the corporation by the stockholder of the par value of the stock. Upon failure to perform the obligation of this contract as to payment, the corporation could enforce its terms against the stockholder. The contract obligation to pay par for the stock by the original subscriber is known as the common-law liability. It exists, not as a matter of statutory or constitutional provision, but by reason of the terms of the contract made by the subscriber. In some States, constitutional and statutory provisions have been adopted or passed holding a stockholder liable for the debts of the corporation to the extent of the par value of the stock. These provisions are merely declaratory of the common law. The obligation to pay par for the stock exists independent of statutory or constitutional provisions. By arrangement between the corporation and the stockholder, the latter may be relieved of a part of this obligation. A release, however, of this character, will not affect the rights of the corporate creditors who can enforce in some proceeding the payment by the stockholder of the full par value of his stock.

§ 101. Liability for Capital Wrongfully Distributed. It has been a common holding of the courts that the capital stock of a corporation is a trust fund, to be maintained by it at parity for the benefit of the corporate creditors. The trust fund theory will be fully discussed later, but attention is called to it here for the reason that it may involve the liability of a stockholder to creditors in case they have permitted the property of the corporation, or an equivalent value of its capital stock, to be distributed among themselves to the injury of the corporate creditors. The courts hold without exception that where this has been done the corporate stockholders will be liable in proportion to their stock holdings to the extent of the property wrongfully and illegally distributed. This liability, it will be noted, is the application of the common-law liability, so-called, to circumstances or conditions not originally arising. The common-law obligation is that the stockholder shall pay to the corporation the par value of his stock for the benefit

of the corporate creditors. If, after having paid this, he permits the fund thus created to become illegally diminished, it will be regarded, on his part, as if he had not complied with his common-law obligation. "The stockholders have no right to anything but the residuum of the capital stock after the payment of all the debts of the corporation. If, before all such debts are discharged, they take into their hands any of the funds of the corporation, they hold them subject to an equity which is against conscience to resist.""1

§ 102. Statutory or Constitutional Liability. In nearly all of the States, by constitutional or statutory provision, there has been established a stockholders' liability in excess of or beyond that created and existing by reason of the contract of subscription; viz, the common-law liability. In some States these provisions exist providing for a liability to the full par value of the stock, but these have been commonly construed as simply declaratory of the common law. The phraseology of constitutional and statutory provisions relative to stockholders' liability varies, and the particular meaning of words used and the application of them must be learned by consulting the decisions of a particular State. They impose, usually, a liability in addition to the common law liability. They are not to be extended by implication, and the courts usually apply strict rules of construction in their application, since they are in derogation of common law. The Constitution of Minnesota, Article 10, Sec. 3, provides: That "each stockholder in any corporation, excepting those organized for the purpose of carrying on any kind of manufacturing or mechanical business, shall be liable to the amount of stock held or owned by him." This provision establishes what is commonly known as a double liability and is illustrative of a large number of similar enactments. There is, necessarily, a great diversity, as above stated, in the character of the liability created by statutory or constitutional pro1 Kohl v. Lillienthal, 81 Cal. 378.

vision in excess of or beyond the common-law liability. A recent textbook states concisely their effect:2

"The liabilities thus imposed, may, however, be roughly classified as follows: (1) A joint and several liability as partners; (2) a joint and several liability as guarantors; (3) & limited and several liability to be enforced absolutely or, more commonly, upon regular proceedings against the corporation proving ineffectual. The first class abrogates entirely the rule of limited liability and is governed by the law of partnership. The member becomes a principal debtor. Under the second class the liability is secondary and collateral to that of the corporation, and is governed in a general way by the rules of guaranty. Thus, any act on the part of the creditors that will release a guarantor will release a stockholder from his liability. The liability under the third class is ordinarily limited to (a) an amount equal to the shares of capital stock held by the member; or (b) an amount equal to the ratio which the member's proportion of the capital stock bears to the entire corporation indebtedness. The distinctive characteristic of this liability is that each member stands liable for a definite sum and no more, irrespective of the amount for which the others are liable. It is a several, unequal, and limited liability as to which each member stands alone, except that, if he pays more than his proportion of the debts of the company, he may, as in other cases, have contribution from his fellow shareholders.'"

