until the whole amount named in the charter or articles has been subscribed. But if, before the whole amount is subscribed, the corporation is organized, agents appointed and business begun, it is a representation to the public that the business for which it was organized is being undertaken on the capital authorized by the charter.1 When a corporation thus embarks in business before its authorized capital is raised, it perpetrates a fraud upon all who deal with it, without knowledge of the facts. It is, under these circumstances, practically doing business without capital, except such sums as may have been contributed by shareholders, notwithstanding the non-performance of the conditions of their subscriptions, for it would be unable in its own right to collect a dollar from an unwilling subscriber.

But as between those who had taken shares and third parties who had trusted to appearances, the fact that appearances were false would be no defence to an action on their contracts of membership. If the shareholders have appointed agents and authorized them to proceed with the business in the name of the corporation, contrary to the terms of their articles of association, they and not innocent creditors should suffer whatever loss is incurred in the business transacted.2

§ 790. Creditors may rely upon appearances. It may be stated generally, upon principles well recognized and frequently adverted to and illustrated, that creditors have the right to accept and rely upon the condition of affairs presented by the management of the corporation on its books or otherwise.

A principal object of requiring a capital stock to be

1 Burns v. Beck, 83 Ga. 471; 10 S. E. 121.

2.

Hager v. Cleveland, 36 Md. 476; Morrison v. Dorsey, 48 Md. 468; Musgrave ▾ Morrison, 54 Id. 161; Boston, etc., R. R. Co. v. Pearson, 128 Mass. 445.

provided before beginning business is the security of creditors who cannot, as in case of a copartnership, look to those composing the company for payment of their claims in case of insolvency, except to the extent of the liability the stock book or other list represents them to have assumed. Therefore, no action among themselves, though unanimously assented to between them and their agents, however formal and solemn, by which they undertake to release themselves from their obligations to contribute capital, will be allowed to stand in the face of what, with their knowledge, - is held out to those dealing with it to be their connection with the corporation.1

1 Sawyer v. Hoag, 17 Wall. 610; Upton v. Tribilcock, 91 U. S. 48; Upton v. Hansborough, 3 Biss. 417, 427; Glenn v. McAllister's Exrs., 46 F. 883 (Sept., 1891); Baines v. Babcock (Cal.), 27 P. 674; Same v. Story, Id. 676; Barron v. Paine, 83 Me. 312. As to what will relieve one to whose name an unauthorized transfer of shares has been made by a broker from liability as a shareholder, see Glenn v. Garth, 15 N. Y. S. 202. A finding that alleged shareholders are such includes a finding that every condition precedent to their becoming full stockholders and subject to liability as such has either been performed or waived. Arthur v. Clark (Minn.), 49 N. W. 252; Lehman v. Glenn, 87 Ala. 618; Brown v. Finn, 34 F. 124; Upton v. Jackson, 1 Flipp, 413; Wetherbee v. Baker, 35 N. J. Eq. 501; Thompson v. Reno Sav. B'k, 19 Nev. 103; 7 P. 68, 870; 9 P. 121, 882; Clarke v. Lincoln Lumber Co., 59 Wis. 659, 660; Slee v. Bloom, 19 Johns. 456; Atkinson v. Foster (Ill.), 25 N. E. 528; Sagory v Dubois, 3 Sandf. Ch. 466; Glenn v. Orr, 96 N. C. 413; 2 S. E. 538; Osgood v. King, 42 Iowa, 478; Burnham v. Northwestern Ins. Co., 36 Ia. 632; Topeka Mfg. Co. v. Hale, 39 Kan. 23; 17 P. 601; Mann v. Cooke, 20 Conn. 178; Pickering v. Templeton, 2 Mo. App. 424; Skrainka v. Allen, 7 Mo. App. 434; Chouteau v. Dean, Id. 210; Gill v. Balis, 72 Mo. 424; Woodford v. Union B'k, 3 Coldw. 501; Crawford v. Rohrer, 59 Md. 599; Rider v. Morrison, 54 Md. 429; Schley v. Dixon. 34 Ga. 273; Moses v. Ocaee B'k, 1 Lea, 399. See Zirkel v. Joliet Opera House Co., 79 l. 334; Currier v. Lebanon Slate Co., 56 N. H. 262. Compare C. C. S. & M. W. M. Co. v. Deblieux, 40 La. Ann. 155; 3 So. 726. It was held immaterial that the name of the corporation had been changed since the name of the party was entered on the stock books. Vandewerken v. Glenn, 85 Va. 9; 6 S. E. 806. Accepting dividends held to estop a transferee of shares in a national bank from denying relation of shareholder; also that such transferee when sued as a shareholder cannot escape liability from the fact that no new certificates were issued to her, as the transfer on the books was sufficient as between her and the bank; nor can she escape from the fact that when the bank was converted from a savings bank into a national bank no new certificates were issued, as the statute authorizing the conversion expressly declares that the

