remained the stockholder of record because of her husband's failure to make transfer upon the books.86

[§ 1595] (2) Liability of Transferee-(a) In General. Where there has been a valid transfer of the stock of the corporation, accompanied by any requisite formalities, the transferee becomes liable in the manner of the transferor for any amount remaining unpaid upon the original subscription,87 in the absence of a statutory provision to the contrary.88 In these circumstances, it is said, the transferee or purchaser is subrogated to all of the rights and powers and subjected to all of the duties A and liabilities of the original stockholder.89 fortiori, a transferee of stock of a corporation, who

NW 91 (where it was said: "What men ordinarily do is the test of prudence, and the principles of ordinary business conduct cannot be overlooked or ignored in laying down the rules of law that govern in human concerns").

[d] Insufficient compliance with rule. A delivery of a certificate of stock indorsed in blank to the president of the corporation, not as president but as purchaser of the stock, does not discharge the transferor where the transfer was not registered. In re Joint Stock Discount Co., L. R. 3 Eq. 77.

86. Shean v. Cook, (Cal.) 179 P 185 (where it was further held that the fact that she signed the indorsement on the back of the certificate to make possible a transfer of the stock back to her husband on the corporate books did not amount to such a recognition of ownership on her part as to make her liable to creditors on the husband's failure to transfer the stock from her name, the view being taken that the indorsement was in the nature of a quitclaim).

87. U. S.-Webster v. Upton, 91 U. S. 65, 23 L. ed. 384; Wilbur v. Stockholders, 39 F. Cas. No. 17,636.

Ala. Hall v. Alabama Terminal, etc., Co., 173 Ala. 398, 56 S 235; Henderson v. Mayfield Woolen Mills, 153 Ala. 625, 45 S 211; Allen v. Montgomery R. Co., 11 Ala. 437.

Cal-Perkins v. Cowles, 157 Cal. 625, 108 P 711, 137 AmSR 158, 30 LRANS 283.

Colo.-Sweet v. Barnard, 182 P 22. Mich. Merrimac Min. Co. v. Levy, 54 Pa. 227, 93 AmD 697 (construing Michigan law).

Minn. In re People's Live Stock Ins. Co., 56 Minn. 180, 57 NW 468.

N. Y.-Cowles V. Cromwell, 25 Barb. 413; Close v. Sherwood, 5 Misc. 550, 25 NYS 980.

signs a paper purporting to be an original subscrip-
tion, and expressly agrees to pay the amount sub-
scribed as the board of directors may order, assumes
the liability of an original stockholder, and is liable
for the amount of the unpaid subscription.9
90

[§ 1596] (b) Stock Issued as Fully Paid. When stock has been issued as full paid without consideration, or on payment in property, labor, or services, at an overvaluation, under such circumstances that the person to whom it was issued is liable to the corporation for the balance in fact unpaid thereon,91 by the weight of authority a bona fide transferee without actual or constructive notice is not liable to creditors for the amount so unpaid,

capital stock, when the necessities of |
creditors require it, is a charge upon
the stock which passes with it to the
holders of it. If this were not so,
the creditors of a corporation which
had been in existence for many years,
and whose original subscribers were
dead and gone long before the in-
solvency of the company occurred,
would be deprived of all resource to
the unpaid capital stock at the very
time when alone they needed it");
Lexow v. Pennsylvania Diamond Drili
Co., 5 Pa. Dist. 491.
S. C.-Efird
Piedmont Land
Impr., etc., Co., 55 S. C. 78, 32 SE
758, 897.

V.

Wash.-Murphy V. Panton, 96
Wash. 637, 165 P 1074.

Eng. Matter of Mexican, etc., Co., 4 De G. & J. 544, 61 EngCh 430, 45 Reprint 211; Matter of Monmouthshire, etc., Banking Co., 2 De G. M. & G. 562, 51 EngCh 439, 42 Reprint 991. [a] Reasons for rule.-(1) The ground most usually taken by the courts in support of this conclusion is that when the transferee is accepted by the corporation, and the shares are transferred to him on its books, he comes into privity with the corporation, and with its consent takes the place and assumes the liabilities of the transferor, so that there is a species of novation. Webster v. Upton, 91 U. S. 65, 23 L. ed. 384 (where the doctrine is clearly stated by Strong, J.); Allen v. Montgomery R. Co., 11 Ala. 437; Palmer v. Lawrence, 5 N. Y. Super. 161 [aff 5 N. Y. 389]. (2) "Corporate stock is not commercial paper, and it has none of the privileges and immunities that such paper has. A purchaser takes it subject to any debt due from the stock he purchases to the corporation. The transferrer is thereby discharged from his debt to the corporation, and the transferee therePa-Bell's App., 115 Pa. 88, 8 A by assumes and becomes liable for 177, 2 AmSR 532 (explaining Messer- such debt precisely as the transferrer smith v. Sharon Sav. Bank, 96 Pa. "" was.' In re People's Live Stock Ins. 444, as not involving any question as Co., 56 Minn. 180, 187, 57 NW 468. to the liability of the transferee of (3) "When the purchaser takes the stock in a corporation which has be-stock he derives from the purchase all come insolvent for the payment of the benefits which attach to it in the the unpaid portion of the shares held by him when the amount unpaid actually is required for the payment of the debts of the corporation; Franks Oil Co. v. McCleary, 63 Pa. 317; Delaware, etc., Canal Nav. Co. V. Sansom, 1 Binn, 70; Palmer y. Ridge Min. Co., 34 Pa. 288, as being based upon charters or by-laws providing for only a particular remedy in case of nonpayment of installments, such as the forfeiture and sale of the stock itself in case of default; 89. Hall V. Alabama Terminal, and Cass v. Pittsburg, etc., R. Co., etc., Co., 173 Ala. 398, 56 S 235; Hen80 Pa. 31, Hays v. Pittsburgh, etc., derson v. Mayfield Woolen Mills, 153 R. Co., 38 Pa. 81, Graff v. Pittsburgh, Ala. 625, 45 S 211; and see cases supra etc., R. Co., 31 Pa. 489, Pittsburgh, | note. etc., R. Co. v. Clarke, 29 Pa. 146, as 90. Citizens', etc., Sav. Bank, etc.. being decided under the General Rail- Co. v. Gillespie, 115 Pa. 564, 9 A 73. road Law of Febr. 19. 1849, which provided that no transfer shall have the effect of discharging any liabilities incurred by the owners thereof. After the preceding review of the decisions it was said: "Subject to such exceptional instances as these, it cannot be doubted that the obligation to make good the unpaid portions of

