Cutting v. Damerel, 88 N. Y. 410; Wakefield v. Fargo, 90 N. Y. 213. But one cannot transfer his shares to some irresponsible person, when a corporation is in failing circumstances, so as to avoid further liability to creditors on his own part. Taylor, § 749; 107 U. S. 251; 121 U. S. 27.

§ 516. Liability of Stockholders for Calls, Assessments, etc. It remains to speak of that other liability of stockholders which has reference to the corporation itself, and is known as the liability for assessments, or calls. Railway, mining, and other companies are frequently organized and put into operation without sufficient funds to complete the projected work. If the demand of the corporation upon the subscriber was split up so that his subscription became payable in instalments, he may be called to pay each instalment as fast as it becomes due; and the term "assessment" in this country, or "call" in England, is sometimes applied accordingly. But these terms are substantially equivalent; and, more correctly speaking, there is an "assessment" or "call" where the corporation, instead of issuing new shares or getting further instalments from subscribers, relieves itself of pecuniary embarrassment by levying a sort of tax upon the shares outstanding. The power of a corporation to assess shares in this way must depend upon the nature of the subscribers' engagement, or be derived from the charter or statute; for at common law a corporation, as incident to its corporate existence, has no legal right to assess for its own use a sum of money upon the members, or the corporate stock, and compel the payment thereof by an action at law. The power of taxation must be derived either from the shareholders' express promise, or from the legislature, the fountain of authority in matters relative to corporations.1

The extent of a stockholder's liability (aside from statute) to pay future assessments depends, then, upon the extent of the engagement, on his part, which is sometimes to pay assessments upon all the shares he may at any time own, and sometimes to pay upon those only for which he originally subscribed; in fact, the contract may take a variety of

it is settled that creditors who in good faith trust the corporation on the faith of such subscriptions and the security of a capital, stand in the position of innocent purchasers for value to the extent of their equitable lien.

Oakes v. Turquand, L. R. 2

H. L. 325; 3 C. P. D. 307; Morawetz, § 595. And see Mr. Justice Miller in Upton v. Tribilcock, 91 U. S. 55.

1 See Abb. Dig. Corp. 25-40; Ang. & Ames, § 544; Morawetz, § 281.

shapes, according to the mutual intent of the parties concerned.1 Where the legislature has intervened in the matter, the provision is sometimes that all assessments shall be determined by the directors, or sometimes that the corporation alone, and not the directors, shall exclusively exercise the power; and where the statute declares that no assessment beyond a fixed sum shall be laid, any further assessment would be void.2 All of the legal formalities should be carefully followed, even to the notice of meeting for voting an assessment. When stock is subscribed to be paid upon call of the company, or an assessment is proper, and the company refuses or neglects to do its own duty in the matter, a court of equity may itself make the requisition when the interests, of the creditors require it. But any such call or assessment should be compelled in the name of the corporation or person legally entitled to make it.4

§ 517. The Same Subject. Whether a corporation may sue a subscriber in the first instance, upon his agreement to take shares, is a point on which the authorities are somewhat at variance. Forfeiture and sale of the delinquent person's shares is a common remedy given as a penalty for any failure, on a stockholder's part, to pay his legal assessments. These and similar provisions seem sometimes to be regarded as affording a merely cumulative remedy; but the better rule appears to be, that where one has made an express promise to pay the assessments, he may be sued directly upon this promise, before any sale of his shares is made; and that where his promise was only to take a specified number of shares, and he did not expressly agree to pay assessments, his shares must be sold before any action will lie against him. Where an original subscriber makes himself liable for calls for instalments on his shares, his liabilities are fre

1 Ib.; Franklin Glass Co. v. Alexander, 2 N. H. 380; Seymour v. Sturgess, 26 N. Y. 134; Palmer v. Ridge Mining Co., 34 Penn. St. 288.

2 Winsor, ex parte, 3 Story, 411; Lewey's Island R. R. Co. v. Bolton, 48 Me. 451.

3 Hawkins v. Glenn, 131 U. S. 319; 133 U. S. 30; 135 U. S. 533.

4 Glenn v. Marbury, 145 U. S. 499.

5 See N. H. Central R. R. Co. v. Johnson, 10 Fost. 390; Abb. Dig. Corp. 39, and cases cited.

quently transmitted to the purchaser from him, so far as concerns calls subsequent to the purchase; provided always that such transfer is made in good faith on his part;1 and this is in conformity with the usual rule as to a stockholder's rights and liabilities.2

Independently of statute, equity has sometimes interfered where there were strong reasons for so doing; as, for instance, to relieve against a demand for a call or assessment which is fraudulently levied by the corporation; or to compel the payment of unpaid calls or assessments, for the benefit of creditors, where the directors have failed to perform their duty with diligence.3

§ 517 a. Rights of Stockholders on Dissolution. The winding up of a corporation may last for a considerable time after it has ceased to do business. And the rights of the stockholders in regard to the assets of an expiring corporation are, in absence of an agreement to the contrary, to have the property converted into cash and its value ascertained by a sale; and this even though a sale is not necessary for the payment of debts.5 In fact the properties of a corporation constitute a trust fund; first for the payment of debts, and next for distribution among the stockholders according to their respective interests; and if the directors dispose of the assets to the prejudice of these parties in interest, in reckless or fraudulent disregard of the trust committed to them, equity will hold them to account and follow the diverted funds.6

1 See § 514, note.

2 Merrimac Mining Co. v. Levy, 54 Penn. St. 227.

3 See Thorpe v. Hughes, 3 My. & C. 742; Ward v. Griswoldville Manuf. Co., 16 Conn. 593; also 1 Redf. Railw. 3d ed. 212, 214. And see Oglesby v. Attrill, 105 U. S. 605; § 516.

Subscribers to stock, who have expended money and incurred liability as trustees on behalf of an association, both before and after its incorporation, cannot compel the other subscribers to contribute, indepen

dently of some agreement to that effect. Shibley v. Angle, 37 N. Y. 626. See, as to enforcing the liability of stockholders in a foreign corporation, Erickson v. Nesmith, 15 Gray, 221; s. c. 4 Allen, 233; s. c. 46 N. H. 371. 4 See §§ 242-244.

5 Mason v. Pewabic Min. Co., 133 U. S. 50.

6 Fogg v. Blair, 139 U. S. 118; 134 U. S. 276.

The subject of stock is considered at more or less length in general works on corporations. The reader is re