Opinion of the Court. that the capital stock of a corporation, especially its unpaid subscriptions, is a trust fund sub modo for the benefit of its general creditors. And this principle was reaffirmed in Upton, Assignee, v. Tribilcock, 91 U. S. 45; Sanger v. Upton, Assignee, 91 U. S. 56; Webster v. Upton, Assignee, 91 U. S. 65; Pullman v. Upton, 96 U. S. 328; Chubb v. Upton, 95 U. S. 665; Morgan County v. Allen, 103 U. S. 498; Scovill v. Thayer, 105 U. S. 143; Hawkins v. Glenn, 131 U. S. 319, 335; and Richardson v. Green, 133 U. S. 30, 45. There is no dispute here as to the soundness of this general principle. The dispute is as to its application to a case like the present one. We can be aided in solving this inquiry by ascertaining the character of the particular cases in which it has been applied by this court. In Sawyer v. Hoag, a subscription of $5000 to the stock of an insurance company for which the subscriber paid in full, but received in return the check of the corporation for $4250 under an agreement that the debt for the stock should be extinguished, and the amount of the check should be treated simply as a loan of money to the stockholder, was held to be a mere device to evade the rule that unpaid subscriptions of stock constitute a trust fund for the benefit of the creditors of the corporation; consequently, that the stock there in question was to be regarded, as between the corporation and creditors, to be unpaid to the extent of the amount received back from the corporation under the pretence of a loan. In Upton, Assignee, v. Tribilcock, an actual subscriber to the stock of an insurance company upon which he agreed to pay 20 per cent, was held responsible for the balance, and could not escape liability therefor because of representations by the agent, at the time of the subscription, that he would be only responsible for that amount, or by proving a subsequent arrangement with the company cancelling the subscription, and accepting, as in full payment, his note for the 20 per cent agreed to be paid. Sanger v. Upton, Assignee, was another case of the actual subscription of stock upon which the subscriber was held to pay the full sum subscribed. In Webster v. Upton, Assignee, a person holding certificates of stock by transfer from the original subscriber, and standing Opinion of the Court. upon the books of the corporation as a stockholder, was held liable for the balance due upon the stock, without proof of an "express" promise upon his part to pay. In Chubb v. Upton, the decision was that one receiving a certificate of stock for a certain number of shares, at a given sum per share, thereby became liable to pay the amount thereof when called upon by the corporation or its assignee in bankruptcy; and in Pullman v. Upton, that a transferee of stock who caused the transfer to be made to himself as collateral security for a debt of the transferer, was liable for the balance due on such stock. The doctrine of the latter case was approved in Hawkins v. Glenn. In County of Morgan v. Allen, it was decided that the subscription by a county to the capital stock of a railroad company, together with the bonds given therefor, constituted with other property of the company a trust fund, to which all its creditors could rightfully look for satisfaction of their claims; and that by no device or combination, to which par-, ticular creditors were parties, could it withdraw its bonds from that fund, and thereby avoid liability to the general creditors of the company. In Scovill v. Thayer, it was declared, among other things, that a contract between a corporation and its stockholders, that they should never be called upon to pay any other assessment than that paid at the outset, while good as between the corporation and the stockholders, was a fraud in law upon creditors, which they could have set aside whenever their rights intervened, and their claims were unsatisfied. In Richardson v. Green, it was held that the issuing by a corporation of bonus stock was in violation of a statute of the State declaring it to be unlawful to issue certificates of stock until the shares were fully paid, and that one exercising the privileges and powers of a stockholder in a corporation was not exempt from the liabilities attaching, to a bona fide stockholder who took shares purporting to be, but which in fact were not, fully paid. This detailed statement of the above cases has been made because of the confident assertion that they rest upon doctrines necessarily requiring the reversal of the judgment. We do not concur in this view. In all of these cases, except one, Opinion of the Court. there was an actual subscription of a given amount. They were cases of promises to pay the company the amount subscribed, not of sales by it. According to those cases, a stockholder, becoming such by formal subscription or by transfer upon the books of the corporation, cannot be discharged to the injury of creditors by any agreement, arrangement or device to which creditors do not give their assent, and by which the stockholder is to pay less than the amount due upon such stock; this, upon the ground stated in Webster v. Upton, Assignee, that "neither the stockholders nor their agents, the directors, can rightfully withhold any portion of the stock from the reach of those who have lawful claims against the company," and that "the stock thus held in trust is the whole stock, not merely that percentage of it which has been called in and paid." The present case presents features that are not to be found in the others. It is not the case of an ordinary subscription of stock in a given amount. Nor is it, strictly, one of an ordinary purchase of stock