form of dividends, property rights
and right of control. As it has prior
to the transfer represented the extent
of liability in the hands of the owner
as stockholder, its character is not
changed by the transfer and the lia-
bilities attach to the purchaser; he
takes it subject to them and must be
considered
as assenting thereto."
Close v. Sherwood, 5 Misc. 550, 551,
25 NYS 980.

88. See infra § 1597.

91. See supra §§ 1480-1499.

92. U. S.-Clark v. Johnson, 245 Fed. 442, 157 CCA 604; Enright v. Heckscher, 240 Fed. 863, 153 CCA 549; Babbitt v. Read, 215 Fed. 395 [aff 236 Fed. 42, 149 CCA 2521; In re Remington Auto., etc., Co., 153 Fed. 345, 82 CCA 421; Dunn v. Howe, 96 Fed. 160 [rev on other grounds 107 Fed. 849,

92

47 CCA 13]; Rood v. Whorton, 74 Fed. 118, 20 CCA 332; Rood v. Whorton, 67 Fed. 434 [aff 74 Fed. 118, 20 CCA 332]; DuPont v. Tilden, 42 Fed. 87; Cleveland Rolling-Mill Co. v. Texas, etc., R. Co., 27 Fed. 250 [app dism 127 U. S. 792 appendix, 32 L. ed. 326]; Forman

V. Bigelow, 9 F. Cas. No. 4,934, 4 Cliff. 508; Johnson v. Laflin, 13 F. Cas. No. 7,393, 5 Dill, 65 [aff 103 U. S. 800, 26 L. ed. 5321; Pheland v. Hazard, 19 F. Cas. No. 11,068, 5 Dill 45; Steacy v. Little Rock, etc., R. Co., 22 F. Cas. No. 13,329, 5 Dill. 348; Sturges v. Stetson, 23 F. Cas. No. 13,568, 1 Biss. 246. Del.-John W. Cooney Co. V. Arlington Hotel Co., 101 A 879. Ida. Feehan v. Kendrick, 179 P 507. Ill. Gillett v. Chicago Title, etc., Co., 230 Ill. 373, 82 NE 891; Sprague v. National Bank of America, 172 Ill. 149, 50 NE 19, 64 AmSR 17, 42 LRA 606 [aff 66 II. A. 320]; Coleman v. Howe, 154 Ill. 458, 39 NE 725, 45 AmSR 133; Goodrich v. Reynolds, 31 Ill. 490, 83 AmD 240: Mallinckrodt Chemical Works v. Belleville Glass Co., 34 Ill. A. 404.

Iowa.-White v. Greene, 70 NW 182; Wishard v. Hansen, 99 Iowa 307, 68 NW 691, 61 AmSR 238; Spense v. Iowa Valley Constr. Co., 36 Iowa 407. Kan.-Walburn V. Chenault, 43

Kan. 352, 23 P 657.

Ky.-Hess v. Trumbò, 84 SW 1153, 27 KyL 320.

Me.-Morgan v. Howland, 89 Me. 484, 36 A 990.

Md.-Brant v. Ehlen, 59 Md. 28 [dist Bend v. Susquehanna Bridge, etc., Co., 6 Harr. & J. 128, 14 AmD 261, and Hall v. U. S. Insurance Co., 5 Gill 484, on the ground that the certificates on their face showed that the shares of stock were not in fact fully paid or the facts and the circumstances accompanying the transfer were such as to put the purchaser on inquiry].

Mich. Young v. Erie Iron Co., 65 Mich. 111, 31 NW 814.

Minn. Wallace v. Carpenter Electric Heating Mfg. Co., 70 Minn. 321, 73 NW 189, 68 AmSR 530; St. Croix Lumber Co. v. Mittlestadt, 43 Minn. 91, 44 NW 1079. And see Ross v. Kelly, 36 Minn. 38, 29 NW 591, 31 NW 219 (holding that a corporation formed for the business of mining. smelting, reducing, refining, and working ores and minerals, etc., may under the provisions of Gen. St. [1878] c 34 § 149, sell at less than par value shares of capital stock purporting to be full paid, and, if there is no fraud, the creditors of the corporation have no recourse against the purchasers or holders of such stock for the difference between the par value and the price at which they were sold).

