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poration against delinquent shareholders, can it be shown in defense that the plaintiff has forfeited its corporate rights by misuser or non-user. Advantage can be taken of abuse or neglect only on process in behalf of the State instituted directly against the corporation for the purpose of avoiding the charter or act of incorporation, and individuals cannot avail themselves of it in collateral suits, until it be judicially declared.1 A plea or answer, therefore, as a general rule, to the suit of a corporation, showing facts upon which in a direct proceeding the corporate powers might be declared at an end, is not sufficient. It must show that they have ceased.2

§ 112. Recovery of deposits upon abandonment of the undertaking.-In case of the withdrawal of a member from a company the questions sometimes arise whether he is entitled to be reimbursed for deposits made by him in furtherance of the enterprise, and if so, whether he may claim the whole amount paid in by him or only the balance remaining after deducting his pro rata of the expenses incurred. It seems to be well settled in respect of the first of these questions that no subscriber to a projected company can recover his money on the ground that the consideration for his subscription has failed, until the formation of the company upon the terms assented to by him has been abandoned or has become impracticable. But even in that case, if the articles of association or the preliminary deed signed by the member authorize the promoters to defray the expenses incident to the undertaking out of the deposits paid for shares, the deposits are not returnable. And although the plaintiff may

1 Hammett v. Little Rock, &c. R. Co., (1859) 20 Ark. 204, 208, citing Angell & Ames on Corporations, § 636. See also Mississippi, &c. R. -Co. v. Cross, 20 Ark. 443.

2 Mississippi &c. R. Co. v. Cross, (1859) 20 Ark. 443, 451, citing Brookville & G. Turnpike Co. v. McCarty, 8 Ind. 392; Ex parte Booker, 18 Ark. 338; Hammett v. Little Rock & Napoleon R. Co., 20 Ark. 204; Sewall's Falls Bridge v. Fisk & Norcross, 3 Foster, 171; State v. Fourth N. H.

Turnpike, 15 N. H. 166; Connecticut & P. Rivers R. Co. v. Bailey, (1852) 24 Vt. 476; Harris v. Nesbit, 24 Ala. 398. But see Rowland v. Meader &c. Co., 38 Ohio St. 269.

3 Lindley on Company Law, (5th ed. 1889) 29, citing Johnson v. Goslett, 18 C. B. 728; s. c. 3 C. B. N. S. 569; Wilson v. Church, 13 Ch. Div. 1; s. c. sub nom. National Bolivian Navigation Co. v. Wilson, 5 App. Cas. 176.

4 Garwood v. Ede, 1 Ex. 264;

not have signed any such deed, yet if he has undertaken to sign it, and has accepted scrip certificates which state that he has signed it, he is held to have authorized the application of his deposits in the discharge of preliminary expenses, as mentioned in the deed. And the same rule is applied where the authority to defray preliminary expenses out of the deposits was conferred by the terms of the letter of allotment, and not by any deed intended for execution after the allotment was made. But it would seem that in the absence of any agreement that the expenses shall be defrayed out of the sums deposited, the whole amount is returnable upon the abandonment of the scheme. In a leading case in point, the defendants, in circulars published by them, had proposed to receive subscriptions of ten shillings a week for the space of one year, and to invest these subscriptions and to divide the interest twice a year equally amongst the subscribers or the survivors of them. The plaintiff subscribed to this scheme, but there not being a sufficient number of other subscribers nothing was ever invested, and the defendants came to a resolution to proceed with it no further, and to return to each subscriber the amount of his subscription, less a percentage for expenses incurred. The plaintiff demanded to have the whole amount subscribed by him returned, and he brought an action against the defendants for its recovery and was held entitled to a verdict.3

§ 113. Effect of withdrawal upon liability to corporate creditors (a) The American rule. In companies having capital stock a surrender of shares or cancellation of the conWilley v. Parratt, 3 Ex. 211; Baird Ex. 211; Baird v. Ross, 2 Macqueen, v. Ross, 2 Macqueen, 69; Watts v. Salter, 10 C. B. 477; Vane v. Cobbold, 1 Ex. 798; Atkinson v. Pocock, 1 Ex. 796; Lindley on Company Law, (5th ed. 1889) 33.

1 Clements v. Todd, 1 Ex. 268; Lindley on Company Law, (5th ed. 1889) 33. Cf. Ashpitel v. Sercombe, 5 Ex. 147; Sibson v. Edgworth, 2 De G. & Sm. 73.

2 Jones v. Harrison, 2 Ex. 52; Lindley on Company Law, (5th ed. 1889) 33, citing Willey v. Parratt, 3

61.

3 Lindley on Company Law, (5th ed. 1889) 30, citing Nockells v. Crosby, 3 Barn. & C. 814, recognized and followed in Walstab v. Spottiswoode, 15 Mees. & W. 501; Moore v. Garwood, 4 Ex. 681; Ashpitel v. Sercombe, 5 Ex. 147; Coupland v. Challis, 2 Ex. 682; Owen v. Challis, 6 C. B. 115; Ward v. Londesborough, 12 C. B. 252; Mowatt v. Londesborough, 3 El. & B. 307; s. c. 4 El. & B. 1.

