by a manufacturing corporation for the purchase of shares in a bank was not collectible.1

§ 780. Summary of principles.—Notwithstanding the numerous conflicts found in judicial dicta on this subject, and the great difficulty, if not impossibility, of reconciling them, it is thought the law of ultra vires is reducible to a few simple propositions: 1. Transactions fully completed will, in all cases, be allowed to stand without regard to their validity, when compared with the powers conferred upon the corporation as between the immediate parties thereto. 2. Contracts partly performed will be enforced if within the powers conferred under any circumstances, if entered into in good faith by a party without notice of the non-existence of the circumstances authorizing the corporation to make the contract, although the facts authorizing the particular contract do not in reality exist. 3. Although contracts clearly in excess of the powers conferred upon the corporation under any and all circumstances are in general voidable by either party, yet completion will be enforced if partly performed, or if to adjudge them void would have the effect to award to the party alleging the defect of power a premium upon his wrongful and illegal act by allowing him to retain the fruits of it. 4. Contracts expressly prohibited or declared illegal are void and unenforceable, but benefits received under them must be accounted for where the parties are not in pari delicto; and when the injured and innocent party is without adequate' remedy except by the terms of the contract, and where to adjudge otherwise would enable the culpable party to unjustly retain the fruits of fraud and illegality, courts

1 Sumner v. Marcy, 3 W. & M. 105.

will enforce such contracts. 5. Contracts, whether by corporations or individuals, upon considerations that are immoral or are in their nature and tendency subversive of the interests of the public, or prejudicial to social, political or moral welfare of society, are void, and no remedy will be given to either party where they are in pari delicto. But if one of the parties be innocent of wrong intent, in entering into the reprehensible transaction, the other will be compelled to restore all property and benefits obtained under it. 6. The ultra vires character of a transaction is available to either party to it, if available at all, except it fall within one or the other of the last three preceding subdivisions of this section.1 7. An injunction will be granted at the suit of any shareholder to restrain unauthorized exercise of the corporate powers, or the diversion of its funds, franchises or other property, interests, uses or purposes not authorized by law or the constating instruments.2 8. Ultra vires is never available as a defence in an action for tort where the agent who committed it was acting at the time in the course of business entrusted to him.3

1 The defence should be specially pleaded. Ger. Sav. Inst. v. Jacoby, 97 Mo, 617; Greisa v. Mass. Ben. Ass'n., 15 N. Y. S. 71 (Aug., 1891). An admission in a pleading that a corporation is legally organized raises a prima facie presumption that it has acted within its corporate power. Baker v. Northwestern Guar., etc., Co., 36 Minn. 185; Pringle v. Woolworth, 90 N. Y. 502, 509.

2 For remedies of stockholders to restrain the officers and agents from unauthorized acts see supra, Ch. XXIV.

CHAPTER XXVIII.

ACTIONS AGAINST SHAREHOLDERS FOR UNPAID CAPITAL.

§ 781. Relative rights of creditors and shareholders.

782. Creditors have no direct remedy at law against shareholders.

783. Relations of parties to capital stock.

784. Subscriptions treated in equity as assets.

785. Remedies for unpaid capital and under statutes are concurrent.

786. Right of action not dependent upon the making of calls.

787. Conditions not binding without notice.

788. Illegal conditions not binding.

789. Where business commenced before full amount of capital is subscribed. 790. Creditors may rely upon appearances.

791. Stock books as evidence against creditors.

792. What amounts to payment by and discharge of shareholders.

793. Shareholders assume a continuing liability.

794. Rights of the parties may be altered by special agreement.

795. Customs of particular corporations.

796. Time to which liability relates.

797. Creditors not prejudiced without reduction of security.

798. When voidable subscriptions are binding as to creditors. 799. Collusive cancellation of subscriptions.

800. Agreements not to enforce.

801. Release by forfeiture of shares.

802. The right must be exercised fairly and regularly.

803. Unauthorized use of party's name as a shareholder.

804. May become bound by ratification.

805. Mere irregularities no defence.

806. Where issued without authority of directors.

807. Stock issued gratuitously.

808. Proof of ratification.

809. Liability when shareholder is a corporation.

810. Liability on "watered" stock.

811. Part payment and stock dividends.

812. Stock in itself owned by corporation.

813. Bona fide purchasers not liable.

814. When held in trust for the corporation, trustee not liable.

815. Secret trusts and collateral agreements do not bind creditors.

816. Notice of facts renders defence available.

817. Interest of creditors in transfers attaches upon insolvency.

818. Right of stockholder who is also a creditor.

819. Statutory requirements as to cash payments.

820. Rights of prior lien holders in case of insolvency.

821. When the right to proceed against the stockholders accrues.

822. Pleadings.

823. Evidence of creditor's claim.

§ 824. Parties to creditor's bill.

