for the most part, as well as their citation One reason urged for the contention that from 1 Cook on Corporations (7th Ed.) § unpaid stock is not liable for the debts of 218, involved what may be termed double or the corporation, as we understand the aradditional liability laws. At the beginning | guments, is because the company issued the of the section mentioned it is said: stock as full paid, and agreed that it should be nonassessable. There can be no question, sence of such an agreement, unpaid stock is liable for the debts of the corporation and constitutes assets for such purpose. "The state Legislatures, however, in many instances desire to increase the liability of stock-in view of the authorities, that, in the abholders to corporate creditors. Accordingly statutes are passed expressly declaring that the stockholders shall be liable for a specified sum, in addition to their unpaid subscriptions." It is this kind of liability that is meant when "statutory liability" is referred to, and Mr. Cook says: [6] And clearly, according to the authorities, the agreement referred to was ultra vires and void, so that the situation is the same as though there was no such agreement. Stripped of the agreement it is a "This is called the statutory liability of stock- plain case of an issuance of stock by the comholders." The failure to note the distinction between the liability of stockholders to the extent of the par value of their stock and the statutory liability in excess thereof has resulted in some confusion in the cases and textbooks. The first mentioned, or ordinary liability, is an asset of the corporation, and the second or additional liability is not, it being a liability directly to the creditors, which a receiver, in the absence of statutory authority, has no power to enforce; and it is not resorted to if the assets of the corporation, including unpaid stock, are sufficient to pay the creditors. Are the amounts unpaid by stockholders on their shares of capital stock assets within the meaning of the law? We think that much of the confusion in the law upon this subject is removed, and the solution of some of the questions in this case simplified when we recognize, as we must, that before the enactment of our incorporation law it had pany and acceptance by the holder without being paid for. Under such circumstances there can be no doubt that the acceptor impliedly agreed, and is equitably bound, to pay for the stock. Then it follows that even if the corporation, because of its agreement, could not enforce payment, the receiver appointed under the insolvency statute would have a right, in a court of equity and under the direction of the chancellor, to collect it, there being no other assets out of which the debts of the corporation could be paid. Money or property paid for capital stock are assets liable for the debts of the company, and why should money due but unpaid for such stock not be equally liable? Unbecause they are legal assets, and in our paid subscriptions unquestionably are liable opinion the acceptor of stock not paid for or subscribed for, is likewise bound to pay for it, and his liability constitutes an equitable asset which a statutory receiver can enforce. It is admitted that such a receiver has power to collect unpaid subscriptions to the corporation for capital stock because the relation between the stockholder and the company is contractual and the unpaid subscription an asset of the corporation. But a contract or promise to pay may be implied as well as express, and it clearly appears from the authorities that the acceptance of shares of stock under a law similar to ours, without subscription, raises an implied promise to pay for them. Some courts call such a liability an equitable asset, but whatever it may be called it is a liability that may be enforced to pay the debts of the corporation, and by no one more properly than a receiver appointed under the insolvency It is statute. become a well-settled American doctrine that unpaid stock of a corporation constitutes in equity a trust fund for the benefit of creditors of the corporation. The doctrine was first announced by Mr. Justice Story in Wood v. Dummer (1824) 3 Mason, 308, Fed. Cas. No. 17944. And in Sanger v. Upton, 91 U. S. 56, 23 L. Ed. 220, it was said: "The capital stock of an incorporated company is a fund set apart for the payment of its debts. It is a substitute for the personal liability which subsists in private copartnerships. When debts are incurred, a contract arises with the creditors that it shall not be withdrawn or applied, otherwise than upon their demands, until such demands are satisfied. The creditors have a lien upon it in equity. * publicly pledged to those who deal with the corporation, for their security. Unpaid stock is as much a part of this pledge, and as much a part of the assets of the company, as the cash which has been paid in upon it. Creditors have the same right to look to it as to anything else, and the same right to insist upon its payment as upon the payment of any other debt due to the company. As regards creditors, there is no distinction between such a demand and any other asset which may form a part of the property and effects of the corporation." In See v. Heppenheimer, 69 N. J. Eq. 36, 78, 61 Atl. 843, 860, the court said: "In equity, and as against creditors, the acceptance of stock, without paying for it, places the acceptor in the position of a subscriber." See, also, Odd Fellows Hall Co. v. Glazier, 5 Har. 172; Easton Nat. Bank