Robinson, J.,
delivered the opinion of the Court.
“ The Virginia Coal and Iron Company of Hampshire County, West Virginia,” was incorporated on the 16th of August, 1865, for the purpose of mining and shipping coal and other minerals, with a capital stock of $625,000, divided into 125,000 shares, of the value of $5 per share, 5000 shares of which were subscribed and paid for by the five incorporators.
At a meeting of the stockholders held on the 30th day of August, Ehlen, in behalf of himself and other incorporators, offered to sell to the company, a tract of coal land known as the “Sinclair farm” for $500,000, the purchase money to be paid as follows: $25,000 in cash, and the balance, $475,000, to be paid in the stock of the company. This proposition was accepted, and the shares of stock were issued accordingly, and delivered to the vendors in payment of the purchase money. In pursuance of the terms of purchase, the company took possession of the property, and began the mining and shipping of coal, and whilst thus in possession, suit was brought by the appellant in the United States Circuit Court, for the District of West Virginia, claiming title to an undivided seven-eighths interest in said tract of land. The decision in the Circuit Court was in- favor of the company, but on appeal to the Supreme Court of the United States this decision was reversed, and the appellant’s title to the land was established. Subsequently a decree was obtained by him ‘against the company for the sum of $328,042.99, with interest from June 1st, 1877, on account of the coal taken by it from the land of the appellant. This suit is instituted to enforce the payment of this decree against the appellees as stockholders in said company. The bill alleges that the corporation is insolvent, and that at least ninety per cent, of the shares of stock held by the appellees, remains unpaid, and that the unpaid instalments constitute part of the assets of the company, and as such, subject, to the payment of creditors.
[23]*23These shares were issued by the company as full-paid shares. The certificates are in the ordinary form, of full-paid stock, with nothing on their face to indicate that they were not fully paid; and with the exception of Ehlen, they were purchased-and held by the defendants as full-paid shares, with no notice of fraud or irregularity in their issue. In the view we take of the case, it is unnecessary to consider the many questions so elaborately argued at bar, for the liability of the defendants, after all, may be said to depend on the following questions:
First. Whether as bona fide transferees of shares of stock issued by the company to the original subscribers as full-paid shares, and sold by them, as such, the defendants are liable in an action by a creditor of the company for unpaid instalments on said shares, if it should turn out, that they were not in fact full-paid shares?
Secondly. Whether the company, had the power under its charter to buy coal land for mining purposes, and to pay for the same in the stock of the company ?
As to the first, were it a question of first impression, we do not see on what grounds the liability of the defendants as bona fide transferees could be maintained. The liability for subscription to the stock of a corporation is founded on contract. Where one agrees to take a certain number of shares, the law implies a promise to pay for them according to the terms of his subscription. If they are sold before all the instalments are paid, and are bought with such knowledge, the law implies a promise on the" part of the purchaser to pay whatever may be due thereon, according to the terms of the original subscription. In such cases the purchaser stands in the shoes of the original subscriber. These are elementary principles, about which there can be no contention. But where- shares are issued by the company to the subscriber as full-paid shares, and are sold by the subscriber as such, there is no ground on which a promise can be implied on the part of the pur[24]*24chaser without notice, to he answerable either to the company or to its creditors, should the representations on the faith of which he purchased, prove to be false. He could not be held liable on the ground of contract, because he never agreed to purchase any other-shares, than full-paid shares; and if it be said that the shares were fraudulently issued, he could not be held liable on the ground of fraud, because he was in no sense a party to the fraud. The company beyond all question could not under such circumr stances, maintain an action against him, because it would be estopped by its own acts and declarations. But the argument is, that independent of the relation of debtor and creditor between the stockholder and the company, growing out of the contract of subscription, there is another relation which the subscriber sustains to the creditors upon the insolvency of the company. That as to them, the unpaid subscription constitutes a trust-fund, which is beyond the reach of any agreement between him and the company to divest or impair.
