against the Company for the amount of the That the remedy resorted to by plaintiff in debt, and against the other defendants for the this case is a proper one is well settled. Merrespective amounts alleged to be due and un-chants Nat. Bank v. Bailey Mfg. Co. 34 Minn. paid on the stock held by them, so far as neces- 323, 325. sary to satisfy the judgment against the corporation. To dispose of certain preliminary questions raised by the defendants it may be stated, at the outset, that it is elementary law that, where a person becomes a stockholder in a corporation organized under the laws of a foreign State, he must be held to contract with reference to all the laws of the State under which the corporation is organized and which enter into its constitution; and the extent of his individual liability as a shareholder to the creditors of the company must be determined by the laws of that State, not because such laws are in force in this State, but because he has voluntarily agreed to the terms of the company's constitution.

It is equally clear, upon both principle and authority, that this liability may be enforced by creditors wherever they can obtain jurisdiction of the necessary parties. This does not depend upon any principle of comity, but upon the right to enforce in another jurisdiction a contract validly entered into. The remedy, however, does not enter into the contract itself; and for this reason the individual liability of shareholders can only be enforced by the remedies provided by the laws of the forum. Hence the question of the liability of the defendant shareholders must be determined by the laws of Dakota, and that of remedy by the laws of Minnesota.

son v. Smith, 27 N. J. L. 166; Plymouth First Nat. |
Bank v. Price, 33 Md. 487; Halsey v. McLean, 12
Allen, 438; Gale v. Eastman, 7; Met. 14; Scoville v.
Canfield, 14 Johns. 338; Ogden v. Folliot, 3 T. R. 733;
State v. John, 5 Ohio, 217.

Statutes making stockholders liable to pay the debts of the company in case of a failure to give a certain notice therein specified, or for certain contracts forbidden by statute, are penal in their nature, and not enforceable outside the State enacting them. Sturges v. Burton, 8 Ohio St. 215; Kritzer v. Woadson, 19 Mo. 327; Hill v. Frazier, 23 Pa. 320; Harrisburg Bank v. Com. 26 Pa. 451; Andrews v. Murray, 33 Barb. 354; Shaler & Hall Quarry Co. v. Bliss, 34 Barb. 309; Boughton v. Otis, 21 N. Y. 261; Squires v. Brown, 22 How. Pr. 35, 45; Bird v. Hayden, 1 Robt. 383, 2 Abb. Pr. N. S. 61; Cable v. McCune, 26 Mo. 371; Lawler v. Burt, 7 Ohio St. 341; Derrickson v. Smith, Halsey v. McLean and Plymouth First Nat. Bank v. Price, supra.

Issue of paid-up stock certificates.

The corporation, after issuing its stock as paid-up stock, is estopped from proceeding to collect the unpaid part of the par value, either from the person receiving the stock, or his transferee. See Scoville v. Thayer, 105 U. S. 143 (21 L. ed. 731); Cook, Stock and Stockholders, 34.

A contract whereby stockholders are to pay but part of the par value of their stock to the corporation, "though binding on the company, is a fraud in law on its creditors, which they can set aside. When their rights intervene and their claims are to be satisfied, the stockholders can be required to pay their stock in full." Scoville v. Thayer, 105 U. S. 143 (21 L. ed. 731).

Upton v. Tribilcock, 91 U. S. 45 (23 L. ed. 203), is the first of a series of cases growing out of the failure of the Great Western Insurance Company of Illinois. The other cases are Sanger v. Upton, 91

Upon the trial the judge considered it to be one triable by the court, but, on his own motion, submitted a specific question of fact to a jury; but subsequently, considering the verdict as immaterial, he proceeded without regard to it, and found the facts upon all the issues in the case. As neither party claims anything from this special finding of the jury, and as there is no exception which raises the question whether the action was triable by the court or by a jury, the whole case is reduced to the single question whether the conclusions of law are justified by the findings of fact.

