where corporations have general power to acquire shares of their own stock, it can not be exercised at such a time nor in such a manner as to take away the security upon which the corporate creditors have the right to rely for the payment of their claims,1 as, for example, in view of or after insolvency.2 It can not after insolvency be compelled to register a transfer of shares which it has contracted to take. Although the transaction may wear the appearance of a cancellation of the contract of subscription, the courts are inclined, whenever the circumstances will admit it, to regard it as a sale, for the purpose of holding the stockholders liable; and so long as the contract of sale remains executory, the corporation may repudiate it, and corporate creditors who are injured thereby may have the transaction set aside."

800; Richmond's Case, (1849) 3 De G. & Sm. 96; Hollwey's Case, (1849) 1 De G. & Sm. 777; In re Royal British Bank, Nicols' Case, (1859) 3 De G. & J. 387; Grady's Case, (1863) 1 De G. J. & S. 488; Lane's Case, (1863) 1 De G. J. & S. 504. But see Crandall v. Lincoln, (1854) 52 Conn. 73; s. c. 52 Am. Rep. 560, where although the seller did not actually know that the purchaser was acting for the company he was held liable, since the circumstances were such that he might have known.

1 Gillett v. Moody, 3 N. Y. 479; Fraser v. Ritchie, 8 Bradw. 554.

2 Crandall v. Lincoln, (1884) 52 Conn. 73, 100; s. c. 52 Am. Rep. 560; Currier v. Lebanon Slate Co., 56 N. H. 262.

4

(1870) L. R. 5 Ch. 294; Nathan v. Whitlock, (1841) 9 Paige, 152.

5 Zulueta's Claim, L. R. 5 Ch. 444. Cf. Abeles v. Cochran, 22 Kan. 405; Great Eastern Ry. Co. v. Turner, 42 L. J. Ch. 83, holding that when the contract has been executed the stock belongs to the corporation and does not pass to the vendor's assignee in bankruptcy.

"Clapp v. Peterson, 104 Ill. 26; Peterson v. Illinois &c. Co., 6 Bradw. 257. In Morgan v. Lewis, (1888) 46 Ohio St. 1, however, it was held that upon the trial of the action to enforce the statutory liability of stockholders, a defendant may show that he originally became a stockholder by receiving from the corpo ration its stock in exchange for his

3 Mitchell v. City of Glasgow Bank, interest in a furnace; that the fur4 App. Cas. 624.

4 Duke's Case, 1 Ch. Div. 622; Teasdale's Case, L. R. 9 Ch. 54; In re United Service Co., Hall's Case, L. R. 5 Ch. 707, distinguishing Snell's Case, L. R. 5 Ch. 22; Thomas' Case, L. R. 13 Eq. 437; Morgan's Case, (1849) 1 De G. & Sm. 750; Bennett's Case, (1854) 5 De G. M. & G. 284; In re Patent Paper Manuf. Co.,

nace not proving as profitable as had been expected, some of the stockholders were dissatisfied with the purchase, and contentions arose among them; that defendant was blamed by many of them for having induced the company to make the purchase, and was requested to take the furnace back and transfer to the company the stock he had received

§ 130. Registration of transfer necessary to relieve the transferrer. If the transfer be not recorded upon the corporate books, the transferrer continues liable upon his subscription both to the corporation and to its creditors. No contract between him and his transferee by which the latter may undertake to assume this liability, will deprive the corporation or its creditors of the right to look to him for payment. And it does not avail the transferrer that he has in good faith attempted to have the transfer registered, if in fact it has not been done."

§ 131. (c) Transferees. It is a general rule that a purchaser of stock standing in the name of his vendor on the corporate books is a bona fide holder against the equities of third persons of which he had no notice. Accordingly when shares of stock, issued as fully paid, have been transferred by the original subscriber to a purchaser for value without notice, either from the face of the certificate or otherwise, that they have been in fact issued for less than their full value, the transferee can not be held liable thereon either to the company or to its creditors. He may rely upon statements in the

certificate itself,' or upon the books of the company, or even, it is held, upon the fact that the certificate is "in customary form" and offered for sale in open market, as evidence that it has been fully paid. He is not bound to suspect fraud when everything seems fair. And although the customary form has not been followed, yet if the form and contents of the certificate of stock be not prescribed by the charter or by-laws of the company, and they contain no requirement that it be signed by designated officers of the corporation or be issued with certain formalities, the fact that the issue was not made in accordance with the method usually employed, will not affect the purchaser with notice of its illegality. When, however, formalities of this kind are required by the charter, the

tion, and it was held that the action could not be maintained. Waterhouse v. Jamieson, L. R. 2 H. L. 29; Burkinshaw v. Nichols, L. R. 3 App. Cas. 1004; Douglass v. Ireland, 73 N. Y. 100; Boynton v. Andrews, 64 N. Y. 93; Boynton v. Hatch, 47 N. Y. 225; Schenck v. Andrews, 57 N. Y. 134; Phelan v. Hazard, (1878) 5 Dill. 45; Smith v. North American &c. Co., 1 Nev. 423; Goodrich v. Reynolds, 31 Ill. 490; Spencer v. Iowa Valley &c. Co., 36 Iowa, 407, 411; "Liability of Holders of Nominally Paid-up Stock," by B. F. Rex, 19 Cent. L. J. 465. But in Cover v. Manaway, (1886) 115 Pa. St. 338; s. c. 2 Am. St. Rep. 552, it was held that the obligation to make good unpaid stock when the necessities of creditors require it, is a charge on stock and passes with it to transferees.

1 Young v. Erie Iron Co., (1887) 65 Mich. 111; Foreman v. Bigelow, 4 Cliff. 508; Wintringham v. Rosenthal, 25 Hun, 580; Jackson v. Sligo &c. Co., 1 Lea, 210; Hubbell v. Meigs, 50 N. Y. 480, 489; Protection Life Ins. Co. v. Osgood, 93 Ill. 69. Cf. Crickmer's Case, L. R. 10 Ch. App. 614. But see Mann v. Currie, 2 Barb.

294; Tasker v. Wallace, 6 Daly, 364, 374, obiter.

2 Erskine v. Loewenstein, (1882) 11 Mo. App. 595; s. c. 82 Mo. 301.

3 Johnson v. Sullivan, 15 Mo. App. 55; Foreman v. Bigelow, 4 Cliff. 508; Keystone Bridge Co. v. McCheney, 8 Mo. App. 496; Erskine v. Loewenstein, 82 Mo. 301.

4 In Brant v. Ehlen, (1883) 59 Md. 1, it was said that any other doctrine would virtually destroy the transferable nature of such securities and paralyze all the dealings of the Stock Exchange. But see Myers v. Seeley, 10 Nat. Bankr. Reg. 411, where it is held that the assignee of shares can stand upon no firmer ground than the assignor; that although relying upon the representations of the latter and of the corporate officers that the stock was fully paid, he will as against creditors of the company be liable for the amount remaining unpaid.

5 Brant v. Ehlen, (1883) 59 Md. 1; Burkinshaw v. Nicholls, L. R. 3 App. Cas. 1004, 1017.

6 Tome v. Parkersburg &c. R. Co., 39 Md. 36: New York &c. R. Co v. Schuyler, 34 N. Y. 30.

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purchaser is then affected with knowledge of them. Accordingly a creditor's bill in equity to subject to liability holders of stock, which is nominally paid up, but on which nothing has really been paid, must allege that they took with notice of that fact. When it is deemed necessary to the protection of the purchaser that there should be an official representation upon the face of the certificate or on the corporate records, that the stock has been paid in full, it is only a representation that the full payment has actually been made that will save him. No agreement on the part of the corporation not to require further payment,3 no writing of such words as nonassessable" across the certificate of stock, is equivalent to a recital contained thereon that it has been fully paid. If a subscriber to whom shares have been allotted transfers them to a bona fide purchaser before the certificate of stock has been issued, and the certificate is then issued directly to the transferee, the latter does not thereby become the original taker of the stock so as to lose his equities as a bona fide purchaser without notice, and, accordingly, is not liable to corporate creditors if the shares, issued as full-paid stock, were in fact issued below par or for property taken at an over-valuation.'

1 Holbrook v. Fauquier &c. Turnpike Co., 3 Cranch, 425. Cf. Wright's Appeal, 99 Pa. St. 425.

2 Cleveland Rolling Mill Co. v. Texas &c. Ry. Co., 27 Fed. Rep. 250. 3 Upton v. Tribilcock, 91 U. S. 45; Webster v. Upton, 91 U. S. 65.

4 Upton v. Burnham, 3 Biss. 431. 5 Young v. Erie Iron Co., (1887) 65 Mich. 111, citing Sanger v. Upton, 91 U. S. 56, 60; Steacy v. Little Rock &c. R. Co., 5 Dill. 348, 373–377. See also Carling's Case, 1 Ch. Div. 115. Contra, In re Vulcan Iron Works, L. T. 1885, p. 61; Rowland's Case, 42 L. T. N. S. 785; Potter's Appeal, Wk. Notes, 1878, p. 81. And in Shickle v. Watts, (1888) 94 Mo. 410, it is held that the holder of unpaid stock in an insolvent corporation is liable whether he was a subscriber or not, though the charter prescribes

that persons wishing to become members shall subscribe. But see Weinman v. Wilkinsburg & E. L. P. Ry. Co., (1888) 118 Pa. St. 192, where the evidence showed that defendant's partner had subscribed to a number of shares, acted as director, and had taken defendant to a meeting of the board of directors, to be substituted as a subscriber in his stead, and to take his place in the board; that defendant subsequently acted as director, attended meetings, and voted for calls on the stock. Defendant denied his liability because he had made no formal undertaking, and the transfer had not been entered upon the books of the company. But it was held that in as much as the transaction was not a sale but a mere substitution, the defendant was liable.