The termination of Thompson's contract, as decided on the former appeal, rests upon two grounds. The first is that the corporation was unable, because of financial em

Neither the insolvency of a corporation, nor its failure to elect officers, operates as a dissolution, or as a virtual surrender of its charter. Taylor v. Holmes, 14 Fed. 498.

The mere fact that a corporation has failed to pay its debts, and has ceased to carry on its lawful and ordinary business for such a length of time as, according to a statute of the state which created it, warrants its dissolution, does not, per se, in the absence of an act of the legislature or the judgment of a court dissolving, work a dissolution so as to prevent or abate ordinary legal proceedings against it by its creditors. Ibid.

The resignation of all its officers does not, per se, operate to destroy the existence of a corporation. Officers and agents are necessary to manage the affairs of a corporation, but the corporation may exist so as to maintain succession, and hold and preserve its franchises, though its functions be for the time suspended for want of means of action. Muscatine Turn Verein v. Funck, 18 Iowa, 469.

It is a settled rule that, although the neglect of a corporation to reappoint its officers may in certain cases suspend its existence, it cannot be thus extinguished to the injury of creditors. Brown v. Union Ins. Co. 3 La. Ann. 177.

An exception to the rule that failure to elect officers does not work a dissolution of a corporation appeared in Slee v. Bloom, 19 Johns. 475, 10 Am. Dec. 273. It was said that, as the shareholders had done all they could to dissolve the company, the court would to give a creditor his remedy against a shareholder, and treat the dissolution as effected. It was upon this ground that the Louisiana supreme court distinguished the case in applying the general rule. Ibid.

The mere insolvency of a corporation, and an assignment of all its property to trustees for the benefit of creditors, followed by a suspension of its ordinary business, are not equivalent to a dissolution. New England Iron Co. v. Gilbert Elev. R. Co. 91 N. Y., 153.

A corporation is not dissolved by the mere bringing of a suit alleging insolvency, and obtaining the appointment of a receiver. Kinsman v. Fisk, 37 App. Div. 443, 56 N. Y. Supp. 33.

Insolvency, suspension of business, and a receivership, alone, do not extinguish corporate life in New Jersey. They may justify the chancellor in declaring the charter forfeited and void, but the assets may, on the other hand, prove sufficient to pay creditors in full, and

The principle of law underlying the first ground upon which the contract was declared to have terminated is announced in People v. Globe Mut. L. Ins. Co. 91 N. Y. 174, 1 Am. & Eng. Corp. Cas. 586. This doctrine is that, where performance of a contract by a corporation is prevented by its dissolution at the instance of the state or

| justify the discharge of the receiver and the resumption of the corporate business. This falls short of the civil death of the corporation until the final decree, and consequently the rule that the death of the master terminates the servant's contract does not apply to bar a corporate employee's claim for damages for breach of his contract by the insolvency of the corporation. Spader v. Mural Decoration Mfg. Co. 47 N. J. Eq. 18, 20 Atl. 378.

The mere appointment and qualification of a receiver of a national bank at the instance of the comptroller of the currency for failure to redeem its notes does not work a forfeiture of the franchise and a dissolution of the banking corporation, so as to bar a creditor from maintaining suit against the bank to establish the validity of his claim. National Pahquioque Bank v. First Nat. Bank, 36 Conn. 325, 4 Am. Rep. 80.

The mere insolvency and the appointment of a receiver of a corporation are not equivalent to its dissolution, even though it is restrained by judicial order from transacting any more business. City Ins. Co. v. Commercial Bank, 68 Ill. 348.

The appointment of a receiver to take and distribute among creditors and stockholders all the property of a corporation, while sometimes spoken of as a virtual dissolution, does not extinguish the franchise, terminate the legal existence, or render the corporation incapable of being sued at law or in equity. Folger v. Columbian Ins. Co. 99 Mass. 267, 96 Am. Dec. 747.

The fact that a foreign building and loan association has been put in the hands of a receiver in its home state, and forbidden to continue business, does not relieve it from liability to pay back his investment to a resident member, who has given due notice of his withdrawal as required by the corporate by-laws, notwithstanding the association is unable to make collections, only after which, according to its bylaws, it is bound to pay. Southern Bldg. & L. Asso. v. Price, 88 Md. 155, 42 L. R. A. 206, 41 Atl. 53.

VI. The earlier common-law doctrine concerning the effect of dissolution.

"The text-books and cases decided are uniform in their language,-that the real estate held by the corporation at its civil death reverts to the grantor and his heirs; that the

ants, in which no demand for money laid out and expended in preparation for, and execution of, the contract was made or could have been set up. Hence in none of them is that question passed upon. The doctrine of the case of People v. Globe Mut. L. Ins. Co. 91 N. Y. 174, is examined, and repudiated as unsound, and at variance with the principles of law in Rosenbaum v. United States Credit System Co. 61 N. J. L. 543, 40 Atl. 591. Speaking for the court, Chancellor McGill said: "It appears to us that the material fact that the corporation defendant is a stock company, and that its capital stands as a trust fund for the payment of its debts, is lost sight of. Such a company may be come insolvent, and its charter may be forfeited, when its assets may be more than (a bank, for instance) should be absolved from their engagements; and still less that, by a forfeiture of its charter, those to whom it is indebted should lose their just demands." Rider v. Nelson & A. Union Factory, 7 Leigh, 154, 30 Am. Dec. 495.

The doctrine that the debts of a corporation both to and from it are extinguished by its dissolution is odious. A majority of the American states have, by enlightened legislation, interposed to prevent, to ward off, the iniquitous consequence of this common-law rule, the existence of which is a disgrace to a civilized state. Such is the rule, however, but a court is not called upon to extend it one jot or tittle beyond the reason which gave it birth. Thornton v. Lane, 11 Ga. 459.

When a corporation is dissolved by having lived out its term, and there is no saving statute, following the rule of the common law its real estate reverts to the grantor, its personal property goes to the state, and its choses in action, debts, etc., are extinguished. Fox v. Horah, 36 N. C. (1. Ired. Eq.) 358, 36 Am. Dec. 48.

Judge Thompson (5 Thomp. Corp. § 6720) referred to this decision as being "in accordance with the barbarous rule of the common law;" and said it was "probably the last case of its kind."

But its doctrine was reiterated and applied more than twenty years later (1863) in the case of Malloy v. Mallett, 59 N. C. (6 Jones, Eq.) 345.

Later, however (1879), the court virtually repudiated the doctrine. Speaking of these decisions, it said that they were made, and their conclusions were reached, after full discussion and careful consideration by able jurists, and its reluctance to disturb them after so long an acquiescence by the profession could be overcome only by the clearest convictions of their error. But, it was added, they rested upon strictly legal principles, well settled by authority, and carried to logical results; and a remedy existed in calling in to exercise, in behalf of creditors and others interested, the equitable jurisdiction of the court. And, regarding the debts and other property of the dissolved corporation as the property of its creditors, a court of equity would reach forth and gather up and collect the assets though there were no legal owner, and would distribute them

sufficient to pay its debts. Everyone who deals with such a corporation does so in view of the trust fund its capital provides, and the security that fund is intended to afford. The stockholders who provide the fund invite confidence because of it, that through such confidence their venture may be profitable to them. The mere statement of this situation makes conspicuous the injustice of any course of reasoning which will return to the stockholders their capital before satisfaction of all losses induced by faith in it shall be made. The state creates corporations, and requires of them the provision of such a trust fund, and, when it destroys their corporate existence, natural justice requires that it shall provide for distribution of the fund, so that no part of it to creditors first and stockholders afterwards. Von Glahn v. De Rosset, 81 N. C. 467.

And finally (1897) the doctrine was emphatically repudiated, and the decision in Fox v. Horah, 36 N. C. (1 Ired. Eq.) 358, 36 Am. Dec. 48, supra, expressly overruled; and it was questioned whether the common law ever really sanctioned a rule so plainly "not founded upon justice and reason, nor approved by experience." Wilson v. Leary, 120 N. C. 90, 38 L. R. A. 240, 58 Am. St. Rep. 778, 26 S. E. 630.

The case of Fox v. Horah, 36 N. C. (1 Ired. Eq.) 358, 36 Am. Dec. 48, was fully analyzed, explained, distinguished, and circumscribed in Moultrie v. Smiley, 16 Ga. 289.

Mr. Cook (2 Corp. 5th ed. § 641), adverting to the alleged common-law doctrine that, upon the dissolution of a corporation, all its assets belonged to the state, and all its debts were canceled, and its acceptance in text-books and decisions for more than a century, says that, nevertheless, the courts uniformly refused to apply it, and resorted to various devices and fictions to avoid doing so; and finally, in 1899, an English court, in the case of Re Higginson [1899] 1 Q. B. 325, denied that such doctrine ever was the common law, and showed that in the 17th and 18th centuries many corporations were dissolved, and in no single case was such doctrine ever applied.

