creditors, then the power to issue such shares must be sought for in some statute. The resulting stock is usually called statutory preferred stock and its incidents are, of course, what the statute makes them.

$97. Statutory preferred stock in Maryland. As it originally stood, the act of 1868 gave to every corporation having the power to issue bonds and secure the same by mortgage, the right to issue a preferred stock; to dispose of the same by sale or by subscription on such terms as in the judgment of the corporation might be expedient; and to grant to the purchaser or subscribers a perpetual dividend of six per cent. per annum out of the profits of the corporation, before any dividend should be distributed to any other shareholder. By the amendment of 1880, Chapter 474, a new feature was introduced. This provides that the stock issued under it shall constitute a lien on the franchises and property of the corporation and have priority over any subsequently created mortgage or other incumbrance. The statute by its terms relates to increased stock and not that originally authorized; and the holder of the preferred shares occupies toward the corporation the dual and inconsistent relation of shareholder and preferred creditor.1

1 In Heller v. Marine Bank, 89 Md. 602, the corporation which had issued preferred shares under the Act was in the hands of receivers. Pending the receivership, the buildings and a part of the stock in trade had been destroyed by fire; the receivers had collected the insurance money, together with some rents of the corporation's real estate and certain book accounts due for merchandise sold by it. The question was whether the funds in the hands of the receivers from these sources belonged to the preferred shareholders or to the creditors. It was held: (1) that the pre

The Act of 1908,1 is a substitute for the pre-existing statutory provisions as to preferred stock issued after June 1 of that year.2

$98. The trust fund doctrine. Before quitting the subject of capital stock as a legal conception, it is necessary to consider a theory which, having once flourished vigorously, is now moribund but not dead. In Wood v. Dummer, 3 Mason (U. S. C. C.) 308, decided in 1824, the shareholders of a bank whose charter was about to expire, had divided up the assets and thereby left the bank without means to pay certain outstanding notes held by the plaintiff. The latter filed his bill against the shareholders, alleging that the division of the assets was fraudulent; and the answers admitted the division but denied the fraud. A sufficient ground for the relief prayed, namely an accounting for the assets thus diverted, would have been this: that stock capital belongs to the legal entity and the shareholders have no right in it, until the corporation has been wound up and its debts paid; and that a shareholder who knowingly takes money that belongs, in the first instance, to creditors, must pay it back on their demand. The court, (Story J.) granted the relief prayed, but in the course of the opinion said: "It appears to me very clear upon

ferred stock was entitled to priority only to the extent of the fixed property owned by the corporation at the time it was issued: (2) that it was not a lien upon subsequently acquired property: (3) and that the lien did not attach to the insurance money in the hands of the receivers, nor to the rents and book accounts collected by them.

1 Quoted and discussed, ante 8 41.

2 Note a special provision for railroads: Code (1911) Art. 23, sec. 294.

general principles, as well as the legislative intention, that the capital stock of banks is to be deemed a pledge or trust fund for the payment of the debts contracted by the bank. The public as well as the legislature, have always supposed this to be a fund appropriated for such purpose.

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To me this point appears so plain upon principles of law, as well as common sense, that I cannot be brought into any doubt that the charters of our banks make the capital stock a trust fund for the payment of all the debts of the corporation. * If I am right in this position, the principal difficulty in the cause is overcome. If the capital stock is a trust fund, then it may be followed by the creditors into the hands of any person having notice of the trust attaching to it. As to the stockholders themselves, there can be no pretense to say that, both in law and fact, they are not affected with the most ample notice. The doctrine of following trust funds into the hands of any persons who are not innocent purchasers, or do not otherwise possess superior equities, has been long established."

The rule thus announced by Judge Story was novel, but it found favor and was subsequently misapplied. Following the lead of the Supreme Court of the United States, the courts generally began to apply the trust fund theory in suits against shareholders for balances alleged to be due on their shares. If the subscriber had taken stock at less than par; or if, having subscribed at par, the corporation had contemporaneously agreed not to call for full payment; or if the corporation had subsequently agreed to release a subscriber from all or any part of his original subscription,-in

1 In this opinion the term capital stock is used in the original sense of stock capital.

such cases the liability of the shareholder was rested upon the fanciful ground that, by the mere fact of share ownership, he became debtor to a trust fund of which the directors were the trustees and the creditors the beneficiaries. In Sanger v. Upton, 91 U. S. 56, the appellant was the holder of shares, not fully paid, in a bankrupt insurance company and, in a suit by its receiver, relied upon a resolution of the directors to the effect that no further calls should be made. The court, properly enough, held that unpaid subscriptions are as much a part of the stock capital as the cash which has been paid in upon them; and that where the rights of creditors are affected, the corporation can no more release a subscriber from his promise to pay than it can return him the money he has already paid. But it is further said: "An agreement that a stockholder may pay in any other medium than money is also void as a fraud upon the other stockholders, and upon creditors as well. * * The capital stock is a fund set apart for the payment of debts. * * * The creditors have a lien upon it in equity. If diverted, they may follow it as far as it can be traced and subject it to the payment of their claims, except as against holders who have taken it bona fide for a valuable consideration and without notice." In Upton v. Tribilcock, 91 U. S. 45, a case growing out of the same state of facts, the court went further. Here there was an agreement between the corporation and the subscriber, made at the time of subscription, to the effect that full payment for the shares should not be required. The question presented was not whether the corporation could release the subscriber from a promise he had made; but whether he could be sued upon a promise that he did not make. It was said that the agreement was void as to creditors and that "the accept

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ance and holding of a certificate of shares in a corporation makes the holder liable to the responsibilities of a shareholder" because "the capital stock of a moneyed corporation is a fund for the payment of its debts; it is a trust fund of which the directors are the trustees."

$99. The present state of the trust fund doctrine. First. So far as the relation of a creditor to the corporation's property is concerned, the notion that it is impressed with a trust for his benefit has been entirely abandoned. He has no lien of any sort. If, in fraud of creditors, the corporation conveys away any of its assets, whether they represent stock capital or free capital, the defrauded creditor may attack the conveyance or transfer just as he might do if his debtor were a natural person. But the success of such an attack will depend upon whether the grantee has guilty knowledge cr is a volunteer; and not upon the fact that the subject matter is impressed with a trust. In Hollins v. Briarfield Co., 150 U. S. 371, a simple contract creditor of a corporation was seeking to set aside a mortgage made by it, and to enforce the payment of stock subscriptions. Under the settled equity rule followed by the federal courts, a creditor may not attack a conveyance of his debtor unless he has a judgment or other lien on the property conveyed.1 The plaintiff, however, rested his right upon the ground that the stock capital of a corporation constitutes a trust fund impressed with a lien in favor of its creditors. The court disposed of this contention as follows: "While it is true language has been frequently

1 See the authorities collated in 20 Cyc. 683. The rule has been partly changed by statute in Maryland. Code (1911) Art. 16, sec. 47.