case of an increase of capital, the articles of amendment shall describe the property, services or expenses for which such new stock is to be issued and the amount of stock to be issued therefor or for cash.12 1289 These provisions would seem to require full payment for all stock issued, in some form,1290 and to make a stock dividend invalid, unless the provision of section 42 that the corporation, by vote of a majority of all its stock, may determine the terms and manner of the disposition of new stock, authorizes a stock dividend. The same result has been sometimes attempted to be reached, in another way, by making a cash dividend which stockholders can use to purchase new stock. Such a dividend, if the stockholder is not required to use it to pay for new stock, is strictly a cash dividend,1291 and therefore not objectionable, on any construction of the statute. But, if the directors vote that the dividend can be used only to pay for stock and that the new stock shall be issued only to old stockholders, it is a stock dividend.1292 It may be noted that the railroad act forbids the declaring of any stock or scrip dividend,1293 and the same is true of other public service corporations.1294 This is an argument that the silence of the business corporation act means that stock dividends are permissible for business corporations. Of course, the reasons against large dividends for public service corporations, which have a practical monopoly of their business, do not apply to the same extent to a private corporation.1295 1289 Infra, § 42. 1290 Cf. Tucker on Corp., 2d ed., 215, and R. L., c. 109, § 29; c. 110, §§ 31-34. 1291 Lyman v. Pratt, 183 Mass. 58; Davis v. Jackson, 152 Mass. 58. Cf. Hemenway v. Hemenway, 181 Mass. 406. 1292 Rand v. Hubbell. 115 Mass. 461. The court did not, however, discuss the validity of the stock dividend in this case. See p. 478. Cf. D'Ooge v. Leeds, 176 Mass. 558; Boston & Lowell R. Co. v. Com., 100 Mass. 399; Daland v. Williams, 101 Mass. 571; Jones v. Brown, 171 Mass. 318, 322. 1293 St. 1906, c. 463, § 63; R. L., c. 109, § 20. 1294 R. L., c. 109, § 20. 1295 See Cook on Corp., 5th ed., § 51. Cf. Com. v. Boston & Albany R. Co., 142 Mass. 146. Questions as to stock dividends frequently arise in the administration of trusts, and, as between the life tenant and the remainderman, the general rule is that cash dividends, however large, are to be regarded as income, while stock dividends, however made, are considered capital.1296 Rights are also capital.1297 F. LIABILITY OF STOCKHOLDERS AND DIRECTORS. § 33. Liability of Stockholders. "The stockholders of a corporation which reduces its capital stock contrary to the provisions of section forty-three shall be liable for the payment of the debts and contracts of the corporation existing at the time of such reduction to the extent of the amount withdrawn and paid to them respectively. The stockholders of a corporation shall also be liable for all money due to operatives for services rendered within six months before demand made upon the corporation and its neglect or refusal to make such payment. A stockholder who pays on a judgment or otherwise more than his proportion of any such debt shall have a claim for contribution against the other stockholders." 1298 1296 D'Ooge v. Leeds, 176 Mass. 558, 560; Minot v. Paine, 99 Mass. 101, 108; Daland v. Williams, 101 Mass. 571; Leland v. Hayden, 102 Mass. 542, 550; Rand v. Hubbell, 115 Mass. 461; Gifford v. Thompson, 115 Mass. 478; Adams v. Adams, 139 Mass. 449, 452; Davis v. Jackson, 152 Mass. 58; Hemenway v. Hemenway, 181 Mass. 406; Lyman v. Pratt, 183 Mass. 58. Cf. Atkins v. Albree, 12 Allen, 359; Harvard College v. Amory, 9 Pick. 446; Balch v. Hallett, 10 Gray, 402; Reed v. Head, 6 Allen, 174. 1297 Atkins v. Albree, 12 Allen, 359. 1298 St. 1903, c. 437, § 33; R. L., c. 110, § 59; Pub. St., c. 106, § 61; St. 1876, c. 1, § 1; St. 1875, c. 177, § 1; St. 1870, c. 224, § 39; St. 1862, c. 218, § 2; Gen. St., c. 60, §§ 12, 17, 22; c. 68, § 16; St. 1855, c. 290; St. 1852, c. 9; St. 1851, c. 133, § 15; c. 252; Rev. St., c. 38, §§ 16, 21, 32, 33; St. 1829, c. 53, §§ 6, 7, 10, 11; St. 1826, c. 137, § 2; St. 1821, c. 38. Citations. R. L., c. 110, § 59: Anthony, etc., Co. v. Metropolitan Art Co., 190 Mass. 38. Pub. St., c. 106, § 61: Brown v. Eastern Slate Co., 134 Mass. 590; Chase's Elevator Co. v. Boston Tow-Boat Co., 152 Mass. 429, 28 N. E. Rep. 300. St. 1876, c. 1, § 1: Brown v. Eastern Slate Co., 134 Mass. 590. St. 1870, c. 224, § 39: First Nat. Bank of Salem v. Almy, 117 Mass. 478; Nickerson v. Wheeler, 118 Mass. 299; Burnap v. Haskins Steam Engine Co., 127 Mass. 586; Thompson v. Bemis Paper Co., 127 Mass. 598; Brown v. Eastern Slate Co., 134 Mass. 590; Chase's Elevator Co. v. Boston Tow-Boat Co., 152 Mass. 432, 28 N. E. Rep. 300. This section marks one of the principal changes in the Massachusetts corporation law, and relieves stockholders from the most serious burdens formerly imposed. Under the present act stockholders are liable, only, (1) in cases of illegal reduc tion of capital; (2) for six months' wages of operatives, where the corporation does not pay them. In Maine, New York, New Jersey, Delaware and West Virginia there is no personal liability on stockholders whose stock is fully paid and the capital has not been reduced, except that there is a similar provision as to wages of employees in New York. a. Construction of this section. The liability for corporate debts on the part of members of the corporation is created solely by statute, and such statutes St. 1870, c. 224, § 39, cl. 1: Barre Nat. Bank v. Hingham Mfg. Co., 127 Mass. 564. St. 1870, c. 224, § 39, cl. 2: Thompson v. Bemis Paper Co., 127 Mass. 596. St. 1870, c. 224, § 39, cl. 4: American Tube Works v. Boston Machine Co., 139 Mass. 9, 29 N. E. Rep. St. 1870, c. 224, § 39, cl. 5: Mass. 587. 63. Burnap v. Haskins Steam Engine Co., 127 St. 1862, c. 218, § 2: Saxon Petroleum Co., 101 Gen. St., c. 60, § 12: Gen. St., c. 68, § 16: Bell v. Spaulding, 3 Allen, 486; Atty. Gen. v. Mercantile Ins. Co., 121 Mass. 525. Peele v. Phillips, 8 Allen, 89; Hawes v. AngloMass. 385; Nickerson v. Wheeler, 118 Mass. 299. Williams v. Parker, 136 Mass. 207. Gen. St., c. 60, § 17: Chase's Elevator Co. v. Boston Tow-Boat Co., 152 Mass. 429, 28 N. E. Rep. 300; 1 Op. Atty.-Gen. 659, 663. St. 1855, c. 290: Allen v. Herrick, 15 Gray, 274; Williams v. Parker, 136 Mass. 207; American Tube Works v. Boston Machine Co., 139 Mass. 9, 29 N. E. Rep. 63. St. 1852, c. 9: Atty. Gen. v. Mercantile Ins. Co., 121 Mass. 525. St. 1851, c. 252: Bell v. Spaulding, 3 Allen, 485. 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, being penal in their nature are to be construed strictly.1299 The liability cannot be imposed by a by-law.1300 "Such a power would be liable to great abuse, and would subject every member of a corporation, however liberal its charter in excluding individual liability, to be made responsible for the entire indebtedness of the corporation by the act of a majority of those convened at a meeting of such corporation." 