In speaking of the assets of an insolvent corporation, as constituting a trust-fund for the payment of creditors, it is necessary to understand precisely what is meant by the Courts. No one will pretend for a moment, that in subscribing to the stock of a company, the purpose is to create a trust-fund for creditors. On the contrary, the object primarily is to furnish means to carry on its business, and to share the profits earned by the corporation; and so long as it is a going concern, it has the right, and indeed it is its duty to manage and dispose of its assets, including stock subscriptions, for the promotion of its own interest. If it ceases to do business, or if it becomes insolvent, then all assets which it then has or owns, including paid and unpaid subscriptions, either in the hands of the original subscriber, or in the hands of his assignee with notice, become a trust-fund, for the payment of creditors, and they have the right to follow the property constituting this fund, [25]*25and subject it to the payment of their debts, unless it has passed into the hands of a bona fide purchaser without notice.
And further, if there has been any fraudulent or collusive disposition of the assets of the corporation, all who participate in the fraud may be held liable to the creditors.
In Panger vs. Upton, Assignee, 91 U. S., 60, where this doctrine of trust-fund is as strongly asserted as in any other case, the Court say, “ The capital stock of an incorporated company is a fund set apart for the payment of its debts. If diverted the creditors may follow it so far as it can be traced, and subject it to the payment of their claims, except as against holders who have taken it bona fide for a valuable consideration and without notice.”
This is what the Courts mean in speaking of the assets of an insolvent corporation constituting a trust-fund for the payment of creditors, and as thus understood, it furnishes no ground on which the liability of the defendants as bona fide purchasers of stock, issued as full-paid, can be maintained, although such stock was not in fact full-paid. If this be so, on what other ground is the superior equity of the creditor based?
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Robinson, J.,
delivered the opinion of the Court.
“ The Virginia Coal and Iron Company of Hampshire County, West Virginia,” was incorporated on the 16th of August, 1865, for the purpose of mining and shipping coal and other minerals, with a capital stock of $625,000, divided into 125,000 shares, of the value of $5 per share, 5000 shares of which were subscribed and paid for by the five incorporators.
At a meeting of the stockholders held on the 30th day of August, Ehlen, in behalf of himself and other incorporators, offered to sell to the company, a tract of coal land known as the “Sinclair farm” for $500,000, the purchase money to be paid as follows: $25,000 in cash, and the balance, $475,000, to be paid in the stock of the company. This proposition was accepted, and the shares of stock were issued accordingly, and delivered to the vendors in payment of the purchase money. In pursuance of the terms of purchase, the company took possession of the property, and began the mining and shipping of coal, and whilst thus in possession, suit was brought by the appellant in the United States Circuit Court, for the District of West Virginia, claiming title to an undivided seven-eighths interest in said tract of land. The decision in the Circuit Court was in- favor of the company, but on appeal to the Supreme Court of the United States this decision was reversed, and the appellant’s title to the land was established. Subsequently a decree was obtained by him ‘against the company for the sum of $328,042.99, with interest from June 1st, 1877, on account of the coal taken by it from the land of the appellant. This suit is instituted to enforce the payment of this decree against the appellees as stockholders in said company. The bill alleges that the corporation is insolvent, and that at least ninety per cent, of the shares of stock held by the appellees, remains unpaid, and that the unpaid instalments constitute part of the assets of the company, and as such, subject, to the payment of creditors.
[23]*23These shares were issued by the company as full-paid shares. The certificates are in the ordinary form, of full-paid stock, with nothing on their face to indicate that they were not fully paid; and with the exception of Ehlen, they were purchased-and held by the defendants as full-paid shares, with no notice of fraud or irregularity in their issue. In the view we take of the case, it is unnecessary to consider the many questions so elaborately argued at bar, for the liability of the defendants, after all, may be said to depend on the following questions:
First. Whether as bona fide transferees of shares of stock issued by the company to the original subscribers as full-paid shares, and sold by them, as such, the defendants are liable in an action by a creditor of the company for unpaid instalments on said shares, if it should turn out, that they were not in fact full-paid shares?
Secondly. Whether the company, had the power under its charter to buy coal land for mining purposes, and to pay for the same in the stock of the company ?
As to the first, were it a question of first impression, we do not see on what grounds the liability of the defendants as bona fide transferees could be maintained. The liability for subscription to the stock of a corporation is founded on contract. Where one agrees to take a certain number of shares, the law implies a promise to pay for them according to the terms of his subscription. If they are sold before all the instalments are paid, and are bought with such knowledge, the law implies a promise on the" part of the purchaser to pay whatever may be due thereon, according to the terms of the original subscription. In such cases the purchaser stands in the shoes of the original subscriber. These are elementary principles, about which there can be no contention. But where- shares are issued by the company to the subscriber as full-paid shares, and are sold by the subscriber as such, there is no ground on which a promise can be implied on the part of the pur[24]*24chaser without notice, to he answerable either to the company or to its creditors, should the representations on the faith of which he purchased, prove to be false. He could not be held liable on the ground of contract, because he never agreed to purchase any other-shares, than full-paid shares; and if it be said that the shares were fraudulently issued, he could not be held liable on the ground of fraud, because he was in no sense a party to the fraud. The company beyond all question could not under such circumr stances, maintain an action against him, because it would be estopped by its own acts and declarations. But the argument is, that independent of the relation of debtor and creditor between the stockholder and the company, growing out of the contract of subscription, there is another relation which the subscriber sustains to the creditors upon the insolvency of the company. That as to them, the unpaid subscription constitutes a trust-fund, which is beyond the reach of any agreement between him and the company to divest or impair.
In speaking of the assets of an insolvent corporation, as constituting a trust-fund for the payment of creditors, it is necessary to understand precisely what is meant by the Courts. No one will pretend for a moment, that in subscribing to the stock of a company, the purpose is to create a trust-fund for creditors. On the contrary, the object primarily is to furnish means to carry on its business, and to share the profits earned by the corporation; and so long as it is a going concern, it has the right, and indeed it is its duty to manage and dispose of its assets, including stock subscriptions, for the promotion of its own interest. If it ceases to do business, or if it becomes insolvent, then all assets which it then has or owns, including paid and unpaid subscriptions, either in the hands of the original subscriber, or in the hands of his assignee with notice, become a trust-fund, for the payment of creditors, and they have the right to follow the property constituting this fund, [25]*25and subject it to the payment of their debts, unless it has passed into the hands of a bona fide purchaser without notice.
And further, if there has been any fraudulent or collusive disposition of the assets of the corporation, all who participate in the fraud may be held liable to the creditors.
In Panger vs. Upton, Assignee, 91 U. S., 60, where this doctrine of trust-fund is as strongly asserted as in any other case, the Court say, “ The capital stock of an incorporated company is a fund set apart for the payment of its debts. If diverted the creditors may follow it so far as it can be traced, and subject it to the payment of their claims, except as against holders who have taken it bona fide for a valuable consideration and without notice.”
This is what the Courts mean in speaking of the assets of an insolvent corporation constituting a trust-fund for the payment of creditors, and as thus understood, it furnishes no ground on which the liability of the defendants as bona fide purchasers of stock, issued as full-paid, can be maintained, although such stock was not in fact full-paid. If this be so, on what other ground is the superior equity of the creditor based?
It was said, the purchaser ought to ascertain by inquiry, whether the stock issued by the company was in fact full-paid. It must be admitted, however, that this obligation rests with equal, if not greater, force on the creditor. He deals directly with the company, and has, it is fair to presume, greater means and facilities for ascertaining its real condition, and its claims to confidence and credit, than the purchaser of stock which is sold on the market, and sold too in most instances, at a distance from the company's place of business. Shares of stock are not, strictly speaking, negotiable instruments, but Courts speak of them as quasi negotiable; and when they are issued as full-paid shares, and as such sold in open market, the purchaser is not bound to suspect fraud where everything seems fair and comform[26]*26able to the requirements of the law. Any other doctrine would virtually destroy, the transferable nature of such shares, and paralyze the whole of the dealings in the stock of corporations. Burkinshaw vs. Nicholls, 26 W. R. House of Lords, 821.