The correct rule with regard to unpaid subscriptions is this: Whatever sum is subscribed by the stockholders, or held out to the public by them as their stock in the corporation, is liable to be called in for the payment of its debts.1

§ 791. Stock books as evidence against creditors.-Where the corporation has become insolvent the creditors are not concluded by the stock books in holding persons who are such in fact to the liability of stockholders. Persons who can otherwise be shown to occupy that relation may be compelled to make good the claims of creditors to the extent of unpaid capital due from them to the corporation, whether their names appear and

shares of the old bank may continue to be for the same amount each as they were before the conversion. Keyser v. Hitz, 133 U. S. 138; 10 S. Ct. 290.

A pledgee of stock, who has the old certificates canceled and new certificates issued in his own name, is liable to creditors of the corporation as a stockholder. National Commercial Bank v. McDonnell (Ala.), 9 So. 149; Dorgan v. Same, Id.; Bush v. Same, Id.; McMillan v. Same, Id.

A pledgee of shares of stock in a national bank, who does not appear, by the books of the bank or otherwise, to be the owner, is not liable for an assessment on the shares on the insolvency of the bank, under Rev. St. U. S., § 5151, rendering shareholders liable for the debts of the association to the extent of the par value of their stock. Welles v. Larrabee, 36 F. 866.

articles.'

of lime.

A corporation was organized for "the manufacture and sale of lime, together with the buying and selling of lime, hair, sand, cement, and like The only business actually engaged in was the manufacture and sale Held, that the stockholders were liable for its debts, under Const. Minn., art. 10, § 3, making stockholders liable to the amount of stock held by them in any corporation organized for the purpose of carrying on any other than a manufacturing business. Densmore v. Red Wing Lime & Stone Co. (Minn.) 48 N. W. 528; Id. 681.

La. Paper Co. v. Wapples, 3 Woods (U. S.), 35; Lehman v. Glenn, 87 Ala. 618. In some cases though arrangements have been made for the payment of stock which preclude the company itself from enforcing further payment thereon, yet, as to creditors who can fairly allege that they have relied on them, the law presumes them to have done so to the amount of the capital stock of the

company.

The courts will interfere and impose a trust upon the subscription

and set aside the inter se agreement as to its payment. Coit v. N. Car. Gold Amal. Co., 14 Fed. Rep. 12.

whether a certificate has been issued to them or not.1 Nor is it any defence that the party holds the stock as agent or trustee for others whose names do not appear on the stock book.2

§ 792. What amounts to payment by and discharge of shareholders. It was held in the earlier cases that subscriptions could only be paid in money. But in recent cases a more liberal doctrine prevails, and it appears to be settled now that where the corporation has, in good faith, accepted labor or property in lieu of cash, it may in return issue paid up stock to the amount of the agreed value of such services or property and dis

