§ 414. Same Statutory Liability.-Under the Iowa statute it is provided that a failure to comply substantially with certain requisitions in relation to organization and publicity renders the individual property of the stockholders liable for the corporate debts.' Such a liability has been held to be not a common-law liability as a partner, but rather a liability arising under the statute of Iowa to be determined by that statute as interpreted by the Supreme Court of Iowa."

§ 415. Fraudulent Organization.-The organization, by citizens of one State, of a corporation under the laws of a foreign jurisdiction, with a view of transacting all its business in their own domicile, has been said to be a fraud upon the laws of the latter and to give such organization no standing as a legal entity in such State. The effect of such a ruling is naturally to make the individual members liable for corporate obligations as partners. A different view was taken by the New York Court of Appeals in the well considered case of Demarest v. Flack. It was there held that the incorporation of citizens of New York under the law of West Virginia, for the purpose of conducting a winter pleasure ground within the State of New York, cannot be regarded as such an evasion of the laws of the latter

1 Code Iowa, § 1068.

2 Kimball v. Davis, St. Louis Ct. App., Dec. 27, 1892, MS.; Jessup v. Carnegie, 80 N. Y. 441. See Ante, § 186.

Wonderly, 36 N. J. L. 250;
See also Montgomery v.
Compare Merrick v. Van

3 Hill v. Beach, 12 N. J. Eq. 31; Booth v. Kruse v. Dusenbury, 19 Weekly Dig. 201. Forbes, 148 Mass. 249, 19 N. E. Rep. 342. Santwood, 34 N. Y. 208; Danforth v. Penny, 3 Metc. 564; Bank v. Hall,

35 Ohio St. 158. See ante, § 8, and cases cited.

* Cleaton v. Emery, Kans. Cy. Ct. App., April 25, 1892, MS. 5128 N. Y. 205, 28 N. E. Rep. 645.

State as to prevent the recognition of such company under the rule of comity.

§ 416.

Same Prohibited Business.-A different principle is invoked when a company of citizens is organized under the foreign law for the purpose of engaging in a business prohibited by the local law. Such prohibitory statutes must be regarded as a withdrawal of comity, which the State can at any time make. The refusal to recognize the foreign company is because of the business in which it is engaged and not because of the fact that, though composed of citizens of the local jurisdiction, and transacting all its business there, it is organized under the law of another State. The effect of the refusal to recognize the existence of such company, in rendering the stockholders individually liable as partners, for corporate debts, is, of course, the same as in the cases mentioned in the preceding paragraphs.' § 417.

Domicile.

Stockholder's Liability Measured by the Law of the Corporate Where stockholders in a domestic corporation have been sued upon contracts entered into by the company in another State with citizens of that State, it has been held that the liability incurred by them is to be determined, not in accordance with the lex loci contractus, but by the law under which the company was created and from which alone it derives its powers." And in Hodgson v. Cheever a Missouri court held that a stockholder, in an Illinois bank, resident in Missouri, who was liable under its char

1 Empire Mills v. Allston Grocery Co., 15 S. W. Rep. 505.

2 Hutchins v. New England Coal & M. Co., 4 Allen, 580. See also Seymour v. Sturges, 26 N. Y. 134.

38 Mo. App. 318.

ter for the corporate debts, to an amount equal to the amount of stock held by him, would not be relieved from that liability by the fact that in Missouri, stockholders are not individually liable in any amount above the stock held by them.' On the other hand the comity which is extended to a foreign corporation, by a recognition of its legal existence and the privilege of doing business within the jurisdiction of the local sovereign, cannot be construed to free it from the restrictions, which the policy of that sovereign has seen fit to impose upon its own domestic corporations.'

§ 418. Jurisdiction of Non-resident Stockholder. -The liability of the stockholder is personal, and jurisdiction must be acquired by personal service. When the attempt is made to enforce the liability of a non-resident stockholder in a domestic company the same difficulty as to jurisdiction presents itself. In Erickson v. Nesmith,' which was a suit in equity against stockholders in a New Hampshire corporation, some of whom were resident in that State and some in Massachusetts, it appeared that service of the bill and orders of court had been made upon the non-resident defendants, who had not appeared and as to whom the bill had been taken pro confesso. The court held that it was not a case for substituted service; that statutes authorizing such service have reference to absentees, who having a legal residence in the State where the suit is pending, have left it but are still considered in legal contemplation inhabitants thereof, that therefore it had no jurisdiction of the Massachusetts stockholders, and it proI Const. Mo. 1875, art. 12, § 9.

2 Ante, § 4.

3 46 N. H. 371.

ceeded to decree complete satisfaction of the debt as against the local stockholders preserving their right to proceed for contribution against the Massachusetts stockholders.

§ 419. Summary Proceedings-Service of Process on Stockholder.-The summary proceeding, by motion for execution against the stockholder, upon the return of a null bona execution, which exists under some of the statutes,' is in effect an independent proceeding in personam against the stockholder, and not a mere interlocutory or auxiliary proceeding in the suit against the corporation. In such a case the corporation is in court, but the stockholder, individually, is not; and jurisdiction of him can only be acquired by personal service of the notice provided for by the statute, as if it were a summons. Service of such notice upon a non-resident stockholder in another State can no more confer jurisdiction in such a case than can the extraterritorial service of a summons.' The fact that a corporation is a creature of statute, and that whoever takes stock, must be presumed to take it subject to all the conditions and provisions for enforcing such liabilities, imposed by the law of its being, is not to be regarded as showing assent to the jurisdiction, since until the court has acquired jurisdiction it cannot even determine the essential fact that defendant is a stockholder.'

§ 420. Invalidity of Stock as a Defense.-We have seen that a meeting of stockholders is a corporate

1 Rev. St. Mo. 1879, § 736; Comp. L. Kans. 1879, ch. 23, § 32.

2 Howells v. Mangelsdorf, 33 Kans. 194; Wilson v. Seligman, 36 Fed. Rep. 154; Wilson v. St. Louis, etc. R. Co. (Mo.), 34 Cent. L. J. 448. 18 S. W. Rep. 286.

3 Wilson v. Seligman. 36 Fed. Rep. 154. Compare Copin v. Adamsen, L. R. 9 Exch. 345.

act which cannot be legally done beyond the jurisdiction of the corporate domicile.' But where an increase of capital stock was made pursuant to a unanimous vote of a stockholders' meeting, held in another State, it was held that stockholders, who received a proportionate share of the increased stock, could not question the validity of the meeting in an action brought against them by creditors of the corporation to compel them to pay the par value of the stock as a trust fund for the creditors."

1 Ante, § 14.

2 Handley v. Stutz, 139 U. S. 417, 11 Sup. Ct. Rep. 530.

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