which nothing has really been paid, must allege that they took with notice of that fact.13

1 See cases cited infra, and also § 372 supra.

2 Erskine v. Loewenstine, 82 Mo. 301.

3 Lumsden v. Buchanan, 4 Macq. 950; Muir v. City of Glasgow Bank, 4 App. C. 337. See also the Glasgow Bank Cases, 4 App. C. 547.

4 Preston v. Grand Collier Dock Co. 11 Sim. 327; In re Ennis etc. R'y Co. 3 Law R. Ir. 187; Cree v. Somervail, 4 App. C. 648.

5 Sleeper v. Goodwin, 67 Wis. 577.

6 Longdale Iron Co. v. Pomeroy Iron Cɔ. 34 Fed. Rep. 448

7 Root v. Sianock, 120 Ill. 350; 60 Am. Rep. 558.

8 Mɔ. Rev. Stat. § 736.

9 Marks v. Hardy, 86 Mo. 232.

10 Mo. Rev. Stat. § 736.

11 Simmons v. Ellis, 17 Mo. App. 470.

12 Vide supra, §§ 269, 270.

13 Cleveland Rolling Mill Co. v. Texas etc. R'y Co. 27 Fed. Rep. 250.

ý 425. Corporate creditors must first exhaust their remedy against the company.-Ordinarily, corporate creditors cannot proceed against the shareholders individually, until after a judgment against the corporation and the return of an execution wholly or partly unsatisfied;' unless the corporation has been dissolved," or has made an assignment, or is notoriously insolvent.*

3

But shareholders, declared by the charter of the corporation to be severally liable to creditors for a certain per centum on their shares, may be proceeded against even before judgment is obtained against the c›rporation. Judgment and a return of execution unsatisfied, against a corporation in another State, is sufficient basis for a bill in a Missouri court of equity, to enforce a stockholder's liability to corporate creditors on unpaid stock. But a provi in in the charter of a foreign corporation, that judgment against the corporation must be obtained, be

6

8

fore proceedings can be instituted against the shareholders for the corporate debts, makes such a judg ment an essential prerequisite to a suit in equity, to enforce the liability of a shareholder. Although a statute which provides, that, upon the return unsatisfied of an execution against a corporation, execution may on notice and motion issue against any shareholder for the amount of his unpaid balance due on shares, is retrospective, it is nevertheless valid, and applicable to a corporation chartered previously under a special act. Under the Kansas statute, declaring that in the absence of corporate property on which to levy, "execution may be issued against any of the stockholders, but no execution shall issue. . . except upon an order of the court in which the action, suit or other proceeding shall have been brought, . . . made upon motion in open court after reasonable notice in writing to the person sought to be charged," the service of notice must be in like manner as in the case of an original summons, and jurisdiction cannot be obtained by service without the State.1o

.

1 Terry v. Anderson, 95 U. S. 633; Walser v. Seligman, 21 Blatchf. 130; Handy v. Draper, 83 N. Y.334; Shellington v. Howland, 53 N. Y. 371; Freeland v. McCullough, 1 Denio, 414; 43 Am. Dec. 685; Andrew v. Vanderbilt, 37 Hun, 468; Lindsley v. Simonds, 2 Abb. Pr. N. S. 69; Bank of the United States v. Dallam, 4 Daua, 514; Lane v. Ha ris, 16 Ga. 217; Thornton v. Lane, 11 Ga. 459; Blake v. Hinkle, 10 Yerg. 218: McClaren v. Franciscus, 43 Mo. 452; Priest v. Essex Manuf. Co. 115 Mass. 380; Cambridge Water Works v. Somerville Dyeing etc. Co. 4 Allen, 289; Dauchy v. Brown, 24 Vt. 197; Drinkwater v. Portland Marine R'y, 18 Me. 35; New England etc. Bank v Newport Steam Factory, 6 R. I. 154; 75 Am. Dec. 633; Wetherbee v. Baker, 25 N. J. Eq. 501; Wehrman v. Reakirt, 1 Cin. Super. Ct. 230; Munger v. Jacobson, 99 Ill. 349; Cutright v. Stanford, 81 Ill. 210; Cleveland v. Burnham, 55 Wis. 598. Cf. Perkins v. Church, 31 Barb. 84. It is sufficient that the petition allege that no property of the corporation could be found whereon to levy execution, and that the cxecution remains unsatisfied, with the sheriff's return to that effect attached: Head v. Daniels (1837), 33 Kan. 1.