Section 413 of the Civil Code of Dakota provides that "each stockholder of a corporation is individually and personally liable for the debts of the corporation to the extent of the amount that is unpaid upon the stock held by him." This is but declaratory of the common law.

The findings of fact, so far as here material, are, in substance, as follows: Prior to November 13, 1886, there had been organized, and were at that date in existence, under the laws of Dakota, two mining corporations, viz., the Gustin Belt Gold Mining Company and the Minerva Mining Company, of the latter of which the plaintiff, a national banking association at Deadwood, Dak., was a creditor. On the date named the defendant corporation was organized for the purpose and with the inten

U. S. 56 (23 L. ed. 220); Webster v. Upton, 91 U. S. 65 (23 L. ed. 384); Chubb v. Upton, 95 U. S. 665 (24 L. ed. 523); Pullman v. Upton, 96 U. S. 328 (24 L. ed. 818); Hawley v. Upton, 102 U. S. 314 (26 L. ed. 179); Flinn v. Bagley, 7 Fed. Rep. 785; Re Glen Iron Works, 17 Fed. Rep. 324; Union Mut. L. Ins. Co. v. Frear Stone Mfg. Co. 97 Ill. 537, also reviewing the doctrine; Hickling v. Wilson, 104 Ill. 54: Northrop v. Bushnell, 38 Conn. 498; Fisher v. Seligman, 7 Mo. App. 383; Eyerman v. Krieckhaus, Id. 455; Skrainka v. Allen, Id. 434; Pickering v. Templeton, 2 Mo. App. 424; Christensen v. Eno, 21 Week. Dig. 202; Mann v. Cooke, 20 Conn. 178; Myers v. Seeley, 10 Nat. Bankr. Reg. 411.

A resolution by the directors of a corporation that no further calls should be made on account of stock subscribed was void, and a receiver of the corporation could proceed in equity to compel payment of what was due on account of such subscriptions to the capital stock. Sagory v. Dubois, 3 Sandf. Ch. 466; Thompson, Liability of Stockholders, 234.

While the law may reject, as illegal and fraudulent, that which the parties have agreed upon, it will not arbitrarily incorporate, in lieu thereof, terms in the contract to which the parties have never assented. Granite Roofing Co. v. Michael, 54 Md. 65; Union Mut. L. Ins. Co. v. Frear Stone Mfg. Co. 97 Ill. 537.

But where the issue of stock was for cash, under an agreement that only part of the par value need be paid, corporate creditors may compel the persons receiving the stock to pay the unpaid full par value. Sagory v. Dubois, 3 Sandf. Ch. 466, 499.

Issue of watered or fictitious stock.

The issue of watered or fictitious stock may be lawful, but it is generally in fraud of the rights of some interested party, such as creditors, sharehold

be by them sold in the open market for such price per share (not less than fifty cents) as could be obtained therefor. The mining properties of the two old companies conveyed to the new Company were not worth to exceed $50,000 cost, and were at the time of this scheme of consolidation considered and estimated as of the aggregate value of $100,000. The new and defendant Company assumed payment of the indebtedness of the Minerva Mining Company to the plaintiff, which consented to a novation of its debt, accepting the notes of the defendant Company in place of those of the old Minerva Company. This is the claim upon which this action is brought.

