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designs of the charter.1 It is not within the express power given them in a charter or general law to do all things conducive to the attainment of the objects for which the corporation was formed.2

But a bona fide adjustment of disputed subscriptions, though it involves the cancellation of shares, will be allowed to stand against creditors as well as against the company. In order to render a release through compromise valid, there must be a real and not merely a feigned controversy, and good faith is always required.5

§ 801. Release by forfeiture of shares.--It is well settled that a regular forfeiture of shares under authority contained in the charter or general law puts an end to the liability of the shareholder; and corporate creditors cannot hold parties whose shares have been forfeited liable for unpaid balances of capital due at the date of forfeiture. It is immaterial that the debt was contracted by the company before the stock was forfeited. The creditors can acquire no superior right than the

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1 Bedford R. Co v. Bowser, 48 Pa. St. 29. See also, Spackman v. Evans, L. R. 3 H. L. 171; Ex parte Fletcher, 37 L. J. (Ch.) 49; Thomas' Case, L. R. 13 Eq. 437; Re London & Provid. Consol. Coal Co., L. R. 5 Ch. D. 525; Tuckerman v. Brown, 33 N. Y. 297; Rider v. Morrison, 54 Md. 429; Ryder v. Alton, etc., R. R. Co., 13 Ill. 516; Ex parte Trading Co., L. R. 12 Ch. D. 191; Re Argyle C. & C. Co. Law Times, Apr. 17, 1886; Hughes v. Antietam Mfg. Co., 34 Md. 316; Hall's Case, L. R. 5 Ch. 707.

2 Re Dronfield Silkstone Coal Co., L. R. 17 Ch. D. 76.

3 Gelpecke v. Blake, 19 Ia. 263; New Albany v. Burke, 11 Wall. 96; Steacy v. Little Rock, etc., R. R. Co., 5 Dill. 348; Lord Belhaven's Case, 3 De G. J. & S. 41; Putman v. New Albany, 4 Biss. 365; supra, §§ 565, 569

4 Spackman v. Evans, L. R. 3 H. L. 171, 188, 231; Phosphate, etc., Co. v. Green, L. R. 7 C. P. 43; Dixon v. Evans, L. R. 5 H. L. 606.

5 Phil. & W. C. R. R. Co. v. Hickman, 28 Pa. St. 318; Whitaker v. Grummond, 68 Mich. 249; s. c. 70 Id. 635; 36 N. W. Rep. 62.

6 Allen v. Montgomery R. R. Co., 11 Ala. 437, 450; Macauley v. Robinson, 18 La. Ann. 619; Mills v. Stewart, 41 N. Y. 384; Woollaston's Case, 4 De G. & J. 437; Ex parte Beresford, 2 Macon & G. 197; Kelk's Case, L. R. 9 Eq. 107; Dawes' Case, L. R. Chan. 22; supra. § 585

corporation had against the delinquent stockholder, and consequently cannot resort to the one remedy after the other has been exhausted.

§ 802. The right must be exercised fairly and regularly.— The right of the corporation to declare a forfeiture is given to enable it to collect assessments, and should not be used as a means of relieving shareholders of their liability to creditors when the stock has become valueless. Like many other corporate powers its exercise is no concern of creditors until their rights and interests become involved; but when they do it must be exercised in good faith so as not to sacrifice and destroy the security to which they are entitled to resort in case of insolvency.1

Inasmuch as fraud vitiates all acts into which it enters, a forfeiture of shares by collusion between a shareholder and the board of directors will not release him from his liability to contribute in case of insolvency of the company. The mere abandonment of a shareholder's interest or claim on the corporation cannot be given the effect of a forfeiture so as to discharge him from his obligation to creditors.3

§ 803. Unauthorized use of party's name as a shareholder. -The rights and duties arising between one whose name is held out as a shareholder, without his knowledge or consent, and creditors who contract with reference to the security so offered, are somewhat differ

1 Mills v. Stewart, 62 Barb. 444.

2 Slee v. Bloom, 19 Johns. 456; Burke v. Smith, 16 Wall. 390; Mills v. Stewart, supra; Walters' Second Case, 3 De G. & Sm. 244; Richmond's Case, 4 K. & J. 305; Spackman's Case, 11 Jur. (N. S.) 207; Stanhope's Case, L. R. 1 Ch. 161; Stewart's Case, Id. 511; Gowen's Case, L. R. 6 Eq. 77; Chouteau v. Dean, 7 Mo. App. 211; Bedford R. R. Co. v. Bowser, 48 Pa. St. 29.

Rockville, etc., Co. v. Maxwell, 2 Cranch C. C. 451.

ent from the case where one has been induced by fraud to allow his name to appear.

The contract in the latter case is voidable only, and the liability attaches until some action is taken to annul it. But when one's name is used as a shareholder without his knowledge or consent, there being no contract there can be no duty. or obligation to creditors. either in fact or in law as a shareholder.1

§ 804. May become bound by ratification.-There is a distinction between the relation brought about, in the case of the holder of shares issued without any power contained in the charter, and that of one whose name has been placed on the stock books without his consent or knowledge, afterwards acquiring knowledge that his name is being so used and acquiescing.

