the corporation for assessment, or to future creditors, unless a regular transfer is shown on the books of the company. If the transfer has been, in fact, registered, the pledgee in the one case and the trustee in the other becomes liable from the date of the same.

In the absence of statutes to the contrary, the equitable owner, in case of an original issue to a trustee for his benefit, is not liable for assessments or to creditors, nor any longer liable after such transfer of shares already issued after it has been registered.*

The rights and equities between the parties to such collateral agreements do not affect others not privies thereto. The circumstances and cases in which one will be held liable as a shareholder and when not are set forth by statute in many of the states, and reference should be had to these, and the construction given to them by the courts in the particular state where the question arises.

§ 816. Notice of facts renders defence available.— Creditors cannot complain of inter se arrangements

1 Des Moines Gas Co. v. West, 50 Iowa, 16.

Where a person's name is on the subscription list of a corporation with his consent, he is prima facie bound to pay for his stock, and his liability is not discharged by a private agreement with a third person that the latter should pay for it. Williams v. Benet (S. C.), 13 S. E. 97.

2 See First Nat. B’k v. Hingham Mfg. Co., 127 Mass. 563; Moore v. Jones, 3 Woods, 53; Pullman v. Upton, 96 U. S. 328; Adderley v. Storm, 6 Hill, 624; Rosevelt v. Brown, 11 N. Y. 148; Matter of Empire City B'k, 18 N. Y. 223; Magruder v. Colston, 44 Md. 349; Matter of Reciprocity B'k, 22 N. Y. 17; Crease v. Babcock, 10 Metc. (Mass.), 545; Holyoke B'k v. Burnham, 11 Cush. 183; Stover v. Flack, 30 N. Y. 64; Wheelock v. Kost, 77 Ill. 298. See also, Price and Brown's Case, 3 De G. & S. 146; Addison's Case, L. R. 5 Ch. 294; Royal B'k of India's Case, L. R. 7 Eq. 91; L. L. 4 Ch. 252; Weikersheim's Case, L. R. 8 Ch. 832; In Nat. B'k v. Case, 99 U. S. 628, 631.

Mitchell's Case L. R. 9 Eq. 363; Hoare's Case, 2 J. & H. 229; Bugg's Case, 2 Dr. & Sm. 452; King's Case, L. R. 6 Ch. 196.

* See Bronson v. Oregonian Ry. Co., 10 Oregon, 278; William's Case, L. R. 1 Ch. D. 576; Rugg's Case, 2 Dr. & Sm. 452; Sichell's Case, L. R. 3 Ch. 119; Henkle v. Salem Mfg. Co., 39 O. St. 547; and see the preceding section.

among stockholders concerning subscriptions of which they have notice, or might, by reasonable diligence, have acquired knowledge. In such case, they cannot hold one upon a liability for unpaid capital who was never, in fact, a subscriber absolutely, but only upon condition.1

§ 817. Interests of creditors in transfers attaches upon insolvency. As long as a corporation is solvent, the motives prompting a transfer and the consideration upon which it is based is the concern of the parties to it and the corporation only. But after a company has become insolvent, creditors, as well as other shareholders, have a right to insist that transfers shall at least be made for value, and in due course of business, and not colorably to escape the shareholder's responsibility for his due proportion of the indebtedness.

Accordingly, it is well settled, that after the corporate enterprise has proven a failure, a shareholder cannot transfer his shares, and with them his liabilities, for unpaid balances due on them to a person whom he knows is pecuniarily or otherwise incapable of assuming them.3

Such transfer would be fraudulent and void as to

1 Callanan v. Windsor, 78 Ia. 193. In this case it was held that the provision of a statute, that nothing contained in the chapter on corporations nor any provision in the articles of incorporation should exempt the stockholder from individual liability, did not apply where by a valid agreement of which the creditor was cognizant nothing is due or collectible on the stock. See also Washburn v. Chenault, 43 Kan. 352; Robinson v. Bidwell, 22 Cal. 384; Flinn v. Bagley, 7 Fed. Rep. 786; Ross v. S. & C. I. M. Co., 36 Minn. 38; Hill v. Silvey, 81 Ga. 500; Boulton Carbon Co. v. Mills, 78 Ia. 460; 43 N. W. Rep. 290; B’k v. Alden, 129 U.S. 372; B'k v. G. M. Con. Min. Co., 42 Minn. 327.

