$20

Diligence in the discovery of the fraud and promptness in repudiation of the purchase or subscription are necessary conditions for the rescission of the contract for the subscription of stock on the ground of false representations by the president of the company as to its financial condition and the issue of its stock. Three years' delay held to be fatal to recovery. (Tierney v. Parker, 44 Atl. Rep., 151.)

Equity will not entertain a suit for the repayment of money paid for stock, on the ground of fraudulent representations. (Krueger v. Armitage, 58 N. J. Eq., 357.)

Proceedings to compel company to issue stock.-The subscribers to the capital stock of a telegraph company upon payment of one-third of the par value caused to be issued to themselves certain shares of full-paid capital stock. At the same meeting of stockholders it was resolved that certain shares of stock be issued to said subscribers for services alleged to have been rendered by them to the company, without any account or statement of the amount due them. In such a case the presumption is that full-paid stock was issued upon payment of only a third of its par value. To the enforcement of a contract thus tainted with illegality the court will not lend its sanction. The court said that the relators had an adequate remedy by suit for damages, and were not entitled to mandamus; that mandamus will not issue where the contract is unexceptional in its character. (State ex rel. Morton v. Timken, 2 Atl. Rep., 783.)

Proceedings to compel company to transfer stock.-Ordinarily mandamus will not lie to compel the transfer of shares of a corporation to a purchaser, or to compel the company to issue certificates of stock. (State, Bush v. Warren F. Co., 32 N. J. Law, 321; Galbraith v. Building Ass'ns, 43 N. J. Law, 389; State v. Timken, 48 N. J. Law, 87, 88.) The owner has an adequate remedy in an action for damages. A court of equity will compel the transfer of stock to the equitable owner thereof, upon the books of a corporation, when such transfer is fraudulently withheld by the agents of the corporation. (Archer v. American Water Works Co., 50 N. J. Eq., 33.)

Attachment of shares of stock.—Shares of stock of a corporation may be attached by virtue of the Attachment Act (P. L. 1901, p. 158). (Castle v. Carr, 16 N. J. Law, 394; Curtis v. Stever, 36 N. J. Law, 304, 307.)

Shares cannot be attached if the certificate has been delivered or transfer has been made on the books of the company before the issue of the attachment. (State. Bush v. Warren F. Co., 32 N. J. Law, 439. See also Broadway Bank v. McElrath, 13 N. J. Eq., 24; Matthews v. Hoagland, 48 N. J. Eq., 455, 486, and cases cited.)

A transfer or pledge of stock as collateral security, without a transfer on the books of the company, but accompanied by a blank power of attorney, will protect the holder against the claims of an attaching creditor. (Broadway Bank v. McElrath, 13 N. J. Eq., 24. See also Gibbs v. Craig, 58 N. J. Law, 664; Hood v. McNaughton, 54 N. J. Law, 429.)

21. Stockholders liable until subscriptions are fully paid. Where the whole capital of a corporation shall not have been paid in, and the capital paid shall be insufficient to satisfy its debts and obligations, each stockholder shall be bound to pay on each share held by him the sum necessary to complete the amount of such share, as fixed by the charter of the corporation, or such proportion of that sum as shall be required to satisfy such debts and obligations.

P. L. 1846, p. 16; P. L. 1846, p. 68; Act of 1875, § 5.

Individual liability of stockholders did not exist at common law. (Bank v. Hendrickson, 40 N. J. Law, 52.)

General creditors' bill. The meaning of this section, as construed by the Court of Errors and Appeals (Wetherbee v. Baker, 35 N. J. Eq., 501), is that, where the capital, ¿. e., the property of a corporation, has proved insufficient to satisfy its debts and obligations, each stockholder is liable for the amount of his unpaid subscription, or such proportion thereof as shall be necessary to satisfy the debts of the company and meet the expenses of winding up its affairs, but no more. (Hood v. McNaughton, 54 N. J. Law, 425, 427; Cumberland Land Co. v. Clinton Hill Co., 57 N. J. Eq., 627.) The unpaid subscriptions constitute a trust fund for the payment of the debts of the corporation. A creditor may file a bill to enforce this liability only after he has exhausted his remedies at law by judgment, issue of execution and its return unsatisfied. He must sue in behalf of all the creditors of the corporation and not for himself alone; the corporation must be made a party; and all the property and assets of the corporation must be brought into the suit and put in course of administration. The proceedings are in the nature of an equitable accounting. (Bickley v Schlag, 46 N. J. Eq., 533.)