Mo.-Berry v. Rood, 168 Mo. 316, 67 SW 644; Johnson v. Lullman, 88 Mo. 567; Erskine v. Loewenstein, 82 Mo. 301; Bonet Constr. Co. v. Central Amusement Co., 153 Mo. A. 185, 132 SW 270; Erskine v. Lowenstein, 11. Mo. A. 595 [aff 82 Mo. 3011; Keystone Bridge Co. v. McCluney, 8 Mo. A. 496 [cit Skrainka v. Allen, 76 Mo. 384, 3921.

Nev.-Smith V. North American Min. Co., 1 Nev. 423.

unless made so by some special statutory provision.93
And this is so although the transferee may have
paid less than the face value of the stock.94 Where,
however, the transferee has knowledge or notice
that the stock, although nominally fully paid, is not
N. H-Westminster Nat. Bank v.
New England Electrical Works, 73
N. H. 465, 62 A 971, 111 AmSR 637,
3 LRANS 551.
N. J.-Easton Nat. Bank v. Ameri-
can Brick, etc., Co., 69 N. J. Eq. 326,
60 A 54 [aff 70 N. J. Eq. 722, 64 A
1095, and rev on other grounds 70 N.
J. Eq. 732, 64 A 917, 8 LRANS 271, 10
AnnČas 84].

N. Y.-White v. Jones, 155 N. Y. 475, 50 NE 289; Douglass v. Ireland, 73 N. Y. 100; Boynton v. Andrews, 63 N. Y. 93; Schenck v. Andrews, 57 N. Y. 133; Boynton v. Hatch, 47 N. Y. 225; Wintringham v. Rosenthal, 25 Hun 580; Van Slochem v. Villard, 154 App. Div. 161, 138 NYS 852 [aff 207 N. Y. 587, 101 NE 467].

Pa.--French v. Harding, 235 Pa. 79, 83 A 586, AnnCas1914B 744; French v. Harding, 46 Pa. Super. 363; Gumpert v. Firwood Lace, etc., Co., 32 Pa. Co. 350. And see Finletter v. Appleton, 195 Pa. 349, 45 A 1063 (which seems to sustain this doctrine).

Tenn.-West Nashville Planing Mill Co. v. Nashville Sav. Bank, 86 Tenn. 252, 6 SW 340, 6 AmSR 825; Ingles Land Co. v. Knoxville F. Ins. Co., (Ch.) 53 SW 1111.

Tex.-Rich v. Park, (Civ. A.) 177 SW 184.

Wash.-Davies v. Ball, 64 Wash. 292, 116 P 833, AnnCas1914B 750. Eng.-Burkinshaw V. Nicolls, 3 App. Cas. 1004; Waterhouse v. Jamieson, L. R. 2 H. L. Sc. 29; In re British Farmers' Pure Linseed Cake Co., 7 Ch. D. 533; Penang Fdy. Co. v. Gardiner, [1913] S. C. 1203; Burkinshaw v. Nicolls, 3 App. Cas. 1004.

Can. McCraken V. McIntyre, Can. S. C. 479 [rev 1 Ont. A. 1].

1

B. C.-Kettle River Mines, Ltd. v. Bleasdel, 7 B. C. 507; Fraser River Min., etc., Co., Ltd. v. Gallagher, 5 B. C. 82.

See also Auld v. Caunt, 216 Mass. 381, 103 NE 933 (dicta). And see Rochelle Roofing Co. v. Burley, 226 Mass. 349, 115 NE 478 (holding that where the entire preferred stock was issued to the president of a corporation for contracts held by him, who agreed to hold it in trust, and certain creditors then purchased the stock from him without knowledge that it had not been paid for at par, and without fraud or collusion on their part, their purchase was not equivalent to a subscription for the stock, although they did not pay full value, and they were not liable as subscribers).

so in fact, he is subject to the liability of the original subscriber to creditors of the corporation for the amount unpaid.95 While it has been broadly stated in some decisions that it is not essential to constitute one a purchaser in good faith that shares jury of the creditor, but there is no | holders, on the corporation becoming equitable reason why the creditor a bankrupt, were not liable to assessshould be allowed to shift the right ment to the amount of the difference he holds against the contractor to a between the value of the property bona fide transferee without knowl- and the par value of the stock. edge of the infirmity, and to imply re Remington Auto., etc., Co., 153 Fed. that he has assumed a contract of 345, 82 CCA 421. which he has no knowledge and which he would not have made had he been informed regarding it.' Easton Nat. Bank v. American Brick, etc., Co., 69 N. J. Eq. 326, 60 A 54 [aff 70 Ń. J. Eq. 722, 64 A 1095, and rev on other grounds 70 N. J. Eq. 732, 64 A 917, 8 LRANS 271, 10 AnnCas 84].

"Where shares of stock are issued to be paid in certain instalments, the law implies a promise on the part of the subscriber and his assignee, that they will pay whatever may be due thereon according to the terms of the subscription. But where shares are issued as fully paid, and these are sold in open market, and one buys them in good faith on the represèntation of the company that they are paid up, no promise can be implied on the part of the purchaser to become liable if such shares have not in fact been paid. He is not bound to suspect fraud in issuing the stock, and the remedy of the creditor in such case is against the parties to the fraud." Brant v. Ehlen, 59 Md. 1, 28.

over

[a] Thus a purchaser of stock,
originally issued as fully paid up in
exchange for fraudulently
valued property, is not liable to cor-
porate creditors for the unpaid bal-
ance of its par value in excess of
true valuation of property, where he
acquired the stock in good faith, and
without notice. Feehan v. Kendrick,
(Ida.) 179 P 507.

