Argument for Defendant in Error.

Mr. Sidney Ward for plaintiff in error.

Mr. B. F. Tracy for defendant in error.

I. All duties and obligations imposed upon the defendant by his subscription were fully discharged and cancelled by the refusal on the part of the company, while it continued solvent, to receive the payment and performance tendered.

(a) The contract of subscription between the defendant and the company was a mutual contract and gave rise to mutual obligations and duties.

That the subscription, at its date, was a valid contract, is not disputed. Richmondville Union Seminary v. MacDonald, 34 N. Y. 379, 381; Parker v. Northern Central Michigan Railroad, 33 Michigan, 23; Marsh v. Burroughs, 1 Woods, 463; Burrall v. Bushwick Railroad, 75 N. Y. 211; Pittsburgh & Connellsville Railroad v. Graham, 36 Penn. St. 77; Custar v. Titusville Gas & Water Co., 63 Penn. St. 381; Mel vin v. Hoyt, 52 N. H. 61.

(b) The contract of subscription being one of "sale and purchase" the obligation on the part of the defendant to pay his subscription was fully discharged at the time he tendered performance, and the same was refused.

Upon tendering the property and after giving the buyer a reasonable time to accept the property and pay for the same, the seller may regard the contract as abandoned by the purchaser, he being put in default by his refusal to pay. Westfall v. Peacock, 63 Barb. 209; Des Arts v. Leggett, 16 N. Y. 582; Billings v. Vanderbeck, 23 Barb. 546; Slingerland v. Morse, 8 Johns. 474.

(e) The defendant took all necessary steps to release himself from liability as a stockholder. In view of the action taken by the treasurer and president, a formal tender by the defendant of the amount of his subscription was not necessary. The defendant on several occasions demanded his stock of the treasurer and offered to pay for the same, but in every instance the treasurer, acting under the instructions of the president, refused to issue the stock. A further tender

Argument for Defendant in Error.

became unnecessary, when it was reasonably certain that the offer would be refused. Hills v. Albany Exchange Bank, 12 Fed. Rep. 93; Currie v. White, 45 N. Y. 822; Woolner v. Hill, 93 N. Y. 576.

It was within the province of the president and treasurer of the corporation to issue the stock, they being authorized by the by-laws to sign all certificates of stock, and their refusal to issue stock was the refusal of the properly authorized agents of the corporation.

(d) It is conceded that the general rule of law in regard to unpaid stock subscriptions is that "unpaid subscriptions to stock are assets, and have frequently been treated by courts of equity as if impressed with a trust sub modo in the sense that neither the stockholders nor the corporations can misappropriate subscriptions so far as creditors are concerned."

But the equities of creditors are not regarded to the exclusion of all other equities. In the absence of statutes creditors may have equitable claims against stockholders, but not legal rights. Cases may and do arise where the right of a subscriber to be released from his obligation is paramount to any rights of creditors.

We do not doubt that a subscriber to the capital stock of the company cannot be discharged from the obligation which he has assumed until payment has been actually made, or the obligation to pay has been extinguished in some lawful manner. And we further concede that where the obligation to pay exists, any arrangement between the company and its debtor, by which a fictitious payment is attempted to be substituted for an actual payment, is a fraud upon the creditors, and may be disregarded by a receiver in bankruptcy, and the payment of the balance actually due enforced. There is no reported case that goes beyond this.

Wherever a pretended payment has been set aside and disregarded, it has been put on the express ground that the alleged payment was a fiction, and made in fraud of the creditors of the corporation. No such question is involved in the case at bar.

The defendant was a subscriber for the stock of the cor

Argument for Defendant in Error.

poration; payment of this subscription could not be enforced except by tender of the stock. The promise of the corporation to deliver the stock was the consideration of the defendant's promise to pay. The contract was executory. When the defendant offered to pay and demanded his stock and the corporation refused to deliver it, the corporation violated its contract and the defendant was discharged therefrom.

At the time of the bankruptcy, the defendant had ceased to be a subscriber for the stock. He was under no obligation whatever to the corporation. Of course, if it could be alleged that this was a mere device for the purpose of relieving the defendant from his obligation, a different question would be presented. No such thing is pretended. This distinction is pointedly made by Grover, J., in Mills v. Stewart, 41 N. Y. 384, 386. See also Small v. Herkimer Manufacturing Co., 2 N. Y. 330; Sawyer v. Hoag, 17 Wall. 610; Clark v. Bever, 139 U. S. 96, 113; Handley v. Stultz, 139 U. S. 417, 430; Pacific Bank v. Eaton, 141 U. S. 227.

