Mr. Justice Sheldon
delivered the opinion of the Court:
By the will of her step-son, P. W. Bonner, who died in July, 1870, appellee, Georgie H. Peterson, a resident of the State of New York, became owner of all personal property-left by said Bonner, and in September, 1870, on application made to her in New York, she sold all said property to the/ Illinois Land and Loan Company. On November 20, 1874,] she filed her bill against said company to set aside such sale, and for other relief in respect thereto, on the ground that she had been induced to make the sale through the fraudulent misrepresentations of the company, for an inadequate consideration, and on May 1, 1877, she obtained in the suit a money decree against the company, for $5653.33. An execution issued upon the decree having been returned nulla bona, Mrs. Peterson, on September 18, 1879, filed her bill in chancery in the present case, to subject property in the hands of Caleb Clapp to .the payment of this decree. A decree was entered in her favor granting the relief sought, which, on appeal to the Appellate Court for the First District, was affirmed, and the present appeal taken to this court.
It appears that the Illinois Land and Loan Company was chartered by an act of the legislature in 1867, with a capital stock of $100,000, with 1000 shares, of $100 each, all of which was paid in. Caleb Clapp,, a non-resident of the State, was a stockholder in the company, and in January, 1874, he surrendered to the company 555 shares of stock, in| consideration of which the company executed to him a deed oil warranty of two lots in Chicago, one of the value of $50,000j; and the other of the value of $5500, that amount being the consideration stated in the deed. The stock was canceled, and was considered, at the time, of par value. Mr. Clapp continued to be till his death, and his estate still is, the owner of the lots. It is these lots which are sought to be subjected to the payment of said money decree against the company.
The legal principle which appellants’ counsel lays down and insists upon as applying to the case, is, that corporations may purchase their own stock in exchange for money or other property, and hold, re-issue or retire the .same, provided such act is had in entire good faith, is an exchange of equal value, and is free from all fraud, actiial or constructive, this implying that the corporation is neither insolvent nor in process of dissolution. We think there must be added to the proposition the further condition that the rights of creditors are not affected. •
The doctrine so elaborately urged by appellants’ counsel, that a corporation has the power to purchase its own stock, seems well enough settled, and was asserted by this court in Chicago, Pekin and Southwestern R. R. Co. v. Marseilles, 84 Ill. 643. Yet, in so holding there, the qualification was added, that, in equity, the transaction might be impeached if it operated to the injury of creditors. We see nothing to show that the transaction in the present case was not in good faith, that there was any element of fraud about it, or that there was anything in the apparent condition of the company to interfere with the making of the exchange that was had. It is only as injuriously affecting the interests of creditors, we think, that the transaction can be questioned, and it is in that view that it must be considered and passed upon.
In Sanger v. Upton, 91 U. S. 60, it is laid down: “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 co-partnerships. 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 bona fide for a valuable consideration and without notice. It is publicly pledged to those who deal with the corporation for their security. ” This doctrine is abundantly established by the authorities. 2 Story’s Equity Jur. sec. 1252; Wood v. Dummer, 3 Mason, 308; Spear v. Grant, 15 Mass. 505; Curran v. Arkansas, 15 How. 304; Bartlett v. Drew, 57 N. Y. 587.
The shareholders of a corporation are conclusively charged with notice of the trust character which attaches to its capital stock. As to it they can not occupy the status of innocent purchasers, hut they are to all intents and purposes privies to the trust. When, therefore, they have in their hands any of this trust fund, they hold it cum onere, subject to' all the equities which attach to it. Thompson’s Liability of Stockholders, sec. 13; Wood v. Dimmer, 3 Mason, 312.
It is objected, against the principles above stated, that the cases in which they were declared were where there was actual or constructive fraud or unfairness, where the corporations were insolvent, or in process of being wound up. The question naturally would arise mostly in such circumstances, but the principles enunciated are general in scope, following from the nature of the capital stock of corporations, and the * relation of a stockholder to the corporation, and we know of no limitation of their application as above suggested, or reason for genial of their full applicability to the present case. Indeed, we do not understand appellants’ counsel as asserting the validity of the purchase, or reduction by a corporation of its stock, where it should directly appear that it was an' injury to its creditors. But it is denied that there was any such injury in this case. It is said, first, the company actually owed no' one at the time, and even if it did; as the bill admits that the shares at the time of the exchange were valued at par, and worth full purported value, it follows from the stock being worth its par value, as a matter of course, that the company was then entirely solvent, and had assets sufficient to discharge all its debts, if it had any debts, and also to pay the stock in full,—that under no other circumstances could the admission of the bill be true. There was no proof as to the condition of the company, or the value of the stock, save the testimony of the secretary of the company that at the time of the deed to Clapp the stock in the company was at par value technically,—that he did not know what the market value was, and did not know that it had any market value. The admission of the bill was the' simple fact that the stock was at par. The complainant, of course, knew nothing as to what made the stock at par. But if the stock was at par, in so rating it this indebtedness to appellee could not have been taken into account. It was supposed, of course, the purchase of personal property, which had been made of appellee, would stand, and that there was no liability on account of it. If, then, the stock was just at par, not considering appellee’s claim with that claim recognized, the assets would have failed to pay the indebtedness of the company by the amount of her claim, to-wit, $5653.33, and to that amount the company was insolvent.