The attorney-general is not a necessary party to proceedings to enforce liability of stockholders under the statute. (See v. Heppenheimer, 55 N. J. Eq., 240; aff'd 56 N. J. Eq., 453.)

Action at law by receiver.-When a corporation is insolvent and its business is ended, the subscribers for or holders of its unpaid stock are assessable for only so much of what is unpaid on the stock as will satisfy the claims of corporate creditors and meet the expenses of winding up its affairs. An order for such an assessment may be made by the Court of Chancery in the suit wherein the corporation was adjudged to be insolvent, and when so made its propriety cannot be questioned in suits brought against the stockholders for its enforcement. Such an order is the result of an exercise of judicial power, and therefore should be made only after a reasonable opportunity has been afforded to the stockholders to be heard in the matter. (Cumberland Land Co. v. Clinton Hill Lumber Mfg. Co., 57 N. J. Eq., 627. See also Barkalow v. Totten, 53 N. J. Eq., 573; Hood v. McNaughton, 54 N. J. Law, 425.)

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§ 22

Liability of original subscriber for stock.-The subscription to stock and the acceptance of a certificate for shares constitute a contract between the subscriber and the company by which the subscriber agrees to pay the remaining installments on demand by the corporation. (Hood v. McNaughton, 54 N. J. Law, 424.)

From this agreement the subscriber cannot recede without the assent of the company, evidenced by the consummation, in the form required by the statute, of the transfer by the entry of the name of the transferee on the registry of stockholders in the place of the subscriber, and the delivery of a new certificate to and in the name of the transferee. (Id.)

Liability of transferee of stock.-A distinction is drawn between one who holds the stock by transfer and an original subscriber. The former may, it seems, in the absence of a fraudulent purpose, discharge himself of liability for unpaid installments by due transfer of his shares, although the transfer may not be recorded on the books of the company. (Hood v. McNaughton, 54 N. J. Law, 425, 428.)

The latter cannot obtain immunity in that way. (Id.)

Bonus stock.-Holders of stock given as bonus are liable on it to creditors, but not to the company. (Hebberd v. Southwestern Cattle Co., 55 N. J. Eq., 18.)

22. The directors of every corporation may, from time to time, make assessments upon the shares of stock subscribed for, not exceeding, in the whole, the par value thereof; and the sums so assessed shall be paid to the treasurer at such times and by such installments as the directors shall direct, said directors having given thirty days' notice of the assessment and of the time and place of payment either personally or by mail or by publication in a newspaper published in the county where the corporation is established.

P. L. 1846, p. 67; P. L. 1849, p. 303; Act of 1875, § 27; P. L. 1882, p. 252.

It is usual for subscribers for stock to sign a written waiver of the thirty days' notice of assessment, agreeing to pay all or any part of their subscriptions to the treasurer on demand.

A corporation must comply with all the conditions precedent to payment on the part of the subscribers before a suit can be maintained upon the subscription. Where a subscriber agreed to pay in certain installments, after certain calls, the Court held that there could be no recovery against him without proof that the calls had been duly made. The rule in New Jersey may be stated as follows: A subscriber is not bound to pay for his stock except in the manner prescribed by statute or defined in the charter or by-laws, unless he waives these requirements. (Grosse Isle Hotel Co. v. L'Anson's Exrs., 42 N. J. Law, 10; aff'd 43 N. J. Law. 442.)

In construing a similar section in the Railroad Act, the Court of Errors and Appeals held that a suit by the company will not lie on a sub

scription until a call has been duly made. (Braddock v. R. R. Co., 45 N. J. Law, 363, 364; see N. 7. Midland Ry. Co. v. Strait, 35 N. J. Law, 322.) Where the company has become insolvent and a receiver has been appointed, the Court of Chancery may direct the receiver to make calls. (Hood v. McNaughton, 54 N. J. Law, 425; Barkalow v. Totten, 53 N. J. Eq., 573; Hebberd v. Southwestern Cattle Co., 55 N. J. Eq., 18; Cumberland Land Co. v. Clinton Hill Co., 57 N. J. Eq., 627.)