II. In any event the plaintiff has mistaken his remedy. There is no foundation for an action at law.

This is an action at law in the nature of debt to recover from the defendant the full amount of the capital stock for which he had at one time subscribed. Conceding for the sake of the argument, that the breach by the corporation of the contract of subscription might not relieve him from liability to certain creditors, it is plain that, as between the defendant and the corporation, its refusal to accept his money and deliver him his stock would prevent it from suing him on his subscription, and therefore the plaintiff cannot recover in its right.

At common law an assignee of an insolvent corporation could recover from a stockholder only when the corporation itself could have recovered if the assignment had not been made.

The corporation law of Pennsylvania, under which the Chester Tube and Iron Company was organized, provides that the officers and stockholders organized under or accepting the provisions of the act shall not be individually liable for the debts of the corporation otherwise than in the act provided.

Opinion of the Court.

The act provides for making stockholders parties to an action against the corporation, the levying of an execution against the corporation, and, if it be returned unsatisfied, that the deficiency may be satisfied out of the property of the stockholders so made parties, etc.

This liability, whether limited or not, is a security provided by law for the benefit of creditors, over which the corporation has no control; and, consequently, an attempted assignment by the corporation of the statutory liability of shareholders is inoperative, although made for the equal benefit of all the creditors. Wright v. McCormack, 17 Ohio St. 86; Dutcher v. Marine Bank, 12 Blatchford, 435; Lane's Appeal, 105 Penn. St. 49; Bell's Appeal, 105 Penn. St. 88.

It is evident on the face of the complaint that the statutory liability has not been pursued. The remedy of the plaintiff, if he has any against this defendant, is in equity. The complaint does not contain the allegations necessary for a bill in equity. See also Terry v. Anderson, 95 U. S. 628; Mills v. Scott, 99 U. S. 25; Hatch v. Dana, 101 U. S. 205; McLean v. Eastman, 21 Hun, 312; Chandler v. Keith, 42 Iowa, 99.

III. The assignment was invalid. It was made by the president pursuant to a resolution of the board of directors and he did not follow the instructions, conditions and authority contained in the resolution.

IV. This is not a question of irregularity which the company could waive, but a question of defect of title. If the president had no power to execute the assignment as he did, then the plaintiff obtained no title, and he cannot maintain this action, for his own proof discloses the defect of title.

V.. The plaintiff cannot secure a reversal of this judgment upon the ground that there was any issue of fact which the court should have submitted to the jury.

MR. JUSTICE SHIRAS delivered the opinion of the court.

The assignments in error are nineteen in number, but they present substantially but one question: Did the court err, in view of all the evidence, in directing the jury to find a verdict for the defendant?

Opinion of the Court.

There were no findings of fact by the court or jury, and no charge or opinion of the court is shown by the record. We are therefore left to draw the materials upon which we are to revise the judgment of the court below from the various offers of evidence and exceptions thereto, read in the light afforded by the respective briefs and arguments of counsel.

Taken in logical order, the first ground of defence is found in the position that the assignment to Potts for the benefit of creditors was invalid, and the want of validity is supposed to be found in the fact that, in executing the deed of assignment, the president did not follow certain instructions and conditions imposed upon him by the board. Undoubtedly, the act of the president, in executing and delivering the deed of assignment, was fully warranted by the resolution of the board of August 3, 1880, but it is claimed that, by reason of proceedings at the stockholders' meeting, held on August 12, and at a meeting of the board of directors on August 20, the authority of the president, granted by the resolution of August 3, was modified, or made conditional on certain other acts that he was to do.

At the stockholders' meeting a resolution was passed directing the president, directors and officers of the company to execute a bond and mortgage to secure A. B. Wood, one of the directors, for certain trust moneys he had advanced to the company, and also to make an assignment to said board of the leasehold and fixtures of the company in payment of moneys alleged to have been advanced by him for the use of the company.

The resolution of the board of directors of August 3, authorizing the president to make a deed of assignment for the benefit of creditors, was laid before the stockholders, and, upon motion, was approved and ratified; and the president was authorized to execute a general assignment after the mortgage and assignment of lease to A. B. Wood should be duly executed and delivered.

At the meeting of the board, held on August 20, 1880, the action of the stockholders in directing the execution of a mortgage and assignment of the lease to A. B. Wood was reported, and was, by a resolution, approved.