tion of consolidating the other two companies, | 150,000 in charge of the board of directors, to acquiring their property, and with the property so acquired carrying on a general mining business. "At the time of the organization of the defendant Company, and as the scheme on which the same was based, it was agreed by the parties so incorporating, and by those representing and having authority to act for the two existing companies, that all the mines and mining property of such two corporations should, upon its organization, be transferred and conveyed to the new, or defendant, Company, and constitute its entire capital stock and resources for the prosecution of its enterprise, and be represented in such organization by a nominal capital stock of $2,500,000, divided into 250,000 shares of $10 each, which should The court also finds "that the payees in said all be deemed and held as represented by the notes named, and the general managing officer properties so conveyed to it; that 50,000 of of the plaintiff, well knew at the time of the said shares should be issued to the former share-execution of said notes, and of their indorseholders of each of the two old companies, and ment and delivery to the plaintiff, all the facts the remaining 150,000 shares belong to and herein before stated, relating to the organization constitute the working capital of the new cor- of the defendant corporation, and the underporation, and be sold under its authority, and standing and plan of its organization, and so on such terms as it should direct; and the pro- dealt with the defendant knowing such matceeds of such sales constitute a fund to pay off ters, and were parties to and interested in the the debts on the properties, and develop the original scheme of the incorporation of the demines thereon, and be used generally in the fendant Company as in the findings set forth." prosecution of the business of the new corpo- This must be construed as meaning that the ration, for the benefit of all its stockholders. "general managing officer" referred to is the That it was never expected or intended by person who transacted the business with the desuch corporation, or by those to whom its stock fendant Company in taking these notes, and of was issued, that any subscription to the capital the benefit of whose action in that regard the stock of the new Company should ever be plaintiff has availed itself. Notice to him must made, or that any capital stock should ever be be deemed notice to the plaintiff. taken, or any capital subscribed for or paid in, except by conveyance to it of the mining properties referred to, and the sale of the stock reserved for its working capital in open market for such sum as could be obtained therefor." This scheme was carried into effect by the conveyance to the new or defendant corporation of the properties of the two old corporations, and the issue to their stockholders, according to their respective holdings, of 100,000 shares of the stock of the new Company (called in the findings "Old Company Stock") as paid-up stock, and by placing the remaining

Returning, now, to the subsequent management of the affairs of the defendant Company, the board of directors, pursuant to the scheme of organization, offered for sale in the open market the 150,000 shares remaining in the treasury, as fully paid-up stock, and some of it was bought as such by the other defendants in good faith, for a price exceeding its fair market value (but not exceeding $1 per share), believing it to be fully paid-up stock. This is called in the findings "Treasury Stock." The holders of the old company stock also placed their stock in the market, some of which the

ers, classes of shareholders or the public. Cook, of corporate property which is essential to the conStock and Stockholders, 11.

Such an issue of stock might constitute a misuse of the corporate rights and privileges. In such a case it is not clear but that the State might proceed to forfeit the charter of the corporation. Holman v. State, 3 West. Rep. 744, 105 Ind. 569. See also Jersey City Gas Co. v. Dwight, 29 N. J. Eq. 242; Erie & N. E. R. Co. v. Casey, 26 Pa. 287–318.

When a corporation is guilty of an ultra vires act, and such act is detrimental to the interests of the public, it is competent for the Attorney-General to file an information for the purpose of enjoining or setting aside such act. Green's Brice, Ultra Vires, 3d ed. 708, 709.

Directors, power to sell property of corporation. The directors of a corporation have no right to sell or dispose of its movable property where this prevents the continuance of their business. Balliet v. Brown, 103 Pa. 546. To the same effect, Gray v. New York & V. Steamship Co. 5 Thomp. & C. (N.Y.) 224. But see Hutchinson v. Green, 6 West. Rep. 834, 91 Mo. 367; Cook, Stock and Stockholders, 705. A dissenting stockholder may prevent the sale by the directors, or by a majority of the stockholders,

|

tinuance of the business of the corporation, unless suoh sale is made with a view to the dissolution of the corporation, or the payment of the corporate debts. Smith v. New York Consol. Stage Co. 18 Abb. Pr. 419, 435; Robbins v. Clay, 33 Me. 132; Sheldon H. B. Co. v. Eickmeyer H. B. Co. 56 How. Pr. 78; Barclay v. Quicksilver Min. Co. 9 Abb. Pr. N. S. 284; Copeland v. Citizens Gas Light Co. 61 Barb. 60, Conro v. Port Henry 1. Co. 12 Barb. 27; Adriance v. Roome, 52 Barb. 399; Brady v. Mayor, 16 How. Pr. 432; Middlesex R. Co. v. Boston & C. R. Co. 115 Mass. 347; Dana v. Bank of U. S. 5 Watts & S. 247; Union Bank of Tenn. v. Ellicott, 6 Gill & J. (Md.) 363; Kean v. Johnson, 9 N. J. Eq. 401. See also Sheldon H. B. Co. v. Eickemeyer H. B. M. Co. 90 N. Y. 607.