2 Tucker v. Gilman, 121 N. Y. 189; 24 N. E. 302; Cowles v. Cromwell, 25 Barb. 414: Billings v. Robinson, 94 N. Y. 415; Allen v. Montgomery R. R. Co., 11 Ala. 451; Jackson v. Slego Mfg. Co., 1 Lea (Tenn.), 210; Isham v. Buckingham, 49 N. Y. 220.

3 Johnson v. Laflin, 5 Dillon, 65.

existing creditors.1 corporation the stockholder honestly and without any intention to defeat the creditors of the company sells and transfers his stock, the mere fact that the purchaser is insolvent at the time is not sufficient to hold such stockholder still liable for the debts. A material question in such cases is, whether the stockholder knew of the insolvency at the time of the transfer. Such knowledge would be very strong evidence of fraud.2

Where before execution against a

§ 818. Right of stockholder who is also a creditor.Upon winding up a corporation which is solvent and has a surplus, it is immaterial whether a debt due by the corporation to a shareholder be considered assets held in trust for the benefit of creditors generally or as a set-off in his favor against installments of capital due the corporation. But when the corporation is

3

1 Bowden v. Johnson, 107 U. S. 251; Nathan v. Whitlock, 3 Edw. Ch. 251; 9 Paige, 152; Davis v. Stevens, 17 Blatchf. 259; Bowden v. Santos, 1 Hughes (U. S.), 158. See also, Cent. Agr., etc., Ass'n v. Alabama, etc., Ins. Co., 70 Ala. 120; Re Bachman, 12 N. B. R. 223; Mandion v. Fireman's Ins. Co., 11 Rob. (La.) 177; Veiller v. Brown, 18 Hun, 571; Gaff v. Flesher, 33 Ohio St. 107; Rider v. Morrison, 54 Md. 429.

2 Miller v. Gt. Rep. Ins. Co., 50 Mo. 55. Frear Stone Co., 97 Ill. 537, the court said:

In Union Mut. Life Ins. Co. v. "So far as the record before this court discloses, defendants appeared to all persons dealing with the corporation to be stockholders, with no notice of any agreement that their liability for shares held by them was less than what the law would impose in case of an unconditional subscription to the capital stock of a corporation. The secret agreement of the shareholders in this case must be regarded as void, certainly as to creditors of the corporation without notice, and the stockholders held to be bound to all the responsibility of bona fide subscribers." See also, Sawyer v. Hoag, 17 Wall. 610; Upton v. Tribilcock, 91 U. S. 45; Sanger v. Upton Id. 56; Scoville v. Thayer, 105 U. S. 143; Jackson v. Frear, 64 Ia. 469; Stutz v. Handley, 41 F. 332; 7 Ry. & Corp. L.J. 407, where it was also held that the liability for the full amount represented by the unpaid stock on the insolvency of the corpora · tion extends to persons to whom a portion of the new stock was issued as an inducement to purchase bonds of the corporation, though they too received certificates reciting that the stock was paid up since their acceptance and holding of the stock was in legal effect, a subscription therefor which imports a promise to pay. As to the effect of unregistered transfers upon rights of creditors, see Hawkins v. Glenn, 131 U. S. 319; Thurber v. Crump, 86 Ky. 408.

3 Barnett's Case, L. R. 19 Eq. 449.

found to be insolvent, and general proceedings are instituted for winding up and making distribution, the same party would be liable to pay to the receiver or assignee the full amount still unpaid on his shares, and take his pro rata share with other creditors in the distribution.1

§ 819. Statutory requirements as to cash payments. Where there is a statute requiring payment in cash, or where the right of creditors to insist that no preference shall be given to one who is a shareholder and also a creditor is asserted, the corporation cannot accept demands acquired by the subscriber subsequently to the accruing of the liability in payment of the unpaid