Constitutional Provisions: When Self-Executing. Constitutional provisions imposing an additional liability are self-executing, as the phrase is used, when they require no additional action by the legislature to make them available to creditors. A constitutional provision not self-executing, must be supplemented by legislation to become operative. Its character in this respect will be ascertained from its language and the intent as gathered from the circumstances and the conditions attaching to its adoption; if the phraseology of the provision is general or the extent of the liability not fixed, legislation will be necessary. The decisions in the different States are at variance in the construction of constitutional provisions similarly worded. In discussing 2 Abbott's Elliott on Private Corporations, 4th ed. § 558.

the question of whether a constitutional provision was selfexecuting, Justice Mitchell, in a case which is frequently cited, said:

"A constitution is but a higher form of statutory law, and it is entirely competent for the people, if they so desire, to incorporate into it self-executing enactments. These are much more common than formerly, the object being to put it beyond the power of the legislature to render them nugatory by refusing to enact legislation to carry them into effect. Prohibitory provisions in a constitution are usually self-executing to the extent that anything done in violation of them is void; but instances of affirmative selfexecuting provisions are numerous in almost every modern constitution.""

Exemptions. While the State encourages the organization of all private corporations, it may especially favor those formed for manufacturing and other purposes, the transaction of the business of which tends more immediately and directly to the building up and to the advantage of a community. In some States this attitude has been exhibited by excepting from the operation of constitutional or statutory provisions imposing an additional liability the stockholders of these corporations. The constitutional provision of Minnesota is illustrative of the statement. An exception there is made of corporations organized for mechanical and manufacturing purposes. In respect to these, there exists but the common-law liability; as to all others, a double liability.

Power to Create Membership Liability. It is clearly within the power of the State, in a valid exercise of its power of regulation, to adopt or pass the constitutional or statutory provisions noted in a preceding section, establishing an additional liability on the part of the corporate members for the debts of the corporation. The only possible limitation may arise when the State, in the grant of a charter, has specifically limited membership liability. A grant of this character will be construed as a part of the contract between the State and the corporation and its members, 8 Willis v. Mabon, 48 Minn. 140.

the obligation of which cannot be impaired by any subsequent act of the State. If the power to alter, amend, or repeal has been reserved, this limitation is eliminated.

Nature of Liability. A statutory or constitutional liability may either be contractual or penal in its nature. This fact is important as affecting the rights of the creditors to pursue available remedies in the enforcement of their claims against the corporation. The language and purpose of the enactment determines, ordinarily, its nature as contractual or penal, and the decisions of the courts in the different States must be examined to determine the question when it arises. The Minnesota provision already quoted is contractual in its nature. And, on the other hand, a liability imposed upon stockholders, officers, or agents of a corporation for a failure to comply with the provisions of law in respect to the filing and publishing of certain designated reports has been held to be penal. The liability imposed upon stockholders in national banks is contractual in its nature, and it has also been held that this survives against the personal representatives of the stockholder. Whether a provision creating an additional stockholders' liability is contractual or penal affects also the right of the creditor to enforce the liability against stockholders residing in other States than that under the laws of which the corporation has been created, the common rule being that penal statutes have no extra-territorial force. A penal liability is incapable of enforcement against a stockholder in a foreign state.

Meaning of Word "Debts" and Similar Phrases. In statutory and constitutional provisions, the words "debt," "debts," "obligations," and other words or phrases of similar import are used in respect to which the additional liability can be enforced against stockholders. Naturally, the proper and legal significance of these words or phrases has been the occasion of judicial construction by the courts. The words are commonly applied to the debts of the corporation contracted or existing at a designated time, and are usually held to apply to obligations ex-contractu