The most that can be done is to "take away any profit from the person who has improperly made it."1

§ 121. (d) Liability upon shares issued gratuitously.— To constitute one a stockholder some sort of subscription or contract is necessary whereby the subscriber obtains a right to the stock, and to act as a stockholder.2 Accepting stock as a gratuity does not subject the holder to liability to corporate creditors. For, as was said in a recent case, a shareholder's liability on his stock arises not out of his relation to the corporation, but out of contract, either express or implied, or out of some statute; and accordingly, where no contract can be shown and no statute imposes liability upon a gratuitous allottee of shares, he commits no wrong upon the creditors and is not to be required to pay the full nominal face value of his stock. In the case last cited the subscribers had been required to pay calls in excess of the amount expected and represented to them as necessary at the commencement of the enterprise, and the corporation to make good their loss, issued to them as a gratuity, stock credited with a payment of forty per cent. which as a matter of fact had not been paid, and it was held that corporate creditors could not compel the holders of stock so issued to account for the unpaid forty per cent. as though they had been subscribers therefor."

1 Anderson's Case, 7 Ch. Div. 75; Four Mile &c. R. Co. v. Bailey, 18 Ohio St. 208.

2 Butler University v. Schoonover, (1887) 114 Ind. 381; s. c. 5 Am. St. Rep. 627.

debt he owed complainants, he sold them a portion of the bonds, amounting to about three times the value of the road, upon which bonds judgment was rendered against the company. Complainants had refused to

3 Christensen v. Eno, (1887) 106 receive the road itself, or the capital N. Y. 97.

Christensen v. Eno, (1887) 106 N. Y. 97. But in Preston v. Cincinnati, C. & H. V. R. Co., (1888) 36 Fed. Rep. 54, the defendant being the owner of a railroad, organized a company to whose stock he was the only actual subscriber, some shares being issued to others at his instance, and sold his road to the company at a price about fifteen times its value, taking in payment the stock and bonds of the company. To pay a

stock, in payment of their debt, and the sole object of the organization of the company was to make use of the road in the payment of the debt; but whether complainants knew that fact was doubtful. It was held that the stockholders were liable, respectively, for the payment of the judgment, to the amount of their subscriptions notwithstanding a provision in the bonds that no stockholder should be individually liable therefor. And in Hickling v. Wil

§ 122. The "trust fund" doctrine not recognized in England. In England, where this doctrine has not been recognized, the creditors have no higher rights against the shareholders than the company itself. They "can obtain nothing but what the company can get from the shareholders." The price to be paid for shares is there regarded as a matter of contract irrespective of their face value. And a person who has entered into a valid contract to take fully paid-up shares, can not be made liable to the company or its creditors for shares not fully paid, which have been registered in his name. The only safeguard of persons extending credit to English companies is a statutory requirement that contracts for the issue of stock at less than par shall be in writing and be filed with the Registrar of Joint-Stock Companies. Shares may even be issued by way of gift and the recipient incur no liability thereon, if the agreement under which it is done be duly registered. Even this statutory requirement operates rather as a warning than as a safeguard; for while an unregistered contract not to require full payment of the stock issued to a subscriber, is declared ultra vires, the courts have declined to

son, (1883) 104 Ill. 54, a corporation was organized to build dams across two rivers. A city delivered to one of the subscribers $60,000 in its bonds to be applied in this work or to be returned. The subscriber turned over the bonds to the corporation upon its guaranty so to use them. The dams were built and stock issued to the several subscribers, for which they paid nothing, and some of which they sold. And it was held that creditors of the corporation who could not collect their judgments from the corporation could pursue the subscribers in equity; that two or more of the creditors could join in one suit, and that such a creditor was entitled to an execution against a stockholder for the whole amount of his unpaid subscription.

1In re Dronfield &c. Co., 17 Ch. Div. 76; In re Ambrose &c. Co., 14 Ch. Div. 390; In re Ince Hall &c.

Co., 30 Week. Rep. 945. The rights of creditors against the shareholders when enforced by a liquidator "must be enforced by him in right of the company; what is to be paid by the shareholders is to be recovered in that right." Waterhouse v. Jamieson, L. R. 2 H. L. 29, 37.

2 Guest v. Worcester Ry. Co., L. R. 4 C. P. 9; Baron De Beville's Case, L. R. 7 Eq. Cas. 9; Carling's Case, 1 Ch. Div. 115, distinguishing Ex parte Daniel, 1 De G. & J. 372.