Such a dissolution is practically a fraud on the law and on dissenting stockholders. It seeks to do indirectly what cannot be legally done directly. Boston & P. R. Corp. v. N. Y. & N. E. R. Co. 13 R. I. 260.

If, however, the corporation is an unprofitable and failing enterprise, then the sale of all the corporate property with a view to dissolution may be made by a majority of the stockholders. Lauman v. Lebanon Valley R. Co. 30 Pa. 42.

case, in favor of every and any creditor. It is not true, and no case can be found which holds, that it is in the power of a creditor in every and all cases, as a matter of right, to institute an inquiry as to the value or amount of the consideration given for stock issued as fully paid up, any more than than it would be his right, in any and every case, to inquire into the distribution of the capital among the shareholders. It is only those creditors who can fairly allege that they have relied, or whom the law presumes to have relied, upon the amount of capto make such inquiry, or in whose favor equity will impress a trust upon the subscription to the stock, and set aside a fictitious arrangement for its payment. For example, to distribute the capital among the shareholders without provis

fraud on existing creditors, as well as on such subsequent creditors as deal with the corporation in reliance upon the assumption that its professed capital remains intact.

defendants also bought, under like circum- | This trust does not arise absolutely in every stances and in the same belief. In March, 1887, the board of directors, pursuant to a resolution adopted by them, distributed pro rata among the individual shareholders all the stock remaining unsold in the treasury. Of this the individual defendants received their respective shares, for which they paid nothing. This is called in the findings "Prorate Stock." The court also finds that none of such defendants ever contracted, promised or in any manner agreed or intended to contract, promise or agree, to pay, on account of such stock, any other or different or greater sum or consideration, un-ital stock of the company, who have a right less the law would impose or imply such promise, contract or agreement from the foregoing facts. The holdings of the defendants consist, in part, of old-company stock, in part of treas ury stock and in part of prorate stock. The contention of the plaintiff is that the de-ion for paying corporate debts would be a fendant shareholders are individually liable, as for unpaid stock subscriptions, for amounts equal to the amount of their stock, less the value of what they have actually paid therefor, viz., $9 per share on the old company and treasury stock, for which they paid in value only $1 per share, and $10 per share on the prorate stock, for which they paid nothing. If these stockholders were indebted to the corporation for unpaid installments on stock, this debt would be an asset of the corporation which, in case it became insolvent, any creditor might always enforce for the purpose of satisfying his claim. But it is very clear from the facts that the defendant Company has no claim against the defendant stockholders. They owe it nothing. As between them and it, the arrangement by which this stock was issued and sold or given away, as fully paid stock, is entirely valid. But the plaintiff bases its claim upon the familiar doctrine that the capital stock of a corporation is a trust fund for the benefit of its creditors, and that, if shares are not in fact paid up, an arrangement between the corporation and the shareholders, that they shall be deemed paid up, although valid between the company and the stockholder, will be ineffectual as to creditors, and that equity will hold the shareholder liable for the amount not in fact paid on his stock, to the extent necessary to satisfy the demands of creditors. We waive consideration of the question (which may, at least, admit of doubt) whether plaintiff's complaint is sufficient to entitle it to such relief. See Phelan v. Hazard, 5 Dill. 45; Cook, Stock and Stockholders, § 47; Scoville v. Thayer, 105 U. S. 143 [26 L. ed. 968].