1 Sawyer v. Hoag, 17 Wall. 610, 622. See also, Cochran v. Ocean Dry Dock, 30 La. Ann. 1365; Bissitt v. Ky. River Nav. Co., 15 Fed. Rep. 353; Shickle v. Watts, 94 Mo. 410; 7 S. W. 274; Wilber v. The Stockholders, 18 N. B. R. 178: Bristol Milling Co. v. Probasco, 64 Ind. 406; Appeal of Schlandecker (Pa.), 14 A. 229; McAvity v. Lincoln, P. & P. Co., 82 Me. 504; Coquard v. Bandergast, 35 Mo. App. 237; Williams v. Traphegan, 38 N. Y. Eq. 57; Boulton Carbon Co. v. Mills, 78 Ia. 460; 43 N. W. Rep. 290; Goodwin v. McGehee, 15 Ala. 246; Thompson v. Reno Sav. B'k. 19 Nev. 103; Lawrence v. Nelson, 21 N. Y. 158; Heggie v. Bldg. & Loan Ass'n (N. C.), 12 S. E. 275; Hillier v. Alleghany County, etc., Ins. Co., 3 Pa. St. 470; Tama W. P. Co. v. Hopkins, 79 Ia. 653; 44 N. W. 747; Bulkley v. Whitcomb, 121 N. Y. 127; 24 N. E. 13. Compare Richards v. Kinsley, 14 Daly, 324; Richards v. Crocker, 19 Abb. N. C. 73.

It seems to be the settled doctrine in New York that the stockholders may set off an indebtedness of the corporation in an action at law brought by a creditor to enforce an unpaid subscription, though such a defence would not be allowable in equity. This is on the theory that a general accounting of all corporate debts and assets is possible by the latter remedy, but is impossible in an action at law. Richards v. Kinsley, N. Y. Daily Reg., Dec., 1887; Christensen v. Colby, 43 Hun, 362; See Tallmadge v. Fishkill Iron Co., 4 Barb. 382; Wheeler v. Miller, 90 N. Y. 353. Sackett's Harbor R. R. Co. v. Blake, 3 Rich. Eq. 225; Grose v. Hilt, 36 Me. 22; Whitman v. Porter, 107 Mass. 522; Poole's Case, L. R. 9 Ch. D. 322. But where a creditor of a corporation, who is also a stockholder and director thereof, obtains judgment against it, with the co-operation of his associates in the board of trustees, the corporation being insolvent, the case is in violation of 1 Rev. St. N. Y. 603, sec. 4, prohibiting any officers of a corporation from assigning or disposing of its property for the payment of a debt, or from making any transfer in contemplation of insolvency; and the judgment and the sale thereunder are void as to other judgment creditors. King v. Union Iron Co., N. Y. S. 603.

capital.1 Nor can the stockholder set off against the claims of creditors the obligations of the company not yet matured at the time of the subscription in lieu of cash payment then due by the statute or terms of subscription.

For instance, to permit a promissory note given in an independent transaction to be so set off would be a plain case of giving the shareholder a preference in payment. But, in consideration of a subscriber for stock advancing to the company, at the time of subscribing, the whole or a part of the price of the shares beyond the amount then due and payable, thus giving the benefit of such proportion of the capital before it is entitled to make regular calls on the stockholders, it would be most unjust and inequitable, as well as violative of his contract, to hold that simply because a note was given, entitling him to interest on the advance payment if it never became necessary to call in the unpaid capital, to compel him to contribute a second time and take his chances with other creditors on the debt evidenced by the note.2

1 See McAvity v. Lincoln P. & P. Co., 82 Me. 504.

2 There have been few, if any decisions in this country exactly in point upon this branch of the subject. There have, however, been several well considered cases in England, where the statutes governing it are in all important respects similar to those of most of the states. A shareholder took an assignment from a creditor of a company, a debt due by it payable by installments, none of which were at the time due. On the eve of insolvency, he induced the directors to pass a resolution and enter a minute of the same, applying a sufficient part of the debt in paying in full the shares standing in the name of the shareholders, no call being at that time payable on his shares. It was held that, as neither the debt purchased nor the calls unpaid were debts payable in præsenti, the transaction was not equivalent to and would not purport a plea of payment in cash, and that the transaction was invalid as a fraudulent preference over the other creditors of the company within the English Companies Act of 1867. In re Land Develop. Ass'n, L. R. 39 Ch. B. 259. In Sparago's Case, L. R. 8 Ch. 412, JAMES, L. J., thus tersely expresses the rule which should be given in such "If it came to this, that there was a debt in money payable immediately by the company to the shareholders, and an equal debt payable immediately by the shareholders to the company, and that each was accepted in full payment

cases: