from what source does the Supreme Court of the United States get its jurisdiction to override a decision of the Supreme Court of Iowa in the interpretation and application of its own statute law, that law not being opposed to the Federal constitution or to any Federal statute or treaty? If this decision is correct, then we have the spectacle of two kinds of law in the same State, whenever the State and the Federal tribunals differ in their conclusions; and not only this but two kinds of law in the interpretation of local statutes as well as in the general principles of jurisprudence, and this without any power in either tribunal to reverse the other and to settle the law one way. It is intolerable that such a state of things should exist. If the Supreme Court of the United States is not bound to follow the interpretation which the Supreme Court of Iowa puts upon its own statutes, then, by parity of reasoning, it ought to have the power, and it ought to exercise the power, of issuing a writ of error to that court and of reversing its erroneous decisions. But suppose it had undertaken to do this in the case of Jackson v. Traer, from what source would its jurisdiction to do this have been derived? But more: if the Federal judiciary can create a "general law" for the people of the United States, the Federal legislature can repeal that law; for it is almost axiomatic that whatever law the judicial branch of a government can make, the legislative branch can unmake. But if Congress should pass a statute declaring that, in the absence of State constitutions, statutes, or judicial decisions to the contrary, it should be a rule of decision in the courts of the United States that a corporation created by a State cannot give away its unissued shares although they are worthless at the time, from what grant of power in the Federal constitution would it derive its authority? And if Congress cannot legislate upon such a subject, how can the Federal judiciary legislate upon it? § 1674. Statutory Exceptions to the Foregoing Doctrine. — A statute of Minnesota,1 relating to mining corporations, apparently concocted by stock brokers to promote their peculiar species of rascality, provides in substance, that the stock of such a corporation "may be issued, sold, and transferred as may be prescribed by resolution or by-laws of said corporation, or its managing board; but no stock so issued or sold, purporting to be fully paid, shall be subject to further assessment in the hands of the lawful holder, without his consent." Under this statute, in the absence of fraud, the creditors of such a corporation have no recourse against the purchasers or holders of stock issued as paid up, for the difference between the par value and the price at 1 Gen. St. Minn. 1874, c. 34. which it was sold.1 Under a similar statute of California the acceptance of stock in a mining corporation, as such corporations are usually formed in California, does not create any obligation to pay to the corporation or to its creditors the nominal par value of the stock so accepted. 2 § 1675. View that Rule not Applicable to Subsequent Creditors with Notice. One case is met with which puts forth the view that where a corporation whose stock is not fully paid, issues full paid certificates to its shareholders, creditors who are such before the issue of such certificates may, if the company be insolvent, collect the portion of such stock which was unpaid and have it applied in payment of their debts, but creditors who become such after and with notice of the corporate proceedings by which the stock was made "full-paid " have no such right. And the Supreme Court of Minnesota puts the question upon the principle of estoppel, in holding that where stock is issued as fully paid up, without having been paid for to the full amount, shareholders are liable for the amount not actually paid, in favor of creditors giving credit in reliance upon its professed capital having been fully paid in, but not in favor of creditors who dealt with full knowledge that the stock was fictitiously issued as paid up.4 § 1676. Nor to any Person who Gives Credit with Knowledge of the Manner in which Payment has been Made or Secured. - A broader statement of this doctrine is this: As between the company and its stockholders, whatever is agreed to be payment is payment, because both are estopped by their agreement; 5 and that one who becomes the creditor of a corporation knowing the manner in which its stock has been paid or payment therefor secured, is deemed to waive his right to have strict payment made for his benefit.6 And there is a more general view that it is only future creditors who can set aside such an arrangement as to payment.7 1 Ross v. Kelly, 36 Minn. 38; s. c. sub nom. Ross v. Silver & Copper Island Min. Co., 29 N. W. Rep. 591. 2 Re South Mountain &c. Mining Co., 7 Sawy. (U. S.) 30. 3 Kenton Furnace &c. Co. v. M'Alpin, 5 Fed. Rep. 751. Deadwood First Nat. Bank v. Gustin-Minerva &c. Co., 42 Minn. 327; s. c. 6 L. R. A. 676; 7 Rail. & Corp. L. J. 175; 44 N. W. Rep. 198. 5 Scoville v. Thayer, 105 U. S. 153. 6 Callanan v. Windsor, 78 Iowa, 193; s. c. 42 N. W. Rep. 652. 7 Flinn v. Bagley, 7 Fed. Rep. 785; post, § 2091, 2935, 2936. 1307 ARTICLE V. RIGHTS OF BONA FIDE PURCHASERS OF UNPAID SHARES. SECTION 1680. Status of bona fide purchasers 1682. Unsoundness of this view. 1683. Illustrations of the rule. SECTION 1684. Illustrations continued. 1685. Otherwise, a subsequent purchaser with notice. 1686. When record of deed not notice. 1687. Surrender of unpaid shares and re-issue to bona fide subscriber. Purchasers of So-called § 1680. Status of Bona Fide "Paid-up Shares." Where a corporation issues shares as paid-up, treats them as such, and as such, puts them on the market, the certificates stating that they are paid up, a person who innocently purchases them, under the belief that they are paid up, will not be chargeable with liability to the creditors of the company in case the representations of the company that the shares are paid up, should turn out to be false. Such a person is not required to suspect fraud and to institute inquiries where all seems fair and conformable to the requirements of the law. The corporation has no remedy against him ex contractu, for it is estopped by its own contract; it has no remedy against him ex delicto, for he has done no wrong. Its remedy is against the guilty perpetrators of the fraud.1 § 1681. Protected although the Certificates do not Recite "Paid up.”