or conveyed or rendered to, the corporation; and the president, treasurer and directors shall be jointly and severally liable to any stockholder of the corporation for actual damages caused to him by such issue.” 541

a. Comparison with previous law.

This section marks one of the principal departures from the previous policy of the commonwealth in regard to corporations, and especially in two respects: 1. Stock may now be issued

541 St. 1903, c. 437, § 14. See Pub. St., c. 106, § 46; St. 1875, c. 177, § 2; St. 1870, c. 224, § 32; St. 1866, c. 290, § 8; Gen. St., c. 61, § 8; Gen. St., c. 60, §§ 17, 18; St. 1857, c. 276, § 1; St. 1851, c. 133, § 4; Rev. St., c. 38, §§ 16, 17; St. 1829, c. 53, § 6; Pub. St., c. 106, §§ 47, 48; St. 1875, c. 177, § 2; St. 1870, c. 224, § 27; Gen. St., c. 60, § 14; Rev. St., c. 38, § 24; St. 1829, c. 53, § 8; Pub. St., c. 106, § 49; St. 1879, c. 275 §§ 2, 3.

Citations.

Pub. St., c. 106, § 46: Chase's Elevator Co. v. Boston TowBoat Co., 152 Mass. 429, 28 N. E. Rep. 300; 1 Op. Att'y-Gen❜l. 662-664. St. 1870, c. 224, § 32: First Nat. Bank of Salem v. Almy, 117 Mass. 476; Nickerson v. Wheeler, 118 Mass. 299; Mechanics' Foundry & Machine Co. v. Hall, 121 Mass. 275; Chase's Elevator Co. v. Boston Tow-Boat Co., 152 Mass. 431, 28 N. E. Rep. 300; 1 Op. Atty.-Gen. 206, 663. Ward v. Brigham, 127 Mass. 24.

St. 1866, c. 290, § 8: Gen. St., c. 61, § 8: Cochrane v. Reed, 13 Allen, 455; Bradley v. Poole, 98 Mass. 181; Merrick v. Reynolds Engine & Governor Co., 101 Mass. 381; Hawes v. Anglo-Saxon Petroleum Co., 101 Mass. 395; Moore v. Reynolds, 109 Mass. 473; Pope v. Leonard, 115 Mass. 286; Priest v. Essex Hat Mfg. Co., 115 Mass. 380; Chase's Elevator Co. v. Boston TowBoat Co., 152 Mass. 431, 28 N. E. Rep. 300.

Gen. St., c. 60, § 17: Mass. 429, 28 N. E. Rep. Gen. St., c. 60, § 18:

Chase's Elevator Co. v. Boston Tow-Boat Co., 152 300; 1 Op. Atty.-Gen. 659, 663.

Newcomb v. Reed, 12 Allen, 365; Pope v. Salamanca Oil Co., 115 Mass. 290; Child v. Boston & Fairhaven Iron Works, 137 Mass. 517.

St. 1857, c. 276, § 1:
St. 1851, c. 133, § 4:

Acid Mfg. Co. v. Moring,

Cochrane v. Reed, 13 Allen, 457.

Utley v. Union Tool Co., 11 Gray, 141; Boston 15 Gray, 211; Dooley v. Cheshire Glass Co., 15 Gray, 494; Hawes v. Anglo-Saxon Petroleum Co., 101 Mass. 394. Rev. St., c. 38, § 16: Stedman v. Eveleth, 6 Met. 123; Curtis v. Harlow, 12 Met. 4; Knowlton v. Ackley, 8 Cush. 96; Wyman v. American Powder Co., 8 Cush. 182; Holyoke Bank v. Goodman Paper Mfg. Co., 9 Cush. 580; Holyoke Bank v. Burnham, 11 Cush. 186; Thayer v. Union Tool Co., 4 Gray, 75; Cabot Bank v. Bodman, 11 Gray, 137; Cambridge Water Works v. Somerville Dyeing & Bleaching Co., 14 Gray, 194; Johnson v. Somerville Dyeing & Bleaching Co., 15 Gray, 219; Howe v. Boston Carpet Co., 16 Gray, 496; Cary v. Holmes, 2 Allen, 498; Barre Nat. Bank v.

for intangible property, good-will, etc. 2. Stock issued for cash need not be fully paid in before the corporation commences business. 542

b. Issue for property, services or expenses.

At common law, in the absence of charter restrictions, a corporation could always issue stock for property, labor or services as well as money, at an honest and bona fide valuation.543

Hingham Mfg. Co., 127 Mass. 570; Potter v. Stevens Machine Co., 127 Mass. 594.