2 Terry v. Tubman, 92 U. S. 156; Kincaid v. Dwinelle, 59 N. Y. 548; Kimber v. Bank of Fulton, 43 Ga. 419.

3 Chamberlain v. Bromberg, 83 Ala. 576.

4 Terry v. Tubman, 92 U. S. 155; Camden v. Doremis, 3 How. 533; Reynolds v. Douglas, 12 Pet. 497; Kimber y. Bank of Fulton, 49 Ga. 419; Hodges v. Silver Hill Mining Co. 9 Or. 200.

5 Bird v. Calvert, 22 S. C. 292.

6 Shickle v. Watts, 94 Mo. 410.

7 Remington v. Samana Bay Co. 140 Mass. 494.

8 Merchants' Ins. Co. v. Hill, 6 Mo. 466.

9 Kan. Comp. Law, 1879, ch. 23, § 32.

10 Howell v. Manglesdorf, 33 Kan. 194.

- The

$426. The same subject, continued. creditor's right to proceed against the stockholder does not accrue upon the rendering of judgment against the corporation, but dates from the time when it is apparent that no corporate property exists to satisfy the demand.' While the return of an execution against the company, partly or wholly unsatisfied, is ordinarily the best evidence of the insufficiency of the corporate property to satisfy the demand, yet it is not in all cases the only sufficient evidence thereof. Thus, it is held that it is not necessary to await the return day of the execution before instituting proceedings against the shareholders, where it may be shown aliunde that there is no corporate property upon which to levy.3

2

1 Ganetsville Bank v. Greene, 64 Iowa, 445. 2 See cases cited infra, § 425, note 1.

3 Knight v. Frost, 14 Mo. App. 331. But no priority can be gained by a creditor by his filing a motion, under the Missouri statute (Mo. Rev. St. § 736); for execution against a shareholder, before the return-day of the execution against the corporation: Marks v. Hardy, 86 Mo. 232.

§ 427. The judgment against the corporation conclusive as against the shareholders.-The judgment against the corporation can be impeached only for fraud and collusion, or for want of jurisdiction. The shareholder cannot set up by way of defense in the action against him matters which the

1

corporation might have plead, but which it failed to avail itself of; such as that contracting the debt was ultra vires," or that the service of process upon the corporation was defective. A shareholder is bound by a decree against the corporation, even though he failed to receive personal service, unless fraud be proven. But, of course, where a shareholder is liable only on a particular class of corporate debts, or only to a particular class of creditors, evidence will be received in an action against him to enforce his individual liability, that the claim sued upon is of a class upon which he is not liable. In New York, however, it is doubtful whether the judgment against the corporation be conclusive against the shareholder." And in other States there are cases which hold that the judgment against the corporation is only prima facie conclusive against the individual shareholders."