v. Amer. Brick, etc., Co., 70 N. J. Eq. 732, 64 Atl. 917, 8 L. R. A. (N. S.) 271, 10 Ann. Cas. 84; Hol combe v. Trenton White City Co., 80 N. J. [ cannot be that directors who have issued Eq. 122, 82 Atl. 618. bonus stock to themselves, or acquiesced in its issue, with full knowledge of all the circumstances, can escape the liability the law imposes by claiming that their stock was issued in violation of law. Persons who accept stock issued in violation of law, of which they had knowledge, cannot escape the liability incident to the relation of stockholders which they have with full knowledge assumed. [7] The common stock having been issued without consideration, it is contended that such an issue was ultra vires and void, and being void the holders thereof cannot be held liable to the creditors of the company. This contention would be stronger if the issuance of the stock was ultra vires, and therefore void. But this is a different case from those referred to in which the stock issued was in excess of that authorized by the charter of the company. There the act was held to be ultra vires because the corporation had no power to issue the stock at all. It is not contended in this case that the corporation had no authority to issue the stock, but that it is void because it was issued without being paid for, and under an agreement that it should not be paid for.ment if he has held himself out, or permitted It was said in the case of Rosoff v. Gilbert Transp. Co. (D. C.) 221 Fed. 986: The company in the present case having the right to issue the amount of stock that was issued, the only act that was ultra vires and void in the transaction was the issuance And even though stock issued without consideration could be held to be void under our constitutional provision, and could be canceled by the corporation or upon the application of bona fide stockholders, it does not follow that the acceptor of such stock could claim immunity from assessment. Certainly a stockholder cannot escape such assess himself to be held out, as the owner of the stock; and much less could he escape if he participated in the unlawful issue or acquiesced therein. [8] It is insisted that the liability of common stockholders to pay the debts of the corporation cannot be enforced, if at all, until after subscriptions to the preferred stock have been collected; and the reason assigned is that subscriptions to the preferred stock are contracts made with the company and constitute assets which the corporation might have collected, and which, therefore, its re ceiver can collect. Such subscriptions being clearly property of the stock without its being paid for and or legal assets of the company, it is argued that they must be collected and applied in the agreement that it was full paid and nonassessable. In legal effect, therefore, it was payment of the debts of the corporation bethe same as though it had been issued with-fore the common stockholders, whose stock out any such agreement. The law of this state contemplates that stock may be issued contrary to the statute, that is, without being paid for, and if it is so issued the acceptors are made liable to the creditors of the company to the extent of its par value. If the stock issued without consideration is void and, therefore, nonassessable for the payment of creditors' claims there was no reason for the law that provides for its assessment. The law means, and practically says: Corporate stock shall not be issued without valid consideration, but if it is so issued, contrary to law, the acceptor will be bound to pay its par value if the debts of the company cannot be paid oth erwise. The cases cited, that were brought to enforce the stockholder's liability for unpaid stock would not have risen if the issuance of the stock was void, because they were brought to enforce the stockholder's liability for stock that was issued contrary to law. Although the Constitution of this state provides that "no corporation shall issue stock, except for money paid, labor done, or was not subscribed for and not paid for, can be assessed, because the liability of such stockholders is not an asset of the corporation. But the statute that imposes the liability makes no distinction, and creates no priority, between stock subscribed for and that which is issued and accepted without being subscribed for. All stockholders to whom was issued stock not paid for are liable under the statute, and no distinction can be made between preferred and common holders withAnd. out adding something to the statute. moreover, there is, as already said, a contractual relation in both cases, the promise to pay being express where the stock is subscribed for and implied where it is not. Certainly no good reason can be given why one class of stock should be liable for the debts of the company before another, if neither has been paid for. The liability is the same, and the test, under the statute, is not the class or character of the stock but whether it has been paid for. [9] It is contended by one of the appellants, a holder of shares of preferred stock, company is wholly void and not subject to paid stock liable to the creditors of the any assessment for the debts of the company," because the general corporation law of this state provides that "at no time shall the total amount of the preferred stock exceed two-thirds of the actual capital paid in cash or property." It is not denied that the company had authority, under its certificate of incorporation, to issue all the preferred