An illustration of this kind is to be found in the very first case in which what is now called the "American doctrine" was announced by Justice Story. We refer to the case of Wood v. Dummer, 3 Mason, 311, where a banking association distributed three fourths of its capital among its shareholders without providing for the payment of bill-holders, and the court impressed a trust in their favor upon the capital in the hands of the shareholders. So, again, where corporations have organized and engaged in business with a certain amount of ostensible and professed paid-up capital, but which was not in fact paid in, there are numerous cases in which the courts have set aside the arrangement by which the stock was called "paid up,' and impressed a trust upon the subscription of the shareholder in favor of subsequent creditors who relied upon, or whom the law would presume to have relied upon, the apparent and professed amount of capital. To this class belong many of the cases cited by plaintiff; as, for example, Sawyer v. Hoag, 84 U. S. 17 Wall. 610 [21 L. ed. 731]; Wetherbee v. Baker, 35 N. J. Eq. 501.

While the courts have not always had occasion to state the limitations upon the doctrine that "the capital is a trust fund for the benefit of creditors," yet we think that it will be found that in every case where they have impressed a trust upon the subscription of the shareholders it has been in favor of creditors becoming such afterwards, and hence fairly to be preThe general proposition advanced by plaintiff sumed as relying upon the amount of capital cannot be controverted, but the principle upon which the company was represented as having. which this trust in favor of creditors rests and We are referred to none, and have found none, is administered must not be overlooked. The where any such trust has been enforced in fawhole doctrine that the capital stock of corpo- vor of creditors who have dealt with the corrations is a trust fund for the payment of cred-poration with full knowledge of the facts. The itors rests upon the equitable consideration that the distribution of the capital among stockholders without making adequate provision for the payment of debts, or the issue of fictitiously paid-up stock, is a fraud upon creditors who contract with the corporation in reliance upon its capital remaining intact, or in reliance upon the professed capital having been in fact paid up in full. But when the reason for the rule does not exist the rule itself ceases to apply.

reason is apparent, for in such cases no fraud, actual or constructive, has been committed on such creditors.

If a corporation issued new shares after the claim of a creditor arose, it is clear that the latter could not have dealt with the company on the faith of any capital represented by them. Whatever was contributed as capital in respect of the new shares was a clear gain to the creditor's security. So, too, if a party deals with a

corporation with full knowledge of the fact that its nominal paid-up capital has not in fact been paid for in money or property to the full amount of its par value, he deals solely on the faith of what has been actually paid in, and has no equitable right to insist on the contribution of a greater amount of capital by the shareholders than the corporation itself could claim as part of its assets. Coit v. North Carolina Gold Amalgamating Co. 14 Fed. Rep. 12, S. C. 119 U. S. 343 [30 L. ed. 420].

This doctrine with respect to trusts has no application to a case where a party, like the plaintiff, was cognizant of the whole arrangement under which the stock of the defendant Company was issued, and of what was paid or intended to be paid for it, and who accepted a novation of its debt with full knowledge of these facts, and received as great or greater security for it than it had before. To hold otherwise would be to perpetrate a fraud on the stockholders, and not on the creditors. These views effecually dispose of the question of the

liability of the defendants, at least on account of their old company and treasury stock. We think it also logically follows from what we have said that the defendants are not liable to the plaintiff upon their "prorate" stock as for unpaid stock subscriptions. This stock had not been issued when plaintiff's debt was contracted. It could not have dealt with the Company on the faith of any capital represented by these shares. In fact, it knew that no such capital had been paid in, unless the mining properties of the two old Companies can be considered as represented in part by them; and the value of these properties remained the same, and they were equally available to creditors whether represented by 100,000 shares or 250,000 shares of stock. Under such circumstances, the plaintiff has no equitable right to insist on the contribution of a greater amount of capital by the holders of these shares than the corporation itself could insist on. 2 Morawetz, Priv. Corp. §§ 832, 833.

Judgment affirmed.

MASSACHUSETTS SUPREME JUDICIAL COURT.

Malcom SILLARS

v.

Perry COLLIER.