Rev. St., c. 38, § 17: Stedman v. Eveleth, 6 Met. 114; Curtis v. Harlow, 12 Met. 3; Sargent v. Webster, 13 Met. 506; Wyman v. American Powder Co., 8 Cush. 182; Holyoke Bank v. Goodman Paper Mfg. Co., 9 Cush. 580; Holyoke Bank v. Burnham, 11 Cush. 186; Howe v. Boston Carpet Co., 16 Gray, 493; Bond v. Clark, 6 Allen, 362; Peele v. Phillips, 8 Allen, 86; Child v. Boston & Fairhaven Iron Works, 137 Mass. 517.

St. 1829, c. 53, § 6: Mill Dam Foundery v. Hovey, 21 Pick. 419; Bordman v. Osborne, 23 Pick. 300; Holyoke Bank v. Burnham, 11 Cush. 189; Child v. Boston & Fairhaven Iron Works, 137 Mass. 519.

Pub. St., c. 106, § 47: Honsucle v. Ruffin, 172 Mass. 423, 52 N. E. Rep. 525; 1 Op. Atty.-Gen. 662-664.

St. 1870, c. 224, § 27: Mechanics' Foundry & Machine Co. v. Hall, 121 Mass. 275.

Pub. St., c. 106, § 49: 525.

Honsucle v. Ruffin, 172 Mass. 423, 52 N. E. Rep.

542 Historical. The prohibition in R. L., c. 110, § 43, against a corporation transacting business until the whole amount of its capital stock was paid in, originated in St. 1870, c. 224, § 32. Prior to that time there was no prohibition against a corporation carrying on business without payment of its capital stock. 1 Op. Atty.-Gen. 659, 663. Under R. L.,

c. 110, § 44, capital stock was required to be paid in in cash, unless a certificate of the president, treasurer, and a majority of the directors was filed giving a description of property transferred in place of cash, and its value. Where a subscriber borrowed money from a bank to pay for his stock, sold property to the corporation and used the corporation's check to pay his loan at the bank, it was held that the stock was not paid for in cash. Harvey-Watts Co. v. Worcester Umbrella Co., 193 Mass. 138. And the same was held where a subscriber borrowed to pay for stock and the next day repaid the loan with money borrowed from the corporation on his note. Harvey-Watts Co. v. Worcester Umbrella Co., 193 Mass. 138. Cf. International Paper Co. v. Gazette Co., 182 Mass. 578.

543 Camden v. Stuart, 144 U. S. 104; Coit v. Gold, etc., Co., 119 U. S. 343; Wyman v. American Powder Co., 8 Cush. 168; Boston, etc., R. Co. v. Wellington, 113 Mass. 79; New Haven, etc., Nail Co. v. Linden Spring Co., 142 Mass. 349; Gillin v. Sawyer, 93 Me. 151; Close v. Noye, 147 N. Y.

Therefore the present act is in this regard a return to the common law, and a doing away with an artificial restriction.

The directors are the sole judges of the value of the property capitalized under the new law.544

In one case, where no stock was issued, but money was expended for property, and the members agreed that their rights should pass with their property, it was held the corporation was properly organized.545

Stock should be issued for property only to the amount of the true value of the property in money. 546 Good-will is property within the meaning of this section.547 So, also, are patent rights, as they exist equally in every State.548

Promotion expenses.

An expenditure of money by promoters for travelling expenses, rent and tools, with the intent that it shall operate as payments for stock, is not a payment in cash under this section, although it may be the basis of a claim against the corporation for reimbursement.549

Bonus stock.

An agreement to give shares of stock to one procuring subscriptions is void, although the subscriptions are procured, as it gives an unfair advantage to such person over the other stockholders. 550

544 Formerly the commissioner of corporations was the judge. R. L., c. 110, § 44.

545 McGinty v. Athol Reservoir Co., 155 Mass. 184, 29 N. E. Rep. 510. 546 Wetherbee v. Baker, 35 N. J. Eq. 501; Edgerton v. Electric Improvement, etc., Co., 50 N. J. Eq. 354; Donald v. American Smelting, etc., Co., (N. J.) 48 Atl. Rep. 771; Libby v. Tobey, 82 Me. 397.

547 Washburn v. National Wall Paper Co., 81 Fed. Rep. 17; Peabody v. Norfolk, 98 Mass. 452, 457. As to good will see also, generally, Hutchinson v. Nay, 183 Mass. 355; s. c., 187 Mass. 262; Moore v. Rawson, 185 Mass. 264.

548 Wilson v. Martin-Wilson Fire Alarm Co., 149 Mass. 24.

549 Honsucle v. Ruffin, 172 Mass. 420.

550 Nickerson v. English, 142 Mass. 267.

d. Sale of merchandise in bulk.