stock that was issued; so that the contention is not based on the fact that the company issued more stock than its charter or certificate of incorporation authorized. It The question raised is simply this: Is the issue of preferred stock void, and nonassessable for the payment of creditors' claims, because the common stock had not been paid for in cash to the company? Creditors could know, and perhaps would be bound to know whether the company, under its certificate of incorporation, was authorized to is sue as much preferred stock as was issued, but they could not be expected to know that the common stock had not been paid for. Indeed, they had a right to assume that the par value of the common stock had been paid to the corporation as required by law. is reasonable, therefore, to hold that the words of the statute, "actual capital paid in cash or property," mean the par value of the common stock that is issued, and liable to be assessed for the debts of the corporation. So far as creditors are concerned stock not paid for may be treated as cash or property because it is liable for the payment of their claims. The position taken by the preferred stockholder is ingenious, but in the opinion of the court unsound in view of other provisions of the general incorporation law, and its manifest intent, when considered as a whole. [10] To hold differently would, in many cases, not only cripple but make nugatory the purpose of the law to protect creditors' claims to the extent of the par value of all stock whether common or preferred. More over, the law does not contemplate that a person may subscribe for and accept preferred stock for his own benefit, hold himself out as the legal owner thereof, and escape liability to bona fide creditors on the ground that his stock was illegally issued and void. He will be estopped from making such de fense. company. New Jersey and Illinois have statutes very similar to ours, and in neither have the courts recognized the rule contended for by the appellants. Our statute is very general in its language, and broad enough to comprehend all claims that are legally and equitably and collectible. Under it the stockholder's liability is express and unqualified; it makes no exception and recognizes no distinction between creditors. As was said by the court in the Easton Nat. Bank Case, 70 N. J. Eq. 732, 64 Atl. 917, 8 L. R. A. (N. S.) 271, 10 Ann. Cas. 84: "In this state, however, the stockholder's liability to creditors no longer depends upon❞ the trust fund theory, but is held to be statutory. "It depends upon the stockholder's voluntary acceptance, for consideration touching his own interest, of a statutory scheme to which watered stock, under whatever device issued, is absolutely alien, and which requires stock subscriptions to be made good for the benefit of creditors of insolvent companies, without distinction between prior and subsequent creditors, or between creditors who had notice and those who had none." But while our statute protects all creditors of the corporation, it comprehends only such claims as are just and valid under the well-settled principles of law. If the proceeding is brought in equity it must be governed by the principles of equity. And this leads us to inquire whether the claims of those creditors who gave credit to the company with full knowledge of all the facts attending the issuance of the stock, and who actively participated in the issuance of the stock, can enforce payment against the stockholders in a court of equity. We are clearly of the opinion that mere knowledge that stock issued as full paid and nonassessable was not in fact paid for, should not preclude the creditor from enforcing the liability of the holder because the creditor may also know or have good reason would be legally liable for the debts of the company to the extent of the par value of their stock. While the creditor with knowledge could not have given credit upon faith that the stock was paid for, he may very well have given credit upon the belief that the holder of the stock would be liable to the creditors under the statute whether he had paid for it or not. to believe that the holders of such stock [11] It is further insisted by the appelIt was said in the Easton Bank Case: lants that holders of common stock not paid for are not liable to pay the debts of those "Why, if they knew the stock issued as full creditors who extended credit to the company be justified in dealing with the very stockholdpaid was not full paid in fact, may they not with knowledge of the facts and circumstanc-er's liability thus arising as a part of the assets es under which the common stock was issued. of the company for the purpose of satisfying It may be conceded that in the absence of creditors' claims?" a statute the decided weight of authority sustains such contention. But we think this is not the law in any jurisdiction where there is a statute making the holders of un [12] It did seem to the court for a while that the rule should be different if the creditor had actually participated in the issuance of unpaid stock as full paid and nonassessa- | marked 'full paid,' and for 'property purchased." ble, or had consented thereto. The court since they knew the fact to be otherwise. Nor were strongly inclined to believe that such a is the Green estate debarred by the operation creditor should be estopped in a court of of the maxim 'in pari delicto potior est conequity from enforcing his claim against oth- ditio defendentis.' If it were seeking any