Crandall v. Lincoln

52 Conn. 73 | Conn. | 1884

Carpenter, J.

The Willimantic Trust Company, a corporation by special charter, being insolvent, went into the hands of receivers in April, 1878. The assets of the company are not sufficient to pay its liabilities, the deficit being about $85,000. Prior to its failure the affairs of the company were managed by a board of fifteen trustees. The by-laws required the trustees to appoint from their number an executive committee of five. The duties of the executive committee, so far as material, are found in the fifth section of the by-laws, as follows:—“ The executive committee shall superintend and direct with reference to all the business transactions of the company, especially as to the investment and disposal of its funds in stocks, bonds, mortgages and other securities, and all guardianships, receiverships and other special trusts, none of which shall in any case be accepted without their approbation, except such as shall be made by an order of a court of competent jurisdiction.”

On the first of January, 1875, there was no surplus. On the first day of May following its stock was impaired, its actual value being then about seventy-five per cent, of its par value. The officers and managers of the institution expected to realize enough from its assets to make the stock worth par, and believed that it was worth par. Some little time before the 14th day of June, 1875, as the company had in uninvested cash about $10,000, the scheme of purchasing the shares of the company by the corporation was talked over by the officers of the company. Nothing was determined upon in relation thereto, although the idea was favorably received, until the meeting of the executive committee on the 14th day of June, 1875, at which time the matter was fully talked over by the officers and the whole executive committee, and it was then determined to purchase stock of the corporation, and the president and secretary were instructed to proceed to purchase the same to the amount of #10,000. There was no vote or resolution of the executive committee to that effect, and no record thereof was kept. The purchases of stock made from time to time were reported to the trustees, and to the stockholders at their annual meeting in the spring of each year, and the executive committee and board of trustees were kept 'advised from time to time as the purchases were made. More than the #10,000 was so spent, and it- is found that there was a general understanding existing at all times on the part of the executive committee that such purchases were being made, and the president and secretary always supposed that they had full authority to make such purchases; and when these transactions were reported to the executive committee, the board of trustees, and the stockholders, such action on the part of the president and secretary was approved. In that way three hundred and twentyáix shares of the stock of the trust company wére sold and transferred to the company, for which was paid out to stockholders more than #30,000 of its funds. To enable the receivers to pay the debts ■ they have brought this suit to recover of these stockholders the amount so received by them.

The first question presented for our consideration is, whether the purchase of stock by the corporation in the manner stated and under the circumstances was legal.

The stock of a corporation is its only basis of credit. Unlike a partnership, its members generally are not individually liable for its debts. The character, reputation and credit of its promoters do not attach to the corporation itself except to a limited extent. Hence it is of vital importance that the law should rigidly guard and protect the capital stock. Otherwise, especially in these days when so large a portion of the business of the country is carried on by corporations, confidence, on which the prosperity of the country largely depends, would be seriously impaired. Hence it is that in equity the capital stock of a corporation is now regarded as a trust fund for the payment of debts. The creditors have a lien upon it, which is prior in point of right to any claim which the stockholders as such can have upon it; and courts will be astute to detect and defeat any scheme or devise which is calculated to withdraw this fund, or in any way tu place it beyond the reach of creditors. A leading case on this subject is Wood v. Bummer, 3 Mason, 308. Stoby, J., says:—“It appears to me very clear upon general principles, as well as the legislative intention, that the capital stock of banks is to be deemed a pledge or trust fund for the payment of the debts contracted by the bank. The public, as well as the legislature, have always supposed this to be a fund appropriated to such purpose. The individual stockholders are not liable for the debts of the bank in their private capacities. The charter relieves them from personal responsibility and substitutes the capital stock in its stead. Credit is universally given to this fund by the public, as the only means of payment. During the existence of the corporation it is the sole property of the corporation, and can be applied only according to its charter, that is, as a fund for payment of its debts, upon the security of which it may discount and circulate notes. Why otherwise is any capital stock required by our charters? If the stock may, the next day after it is paid in, be withdrawn by the stockholders without payment of the debts of the corporation, why is its amount so studiously provided for, and its payment by the stockholders so diligently required? To me this point appears so plain upon principles of law, as well as of common sense, that I cannot be brought into any doubt that the charters of our banks make the capital stock a trust fund for the payment of all the debts of the corporation. The bill-holders and other creditors have the first claim upon it; and the stockholders have no rights until all the other creditors are satisfied. They have the full benefit of all the profits made by the establishment, and cannot take any portion of the fund until all the other «claims upon it are extinguished. Their rights are not to the capital stock, but to the residuum after all demands upon it are paid.”

These principles apply as well to this corporation as to ordinary banks issuing bills for circulation as money.

In Nathan, Receiver, v. Whitlock, 9 Paige, 152, Chancellor Walworth held (we quote from the marginal note,) that “ a solvent stockholder who has given a stock note to a corporation for the purchase money of his stock, cannot, upon the insolvency of the company, or in contemplation of that event, even with the consent of the directors, transfer his stock to an irresponsible person, and be discharged from his liability upon substituting the note of such person for his own; such an arrangement having the effect of a withdrawal of so much of the capital of the corporation, and being a violation of tli'e statute to prevent fraudulent bankruptcies of incorporated companies.”

In Adler v. Milwaukee Patent Brick Manf. Co., 13 Wis., 57, the court say: “ The stockholders being in general free from personal responsibility, the capital stock constitutes the sole fund to which creditors look for the liquidation of their demands. It is the basis of the credit which is extended to the corporation by the public, and a substitute for the individual liability which exists in other cases. So far as creditors are concerned, it is regarded in the law as a trust fund, pledged for the payment of the debts of the corporation. Until they are paid the stockholders are postponed; they are only entitled to that which remains after the claims of the creditors are extinguished.”

In Upton, Assignee, v. Tribilcock, 91 U. S. Reps., 45, the court say:—“ The capital stock of a moneyed corporation is a fund for the payment of its debts. It is a trust fund, of which the directors are the trustees. It is a trust to be managed for the benefit of its shareholders during its life, and for the benefit of its creditors in the event of its dissolution. This duty is a sacred one and cannot be disregarded. Its violation will not be undertaken by any just-minded man, and will not be permitted by the courts. * * * Equally unsound is the opinion that the obligation of a subscriber to pay his subscription may be released or surrendered to him by the trustees of the compauy. This has been often attempted, but never successfully. The capital paid in, and promised to be paid in, is a fund which the trustees cannot squander or give away.” . °

The same court in Sawyer v. Upton, Assignee, 91 U. S. Reps., 56, say:—“The capital stock of an incorporated company is a fund set apart for the payment of its debts. It is a substitute for the personal liability which subsists in private copartnerships. When debts are incurred a contract arises with the creditors that it shall not be withdrawn or applied otherwise than upon their demands, until such demands are satisfied. The creditors have a lien upon it in equity. If diverted they may follow it, as far as it can be traced, and subject it to the payment of their claims, except as against holders who have taken it bond fide for a valuable consideration and without notice.” See also Webster v. Upton, Assignee, 91 U. S. Reps., 65. Many more cases might be cited to the same effect, but it is unnecessary.

These principles, which are applicable to corporations generally, are especially applicable to this by the express provisions of its charter. It had the powers of a savings bank, of a safe deposit company, and also the power to accept and execute all trusts, whether fiduciary or otherwise, committed to it by private parties, or by any court or tribunal or any other legally constituted authority in the state; and any court having jurisdiction to appoint guardians for infants or receivers of estates was authorized to appoint this corporation such receiver or guardian; and when so appointed no bonds were required, but such appointment might be made upon the security provided for in the charter, that “ all the capital stock, property, and estate of every kind belonging to said company shall be and shall stand charged with the fulfilment of said trusts and the payment of said deposits and said trust and other funds, as the first and prior liens thereon in case of the failure of said corporation.” Charter, sec. 5, Special Laws, Vol. .7, p. 150.

The_next section-declares that the capital stock shall not be less than one thousand shares of one hundred dollars each, and carefully provides that the corporation shall not commence business “until all the capital stock is subscribed for and taken, and at least thirty thousand dollars is paid in, and the balance, if any, paid or secured to be paid, either by a first mortgage or mortgages of real estate of the value of double the amount to be secured, or by the pledge of the bonds of the United States, or of the several states, or of either of the incorporated cities, towns or boroughs of this state, of at least twenty per cent, more in value than the capital so secured.”

The same year this institution was chartered the legislature placed this and other similar institutions under the supervision of the bank commissioners, and required their several presidents to make returns annually to the bank commissioners, giving a detailed statement, showing the amount invested in real estate, its location and value ; the amount invested in stocks or bonds, specifying the number of shares, the par value, the cost, and the market value at the time of making return; also the number and description of bonds, their par valu„e, cost, and present market value ; and all other investments in personal property, specifying the actual cash value and cost thereof; also the amount held in trust and on deposit, &c. Session Laws of 1871, p. 597.

Besides this, the company was forbidden bylaw to declare auy dividend except from net earnings after deducting all losses, overdrafts and obligations suspended or overdue, and from making any loan or discount on a pledge of its own stock. Gen. Statutes, p. 283, sec. 3.

It would seem as though no argument ought to be required to show that capital stock so carefully guarded both by legal principles and positive statute law cannot be divided among stockholders to the prejudice of creditors.

Arguments however are not wanting. The stock must be paid for, or secured, not for the benefit of the stock» holders, but for the security of those dealing with the corporation. This provision was imperative; the directors were not at liberty to dispense with it. But if they were at liberty when paid, or at any time afterwards, to pay it back to the stockholders, they had the power to nullify the charter and defeat the intention of the legislature.

The statute fixing the minimum number of shares and their par value determined as far as practicable the minimum value of the capital stock, and it was clearly the intention of the legislature that it should be no less. The number of shares therefore could not be reduced, and the value of all the shares diminished, except by legislative authority. If the trustees could purchase stock with the capital of the corporation, they could of their own authority reduce the number of shares and correspondingly diminish the aggregate value of all the shares. Again, if they may purchase any of the stock, they may purchase all of it, and thus divide all the stock among the stockholders. ’ What then becomes of the security designed for infants, estates and creditors ?

The statute forbidding the company to make dividends payable from the stock and to loan money upon a pledge of its stock, by necessary implication forbids the company from purchasing its stock. The provision that the company may have a lien upon the stock as security for any debt due from the owner is not in conflict with this view of the statute. Such lien does not contemplate that the company may become the owner of the stock. It contemplates rather that the lien shall be enforced, like any other lien, by a sale of the stock, the purchaser being substituted for the delinquent stockholder.

Where it is provided by law that each stockholder in case of insolvency shall be liable to contribute a sum equal to the nominal value of his stock, there is an obvious reason why the company cannot become a stockholder. If it may, it withdraws from the fund designed to secure creditors a sum equal to the nominal value of the stock so owned. But in this case and in other cases where stockholders are not liable to contribution, the only security which creditors have being the capital stock, it is very important that the law should guard that security with the g'reatest care and vigilance, and not allow trust funds belonging to creditors to be appropriated by stockholders who have no equitable right to them.

These views are abundantly sustained by the authorities from which we have quoted and from many more which might be cited. We do not intend to say that under no circumstances can a corporation legally become the owner of its own stock. Should it loan money to a stockholder and be obliged to take its own stock in payment, that would not be illegal per se. So too it may be allowable for a company to purchase stock temporarily with its surplus earnings; but stock should not be held indefinitely; it should be disposed of in a reasonable time. If not, and should creditors thereby be prejudiced, perhaps the managers of the company might be liable.,

Nor do we intend to say that a direct purchase would be declared illegal at the instance of a party to the transaction. If the stock is re-issued and creditors are not^ prejudiced probably the courts would not interfere. But as a rule to which there are few if any exceptions, when a stockholder conveys his stock to the company and receives in return a portion of the capital, he holds the money so received subject to the superior equities of creditors.

Our conclusion is that the capital stock cf the company being impaired when the stock in this case was purchased, and the stock in each case having been paid for from the capital, the transactions were illegal and cannot be sustained.

In determining who of these defendants are liable several things are to be borne in mind. Every stockholder is presumed to know the provisions of the charter, the statute laws of the state, and the general principles of law governing corporations. The charter is the contract of membership. Each stockholder when he becomes a member, either as an original subscriber to the stock or as a purchaser, is bound by the provisions of the charter and the general law-governing corporations. The law therefore conclusively presumes that he undertakes to perform all the duties and assumes all the liabilities thereby imposed upon him. Those duties and liabilities cannot be changed at the pleasure of the members nor avoided for their convenience.

The ease does not turn on a question of conspiracy, or actual or intended fraud. The plaintiffs alleged conspiracy and actual fraud, but the court has found the allegations untrue. That finding, however, is not decisive of the ease. If the defendants have in their hands funds to which the creditors have a higher and better right, the law will not allow them to retain them, irrespective of a conspiracy and actual fraud, and whatever may have been their motives in obtaining them. That they have such funds is too dear for question.

Equity will follow and reclaim trust property so far as it can be traced and identified; and when it is money it will compel the party receiving it with knowledge of the trust to restore it.

Each transaction between the corporation and the several defendants was simply a purchase of stock. There is no room for the claim that it came into the company’s hands incidentally and in the regular course of business. It was a direct purchase for cash. Apparently there was no intention to re-issue it, and no expectation that it ever could be re-issued.

Many of these defendants were trustees, and some of them were members of the executive committee. All such knew that the capital of the company was impaired, and that some one was engaged in buying the stock for the corporation, and paying for it out of the capital. They will not be permitted to avail themselves of their ignorance of the purchaser. They were bound to know, and they had the means of knowing. They could have known, had they desired, whether they were selling to the company or to others; whether the purchaser was legally capable of taking and holding it; and whether the money they were receiving was burdened with a trust or free ffom any trust. They were responsible for the safe keeping and proper disposition of these trust funds. They could not permit their treasurer to pay them out to themselves and justify the act and retain the funds on the ground that they did not know that they were receiving trust funds. It was their business to know, and it was a gross breach of trust not to know.

Besides, they severally employed Royce, their treasurer, as a broker to sell their stock. He actually sold it to the company and paid for it with its capital. That looks very much like a mere cover; but independently of that, each one individually made Royce his agent in the strictest sense. So far as any negotiations were required Royce made them for and in behalf of the seller. There is no pretense that the trustees or the executive committee ever acted in behalf of the corporation, the purchaser, except as there was a silent understanding, without vote or record, that the treasurer was to purchase stock. The case then seems to be this:—Royce, as broker, contracted with Royce, as treasurer and agent of the corporation, and thereby the corporation formally became the owner of the stock of these trustees. It is worse than idle to ask this court to sanction and hold valid such a transaction.

Nothing more need be said as to the liability of those who were officers of the company. The liability of John Gr. Keigwin, one of the trustees, in respect to the stock of William Reynolds, will be hereafter specially considered.

It seems that the business of transferring the stock of Mrs. Royce to the company and- receiving the pay therefor was in the hands of her husband. She therefore must stand upon the same footing with him.

As to John Tracy’s estate. After Tracy’s death his executors, with knowledge of all the circumstances, sold the stock to the company. The amount paid therefor, being a portion of the capital, went into the estate. The executors have no more right to retain it than an individual would have under the same circumstances. The fact that they are no longer executors, and that the estate has passed into the hands of administrators de bonis non, does not affect the case. The administrators must refund from the estate the money so received to the receivers.

The cases of O. N. Andrews, James M. Reid, Timothy Hickey, Otis Woodward, and the estate of Egbert Hall, are substantially alike. Andrews made Royce his attorney to transfer the stock as he supposed to D. F. Lathrop. Lathrop failed to purchase it, and thereupon Royce transferred it to the company and paid for it from its funds. This was without the actual knowledge of Andrews. “

Reid negotiated with J. R. Arnold, not knowing the purchaser. At Arnold’s request he made Royce his attorney to tranfer it, and he transferred it to the company. Hickey and Hall sold through Royce, not knowing the purchaser. Woodward believed that his stock was bought by the trust company.

It is doubtless true that all these parties believed that they had a perfect right to sell to the trust company; but that belief does not make it so. Legal principles cannot rest upon the belief or ignorance of those who are affected by them. Therefore these parties must be treated for all practical purposes as though they knew the law and knew that they could not legally sell their stock to the company. Otherwise the principle itself is of no value, as it might easily be evaded in all eases. Hence any suggestion of hardship to them in consequence of being misled, or deprived of an opportunity to sell to other parties, cannot be considered. It was for the seller to know, and he might have known in each case, who the purchaser was. His ignorance of a matter which he had the means of knowing and which he was bound to know, cannot divest the money in liis hands of its trust quality. Besides, so far as these parties, or any of them, sold through Royce as a broker or agent, his knowledge is to be imputed to them, and they are justly chargeable with knowledge on that ground.

The company commenced the purchase of stock in June, 1875. In September following Daniel H. Eldridge, knowing •nothing of the circumstances, took ten shares of the stock in exchange for other property, intending as soon as might be to convert it into money. In December he went to Willimantic with a view to selling it to a friend, but not finding him at home some one directed him to Royce, who represented to him that a certain party had left money with him with which to purchase stock. He sold it to Royce, not knowing that it was to be transferred to the company. Eldridge sold without fraud and in good faith.

At first sight it seems harsh to hold that it was not a valid sale. But if the view we have taken of the character and nature of this stock is sound, and we have no doubt that it is, the conclusion inevitably follows that under no circumstances can a stockholder sell his stock to the company and take therefor his portion of the capital stock to the prejudice of creditors. The illegality of the transaction does not at all depend upon the actual knowledge or mala fides of the seller; if he in fact sells to the company and receives in return a part of the capital, the policy of the law requires him to know it, and conclusively charges him with knowledge. Thus selling, he sells at his peril. In no other way can the rights of creditors be protected. The seller can protect himself by selling to other parties, or he may hold his stock, taking, as he is bound to, the risk of his investment. The creditor is not bound to assume any part of the stockholder’s risk, and he has no way of protecting himself. The law is his only protection.

The case of E. R. Gurley is peculiar. He was employed by the president and treasurer to buy stock for the company. He bought five shares of one Lincoln, apparently for himself, paying for it with his own money. He did not intend that the stock should be transferred to him, but directed Lincoln to take the certificate to Royce, supposing it would be transferred to the company. But Royce, for the purpose of concealing from Lincoln the real purchaser, transferred it to Gurley, and it was afterwards by Gurley transferred to the company. When Lincoln transferred the stock to Gurley, Royce placed to Gurley’s credit the amount lie had paid for it. It is very evident that the receivers have no claim on Lincoln, for he sold and transferred to Gurley and received his pay from him, so that no trust money can be traced into his hands, and the trust company purchased no stock of him. There is nothing legally wrong in this transaction, actually or constructively, on the part of Lincoln. The case then lies between Gurley and the creditors. One or the other must lose. The party having the best title to it must prevail. The money burdened with the trust is traced directly into the hands of Gurley, he receiving it with full knowledge of the trust. He was the apparent real and legal stockholder, and, with notice of the illegality, he transferred the stock to the company. On the other hand the creditors have done nothing and omitted nothing by which they have forfeited their right to this portion of the trust fund. Their equities therefore are superior to Gurley’s.

The case of John G. Keigwin is also peculiar. He was employed by the company to purchase stock on its account. He purchased five shares of William Reynolds in his own name. That stock was paid for by Rojme with funds of the company. The stock was transferred to Keigwin, and in a few days thereafter he transferred it to the company. His case differs from the one last considered in this—he did not actually receive any money from the company, it having been paid directly to Reynolds. Is tliat circumstance sufficient to relieve Keigwin of responsibility? It seems quite clear that the creditors should have a claim either against Keigwin or Reynolds. Otherwise a door is left open by whicli creditors may in fact be defrauded in future cases ; that is, this case will suggest a mode by which stockholders may transfer their stock to the company and escape liability.

If Reynolds is liable Keigwin ought not to be. Is Reynolds liable ? So far as he was concerned it was a direct sale to Keigwin. He did not know the company in the transaction, and he cannot be charged with knowledge actual or constructive of any illegality in it, and he had no knowledge that the money which he received was the money of the company. We are at a loss, therefore, to see how he could have been held responsible.

Is Keigwin equally innocent? He was assisting this company in distributing its capital among the stockholders. He was a member of the company, and, as such, was chargable with knowledge of the effect'and consequences of what he was doing. He was also a trustee, and, as such, it was his duty to guard and preserve that capital so that it might be applied, if need be, to the purposes of the trust. In gross violation of his duty he actively participated in transactions which were designed to place the capital in the hands of stockholders and beyond the reach of creditors. It is difficult to see why he is not liable for a breach of trust. But aside from that; in pursuance of his illegal purpose he in law and fact became a stockholder in place of Reynolds, and afterwards conveyed the stock to the company. It matters not that he purchased it while he was agent of the company, for he in fact purchased it as his own an d not as agent. He did not disclose his principal, so that Reynolds could have had no claim on the company, and cannot be charged with selling stock to the company. In this state of things Keigwin is not in a condition to invoke the favorable consideration of the court, and the court is not anxious to relieve him of any embarrassment which came to him incidentally in the prosecution of an illegal transaction. But more than this; there are certain technical considerations, which, as they are in the line of and in harmony with the equities of the case, we do not hesitate to refer to. The company could not legally be a purchaser of this stock. That legal incapacity of the principal, added to the fact that the agent expressly contracted in his own name, shows conclusively that the contract was in law as well as in fact with the agent. After the stock was conveyed to Keigwin and before it was conveyed to the company, he was to all intents and purposes its owner. It matters not that the company paid for it; nor that it had a claim on him, either for the stock or the money paid; nor that he discharged that obligation by transferring the stock to the company. Those are matters with which the creditors had no concern, and which the law will not notice for the purpose of regarding the company as the purchaser. Keigwin was a stockholder; the company paid for his stock; in law the money so paid was paid for his benefit. These facts are not changed or modified by the fact that he subsequently discharged his obligation to the company by transferring to it the stock in question. The creditors have a right to regard him as the owner of the stock at the time he so transferred it, and as having sold it for a valuable consideration. As to them he will not be permitted to deny that he was a stockholder.

A question somewhat analagous to this arose in the Matter of the Reciprocity Bank, 22 N. York, 9. The bank took some shares of its own stock for debts due to it, and the stock was re-issued to purchasers. Afterwards the bank became insolvent and the stockholders were assessed under a statute making them personally liable. The purchasers claimed that they were exempt from assessment on the ground that the bank could not deal in its own stock, and consequently that they derived no title to the stock thus purchased. The court in holding them liable said :— “ They became actually the purchasers, and they voluntarily suffered their names to appear as stockholders on the books. They cannot in this proceeding impeach their own title. * * * But if a party makes an actual 'purchase of shares, whether from the bank or an individual holder, and voluntarily allows himself in this manner to be represented to the world as a stockholder, he must take the responsibilities of that situation. He comes within the terms and the policy of the act. His title may be imperfect ; equities may exist between him and other parties; the shares may be in dispute; they may be claimed by some one else in hostility to his own right. The statute has no regard to such questions. The person who has caused or allowed his title to be registered on the books cannot deny the truth of that representation and disavow the ownership when it ceases to be a benefit and comes to be a burden.” So in this proceeding the law will not allow- Keigwin to impeach his own title, and will take no note of any questions existing between him and the company.

Whiting Hayden transferred no stock to the company and no judgment is claimed against him. George S. Moulton and Joel R. Arnold having deceased, the suit abates as to them. The other defendants made no special defense and are liable for the reasons above stated.

We entertain no doubt that this suit was properly brought in the name of the receivers. They are charged with the duty of closing up the affairs of the corporation. Session Laws of 1879, p. 365; Gen. Statutes, p. 288. By statute they were required to pay the avails of the assets to the creditors. .That necessarily carries with it the requisite power to sue for and collect all choses in action and other claims. That must include the power to collect or convert into money all the property and claims of every description to which the creditors are equitably entitled. To allow creditors to bring suits in such cases, unless possibly under peculiar circumstances, if practicable, would be highly inconvenient and contrary to the policy and spirit of the statute.

Another question made is, that there is adequate remedy at law, and therefore that a court of equity has no jurisdiction.

Equity takes cognizance of all trusts, and a court of equity is the proper tribunal to enforce the equitable rights of the beneficiaries therein. The case of Oatlin v. The Eagle Bank, 6 Conn., 233, has been cited to show that the assets of a corporation do not constitute a trust fund for creditors even after the insolvency of the corporation. That case when rightly understood hardly sustains that position. We cannot believe that the court intended to establish a rule which should be contrary to the overwhelming current of authorities in nearly every other jurisdiction. In that case the directors of an insolvent bank preferred certain creditors with the assets of the bank. Other creditors brought a bill in chancery, the object of which was to allow all the creditors to share in those assets. The court held that the directors might, as the law then stood; lawfully prefer creditors; and that the other creditors had no equitable rights in the assets appropriated for that purpose which a court of chancery could enforce. The most that can be claimed is, that the court did not regard the rule which we think exists as applicable to that case. The question whether the directors will be permitted to distribute the stock among the stockholders to the prejudice of creditors did not arise, and we do not understand that the reasoning of the court will allow that to be done.

In Pomeroy’s Equity Jurisprudence, vol. 2, § 1048, the rule on this subject is stated so fully and satisfactorily, and it is so well sustained by the authorities cited, that we cannot forbear quoting it:—“ Wherever property, real or personal, which is already impressed with or subject to a trust of any kind, express or by operation of law, is conveyed or transferred by the trustee, not in the course of executing or carrying into effect the terms of an express trust, or devolves from a trustee to a third, person who is a mere volunteer, or who is a purchaser with actual or constructive notice of the trust, then the rule is universal that such heir, devisee, successor or other voluntary transferee, or such purchaser with notice, acquires and holds the property subject to the same trust which before existed, and becomes himself a trustee for the original beneficiary. Equity impresses the trust upon the property in the hands of the transferee or purchaser, compels him to perform the trust if it be active, and to hold the property subject to the trust, and renders him liable to all the remedies which may be proper for enforcing the rights of the beneficiary. It is not necessary that such transferee or purchaser should be guilty of positive fraud, or should actually intend a violation of the trust obligation; it is sufficient that he acquires property upon which a trust is in fact impressed, and that he is not a bond fide purchaser for a valuable consideration and without notice. This universal rule forms the protection and safeguard of the rights of beneficiaries in all kinds of trusts; it enables them to follow trust property—lands, chattels, funds, securities and even money, so long as it can be identified, into the hands of all subsequent holders who are not in the position of bond fide purchasers for value and without notice; it furnishes all those distince tively equitable remedies which are so much more efficient in securing the beneficiary’s rights than the mere pecuniary recoveries of the law.” We make this long quotation the more readily because it seems to cover many of the questions involved in this case. See also 2 Story’s Eq. Jurisprudence, § 1252; Perry on Trusts, § 242; ^Wood’s Fields on Corporations, 518, 519, and cases cited.

We advise the Superior Court to render judgment against all the present defendants except Whiting Hayden.

In this opinion the other judges concurred; except Stoddabd, J., who was of opinion that the defendant Keigwin should not be held liable, but concurred in all other respects.

Note. Judges Beabdslet and Stoddabd of the Superior Court sat in the places of Judges Park and Pabdee, disqualified by interest.