easily determined just how far a rule laid down in general terms would be applied in the absence of the facts added to it under an 'especially.' In the case cited, Chubb was sued by an assignee in bankruptcy of the company. He sought to set up irregularities and informalities in the increase of capital stock to which he became a subscriber, and also fraud in the procurement of his subscription. It appeared that he was president of a branch of the company, took part in its meetings, paid money on his stock, and at one time gave a proxy to another person to attend and vote at a stockholders' meeting at the main office. He made no effort to cancel his subscription. The company incurred liabilities and was adjudicated a bankrupt about fifteen months after his subscription. Clearly he should not have been relieved. In Upton v. Tribilcock, 91 U. S. 45, 23 L. Ed. 203, the shareholder had delayed repudiating his subscription for three years and, until an assignee in bankruptcy had been appointed, and there were other circumstances showing laches. Discussions of the subject will be found in 2 Thomp. Corp. Secs. 1440, 1449; Upton v. Englehart, 3 Dill. 496, Fed. Cas. No. 16,800; Farrar v. Walker, 3 Dill. 506, Fed. Cas. No. 4,679 (reported unofficially); Newton Nat. Bank v. Newbegin, 33 L. R. A. 727, and note (20 C. C. A. 339, 40 U. S. App. 1, 74 Fed. 135); Parker v. Thomas, 19 Ind. 213, 81 Am. Dec. 385, 401, note. A number of American decisions are to the effect that where one subscribes to stock and the company proceeds to do business, incurs liabilities, and later fails and is adjudged a bankrupt, or its assets are placed in the hands of a receiver for the purpose of winding it up, no rescission will be allowed, unless under exceptional circumstances. Thomp. Corp. Sec. 1450.

"When a person becomes a stockholder of a corporation, he becomes a part of it. Its agents are, in a sense, his agents. They go out and deal with the public. If through their dealings debts are incurred, assuming both the stockholder and the creditor to be innocent and that one must suffer, the former, who put it in the power of

the agents to do the wrong, should suffer rather than third parties who dealt with such agents. Civ. Code, 1895, Sec. 3940. As to creditors whose claims arose after the stockholders became such, their rights are superior to any right of rescission. The status of a stockholder relative to creditors who became such after he took the stock is not in all respects identical with that relative to antecedent creditors. As to creditors whose debts were created before he took the stock, questions of laches, acts inconsistent with rescission, estoppel, etc., might arise. The new stockholder may have permitted the increase of indebtedness and the lessening of the assets with which to pay. When the facts are shown, it can be made to appear whether a fraud was really perpetrated on each of the interveners; whether there was any lack of diligence in discovering such fraud, or unreasonable delay in seeking relief after its discovery, whether there was any active participation by the interveners in the management of the corporation, or whether debts had been incurred after the intervener became a stockholder, which either gave corporate creditors superior equitable rights or estopped the intervener from denying that he was a stockholder, and generally whether his conduct was such as to prevent relief."

Question 652: If the company becomes insolvent, does this intervene to prevent the creditor from setting up the fraud by which he was induced to subscribe? Why?

§ 672. (Corporations, Sec. 36.) Subscriptions upon

condition.

Case 653. Minneapolis Threshing Machine Co. v. Davis, 40 Minn. 110.

Facts: Suit brought on a contract of subscription for stock. Defendant gave his subscription in writing to a promoter of the company, on the condition, orally stated, that the promoter should make no use of it unless certain other parties subscribed, who did not subscribe. The other subscribers and the corporation was unaware of

this condition. The promoter violated the condition and turned in the subscription. Defendant never took any other part in the organization of the company except as stated.

"Under the elementary rule of evidence that a written agreement cannot be varied or added to by parol, it is not competent for a subscriber to stock to allege that he is but a conditional subscriber. The condition must be inserted in the writing to be effectual. This rule applies with special force to a case like the present, where to allow the defendant now to set up a secret parol arrangement by which he may be released, while his fellow-subscribers continue to be bound, would be a fraud, not only upon them, but upon the corporation which has been organized on the faith of these subscriptions and upon its creditors. The defendant of course does not attempt to controvert so elementary a rule as the one suggested, but contends that the effect of this evidence was not to vary or contradict the terms of the writing, but to prove that there was never any delivery of it, and hence that there never was any contract at all, delivery being prerequisite to the very existence of a contract. His claim is that the subscription paper was given to and received by Janney merely as an escrow, or as in the nature of an escrow, only to be delivered or used upon the performance of certain conditions precedent, and that until they were performed there could be no valid delivery.

*

"This subscription agreement was not intended to be the sole contract of defendant. It was designed to be also signed by other parties, and from its very nature defendant must have known this. Each succeeding subscriber executed it more or less upon the faith of the subscriptions of others preceding his. The paper purports on its face to be a completed contract, containing all the terms and conditions which the subscribers intended it should. When this agreement was presented to

others for subscription, defendant had not only signed it in this form, but he had also done what, under the facts, constituted, to all outward appearances at least, a complete and valid delivery. He had placed it in the proper channel according to the ordinary and usual course of procedure for passing it over to the corporation when organized, and clothed Janney with all the indicia of authority to hold and use it for that purpose without any other or further act on his part, untrammelled by any condition other than those expressed in the writing. In reliance upon this, others have not only subscribed to the stock, but have since paid in a large share of it. The corporation has been organized and engaged in business, expending large sums of money, and contracting large liabilities, all upon the strength of these subscriptions to its stock, and in entire ignorance of this secret oral condition which defendant now claims to have attached to the delivery. To permit defendant to relieve himself from liability on any such ground, under this state of facts, would be a fraud on others who have subscribed and paid for stock, upon the corporation which has been organized and incurred liabilities in reliance upon the subscriptions, and on creditors who have trusted it. The familiar principle of equitable estoppel by conduct applies, viz.: Where a person, by his words or conduct, wilfully causes another to believe in the existence of a certain state of facts, and induces him to act on that belief so as to alter his own previous condition, he is estopped from denying the truth of such facts to the prejudice of the other."

Question 653: What was the defense in this case? Was it allowed or not? Give the reasons.

CHAPTER 85

PAYMENT FOR STOCK

§ 673. Liability upon unqualified subscriptions.

§ 674. Medium of payment.

§ 675. Definition of watered stock.

§ 676. Liability of stockholders for payment of stock for benefit of creditors.

§ 678. Payment required by statute as a condition precedent.

§ 679. Forfeiture of stock for non-payment.

§ 673. (Corporations, Sec. 37.) Liability to corporation.

(Note: The liability to the corporation is governed by the contract of subscription. On the question whether the corporation can question the sufficiency of the payment which it has received from the stockholder, see post, this chapter.)

§§ 674, 675, 676. (Corporations, Secs. 38-40.) Medium of payment, watered stock, rights of creditors.

Case 654. Wood v. Dummer, 3 Mason (U. S. Cir. Ct.) 108.

Facts: Plaintiffs bring their bill in equity, as holders of banknotes of the Hollowell and Augusta Bank, against defendants as stockholders of the same bank for payment of such notes on the ground of a fraudulent division of the capital stock. The defendants denied the fraud, but admitted the division. It appeared that the bank divided three-fourths of its capital stock among its stockholders without providing funds to pay for its outstanding banknotes.

"It appears to me very clear upon general principles, as well as the legislative intention, that the capital stock