advantage out of the unlawful agreement, this er stockholders to whom stock was issued maxim would apply. But that agreement being with his assistance or acquiescence. It seem- absolutely void on grounds of public policy, his ed like permitting a party to take advantage rights as a creditor for moneys actually advancof his own wrong, or to profit by an illegal ed remain unimpaired. * * As against the transaction in which he was, in a sense, par- delinquent stockholders, therefore, * ⚫ both ticeps criminis. the Green claims are entitled to payment. Payment of the Henry Green claim should, of course, be deferred until his estate contributes its proper portion of the amount necessary to satisfy the decree." But after a most careful consideration of the question we were forced to the conclusion that such a position could not be sustained by reason or authority. In Illinois and Connecticut the courts have held that knowledge was not a bar, and the reasoning is broad enough to cover participation as well. But the courts of New Jersey have dealt with cases in which participation was distinctly urged as a bar. The strong and leading case in which this question was involved is the Easton Bank Case. The court in that case carefully considered the question whether a creditor who was a stockholder with full knowledge of all the facts and circumstances connected with the issuance of the stock not paid for, and who in fact managed or directed the issuance of such stock, could enforce the statutory liability of stockholders in his own behalf. reasoning of the court seems to us to be sound and unanswerable. * And so in the present case, Mr. Taft, one of the largest creditors, advanced a large amount of money for the general benefit of all the stockholders, and there was no thought at the time that he would be permitted to lose any part of the sum loaned to the company. He must, of course, suffer his part of the loss, but it would not be just or equitable that he should lose the entire amount he advanced for the benefit of all, and with their knowledge and consent. While all those who participated in the issuance of the stock were acting contrary to law, there is nothing to indicate that any one was seeking to perpetrate a fraud upon the othTheers, or gain an unfair advantage by the transaction. They were acting in good faith towards one another for the accomplishment of a common object, and it is just and equitable that one who gave credit to the company under such circumstances should be able to collect his claim under the statute. Justice Pitney, in delivering the opinion, considered the status of a creditor with knowledge only and also one who had participated, saying: "As to the status of Frederick Green in the case before us, the evidence does not satisfy us that he participated in the arrangement for the issuance of this stock for the patents. * There is nothing, therefore, to bar his individual claim save that he had notice of the fact that the stock was issued as full paid for property purchased. As already shown, such notice is not sufficient to debar him. As to the claim of Henry Green, he, of course, did participate actively in the transaction that resulted in the improper issuance of the stock in question, and he received a part of the stock himself. But there is nothing to show that he intended any actual fraud upon his fellow stockholders. We do not believe that at that time it was at all contemplated that any creditor of the company would be permitted to remain unpaid. Judge Green was, by common consent, permitted to assume and exercise the entire management of the concerns of the company, all parties being at the time sanguine of its ultimate success. The moneys that he loaned to the company were advanced for the general benefit of the stockholders, including himself. They are a just and lawful claim as against the company, and not an inequitable claim as against the delinquent stockholders. His estate cannot be debarred on the ground of estoppel, for his associates, who are now disputing their individual liability to pay, were not at all misled by the circumstance that their stock certificates were All If at the time the delinquent stockholders are given an opportunity to make defense, it is shown that any creditor is not equitably entitled to collect his claim, it will be the duty of the Chancellor to so decide. that this court determines now is that any person who advanced money, rendered services or contributed other valuable thing to the company honestly, in good faith and for the general benefit of all is entitled to recover under the statute from the delinquent stockholders his just, reasonable and equitable claim. [13] It is strongly insisted by the appellants that it is inequitable that the stockholders should be assessed and required to pay their assessments before their legal liability is definitely determined, because the amounts assessed may be very much in excess of what they are legally liable to pay. We think this is the correct procedure and should have been adopted by the Chancellor, but our conclusion, that knowledge or participation on the part of the creditor whose claim is just and equitable constitutes no defense for the stockholder, covers every claim with the possible exception of that of the company's counsel, which is strongly opposed by the appellants because it was upon his It advice that the bonus stock was issued as no interest can be allowed for any previous full paid and non-assessable. We do not time. But, from the