so held out by others, is chargeable as a partner, in favor of any person who has given credit on the faith of his being such.1 There were then two classes of shareholders: 1. Shareholders by contract, who were entitled to claim as against their co-shareholders the benefits accruing to them as such. 2. Shareholders by conduct or estoppel, who, while not entitled to claim the rights of shareholders as against the members of a company, were chargeable with the liabilities attaching to such a situation, in favor of its creditors. Little trace of this principle is found in the numerous cases which have arisen under the various acts for the regulation of joint-stock companies which have been in force in that country since 1844. The American courts, however, still proceed upon the theory that a person may become chargeable as a stockholder by conduct which has operated to deceive creditors, though not entitled to claim the rights of a stockholder as against the corporation or its members. The English cases given in the preceding sections arose under the statutes named, and the American practitioner will be misled by them unless he bears clearly in mind the distinctive theories on which the English and American cases now proceed. There, although in some instances the doctrine is still recognized that a person may become a shareholder by conduct, though not such by contract with the company, that he will be estopped to deny that relation when to do so will prejudice creditors, yet there is no contract between the creditors of the company and the shareholders; the contract of the creditor is with the company only; he can, in general, only claim to be paid out of the assets of the company, including what the company have a right to bring into the assets.1 But in this country the broader and juster rule is more 1 Pitchford v. Davis, 5 Mee. & W. 2; Fox v. Clifton, 6 Bing. 776; s. c. 9 Bing. 115; Dickinson v. Valpy, 10 Barn. & Cress. 141, per Parke, J.; s. c. 5 Man. & R. 126; Bourne v. Freeth, 9 Barn. & Cress. 632; s. c. 4 Man. & R. 572; Vice v. Lady Anson, 7 Barn. & Cress. 409. 2 Ante, § 1438, et seq. ante, § 1590. 3 Lord St. Leonards, in Spackman v. Evans, L. R. 3 H. L. 197; Lord Denman, C. J., in Cheltenham &c. R. Co. v. Daniel, 2 Ad. & El. (N. s.) 281; Taylor v. Hughes, 2 Jones & Lat. (Irish Ch.) 24; Bargate v. Shortridge, 5 H. L. Cas. 297; Henderson v. Royal British Bank, 7 El. & Bl. 356; Oakes v. Turquand, L. R. 2 H. L. 325. See post, § 1877, et seq. 4 Smith's Case, L. R. 2 Ch. 604; Directors v. Kisch, L. R. 2 H. L. 99; Waterhouse v. Jamieson, L. R. 2 H. L. (Sc.) 29; Carling's Case, 1 Ch. Div. 115. frequently applied, that although the subscription by the stockholder makes him a contractor with the corporation, upon the terms prescribed by the act creating it, yet this contract cannot be discharged or modified by consent of the contracting parties where the rights of others will be prejudiced thereby.1 § 1801. Illustrations of Ultra Vires Forfeitures. Thus, a resolution or by-law allowing shareholders, on paying thirty per cent. of what was due on their subscriptions, to retire from the company, has been held void as to creditors. And where the only creditor was a trustee of the corporation, and protested against such a resolution, though he accepted the money raised under it, and was present at a subsequent meeting when the application of the money was directed, to which he assented, this was held not a ratification by him of the by-law or resolution. But in this same case a by-law or resolution that any stockholder paying fifty per cent. on his shares should be discharged from all future calls on his subscription, other than proceeding by way of forfeiture, the sole creditor, himself a trustee, being present at the passage of the same, and consenting thereto, has been held valid; and those who complied with its terms before the dissolution of the corporation were held to be discharged from all responsibility to such creditor.3 So, an arrangement made by the president of a corporation with a shareholder, to the effect that the latter should pay one-half of what was due on his subscription and be released as to the whole, was void as to creditors, and, the company becoming insolvent, its receiver maintained a bill for the unpaid balance. 5 § 1802. Collusive Forfeitures. Restating a doctrine already considered, it is to be kept in mind that the power to forfeit can only be exercised for the benefit of the company, and never for the benefit of the shareholder. If therefore a shareholder procures his shares to be forfeited by the directors for the purpose of unloading the burden and escaping the liability which attends them, this will not discharge his liability to creditors in respect of them in case the company becomes in 1 Recognized in Allen v. Montgomery R. Co., 11 Ala. 450, and in Mills v. Stewart, 41 N. Y. 384. And see the following sections, where the American cases illustrating this doctrine are fully considered. 2 Slee v. Bloom, 19 Johns. 456; s. c. 10 Am. Dec. 273. 3 Ibid. 4 Mann v. Cooke, 20 Conn. 178. 