if such a transaction is invalid, an attack upon it by a stockholder must be made in a direct proceeding. Where he sues to recover his share of the benefit resulting from such a purchase, his action is an affirmance, and he cannot be heard to impeach the validity of the corporate action. In a recent case the Supreme Court of North Carolina have re-affirmed this doctrine and carried it to its logical conclusion, by holding that since the company is bound by its contracts, its agreements with the persons from whom it purchases such shares of stock, may be enforced by proper legal remedies just as agreements in respect to any other species of property; that, having made its promissory note to one of its stockholders for the price of his shares, he would have his remedy, so far as it was concerned, just as any other creditor would, subject only to the possible rights of other creditors against him in cases wherein he might be liable ; and that if he were not liable to other creditors, in some way as a stockholder, he would be on the same footing as such creditors.2 Some of the cases which recognize the power of a company to purchase its own shares, strictly limit the right to exercise it to circumstances under which the rights of creditors are not involved. But if the transaction injuriously affect the rights of a creditor, it will be held void although made in good faith by the exchange of property of equal value and without any element of fraud in it; and even though, at the time of the transfer, the fact of indebtedness was not established and was unknown to the stockholder.1

§ 2063. Creditors Alone can Impeach a Sale of Stock to the Company. Under the theory of these cases, the preservation of the rights of creditors being the only reason for a limitation upon the power of corporations to purchase their own stock, it has been held that creditors alone may impeach such a transaction. And since, where a receiver is appointed to take charge

1 Coleman v. Columbus Oil Co., 51 Pa. St. 74.

? Blalock v. Kernersville Mfg. Co., 110 N. C. 99; 8. c. 14 S. E. Rep. 501. Compare Marshall Foundry Co. v. Killian, 99 N. C. 501; s. c. 6 Am. St. Rep. 539; Heggie v. Building &c.

Assn., 107 N. C. 581; s. c. 12 S. E.
Rep. 275.

3 Re Columbian Bank, 147 Pa. St. 422; s. c. 29 W. N. C. 453, 458; 23 Atl. Rep. 626, 628.

4 Clapp v. Peterson, 104 Ill. 26

of the property and assets of a corporation, he is, for the purpose of determining the nature and extent of his title, regarded as representing only the corporate body itself, and not its creditors and shareholders, and is vested by law with the estate of the corporation, and for purposes of litigation takes only the rights of the corporation such as could be asserted in its own name, a resolution of the company, duly passed, cancelling all certificates of stock not fully paid, and issuing new paid-up certificates for the amount of the surrendered stock actually paid, was held to be, in effect, a purchase by the company of the unpaid stock at its par value and binding between the corporation and the stockholders, so that it could not be avoided by a receiver of the company.1

§ 2064. View that the Corporation may be the Beneficial Owner of its Own Shares.- We have already had occasion to inquire' whether a corporation can be the beneficial owner of its own shares. As the shares of a corporation are in the nature of corporate debts, the inquiry is analogous to the inquiry whether a man can become the owner of his own debts, by buying up the paper evidence of them and holding them in the name of a trustee.3 Where the unissued stock of a corporation was, by agreement of all the stockholders (there being no creditors), paid with corporate funds, and issued to one stockholder to be held in trust for all, it was held that the issue was valid, and that the directors had no authority afterwards to direct the stock to be sold.4

§ 2065. Power of National Banks in this Respect. - The question has been frequently presented in respect of such purchases of their own shares made by national banks; and the conclusion seems to be that while such banks have no power to become the general and unlimited owners of their own shares,5 yet, like other corporations, they may purchase their own or other shares to protect themselves from loss on a debt; though in such a case

1 Republic L. Ins. Co. v. Swigert, 135 Ill. 150. Compare Crandall v. Lincoln, 52 Com. 73; s. c. 54 Am. Rep. 560. The prevailing view is that a receiver of a corporation represents creditors, and in their behalf can impeach illegal acts of the corporation. Post, S

2 Ante, § 1107.

8 See post, 2069.

Jones v. Morrison, 31 Minn. 140. 5 Meyers v. Valley Nat. Bank, 18 Bankr. Reg. 34.

6 Post, § 2068; National Bank of Charlotte v. National Exchange Bank of Baltimore, 39 Md. 600.

the bank is bound, under the operation of the statute,1 to sell the shares within six months; and it may sell them on credit and take the purchaser's note, with the stock sold as collateral to secure it, provided this is done in good faith.2

§ 2066. Ultra Vires no Defense to Note Given for Such Stock. - In the case last supposed in the preceding section, if it were true that the corporation exceeded or abused its powers in the transaction, this would not be a good defense to an action on the note. The question of misuser will not be decided collaterally in such a case, by setting aside a sale otherwise good. "An abuse of its corporate powers might be a reason for punishing the bank, but would be no sufficient reason for not enforcing this contract in the interest of the creditors of the bank. The law will not permit a defendant to refuse payment upon his contract upon the ground that there was an abuse of the corporate powers in making it." 3

§ 2067. Cannot Purchase of One Stockholder to the Exclusion of the Others.- Where the case is such that it involves only the rights of the stockholders, and not the rights of the creditors, as where the governing statute forbids an insolvent company to buy its own capital stock, and by implication allows a solvent corporation to do so, the right cannot be exercised by the corporation to the exclusion of others similarly situated. In such a case a corporation cannot reduce its capital stock by purchasing the shares belonging to one stockholder; but each stockholder should be allowed to surrender the same proportion of his stock, as the amount of the proposed reduction bears to the aggregate of the capital stock.5

§ 2068. Exceptions to the Foregoing Rule. Certain recognized exceptions to the foregoing rule exist, founded upon necessity. Thus, it is agreed that a corporation may receive its own shares from its debtor in order to save itself from loss;

1 Rev. St. U. S., § 5141.

2 Union Nat. Bank v. Hunt, 76 Mo. 440; affirming on this point 7 Mo. App. 42.

3 Union Nat. Bank v. Hunt, 7 Mo.

App. 42, 51, opinion by Bakewell, J.; affirmed on this point, 76 Mo. 440.