3 Ashworth v. Bristol &c. Ry. Co., 15 L. T. N. S. 561; Guest v. Worcester &c. Ry. Co., L. R. 4 C. P. 9.

4 30 & 31 Vic. ch. 131, § 25, and 32 & 33 Vic. ch. 48, § 5, repealing 26 & 27 Vic. ch. 118, § 21.

5 Watt v. Lee, (1888) 3 Ry. & Corp. L. J. 430; s. c. 39 Ch. Div. 190. Cf. In re London Celluloid Co., (1888) 4 Ry. & Corp. L. J. 69, 70.

6 In re London Celluloid Co., (Eng.

hold the taker of stock at less than par liable thereon because of the ultra vires nature of the issue; for, it is said, assuming that the contract was ultra vires what would be the result? It can then be set aside only in toto, the consequence being that the holders would be entitled to be relieved of their shares and to receive back the money paid upon them.1

§ 123. Accrual of liability - Remedy against company to be first exhausted. The personal liability of stockholders for the debts of the company is secondary to that of the company itself, and does not accrue until the corporate assets have been exhausted or clearly shown to be insufficient to meet the demands of creditors.2 This is the rule both in respect of their liability upon the unpaid balance of their subscriptions and as to any additional individual liability which may be imposed upon them by charter or statute. The best evidence of the insufficiency of the corporate assets, being an execution upon judgment against the company with a return of nulla bona, it has been frequently held that such a return is an essential pre-requisite to an action against the shareholders personally; or, as the phrase goes, the creditor must

Ct. of Appeal, May 31, 1888) 4 Ry. &
Corp. L. J. 69, 70.

3

3 Jackson v. Meek, (1888) 87 Tenn. 69; s. c. 10 Am. St. Rep. 620; Nim1 In re Ince Hall &c. Co., 30 Week. ick v. Mingo Iron Co., (1885) 25 W. Rep. 945.

2 Harper v. Union Manuf. Co., (1882) 100 Ill. 225; Garretsville Bank v. Greene, (1885) 64 Iowa, 445; Wright v. McCormack, (1866) 17 Ohio St. 86; Stewart v. Lay, (1877) 45 Iowa, 604; Toucey v. Bowen, 1855) 1 Biss. 81; Lane v. Harris, (1854) 16 Ga. 217; Drinkwater v. Portlaud &c. R. Co., 18 Me. 35; Cambridge Water Works v. Somerville Dyeing Co., (1862) 4 Allen, 239. Cf. Patterson v. Wyomissing Manuf. Co., (1861) 40 Pa. St. 117; Harper v. Union Manuf. Co., 100 Ill. 225; Hatch v. Burroughs, 1 Woods, 439; Mean's Appeal, (1877) 85 Pa. St. 75; Bayliss v. Swift, (1875) 40 Iowa, 648; McClaren v. Franciscus, (1869) 43 Mo. 452; Wehrman v. Reakirt, (1871) 1 Cn. Super. Ct. 230.

Va. 184; Dauchy v. Brown, (1852) 24
Vt. 197, 209, where it was said "The
reason and propriety of this is ap-
parent. The indebtedness of the
corporation must exist before such
liability [of the stockholders] can
arise, and that indebtedness can
only be tried in suit against the cor-
poration in such a way that those
upon whom execution may be levied
shall be thereby concluded.
If a
judgment is obtained against the
corporation not only is the corpora-
tion, but all its members are con-
cluded on the question of indebt-
edness."

4 Terry v. Anderson, 95 U. S. 636; Walser v. Seligman, (1882) 21 Blatchf. 130; Handy v. Draper, 89 N. Y. 334; Shellington v. Howland, 53 N. Y. 371; Freeland v. McCullough, (1845)

first exhaust his remedy against the corporation.' But proceedings in rem and execution against the property of the company is not sufficient. Neither is a return of nulla bona in a State other than that of the company's origin considered to exhaust

Judgment must be obtained in the State where enforcement is sought. Even a judgment in the federal circuit court for the district will not suffice. It is sometimes provided by statute, as under the General Manufacturing Act of New York, that the creditors shall first obtain judgment and return of execution against the corporation, wholly or partly unsatisfied, before proceeding against the members personally; and in other States, that a specified demand shall have been made. While, as will appear in the following section, there are exceptions to the general rule here laid down, and judgment against the corporation may, in cer