say, the stockholder who still holds it, cannot be permitted to convert it to his own use, nor can the directors, its guardians, be permitted to release it or give it away, as against the beneficiaries in the trust. It is the duty of the stockholder to pay it, and of the directors to enforce the payment of it, for the benefit of the creditors. Nor can the entire corporate body composed of the shareholders at large, acting in their constituent character, release or give away this trust fund. And, therefore, a corporate by-law or resolution which undertakes to release the obligation of a solvent subscriber, even upon surrender of his certificate, is void as against creditors.2 The note given by such a subscriber in payment of his shares is impressed with this trust character, and cannot be released in this way. And though the subscription, by its terms, is payable in property, and the subscriber has, by agreement with the corporation, surrendered all claim for his shares, and they have released all claim on the property, he is still liable to creditors. Whether the subscriber cannot, with the consent of the directors, substitute another subscriber in his place, except by transfer in the regular mode, is equally doubtful. That he cannot do it without the sanction of the directors has been held.5 poration, of an unpaid portion of a subscription to its capital stock is fraudulent and void as to its creditors, although the debts were incurred before the subscription was made. Carter v. Union Print. Co., 54 Ark. 576; s. c. 16 S. W. Rep. 579; 10 Rail. & Corp. L. J. 330. 1 Post, § 1521. Modern Life Ins. &c. Co. v. Keller, 3 Pa. County Ct. 118. That a release by the directors is of no avail to the subscriber, but leaves him liable to the creditors of the corporation, see Chouteau Ins. Co. v. Floyd, 74 Mo. 286, 291; Gill v. Balis, 72 Mo. 424, 432; Upton v. Tribilcock, 91 U. S. 45. 2 Farnsworth v. Robbins, 36 Minn. 369; s. c. 31 N. W. Rep. 349. 3 Ibid. 4 Singer v. Given, 61 Iowa, 93. Compare an earlier case where the That it cannot be done even with same court went so far as to hold, in a case not directly involving the rights of creditors, that it is competent for a corporation, if acting in good faith, to release a shareholder from the obligation of his subscription; and that, if the shareholder is afterwards sued on his contract of subscription, he can plead such release without showing specially the consent of other shareholders, or of creditors. This case proceeds upon two ideas: first, that as to the stockholders, they are, as members of the company, concluded by its acts; second, that it will be time enough to look out for the rights of the creditors when the court is judicially advised by the pleadings that their rights are in danger. Gelpcke v. Blake, 19 Iowa, 263, 267. 5 Graff v. Pittsburgh &c. R. Co., 31 Pa. St. 489. the assent of the directors, has lately been held, on the ground that the contract is obligatory by way of estoppel among the several subscribers. The subscriber thus sought to be released may be, for instance, not only solvent, but also a man of energy and business capacity, whose business qualities and reputation would add strength to the corporation. Can he be allowed, as against others who perhaps have signed the subscription paper or the articles of association on the faith of his being interested in the enterprise, to retire from it and from them, and to introduce an indifferent business man in his stead, although the latter may be solvent and able to respond to assessments? And have the directors any implied power to consent to such a substitution? Thus an incorporated society which had invested some of its funds in the shares of an incorporated bank, finding that the bank was insolvent, conceived the happy thought of withdrawing its shares in the bank, so to speak, and of suing the bank for the amount which it had paid thereon. Of course it was held that this could not be done.2 It also follows that, in a proceeding by a dissolved and insolvent corporation against a shareholder to recover an amount due by such shareholder to the corporation in respect of his shares, it is not competent to prove by parol evidence that, subsequently to receiving such shares, the shareholder surrendered them to the corporation for cancellation. It is said that "nothing short of a valid contract between the corporation and the defendant could avail to consummate legally the intended surrender of stock. Such a contract, if directly made by the board of directors, could not be proved otherwise than by the record of their proceedings, or by a properly authenticated instrument.3 § 1518. Further of this Subject. Following out these views, the American courts have steadily annulled all arrangements between corporations and their stockholders whereby the latter were sought to be released from their liability to creditors. Thus, it has been held that a resolution by the directors of a 1 Ollesheimer v. Thompson Man. Co., 44 Mo. App. 172, 186. 2 United Society v. Eagle Bank, 7 Conn. 456. 3 Chouteau v. Dean, 7 Mo. App. 210. corporation that no further calls should be made on account of stock subscribed was void, and a receiver of the corporation could proceed in equity to compel payment of what was due on account of such subscriptions to the capital stock.1 So, a resolution passed by the directors of an insurance company releasing the stockholders from the payment of balances remaining unpaid on their stock, in accordance with which the certificates of shares were stamped "non-assessable," was held void as against policy-holders who had insured in the company without knowledge of the existence of such an agreement. So, the mere fact that the word "unassessable" is printed on the certificates of shares given to a member does not impair his obligation to pay the amount due on such shares, created by the acceptance and the holding of such certificate. At most, its legal effect is said to be a stipulation