for purposes of investment. It is the case of a creditor of an insolvent railroad corporation which, in consequence of its inability to pay creditors in money, was threatened with bankruptcy, and which refused or was unable to pay except in stock that was without market value. To say that a public corporation, charged with public duties, may not relieve itself from embarrassment by paying its debt in stock at its real value there being no statute forbidding such a transaction-without subjecting the creditor, surrendering his debt, to the liability attaching to stockholders who have agreed, expressly or impliedly, to pay the face value of stock subscribed by them, is, in effect, to compel them either to suspend operations the moment they become unable to pay their current debts, or to borrow money secured by mortgage upon the corporate property. We do not think the statute of Iowa can be properly construed to cause such a result in respect to corporations organized under its laws. We must not be understood as modifying in any respect the principles laid down in the cases above cited, nor the salutary rule laid down in Sawyer v. Hoag, that when the interest of Opinion of the Court. the public or of strangers is to be affected by any transaction between the stockholders owning the corporation and the corporation itself, "such transaction should be subject to a rigid scrutiny, and if found to be infected with anything unfair toward such third person calculated to injure him, or designed intentionally and inequitably to screen the stockholder from loss at the expense of the general creditor, it should be disregarded or annulled so far as it may inequitably affect him." These principles were reaffirmed in Richardson v. Green, and should not be relaxed in any case in which they may be applied consistently with justice. So, when the interest of creditors require, those who hold shares of stock in a corporation, purporting to be, but which are shown not to have been, paid for to the extent of their face value, should be held liable to pay for such shares in full, unless it appears that they acquired the stock under circumstances that did not give creditors and other stockholders just ground for complaint. As said by this court in Peters v. Bain, 133 U. S. 670, 691, "unpaid subscriptions to stocks 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 corporation can misappropriate such subscriptions so far as creditors are concerned." See also Graham v. Railroad Co., 102 U. S. 148, 161; Wabash, St. Louis &c. Railway v. Ham, 114 U. S. 587, 594; Fogg v. Blair, 133 U. S. 534, 541. The general grounds upon which we have proceeded are supported by New Albany v. Burke, 11 Wall. 96, 103, et seq. In that case, a judgment creditor of an insolvent railroad corporation sought to hold the city of New Albany liable for the balance alleged to be due by it on a subscription to the capital stock of that corporation. Under an ordinance of the city, a subscription of $400,000, payable in city bonds, was made by it to the stock of the corporation, the railroad company agreeing that not more than $250,000 of the bonds should be called. for until the road was completed to a certain place. Pursuant to the subscription, the city delivered to the company $200,000 of its bonds, payable to bearer. In consequence of its inability to obtain money on them, the company was unable VOL. CXXXIX-8 Opinion of the Court. to carry on the works, and abandoned the enterprise, after having pledged nearly all of the bonds received by it for money borrowed to prosecute it. Under those circumstances the company proposed to the city that if it would provide means for the payment of the sums borrowed, the bonds so pledged should be returned to the city and cancelled. If the bonds had been sold by the pledgees they would not have brought more than sufficient to pay the sums borrowed. The city accepted the proposition made to it upon the condition to which the railroad company acceded, that the latter would cancel the city's subscription and consent to the repeal of all ordinances relating thereto. The agreement was carried into effect, the city paying the sums for which the bonds were pledged, amounting to more than $36,000. All the bonds, except seven that had been sold, were returned to the city and cancelled, as was also the subscription of stock. One of the contentions of the judgment creditor was that this arrangement or compromise was fraudulent in law, because the capital stock of the corporation was a trust fund irrevocably pledged for the benefit of creditors, and that the corporation could not, when insolvent, give away its assets, or release its debtors without payment, or do any other act prejudicial to creditors. This court said: "There was no restriction in the contract upon the power of disposition, and none at law, or in equity, unless it be that the company could not part with the bonds in fraud of its stockholders or its creditors. And it had the right, which all other debtors had at the time, to make preferences among its creditors to pay one rather than another. It is not to be disputed that, situated as the company was at the time when the contract of August and September, 1857, was made, with the debt of $36,000 pressing upon it, and with no other means of relief, it might have sold the entire lot of two hundred and forty-three bonds which it held, or was entitled to call for, at the best price that could have been obtained, and might have applied the entire proceeds, had they been needed, to pay that single debt. Of this, neither the stockholders nor the other creditors could have complained. . . . Time has revealed that the bonds were |