the cancellation may object, and have the transaction set aside,' notwithstanding that the remaining subscriptions would be sufficient to pay the debts of the company. But one who becomes a creditor after a surrender and cancellation cannot object thereto, and hold the subscriber liable.3 Equity will regard the capital stock, contributed or agreed to be contributed, as a trust fund for the satisfaction of the corporate debts, and as against the creditors it is not competent for the shareholders, by by-law or resolution, to authorize the release of the obligation of a solvent shareholder upon his subscription, even though he agrees in return therefor to surrender his shares.1 In England, if the circumstances are such that the pany cannot question the validity of the cancellation, the corporate creditors also are barred; for it is the rule in that country that the creditor can enforce no claim against the shareholder, except such as might have been enforced by the corporation itself.5

com

1 Vick v. La Rochelle, 57 Miss. 602; Chouteau Insurance Co. v. Floyd, 74 Mo. 236; Gill v. Balis, 72 Mo. 424; In re Dronfield etc. Co. 17 Ch. 76. 2 Gill v. Balis, 72 Mo. 424.

3 Erskine v. Peck, 83 Mo. 465.

4 Farnsworth v. Robbins, 33 Minn. 369. 5 In re Dronfield etc. Co. 17 Ch. 76.

§ 117. The directors have no authority to cancel subscriptions.-The consent of the corporation to a cancellation of a contract of subscription can not be given by the directors or governing officers. No such authority in them has ever been recognized,' unless expressly conferred upon them by articles of association, the act of incorporation, or

The power to can

the by-laws of the company. cel the contract is not conferred by authority to forfeit the shares,3 or to effect a compromise, or to do anything conducive to the attainment of the objects of incorporation. Unpaid subscriptions constitute a trust fund for the benefit of creditors, and the corporate officers cannot impair the trust by accepting simulated or fictitious payment of subscriptions. And directors are personally liable to the company for any loss occasioned by a cancellation made by them without authority.

6

1 Burke v. Smith, 16 Wall. 390; New Albany v. Burke, 11 Wall. 96; Bedford R. R. Co. v. Bowser, 43 Pa. St. 29; Robinson v. Pittsburgh etc. R. R. Co. 32 Pa. St. 334; 72 Am. Dec. 792; Zirkel v. Joliet etc. Co. 79 Ill. 334; Ryder v. Alton etc. R. R. Co. 13 Ill. 516; White Mountains R. R. Co. v. Eastman, 31 N. H. 124; Jewett v. Valley R'y Co. 31 Ohio St. 601.

2 Teasdale's Case, Law R. 9 Ch. 54; Thomas's Case, Law R. 13 Eq. 474; Wright's Case, Law R. 12 Eq. 334; Colville s Case, 48 Law J. Ch. 633. 3 Richmond's Case, 4 Kay & J. 305.

4 Adams's Case, Law R. 13 Eq. 474. 5 In re Dronfield etc. Co. 17 Ch. 76.

6 Coffin v. Ransdell (1887), 110 Ind. 417.

7 Bank v. St. John, 23 Ala. 566; Hodgkinson v. National Co. 26 Beav. 473.

§ 118. Mistake as a ground for rescission.— "Except where a person has induced others to act on his own representations, ignorance of material facts on his part affords a sufficient reason for not holding him bound by what in such ignorance he may have said or done."1 And where one signs a subscription paper, entirely misunderstanding the nature of the agreement, he may obtain release from the obligations thereby incurred. But a subscriber cannot be released from the obligation of his contract by reason of misunderstanding the legal effect of his subscription; even though his misconception of the legal effect of his subscription arose from false

representations. For misrepresentations in regard to matters of law, which are supposed to be equally within the knowledge of both parties, do not amount to fraud.5 A subscriber who has, by mistake, agreed to take more shares than he intended, after allowing the company to act upon the faith of his subscription cannot obtain relief in equity in the absence of proof of fraud. Neither can the subscriber plead that he was ignorant of the true condition of the company's affairs."

