to the city in the present action; it having been compelled to respond first, because of its failure to perform the duty imposed upon it by the statute. No authority is cited by the circuit court in support of this view, and most of the cases cited by the city solicitor in support of the judgment relate to the points decided in Morris v. Woodburn and City of Chicago v. Robbins. The right of the municipality to recover from the wrongdoer was upheld in City of Chicago v. Robbins, and in the cases following it, upon the ground that the recourse of the person injured is primarily against him, and the municipality, having relieved him of that liability, is subrogated to the rights of the person injured. In City of Rochester v. Campbell, 123 N. Y. 405, 25 N. E. 937, it was correctly said of those cases: "These were all cases where the dangerous conditions of the streets were created by the defendants, and they were held liable for the consequences of their unlawful acts under their common-law obligations as the creators of nuisances, and not by reason of any duty enjoined upon them by statute or otherwise." Section 2640, Rev. St., provides: "The council shall have the care, supervision and control of all public highways, streets, avenues, alleys, sidewalks, public grounds, and bridges within the corporation, and shall cause the same to be kept open and in repair, and free from nuisance." This, as has been repeatedly held, is not merely a grant of power to the municipality, but the imposition of a duty upon it. Cognate provisions of the statute authorize the municipality to require, in the mode specified, the abutting owner to construct or repair the walk in front of his premises. The effect of his failure to comply with the requirement is also defined by the statute,-that upon his failure the municipality may construct or repair the walk, and assess the cost thereof upon his property. But the right of the city to be indemnified in this manner is expressly limited to one-fourth of the amount at which the property is valued for the purposes of taxation. The consequence thus indicated by the statute is exclusive. In considering the effect of similar statutory provisions in City of Keokuk v. Independent Dist. of Keokuk, 53 Iowa, 352, 5 N. W. 503, it was said: "The city has sole authority over its streets, is charged with their improvement and repair, and vested with the power to tax for that purpose. Where the lot owner is required by the city to construct or repair a sidewalk, it is simply a method of exercising such power of taxation, by which he is made the agent of the city to expend the amount of the tax, and the responsibility for the performance of the work remains where the authority to control it is found." In well-considered cases it has been held that the liability which the statute imposes upon the abutting owner is exclusive, and not reconcilable with an unlimited liability for injuries occasioned by the defective condition of streets and side

walks whch are constructed and maintained under the authority of the municipality, where that condition results from negligence merely. Flynn v. Canton Co., 40 Md. 312; City of Hartford v. Talcott, 48 Conn. 525; City of St. Louis v. Connecticut Mut. Life Ins. Co., 107 Mo. 92, 17 S. W. 637. That conclusion is in harmony with the view of the subject taken in City of Rochester v. Campbell, where it is said that to hold the abutting property liable in an action for indemnity "would tend to relax the vigilance of municipal corporations in the performance of their duties with respect to the repair of streets and highways, and impose that duty upon those who might be utterly unable to discharge it." The policy of the statute, as indicated by its provisions, according to the doctrine of the cases cited, and the numerous cases which they review, seems to require the conclusion that when a municipality accepts a sidewalk constructed by the owner of abutting property pursuant to its notice, as a compliance therewith, all liability for mere negligence in construction and maintenance must rest and remain upon it. Judgment of the circuit court reversed, and that of the common pleas affirmed.

SPRAGUE et al. v. NATIONAL BANK OF AMERICA et al.

(Supreme Court of Illinois. Feb. 14, 1898.) CORPORATIONS-LIABILITY OF STOCKHOLDers. 1. Where the stockholders of a California corporation, to avoid their liability under the California statutes, organize an Illinois corporation, with the same number of shares, for all of which they subscribe, paying nothing therefor, however, and the California corporation then trades its assets and franchises to the Illinois corporation, which gives therefor its shares of stock, and assumes the debts of the California corporation, the stockholders which exchange their stock each for an equal number of shares of the Illinois corporation, the stock of the latter will not be considered full paid, but paid only to the extent of the net value of the assets received; and the liability of stockholders to creditors will be for their pro rata share of the debts to the extent of the difference under the Illinois statutes.

of

2. Liability of stockholder and assignor of stock to creditors for unpaid subscriptions on stock is not affected by the creditors' knowledge or ignorance, when extending the credit, that the stock, though issued as fully paid, was in part unpaid.

Appeal from appellate court, First district.

Bill by Charles F. Morse, others intervening as complainants, against Albert A. Sprague and others. From a judgment of the appellate court reversing a decree dismissing the bill, defendants appeal. Affirmed.

