Burton, J.
The G-rnbbs Cracker Company is a corporation organized July, 1885, under the general incorporation law of this State. In October, 1887, being insolvent, it made a general deed of assignment to Dickinson, as trustee, to equally secure all creditors. The original bill was filed by Cartwright, claiming to be a creditor of the corporation, for the purpose of enforcing payment out of the assets in defendant’s hands. One -of the \ demands set up is not now resisted; the other is contested as being without consideration. The as-signee, after answering, filed a cross-bill to recover some $6,000 alleged to be due upon unpaid calls on stock owned by Cartwright in the cracker.company, and to recover $1,000 paid back to him by the secretary and treasurer of that company upon an alleged ineffectual cancellation and rescission of his liability as a subscriber for stock. Cartwright, before the charter was obtained, subscribed for $8,000 of the stock of the proposed corporation. A charter was obtained by the usual application, provided by the Act of 1875. The subscribers thereupon met, and organized by accepting the charter, adopting by-laws, and electing directors. He was present at this meeting, and was elected a director, and acted as such for a year thereafter.
*480The Act of 1875 does not require the amount of the capital stock of a corporation to be stated in the application for the charter, but authorizes the capital to be fixed subsequently by by-law. Such a by-law was adopted at the organization, and the capital settled at $40,000, to be divided into shares of $100 each. A few days thereafter Cartwright paid the first call of 25 per cent., amounting to $2,000, and took the receipt of the secretary and treasurer for that sum as a payment upon his stock. The remainder of the sum due ($6,000) he has never paid, and now claims that his contract has been canceled or rescinded, and that he is not liable therefor. The facts upon which This defense is placed are these: In July, 1886, one year after the company had begun business, Cartwright, desiring to withdraw therefrom, spoke to Mr. Grubbs, and asked him to dispose of his stock. Grubbs was the brother-in-law of Cartwright; was the largest ^stockholder in the corporation, and was its secretary, treasurer, and general manager. Grubbs, it seems, did accordingly undertake to dispose of his stock, which appears at that date to have been salable at par. September 2, 1886, Grubbs told him he had made a disposition of the shares, and by his direction the proper entries were made on the books of the company, by which the balance due as for unpaid calls was charged off, and the $2,000 theretofore paid in on first call was credited to the personal account of Cartwright. Of this credit $600 was *481then paid in cash, same being credited on the stock receipt previously taken for amount of first call. Subsequently this receipt was surrendered, and the note of the corporation executed to Cartwright for the remainder. This note was afterward reduced by payments and a new note executed, which is the smaller of the two demands upon which the original bill is filed.
What Grubbs did, which he supposed authorized him to rescind the contract by which Caid-wright had purchased shares, was this: He went upon the streets and solicited new subscriptions to the stock of his company, and, when he had obtained these, he regarded himself as authorized to rescind the contract of Cartwright, and release him from all obligation as a share-holder indebted on account of his shares. To carry out his purpose he caused the books to show that Cartwright, instead of being debtor, was a creditor to the extent of the capital which he was allowed to withdraw.
The proof does not show any transfer of Cart-, wright’s stock to other persons, or any agreement that it should be transferred to others, or that they should be substituted to his rights and liabilities. There is no pretense of the purchase of shares from Cartwright by other persons. On the contrary, they were procured to subscribe for new shares, just as Cartwright had done in the first instance.
Before the organization of the corporation and *482acceptance of tlie subscription of Cartwright, the promoters might, perhaps, agree to release a subscriber by substituting other names for his, and erasing from the list that of the recalcitrant. Cook on Stock, Sec. 75. But at the moment when the conditions required by law as preliminary to the granting of a charter were complied with, the subscribers became share-holders, entitled to a voice as share-holders in all subsequent proceedings, and to compel a specific performance of the contract of membership. At the same time all the obligations of a share-holder were assumed, and the liability to pay the amount of the shares became fixed and absolute. This liability to pay calls as they should be made upon the shares is a mere incident of membership, and the fact that such payments have not been made does not affect the status of the member as a share-holder until a forfeiture has been declared in such manner as provided by the charter. The fact that certificates of shares have not been issued does not affect the question. Such certificate is never essential to constitute one a share-holder, being mere evidence of the ownership of shares. 1 Mor. Corp., Sec. 56, and eases cited.
This view of the effect of a certificate has been heretofore settled in this State. Cornick v. Richards, 3 Lea, 1; Butler v. State, 86 Tenn., 621; Young v. Tredegar Iron Works, 85 Tenn., 189" court="Tenn." date_filed="1886-10-21" href="https://app.midpage.ai/document/young-v-south-tredegar-iron-co-8298040?utm_source=webapp" opinion_id="8298040">85 Tenn., 189.
It follows that Cartwright was the owner of eighty shares of the capital stock of this corpora*483tion. This stock he has never assigned or transferred to any other person. hTo other person claims to own his stock, or to he in any way legally or equitably entitled to have it transferred to them. The cancellation of his subscription was inoperative to cancel his shares or discharge his obligation to pay for them. Unless the charter authorizes a forfeiture of shares for non-payment of calls, there is no power in the corporation to forfeit, cancel, or annul shares once lawfully issued. The contract of share-holdei’s is a mutual one. Without the consent of all one cannot be released from liability. Even a board of directors cannot discharge the contract of a share-holder to pay for his shares according to his contract, or disfranchise him by a forfeiture declared without express authority of law. Chase v. Railroad, 5 Lea, 415; Mor. Corp., Sec. 309, and cases cited.
The argument that if in fact, the corporation received from these new subscribers the same amount of money which Cartwright was to contribute, that, in that case, what was done would in effect be the substitution of the capital of one for that which another was bound to contribute is plausible, but is unsound in laAv, and unsustained by the facts of this case. Unsound in law because the mere fact of obtaining certain new and original capital cannot operate to empower the corporation to return capital theretofore embarked in the enterprise. These new subscribers, by their subscription, undertook to contribute additional *484capital, and not to substitute their capital for money to withdrawers. This was not their engagement. This is the difference between the purchasing of Cartwright’s shares and the subscribing for new shares, and the distinction between the effect of buying shares already issued and subscribing for' new shares. In the latter case new capital is contributed, while in the former only the legal title of shares is changed. The new subscribers, as well as the old, had a right to demand that every share-holder should be compelled to pay his shares up according to contract.
There -was no more authority to cancel Cartwright’s shares, and release him from his liability,' after this additional capital was contributed than there was before. The contention is not sound in fact. Mr. Grubbs seems to have supposed that he had the right to release share-holders from their obligations just as suited him or them. lie seems likewise to have supposed that he was authorized to take new subscribers to take the places of such as chose to withdraw, and to furnish new capital as the necessities of the business demanded. The share list shows several other share-holders, who, after experimenting with the cracker business, withdrew, and had their money returned. So, when Mr. Grubbs undertook to get new stock to take the place of old stock owned by Cartwright, he seems to have had other arrangements of the same sort to carry out; for he says that he got these new subscribers to “ cover ” Cartwright’s stock, and *485that of others to whom he had made the same promises.
The fact that the authorized limit of $40,000 had been reached, does not seem to have been auy embarrassment whatever. He says he got an amount of new subscriptions, after he agreed to place Cartwright’s stock, equal to his or greater. In this he is shown, by a careful examination of the stock list, to have been mistaken. The total of stock subscriptions July 1, 1886, was $50,000. The total in October, 1886, inclusive of Cartwright’s, was about $57,000. Then, to cover Cartwright’s $8,000, and that of others to whom he had made same promises, there could not have been over $7,000 obtained. Thus it is not even the case of money of a new subscriber having fully taken the place of an old one suffered to withdraw. That the corporation, at the time, had actually received the full sum of $40,000, and that that was the limit of its authorized capital, cannot avail Cartwright. If the shares subscribed after the limit of $40,000 had been reached were valid and lawful, then the corporation was- entitled to a much larger sum than $40,000. If, on the other hand, these subscriptions were void, then they were not enforceable, and money actually paid could not be lawfully held if demanded by such subscribers, creditors out of the way.
If the transaction be looked at- as a purchase of these share's by the corporation, then it is equally ineffective. Whatever power a corporation *486may have to deal iu its own shares for purposes of sale or to secure a debt, it is too clear for argument that it cannot reduce its authorized capital by purchasing its own shares for. cancellation. Morawetz Corp., Secs. 111, 112, 113.
The case of Sligo v. Jackson, 1 Lea, 210, does not hold a contrary doctrine, as argued by counsel. The sale of stock sustained in that case was not a sale to the corporation, but to one Sloan, a stranger.
The next defense urged is, that the corporation has violated its charter by increasing its capital stock, and that it has already' issued stock certificates in excess of its lawful capital, and that therefore it is not in the power of the corporation to issue valid shares to him. The capital fixed by by-law at $40,000 was, as we have already seen, exceeded by the action of Mr. Grubbs in obtaining subscriptions in excess of that limit. This was unauthorized by the share-holders or the directors. Such subscriptions for new shares, after $40,000 had been taken, were null and void. In February, 1887, the share-holders amended their by-laws so as to increase their authorized capital to $100,000. This was intended to legalize the excess of shares already taken and authorize a further increase. Under this amendment new stock was taken until the whole list reached about $76,-000. • After the assignment to Dickinson, a scheme 'for the reorganization of their business was conceived, and the share-holders again amended their *487by-laws so as to declare all stock theretofore issued common stock, and to authorize issuance- of “preferred” stock to the amount of $30,000, this latter to have preference to the extent of six per cent, in payment of dividends over the common stock. It appears that, under this scheme, some $23,000 of “ preferred ” stock has been sold, thus bringing the total of shares, excluding Cartwright’s, to something over $99,000. Neither of these amendments of the by-laws were made in pursuance of the Acts of 1883, page 212, concerning the amendment of charters so as to allow an increase of capital stock. The question as to whether the capital stock, having been once fixed by by-law as provided by general incorporation laws of 1875, can be increased without an amendment of the charter in the manner pointed out by the Act of 1883, is a grave one, and is reserved for the reason that in the view we have of this case it need not be decided. This question cannot affect Cartwright’s liability to pay for his shares. By his subscription, as we have seen already, he became a shareholder. His shares are not affected by the subsequent issue of shares in excess of charter limit. If these shares were issued without power upon the part of the corporation to issue them, they are absolutely void, and confer no rights of membership upon those who hold them. In a contest between them and the holders of shares subscribed before the capital was all taken, they would be excluded from all participation in the management *488or profits of the business. Scovel v. Thayers, 105 U.S., 143" court="SCOTUS" date_filed="1882-03-13" href="https://app.midpage.ai/document/scovill-v-thayer-90555?utm_source=webapp" opinion_id="90555">105 U. S., 143. That the corporation has been guilty of a violation of its charter, in this or any other matter, is no defense to an action for calls due from a share-holder upon his shares. His remedy was against the corporation to restrain such alleged illegal action, or is against the agents personally, for any wrong and injury done him. It furnishes no reason why he shall not carry out his own contract. The usual rule by which the breach of a contract upon one side justifies its breach or abandonment by the other, has little application in cases of this character. Mor. Corp., Sec. 116, and cases cited.
The question as to whether the issuance of preferred stock was valid and effective as against share-holders not assenting then or subsequently, we do not determine. Operative or inoperative, it does not affect the contract to pay for the shares he became the owner of by his contract of subscription. The fact that he has not had notice of subsequent meetings of share-holders, or opportunity to attend or protect himself against action of the other share-holders affecting value of his stock cannot operate to release him from his contract. Neither the directors nor the share-holders had any knowledge of the arrangement by which he supposed he was released.
In January, 1887, several months after his arrangement with Mr. Grubbs had been perfected, the latter informed the board of directors that *489there was a vacancy in the board, Mr. Cartwright having sold his stock. This vacancy was thereupon filled. The directors and share-holders thereafter assumed that his shares had been in fact sold to others. Grubbs, in so far as he undertook to dispose of his shares, was the agent of Cartwright in such disposition. If Cartwright was misled and deceived by the statement of Grubbs that he had sold his shares, and thereby lulled into a course of action or non-action whereby he has suffered, he can look only to his agent for indemnity. If, on the other hand, he knew the exact facts upon which Grubbs assumed authority to cancel his shares, and acted either upon the opinion of Grubbs or his own opinion, or their concurrent opinions that upon such facts the law empowered Grubbs to do what he did do, and had a legal right to release him from his contract, then both mistook the law. That a share-holder should release himself from liability to pay for his shares by proof that he was misinforaied as to a fact by his own agent, or misled as to the effect of certain known facts upon his contract, or was ignorant of the law which prevented any share-holder from being released, or his subscription canceled, without the consent of the other share-holders, would be a most disastrous doctrine. The rule that a mistake of law does not relieve in- equity any more than at law is well settled. Upton v. Trebilcock, 91 U. S., 80.
The next and last assignment of error necessary *490to consider is that this action cannot be maintained by Dickinson as assignee. This assignment of error is based on the facts that subsequent to the assignment by the corporation the shareholders other than himself, with means raised by issuance of the preferred stock heretofore mentioned, and with borrowed money, compromised the greater part of the debts of the corporation, and that the assignee has suffered them to resume business with the machinery assigned to him, they having given bond for his protection. The assets thus in their hands are probably abundant to pay such creditors as have not yet been settled with. The only effect of this is to strip the assignee of any advantages, which creditors might be supposed to have in a suit to compel a share-holder to pay his calls, over the same action by the corporation. We have accordingly treated each question just as if it were a controversy between Cartwright and the Grubbs Cracker Company. That Dickinson is entitled to maintain this suit follows from the fact that he has not resigned his trust, and that there are creditors whose claims he must provide for. This claim is an asset in his hands, and it, together with other assets, remains in his control as trustee, and he may, and ought, reduce them to money and pay , off remaining creditors and ' account for surplus to the assignors.
The decree of the Chancellor must be affirmed with costs.