against liability from further assessment or taxation after the entire one hundred per centum of the subscription shall have been paid.3 Nor, under the Missouri statute of individual liability, will the delivery by a corporation to its shareholders of certificates of paid-up stock, when in fact only part of the par value has been paid, prevent a creditor of the corporation, who can show this fact, from having execution against the shareholder. Nor is the liability of the stockholder, under the Mississippi statute,5 to creditors of the corporation, discharged by a release by the corporation from further liability on his contract of subscription, his shares being still unpaid. It has also been conceded that where a corporation reconveys to its stockholders lands which it has received from them in payment of their shares, a creditor, not consenting thereto may follow the property as a trust fund and subject it to the satisfaction of his debt; but it was held that where a creditor was also a shareholder and consented to the arrangement, he could not have such equitable relief." 1 Sagory v. Dubois, 3 Sandf. Ch. 466. 2 Upton v. Hansbrough, 3 Biss. (U. S.) 417, 427. 3 Upton v. Tribilcock, 91 U. S. 45. Pickering v. Templeton, 2 Mo. App. 424. 5 Miss. Code, 1871, § 2413; Id. 1880, § 1037. 6 Vick v. La Rochelle, 57 Miss. 602. 7 Fort Madison Bank v. Alden, 129 U. S. 372; s. c. 32 L. ed. 725. § 1519. English Holdings on this Subject. English holdings on this subject do not go as far as the American in upholding the rights of creditors on the theory of estoppel. They generally hold that the creditor can only recover in right of the company, though the question is in that country now chiefly influenced by the terms of statutes. In one case in that country it is held that a resolution rescinding a contract of subscription after other subscribers have put their names on the books on the faith of it is void as to them; and that whatever may have been the reason which moved the subscriber to execute it, he remains a contributory. Upon this subject Sir Nathaniel Lindley in the last edition of his Law of Companies, says, citing the authorities in the margin: 3 “The right of a shareholder to retire from a company of which he is a member, by surrendering his shares to the company, depends upon the acts of Parliament, charter, or regulations or customs which govern the company in question. Where there is nothing enabling a shareholder to retire by surrendering his shares, the ordinary partnership rule applies, and no surrender can be made except with the consent of all the shareholders. If such a method of withdrawing from the company is authorized by its constitution, a surrender by a shareholder of his shares will of course be valid, if all the formalities which may be necessary are duly complied with; and where the power to surrender exists, the due observance of all necessary formalities will be presumed in favor of a shareholder who has in fact bona fide retired from 1 See, for instance, Re New Eberhart Co., 43 Ch. D. 118. 2 Holt's Case, 1 Sim. (N. s.) 389. In this case the managing director of a company had certain shares awarded to him by the provisional directors, in consideration of his services, and as he was the covenantee in the deed of settlement, and consequently unable to covenant with himself, his brother, at his request, executed the deed as the holder of the shares. Several other persons took stock after this circumstance, and executed the deed of settlement as required. Afterwards the directors rescinded the resolution by which they had awarded the shares, 3 Lind. Comp., 5th ed., p. 517. the company, and whose shares have been cancelled or otherwise been disposed of by the company.' 1 § 1520. Further of the English Doctrine. That this question is treated in the English authorities rather from the stand-point of the social rights of the members of the company, than as a question of public policy, or even as one which primarily concerns the rights of creditors, is seen in the doctrine of the courts of that country that if shares have been surrendered with the knowledge of the shareholders, under circumstances fully disclosed to them all, and such surrender has not been questioned for a considerable period, the company will be concluded from afterwards disputing its validity.2 3 § 1521. No Power in Directors to Accept Surrender Unless Expressly Granted. — The English doctrine very clearly is that the directors have no power to accept a surrender of shares and release a shareholder unless the power is expressly granted by the governing statute, or the constating instruments of the company, or unless it has been established by its usages. Moreover, if the directors of the company, not having express authority so to do, use funds of the company in buying in the shares of its members, they commit a breach of trust, and will be compelled to make good to the company the funds so expended. The principle that the directors cannot take such action in the absence of express power extends to the case of persons who have agreed to take shares, but who have not actually become shareholders: 1 See Lane's Case, 1 De G. J. & Sm. 504; Kipling v. Todd, and Kipling v. Allen, 3 C. P. Div. 350. The retirement must be complete. See Barry v. Navan &c. R. Co., 4 L. R. Ir. 68. 2 Brotherhood's Case, 31 Beav. 365; s. c. 4 De Gex F. &. J. 566; Hunt's Case, 32 Beav. 387. 3 Trevor v. Whitworth, 12 App. 409 (with which compare Dronfield Silkstone Coal Co., 17 Ch. Div. 76). See also London &c. Coal Co., 5 Ch. Div. 525; Phosphate of Lime Co. v. Green, L. R. 7 C. P. 43; Hodgkinson v. National Live Stock Ins. Co., 26 Beav. 473; s. c. 4 De Gex & J. 422; Burt v. British Nation Life Ass. Co., 4 DeGex & J. 158; Paul and Beresford's Case, 10 Jur. (N. s.) 692; Playfair v. Birmingham &c. R. Co., 1 Railw. Cas. 640; Walker's Case, 2 Jur. (N. 8.) 1216; Harris v. North Devon R. Co., 20 Beav. 384. Evans v. Coventry, 8 De Gex M. & G. 835. |