—Some of the courts have carried the principle so far as to hold that where shares of corporate stock are issued as paid up shares, an innocent purchaser of the same, who takes them in good faith as paid up, in the absence of any circumstance to put him upon inquiry, and when the books of the corporation would give no notice that the stock was not paid up, is not liable to creditors of the corporation for the amount unpaid; nor is it necessary in such a case, the certificates being in the usual form, 1 Waterhouse v. Jamieson, L. R. 2 Sc. App. 29; McCraken v. McIntyre, 1 Duval (Canada), 479; Foreman v. Bigelow, 4 Cliff. (U. S.) 508; s. c. 18 Nat. Bank. Reg. 457; 7 Cent. L. J. 430; Brant v. Ehler, 59 Md. 1; Phelan v. Hazard, 5 Dill. (U. S.) 45; Re British Farmers &c. R. Co. 7 Ch. Div. 533; s. c. affirmed in H. L. sub nom. Burkinshaw v. Nichols, 26 Week Rep. 819. that, in order that they should be regarded as paid up in the hands of an innocent purchaser, they should state on their face that they were fully paid up. The qualification that there is nothing on the books of the corporation to apprise one that the shares are not paid up is very necessary to vindicate these holdings; otherwise all that the subscriber who might become sick of his bargain would have to do in order to pay for his shares would be to sell them, not to an insolvent or to a sham purchaser,2 but to any who did not know in point of fact that they were not paid up. § 1682. Unsoundness of this View. If the governing statute prohibited the corporation from issuing its share cer 1 Keystone Bridge Co. v. McCluney, 8 Mo. App. 496; cited and referred to by the Supreme Court of Missouri in Skrainka v. Allen, 76 Mo. 384, 392. See also Erskine v. Loewenstein, 11 Mo. App. 595; West Nashville Planing Mill Co. v. Nashville Sav. Bank, 86 Tenn. 252; s. c. 6 Am. St. Rep. 835; 6 S. W. Rep. 340. Compare Sturges v. Stetson, 1 Biss. (U. S.) 246; s. c. 10 Myer Fed. Dec., § 149. In the case first cited the St. Louis Court of Appeals relied on Foreman v. Bigelow, 4 Cliff. (U. S.) 508. Bakewell, J., in giving the opinion of the court, said: "Mr. Shepley, of counsel for the appellant here, stated, in the argument before us, that he had been at pains to ascertain the form of the certificate before the court in Foreman v. Bigelow (4 Cliff. (U. S.) 508) and that it was in the usual form, and in the form in the case at bar, nothing being said on the certificate itself as to the stock being paid up. It is believed that a share of stock in the ordinary form would be taken to be paid up in the absence of anything appearing to the contrary, and that it can make no difference whether the certificate says on its face that the stock is fully paid or says nothing about it. We think that the view taken in the well considered case just cited. We know of no contrary ruling, and it is accepted as the correct doctrine by the learned author of the recently issued treatise on Stockholders. Thomp. Stock., § 135. And it does seem that any other rule would not only impose upon the stockholder the duty of examination where he has no means of getting accurate information; but, as was urged before the House of Lords in Burkinshaw v. Nicholls, H. L. 3 App. Cas. 1004, and as is said by Lord Chancellor Cairns, delivering the opinion in that case, would tend to discredit and depreciate all stocks and deal a serious blow at the business of manufacturing and mercantile companies." Keystone Bridge Co. v. McCluney, 8 Mo. App. 496, 501. 2 Post, § 3255, et seq. tificates until all assessments are paid up, or if the general and recognized custom of corporations were not to issue such certificatess until the shares were fully paid for, there would be some basis in reason for the doctrine of the preceding section; for then persons dealing in corporate shares would ordinarily assume that they were non-assessable unless the contrary were stated on the face of the certificates. But such not being in general the requirements of the statute law, and the well-known practice of corporations being to issue their share certificates to their subscribers before they have paid more than the first deposit or installment, it is difficult to uphold the foregoing rule on any just conception. Why a so-called bona fide purchaser should be protected in inferring from such a certificate what business men of experience know is an unwarrantable inference, does not and cannot be made to appear. This distinction was recognized by an eminent judge in a case where a railroad company issued its stock to a contractor as full paid shares for building its entire road, and where the purchasers of such shares in the market, as full paid shares, without notice of any equities between the company and such contractor, were held entitled to be protected as purchasers of fully paid up stock, in a suit against them by a judgment creditor of the railroad company.1 The ground on which the liability on the part of the holders of the stock was placed, was that, in point of fact, none of the shares issued to the contractor were ever paid for; that he received in the company's bonds more in value than the work he performed under his contract; and that, not having completed his contract, the shares, though issued to him, must be treated as not paid for. Dillon, J., said: "The rights and obligations of a bona fide transferee of shares purporting to be full paid shares, are different from the rights and obligations of the transferee of shares which do not purport to be full paid. In cases where the certificates show on their face that the shares have been paid in part only, the law implies a promise by the transferee to pay the balance due upon the shares upon calls, when he has come into privity with the company. Such an implied promise rests upon the reasonable and obvious ground, that the 1 Steacy v. Little Rock R. Co., 5 Dill. (U. S.) 348. |