ment of the entire increased capital. Second, | any definite increase under this last authorwhether, irrespective of the above question, ity was ever fixed and limited by vote of the first count is defective in not alleging the company. It simply states that the payment of any part of the increased capital, and generally in not stating a case within the statute.

company actually increased its capital stock, and issued $10,727 first preferred stock. It does not state that this last issue of stock This court is of opinion that the demurrer was ever paid for. The count is fatally deto the first count was properly sustained. fective in these particulars, and clearly fails This count states that the capital stock was to state a case of liability against a director originally fixed by vote of the corporation, under §§ 2, 3, above quoted. There is noth. September 1, 1891, at $50,000; but it does ing to show that the duty ever devolved not state whether or not said stock to that upon the officers of the company to file any amount was ever actually issued, or ever certificate as provided in the said sections. actually paid for, or whether or not any cer- The statute plainly and clearly provides the tificate of such payment was ever made. It same proceedings in case of an increase of further states authority from the general stock as in case of original capital "fixed assembly in 1904 for an increase of $50,000 and limited." It must appear in both cases in preferred stock; but it does not show that'that the capital or the increase has been the manager of the company of a bill of enforce the liability with the fraud. White merchandise, did not contract the debt v. How, 3 McLean, 291, Fed. Cas. No. 17,549. within the meaning of this statute. Manns Mercantile Co. v. Smith, So. 929. See Lewis v. Montgomery; Patterson v. Robinson; and Hines Lumber Co. v. Marquardt, supra, V. b, 1.

-

Miss,

64

Directors who were present and voted for a motion authorizing the secretary and treasurer to borrow what money was necessary to carry on the operations of the company between the date of the resolution and

a certain stated date in the future will be

held to have assented to a debt evidenced by a note given for money borrowed after the stated date, for expenses and debts contracted prior thereto; it is stated that the secretary and treasurer, having authority to contract for operating expenses, etc., doubtless made arrangements to get the money, and on the face of this contracted debts in operating expenses which they were afterward enabled to pay by the execution of this note. Webster v. Whitworth, Tenn., 63 S. W. 290.

In Cross v. Fisher [1892] 1 Q. B. 467,

VI. When liability arises,

a. In general.

The condition of liability of directors un

der these statutes, that the debts of the corporation exceed the limit fixed, involves a determination of the amount of the debts and the fixed limit. These will be taken up in inverse order and the limit fixed by statute first discussed. As stated above, supra, II., that limit is variously fixed at the capital stock, or a stated number of times the capital stock, the subscribed capital stock, the paid-in capital stock, the sol

vent stock, etc.

hold directors liable under a statute makIt is necessary for a creditor seeking to ing the directors of a corporation liable for any debt they may contract in the name stock, to show that, at the time the debt of the company over and above the solvent was contracted, it exceeded the solvent stock of the company. Aimen v. Hardin, 60 Ind. 119. That it is necessary to show an excess, and that it happened during the administration of the directors sought to be held liable, is held in Banks v. Darden, 18 Ga. 318.

The statutes making directors liable for exceeding the limit of indebtedness fixed are the corporation exceed the limit. not called into operation until the debts of Albitztigui v. Guadalupe Y Caloo Min. Co. 92

61 L. J. Q. B. N. S. 609, 66 L. T. N. S. 448, 40 Week. Rep. 265, 56 J. P. 372, it was urged in an action to hold directors of a building society, a rule of which required receipts to be signed by two of the directors and countersigned by the secretary, liable for an excess of debts that had been incurred by the secretary by fraudulently concealing the excess, that only the directors who had received the deposits individually could be held liable. This contention was denied, the court stating that directors do not receive deposits in their in- b. Determination of amount of paid-in dividual capacity, but they can receive deposits only through the society's ordinary channel of receipts, and they would receive excess loans in the same manner as others, in this case by the person who was authorized to receive on their behalf.

The fact that the notes of a bank were fraudulently issued by an agent of the bank is no defense against the liability of directors under such a statute, in the absence of any connection of the creditor seeking to

Tenn. 598, 22 S. W. 739.

capital stock, subscribed capital stock, etc.

The capital stock paid in is not determined by the assets on hand available for · the payment of debts, but is the amount subscribed and paid by the stockholders. Tradesman Pub. Co. v. Knoxville Car Wheel Co. 95 Tenn. 634, 31 L.R.A. 593, 49 Am. St. Rep. 943, 32 S. W. 1097.