1 Sanger v. Upton, 91 U. S. 56; Upton v. Tribilcock, Id. 45; Columbia Elec. L. Co. v. Dixon (Minn.), 49 N. W. 244; Slee v. Bloom, 19 Johns. 456; Dorris v. French, 4 Hun, 292; Hamilton, etc., R. R. Co. v. Rice, 7 Barb. 157, 167; Bell's Appeal, 118 Past. 88; 8 A. 177; Thurber v. Crump, 86 Ky. 408; 6 S. W. 145; Clark v. Farrington, 11 Wis. 306; Telford & F. Tp. Co. v. Gerhab (Pa.), 13 A. 90; Haynes v. Brown, 36 N. H. 545; Chesbey v. Cummings, 37 Me. 76, 83; Griswold v. Seligman, 72 Mo. 110; Boggs v. Olcott, 40 Ill. 303; Re Smith Mt., etc., Min. Co., 7 Sawy. 20; Upton v. Burnham, 3 Biss. 431; Johnson v. Albany, etc., R. R. Co., 40 How. Pr. 193; Payne v. Elliott, 54 Cal. 339. The certificate of organization may be prima facie proof that a stockholder has not fully paid for his stock. Grindle v. Stone, 78 Me. 176; 3 A. 183. A transferee of stock of a corporation who signs a paper purporting to be an original subscription, and expressly agrees to pay the amount subscribed as the board of directors may order, assumes the liability of an original stockholder, and is liable for the amount of the unpaid subscription. Citizens' & Miners' Sav. Bank & Trust Co. v. Gillespie, 115 Pa. St. 564; 9 A. 73. And it was held that the acceptance and retention of a certificate of stock for $1,000 by defendant, who has paid that amount to a manufacturing corporation, shows that he did not intend to make a gift of that amount to the corporation, but that he became a stockholder therein, and personally liable as such to creditors. McDowall v. Sheehan, 13 N. Y. S. 386. In Congdon v. Winsor (R. I.), 21 A. 540, it was held in an action against stockholders for the debts of the association, the admissions of the stockholders as to the amount of stock held by them are competent. No stock book being found among the papers and books of the company, the evidence of the treasurer, as to the certificates of stock issued to defendants, is admissible. A book purporting to be the record book of the corporation, in which were copied from slips of paper the minutes of the meetings, some of which entries were authenticated by the signatures of the secretaries, and others were identified by the bookkeeper who copied them, is admissible. The failure to enter in the books of a corporation, at the time it was adopted, a resolution increasing the amount of the capital stock, does not affect the validity of the increase, as such corporate acts may be proved as well by parol as by written evidence. Reversing 41 F. 531. Handley v. Stutz, 11 S. Ct. 530.

2 McKim v. Glenn, 66 Md. 479; 8 A. 130. In this case the record owner was a bank which held the shares as a broker.

charge the holder from further liability on his subscription.1

In that case, the value received is a contribution to capital and takes the place of money. Statutes are found in several states authorizing corporations to purchase property needed in their business and issue stock in payment therefor.

Transactions under powers conferred by such statutes have been upheld against creditors only where the contract for the rendition of services or the purchase of property payable in stock has been made in good faith, and the property taken in payment has been put in at a fair bona fide valuation.2 Such payment discharges the party from his liability to creditors upon his subscription, though it be excessive, provided that, in fixing and accepting it, the agents of the company have acted in good faith.3

1 Kraft-Holmes Groc. Co. v. Crow, 36 Mo. App. 288. See Libbey v. Tobey, 82 Me. 397. A copartnership was formed to buy certain property, thereafter to be conveyed to a corporation to be formed, and stock issued to each partner at $70 per share, of the value of $100 per share, according to the capital contri buted. One partner, who became president of the corporation, was to contribute $490,000. He issued stock to himself accordingly, but in fact only contributed $ 133,000, and gave notes for the balance, which he afterwards paid with the corporation's funds. Held, that the issue of stock by the president to himself over the amount actually paid for with his own money was fraudulent. Huiskamp v. West, (Cir. Ct.) 47 F. 236.

2 Wetherbee v. Baker, 35 N. J. Eq. 501, 513; overruling 32 Id. 537; Davis v. Montgomery, etc., Co. (Ala.), 8 So. 496; Bickley v. Schley (N. J.), 20 A. 250. Under an allegation in the complaint against a stockholder for unpaid capital that the stock had not been fully paid in when plaintiff's claim against the corporation accrued, he may show that the property, in payment for which all the corporate stock was issued, was not equal in value to the amount of such stock. Goodrich v. Dorman, 14 N. Y. S. 879.

3 Peck v. Coalfield Coal Co., 11 Bradw. (Ill.) 88; Coit v. North Car., etc., Amal. Co., 14 Fed. Rep. 12; s. c. 15 Phila. 496; Coffin v. Ramsdell, 110 Ind. 417; 11 N. E. 20; Walburn v. Chenault, 43 Kan. 352; Phelan v. Hazard, 5 Dill. 45; Carr v. Le Fevre, 27 Pa. St. 413; Van Cott v. Van Brunt, 2 Abb. N. C. 283. See Foewman v. Bigelow, 4 Cliff. 508; Steacy v. Little Rock, etc., R. R. Co., 5 Dill. 376. But a stockholder of a corporation who was one of the incorporators and knew that all the property was taken at a gross over-valuation and who never paid for any of his stock, except by a sale of property to the company, receiving therefor shares at less than a third of their par value, and by giving his services as president, was held liable to creditors for the difference