make it, or assent thereto, shall be jointly and severally liable, to the extent of such loan and interest, for all the debts of the corporation until the repayment of the sum so loaned.

P. L. 1846, p. 169; P. L. 1849, p. 306; Act of 1875, $54.

An agreement on the part of a corporation that a subscriber for stock shall be secured as to part of his investment by mortgage on the corporation's property is void as to creditors of the corporation. Boney v. Williams, 55 N. J. Eq., 691; Reed v. Helois Carbide Specialty Co., 64 N. J. Eq., 231; Hollins v. Am. Union Electric Co., 66 N. J. Eq., 457; See v. Heppenheimer, 69 N. J. Eq., 36.

New York decisions.

The statute of New York, which provides that "No loan of moneys shall be made by any stock corporation, except a moneyed corporation, or by any officer thereof out of its funds to any stockholder therein," has been construed as follows:

To create the liability for a loan to a stockholder there must have been a loan in such form as to create an indebtedness and an absolute liability for its repayment by the borrower. Billings v. Trask, 30 Hun., 314; 62 Hun., 71.

The officers making or assenting to any loan of its money to stockholders are personally liable for corporate debts contracted before payment of such loan. Boynton v. Hatch, 47 N. Y., 225.

The principal object of this provision is to prevent a reduction of capital under cover of loans to stockholders. It is for the protection of creditors. A. C. Nellis v. Nellis, 62 Hun., 63.

For further cases, see notes to Section 49.

49. Stock Issued for Property Purchased.

Any corporation formed under this act may purchase mines, manufactories or other property necessary for its business, or the stock of any company or companies owning, mining, manufacturing or producing materials, or other property necessary for its business, and issue stock to the amount of the value thereof in payment therefor, and the stock so issued shall be full-paid stock and not liable to any further call, neither shall the holder thereof be liable for any further payment under any of the provisions of this

act; and in the absence of actual fraud in the transaction, the judgment of the directors as to the value of the property purchased shall be conclusive; and in all statements and reports of the corporation to be published or filed this stock shall not be stated or reported as being issued for cash paid to the corporation, but shall be reported in this respect according to the fact.

Act of 1875, §55; P. L. 1889, p. 414; P. L. 1893, p. 444.

"In the absence of actual fraud in the transaction the judgment of the directors as to the value of the property purchased shall be conclusive' was inserted in the statute by the Revision of 1896.

Before the Revision of 1896 the rule was clearly stated by the Court of Errors and Appeals in Bickley v. Schlag, 46 N. J. Eq., 533, where it was held that in the absence of deceit or some other corrupt constituent the bargain between the parties could not be disturbed by a Court of Chancery.

For a discussion of this section, see Yale Law Journal, Vol. 15, p. 111, January, 1906.

These sections place the stockholder's liability to creditors upon a firmer foundation than the trust fund doctrine, the statute absolutely prohibiting agreements for the issue of stock for a consideration less than its par value, and affording relief to all creditors without distinction, whether they had notice of the fact of an issue below par or not and whether they became creditors before or after an issue of stock. And the stockholder is liable even if the creditor who is seeking to enforce the claim is also a stockholder. Easton Nat'l Bank v. Am. Brick & Tile Co., 69 N. J. Eq., 326; aff'd 70 Id., 722; but see s. c. Id., p. 732.

The provisions of the above section are restricted, respecting the acquisition of shares of stock of public utility corporations, by Section 19 of the Public Utilities Act, to which reference may be had in this volume.

The law is clearly opposed to any arrangement by which stock shall be issued without the receipt by the company of an equivalent in value to its par. Any agreement for the purpose of issuing stock below par and without the receipt of value by the company is deemed contrary to the whole policy of the law. Easton National Bank v. American Brick Co., 69 N. J. Eq., 326; aff'd 70 Id., 722; Donald v. American Smelting & Refining Co., 62 N. J. Eq., 729; Volney v. Nixon, 68 N. J. Eq., 605; Carver v. Southern Iron & Steel Co., 78 Atl. Rep., 240,

The requirement that stock shall be fully paid for either in property or cash, cannot be evaded by the issuance of debentures for sale at 93 cents on the dollar, with the privilege of converting them into preferred stock at 70 cents on the dollar. Carver v. Southern Iron & Steel Co., 78 Atl. Rep., 240.