[b] Estoppel.-If a corporation is-
sues and puts on the market shares
which have not been fully paid up,
but recites in the certificates that
they have been fully paid up, the
corporation, and its creditors through
it, will be estopped from thereafter
asserting, as against innocent pur-
chasers of such shares, that they
have not been paid for in full. Wal-
burn v. Chenault, 43 Kan. 352, 23 P
657; St. Croix Lumber Co. v. Mittle-
stadt, 43 Minn. 91.

93. See infra § 1597.

In

94. Berry v. Rood, 168 Mo. 316, 67 SW 644.

95. U. S.-Pullman v. Upton, 96 U. S. 328, 24 L. ed. 818; In re Caledonia Coal Co., 254 Fed. 742; In re Manufacturers' Box, etc., Co., 251 Fed. 957; Enright v. Heckscher, 240 Fed. 863, 153 CCA 549; Durand v. Brown, 236 Fed. 609, 149 CCA 605; Moore v. Jones, 17 F. Cas. No. 9,769, 3 Woods 53; Myers v. Seely, 17 F. Cas. No. 9,994, 10 NatBankr Reg 411; Upton v. Hansbrough, 28 F. Cas. No. 16,801, 3 Biss.

417.

Ark.-Davis v. Scott, 129 Ark. 226, 233, 195 SW 283 [cit Cyc].

Cal-Visalia, etc., R. Co. v. Hyde, 110 Cal. 632, 43 P 10, 52 AmSR 136; People's Home Sav. Bank v. Sadler, 1 Cal. A. 189, 81 P 1029.

Colo.-Sweet v. Barnard, 182 P 22. Ga. Allen v. Grant, 122 Ga. 552, 50 SE 494; Fouche v. Rome Merchants' Nat. Bank, 110 Ga. 827, 36 SE 256.

Ill. Moore v. U. S. One Stave Barrel Co., 238 Ill. 544, 87 NE 536, 128 AmSR 153; Gillett v. Chicago Title, etc., Co., 230 Ill. 373, 82 NE 891; Foote v. Illinois Trust, etc., Bank, 194 Ill. 600, 62 NE 834; Higgins v. Illinois Trust, etc., Bank, 193 Ill. 394, 61 NE 1024 [aff 96 Ill. A. 29]; Sprague v. National Bank of America, 172 III. 149, 165, 50 NE 19, 64 AmSR 17, 42 LRA 606 [aff 66 Ill. A. 320]; Coleman v. Howe, 154 Ill. 458, 39 NE 725, 45 AmSR 133: Alling v. Wenzel, 133 Ill. 264, 24 NE 551; Cohen v. Toy Gun Mfg. Co., 172 Ill. A. 330; Moore v. U. S. One Stave Barrel Co., 141 Ill. A. 104 [aff 238 Ill. 544, 87 NE 536, 128 AmSR 154]; Rogan v. Illinois Trust, etc., Bank, 93 Ill. A. 39 [aff 194 111. 600, 62 NE 834]; Trendley v. St. Louis, etc., Rapid Transit Co., 84 111. A. 109.

Iowa.-Wishard v. Hansen, 99 Iowa 307, 68 NW 691, 61 AmSR 238; Calumet Paper Co. v. Stotts Inv. Co., 96 Iowa 147. 64 NW 782, 59 AmSR 362: Boulton Carbon Co. v. Mills, 78 Iowa 460, 43 NW 290, 5 LRA 649; Jackson v. Traer, 64 Iowa 469, 20 NW 764. 52 AmR 449; Osgood v. King, 42 Iowa 478.

Ky-Stoecker v. Goodman, 183 Ky. 330, 209 SW 374.

Md.-Brant v. Ehlen, 59 Md. 1.
Mass.-Brigham v. Mead, 10 Allen

245.

Minn.-Wallace v. Carpenter Electric Heating Mfg. Co., 70 Minn. 321, 73 NW 189, 68 AmSR 530.

Mo.-Meyer V. Ruby Trust Min., etc., Co., 192 Mo. 162, 90 SW 821; Van Cleve v. Berkey, 143 Mo. 109, 44 SW 743, 42 LRA 593; Shickle v. Watts, 94 Mo. 410, 7 SW 274; Schneider v. Johnson, 161 Mo. A. 375, 143 SW 78; Anheuser-Busch Brewing Assoc. v. Park Novelty Co., 120 Mo. A. 513, 97 SW 209; Leucke v. Tredway, 45 Mo. A. 507.

[c] Application of rule.-(1) Where, under its charter, the directors of a railroad company issued shares of stock to a contractor for building its road as full paid shares, which contract was never questioned by stockholders or by creditors as being either fraudulent or ultra vires. and such shares were sold by the contractor, in the public market, as full paid shares, to purchasers for value, without actual notice of the equities between the contractor and the company, the holders of such shares are not subject to such equities, or liable to have the shares thus issued and thus purchased treated as unpaid shares. Steacy v. Little Rock, etc., R. Co.. 22 F. Cas. No. 13,329, 5 Dill. 348. (2) Where directors for incorporating services and services to be performed issued corporate stock of value greatly in excess of value of such services, an innocent purchaser for value who took shares is exempt from liability to pay any part of par value. John W. Cooney Co. v. Arlington Hotel Co., (Del.) 101 A 879. (3) The stock of a corporation to the amount of eight thousand dollars was issued for property valued at the time at only six thousand dollars. This stock was marked "full-paid" and certain of it was thereafter purchased in the open market by persons who, on re- Tex.-Rich v. Park, (Civ. A.) 177 quest for information. were in- SW 184; Witt v. Nelson, (Civ. A.) 169 formed by the corporation's manager SW 381. at its office that the stock was fully Va.-Mountain Lake Land Co. v. paid. It was held that such stock-Blair, 109 Va. 147, 63 SE 751.