It is insisted that this exchange of corporate property ; for stock was unassailable by any one, because it was an/ exchange of equal values—the lots being worth $55,500, and! the shares of stock being worth $55,500, there was equal value received, and there could be harm to no one. This can not be so, as respects creditors.
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Mr. Justice Sheldon
delivered the opinion of the Court:
By the will of her step-son, P. W. Bonner, who died in July, 1870, appellee, Georgie H. Peterson, a resident of the State of New York, became owner of all personal property-left by said Bonner, and in September, 1870, on application made to her in New York, she sold all said property to the/ Illinois Land and Loan Company. On November 20, 1874,] she filed her bill against said company to set aside such sale, and for other relief in respect thereto, on the ground that she had been induced to make the sale through the fraudulent misrepresentations of the company, for an inadequate consideration, and on May 1, 1877, she obtained in the suit a money decree against the company, for $5653.33. An execution issued upon the decree having been returned nulla bona, Mrs. Peterson, on September 18, 1879, filed her bill in chancery in the present case, to subject property in the hands of Caleb Clapp to .the payment of this decree. A decree was entered in her favor granting the relief sought, which, on appeal to the Appellate Court for the First District, was affirmed, and the present appeal taken to this court.
It appears that the Illinois Land and Loan Company was chartered by an act of the legislature in 1867, with a capital stock of $100,000, with 1000 shares, of $100 each, all of which was paid in. Caleb Clapp,, a non-resident of the State, was a stockholder in the company, and in January, 1874, he surrendered to the company 555 shares of stock, in| consideration of which the company executed to him a deed oil warranty of two lots in Chicago, one of the value of $50,000j; and the other of the value of $5500, that amount being the consideration stated in the deed. The stock was canceled, and was considered, at the time, of par value. Mr. Clapp continued to be till his death, and his estate still is, the owner of the lots. It is these lots which are sought to be subjected to the payment of said money decree against the company.
The legal principle which appellants’ counsel lays down and insists upon as applying to the case, is, that corporations may purchase their own stock in exchange for money or other property, and hold, re-issue or retire the .same, provided such act is had in entire good faith, is an exchange of equal value, and is free from all fraud, actiial or constructive, this implying that the corporation is neither insolvent nor in process of dissolution. We think there must be added to the proposition the further condition that the rights of creditors are not affected. •
The doctrine so elaborately urged by appellants’ counsel, that a corporation has the power to purchase its own stock, seems well enough settled, and was asserted by this court in Chicago, Pekin and Southwestern R. R. Co. v. Marseilles, 84 Ill. 643. Yet, in so holding there, the qualification was added, that, in equity, the transaction might be impeached if it operated to the injury of creditors. We see nothing to show that the transaction in the present case was not in good faith, that there was any element of fraud about it, or that there was anything in the apparent condition of the company to interfere with the making of the exchange that was had. It is only as injuriously affecting the interests of creditors, we think, that the transaction can be questioned, and it is in that view that it must be considered and passed upon.
In Sanger v. Upton, 91 U. S. 60, it is laid down: “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 co-partnerships. 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 bona fide for a valuable consideration and without notice. It is publicly pledged to those who deal with the corporation for their security. ” This doctrine is abundantly established by the authorities. 2 Story’s Equity Jur. sec. 1252; Wood v. Dummer, 3 Mason, 308; Spear v. Grant, 15 Mass. 505; Curran v. Arkansas, 15 How. 304; Bartlett v. Drew, 57 N. Y. 587.
The shareholders of a corporation are conclusively charged with notice of the trust character which attaches to its capital stock. As to it they can not occupy the status of innocent purchasers, hut they are to all intents and purposes privies to the trust. When, therefore, they have in their hands any of this trust fund, they hold it cum onere, subject to' all the equities which attach to it. Thompson’s Liability of Stockholders, sec. 13; Wood v. Dimmer, 3 Mason, 312.