A holder of a small amount of stock may enjoin the issuance of preferred stock below par although his interest is small and may not be affected by the proposed illegal action. Carver v. Southern Iron & Steel Co., 78 Atl. Rep., 240, in which the question of what shall constitute a bona fide complainant is discussed.

When stock in a corporation has been issued as full paid and it is sought to enforce every liability of a stockholder upon the ground that the property was over-valued, there is no debt due for which attachment will lie until after the Court of Chancery has made an order determining the amount of the stockholder's liability. Unpaid subscriptions to stock are considered as assets and the existence of creditors subjects these to the rules applicable to trust funds. In cases

of bonus stock or stock issued for property, he who would assert a claim against such stock on the theory that it was issued in exchange for over-valued property, must first prove fraud. Gilson v. Appleby, 77 Atl. Rep., 1084.

In Donald v. American Smelting and Refining Co., 62 N. J. Eq., 729, the court said:

"The meaning of section 48 is not questionable; the money must equal the face value of the stock. The language of section 49 is even more explicit; the corporation may issue stock to the amount of the value of the property. The value of the property in the one case, just as the value of the money in the other, must at least equal the face value of the stock. Such was the view expressed for this court by Mr. Justice Depue in Wetherbee v. Baker, 35 N. J. Eq., 501, and supported by abundance of authority.

"The cases in this state to which we are referred (Elkins v. Camden & Atlantic R. R. Co., 36 N. J. Eq., 241; Park v. Grant Locomotive Works, 40 N. J. Eq., 114; aff'd 45 N. J. Eq., 244; Ellerman v. Chicago Junction Rys. Co., 49 N. J. Eq., 217; Willoughby v. Chicago Junction Rys. Co., 50 N. J. Eq., 656; Sewell v. East Cape May Beach Co., 50 N. J. Eq., 717; Edison v. Edison United Phonograph Co., 52 N. J. Eq., 620), in support of the proposition, that the honest judg ment of the managers of a corporation with respect to matters intra vires cannot be disturbed at the instance of stockholders, all relate to transactions for which the Legislature has set up no other criterion than the discretion of those managers. But the original issue of corporate stock is a special function, in the exercise of which the Legislature has fixed the standard to be observed, and it is the duty of the courts, so far as their jurisdiction extends, to see that this standard is not violated, etiher intentionally or unintentionally.

"When corporate stock has once been issued for property purchased, then the Legislature has directed the application of a different rule. In the words of the same Section 49 'the stock so issued shall be full-paid stock, and not liable to any further call, neither shall the holder thereof be liable for any further payment under the provisions of this act; and in the absence of actual fraud in the transaction the judgment of the directors as to the value of the property purchased shall be conclusive.' Under these provisions, after the property has been purchased and the stock issued therefor, nothing short of actual fraud in the transaction can impair the right of the holder to hold his stock as full-paid stock, free from further call. The cases of Bickley v. Schlag, 46 N. J. Eq., 533, and Rural Homestead Co. v. Wildes, 54 N. J. Eq., 668, indicate that the completed transaction was equally secure, even before the statute received its present decisive form."'

That a different rule prevails as to valuation, and proof of value, in the case of mining property, see Geer v. Amalgamated Copper Co., 61 N. J. Eq., 364.

Stock issued as full-paid and not subject to further call, at an admitted overvaluation, but without fraud, cannot be held unpaid stock as between the corporation and the stockholders receiving such stock. Dividends declared from the annual net profits cannot be suppressed to make up the deficiency between the value of the assets turned in and the par value of the stock where the value of the assets when declaring such dividends is not impaired. Goodnow v. American Writing Paper Co., 72 N. J. Eq., 645; aff'd 73 Id., 692.