4 N. H. Gen. Stats. ch. 135, § 3.

5 Currier v. Lebanon Slate Co., 56 N. H. 262.

though it seems it has no power to do this out of mere complaisancy to shareholders who may be indebted to it. There is no doubt that a corporation may receive its own shares as security for a previously existing debt contracted by the stockholder;' and where this was done by an incorporated bank, it was held that a court of equity would not, after a long lapse of time, compel the stockholders to resume their stock and the responsibilities attached. And we have already seen, that the forfeiture of shares and their consequent resumption by the corporation, is one of the recognized means of enforcing the payment of assessments. In a case where the general rule that a corporation cannot purchase its own shares was applied and enforced against the selling stockholders, it was said: "Should it loan money to a stockholder and be obliged to take its own stock in payment, that would not be illegal per se. So too it may be allowable for a company to purchase stock temporarily with its surplus earnings; but stock should not be held indefinitely; it should be disposed of in a reasonable time. If not, and should creditors thereby be prejudiced, perhaps the managers might be liable. Nor do we intend to say that a direct purchase would be declared illegal at the instance of a party to the transaction. If the stock is re-issued and creditors are not prejudiced, probably the courts would not interfere. But as a rule to which there are few if any exceptions, when a stockholder conveys his stock to the company and receives in return a portion of the capital, he holds the money so received subject to the superior equities of creditors." 5

Mer

§ 2069. Power to Re-issue Such Purchased Shares ger-Revival.- Where a corporation has power in a given case to become the owner of its own shares, by purchase, forfeiture, or other mode, it may be stated with confidence that the

Taylor v. Miami Exporting Co., 6 Oh. St. 176; s. c. 22 Am. Rep. 785; recognized in State v. Oberlin Building Asso., 35 Oh. St. 258, and in Coppin v. Greenlees &c. Co., 38 Oh. St. 275; s. c. 43 Am. Rep. 425.

2 Union Nat. Bank v. Hunt, 76 Mo. 440; affirming on this point 7 Mo. App.

42; German Savings Bank v. Wulfekuhler, 19 Kan. 60.

3 Taylor v. Miami Exporting Co., 6 Ohio, 176.

4 Ante, § 1762, et seq.

5 Crandall v. Lincoln, 52 Conn. 73, 101; s. c. 52 Am. Rep. 560, 566. See Thompson v. Moxey, 47 N. J. Eq. 538; s. c. 20 Atl. Rep. 854.

shares do not necessarily merge or become extinguished, or that if they have merged they may be revived, so that the corporation may afterwards sell them or otherwise re-issue them.1 It was said in an early case that it had always been the understanding and practice, that where a bank took its own shares in pledge to secure a debt, it was authorized to re-issue them whenever it saw fit. In another case it was held that a corporation which has power to take its own stock in payment of debts may sell it again and take notes for the price, under the general power of the directors to manage its business. Such re-issue or resale is regarded as a re-issue of old, and not an issue of new shares, from which the conclusion of another court would seem to follow that, upon such a resale, the stockholders have no right of becoming purchasers in preference to the general public; nor can the directors be prevented from purchasing on the ground that they are trustees and cannot be both buyers and sellers. The first proposition is clear enough; the latter is doubtful. Another court has reasoned that here, as in other cases, the question of merger depends largely upon intention; that such a purchase merely suspends the right to vote on the stock, and may or may not have the effect of a merger, at the option of the company; and that some manifestation of such intent should be proved, to produce that result."

§ 2070. One Corporation Cannot Subscribe for Shares in Another.-Corporations aggregate can only be formed by individuals, and unless the power is conferred by statute in express terms or by necessary implication, one corporation has no faculty of becoming a corporator in another; and hence a subscription by one corporation to the capital stock of another is ultra vires and void. But it does not follow that stockholders may not, by

1 Commonwealth v. Boston &c. R. Co., 142 Mass. 146; Williams v. Savage Man. Co., 3 Md. Ch. 418; City Bank of Columbus v. Bruce, 17 N. Y. 507 Rogers v. Phelps, 31 N. Y. St. Rep. 872; 8. c. 9 N. Y. Supp. 886 (land scrip).

2 Williams v. Savage Man. Co., supra.

3 State Bank v. Fox, 3 Blatchf. (U. S.) 431.

4 City Bank of Columbus v. Bruce, 17 N. Y. 507.

Hartridge v. Rockwell, R. M. Charlt. (Ga.) 260.

State v. Smith, 48 Vt. 266.

Ante, § 1102, et seq; Railway Co.

v. Iron Co., 46 Oh. St. 44; s. c. sub nom.