5 Ante, § 1550. solvent, but under English law he remains a contributory.1 On the other hand, as Sir Nathaniel Lindley points out,2 an ultra vires surrender of shares cannot be made valid by referring it to the power of forfeiture. But this principle does not of course extend to the release of one who never was bound as a shareholder.4 § 1803. Presumption that Stock was Regularly Forfeited. Of course, as, under many charters and by-laws, the stock of corporations may be forfeited for the non-payment of dues to the corporation, if it appear that the stock of a particular shareholder was forfeited, the presumption is that it is regularly and lawfully forfeited; and no decree can be rendered against him, the effect of which is to charge him with liability as holder of such shares, unless it is first ascertained by judicial investigation whether the shares were properly forfeited or not." § 1806. When Equity Will Relieve against Forfeiture. The forfeiture of the shares of a member for non-payment of assessments lawfully made thereon, where the right of forfeiture exists, either under the charter or governing statute, or 1 Richmond's Case, 4 Kay & J. 305; Gower's 2 Lind. Comp. L. 5th ed. 845. Hall's Case, L. R. 5 Ch. 707; Ex parte Trading Co., 12 Ch. Div. 191. 4 Lind Comp. L. 5th ed. 845; citing Goldsmid's Case, 16 Beav. 262; Coleman's Case, 1 De Gex. J. & S. 495; Belhaven's Case, 3 Id. 41. See also Dixon v. Evans, L. R. 5 H. L. 606 (reversing Dixon's Case, L.R. 5 Ch. 79). Lexington &c. R. Co. v. Bridges, 7 B. Monr. (Ky.) 556; s. c. 46 Am. Dec. 528. As to this presumption see Webster's Case, 32 L. J. Ch. 135; Grady's Case, 1 De Gex. J. & Sm. 488; Coleman's Case, Id. 495. under a valid contract between the corporation and the shareholder, do not fall within the category of forfeitures against which equity will relieve, in the absence of fraud, accident, or mistake. It was so held where a stock certificate stipulated that it should be lawful for the holder either to pay assessments or not, but that the failure to pay any call, when due and payable, should be a relinquishment of the shares by the holder, and that time should be considered as of the essence of the contract. The reason was that upon such a forfeiture, the shares of the other stockholders become increased in value thereby, and this increase of value is then a vested right, of which they could not be divested without their consent, or without due process of law. Whether they did or did not sell or re-issue the forfeited stock, was deemed immaterial to its former owner. But where the articles of association provided no mode in which a forfeiture of the shares of a member should be established, and where the mode pursued was a mere declaration by the trustees that the stock stood forfeited, and where there were other equitable circumstances in favor of the shareholder and he came in and tendered the whole amount due, principal and interest, it was held that he should be allowed to redeem.3 And in general it may be said that, while equity will not relieve a holder whose shares have been duly forfeited, yet it will not interfere to prevent a forfeiture pending the settlement of a dispute between the company and the shareholder as to what is really due by the latter in respect of his shares; 5 and it will also restore to his rights as a shareholder one whose shares have been illegally forfeited." 6 Stubbs v. Lister, supra; Hart v. Clarke, 6 De Gex M. & G. 232; s. c. 6 H. L. Cas. 633. See also Sweny v. Smith, L. R. 7 Eq. 324; Garden Gully Mining Co. v. McLister, 1 App. Cas. 39; Wood v. Wood, L. R. 9 Exch. 190. Ludlow v. Dutch &c R. Co., 21 Beav. 43; Naylor v. South Devon R. Co., 1 De Gex & Sm. 32; Pendergast v. Turton, 1 Younge & C. 98; Sparks v. Liverpool Waterworks, 13 Ves. 433; Germantown R. Co. v. Fitler, 60 Pa. St. 131; Small v. Herkimer Man. § 1807. No Relief Where Stockholder has Acquiesced until Change of Circumstances. — In conformity with principles already considered,1 a stockholder cannot acquiesce in a forfeiture of his shares, so long as they remain valueless, and then, after they have become valuable by reason of some fortunate change of circumstances, claim the aid of a court of equity in re-instating him in his rights as a shareholder. This is well illustrated by a recent case where A. B. owned stock in a corporation which was sold in satisfaction of an assessment levied thereon, and purchased by the company. The stock had no market value, and after the sale, the company offered to return the stock to A. B., upon payment of certain advances made by the company, which he refused. Subsequently, the stock became valuable, by reason of the consolidation of the company with a rival corporation. It was held that A. B. could not then repudiate the sale, and come into a court of equity and claim an equivalent of the stock of the new company.2 § 1808. No Relief Unless Stockholder Offers to Pay Up. A bill in equity to obtain relief against a forfeiture of the plaintiff's shares in a corporation sustains an analogy to a bill to redeem land which has been forfeited under a common law mortgage. As is well known, the theory of such a mortgage was that the legal title passed to the mortgagee subject to a defeasance, that is, subject to the right of the mortgagor to defeat it by paying, within the time named therein, a certain sum to the mortgagee. If this sum was not paid on or before the limited time, the title of the mortgagee became absolute. To remedy the hardship of estates being forfeited for debts much less than their value, the court of chancery interposed and permitted redemption, but only on condition of the payment of the debt within a time named. It was therefore necessary that a bill to redeem should show a willingness to pay the debt and interest for which, in theory of equity, the mortgagee stood as a mere security. This principle must be of equal force where a 3 Co., 2 N. Y. 335. As to the effect of delay in seeking such relief, see ante, §§ 1792, 1798. 1 Ante, §§ 1792, 1798. 2 Sayre v. Citizens' Gas Light &c. Co., 69 Cal. 207; s. c. 10 Pas. Rep. 408. 3 Walker v. Ogden, 1 Biss. (U. S.) 287. |