1 1 Lindley on Partnerships, 135; Taylor on Corporations, § 527; Salem Mill Dam Co. v. Ropes, 9 Pick. 187; Payson v. Withers, 5 Biss. 269; Four Mile Valley R. R. Co. v. Bailey, 18 Ohio St. 208.

2 County of Schuylkill v. Copley, 67 Pa. St. 386; Smith v. Reese etc. Co. Law R. 2 Eq. 264. Cf. Rockford etc. R. R. Co. v. Schunick, €5 Ill. 223.

3 Bailey v. Hannibal etc. R. R. Co. 17 Wall. 96; Wight v. Shelby R. R. Co. 16 Mon. B. 4; 63 Am. Dec. 522; Ellison v. Mobile etc. R. R. Co. 36 Miɛs. 572; Selma etc. R. R. Co. v. Anderson, 51 Miss. 829, 833; New Albany etc. R R. Co. v. Fields, 10 Ind. 187; Clear v. Newcastle R. R. Co. 9 Ind. 433. Cf. Vicksburg etc. R. R. Co. v. McKean, 12 La. An. €38.

4 Ellison v. Mobile etc. R. R. Co. 36 Miss. 572, 588; New Albany etc. R. R. Co. v. Fields, 10 Ind. 187; Clem v. Newcastle etc. R. R. Co. 9 Ind. 488; 63 Am. Dec. (53.

5 Infra, § 137.

6 Diman v. Providence etc. R. R. Co. 5 R. I. 130. 7 Payson v. Withers, 5 Biss. 269.

§ 119. The directors have authority to compromise and to correct errors.— S.-While a cancellation of a contract of subscription can be effected only by the unanimous consent of all the parties in interest the stockholders and the corporate creditors a compromise of a subscription may be validly made by the directors or corporate office: s alone, provided that they act in good faith; as where it appears more expedient to relinquish a part than to attempt to enforce the whole of a doubtful claim." A solvent corporation may compromise its claims against a subscriber, and may

BEACH ON RAILWAYS-12

1

release him from a part of his subscription in order to secure the residue. But to effect a valid compromise it must appear either that there was a bona-fide dispute as to his liability, or doubt of his financial ability to pay the whole amount; and it must be shown that the release did not place the subscriber in any better position with respect to the shares retained by him, than that occupied by the other shareholders, and that the transaction did not operate as a fraud upon the other subscribers or the corporate creditors.3 But a receiver can not compromise subscriptions except by leave of court when all the stockholders are parties to the action.1 Where stock has been mistakenly registered in a wrong name,5 or where stock has been fictitiously issued as paid up; or there has been an unauthorized issue of a stock dividend, the directors may correct the mistake or cancel their ultra vires acts.7

6

1 Philadelphia etc. R. R. Co. v. Hickman, 28 Pa. St. 318.

2 Bath's Case, 8 Ch. Div. 334.

3 Wood's Railway Law, § 82; Upton v. Tribilcock, 91 U. S. 45; Tuckerman v. Brown, 33 N. Y. 207; 88 Am. Dec. 386; Mann v. Pentz, 2 Sand. Ch. (N. Y.) 257; Macon etc. R. R. Co. v. Vason, 57 Ga. 314; Bedford etc. R. R. Co. v. Bowser, 43 Pa. St. 29; Philadelphia etc. R. R. Co. v. Hickman, 28 Pa. St. 318; Gaff v. Pittsburgh etc. R. R. Co. 31 Pa. St. 483; Swartwout v. Michigan etc. R. R. Co. 24 Mich. 389: Chandler v. Brown, 77 Ill. 333; Penobscot etc. R. R. Co. v Dunn, 39 Me. 587; Bath's Case, 8 Ch. Div. 334; Kepling v. Todd, Com. P. 350; Snell's Case, Law R. 5 Ch. 22; Sidney's Case, Law R. 13 Eq. 228; In re London etc. Co. 5 Ch. 525; Adamson's Case, Law R. 19 Eq. 676; Belhaven's Case, 3 De Gex. J. & S. 41. But see Sawyer v. Hoag, 17 Wall. 610. Cf. New Albany v. Burke, 11 Wall. 96. 4 Chandler v. Brown, 77 Ill. 333. Cf. Pearson's Case, Law R. 7 Ch. 309. 5 Ex parte Knightley, Wood & M. 18 & 47; Hartley's Case, Law R. 10 Ch. 157.