In view of the frequent practice for a corporation to buy the business of a firm, an individual or another corporation and to issue stock therefor, attention should be called to the fact that such a trasaction is, on its face, within the terms of the statute prohibiting the sale of merchandise in bulk.5

e. Issue of partly-paid stock.

551

Where the capital is not fully paid in at the start, the liability of the stockholders ordinarily takes the place of the unpaid part of the subscriptions.552 This is on the theory that where stock purports to be fully paid up, purchasers and creditors have a right to rely on that being the fact. 553 The present act, however, provides that certificates shall bear upon their face the facts as to part payment, so that the reason of the rule would not apply under the new law.

Under the former law, requiring the capital to be paid in before the corporation did business, it was nevertheless decided that a contract made by a corporation before the capital was paid in was not void, but the liability of the stockholders took the place of the unpaid portion of the capital.554 Conversely the corporation cannot set up the nonpayment of stock in full as a defence in an action against a creditor.555

f. Treasury stock.

The term "treasury stock" is sometimes wrongly used to denote stock which has not been issued. The present act does

551 St. 1903, c. 415. For the text of the act and decisions under it, see supra, § 4, v.

552 Merrick v. Reynolds Engine, etc., Co., 101 Mass. 381; Chase's Elevator Co. v. Boston Tow-Boat Co., 152 Mass. 428, 28 N. E. Rep. 300; Appleton v. Turnbull, 84 Me. 72; McAvity v. Lincoln Co., 82 Me. 504; Pettibone v. Toledo, etc., R. Co., 148 Mass. 411, 414, per Field, J. Cf. Augur Steel Axle, etc., Co. v. Whittier, 117 Mass. 451; Cambridge Water Works v. Somerville, etc., Co., 4 Allen, 239.

553 Pettibone v. Toledo, etc., R. Co., 148 Mass. 411, 414. Tobey, 82 Me. 397; Morgan v. Howland, 89 Me. 484.

Cf. Libby v.

554 Chase's Elevator Co. v. Boston Tow-Boat Co., 152 Mass. 428, 128 N. E. Rep. 300; Hawes v. Anglo-Saxon Petroleum Co., 101 Mass. 385.

555 Dooley v. Cheshire Glass Co., 15 Gray, 494; Merrick v. Reynolds Engine, etc., Co., 101 Mass. 381.

not require all the capital stock of a corporation to be issued at the start, but as we have seen, § 14 requires a certificate to be approved by the Commissioner of Corporations before additional stock is issued.556

Treasury stock," properly so-called, is stock which has been issued and is full paid, and which, through gift or purchase, has come back into the possession of the company. For example, it is quite common to issue the entire capital or part of it to promoters in exchange for property at its full value, and for the promoters thereupon to donate a certain portion of the stock so received to the treasury of the corporation. Such stock, having been fully paid can then be sold by the company for any price, even below par, like any other property; and can be thus used to provide working capital.557

g. Issue of fictitiously paid stock.558

This section requires that, where stock not fully paid is issued, the certificates shall be stamped with the per cent. paid. Certificates might be issued falsely stamped, or the payment might be fictitious, or the property overvalued.

In such cases persons who were defrauded could apply to a court of equity asking to have the sale rescinded as to them or for other appropriate relief.559 And such issue would likewise be invalid as against creditors.560

556 Cf. 3 Thompson, Corp., § 3196.

557 Conyngton, Corp. Management, 43, 149, 150; Elliott v. Baker, 194 Mass. 518, March 1, 1907.

558 As to the liability of the president, treasurer and directors for debts and contracts where stock is issued in violation of the provisions of this section, see infra, § 34.

559 Sawyer v. Hoag, 17 Wall. 610; Camden v. Stuart, 144 U. S. 104; Wetherbee v. Baker, 35 N. J. Eq. 501; Melvin v. Lamar Ins. Co., 80 Ill. 446; Fisk v. Chicago, etc., R. Co., 53 Barb. 513. Cf. Field v. Pierce, 102 Mass. 253, 260; New Haven Horse Nail Co. v. Linden Spring Co., 142 Mass. 349, 354; Lake Superior Iron Co. v. Drexel, 90 N. Y. 87, 92. 560 Libby v. Tobey, 82 Me. 397; Barron v. Burrill, 86 Me. 66; Wetherbee v. Baker, 35 N. J. Eq. 501; Lee v. Heppenheimer, 55 N. J. Eq. 240. See Douglass v. Ireland, 73 N. Y. 100, 106. See, generally, 2 Clark & Marshall, Corp., § 389-401j.