(.... Mass.....)

1. No averment of special damages is necessary in an action to recover damages for slander consisting of defamatory words spoken of plaintiff with reference to his official position

as member of the State Legislature.

APPEAL by plaintiff from a judgment of

the Superior Court for Essex County sustaining a demurrer to the declaration in an action to recover damages for an alleged slander. Affirmed.

The amended declaration in this case charged in substance that defendant publicly, falsely and maliciously accused the plaintiff of corruptly accepting a gift and gratuity, with an understanding that his vote, opinion and judg ment should be given in support of a bill to in2. While spoken words in order to be de- corporate the Town of Beverly Farms, a ques famatory of one in respect to his public office tion then depending in the Massachusetts House need not import a charge of crime, yet they must of Representatives whereof said Sillars was go at least so far as to impute to him some inca- then a member, by words spoken of the plainpacity or lack of due qualification to fill the positiff substantially as follows, to wit: "I am

tion, or some positive past misconduct which will injuriously affect him in it, or the holding of principles which are hostile to the maintenance of the government.

sorry that the representative from this district (meaning the plaintiff, who was the only representative from said district) has had a change 3. The expression of an opinion that a of heart. Sometimes (slapping his hand upon certain person, as a member of the Legislature, is his pocket) a change of heart comes from the corrupt in his heart and might be induced to pocket." That many citizens of the Town of change his course from improper motives and in- Beverly, including the defendant, being exasper ducements, is not actionable without avermentated by the independent position of plaintiff, had and proof of special damages.

4. The old doctrine of scandalum magnatum has never been adopted in Massachusetts as a special remedy.

(February 25, 1890.)

NOTE.-Slander; criticism of public officer, not actionable.

No criticism of a person holding a public office is libelous unless it is malicious. Harle v. Catherall, 14 L. T. N. S. 801; Crane v. The Boston Advertiser, 13 Reporter, 650; Rowand v. DeCamp, 96 Pa. 493.

It is only when the character of the publication is malicious, and its tendency is to degrade and excite to revenge, that it is condemned by the law, and subjects the publisher to prosecution. Tappan v. Wilson, 7 Ohio, 193.

habitually charged him with acting from corrupt motives in the discharge of a public duty, and were disappointed in their expectation that he would favor their interests; and that the words

(Commonwealth v. Odell, 3 Pittsb. L. J. 449); but private character is not to be attacked. Rearick v. Wilcox, 81 Ill. 77; Townshend, Slander and Libel, 4th ed. 437 et seq.

It is not permitted to publish of a public officer that he is unfit for his office (Broadbent v. Small, 2 Vic. L. Rep. 121); or a charge of having received a bribe (Hamilton v. Eno, 81 N. Y. 116; Hand v. Winton, 38 N. J. L. 122); or of gross incapacity and ignorance. Spioring v. Andrac, 45 Wis. 330.

To excuse an aspersive attack upon the characIn Pennsylvania, immunity from prosecution byter and motive of an officer the truth of the utterindictment is provided for by statute, on investi- ances must be shown. Hamilton v. Eno, 81 N. Y. gating the official conduct of public officers, etc. 116.

pocket" were intended to express that the plain- | Fiske, 11 Met. 551, 553; Barrows v. Bell, 7 tiff (originally supposed to be opposed to this Gray, 301. scheme for the division of the Town of Beverly) had changed his original views, not in the exercise of honest judgment, but from corrupt considerations either of money and valuable things actually paid, or of promises and inducements of future favor and personal advantage to be expected, under an agreement and with an understanding that his vote and legislative influence should be corruptly bestowed against the dignity of the Commonwealth and contrary to the form of the statute in such case made and provided.

2 Starkie, Slander, p. 14, note p. In all such cases of slander, it is not necessary to impair his influence and lessen his position to allege or prove special damage. Allen v. Hillman, 12 Pick. 101. Messrs. H. F. Hurlburt and D. W. Quill, for appellee: