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$65,517, to bear interest from that date. | jury, and held, as matter of law, that upon
We infer, though the record contains no the evidence the intestate Greene, by taking
distinct statement or proof on the subject, the 910 shares of stock upon which the
that the bonds became due and payable prior twenty per cent was paid, did not become
to this suit, on account of default in the pay- liable to pay anything further on account
ment of interest. Execution was issued upon thereof to creditors of the railway company;
the judgment and was returned August 10, and, pursuant to its direction, the jury re-
1880, no property found.
turned a verdict for the defendant. Clark v.
Bever, 31 Fed. Rep. 670.

The questions to be first considered relate to the jurisdiction of the court below and of this court.

The present suit was commenced July 5,
1881, by Clark against the administrator of
Greene, a citizen of Iowa, in the Circuit
Court for Linn County, in that State. The
petition, after setting out the foregoing
judgment, the return of the execution there-
on unsatisfied and the ownership of the 910
shares of stock by Greene up to his death,
and by his estate since, alleged “that of the
value of said shares of stock owned by said
decedent there has been paid only the sum of
eighteen thousand two hundred dollars, or
about twenty per centum of the full value
of said stock, and there is still due upon
said shares a balance of eighty per centum
of their full value, amounting to the sum of
seventy-two thousand and eight hundred
dollars; that the said balance due upon said
shares was a trust fund in the hands of said
decendent for the payment of said judgment
and is still a trust fund for the purpose in
the hands of decedent's administrator: that
the defendant herein is the administrator of
the estate of said George Greene, deceased,
duly appointed and qualified; that said de-
cedent in his lifetime failed and neglected
to pay or cause to be paid the said judgment
or any part thereof, and this defendant has
failed and neglected to pay or cause to be
paid the same or any part thereof, and the
said judgment is still due and wholly un-
paid." The prayer of the petition was for
a judgment against the defendant as admin-lowing such a claim is not an ordinary judg-
istrator for the whole amount of the plain-
tiff's claim, with interest and costs, and
that it be allowed by the court as a just
claim against Greene's estate.

The case was subsequently removed upon the petition of Clark to the Circuit Court of the United States for the District of Iowa, and thereafter by consent was transferred to the Eastern Division of the Southern District of that State.

The defendant, besides denying each allegation of the plaintiff's claim and petition, pleads, in bar of the action, the Statute of Limitations of Iowa, and also a certain settlement and compromise between the plaintiff and the railway company. To this answer a replication was filed by the plaintiff.

After the evidence was concluded the plaintiff asked several instructions based upon the general ground that the stock used in discharging the debt of the construction company was a trust fund for the benefit of creditors, and that, without reference to the necessities of the railroad company or the good faith of the transaction, Greene was accountable to the creditors of the latter corporation for the par value of the stock issued to him under the settlement or compromise of 1872, whatever may have been its market value at the time he got it or at the time this action was commenced.

The court below refused to so instruct the

This proceeding was commenced in one of the circuit courts of Iowa, having general original jurisdiction in all civil actions and special proceedings, and original exclusive jurisdiction, in the respective counties of the State, among other things, "of the settlement of the estates of deceased persons." Of the filing of a claim against the estate of a deceased person, the executor or administrator is entitled to notice to be served "in the manner required for commencing ordinary proceedings," unless the claim be expressly admitted in writing with the approbation of the court, and when not so admitted "the court may hear and allow the same, or may submit it to a jury." On such hearing, un- [102] less otherwise declared, the court is governed by the provisions of law applicable to an ordinary proceeding. When a claim is allowed, it is "placed in the catalogue of established claims, but shall not be a lien." Code of Iowa 1873, secs. 161, 2312, 2370, 2408, 2409, 2410, 2411, 2416. No other court of the State, except a circuit court, has jurisdiction to allow or disallow a claim against the estate of a deceased person. Tillman v. Bowman, 68 Iowa, 450; Shropshire v. Long, 68 Iowa, 539. While an order alment upon which an execution may issue, it is an "adjudication" establishing that claim as one to be paid by the executor or administrator so far as the estate in his hands is sufficient. Foteaux v. Lepage, 6 Iowa, 123; Voorhies v. Eubank, 6 Iowa, 274; Little v. Sinnett, 7 Iowa, 324; Smith v. Shawhan, 37 Iowa, 535; Dessaint v. Foster, 72 Iowa, 640. It is suggested that the claim in suit here is a mere incident to the marshalling and distribution of the estate of Greene; that such estate can only be administered and distributed by the state court in accordance with the laws of the State; and that the circuit court of the United States was without juris. diction to determine whether it was or not a valid claim against that estate. This position is wholly untenable. As the proceeding involved a judicial determination as to the liability of Greene's estate for the amount of Clark's claim, with parties before the court to contest all the questions of law and fact, it was clearly a "suit," within the meaning of the Act of Congress providing for the removal of suits to the circuit courts of the United States. The removal in this case was, therefore, proper, unless it be competent for a State, by legislative enactment conferring upon its own courts exclusive jurisdiction of all proceedings or suits involving the settlement and distribution of the estates of deceased persons, to exclude

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[104]

the jurisdiction of the courts of the United of the plaintiff against Greene's administra-
States even in cases where the constitutional tor for the full amount and a writ of error
requirement as to citizenship is met. But had been prosecuted by him to reverse that
this court has decided, upon full consider- judgment. The case is different from Miller
ation, that no such result can be constitu- v. Clark, 138 U. S. 223 [34: 966], decided
tionally effected by state legislation. The at the present term, where the appeal was
case of Hess v. Reynolds, 113 U. S. 73, 77 dismissed, because it appeared, affirmatively,
[28: 927, 928], involved a disputed claim that the appellant, who was the plaintiff
originally filed in a probate court of Mich- below, did not claim, and could not possibly
igan, carried by appeal to a circuit court of recover, for himself, a sum in excess of $5,000.
the same State, and subsequently removed to We come now to consider the principal
the Circuit Court of the United States for questions in the case. They relate to the
the District of Michigan. Substantially the liability of the defendant for the difference
same question of jurisdiction was raised in between the face value of the stock issued to
that case that is here presented. This court Greene in 1872 and the value at which it was
said: "It may be convenient that all debts rated in the settlement of that year with the
to be paid out of the assets of a deceased Burlington, Cedar Rapids and Minnesota
man's estate shall be established in the court Railway Company. The general proposition
to which the law of the domicil has confided advanced by the plaintiff is that it was not
the general administration of these assets. competent for the railway company to issue
And the courts of the United States will pay to Greene and his associates in discharge of
respect to this principle, in the execution of its debt to them, amounting to $70,000,
the process enforcing their judgments out of thirty-five hundred shares of stock of the par
these assets, so far as the demands of justice value of $350,000, although the settlement
require. But neither the principle of con- upon that basis may have been demanded by
venience, nor the statutes of a State, can de- the best interests of the company, and was
prive them of jurisdiction to hear and de- made in good faith without intention to harm
termine a controversy between citizens of the corporation or to defraud its creditors,
different States, when such a controversy is existing or subsequent, and although the
distinctly presented, because the judgment stock at the time "was not worth anything
may affect the administration or distribution in the market ;" and that Greene took the 910
in another forum of the assets of the decedent's shares issued to him for twenty per cent of
estate. The controverted question of debt or its face value, subject to the implied condi-
no debt is one which, if the representative tion that he should be liable for any unpaid
of the decedent is a citizen of a State differ- debts of the corporation to the extent of the
ent from that of the other party, the party difference between the face value of the stock
properly situated has a right given by the and the amount at which it was taken by
Constitution of the United States to have him. It is not contended that such liability
tried originally, or by removal, in a court of arises from the relations Greene held to the
the United States, which cannot be defeated two companies making the settlement of
by state statutes enacted for the more con- 1872, but from the obligations the law im-
venient settlement of estates of decedents." posed for the benefit of creditors both upon
See also Payne v. Hook, 74 U. S. 7 Wall. the corporation issuing the stock and its
425 [19: 260]; Mississippi & R. R. Boom Co. stockholders. Of course, under this view,
v. Patterson, 98 U. S. 403 [25: 206]; Ellis everyone having claims against the railway
v. Davis, 109 U. S. 485 [27: 1006]; Delaware company-even laborers and employés-who
County Comrs. v. Diebold S. & L. Co. 133 U. S. could get nothing except stock in payment
473, 487 [33: 674, 680]: Upshur County v. of their demands, became bound, by accept-
Rich, 135 U. S. 467, 477 [34: 196, 200]. ing stock at its market value in payment, to
account to unsatisfied judgment creditors for
its full face value, although, at the time it
was sought to make them liable, the corpora-
tion had ceased to exist, or its stock had re-
mained, as it was when taken, absolutely
worthless. Such the plaintiff, in effect, in-
sists is the law of Iowa.

It is next contended that, under the statutes of Iowa governing the settlement of the estates of deceased persons, the plaintiff in error has only an interest in the "fund" arising from Greene's estate; and as it does not appear, affirmatively, that such interest exceeds, or can exceed, in value the sum of five thousand dollars, this court is without jurisdiction and the writ of error should be dismissed. This contention must be overruled. The plaintiff seeks a judgment against the estate of Greene for the sum of $65,523.20, with interest. The defendant disputes the whole of that claim. The sum sued for-the entire clain having been rejected-is the value of the matter in dispute here; and our jurisdiction to determine that dispute cannot depend upon an inquiry as to whether the estate of Greene, when fully distributed, may or may not yield to the plaintiff, if successful here, something in excess of five thousand dollars. Such an inquiry is as inadmissible, on this writ of error, as it would be if the judgment had established the claim

The statutory provisions that are supposed by the plaintiff to sustain his position, which were in force when the stock in question was issued, are found in title X., chapter 52, of the Revision of the Statutes of Iowa of 1860, relating to the creation of corporations for the transaction of any lawful business, including the establishment of ferries, the construction of canals, railways, bridges or other works of internal improvement. § 1150. Among the powers which such corporations may exercise are "to make contracts, acquire and transfer property, possessing the same powers in such respects as private individuals now enjoy," and "to establish by-laws, and make all rules and regulations deemed expedient for the management of their affairs

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"Sec. 1173. In none of the cases contemplated in this chapter can the private property of the stockholders be levied upon for the payment of corporate debts while corporate property can be found with which to satisfy the same, but it will be sufficient proof that no property can be found if an execution has issued on a judgment against the corporation and a demand thereon made of some one of the last acting officers of the body for property on which to levy, and if he neglects to point out any such property. "Sec. 1174. The defendant in any stage of a cause may point out corporate property subject to levy, and upon his satisfying the court of the existence of such property by affidavit or otherwise the cause may be continued or execution against him stayed until the property can be levied on and sold, and the court may subsequently render judgment and order execution for any balance which there may be after disposing of the corporate property according to the stage of the cause; but if a demand of property has been made, as contemplated in the preceding section, the costs of such proceedings shall in any event be paid by the company or by the defendant."

in accordance with law and not incompatible with an honest purpose." § 1151. Artifles of incorporation were required to be recorded in the office of the recorder and secretary of state. § 1152. A notice of the incorporation must be published, containing the name of the corporation and its principal place of transacting business; the general nature of such business; the amount of capital and stock authorized and the terms and the conditions on which it is to be paid in; the time of the commencement and termination of the corporation; by what officers or persons the affairs of the corporation are to be conducted, and the times at which they will be elected; the highest amount of indebtedness or liability to which the corporation is at any time to subject itself; and whether private property is to be exempt [106] from corporate debts. SS 1154, 1155. A failure to comply with the above and other provisions in relation to organization and publicity rendered the individual property of all the stockholders liable for the corporate debts, except that stockholders in railway companies were made liable only for the amount of stock held by them in such companies. § 1166, 1338. Intentional fraud in failing to comply substantially with the articles of incorporation, or in deceiving the public or individuals in relation to their means or their liabilities, subjected those guilty thereof to fine and imprisonment, or both, at the discretion of the court. § 1163. The argument in behalf of the plaintiff The practice of fraud in the manner men- assumes that, consistently with these statutioned caused a forfeiture of all the privi-tory provisions, no one can, under any cirleges conferred, and the courts could proceed upon information to wind up the business of the corporation. § 1167. A copy of the by-laws of the corporation and a statement of the amount of capital stock subscribed, the amount actually paid in and the amount of the indebtedness in a general way was required to be kept posted up in the principal places of business, subject to public inspection, such statement to be corrected as often as any material change took place in relation to any part of the subject matter of the statement. §§ 1161, 1162.

The provisions upon which the plaintiff particularly relies are the following:

These provisions are substantially preserved in the Iowa Code of 1873. §§ 1058, 1059, 1062, 1063, 1068, 1071, 1078, 1082, 1083, 1084.

cumstances whatever, become the owner of
the stock of an Iowa corporation, except sub-
ject to the condition that, where property of
the corporation cannot be found, the private
property of the stockholder may be seized
under execution in favor of a judgment
creditor to the extent of the difference be-
tween what he actually paid for the stock,
whether in money or in property, and its
face value. And it is further insisted that,
independently of the Statute, such is the
doctrine of general law relating to subscrip-
tions to the stock of corporations, as an-
nounced by this court in several cases.
are of opinion that neither of these positions
can be maintained.

We

"Sec. 1169. The transfer of shares is not The local Statute undoubtedly proceeds
valid except as between the parties thereto upon the ground that unpaid installments of
until it is regularly entered on the books of stock subscribed constitute-no other rule
the company so far as to show the name of being prescribed by legislative enactment—a
the persons by and to whom transferred, the trust fund for the benefit of creditors. But it
number or other designation of the shares does not declare that a corporation is with-
and the date of the transfer; but such trans-out power, under any circumstances what-
fer shall not in any way exempt the person ever, to dispose of its stock at less than par,
or persons making such transfer from any or that stock purporting to be full paid shall,
liability or liabilities of said corporation in all cases, and without reference to the
which were created prior to such trans- circumstances under which it was acquired,
fer.
be deemed unpaid to the extent that the
amount given for it by the owner, whether
in money or in property, was less than its
face value. On the contrary, the Statute
itself imposes no express restriction upon
the disposition by a corporation of its stock
except such as is imposed upon individuals,
and prescribes no rule in respect to the lia-
bility of a stockholder to creditors except
that when corporate property cannot be

"Sec. 1172. Nothing herein contained exempts the stockholders of any corporation from individual liability to the amount of the unpaid installments on the stock owned by them or transferred by them for the purpose of defrauding creditors, and execution against the company may to that extent be levied upon such private property of any individual.

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[108]

it might at a future time acquire some value,
but with the certainty that if the railroad
company became bankrupt and ceased to do
business all of its assets would be appropri-
ated by creditors, leaving nothing whatever
to stockholders.

found to pay a judgment creditor his private property may be seized under the execution to the extent of any unpaid installments on the stock owned by him. Whether any such indebtedness really exists upon the part of a particular stockholder, and whether he in law or in fact owes any sum on the Do the decisions of this court require us stock held by him, was left by the Statute to hold, in such a case, that a creditor taking to be determined in each case, upon its own stock in payment of his claim is bound to circumstances, and in accordance with the other creditors for the face value of the stock? principles of general law touching the rights The plaintiff contends that our decisions are and liabilities of creditors and stockholders. to that effect. Let us see. In Sawyer v. If the Legislature had intended that the ac- Hoag, 84 U. S. 17 Wall. 610, 620 [21: 731, quisition of stock at less than its face value 735], it was held that the capital stock of a should be conclusive evidence in every case corporation, especially its unpaid subscripthat the stock, as between creditors and stock- tions, is a trust fund sub modo for the benefit holders, is "unpaid," it would have been of its general creditors. And this principle easy to so declare, as has been done in some was reaffirmed in Upton v. Tribilcock, 91 U. of the States. If such a rule be demanded S. 45 [23: 203]; Sanger v. Upton, 91 U. S. by considerations of public policy, the rem- 56 [23: 220]; Webster v. Upton, 91 U. S. 65 edy is with the legislative department of [23: 384]; Pullman v. Upton, 96 U. S. 328 the government creating the corporation. A [24: 818]; Chubb v. Upton, 95 U. S. 665 [24: rule so explicit and unbending could be en- 523]; Morgan County v. Allen, 103 U. S. 498 forced without injustice to anyone, for all [26: 498]; Scovill v. Thayer, 105 U. S. 143 would have notice from the statute of the [26: 968]; Hawkins v. Glenn, 131 U. S. 319, will of the Legislature. It is not for the 335 [33: 184, 193], and Richardson v. Green, courts by mere interpretation of a statute, 133 U. S. 30, 45 [33: 516, 522]. There is not justified by its language, to accomplish no dispute here as to the soundness of this objects that are within the exclusive prov- general principle. The dispute is as to its ince of legislation. If, when receiving the application to a case like the present one. 910 shares of stock in payment of his por- We can be aided in solving this inquiry by tion of the claim of $70,000 against the ascertaining the character of the particular railroad company, Greene had supposed that cases in which it has been applied by this [109] he would thereby become liable to account court. In Sawyer v. Hoag, a subscription of to creditors for its full face value without $5,000 to the stock of an insurance company regard to the real value of the stock, and for which the subscriber paid in full, but whether the corporation subsequently became received in return the check of the corporabankrupt or not, he certainly would not tion for $4,250 under an agreement that the have taken it. It is equally certain that no debt for the stock should be extinguished, such result was contemplated by the other and the amount of the check should be treated party to the settlement. It is also certain simply as a loan of money to the stockholder, that the acceptance by the members of the was held to be a mere device to evade the construction company of worthless stock in rule that unpaid subscriptions of stock confull discharge of its claim was a benefit to stitute a trust fund for the benefit of the both the existing creditors and the holders creditors of the corporation; consequently, of stock of the railroad company not paid that the stock there in question was to be in full; to creditors, because it diminished regarded, as between the corporation and the number of that class who would be cn- creditors, to be unpaid to the extent of the titled to share in the assets of the company; amount received back from the corporation to stockholders so situated, because it lessened under the pretense of a loan. In Upton v. the number of creditors, to whom, in any Tribilcock, an actual subscriber to the stock contingency, they would be liable in their of an insurance company, upon which he private property for the debts of the corpora- agreed to pay 20 per cent, was held retion. Here was a corporation which, at the sponsible for the balance, and could not time of the settlement of 1872 with Greene escape liability therefor because of represenand his associates, was unable from its net tations by the agent, at the time of the subearnings to pay the interest on its bonded scription, that he would be only responsible debt. It could not pay even its floating debt for that amount, or by proving a subsequent without borrowing money or making sale of arrangement with the company canceling stock. But its stock could not be sold for the subscription and accepting, as in full money. It had no market value, and the payment, his note for the 20 per cent agreed company could not get rid of the debt due to be paid. Sanger v. Upton was another for construction except by borrowing money case of the actual subscription of stock upon or selling stock. If it had borrowed money which the subscriber was held to pay the and secured its payment by mortgage upon full sum subscribed. In Webster v. Upton, a its real property or income, it would thereby person holding certificates of stock by transhave added to the burdens of creditors and fer from the original subscriber, and standing original stockholders. So far as the record upon the books of the corporation as a stockdiscloses, it did in good faith what was best holder, was held liable for the balance due for all then concerned in the railroad com-upon the stock, without proof of an "express" pany, namely, paid off a large claim for promise upon his part to pay. In Chubb v. construction with worthless stock, those to Upton, the decision was that one receiving whom it was issued taking their chances that a certificate of stock for a certain number of

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[112]

ors in money, was threatened with bank-
ruptcy, and which refused or was unable to
pay except in stock that was without market
value. To say that a public corporation,
charged with public duties, may not relieve
itself from embarrassment by paying its debt
in stock at its real value-there being no
statute forbidding such a transaction-with-
out subjecting the creditor, surrendering his
debt, to the liability attaching to stockhold-
ers who have agreed, expressly or impliedly,
to pay the face value of stock subscribed by
them, is, in effect, to compel them either to
suspend operations the moment they become
unable to pay their current debts, or to bor-
row money secured by mortgage upon the
corporate property. We do not think the
Statute of Iowa can be properly construed to
cause such a result in respect to corporations
organized under its laws.

shares, at a given sum per share, thereby be-
came liable to pay the amount thereof when
called upon by the corporation or its assignee
in bankruptcy; and in Pullman v. Upton, that
a transferee of stock, who caused the transfer
to be made to himself as collateral security
for a debt of the transferer, was liable for
the balance due on such stock. The doctrine
of the latter case was approved in Hawkins
v. Glenn. In Morgan County v. Allen, it was
decided that the subscription by a county to
the capital stock of a railroad company, to-
gether with the bonds given therefor, consti-
cuted with other property of the company a
trust fund, to which all its creditors could
rightfully look for satisfaction of their
claims; and that by no device or combination,
to which particular creditors were parties,
could it withdraw its bonds from that fund,
and thereby avoid liability to the general
creditors of the company. In Scovill v. We must not be understood as modifying
Thayer, it was declared, among other things, in any respect the principles laid down in the
that a contract between a corporation and its cases above cited, nor the salutary rule laid
stockholders, that they should never be called down in Sawyer v. Hoag, that when the in-
upon to pay any other assessment than that terest of the public or of strangers is to be
paid at the outset, while good as between the affected by any transaction between the stock-
corporation and the stockholders, was a fraud holders owning the corporation and the cor-
in law upon creditors, which they could poration itself, "such transaction should be
have set aside whenever their rights inter- subject to a rigid scrutiny, and if found to
vened, and their claims were unsatisfied. In be infected with anything unfair toward such
Richardson v. Green, it was held that the third person calculated to injure him, or de-
issuing by a corporation of bonus stock was signed intentionally and inequitably to screen
in violation of a statute of the State declar- the stockholder from loss at the expense of
ing it to be unlawful to issue certificates of the general creditor, it should be disregarded
stock until the shares were fully paid, and or annulled so far as it may inequitably af
that one exercising the privileges and powers fect him." These principles were reaffirmed
of a stockholder in a corporation was not ex-in Richardson v. Green, and should not be
empt from the liabilities attaching to a bona
fide stockholder who took shares purporting
to be, but which in fact were not, fully paid.
This detailed statement of the above cases
has been made because of the confident asser-porting to be, but which are shown not to
tion that they rest upon doctrines necessarily
requiring the reversal of the judgment. We
do not concur in this view. In all of these
cases, except one, there was an actual sub-
scription of a given amount. They were
cases of promises to pay the company the
amount subscribed, not of sales by it. Ac-
cording to those cases, a stockholder, becom-
ing such by formal subscription or by trans-tions to stocks are assets, and have frequently
fer upon the books of the corporation, cannot
be discharged to the injury of creditors by
any agreement, arrangement or device to
which creditors do not give their assent, and
by which the stockholder is to pay less than
the amount due upon such stock; this, upon
the ground stated in Webster v. Upton, that
"neither the stockholders nor their agents,
the directors, can rightfully withhold any
portion of the stock from the reach of those
who have lawful claims against the com-
pany," and that "the stock thus held in trust
is the whole stock, not merely that percentage
of it which has been called in and paid."
The present case presents features that are
not to be found in the others. It is not the
case of an ordinary subscription of stock in
a given amount. Nor is it, strictly, one of
an ordinary purchase of stock for purposes
of investment. It is the case of a creditor
of an insolvent railroad corporation which,
in consequence of its inability to pay credit-

relaxed in any case in which they may be
applied consistently with justice. So, when
the interests of creditors require, those who
hold shares of stock in a corporation, pur-

have been, paid for to the extent of their
face value, should be held liable to pay for
such shares in full, unless it appears that
they acquired the stock under circumstances
that did not give creditors and other stock-
holders just ground for complaint. As said
by this court in Peters v. Bain, 133 U. S.
670, 691 [33: 696, 704], "unpaid subscrip-

been treated by courts of equity as if im-
pressed with a trust sub modo, in the sense
that neither the stockholders nor the corpora-
tions can misappropriate subscriptions so far
as creditors are concerned." See also Graham
v. La Crosse & M. R. Co. 102 U. S. 148, 161
[26: 106, 111]; Wabash, St. L. & P. R. Co.
v. Ham, 114 U. S. 587, 594 [29: 235, 238];
Fogg v. Blair, 133 U. S. 534, 541 [33: 721,
724].

The general grounds upon which we have
proceeded are supported by New Albany v.
Burke, 78 U. S. 11 Wall. 96, 103 [20: 155,
158], et seq. In that case, judgment cred-
itor of an insolvent railroad corporation
sought to hold the City of New Albany lia-
ble for the balance alleged to be due by it on
a subscription to the capital stock of that
corporation.. Under an ordinance of the city,
a subscription of $400,000, payable in city
bonds, was made by it to the stock of the
corporation, the railroad company agreeing

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