Where payments for stock are made in property upon the organization of the cor

Cammann, 137 N. Y. 342, 33 N. E. 305; Anfenger v. Anzeiger Pub. Co. 9 Colo. 377, 12 Pac. 400, and cases infra; 15 Enc. Pl. & Pr. 76; 2 Thomp. Corp. §§ 1346, 1798.

The plaintiff's first exception is therefore overruled.

The plaintiff's second exception was to the decision overruling the demurrer to the second plea to the third count. The provision of the statute under which it is sought to charge the defendant with liability in the third count is as follows (Pub. Stat. 1882, chap. 155, § 15; Gen. Laws, 1896, chap. 180, § 15): "The whole amount of the debts which any such corporation shall at any time owe shall not exceed the amount of its

"fixed and limited by the charter or by vote of the company," and that the last instalment has been paid, before the officers can make the certificate. Until such time, and until the certificate is duly made, the liability for all debts and contracts rests upon the stockholders under § 1, above quoted. The law is well settled that a party who seeks to enforce the liability of corporate officers under a statute must allege and prove affirmatively every fact, default, or contingency upon which his right to recover depends, so as to bring himself clearly within the statute. Nassau Bank v. Brown, 30 N. J. Eq. 478; Continental Nat. Bank v. Buford (C. C.) 107 Fed. 188, 189; Merchants' capital stock actually paid in; and in case Bank v. Stevenson, 5 Allen, 398, 403; Cham- of any excess, the directors under whose bers v. Lewis, 28 N. Y. 454; Whitney v. administration it shall happen shall be poration, it is the real value of the prop-capital stock, whether it all has been paid erty that is to be considered in determining in or only part of it, and regardless of the the paid-up stock, and not the consideration named in the deed of the property, especially where the grantors are members of the newly organized corporation. Irvine v. McKeon, 23 Cal. 472.

It was urged in Moore v. Lent, 81 Cal. 502, 22 Pac. 875, that property purchased by the corporation was not worth what had been paid for it, but the court states that there was nothing in the record to show the value of the property at the time it was taken except the amount that was paid for it.

A corporation which assumed the indebtedness of two other corporations, the property of which it received, and in return therefor issued its stock to the stockholders of the two corporations, cannot be said to have issued its stock fictitiously, where the value of the property received was largely in excess of the indebtedness assumed. Smith v. Ferries & C. H. R. Co. 5 Cal. Unrep. 889, 51 Pac. 710. In this case the property was shown to be worth at least $1,200,000, the assumed indebtedness was $150,000, and the issue of stock was 24,750 shares of the par value of $100 per share.

So, under a statute fixing the maximum indebtedness at the amount of capital stock, it is the amount of the capital stock, not the value of the stock or assets or property of the corporation, that is the determining factor. Slater v. Taylor, 241 Ill. 102, 89 N. E. 271.

It is stated also in this case, that the amount of the capital stock is the amount contributed by the shareholders for the prosecution of the business, and the officers and directors may incur indebtedness equal to that amount without assuming liability. But it is not clear that this is the meaning intended to be conveyed by the court, as it seems under the form of the Illinois statute it is not necessary that the capital stock be actually paid.

A statute providing that directors shall not create debts "beyond the subscribed capital stock" applies to all the subscribed

disposition which may have been made of it. Moore v. Lent, 81 Cal. 502, 22 Pac. 875. The court gives to the statute a literal meaning, and holds that, although the stock has all been issued for the property, it is subscribed capital stock.

Capital stock issued by a corporation to the stockholders of two other corporations, the property of which had been acquired by the first corporation, was held to be subscribed capital stock, within the meaning of this provision. Smith v. Ferries & C. H. R. Co. supra.

In Moore v. Lent, supra, a mining corporation issued its entire subscribed stock as full paid stock in part payment of mines and other property of the corporation. It was urged by a creditor that when the corporation issued all the subscribed capital stock in payment of this property, it no longer had any subscribed capital stock, and every dollar of indebtedness subsequently created was a debt created "beyond the subscribed capital stock." This contention was denied, and it was held that no liability would attach to the directors until the corporation became indebted in an amount in excess of the subscribed capital stock.

In Schofield v. Henderson, 67 Ind. 258, it was held proper to regard as solvent stock the amount of assessments for benefits to land to which a road company was entitled by virtue of a statute, and which under the statute were in the nature of subscriptions to the capital stock, even though such amount might be largely in excess of the capital stock of the company as expressed in the articles of incorporation.

Under the rule of strict construction, evidence of certain sums paid as capital stock without showing that these were all that was paid is not sufficient. Irvine v. McKeon, 23 Cal. 472.