6 Barrett's Case, Law R. 18 Eq. 507.

7 Hollingshead v. Woodward, 35 Hun, 410.

§ 120. Amendments of charter-Their operation as a release of the subscriber.-Any change

1

in the charter of a corporation, which materially affects the stockholder's liability, will release him from the obligation of his contract of subscription. A dissenting subscriber cannot be held bound by any action of the legislature or of a majority of the stockholders which varies in any essential feature the obligations assumed by him.1 "Every owner of shares expects and stipulates with the other owners as a corporate body to pay them his proportion of the expenses, which a majority may please to incur in the prosecution of the particular objects of the corporation. To make a valid change in this special contract, as in any other, the consent of both parties is indispensable. The questions involved in this defense have been treated in a foregoing chapter, in connection with the amendment of charters.3

1 Nugent v. Supervisors, 19 Wall. 241; Marsh v. Fulton County, 10 Wall. 676; Davis v. Sweeney, 60 N. Y. 463; Buffalo etc. R. R. Co. v. Dudley, 14 N. V. 336; Burrows v. Smith, 10 N. Y. 550; Troy etc. R. R. Co. v. Kerr, 17 Barb. 581; McCullough v. Mass. 1 Denio, 580; Livingston v. Lynch, 4 Johns. Ch. 573; Hartford etc. R. R. Co. v. Croswell, 5 Hill, 383; Bank v. Charlotte, 85 N. C. 433; International R. R. Co. v. Bremond, 3 Tex. 96; Pacific R. R. Co. v. Renshaw, 18 Mo. 210; Witter v. Mississippi etc. R. R. Co. 20 Ark. 463; South Georgia etc. R. R. Co. v. Ayres, 56 Ga. 230; Winters v. Muscogee R. R. Co. 11 Ga. 438; New Orleans etc. R. R. Co. v. Harris, 27 Miss. 517; Champion v. Memphis etc. R. R. Co. 35 Miss. €92; Supervisors v. Memphis etc. R. R. Co. 32 Miss. 378; Fry v. Lexington etc. R. R. Co. 2 Met. (Ky.) 314; Kean v. Johnson, 9 N. J. Eq. 401; Sparrow v. Evansville etc. R. R. Co. 7 Ind. 369; Illinois Grand Trunk R. R. Co. v. Cook, 29 Ill. 237; Kenosha etc. R. R. Co. v. Marsh, 17 Wis. 13; Bery v. Marietta etc. R. R. Co. 26 Ohio St. 673; Marietta etc. R. R. Co. v. Elliott, 10 Ohio St. 57; Rutland etc. R. R. Co. v. Thrall, 35 Vt. 536; Stevens v. Rutland etc. R. R. Co. 29 Vt. 545; Southern Pennsylvania etc. R. R. Co. v. Stevens, 87 Pa. St. 190; Everhart v. West Chester R. R. Co. 28 Pa. St. 339; Barret v. Alton etc. R R. Co. 13 Ill. 504; Carlisle v. Terre Haute etc. R. R. Co. 6 Ind. 316. Cf. Ellison v. Mobile etc. R. R. Co. 36 Miss. 572.

2 Union Locks etc. Canal Co. v. Towne, 1 N. H. 44; 8 Am. Dec. 32. 3 Vide supra, ch. 2.

§ 121. The same subject continued and illustrated. - Dissenting subscribers have been held released by such fundamental changes as an amend