Were this then a question to be decided on principle, we do not see on what grounds these defendants could be justly held liable to the creditors of the company. And such seems to be the whole current of decisions both in England and in this country. In Nicholls’ Case, Court of Appeals, 26 Weekly Rep., 334, shares were issued by the company as full-paid shares, when in fact there was no payment in money, nor any registration of the contract of subscription, as required by the Companies’ Act of 1861, and upon the winding up of the company, some of these shares were held by Nicholls, trustee, as transferee without notice that such shares had not been paid in money. Suit was brought by the official liquidator against Nicholls for contribution, and the Court held that he was not liable. “When you have a receipt given you by the company, or a final receipt as a certificate of payment,” said Jessel, M. R., what more is a bona fide purchaser to ask for, and what occasion has he to make any further inquiry? “He has the representation of the company by the certificate, that the shares are fully paid up. It appears to me impossible that the company should be allowed to say the shares were not paid up in due course.” On appeal the judgment in this case was affirmed by the House of Lords, and in speaking of the rights of the defendant as a bona fide purchaser without notice, Lord Cairns said:
“He receives a representation to the effect, that the law has been complied with, and, it would paralyze the whole trade in company’s shares, if a person taking shares with a representation that they are fully paid up, must disregard this assertion, and satisfy himself of the fact by personal inquiry.” And in Bush’s Case, L. R., Ch. [27]*27App., 555, where shares were allotted to Tucker, as full-paid shares, and by him transferred to the defendant as such, when in fact no money had keen paid as required by the Companies’ Act, the appeal was spoken of by Sir Wm. M. James, “as an idle and vexatious appeal.” And in the still later case of Waterhouse vs. Jamieson, Law Rep., 2 Scotch and Divorce App., 38, Lord Westbury said,
“The appellant is a bona fide holder of shares, upon which, no doubt, there was a false statement made by the company, of which he had no knowledge, and as to which he was under no obligation to inquire, and therefore cannot he subjected to liability by having imputed to him knowledge of the falsehood.”
Against the force of these decisions it is argued that, the English Courts accord to creditors of insolvent corporations such rights only as the official liquidator can assert in the name of the corporation, and through its contracts; and that the ground on which a bona fide purchaser of stock issued as full-paid is held not to he liable, although such stock was not in fact full-paid, is that the liquidator is estopped from denying the representation made by the company, upon the faith of which others have been induced to purchase the stock. In this country, however, it is said the Courts accord to creditors rights growing out of the relation of stockholder, which upon the insolvency of the corporation attach at once to unpaid shares, whether in the hands of the subscriber or his assignee, and that the inquiry here is not whether the holder took the stock in good .faith believing it to have been paid up, hut whether the stock has in fact been fully paid.
This distinction is not, we think, supported by the decided cases. On the contrary, all the decisions in this country agree that the rights of the creditor to recover against the stockholder rests on the liability of the latter to the corporation, and that this liability is one founded on [28]*28contract. Where shares of stock are issued to he paid in certain instalments, the law implies a promise on the part of the subscriber and his assignee, that they will pay whatever may be due thereon according to the terms of the subscription. But where shares are issued as fully paid, and these are sold in open market, and one buys them in good faith on the representation of the company that they are paid up, no promise can be implied on the part of the purchaser to become liable if such shares have not in fact been paid. He is not hound to suspect fraud in issuing the stock, and ,the remedy of the creditor in such cases is against the parties to the fraud. In Foreman vs. Bigelow, 4 Clifford, 509, and Steacy vs. Little Rock Railroad Company, 5 Dillon, 348, the whole subject was considered and the English doctrine was fully approved. In the one, Justice Clifford quotes with approval the opinions delivered by James, L. J., Thesiser, L. J., in Nicholls’ Case, and in the other, Justice Dillon relies on the opinions of Lords Cairns, Hatherley, Selborne and Blackburn, delivered in the same case on appeal to the House of Lords. And in all the cases relied on by the appellant as sustaining a contrary doctrine, it will he found either that the certificates on their face showed that the shares of stock were not in fact full-paid, or the facts and circumstances accompanying the transfer, were such as to put the purchaser on the inquiry. Upton, Assignee, 3 Bissell, 417; Upton, Assignee vs. Tribilcock, 91 U. S., 45; Bowman's Case, 12 Conn., 530; Bend vs. Susquehanna Bridge Co., 6 H. & J., 126; Hall vs. U. S. Ins. Co., 5 Gill, 484; Palmer vs. Laurence, 3 Sandford Supr. Ct., 141.