"The liability of transferees for assessments on account of unpaid stock has been the subject of much consideration by the courts of this country, resulting in radical differences of opinion, but in my judgment the weight of authority and sound reason support the view that a bona fide transferee of stock, the certificate for which recites that it is full paid, is not liable to make good the contract of the original subscriber if the transferee has no knowledge that the subscriber has not paid in full, nor notice of any fact from which knowledge may be inferred, or which requires him to inquire as to the truth of such statement. The right to hold a stockholder for an unpaid subscription, in the interest of creditors, rests upon the doctrine that the capital stock is a trust fund for the payment of the obligations of the company, and that the subscription creates a debt due to the corporation upon which a creditor may rely and which the company cannot remit to his injury. The contract between the corboration and the subscriber is, that for the stock issued he will make full payment, and any attempt to avoid this, by waiver or other device, will not excuse the subscriber to the in

N. J See v. Heppenheimer, 69 N. J. Eq. 36, 61 A 843.

N. Y.-Sigua Iron Co. v. Brown, 171 N. Y. 488, 64 NE 194; White v. Jones, 155 N. Y. 475, 50 NE 289.

Oh-Brown v. Hitchcock, 36 Oh. St. 667.

Or.-Ladd v. Cartwright, 7 Or. 329. Pa. Merrimac Min. Co. v. Levy, 54 Pa. 227, 93 AmD 697.

it has been held that where subscribers to preferred stock under their subscription contract received on share of common stock for each two shares of preferred stock, and they knew that the common stock was not paid for and was a mere bonus, receiving the common stock directly from the company, and not by assignment from its agent, the subscribers were not bona fide transferees for value as against creditors of the corporation, within a statutory provision as to stockholders' liability for unpaid subscriptions.1

acquired by him in the usual form should recite on their face that they are fully paid," and that a purchaser of stock on its face fully paid up and nonassessable is under no obligation to inquire whether it is in fact paid up and must be considered a bona fide purchaser,97 it is generally held that actual notice to a transferee of corporate stock that it was originally issued without being fully paid up is not necessary to charge him with liability for corporate debts, imputed notice being equivalent to actual notice.98 And that knowledge of facts impelling an ordinary and careful investor to inquire whether it was fully paid, which inquiry would have shown that it was not, would be sufficient notice to make him liable to creditors for the amount unpaid.99 So Ont.-McIntyre v. McCraken, 11tain number of shares of common | corporation contracted before he pur

Ont. A. 1 [rev on other grounds 1 Can.
S. C. 479].
96. Keystone Bridge Co. v. Mc-
Cluney, 8 Mo. A. 496.

97. Brant v. Ehlen, 59 Md. 1, 25; Davies v. Ball. 64 Wash. 292, 116 P 833, Ann Cas1914B 750.

"Shares of stock are not, strictly speaking, negotiable instruments, but Courts speak of them as quasi negotiable; and when they are issued as full-paid shares, and as such sold in open market, the purchaser is not bound to suspect fraud where everything seems fair and conformable to the requirements of the law. Any other doctrine would virtually destroy the transferable nature of such shares, and paralyze the whole of the dealings in the stock of corporations." Brant v. Ehlen, supra.

[ 1597] (c) Constitutional or Statutory Provisions Affecting Liability. The liability of a transferee is in some jurisdictions affected by particular constitutional or statutory provisions,2 as, for ex

stock as a bonus, that he would not, chased his shares. The statute eviwithin two years from the date there- dently intends to make the obligation of, sell or transfer the shares, and of guaranty attend the shares of that the certificate should not be stock at all times until the debts are transferred upon the company's paid, into whosesoever hands the books within that time, and who re- shares may come. The owner of the ceived one certificate for the pre- stock is made at all times a guaranferred and one for the common stock, tor, to the extent named in the statneither of which represented the ute, of all the debts of the corporation stock to be fully paid and nonassess-contracted by or due from it so long able, and who did not have the stock as he remains a stockholder. Ball transferred on the company's bocks, Electric Light Co. v. Child, 68 Conn. was put upon such inquiry, so that 522, 37 A 391. he could not escape liability to creditors as a bona fide purchaser. Gordon v. Cummings, 78 Wash. 515, 139 P 489. (2) A purchaser of corporate stock from the incorporators, who knew that the corporation was in financial difficulties, and that part of its pledged book accounts, taken up by him in consideration of its company's note and all the stock, were not genuine, and who examined the books, was chargeable with further [a] Thus a holder of corporate inquiry, which would have shown him stock, with imputed knowledge that that property taken by the corporait had been issued by the corporation tion was an inadequate considerato its incorporators for property tion for the original stock. In re which was an inadequate considéra- Manufacturers' Box, etc., Co., 251 tion, would be liable to an assessment Fed. 957. thereon for such amount, not exceeding the difference between the fair value of the property and the par value of the stock, as would be needed to pay allowed claims in bankruptcy and administration expenses. In re Manufacturers' Box, etc., Co., 251 Fed. 957.

98. In re Manufacturers' Box, etc., Co., 251 Fed. 957; Garden City Sand Co. v. American Refuse Crematory Co., 205 Ill. 42, 68 NE 724.