Green, Robbins & Honoré and E. B. Smith (A. W. Green, of counsel), for certain appellants. James L. High, for appellant Morton D. Hull. Herrick, Allen, Boyesen & Martin, for Martin A. Ryerson and others. Walker

& Eddy, Moran, Kraus & Mayer, and Winston & Meagher (Edwin Walker and T. A. Moran, of counsel), for appellees National Bank of America and others. Wilson, Moore & McIlvaine, for John J. Mitchell and Alex. Geddes.

BOGGS, J. This was a bill in chancery, filed by Charles F. Morse, one of the appellees, against the appellants, alleging the insolvency of the Pacific Railway Company, a corporation organized under the general incorporation laws of this state; that said corporation was indebted to him; that the appellants were shareholders to its capital stock, and had not paid in full their subscriptions to the capital stock; and the prayer was the appellants should be made defendants to the bill, and each required to pay his pro rata share of the amount due to complainant, to the extent of the unpaid portion of stock held by each of said defendants. The other appellees are creditors of the said Pacific Railway Company, who filed intervening petitions, and thereby came into the case as co-complainants with the said original complainant. The answers of the appellants, in substance, were that the subscriptions to the capital stock of the company had been paid in full. The cause was referred to a master, the proofs taken and reported, and a decree entered that the bill be dismissed for want of equity. The case came by appeal to the appellate court for the First district, and the decree of the circuit court was reversed, and the cause remanded, with directions as to the further course to be pursued by the trial court. This is an appeal prosecuted by the defendants to the said bill in chancery to bring the judgment of the appellate court into review in this court.

The Pacific Railway Company was incorporated under the general incorporation laws of the state of Illinois on the 22d day of August, 1889, with a capital stock of $2,500,000, divided into 25,000 shares of $100 each. The entire capital stock was subscribed by five of the appellants, to wit, John J. Mitchell, C. B. Holmes, Alexander Geddes, James L. Houghteling, and Morton B. Hull, each of whom subscribed for 5,000 shares. No money was paid by any of such subscribers, but the contention of appellants is, such subscriptions were paid in full by the transfer of the assets and shares of capital stock of the Los Angeles Cable Railway Company, a corporation organized under the laws of the state of California, to the said Pacific Railway Company, the latter company, as a part of the transaction, assuming to pay the indebtedness of the cable company. It appeared from the proofs the said cable company was incorporated under the laws of the state of California on the 13th day of July, 1887, with authority to construct a cable railway in the city of Los Angeles, Cal.; that its capital stock was

fixed at $2,500,000, divided into 25,000 shares, of $100 each; that only 650 shares of its capital stock were ever subscribed for to be paid in cash; that the subscribers thereto were as follows: J. F. Crank, 630 shares, and Charles Freeman, S. P. Jewett, S. C. Hubble, and O. J. Hellman each 5 shares, who together paid only the sum of $6,500 on their subscriptions; that on the 30th day of July, 1887, the said cable company leased three lines of horse railways in the city of Los Angeles, at an annual rental of $10,000 for each line, and by the further terms of the lease assumed to pay the indebtedness of the three lines of horse railways, aggregating the sum of $90,000; that on the 7th day of May, 1888, said cable railway company contracted to acquire the capital stock of the said horse railways, paying 5 shares of its capital stock for each share of stock of the said horse railway companies; that on the 15th day of September, 1887, said cable company executed a mortgage on all its property, including the lines of horse railways, to secure its bonds, in the sum of $1,500,000, which it designed to place upon the market for sale, and such bonds, amounting in the aggregate to $836,000, were sold; that, in addition to this bonded debt, the company had contracted other obligations, aggregating in all more than $2,000,000; that an assessment on the stockholders sufficient to raise the sum of $100,000 was levied by the board of directors, to be paid November 1, 1888; that, while the affairs of the cable company were thus situated, a committee representing a number, if not all, of the appellants visited the city of Los Angeles, and bought a large block of the stock of the cable company, paying $32 per share for each share of the face value of $100; that the number of shares so purchased does not clearly appear, nor does the record disclose the names of the purchasers, other than appellants Holmes and Mitchell, but it seems well established the purchase was consummated by a committee acting for themselves and others, and that the number of shares secured constituted a controlling interest in the company, and, counsel for appellants say, constituted about three-fourths of the capital stock; that appellants Holmes and Mitchell were elected directors of the cable company January 1, 1889, and appellant Holmes was elected its president February 1, 1889; that the board of directors authorized appellant Holmes, its president, to borrow money for the company for the purpose of paying its floating indebtedness, and to defray the expense of extending the lines of the company; that the said Holmes borrowed large sums of money very soon thereafter, the aggregate of such loans reaching the sum of $400,000 by the 1st of March, 1889; that of this amount $350,000 was applied to the construction of new lines or extending the old lines of the cable company, and the remainder was used in the

payment of dividends to the stockholders; that the stock purchased by the Chicago parties, who are appellants here, was held by J. F. Crank, former president of the cable company, to whom it had been issued in exchange for the stock of certain horse railway companies, under an arrangement with Crank and other owners of the horse railway companies, by which the cable company gave 5 shares of its stock for each share of horse railway stock, and therefore the amount paid in the purchase of the stock by the said appellants did not reach the treasury of the cable company; that under the laws of the state of California each holder of the cable company stock was made liable for his pro rata portion of the indebtedness of the company; that while the entire capital stock of the cable company, to wit, $2,500,000, has been issued as fully paid up, the company has only received from its shareholders in cash $6,500, paid in upon the organization of the company, and $100,000 assessed and paid November 1, 1888, being the first and only assessment, and had repaid to them $50,000 out of the sums borrowed by Holmes, the remainder of the stock having been disposed of by the transaction between the cable company and its president and others, who were the owners of the stock of the horse railway companies, wherein 5 shares of the stock of the cable company were valued as equal to and were exchanged for 1 share of the stock of the horse railway companies, the cable company, in addition, assuming to pay the indebtedness of the horse railway companies to an amount approximating the sum of $90,000; that at the opening of the month of August, 1889, the indebtedness of the cable company, floating and bonded, had reached, and probably exceeded, the sum of $2,000,000, of which amount $1,264,000 was not bonded, but partly due, and all soon to mature, and in view of the fact that under the laws of the state of California each stockholder was personally liable for his pro rata share of the indebtedness of the corporation, a number of those owning and holding shares of its stock, probably 30 to 40 in number, including appellant Holmes, its president, and J. F. Crank, its vice president, came together in the city of Chicago on the 5th day of August, 1889, to confer as to the situation; that the result of their deliberations was that they concluded they could relieve themselves of the liability created by the laws of the state of California by organizing a corporation under the laws of the state of Illinois, having a like capital stock and a like number of shares of stock as the cable company, and transferring the assets and property, rights and franchises, of the cable company to the proposed Illinois corporation, and issuing a like number of shares of stock in the Illinois corporation, to be deemed as paid in full, and exchanging the same with the holders of the cable com

pany stock share for share, and it was decided an Illinois corporation should be organized and that course pursued; that in pursuance of such conclusion, and for the purpose of carrying it into effect, certain of the appellants who had participated in the meeting of said holders of shares in the cable company, and acting in behalf of the other of said participants, on the 9th day of August, 1889, filed with the secretary of state of the state of Illinois the statement required by section 2 of chapter 32 of the Revised Statutes of Illinois, entitled "Corporations," as the initiatory step in the formation of a corporation in this state, and received license empowering them, as commissioners, to receive subscriptions to the capital stock of a corporation to be called the Pacific Railway Company, to the amount of $2,500,000, and on the day of August, 1889, they reported that they had obtained subscriptions for the entire amount of the capital stock, and that a meeting of the subscribers had been held, and John J. Mitchell, Morton B. Hull, Alexander Geddes, James L. Houghteling, and Charles B. Holmes had been elected directors.

It will be observed that all of said persons so selected as directors are appellants, and were stockholders in the cable company, and that Mitchell and Holmes were directors of said cable company, and that Holmes was its president. It also appears from the testimony that the only subscribers to the capital stock of the said Pacific Company were the said five persons reported as having been selected as directors, each of whom subscribed for 5,000 shares of the said capital stock, but paid nothing for said stock, and were not to pay anything, but were to simply hold the shares until they should be exchanged for like numbers of shares in the stock of the cable company. Said subscriptions to the capital stock of the Pacific Company having been entered, the said Holmes, as president of the cable company, and the said Holmes, Mitchell, Houghteling, Hull, and Geddes, assuming to act as directors of the Pacific Railway Company, without waiting for the issuance of articles of incorporation, prepared and sent to each stockholder of the cable company the following circular letter:

"Important to Shareholders of the Los Angeles Cable Railway Company. Chicago, Ill., August 15, 1889. Dear Sir: Every shareholder in any corporation organized under the laws of California is responsible for a pro rata proportion of all indebtedness incurred by the corporation during the time that he is a stockholder of record therein; nor is the obligation relieved by the sale and transfer of the stock, but he remains, during the life of the corporation, personally liable for such a proportion of the indebtedness incurred while he was a shareholder as the amount of his stock bears to the entire capital stock of the corporation. California is

the only state in the Union which has such a peculiar law. At a meeting of gentlemen who are stockholders in the Los Angeles Cable Railway Company, and representing a large majority in the stock of that company, held at the Grand Pacific Hotel in this city on the 5th inst., the matter was thoroughly discussed, and it was unanimously resolved. that a corporation be organized under the laws of the state of Illinois, with $2,500,000 of capital stock, being the same amount of the capital stock of the Los Angeles Cable Railway Company, and that all holders of shares in the latter company be requested to exchange their shares for an equal number in the Illinois corporation. The capital stock of the latter company will be full paid, inasmuch as it holds as its assets the capital stock of the Los Angeles Cable Railway Company, turned into it at the agreed price of $2,500,000. In this way the Illinois company, as a corporation, becomes responsible under the laws of California, and not the individual holders of the Los Angeles stock, and the individual shareholders will in this way be relieved of personal liability, which, though it may be regarded by some as remote, does nevertheless exist, and in case, many years from now, after the present stockholders have disposed of their holdings, the road shall fall into incompetent hands, or into the ownership of those who might not properly guard its indebtedness, the tangible property of the company might be sold for a much less amount than would cover its bonded indebtedness, and in that case the present shareholders would be personally responsible for their pro rata amount of such deficiency. It is proposed to pay off, out of the proceeds from the sale of bonds of the new company, hereinafter described, all indebtedness for construction and equipment, leaving absolutely no liability, actual or prospective, resting upon the stockholders who exchange their stock as suggested above. Another difficulty has also been encountered, namely: When the trust deed was issued by the former owners of the road, it was believed that $1,500,000-the limit of said trust deedwould be sufficient to construct the twenty miles of cable road which is now almost finished; but the actual cost of such construction will be about $2,000,000, and in a city which has grown from 10,000 people eight years ago to some 88,000 people at the present time it is almost certain that additional cars, and probably extensions of lines, will be required in the near future, and no provisions whatever were made for this under the trust deed heretofore issued. Consequently, at the meeting held on the 5th inst., it was the unanimous opinion of the gentlemen present that when the new corporation should be organized, an issue of $2,500,000 of bonds should be provided for, secured by suitable trust deed, $836,000 of these bonds

t to be issued by the trustee, except for

the purpose of taking up and canceling an equal amount of the bonds of the Los Angeles Cable Railway Company, that amount being all of the bonds of that company which have been sold; and that, after reserving the said $836,000 in the hands of the trustee, bonds be issued for an amount sufficient to pay the cost of constructing the cable road, and properly equipping it; and the balance of the bonds, amounting in round numbers to $500,000, be not issued, except at such times and in such amounts as, in the judgment of the board of directors of the new company, shall be necessary to meet the payment of such additional equipment and extensions as the interest of the new company shall render desirable. It is believed that every shareholder of the Los Angeles Cable Railway Company will see that it is for his interest to join with the majority in carrying out this arrangement, as by so doing he retains precisely the same relation to the property that he now does. He does not lose anything whatever, but is at the same time relieved of personal liability in the premises. If any shareholder does not see it to be for his interest to join in this arrangement, the only method of paying the present floating indebtedness (which, upon the completion of the construction now in hand, on or about the 1st day of September, will reach the sum of $1,200,000) will be to follow the method prescribed by the laws of California, namely, to assess the stock a sufficient amount to pay the indebtedness. This assessment will be paid by the new corporation for all those persons who shall have exchanged their stock for stock in the Illinois corporation; and persons holding stock in the Los Angeles Cable Railway Company, and not exchanged for stock in the Illinois company, will be obliged to pay the assessment on their stock, or the same will be sold to pay said assessment, according to the statute in such cases made and provided. In pursuance of the recommendation made at the meeting as indicated above, a new corporation has been organized under the laws of the state of Illinois, entitled the Pacific Railway Company, with the following named persons as directors for the first year, viz.: John J. Mitchell, Morton B. Hull, Alexander Geddes, James L. Houghteling, and Charles B. Holmes. In this connection it may be of interest to add that the construction has been pushed with great energy, and the entire plant will be finished about the 1st of September, and it is fully believed that the expectations entertained of the property from the beginning (that the earnings, after paying all operating expenses and interest charges, will be sufficient to pay handsome dividends) will be realized. The first section of cable line, extending from Grand avenue and Seventh street to the center of the city, was opened on the 8th day of June last, and has operated continuously ever since without a single moment's