The latter is not bound to go to any extra expense or trouble to protect third parties from loss; but if he do any act amounting to a recognition of the relation he will be deemed to have ratified the fraudulent act of the agents and held to the liability of a shareholder. He cannot both approbate and reprobate. If he adopts the act, he is liable for its consequences.2

1 Russell v. Bristol, 49 Conn. 251; Banty v. Buckles, 68 Ind. 49. See Lathrop v. Kneeland, 46 Barb. 432.

2 Jewell v. Rock River Paper Co., 101 Ill. 57; Int., etc., Ass'n v. Walker (Mich.), 47 N. W. 338; Re Reciprocity B'k, 22 N. Y. 9, 17; Butler v. Aspinwall, 33 F. 217. See also Tama W. P. Co. v. Hopkins, 79 Iowa, 653; 44 N. W. 797. One of the original stockholders of a corporation, who knew of the contemplated increase of the capital stock, and who authorized an agent to represent him in all matters connected therewith, cannot repudiate his agent's act in receiving a proportionate share of the increased stock distributed to him by virtue of his ownership of the original stock. Reversing, 41 F. 531. Handley v. Stutz, 11 S. Ct. 530. The fact that defendant, when he subscribed for the stock, was falsely informed that the balance had all been taken, and that therefore he would incur no personal liability, will not avail him as against a creditor of the corporation, who knew nothing about the misrepresentations. McDowall v. Sheehan, 13 N. Y. S. 386.

Shares issued in excess of the amount authorized by the charter of a corporation are void, and no liability in favor of creditors will attach to the holder of such shares, even though he has acted as a shareholder. The ground of immunity from liability is, that the charter of which creditors are bound to take notice shows the shares to be unauthorized and illegal.1

But where the illegality would not be apparent upon an inspection of the charter or articles, and there is no actual notice to creditors giving credit on faith of the capital represented by such shares, they would be entitled to enforce the liability of shareholders against the holders of such shares.

§ 805. Mere irregularities no defence. While want of power or lawful authority will defeat or render void an attempted increase, yet stockholders who have approved of or acquiesced in an increase of capital stock are estopped from alleging mere irregularities in the proceedings by which such increase was brought about, as between themselves and creditors who have given credit subsequent to such increase.2

1 Scoville v. Thayer, 105 U. S. 143; Hollingshead v. Woodward, 35 Hun, 410. Where shares issued for an increase of capital stock were soon after recalled and cancelled, it was held that a prior creditor of the corporation could not hold the stockholders liable for such stock. Coit v. North Car. G. A. Co., 119 U. S. 343. After the original capital stock has been fully paid in, an additional issue does not revive the original liability upon the original stock. Sayles v. Brown, 40 F. 8.

2 In a corporation authorized by its charter to increase the capital stock, the stockholders had received the stock issued thereupon. When sued by a creditor of the corporation for the amount unpaid on such stock, it was held that they could not avail themselves as a defence of the fact that the statutory notice of such increase was not published. Stutz v. Handley, 41 F. 342; 7 Ry. & Corp.. L. J. 407; 11 S. Ct. 530. See the Upton Cases, 91 U. S. 45, 56, 65; 95 Id. 665; 96 U. S. 328; Casey v. Galli, 94 U. S. 673; Eaton v. Aspinwall, 19 N. Y. 119; Aspinwall v. Sacchi, 57 N. Y. 331; R. R. Co. v. Cary, 26 N. Y. 75; Kent v.. Mincing Co., 78 N. Y. 159; Sheldon H. B. Co. v. Eichemeyer H. B. M. Co., 90 N. Y. 613; Farnsworth v. Robbins, 36 Minn. 369; 31 N. W. 349; Alling v. Ward (III.), 24 N. E. 551. The actual incorporation of a company with a larger

This distinction was considered and applied by the court in a case where the subscribers for the increased capital were relieved because the corporation failed and ceased to exist before it had acquired the requisite powers to make the increase.' But the mere fact that the increase of capital and the issue of new shares to subscribers have been authorized by the corporation does not make them liable on account of such additional stock unless they have accepted the same."

§ 806. Where issued without authority of directors.— The same rule applies to the unauthorized, surrepti

capital stock, divided into a greater number of shares, at a less amount per share than stipulated in the original contract of subscription, does not release a subscriber to that contract from his liability to the parties who have erected buildings for the proposed corporation in accordance with part of the agreement. Gibbons v. Grinsel (Wis.), 48 N. W. 255. The stockholders of a corporation, who voted to increase the capital stock 800 shares, and then distributed among themselves 300 of those shares, without any consideration, must, at the suit of creditors of the corporation, which has become insolvent, respond for the par value of the shares, though they never expressly agreed to pay for the same, and though the stock is expressly declared to be fully paid, and free from all claims or demands on the part of the corporation. Reversing, 41 F. 531; Handley v. Stutz, 11 S. Ct. 530.

1 Winters v. Armstrong, 37 Fed. Rep. 508, 520. In Veeder v. Mudgett, 95 N. Y. 295, the court said: "The attempted increase was therefore illegal, but the respondent insists that nevertheless, as against the creditors of the company, the defendant stockholders by accepting their proportion of the increased stock, by voting for its increase, by taking dividends upon it and holding it out to those dealing with the company as an actual component of its capital, are estopped from denying the legal validity of the increase and must be held responsible as if it was valid. The authorities for this doctrine are numerous and strong. The answer made to them is, that an act absolutely and wholly void because under the law incapable of being performed, cannot be made valid by estoppel. This is true where under the law there is an entire lack of power to do the act which is brought in question. . . . . But where, as in the present case, the abstract power did exist and there was a way in which the increase could lawfully be made, and the creditors could, without fault, believe that the increase had been lawfully effected and the necessary steps taken, then the doctrine of estoppel may apply and the increased stock be deemed valid as to creditors." A contract by a corporation to repay a loan in preferred stock which it had no authority to issue is a nullity, and is not renewed by a subsequent act authorizing it to issue preferred stock, but which does not empower it to renew the contract. Anthony v. Household S. M. Co. (R. I.), 7 Ry. & L. J. 575.

2 Sayles v. Brown, 40 Fed. Rep. 8.

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