99. U. S-In re Manufacturers' Box, etc., Co., 251 Fed. 957.

So common

[b] Receiving stock as bonus
with bond purchase.-It has been
held that purchasers of stock of a
corporation from original subscribers
or their transferees are not charge-
able with notice of any illegality in
its issuance by reason of the fact
that they received the stock as a
bonus with a purchase of bonds from
the corporation. Babbitt v. Read, 215
Fed. 395 [aff 236 Fed. 42, 149 CCA
2521. But compare See v. Heppen-
heimer, 69 N. J. Eq. 36, 61 A 843
(holding that a purchase of bonds of
a corporation, under an agreement
that for each one thousand dollars in
cash subscribed a mortgage bond for
one thousand dollars and a bonus of
six hundred dollars of stock in the
formation
company in process of
should be delivered, was sufficient to
put such purchasers on inquiry that
the stock so issued had not been paid
for either in cash or in its equivalent
in property).

Ill-Gillett v. Chicago Title, etc.,
Co., 230 Ill. 373, 82 NE 891; Garden
City Sand Co. v. American Refuse
Crematory Co., 205 Ill. 42, 47, 68 NE
724 (holding further that the fact
that stock certificates recite that the
stock is fully paid and non-assess-
able" furnishes no protection to as-
signees, as against corporate credi-
tors; it was said in this case that the
practice of issuing stock as fully paid
up and nonassessable on payment of
a small percentage of its par value is
that it is questionable
whether it ought to raise any pre-
sumption of full payment; a state-
ment of this character in stock cer-
tificates is "the most shallow and in-a
effective, although perhaps the most
common. of the many devices resorted
to by stockholders to escape the lia-
bility assumed by their contract of
subscription"); Sprague v. National
Bank of America. 172 II. 149. 50 NE
19. 64 AmSR 17. 42 LRA 606: Coleman
v. Howe, 154 Ill. 458, 39 NW 725, 45
AmSR 133: Alling v. Wenzel, 133 Ill.
264. 24 NE 551.

Jowa. Wishard v. Hansen, 99 Iowa
307. 68 NW 691, 61 AmSR 238.
N. J.-See v. Heppenheimer, 69 N.
J. Eq. 36, 61 A 843.

Wash.-Gordon v. Cummings, 78
Wash. 515. 139 P 489.

[b] Indiana.-Under a statute which relates to the construction of levees, dikes, and drains, and provides that all members of any company organized under its provisions "shall be personally liable for all debts contracted by the company for manual labor performed for the company,' a stockholder is not liable for debts of the company incurred for labor which was contracted before he became a member. Reeder v. Maranda, 66 Ind. 485.

[c] Kansas.-(1) Under statutes of Kansas which provide that when execution against a corporation is returned unsatisfied then execution may be issued against any of the stockholders, to an extent equal in amount to the amount of stock owned by him together with any amount unpaid thereon, anyone who is a stockholder when an execution against the corporation is returned unsatisfied is liable to execution. Brown v. Trail, 89 Fed. 641. (2) It is not essential that he should own stock when the debt accrued for which the judgment was rendered. Rhode Island Mortg., etc.. Co. v. Moulton, 82 Fed. 979.

[d] Maine.-Under a statute which provides a remedy in favor of creditors of the corporation against persons "who have subscribed for or

agreed to take stock in said corporation and have not paid for the same. etc.." individuals who purchased stock in the open market are not liable for corporate debts. "A fair inference to be drawn from the language of the statute is that of a transaction or contract with the corporation in accepting. subscribing for or agreeing to take stock, and not one between individuals in the purchase of stock in open market. Had the legislature intended to make the remedy as broad as that contended for by the plaintiff, and thus render the defendant liable as a 'stockholder' upon all stock held or owned by him, regardless of the manner in which he may have obtained it, it would have been an easy matter to have so expressed its meaning. Not having done so, it is not the province of the court to extend the remedy beyond the express provisions of positive enactment, especially in cases where the statute is to be construed 1. Stoecker v. Goodman, 183 Ky. strictly." Libby v. Tobey, 82 Me. 330, 209 SW 374. 397. 405. 19 A 904.

[c] Knowledge of agent imputed to principal. Where two directors of corporation agreed each to take one half of a new issue of the corporate stock at less than par value, and the offer to the corporation to purchase the stock was made in the name of one of them, but the earnest money was advanced by both. and the broker's commission on the sale shared by both, the subscribing director was the agent of the other, so that the former's knowledge of the facts which prevented the stock from being full paid was chargeable to the latter. Enright V. Heckscher, 240 Fed. 863, 153 CCA 549.

[a] Facts sufficient to nut pur- 2. See constitutional and statchaser on inquiry.-(1) The pur-utory provisions, and cases infra this chaser in open market of one hundred section. See also supra § 1580. shares of preferred stock, the certificate of which provided that the holder accepted it under the express agreement, and in consideration of the issuance and delivery to him of a cer

[e] Wisconsin.-Under a statute providing that. if any stock shall be transferred, which is not fully paid. [a] Connecticut-Under a stat- the corporation may, by agreement ute creating a liability for "debts to be noted on its stock book, discontracted or due during the time of charge the stockholder making such their holding stock therein." a stock-transfer, from liability to it for the holder is liable for a debt of the unpaid part of his stock subscription,

ample, those rendering persons liable as stockholders who are such at the time the debt was incurred,3 or which impose a liability upon both transferor and transferee.*

[ 1598] (d) Knowledge or Consent of Transferee. Ordinarily, liability as a stockholder does not attach to one to whom shares have been transferred on the books of the corporation without his knowledge or consent,5 unless he ratifies the transfer by accepting the shares. However, where the stockholder is also an officer of the corporation, who by statute is bound with knowledge of the contents of the stock book, he will not be permitted to set up as a defense that he did not know that the shares standing in his name had been transferred to him."