Where shares were issued for property at a very excessive valuation, the transaction was held to be dishonest, and it was held that the shares were not fully paid. Hebberd v. Southwestern Cattle Co., 55 N. J. Eq., 18. This case was prior to the Revision of 1896.

Under our statutes a payment in stock for property fraudulently over valued may be questioned by a receiver representing creditors, since an issue of stock under such circumstances is a violation of the letter and spirit of the Corporation Act, and is to be treated as absolutely void with respect to creditors, leaving the stockholders within the sections of the act providing a remedy for creditors against stockholders for the amounts unpaid on stock. Johnson v. Tennessee Oil, etc., Co., 69 Atl. Rep., 788. See, also, s. c. 73, Id., 60.

Holders of stock issued for a patent at a gross overvaluation are liable to the receiver of the corporation for the debts and expenses of administration. Honeyman v. Haughey, 66 Atl. Rep., 582.

"To justify a corporation in issuing stock under our act for property purchased, there should be an approximation at least in true value of the thing purchased to the amount of the stock which it is supposed it represents." Edgerton v. Electric Improvement, etc., Co., 50 N. J. Eq., 354; decided in 1892. See also Rural Homestead Co.

v. Wildes, 54 N. J. Eq., 668; Meredith, et al., v. N. J. Zine & Iron Co., 55 N. J. Eq., 211; aff'd 56 Id., 454; s. c. 59 Id., 257.

"The express prohibition of section 54" (Act of 1875), and the whole spirit and policy of the act are so clearly opposed to any arrangement by which corporate stock shall be issued without receipt by the company of an equivalent in value to its par, that any agreement to this effect must be deemed void as contrary to the policy of the law." Easton Nat'l Bank v. American Brick & Tile Co., 70 N. J. Eq., 732.

Property value and judgment of board of directors.

Neither "good will" nor prospective profits, however promising, can be considered as property within the meaning of this section. The term refers to something visible and tangible, necessary for business. See v. Heppenheimer, 69 N. J. Eq., 36, 43.

But in Washburn v. National Wall Paper Co., 81 Fed Rep., 17, it was held that the good-will of a business is property, and stock may be issued for it, and one who participated in and approved the method of valuation of such good-will cannot afterwards claim that the goodwill so bought by the corporation was overvalued.

When stock is issued for property the question is: What is the value of the property for the purpose of a stock issue by a New Jersey corporation? Schuler v. Southern Iron & Steel Co., 75 Atl. Rep., 552.

The price brought at a sale of property in bankruptcy is not conclusive of its value. Neither is the filed appraisement in bankruptcy proceedings conclusive proof of the value of the assets thus appraised. An agreement to exchange property for fully paid capital stock to be issued cannot be enforced when the property is not equal in value to the nominal par value of the stock and there has been no determination of value by the directors. Ecuadorian Ass'n v. Ecuador Co., 70

N. J. Eq., 277; aff'd 71 Id., 757.

Where the rights of creditors are involved the issue of stock as paid for in work and labor is upheld only where services accepted in payment have been put in at a full, fair and bona fide valuation. Clevenger v. Moore, 71 N. J. Law, 148.

"Neither bookkeeping nor mere recitative language in resolution of a board of directors creating values can be accepted as the equivalent of the proof of bona fide value required by our statute where stock is issued for property purchased." Knickerbocker Importation Co. v. Assessors, 74 N. J. Law, 583, at page 588.

The honest judgment of the directors, if reached without due examination into the elements of value, or if based in part upon an estimate of matters which really are not property, or if plainly warped by self-interest, may lead to a violation of the statutory rule as surely as would corrupt motive." See v. Heppenheimer, supra.

See also Volney v. Nixon, 68 N. J. Eq., 605; In re Remington