Evidence that a quartz mill and lode worth from $6,000 to $8,000 were put in a mining corporation, and that one stockholder put in $1,095, and that the debts of 'the company when it ceased to do business

jointly and severally liable, to the extent of such excess, for all the debts of the company then existing and for all that shall be contracted as long as they shall respectively continue in office, and until the debts shall be reduced to the amount of the capital stock of such company paid in."

In the third count of the declaration the following facts are alleged: That the Pawtucket Steam & Gas Pipe Company, a Rhode Island corporation, on the 13th day of April, 1907, being indebted to the plaintiff in the sum of $1,778.51 for goods sold and delivered, in consideration thereof, promised to paid it said sum on request, which sum, though often requested, said company has yet refused to pay. Said company was duly incorporated June 20, 1890, by the general' amounted to $9,084, is not sufficient to show that the debts exceeded the amount of the capital paid in. Ibid.

c. Determination of amount of debts.

1. In general.

The general question of the debts included in such statutory provisions has two phases. First, there is the question of the debts included in determining whether there is an excess within the meaning of the statute, and second, that of the debts that may share in the distribution in case of

recovery.

The amount of the debts is determined under the Tennessee rule, as of the time the debt sued upon was created. Webster v. Whitworth, Tenn., 63 S. W. 290.

It is stated obiter in Hornor v. Henning, 93 U. S. 228, 23 L. ed. 879, that it does not matter whether the debts are in excess of the capital stock at the time the suit is brought or not, under a statute making the directors of a corporation assenting to the indebtedness liable in case it "shall at any time" exceed the amount of its capital

stock.

2. What debts included.

(a) In general.

The debts covered by such a statute must be valid claims against the corporation. Manns Mercantile Co. v. Smith Miss. 64 So. 929.

See Wolverton v. George H. Taylor & Co. and State Bank v. Pope, infra, VII. b, 1. Although a director may, with other directors, have contracted debts which in their aggregate amount exceeded the limit fixed by statute, he is not liable under the statute where there was at no one time an indebtedness in excess of the limit. Kritzer v. Woodson, 19 Mo. 327.

Debts not yet due are to be considered in determining the amount of indebtedness. Robinson v. Attrill, 66 How. Pr. 121.

But see Webster v. Whitworth, infra, VI. c, 3.

assembly of the state of Rhode Island, and became subject to the provisions of chapters 152 and 155 of the Public Statutes (1882) of said state, and was duly organized. That on May 4, 1907, the amount of the capital stock of said company actually paid in was not more than $60,727, and the total debts of said company at said time were not less than $65.528.02, said amount being in excess of the capital stock actually paid in to the amount of not less than $2,101. That the defendant was one of the directors of said company under whose administration the said company became so indebted in excess of the amount of the capital stock paid in as aforesaid. That the debt of said company to the plaintiff was owing to the plaintiff on May 4, 1907, and was existing

The case of Wilcox v. Davis, 7 Ind. 248, is very meagerly reported. The action was against the directors of a bridge and road company to recover a balance due upon a contract for building a bridge on the line of the road. A section of a statute relating to plank roads, which was made a part of the charter of the bridge and road company, enacted that the directors of any company shall be liable in their individual property for any debts they may contract in the name of the company over and above the solvent stock of the company. urged in this case that, as the debt in ques

It was

tion had been contracted in and about the

building of a bridge instead of a road, the

directors were not liable. This contention was held untenable, and the directors held liable.

In Patterson v. Robinson, 116 N. Y. 193, 22 N. E. 272, a corporation which had contracted debts in excess of its capital stock which it owed a large part of its debt, that entered into an agreement with a bank to the debt should be treated as a dead or susafter be drawn by the president of the corpended debt; that the drafts should thereporation on the treasurer, which should, after being accepted by the treasurer, be indorsed by two of the directors; that they should also individually guarantee other paper of the company, and the proceeds of this paper SO indorsed and guaranteed

should be used in the purchase of supplies for the corporation, but when the supplies thus purchased should be manufactured, the manufactured articles should be the property of the directors indorsing the paper until disposed of, and the proceeds thereof should be applied to the payment of the supplies, labor, and current expenses of the corporation and of the paper so indorsed and guaranteed, and no part of the proceeds were to be applied to the payment of the old or suspended debt held by the bank until all outstanding claims for such paper, supplies, labor, and current expenses were satisfied. A new indebtedness was created under this arrangement which also exceeded the limit fixed by statute for the indebtedness of the corporation, the paper