[§ 1599] (e) Transfer of Stock Par Value of Which Has Been Reduced. It has been held that, in as much as a corporation cannot release its subscribers from liability to creditors by reducing its stock, the obligation of the original subscriber is not affected by the transfer of the reduced shares, and in consequence the transferee is not liable beyond the reduced par value of the shares.8

the general rule applies where the transferor has
never enjoyed the privileges of a stockholder, nor
held himself out as such.1
10 It has been held, how-
ever, that where the corporation issues a new cer-
tificate to the transferee, the latter becomes a stock-
holder and liable as such to creditors of the corpora-
tion, although the corporation fails to register the
transfer. But notwithstanding the prescribed for-
malities for the transfer of stock have not been
complied with, the transferee may by his conduct in
relation to the stock estop himself to deny owner-
ship thereof and consequent liability to creditors of
the corporation.12 The transferor may estop him-
self to deny that the transfer was registered,13 or
that he had not joined in the execution of it,11 and
the estoppel arises where the transferee acts as
owner of the stock transferred.15 And the fact that
a transfer of stock has not been registered will not
relieve the transferor of liability to creditors where
he fails to have the transfer registered for the pur-
pose of avoiding liability.16 And it has been held
that a distributee, the widow, of a deceased stock-
holder will be subject to liability, although she had
not actually received the stock and no transfer had
been made on the books of the company.17 Under a
statute which provides that if any share of the prop-
erty of a manufacturing corporation shall be alien-
ated by the proprietor by deed under his hand and

[ 1600] (f) Registration as Condition Precedent to Liability of Transferee. The general rule is that if a transfer is not recorded in the transfer book of the corporation, the transferee is not chargeable with corporate debts. For obvious reasons and accept that of the person to | held by him as a trustee for the com-1 145, 74 NW 930; Bissell v. Heath, 98 whom the stock is transferred in his place, where stock has been issued without being paid for, a transferee thereof is not liable for the unpaid subscription unless he has allowed himself to be represented as a stockholder to creditors who have given credit in reliance upon such liability Sturtevant V. National Fdy., etc., Works, 88 Fed. 613, 32 CCA 57.

3. See statutory provisions; and Winona Wagon Co. v. Bull, 109 Cal. 1, 40 P 1077.

4. See statutory provisions; and Glenn v. Foote, 36 Fed. 824 [app dism 145 U. S. 638 mem, 12 SCt 981 mem, 36 L. ed. 859 mem].

5. U. S.-Keyser v. Hitz, 133 U. S. 138, 10 SCt 290, 33 L. ed. 531; Wilbur v. Stockholders, 29 F. Cas. No. 17,636, 18 NatBankrReg 178.

Cal-Shattuck, etc., arehouse Co. v. Gillelen, 154 Cal. 778, 99 P 348; Vermont Marble Co. v. Declez Granite Co., 135 Cal. 579, 67 P 1057, 87 AmSR 143, 56 LRA 728.

Ga.-Robinson v. Lane, 19 Ga. 337. Mo.-Simmon v. Hill, 96 Mo. 679, 10 SW 61, 2 LRA 476.

N. Y.-Glenn v. Garth, 133 N. Y. 18, 30 NE 649, 31 NE 344 [app dism 147 U. S. 360, 13 SCt 350, 37 L. ed. 203].

Oh-De Camp v. Levoy, 19 Oh. Cir. Ct. 335, 10 Oh. Cir. Dec. 509.

Eng. Matter of St. George's SteamPacket Co., 3 De G. & Sm. 191, 64 Reprint 440 [aff 2 Hall & T. 395, 47 Re print 1737]; Matter of St. George's Steam-Packet Co., 3 De G. & Sm. 11, 64 Reprint 358, 1 Macn. & G. 291, 47 EngCh 232, 41 Reprint 1277. Ont.-Re Publishing Syndicate, 5 Ont. L. 392, 2 OntWR 65.

[a] Application of rule.-Where a bequest is made of shares of stock to a person, but the shares are not transferred to him on the books of the corporation and there is no other evidence of his acceptance of the bequest, he cannot be held liable at the suit of creditors for assessment upon the stock under statutory liability. Cantbee v. Levoy, 19 Oh. Cir. Ct. 305.

6. Keyser v. Hitz. 133 U. S. 138. 10 SCt 290, 33 L. ed. 531. Compare In re Imperial Mercantile Credit Assoc., L. R. 3 Eq. 361 (where shares in a company were transferred into the name of A, with his consent, to be

pany, and it was held that, although
a person wrongfully. put upon the
register would have a right to relief
even as against creditors, A's name
having been placed by his own con-
sent upon the register, he was liable
as a contributory, although he might
have a right to be indemnified by the
company for any payments made by
him in respect of the shares, of which
he was merely a trustee).

7. Finn v. Brown, 143 U. S. 56, 12
SCt 136, 35 L. ed. 936.

8. Cammack v. Levy, 120 La. 873, 876, 45 S 925, 124 AmSR 443 (where it was said: "The continued liability of Levy as an original subscriber necessarily excludes the Hability of the plaintiff. Both cannot be bound on the same subscription. Plaintiff is bound as holder of the reduced shares or not at all").