time of the commencement think this court would be justified under of a suit for a debt exceeding the amount of the the circumstances in ordering the assess- principal of the defendant's stock, I see no reaments already made set aside on account of has then become a fixed liability for a specific son why interest should not be allowed. this one claim, which the stockholders will amount, and ought, upon general principles, to be permitted to contest, if they desire to do carry interest." so, at the time the distribution of the fund paid in is adjusted. [14] With respect to the payment or allowance of interest on creditors' claims the court are of the opinion that the general rule should prevail. While it seems to be the rule in courts of equity that claims against an insolvent corporation should not bear interest after the appointment of a receiver, the reason is based largely upon the fact of insolvency, and the consequent insufficiency of the assets to pay the entire indebtedness. In the case of Blair v. Clayton Enterprise Co., 9 Del. Ch. 95, 77 Atl. 740, cited by the appellants, the court, in holding that interest should be calculated on claims down to the date of the order of the appointment of a receiver, said: "This is the settled practice in the administration of estates of insolvent corporations in Delaware." But the reason for such rule does not exist where the assets or property legally liable for the payments of creditors' claims is sufficient to pay all of them including interest. If the creditor had brought an action at law, as he might have done under the statute, or had filed in chancery what is known as a creditor's bill, it would not be contended, we think, that interest could not be collected from the time suit is brought, if there are sufficient assets to pay it. This is the law in those jurisdictions where the statute provides that stockholders shall be liable for the debts of the company to the extent of the par value of their stocks and when the proceeding is directly against the stockholders. Burr v. Wilcox, 22 N. Y. 551; Handy v. Draper, 89 N. Y. 334; Mason v. Alexander, 44 Ohio St. 318, 7 N. E. 435; Corning v. McCullough, 1 N. Y. 58, 49 Am. Dec. 287; Baker v. Bank, 9 Metc. (Mass.) 182; Terry v. Anderson, 95 U. S. 628, 24 L. Ed. 365. And under the National Banking Act (Act Cong. June 3, 1864, c. 106, 13 Stat. 99), it has been held that interest runs from the date of the comptroller's order to collect an amount equal to the full par value of the stock, the amount due from the stockholders being then liquidated and payable. Casey v. Galli, 94 U. S. 673, 24 L. Ed. 168. In Burr v. Wilcox the court said: "This liability cannot, I think, be said to attach upon any particular stockholder until a suit is commenced against him to enforce it. The creditor has a right to select among the stockholders the individual against whom he will proceed; and until he has made the selection, no particular stockholder is liable, and hence In the Ohio case the contentions of the parties were very clearly stated by the court as follows: "It was held by the district court that interest should be charged against the stockholder as of the date of the commencement of the suit. The contention on part of plaintiffs in error is for a sum beyond the amount of his stock, to be that in no case can the stockholder be liable determined at the time the liability is finally fixed by judicial decree; in other words, that the liability is one created by statutory enactment under the Constitution, to be enforced by decree, and interest cannot be added except by virtue of the decree of the court declaring the liability, and no interest can accrue against the On the other hand, the claim is that, while the stockholder until the liability is thus declared. liability is created by the Constitution and the statute, yet the stockholder places himself under liability by contract when he subscribes or acquires the stock; and, resting as well upon contract as upon statute, the interest follows the maturing of the obligation, which is at the time when the corporation becomes insolvent and refuses to pay." The court said: "We agree with the counsel that the question is one which, upon principle, is of very considThe district court, in erable difficulty. * holding the stockholders for interest after the the law of that case [Hooker v. Kilgour, 2 Cin. commencement of the suit, evidently followed R. (Ohio) 350]; and, inasmuch as it has been generally acquiesced in as furnishing the true rule, we are not prepared to say it is not the law in this state." In analogy to the cases mentioned we hold in the present case, that interest should commence at the time the receivers asked the court to make an assessment upon the stockholders for the payment of creditors' claims, there being nothing before which indicated that they would be expected to pay such claims. [15] In respect to the expenses and compensation of receivers, and the fees of their counsel, the court are of the opinion that, inasmuch as the receivers are officers or instrumentalities appointed by the court to collect the creditors' claims and carry out the purpose of the statute, they are entitled to proper expenses and reasonable compensation to be paid by the stockholders. They court to accomplish the object sought under are a part of the machinery employed by the the statute, and their expenses and compensation are, therefore, legitimate court costs to be taxed against the respondents. We think no good reason can be showr |