825. When stockholders not necessary parties.

826.

Defences-Statute of limitations, prescription, etc.

827. Adjustment of mutual claims between shareholders.

828.

Liabilities of members of de facto corporations to third parties.

§ 781. Relative rights of creditors and shareholders.-In considering the remedies of creditors against shareholders in corporations, we have occasion again to call attention to different views taken of the relations existing between them and the corporate entity at law and in equity.

At law there is no privity either of contract or in interest between shareholders and creditors. The liability of the former to contribute capital is an obligation to the corporation and a matter in which the creditors have no concern. By an unconditional subscription each shareholder becomes a several debtor to the corporation, as much so as if he had given his promissory note for the amount of his subscription, though the debt thereby promised does not become due at law until it is demanded.1

2

It is assignable like other choses in action and passes to a general assignee as assets. By statute assignees in insolvency are frequently empowered to enforce the shareholders' liability, although the corporation could not have done so on account of the non-performance of secret conditions precedent as the making of calls. Such statutes are modifications of the common law, by which the assignee only acquired such rights as the corporation possessed, and succeeded in every respect to its relation to the stockholders. But the shareholders'

1 Hatch v. Dana, 101 U. S. 211.

3

2 Eppright v. Nickerson, 78 Mo. 482; Shockley v. Fisher, 75 Mo. 498; Dean v. Biggs, 25 Hun, 122; Glenn v. Dorsheimer, 24 Fed. Rep. 536.

3 See Hill v. Reed, 16 Barb. 280; Glenn v. Dorsheimer, 24 Fed. Rep. 536; Eppright v. Nickerson, 78 Mo. 482; Hurlburt v. Carter, 21 Barb. 221. In an action by an assignee for the benefit of creditors to recover unpaid subscriptions to the capital stock, if there is no evidence of an assessment, there can be no recovery.

liability is not subject to attachment or execution on garnishee process, until calls on the same have been made by the corporation.1

§ 782. Creditors have no direct remedy at law against shareholders. Still it is only by ancillary process in view of judgment or after judgment that the debt due from the shareholder can be made available to a creditor at law. His action and his remedy is, in theory at least, against the corporation only. And it is immaterial that plaintiff alleges he is the only creditor of the corporation."

But courts of equity recognize the real character of the corporation as composed of its members, and use the corporate entity as a term in a formula is used for working out the equities of the real parties in interest, and thus recognize the threefold relation.

§ 783. Relations of parties to capital stock.-These relations are 1, to the artificial person called the cor

unless the jury find that the whole of the unpaid subscriptions is required to pay the debts of the corporation. Citizens', etc., Co. v. Gillespie, 115 Pa. 564; 9 A. 73.

1 Hannah v. Moberly B'k, 67 Mo. 678; Simpson v. Reynolds, 71 Mo. 594; Bunn's App., 105 Pa. St. 49, 63; Meints v. East St. Louis, etc., Mill Co., 89 Ill. 48. But see Hughes v. Oregonian Ry. Co., 11 Oreg. 158; McKelvey v. Crockett, 18 Nev. 238; 2 P. 386.

2 Wheeler v. Thayer, 121 Ind. 64. See also, Burch v. Taylor (Wash.), 24 P. 438; Turner v. Ala. M. & M. Co., 2 Ill. App. 144; Simpson v. Reynolds, 71 Mo. 594; McKelvey v. Crockett, 18 Nev. 238; 3 Am. & Eng. Cor. Cas. 103; Faull v. Alaska G. & S. Min. Co., 14 Fed. Rep. 659; Brown v. Union Ins. Co., 3 La. Ann. 177, 182; 26 Am. & Eng. Cor. Cas. 106. In Missouri by statutory provision a creditor after obtaining judgment at law against the corporation is not bound to sue the stockholder in a new action but against him summarily in the same suit. Hill v. Mer. Mut. Ins. Co., 134 U. S. 515. See also Lander v. Tillia, 117 Pa. 304; 11 A. 86. In Oregon it is held that by subscribing for stock the stockholder thereby becomes directly bound to the creditors of the corporation. Lee v. G. M. Co., 13 Or. 510.

After a call has been made the amount called for becomes subject to garnishment like other debts due the corporation. Meints v. East St. Louis Rail Mill Co., 89 Ill. 48; In re Warwick & W. R. Co., 2 De G. F. & J. 354; Peterson v. St. Clair, 83 Pa. St. 250; Wooldridge v. Holmes, 78 Ala. 568.