9. Hamilton v. Loeb, 186 Fed. 7, 108 CCA 109 [aff 179 Fed. 728, and certiorari den 223 U. S. 720, 32 SCt 523, 46 L. ed. 629]; Brown v. Allebach, 166 Fed. 488 [rev on other grounds 179 Fed. 32, 103 CCA 16]; Marks v. Brenner, 204 Ill. A. 366; Basting v. Northern Trust Co., 61 Minn. 307, 63 NW 721. Compare Washburn, etc., Mfg. Co. v. Clarke, 17 NYS 568 (where it was held without discussion that a person becomes the legal owner of stock in a manufacturing company when the transfer or assignment thereof is made to him, and as such is liable for debts of the company accruing subsequently, although his stock is not transferred on the books of the company until after the debt accrued).

Mich. 472, 57 NW 585; Shepherd v.
Gillespie, 17 L. T. Rep. N. S. 280.

14. Shepherd v. Gillespie, 17 L. T. Rep. N. S. 280.

15. Bissell v. Heath, 98 Mich. 472, 57 NW 585 (issuance of certificate to and acceptance of dividends by him); Shepherd v. Gillespie, 17 L. T. Rep. N. S. 280 (accepting deed of transfer and depositing it as security for the purchase price); Matter of North of England Joint Stock Banking Co., 1 De G. M. & G. 576, 50 EngCh 444, 42 Reprint 676 (issuance of certificate to and acceptance of dividends by him).

16. Robinson-Pettit Co. v. Sapp. 160 Ky. 445, 448, 169 SW 869 [cit Cyc].

"Were the rule otherwise, the purpose of the statute would be entirely defeated. In imposing the double liability upon the stockholder, the aim of the statute is to secure the creditors of the corporation, and if the real stockholder could avoid liability simply by neglecting to have the transfer recorded on the books of the corporation, and allowing the stock to remain in the name of the bankrupt, the security intended for the creditors would be destroyed. To allow this would be to allow the real stockholder to profit by his own wrong, and by his failure to do what he ought to have done, to avoid the liability put upon him by the statute. To effectuate the purpose of the statute, it must be held that until the transfer is properly registered the creditors of the corporation may look to the transferrer, or at their election to the transferee." Robinson-Pettit Co. v. Sapp, supra. See also Johnson v. Underhill, 52 N. Y. 203 (holding that where a buyer of shares of corporate stock has received a certificate under a contract 10. Hamilton v. Loeb, 179 Fed. 728 of sale, with a power of attorney to [aff 186 Fed. 7. 108 CCA 109 (cer-transfer them upon the books of the tiorari den 223 U. S. 720, 32 SCt 523, company into his own name, he is 46 L. ed. 629)]. liable to the seller, where he fails to have them so transferred, for any debts thereafter incurred by the corporation, which the seller is obliged to pay by reason of the fact that his name still remains upon the books of the corporation as the apparent owner).

[a] While he is bound to protect and indemnify his transferor, he is not liable to the corporation or corporate creditors. Basting v. Northern Trust Co., 61 Minn. 307, 63 NW 721.

11. Laing v. Burley, 101 Ill. 591. 12. White v. Marquardt. 105 Iowa 145, 74 NW 930; White v. Marquardt, (Iowa) 70 NW 193; Shepherd v. Gillespie, 17 L. T. Rep. N. S. 280: Matter

of

North of England Joint Stock
Banking Co., 1 De G. M. & G. 576, 50
EngCh 444. 42 Reprint 676.
13. White v. Marquardt, 105 Iowa 80.

17. Coquard v. Marshall, 14 Mo. A.

v. Wheeler, 19 Pick. | books as legal owners are liable as (Mass.) 442. partners. Gillespie v. City of Glas19. In re Imperial Mercantile gow Bank, 4 App. Cas. 632; Matter of Credit Assoc., L. R. 3 Eq. 361 (hold- Joint Stock Co.'s Act, 4 De G. J. & S. ing that if done without his consent 416, 69 EngCh 320, 46 Reprint 979; it will not bind him unless ratified). Matter of St. Marylebone Banking [a] Infant.-Where stock is reg- Co., 3 De G. & Sm. 21, 64 Reprint 362; istered in the name of an infant in- In re London, etc., Assur. Co., 4 Jur. capable of acting as trustee he will N. S. 448. not be bound unless he affirms on the [b] Where опе subscribed for coming of age. In re North of Eng-stock as a trustee for certain credland Joint Stock Banking Co., 1 Hall Itors, it is immaterial to his liability & T. 580, 47 Reprint 1541. on his subscription, so far as third 20. U. S.-American Alkali Co. v. persons dealing with the company are Kurtz, 134 Fed. 663 [aff 138 Fed. 392, concerned, whether the creditors con70 CCA 532]; Borland v. Haven, 37 sented or not, since the subscriber Fed. 394, 13 Sawy. 551 [app dism 159 was the owner, either as trustee or U. S. 255, 15 SCt 1039, 40 L. ed. 1401. as an agent who subscribed in his Cal.-Webster v. Bartlett Est. Co., own name. Munson v. Gunder, 70 35 Cal. A. 283, 169 P 702; La Habra Wash. 629, 127 P 193. Oil Co. v. Francis, 35 Cal. 168, 169 P 401.

[c] If a married woman's shares are held by trustees for her, in the absence of statutes providing otherwise, they must respond as stockholders and look to her for indemnity. Butler v. Cumpston, L. R. 7 Eq. 16. [d] In California under direct provisions of Civ. Code § 322, minor's trustee holding corporate stock is personally liable on such stock. Robinson v. Rispin, 33 Cal. A. 536, 165 P 979.

21. Russell v. Bristol, 49 Conn. 251.