Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/792

 § 782. J THE LAW OF PRIVATE CORPORATIONS. [CHAP. XV. Subscrip- tions in- duced by fraud. indemnified by those who voted to release him from any lia- bility in respect of the corporate enterprise. 1 A transfer of shares made to an irresponsible person when the corporation is insolvent, for the purpose of escaping liability, is a fraud on the other shareholders, who will have to contribute more if the transfer is held valid, 2 just as much as such a transfer would be a fraud on creditors. 3 § 781. If a person is induced by a fraud of the corporate agents, for which the corporation is responsible, to subscribe for shares, he may rescind his contract by acting promptly. But it would be unjust to allow him to withdraw to the injury of others who have subsequently subscribed for shares or contracted with the cor- poration on the faith of his subscription. " It would be ex- tremely difficult to maintain, upon general principles of law, that a private fraud between the original subscribers and com- missioners, could be permitted to be set up, to the injury of subsequent purchasers, who become honafide holders, without any participation or notice of the fraud." 4 § 782. Just as it is beyond the powers of the body corporate to release any shareholder from liability attaching to him under the constitution of the corporation, so it is also beyond the powers of the majority to increase the liabilitv of shareholders to creditors. 5 Changes in the corporate constitu- tion. 1 In pursuance of a resolution passed at an extraordinary meeting of an unincorporated company, a shareholder sold his shares to the directors, upon the terms that ho should withdraw from the company and be no longer liable for any of its debts. No power to enter into such an arrangement was contained in the deed of settlement. It was held that the shareholder was still liable for the debts of the company, and was properly included in the list of con- tributories. Lord Chancellor Cot- tenham, however, intimated that there might be equities between such shareholder and any shareholder who could be shown to have assented to the release. Ex parte Morgan, 1 772 Ha. & Tw. 320. See Zulueta's Claim, L. R. 5 Ch. 444. 2 See Nathan v. Whitlock, 9 Paige (N. Y.), 152; Everhart v. West- chester, etc., R. R. Co., 28 Pa. St. 339; Chouteau Spring Co. v. Harris, 20 Mo. 382, 390; Johnson v. Laflin, 6 Cent. L. J. 131; S. C, 5 Dill. 76; Augell and Ames on Corp., § 535. 3 See § 749. Minor v. Mechanics' Bank, 1 Pet. 46, 66, opinion of the court per Story, J. See §§ 523-525. The English cases, however, are not in accord with this view. See Smith's Case, L. R. 2 Ch. 604. 5 Trustees v. Flint, 13 Mete. (Mass.) 539. See § 583.