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tract of subscription can not release the withdrawing member from his liabilities to corporate creditors without their express or tacit consent thereto. For "the capital stock of a corporation, contributed or agreed to be contributed by its stockholders, is, in equity and as to creditors, deemed a trust fund, charged with the payment of the debts of the corporation, and must be treated as such by the corporation." The capital paid in and promised to be paid in, is a fund which the directors can not squander. "They are bound to call in what is unpaid and carefully husband it when received." And no mere resolution or by-law of the stockholders can, as opposed to the rights of creditors in that fund, authorize a release of such an obligation of a solvent stockholder, even in consideration of his surrendering his stock." And since any one creditor to whom the company was indebted at the time of the cancellation, may object and have the transaction set aside in the event of corporate insolvency, it follows that the unanimous consent of all persons to whom the company is indebted at the time is necessary to render the cancellation or surrender effective. But the consent of persons subsequently becoming creditors of the corporation is not requisite; and a surrender having been once accepted by the company, the withdrawing member is not to be held liable upon debts there

1 Farnsworth v. Robbins, (1887) 36 Minn. 369. This subject will be more fully treated in the succeeding chapters on the liabilities of members to corporate creditors.

2 Farnsworth v. Robbins, (1887) 36 Minn. 369; Upton v. Tribilcock, 91 U. S. 45; Sanger v. Upton, 91 U. S. 56; Sawyer v. Hoag, 17 Wall. 610; Clapp v. Peterson, 104 Ill. 26; Crandall v. Lincoln, 52 Conn. 73; Adler v. Milwaukee &c. Manuf. Co., 13 Wis. 57; 2 Morawetz on Corporations, § 780, 781, 790, 820.

3 Upton v. Tribilcock, 91 U. S. 45; Chouteau Ins. Co. v. Floyd, (1881) 74 Mo. 286, 291, where the court said: "It is equally well settled in this State and elsewhere that a release,

by the directors of a corporation, of a stock subscriber from his liability on such subscription is of no avail, and that he remains bound for the amount of such subscription as to the other stockholders and creditors of the corporation." See also, Gill v. Balis, 72 Mo. 432.

Farnsworth v. Robbins, (1887) 36 Minn. 369, 371.

5 Vick v. La Rochelle, 57 Miss. 602; Chouteau Insurance Co. v. Floyd, 74 Mo. 286; Gill v. Balis, 72 Mo. 424. Cf. Wittman v. Concordia Building Assoc., 13 Phila. 95, holding that a stockholder withdrawing from a building association must pay his proportion of losses sustained prior to notice of withdrawal.

after incurred, otherwise a corporation could not save itself from loss by forfeiture of shares for non-payment of calls.1

§ 114. (b) The English rule.-In England the consent of the company alone is sufficient to the validity of a surrender of shares or cancellation of the contract of subscription, so long as the company is "a going concern." For the American doctrine in respect of the trust-fund nature of subscriptions to capital stock is not there recognized. The directors of English companies have a wide discretion in respect of the compromise of claims against withdrawing shareholders. If the

1 Hollingshead v. Woodward, (1885) 85 Hun, 410; Johnson v. Lullman, (1885) 15 Mo. App. 55; Erskine v. Peck, (1886) 83 Mo. 465; affirming 8. C. (1883) 13 Mo. App. 280, 284, where the court said: "It appears from the record that the plaintiff's claim against the corporation arose about a year after the surrender in question, and his judgment was three years later than the same event. There was, then, neither in the purposes entertained, nor in the practical accomplishment, anything 'given away' by the directors, any deliberate breach of their duty as trustees, or any impairment of the fund to which plaintiff, in afterwards becoming a creditor, might look for his ultimate security. A person, competent to own and dispose of personal property, transfers to a party competent to acquire and hold as owner, all his interest in a commodity universally recognized as personalty, having a transferable quality, and this, without a shade of interference with the rights or reasonable expectations of any third party. If a transfer so circumstanced is null, it must be because the relation once established, between stockholder and corporation, is, like the marriage bond, wholly unalterable by mutual agreement of the parties,

during their joint lives; or, because a corporation is incapable of acquiring or holding its own stock on any terms, after the shares have once been possessed by another. If such be the law, a corporation can not save itself and its creditors from loss, by re-acquiring shares from an insolvent person who can not pay for them, and selling them to one who can; nor can there be any more forfeitures of stock to corporations, for non-payment of assessments, or other dues. We do not think that the law so stands." Erskine v. Peck, (1883) 13 Mo. App. 280, 284; s. c. affirmed, 83 Mo. 465.

2 Bath's Case, 8 Ch. Div. 334, where the directors having deemed it wiser to relinquish a part of the company's claim against a shareholder than to attempt to enforce the whole claim, their success in the attempt being doubtful, it was held that the compromise was valid and binding upon all the parties in interest. Cf. Barrett's Case, L. R. 13 Eq. 507, where the shares had been fictitiously issued as fully paid. "Retirement from Joint-Stock Companies," 45 L. T. 435, reviewing Stanhope's Case, (1865) L. R. 1 Ch. App. 161; and Spackman v. Evans, (1868) L. R. 3 H. of L. 171. But see, "Delay in Repudiating Shares," 13 Sol. J. & Rep. 261, 285.

company either by its express consent, or by acquiescence, is estopped from questioning the validity of a surrender or cancellation, the corporate creditors can assert no claim to have the withdrawing member placed upon the list of contributaries.' And it is held in that country that a creditor may be restrained from proceeding at law against a person whom the company has treated as no longer a shareholder.2

In re Dronfield &c. Co., 17 Ch. Div. 76.

2 Taylor v. Hughes, 1 Jones & L. 24. Vide infra, § 122.

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