used to the effect that the assets of a corporation are a trust fund held by a corporation for the benefit of creditors, this has not been to convey the idea that there is a direct and express trust attached to the property. As said in 2 Pomeroy's Equity Jurisprudence, Sec. 1046, they ‘are not in any true and complete sense trusts, and can only be called so by way of analogy or metaphor.' A corporation is a distinct entity. Its affairs are necessarily managed by officers and agents, it is true; but, in law, it is as distinct a being as an individual is, and is entitled to hold property (if not contrary to its charter) as absolutely as an individual can hold it. When a corporation becomes insolvent, it is so far civilly dead that its property may be administered as a trust fund for the benefit of its stockholders and creditors. A court of equity at the instance of the proper party, will then make those funds trust funds which, in other circumstances, are as much the absolute property of the corporation as any man's property is his. When a court of equity does take into its possession the assets of an insolvent corporation it will administer them on the theory that they in equity belong to the creditors and stockholders rather than to the corporation itself. In other words, and that is the idea which underlies all these expressions in reference to "trust" in connection with the property of a corporation, the corporation is an entity, distinct from its stockholders as from its creditors. Solvent, it holds its property as any individual holds his, free from the touch of a creditor who has acquired no lien; free also from the touch of a stockholder who, though equitably interested in, has no legal right to the property. A party may deal with a corporation in respect to its property in the same manner as with an individual owner, and with no greater danger of

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being held to have received into his possession property burdened with a trust or lien. The officers of a corporation act in a fiduciary capacity in respect to its property in their hands, and may be called to an account for fraud or sometimes even mere mismanagement in respect thereto; but as between itself and its creditors the corporation is simply a debtor, and does not hold its property in trust, or subject to a lien in their favor, in any other sense than does an individual debtor. * * * Neither the insolvency of the corporation, nor the execution of an illegal trust deed, nor the failure to collect in full all stock subscriptions, nor all together, gave to these simple contract creditors any lien upon the property of the corporation, nor charged any direct trust thereon."

In McDonald v. Williams, 174 U. S. 397, the receiver of an insolvent national bank was suing a shareholder to recover back a dividend paid him out of the stock capital. At the time the dividend was paid, the capital stock of the bank was impaired, but the corporation was solvent as to creditors; the directors knew this fact, but the shareholder did not. The national banking act provides that "no association or any member thereof shall, during the time it shall continue its banking operations, withdraw or permit to be withdrawn either in the form of dividends or otherwise any portion of its capital." It was urged on behalf of the receiver that the payment of the dividend was illegal and ultra vires, and that the money thus paid remained the property of the corporation and could be followed into the hands of any volunteer. But the court said: "There is no well defined lien of creditors upon the capital of a corporation while the latter is a solvent and going concern, so as to permit creditors to question, at the time, the disposition of

the property. The bank being solvent, although it paid its dividends out of capital, did not pay them out of a trust fund. Upon the subsequent insolvency of the bank and the appointment of a receiver, an action could not be brought by the latter to recover the dividends thus paid on the theory that they were paid from a trust fund and therefore were liable to be recovered back. The assets of the bank while it is solvent may clearly not be impressed with a trust in favor of creditors, and yet that trust may be created by the very fact of the insolvency and the trust enforced by a receiver as the representative of all the creditors. But we do not wish to be understood as deciding that the doctrine of a trust fund does in truth extend to a shareholder receiving a dividend in good faith, believing it is paid out of profits, even though the bank at the time of the payment be in fact insolvent.” 1

Second. In suits by or for the benefit of creditors, brought to recover payments alleged to be due on the shares, the trust fund doctrine is still invoked with more or less frequency. In Crawford v. Rohrer, 59 Md. 599, shares were issued to the defendant as fully paid, in exchange for property. The court found that even at the valuation placed upon it, the property did not equal the par value of the shares, and accordingly held the defendant liable for the balance. In the course of the opinion it is said: "It has been again and again decided, that the unpaid subscriptions to the capital stock of a corporation constitute a trust fund for the benefit of the general creditors of the corporation; and that this trust cannot be defeated or the fund impaired by a simulated or pretended payment for the stock taken,

1 Compare the provision for state banks and trust companies in Code (1911), Art. 11, sec. 68.

nor by any advice short of actual payment in good faith. Any arrangement, therefore, among the stockholders, or those in charge of the affairs of the corporation, by which the stock is but nominally paid for, whether in money or property, the corporation not in fact getting the benefit of the price in good faith, will be regarded as a sham, and not as a valid payment, as against the creditors of the corporation, however it may be regarded as between the corporation and the subscriber."

In this case, however, there was no question of a trust. really involved. And when the court speaks of unpaid subscriptions constituting a trust fund, it means no more than to say that a subscription as a promise which must be performed in good faith; and which can not be released at the expense of creditors entitled to rely upon it. 2

1 Compare the language in Hooper v. Central Trust Co., 81 Md. 580 with that in Fear v. Bartlett, 81 Md. 443 and Brant v. Ehlen, 59 Md. I.

2 For a collection of authorities on the trust fund doctrine, see 10 Cyc. 653, &c.; post, § 110.

CHAPTER XV.

HOW THE RELATION OF SHAREHOLDER IS

CREATED.

SUBSCRIPTION.

§ 100. How share ownership is acquired. Unissued stock is not property, nor is it, theoretically, anything that the corporation can sell or pledge. In the first instance it is merely a potentiality for raising the authorized capital; and a shareholder is one who has agreed to contribute a definite portion of this capital by subscribing for a definite number of the shares. The subscription contract creates the share; and, as thus created it may pass by transfer, voluntary or involuntary, from one owner to another indefinitely. It follows, therefore, that so far as original stock is concerned, a shareholder must be either a subscriber or a transferee, mediate or immediate, from a subscriber.

1 Thomp. Corp., secs. 2051-2053. The distinction between a sale and a subscription, in the case of original stock, lies in the fact that, theoretically, original stock is always formative, and that the corporation does not own and has no power to dispose of such stock at less than par. A practical consequence of the distinction is this: in the case of a sale, e. g., of increased stock, a tender of the certificate by the corporation and payment of the price by the purchaser are conditions precedent respectively to the obligations and rights of a shareholder. As to selling or pledging unissued shares, see post, § 106.