Under a statute imposing upon the directors joint and several liability in the event of the corporation incurring debts in excess of the amount of its capital stock actually paid in, the ordinary debts of the company, as well as the extraordinary or bonded indebtedness, are included. Green v. Whitehead, 5 Pa. Dist. R. 613. The statute in Under a statute excepting from the inthis case expressly excepted debts for un-debtedness that secured by mortgage, it is paid purchase money for land bought, which debts shall be only a lien upon and collectable from the land.

total indebtedness of the said company below the amount of capital stock paid in; that at the time this action was commenced, the debts of said company had been reduced below the amount of the capital stock of said company paid in; and prayed judgment, etc.

ruptcy, and its trustee, in liquidation of its affairs and before suit is brought, pays to the creditors sums sufficient to reduce its indebtedness to the amount of paid-in capital stock, the directors are exonerated from liability.

It is apparent from a perusal of the secThe plaintiff demurred to this plea and tions of the statute above quoted that (§ 1) the demurrer was overruled, and to this de- it was the intention of the general assembly cision plaintiff duly excepted. We think that until the whole amount of capital stock this decision was error. This decision pro- fixed and limited, etc., has been paid in, and ceeds upon the theory that, under such certificate duly filed, the members of every circumstances as are set forth in the third incorporated manufacturing company should count, although the directors have incurred be jointly and severally liable for all debts debts to an amount in excess of "the amount and contracts; that after all fixed capital of the capital stock actually paid in," in stock or increase has been paid in (§ 2), violation of the terms of § 15, above quoted, the officers should make a certificate to that yet, if the corporation later goes into bank-effect, which would exonerate the stockhas been assigned to a third person. Mc-member, is a debt for which a recovery may Clave v. Thompson, 36 Hun, 365. This is be had. Anderson v. Blattau, 43 Mo. 42. a reversal of Robinson v. Thompson, 34 Hun, 634, which is apparently an affirmance of Robinson v. Attrill, 66 How. Pr. 121. In Robinson v. Attrill, debts due a director are taken into consideration in determining the liabilities of the company, but nothing is said as to a judgment such as is discussed in McClave v. Thompson.

A director who is a creditor of the corporation cannot share with other creditors who are not directors in the amount which he, or he and other directors, may be compelled to pay toward the debts in consequence of such excess. Thacher v. King, supra. The fact that the debt due the director is counted in ascertaining the excess is held not to conflict with this holding; the statute is stated to be not capable of a reasonable construction in any other way than as meaning that, as to the fund realized from the excess of indebtedness, the director is not regarded as a creditor at all. To hold that the officers are, as creditors, entitled to any part of it, would be to impair what is intended as security for the other creditors, and for them only. The debt in question was due a firm of which the director was a member, but was treated as if due the director.

But in Tallmadge v. Fishkill Iron Co. supra, directors who were creditors to a large amount, and other directors who were personally liable for the corporate debts, on account of which they subsequently were obliged to make large advances, were held entitled to take into consideration the amount owed them by the corporation in making payment on the liability incurred under the statute. The statute involved made the directors liable to the corporation in the first instance, and after dissolution of the corporation, the liability was to the creditors.

(f) Debts due a stockholder.

A debt contracted by the company in the prosecution of its business, with a firm of which a stockholder of the company is a

It is stated that the obligation differs in no essential particulars from any other incurred by the company, and if it were due and owing to the stockholder alone, there is no good reason for depriving him of the protection intended to be given to all creditors alike.

But a stockholder cannot, by paying his proportion of a judgment against the corporation on his statutory liability, make himself a creditor entitled to sue a director. Kritzer v. Woodson, 19 Mo. 327.

(g) Advances made by factors.

Advances made by a commission merchant to whom the corporation consigned goods for sale under an agreement that it should, on receipt of a consignment of goods, advance to the corporation in cash a certain per cent of the invoice price of the goods, and on making sale retain the amount of the advances, commissions, expenses, etc., and account to the corporation for the residue, are not to be considered in determining the amount of the debts of the corporation. Lewis v. Montgomery, 145 Ill. 30, 33 N. E. 880. These advances are stated to be not in the nature of loans of money to the corporation, but a payment in advance of a portion of the proceeds for which the commission merchant would be ultimately required to account to the corporation.

Advances made by the exclusive selling agents of a manufacturing company, which were not to be returned, but retained by the company, all the manufacturing products to be consigned to the selling agents, and the sums advanced, which were to be 60 per cent of the actual net market value of the consignment, being intended to cover less than the net value of the consignment, the margin being for commissions, expenses, and losses, the balance to be readjusted each month according to the amount of merchandise delivered, are not to be treated as debts of the corporation, beyond the amount found due, if any, from the con