It is objected, against the principles above stated, that the cases in which they were declared were where there was actual or constructive fraud or unfairness, where the corporations were insolvent, or in process of being wound up. The question naturally would arise mostly in such circumstances, but the principles enunciated are general in scope, following from the nature of the capital stock of corporations, and the * relation of a stockholder to the corporation, and we know of no limitation of their application as above suggested, or reason for genial of their full applicability to the present case. Indeed, we do not understand appellants’ counsel as asserting the validity of the purchase, or reduction by a corporation of its stock, where it should directly appear that it was an' injury to its creditors. But it is denied that there was any such injury in this case. It is said, first, the company actually owed no' one at the time, and even if it did; as the bill admits that the shares at the time of the exchange were valued at par, and worth full purported value, it follows from the stock being worth its par value, as a matter of course, that the company was then entirely solvent, and had assets sufficient to discharge all its debts, if it had any debts, and also to pay the stock in full,—that under no other circumstances could the admission of the bill be true. There was no proof as to the condition of the company, or the value of the stock, save the testimony of the secretary of the company that at the time of the deed to Clapp the stock in the company was at par value technically,—that he did not know what the market value was, and did not know that it had any market value. The admission of the bill was the' simple fact that the stock was at par. The complainant, of course, knew nothing as to what made the stock at par. But if the stock was at par, in so rating it this indebtedness to appellee could not have been taken into account. It was supposed, of course, the purchase of personal property, which had been made of appellee, would stand, and that there was no liability on account of it. If, then, the stock was just at par, not considering appellee’s claim with that claim recognized, the assets would have failed to pay the indebtedness of the company by the amount of her claim, to-wit, $5653.33, and to that amount the company was insolvent.
It is insisted that this exchange of corporate property ; for stock was unassailable by any one, because it was an/ exchange of equal values—the lots being worth $55,500, and! the shares of stock being worth $55,500, there was equal value received, and there could be harm to no one. This can not be so, as respects creditors. Suppose all the remaining property of the company had been one other lot worth $44,500, and the company had made a like exchange with another stockholder of that lot for the remaining 445 shares of stock, and canceled the stock, what would there have been left to pay creditors 9 The partial exchange which was made || affected the rights of creditors in a like way, only to a less extent. It is not as if there had been an exchange made 11 with Glapp of these lots for other real property of equal value, or as if there had been a sale to him for $55,000 in money. In such case' a substitute would have been furnished to the company to which creditors might have had recourse for payment of their debts. But the exchange of corporate prop-1 erty for shares of stock, and canceling the stock, furnishes I [, no equivalent for creditors.
Although the money decree in favor of appellee was not obtained until in 1877, some time after Clapp’s purchase, yet the cause of action of appellee against the company (the fraudulent purchase of the personal property from her) arose in September, 1870, which was before the purchase by Clapp, that being in January, 1874, so that at the time of Clapp’s purchase appellee must be regarded as being a creditor of the company. /
We can but regard the transaction in question, of the exchange of stock for the lots and the cancellation of the stock, as a withdrawal by the stockholder of his share of the capital stock, leaving appellee’s debt against the com- - pany unpaid; that the transaction was to the injury of ; appellee as a creditor; that the property taken by Clapp ' stood charged with a trust for the payment of appellee’s ‘ claim; that Clapp can not 'be held to be an innocent pur-; chaser, and that the property in his hands is affected with j the trust, and appellee may pursue the property and subject, it to the satisfaction of her debt.
It is insisted" there was such laches here on the part of appellee in lying by for so long a time before the purchase by Clapp, taking no steps to disaffirm the fraudulent purchase from her, as should estop her from resort to this property in the hands of Clapp. Had appellee known of the fraud upon her, or should have known of it in the exercise of reasonable diligence, there would have been force in this position; but the bill alleges" that on the discovery of the fraud appellee filed her former bill to set aside the fraudulent sale, and if such was the fact no laches would be imputable to her. Appellee’s residence in a distant State would be a circumstance which would go to account for not sooner discovering the alleged fraud. We are not prepared to say that there was such laches here as should disentitle to the ■relief sought.
It is said that appellee’s decree against the company was rendered, as well as the suit commenced, after Clapp had ceased to be a member of the company, and not being a party to the suit he should not be bound by the decree against the company, and that as against him the decree should not be taken as evidence of. the alleged fraudulent purchase by the company from appellee. We think Clapp took the property affected with all equities as against the company, and subject to the equity of being charged with whatever prior claim might be established as against the company, and the decree is the highest evidence of an indebtedness by the company.
It is finally urged that at least the decree is erroneous in holding the property received by Clapp to be chargeable with the whole debt, instead of a share of it, in the proportion his stock bore to the whole capital stock. As among the stockholders such a pro rata decree would have been equitable. But in such a case as this, of a judgment creditor, after return of an execution against the company unsatisfied, seeking in a court of equity to reach certain specific property once belonging to the company, as charged with a trust for the payment of his debt, he may pursue the property into whosesoever hands he may find it, where it stands affected with the trust, and subject it to the satisfaction of his debt, and he is not obliged to attend to adjusting the equities between the stockholders. r We regard the following authorities as fully warranting this, and the form of the decree in this respect: Bartlett v. Drew, 57 N. Y. 587; Marsh v. Burroughs, 1 Woods, 463; Hatch v. Dana, 101 U. S. 205.
The judgment of the Appellate Court will be affirmed.
Judgment affirmed.