"A call is nothing more than an official declaration that the sums "subscribed are required to be paid." (Braddock v. R. R. Co., 45 N. J. Law, 363.)

The unpaid and uncalled subscriptions for stock cannot be mortgaged or sold by the corporation. Where the call has been duly made, but not collected, an assignment of the amount already called is valid. (Cook on Corporations, Section 111; see N. 7. Midland Ry. Co. v. Strait, 35 N. J. Law, 322.)

23. If the owner of any shares shall neglect to pay any sum assessed thereon for thirty days after the time appointed for payment, the treasurer, when ordered by the board of directors, shall sell, at public auction, such number of the shares of the delinquent owner as will pay all assessments then due from him, with interest, and all necessary incidental charges, and shall transfer the shares sold to the purchaser, who shall be entitled to a certificate therefor.

P. L. 1846, p. 67; P. L. 1849, p. 304; Act of 1875, § 28.

24. The treasurer shall give notice of the time and place appointed for the sale, and of the sum due on each share, by advertising the same three weeks successively, once in each. week, before the sale, in some newspaper published in the county where the corporation is established, and by mailing a notice thereof to the delinquent stockholder, if he knows his post office address.

P. L. 1846, p. 67; P. L. 1849, p. 304; Act of 1875, § 29.

Where stock has once been rightfully issued, even though nothing has been paid on it by the subscriber, it can only be forfeited in the mode prescribed by the statute, and the procedure prescribed by the statute must be strictly followed. (Downing v. Potts, 23 N. J. Law, 66.)

25. Certificate upon payment of capital.

The president and secretary, or treasurer, upon payment of each installment of capital stock, and of every increase thereof, shall make a certificate, stating the amount of the capital so paid, and whether paid in cash or by the purchase of property, stating also the total amount of capital stock, if any, previously paid

§ 23-25

§ 26-26a and reported, which certificate shall be signed and sworn to by the president and secretary, or treasurer, and they shall, within ten days after such payment, cause the certificate to be filed in the office of the secretary of state.

P. L. 1846, p. 68; P. L. 1849, p. 304; Act of 1875, §§ 30, 31; P. L. 1893, P. 444.

No certificate of payment of capital stock is apparently required to be filed until the full amount of capital stock authorized by the certificate of incorporation has been paid in, and the words "every increase thereof " seem to contemplate an increase beyond that amount made by amendment in pursuance of Sections 27 and 28, post. The question has not been adjudicated, probably because the penalty attaches only after the officers have refused for thirty days to file the certificate after written request so to do. The common practice is to file a certificate upon payment of the amount with which the company commences business, as stated in the certificate of incorporation, and a further certificate upon payment in full of the total capital stock authorized.

26. If any of said officers shall neglect or refuse to perform the duties required of them in the preceding section for thirty days after written request so to do by a creditor or stockholder of the corporation, they shall be jointly and severally liable for all its debts contracted before the filing of such certificate.

P. L. 1846, p. 68; P. L. 1849, p. 304; Act of 1875, § 32.

No action can be maintained until thirty days after a written request. has been made by a creditor or stockholder of the officers to make a certificate and their neglect or refusal to do so within that time. (Nassau Bank v. Brown, 30 N. J. Eq., 478.)

The liability created by this section may be enforced by any creditor who has performed the necessary conditions, by an action at law, or by bill in equity, in the manner prescribed by Sections 92, 94, post. (Waters v. Quimby, 27 N. J. Law, 296; aff'd 28 Id., 533.)

26a.* Incorporators may amend certificate of incorporation before payment of capital.

It shall be lawful for the incorporators of any corporation, before the payment of any part of its capital, to record with the clerk of the county in which its original certificate of incorporation was recorded, and file with the secretary of state, an amended certificate, duly signed by the incorporators named in the original certificate of incorporation, and duly acknowledged or proved as required for certificates of incorporation under the act to which this is a supplement, modifying, changing or altering its original certificate of incorporation, in whole or in part, which amended certificate shall take the place of the original certificate of incorporation, and shall be deemed to have been

*Arbitrary number; section inserted here merely for convenience of reference.