1 Graham v. Boston etc. R. R. Co. 118 U. S. 161; Glenn v. Springs, 26 Fed. Rep. 494; Bissett v. Kentucky River Navigation Co. 15 Fed. Rep. 353; Marsh v. Burroughs, 1 Woods, 463; Chaffin v. City of St. Louis, 4 Dill. 24; Stephens v. Fox, 3 N. Y. 313; Sleev. Bloom, 20 John. 669; 10 Am. Dec. 273; S. C. 5 Johns. Ch. 366; Hawes v. Petroleum Co. 101 Mass. 385; Milliken v. Whitehouse, 49 Me. 527: Merrill v. Suffolk Bank, 31 Me. 57; Wilson v. Pitts. burgh etc. Coal Co. 43 Pa. St. 424; Conway v. Duncan, 28 Ohio St. 102; Back of Wooster v. Stevens, 1 Ohio St. 233; Henry v. Vermilion etc. R. R. Co. 17 Ohio, 17; Hampson v. Weare, 4 Iowa, 13; 66 Am. Dec. 116; Grund v. Tucker, 5 Kan. 70; Bank of Australasia v. Nias, 16 Q. B. 717; S. C. 20 Law J. (N. S.) Q. B. 284; Morawetz on Corporations, § 619.

2 Sumner v. Marcy, 3 Wood. & M. 105.

3 His remedy in such a case is by direct proceedings: Wheeler v. Millar, 24 Hun, 541; Came v. Brigham, 39 Me. 35. See, also, Louisville etc. R. R. Co. v. Letson, 2 How. 437; Cook on Stock & Stockh. § 209. 4 Glenn v. Springs, 26 Fed. Rep. 494.

5 Conant v. Van Schaick, 24 Barb. 87; Wilson v. Stockholders, 43 Pa. St. 424; Larrabee v. Baldwin, 35 Cal. 135; Cook on Stock & Stockh. § 209. Cf. Hudson v. Carman, 41 Me. 84.

6 Wheeler v. Miller, 90 N. Y. 353; S. C. 24 Hun, 541; Stephens v. Fox, 83 N. Y. 313; McMahon v. Macy, 51 N. Y. 155; Miller v. White, 50 N. Y. 13.; Moss v. Averell, 10 N. Y. 450; Strong v. Wheaton, 3) Barb. 616; Moss v. M Cuilongh, 5 Hill (N. Y.), 131; S. C. 1 Barb. 279; Moss v. Oakley, 1 Hill (N. Y.), 25; B lmont v. Coleman, 1 Bosw. 188; S. C. 2 N. Y. 96; Conklin v. Furman, S Abb. Pr. N. S. 161. See Cook on Stock & Stockh. § 209.

7 Berger v. Williams, 4 McLean, 577; Stephens v. Fox, 83 N. Y. 313;

Belmont v. Coleman, 1 Bosw. 188. Cf. S. C. 21 N. Y. 95; Merchants' Bank v. Chandler, 19 Wis. 435; Grund v. Tucker, 5 Kan. 70. See, also, Bigelow on Estoppel, 8; Thompson on Liability of Stockholders, § 329, note. Cf. McMahon v. Macy, 51 N. Y. 155, 165.

§ 428. How enforced.—(a). By action at law. It has been held by high authority that "no one creditor can assume that he alone is entitled to what

any stockholder owes, and sue at law, so as to appropriate it exclusively to himself." In the case of an insolvent corporation, unpaid subscriptions are regarded as assets to be administered in the interest of all the creditors, so that the balance due on stock by an individual stockholder cannot be subjected to an attachment execution secured by one creditor against the corporation. Where share

holders are liable to the corporate creditors as a class, the legal remedy is inadequate and the aid of equity must be invoked." But while this would seem to be the better rule, yet the weight of authority appears to be, that after unpaid subscriptions have been called, any one creditor may sue at law and recover the whole amount due from any one or more shareholders. He need not join all the creditors, nor all shareholders of the corporation as parties plaintiff and defendant to his action. A corporate creditor may reach so much of an unpaid subscription as has been called, by the garnishee process. And a sole corporate creditor, in whose favor judgment has been rendered, may maintain an action against shareholders, who have in their possession the assets of the corporation, and may seek a discovery, as against the corporation, of the names of such shareholders as have been withheld from him."

6

1 Patterson v. Lynde, 106 U. S. 519. Cf. Terry v. Little, 101 U. S. 216. 2 Lane s Appeal, 105 Pa. St. 49; S. C. 51 Am. Rep. 166.