and not to obligations which result from a tort of the corporation.

There are, however, several jurisdictions which hold to the contrary and construe the words as applying both to obligations contractual in their nature and also claims for damages sounding in tort. In some instances the liability applies only to debts due laborers and employes. The common construction here is that the additional liability is confined to claims based upon manual or menial service. The additional stockholders' liability cannot be enforced, for illustration, to satisfy a claim for unpaid salary by an assistant superintendent or attorney.

To Whom Liability Attaches. The usual rule prevails that the additional or stockholders' liability established by a constitutional or statutory provision attaches to the registered stockholder; that is, the one whose name appears upon the stock books and records of the company as sustaining to the corporation the relation of membership. This rule has been modified in some cases where a transfer has been made by a solvent member for the purpose of avoiding his stockholders' liability. A transfer for this purpose is termed a colorable transfer, and has been defined as one which is technically and legally correct, but made for the purpose of defrauding creditors. If a transfer is made to what is known as a straw man, or to a person non sui juris, or to the corporation, although the transfer be technically made, the creditors can hold, if they elect, the transferrer of the stock. A colorable transfer may also exist where stock has been transferred as a gift to others when the transaction results in a fraud upon creditors, although, if the gift is made in good faith by the former stockholder, the transfer will be sustained.

In some States, also, by statute, the creditor is given a designated time within which he can elect to hold either the transferor or the transferee, even where the transfer is made in good faith and for a valuable consideration, and not for the purpose of avoiding stockholders' liability or defrauding the creditors of the corporation. An illustra

tion of an act of this character is to be found in the Rev. Laws of Minnesota, 1905, Sec. 2985, where it is provided that "every person becoming a stockholder (in a bank) shall succeed, in proportion to his interest, to all the rights and become subject to all the liabilities of his transferor, but the liability of the latter shall continue for one year after the entry of such transfer."

Statutory provisions also exist in many States which, in effect, provide that a transfer t stock shall not in any way exempt the person making such transfer from any liabilities of the corporation which were created prior to the transfer. In respect to colorable transfers, it might be said, however, that the law is steadily tending to the protection of the bona fide owner who purchases on the open market and for a valuable consideration.

Stock Held in Fiduciary Capacity. Where stock appears upon the books of the company in the name of a person as trustee, liability attaches to the estate, and where one holds stock as an executor or administrator the estate is held liable, in many States, by express statutory provision. Where stock is held by one in a trust capacity, or as agent for another, in the absence of facts or record entries stating the relation, the rule is that the creditor can elect to hold either the one whose name appears as the registered stockholder, the cestui qui trust, or the undisclosed principal. A stockholder may be also estopped to deny his relation where he exercises rights and accepts the benefits of membership in the corporation, although no formal transfer has been made upon the books of the company; and the courts have also held, in protection of a transferor, who has in good faith made a transfer of his stock, that where the transferee or the corporation have negligently failed to make proper and complete entries on the books of the corporation, that the transferee will be held to the stockholders' liability.

Enforcement of Liability. The extent and the nature of stockholders' liability established by constitutional or statutory provisions is created and attaches, undisputably,

as the result of them. They vary so widely in the different jurisdictions that it is impossible to state any general rule or principle which will be of material assistance to the reader upon the subject of this section. In some States the creditor is authorized to proceed directly against the stockholder for the enforcement of the liability. In others, the common remedy is of an equitable nature where all the stockholders and creditors are brought into court and the debts equitably adjusted. The liability is generally a secondary one, although in some States it is made a primary obligation on the part of the stockholder. Where it is secondary, the universal rule obtains that a liability can only be enforced against a stockholder after a judgment has been obtained against the corporation and an execution returned thereon nulla bona (no property). The creditor must first exhaust all means for the collection of his debt against the corporation before he can proceed to enforce the stockholders' liability. A judgment obtained by him against the corporation is usually held to be conclusive upon the question of corporate indebtedness in subsequent proceedings against the stockholders to enforce his liability. No general rule can be stated by which can be accurately determined the proper person to enforce the liability. This will depend, again, on statutory provisions. The decisions of a particular court and the statutes relating to stockholders' liability must be examined and followed. It is not common, however, to regard a stockholder's liability as an asset of the corporation in the common acceptation of that term. In some States, a receiver of the insolvent corporation is the proper party to enforce the statutory liability of stockholders.

In Foreign Jurisdictions. The decisions in respect to the right to enforce a stockholder's liability in foreign jurisdictions are unsatisfactory and conflicting. If the liability is contractual in its nature, many foreign jurisdictions permit its enforcement against non-resident stockholders. The right is construed and determined according to the lex loci contractus and the remedy must be followed and

construed according to the law of lex loci (law of the place) forum. The right in a foreign state to enforce a stockholder's liability has been construed liberally in some States and strictly in others; so narrow in some cases as to practically deprive creditors of a part of the security on which their debts were contracted. It is universally admitted that where the liability is penal in its nature, it cannot be enforced outside the State creating the liability. The decisions, in establishing the character of the law creating a stockholder's liability as contractual or penal, hold that it is the effect and not the form of law which determines this. A penal law has been defined as one which directs or prohibits some act and imposes some forfeiture for its transgression.

§ 103. Shareholder's Liability. When proceedings are brought to enforce a stockholder's liability, while the common rule obtains that the registered stockholder is the one ordinarily liable, yet the time when the debt was contracted may change the rule, and the decisions involving a determination of this point are numerous and conflicting, the result of contrary statutory provisions in many cases even in the same State. The statutes and decisions in each jurisdiction, at the time it is necessary to determine the question, must be examined to ascertain the correct rule of law to be applied at a specific time. In general, it might be said, that there are three lines of decisions, in main the result of the varying conditions noted above, one line holding that the stockholders who were such at the time the debt was contracted will be liable, and a transfer will only release them from debts subsequently incurred. A transfer will not release them from those incurred by the corporation during their membership. Another line of decisions is to the effect that a registered stockholder at the time when the proceedings were commenced to enforce liability, is alone liable. And still other decisions hold that all persons are liable as stockholders who sustained that relation to the corporation either at the time the debt was contracted, or who became such prior to commencement of the action.

§ 104. Stockholders' Defenses. The defenses or rights available to stockholders in cases of proceedings brought to enforce their statutory liability are usually the statute limitations, if applicable, a claim against the corporation, or set-off as it is termed, and the right of contribution from other members of the corporation. In the absence of statutory provisions granting the right, a stockholder is not permitted to set off against his statutory liability a claim in his favor against the corporation. The character of the liability as primary or secondary will govern the application of the statute of limitations. If primary, the obligation rests upon the stockholder at the time the debt is contracted and the statute of limitations commences to run at the time the debt is due. If secondary, the statute begins to run from the time the insolvency of the corporation is determined. If the liability is penal in its character, it will be governed by the statute of limitations in a particular State relating to penalties and forfeitures. Where a statutory liability is joint and several, if contractual, a stockholder who has been obliged to pay more than his proper proportion to liquidate the debts of the corporation is entitled to contribution from the other stockholders, but otherwise if the liability is penal.