The only remaining question to be considered is, whether the company had the power under its charter to purchase coal land for mining purposes, and to pay for the same in the stock of the company ? And in dealing with this question we must hear in mind that the company was incorporated for the purpose of mining and shipping coal, and that [29]*29under the laws of West Virginia it had the power to purchase and hold mineral lands to the extent of ten thousand acres. Row we take the law to he well settled, that a company may receive in payment of its shares of stock any property which it may lawfully purchase; and so long .as the transaction stands unimpeached for fraud, Courts will treat as a payment that which the parties themselves have agreed shall he a payment, and this too in cases where the rights of creditors are involved. Waterhouse vs. Jamieson, L. R., 2 Scotch & Div. App., 29; Ex parte Currie, 32 L. J., Ch. 57; Carling’s Case, 1 Ch. Div. 115 ; Nicholls’ Case, 26 W. R., House of Lords, 821; Foreman vs. Bigelow, 4 Clif, 508; 5 Dillon, 367. The right of the Virginia Coal and Iron Company to purchase coal land for mining purposes, and to pay for it out of the subscriptions to its capital stock is conceded. If so, what reason can there he in requiring that the money for the stock shall in fact he paid to the company, and at the same moment to hand it hack to the vendor in payment of land ? The passing of the money backwards and forwards would he an idle form, and so the Courts regard it. In Spargo’s Case, 8 L. R., Ch. App., 412, Sir Wm. M. James, L. J., said:
“If there was on the one side a tona fide debt payable in money at once for the purchase of property, and on the other side a bona fide liability to pay money at once in shares, so that if bank notes had been handed from one side of the table to the other in payment of calls, they might legitimately have been handed back in payment for the property, there is no necessity that the formality should he gone through of the money being handed over and taken back; but that if the two demands are set off against each other the shares have been paid for in cash.”
Sir G. Hellish, L. J.,—“It is a general rule of law that in every case where the transaction resolves itself into the payment of money by A. to B., and then handing it back again by B. to A., if the parties meet together and agree [30]*30to set the one demand against the other they need not go through the form and ceremony of handing the money backwards and forwards.”
(Decided 28th April, 1882.)
The bill in this case, does not seek to set aside the sale of the coal land to the company on the ground of fraud, and we must therefore deal with this question upon the assumption that the sale and purchase were made in good faith.
The company, it is true, agreed to pay $500,000 for the coal land purchased of Ehlen and others, but $475,000 of the purchase money was paid in the stock of the company, and the balance $25,000 was paid by the vendors themselves for the 5000 shares subscribed for by them. So, after all, the value of the stock received in payment of the land, depended on the value of the property purchased by the company.
It follows from what we have said that the stock thus issued to Ehlen and others, .in payment of the land, must, in the absence of fraud or collusion, be treated as paid up stock, and as such the holders cannot be held personally liable to the appellant.
We find nothing in the Code of West Virginia under which the company was chartered, inconsistent with these views.
The decree of the Court. dismissing the bill, will therefore be affirmed.
Decree affirmed, and bill dismissed.