1301 It is possible, however, that where money is lent to the corporation upon the faith of such a by-law, subscribed to by the defendant, he may be held individually liable to a primary liability on a different ground from that of a stockholder's liability as such; and, of course, if stockholders personally enter into obligations they are personally liable; 1303 although, if oral, the representations may be within the statute of frauds.1304 1302 496; Cary v. Holmes, 2 Allen, 498; s. c., 16 Gray, 127; Barre Nat. Bank v. Hingham Mfg. Co., 127 Mass. 570; Potter v. Stevens Machine Co., 127 Mass. 594. Rev. St., c. 38, § 21: Holyoke Bank v. Burnham, 11 Cush. 186. Rev. St., c. 38, § 32: Knowlton v. Ackley, 8 Cush. 98; Thayer v. Union Tool Co., 4 Gray, 75; Cary v. Holmes, 16 Gray, 127; s. c., 2 Allen, 499. St. 1829, c. 53, § 6: Mill Dam Foundery v. Hovey, 21 Pick. 419; Bordman v. Osborn, 23 Pick. 300; Holyoke Bank v. Burnham, 11 Cush. 189; Child v. Boston & Fairhaven Iron Works, 137 Mass. 519. St. 1829, c. 53, § 7: Mill Dam Foundery v. Hovey, 21 Pick. 454; Howe v. Boston Carpet Co., 16 Gray, 497. St. 1829, c. 53, § 10: Mill Dam Foundery v. Hovey, 21 Pick. 454; Child v. Boston & Fairhaven Iron Works, 137 Mass. 519. St. 1829, c. 53, § 11: Cambridge Water Works v. Somerville Dyeing & Bleaching Co., 4 Allen, 243; Old Colony, etc., Shoe Co. v. Parker, etc., Co., 183 Mass. 564. St. 1821, c. 38: Kelton v. Phillips, 3 Met. 63; Stone v. Wiggin, 5 Met. 317; Curtis v. Harlow, 12 Met. 4; Child v. Boston & Fairhaven Iron Works, 137 Mass. 517. See also, generally, Andrews v. Callender, 13 Pick. 484; Merchants' Bank v. Stevenson, 10 Gray, 232; Stone v. Fenno, 6 Allen, 579; Byers v. Franklin Coal Co., 106 Mass. 131. 1299 Stedman v. Eveleth, 6 Met. 114; Andover Free Schools v. Flint, 13 Met. 539; Gray v. Coffin, 9 Cush. 192. 1300 Andover Free Schools v. Flint, 13 Met. 539; Flint v. Pierce, 99 Mass. 68. 1301 Andover Free Schools v. Flint, 13 Met. 539, 543, per Dewey, J. 1302 Flint v. Pierce, 99 Mass. 68. 1303 Tileston v. Newell, 13 Mass. 406. 1304 Andover Free Schools v. Flint, 13 Met. 539, 543. b. Who may enforce the liability, 1306 A creditor who is also a stockholder, and as such liable for its debts, is not entitled to the remedies afforded by statute to creditors against stockholders for the debts of the corporation; 1306 and a person to whom a stockholder has transferred a promissory note of the corporation, for the sole purpose of enabling him to obtain judgment upon it in his own name, and to bring a bill in equity to enforce the personal liability of the stockholders, stands in no better position than his assignor.1 Query, whether a merely equitable owner would be disabled likewise.1308 But the fact that a creditor holds collateral from a stockholder does not prevent his proceeding against the corporation if insolvent, or oblige him to apply his security in payment or surrender it to the assignees,1309 1307 It is competent for parties contracting with a corporation to agree that there shall be no personal liability for a particular debt, and if the debt is evidenced by a written instrument the agreement may be oral.1310 c. To whom the liability extends - Construction of statute. Under section 36 of the present act, any creditor may, after the corporation has been adjudicated bankrupt or has neglected for thirty days after a demand on execution to pay a judgment, bring his bill against it and "all persons who are liable to the plaintiff as stockholders or officers.” Under the previous law the bill was to be brought against the corporation "and all persons who were stockholders at the 1305 See also infra, § 36, i. 1306 Thayer v. Union Tool Co., 4 Gray, 75; Potter v. Stevens Machine Co., 127 Mass. 592; Thompson v. Bemis Paper Co., 127 Mass. 595; Thacher v. King, 156 Mass. 490. In Peirce v. Partridge, 3 Met. 44, it was held a stockholder might levy on or attach corporate property although he was liable to satisfy other judgments against the corporation. 1307 Potter v. Stevens Machine Co., 127 Mass. 592. Cf. Thayer v. Union Tool Co., 4 Gray, 75. 1308 Crease v. Babcock, 10 Met. 525; Johnson v. Somerville Dyeing & Bleaching Co., 15 Gray, 216; Thompson v. Bemis Paper Co., 127 Mass. 595. 1309 Cabot Bank v. Bodman, 11 Gray, 134. 1310 Brown v. Eastern Slate Co., 134 Mass. 590. |