The authorities for the proposition that, on the dissolution of a corporation, aggregate debts due to or from it are extinguished, says Wright, J., of the English Queen's bench, in the case to which Mr. Cook referred, are by no means clear or satisfactory. In 1 Bl. Com. 484, and in 2 Kyd, Corporations, 516, and in Grant, Corporations, 303, such a proposition is stated, but in terms which suggest that no more is meant than that after the dissolution the individuals who were members or officers of the corporation cannot sue or be sued in respect of its rights or obligations; and this is all that is established by the cases there cited. The American decision in the case of Bank of Vincennes v. State, 1 Blackf. 267, 12 Am. Dec. 234, relies on these authorities as supporting the general proposition, but it does not advert to this qualification, or add new references to authority, and the authorities cited do not in any way support the proposition, except as qualified. Grant is explicit in the same case, but does not refer to any authority which, so far as I can see, has any bearing on the matter. Nor do the old au

shall be returned to those who offer it as security for the action of others, until the latter shall have all the protection against loss in their undertaking that it is capable of affording."

Other cases more analogous to the one now under consideration hold that the effect of the dissolution of a corporation upon un expired or executory contracts is to excuse further performance and render them nugatory as to so much as remains unperformed, but to entitle the obligee to damages for the breach of the contract to be paid out of the assets of the dissolved corporation. 10 Cyc. Law & Proc. p. 1312. Thus, in Schleider v. Dielman, 44 La. Ann. 463, 10 So. 934, the court held the dissolution of the corporation to be a breach of the contract, giving thorities as to the effect of dissolution of municipal and other corporations add anything decisive to the question. In the 17th and 18th centuries corporations aggregate constituted by charter or letters patent were numerous, and questions frequently occurred as to the effect upon their rights and obligations of dissolution, revival, and reincorporation with or without change of name or constitution. I cannot find that in any case the rights or obligations of a corporation were held to be affected by a technical dissolution. Nor, on the other hand, can I find a case in which such a question has been decided where the corporation had not been revived, or some provision made by statute or charter with reference to its obligations. Re Higginson [1899] 1 Q. B. 325.

There is in the opinion of Lumpkin, J., in Moultrie v. Smiley, 16 Ga. 289, a very full and learned examination into the origin, reason for, extent and limitations of the rule that debts due to and from a corporation are extinguished by its dissolution. It is too long to give here in extenso, and cannot, without sacrifice, be abstracted. The reader will do well to supplement this note by perusing it.

VIII. The trust-fund, or "American," doctrine.

The trust-fund doctrine, called frequently the "American" doctrine, was formulated by Mr. Justice Story.

"It appears to me," said that jurist in Wood v. Dummer, 3 Mason, 308, Fed. Cas. No. 17,944, "very clear upon general principles, as well as the legislative intention, that the capital stock of banks is to be deemed a pledge or trust fund for the payment of the debts contracted by the bank. To me this point appears so plain upon principles of law, as well as common sense, that I cannot be brought into any doubt that the charters of our banks make the capital stock a trust fund for the payment of all the debts of the corporation."

And, in conformity with these views, he held that the capital stock of a bank is a trust fund for creditors, and, upon the division of it, the stockholders take it subject to all the equities attached to it. They are privies to the trust, and receive it cum onere. Ibid.

And, on the dissolution of a banking corporation, the bill holders and the stockholders have each equitable claims, but those of bill holders possess a prior exclusive equity. Ibid.

the other party the right to recover what he has already expended toward the performance of it and the profits which he would have realized by performance. Re Wiltshire Iron Co. L. R. 3 Ch. 443, holds that where a sale of personal property has been made by a corporation which is dissolved before delivery of the property, the purchaser has a valid claim for damages for the breach of the contract, payable out of the assets of the company. In Spader v. Mural Decoration Mfg. Co. 47 N. J. Eq. 18, 20 Atl. 378, it is held that where a person was employed by a corporation for a term of years for a fixed salary, and before the expiration of the term the corporation became insolvent, and a receiver was appointed to wind up its affairs, the employee was en

The idea that the property of insolvent corporations is held by them in trust for creditors, -is a trust estate in their hands,-and to be administered by chancery as such, is said to have originated in a dictum of Story, J., in Wood v. Dummer, 3 Mason, 308, Fed. Cas. No. 17,944, and to have no existence at common law. It has not been adopted in England, but is distinctly a creature of some courts in this country, and is styled the "American doctrine." O'Bear Jewelry Co. v. Volfer, 106 Ala. 205, 28 L. R. A. 707, 54 Am. St. Rep. 31, 17 So. 525.

The trust-fund doctrine is usually stated in the decisions in terms quite broad and general. Thus:

The property of an insolvent trading corporation while under the control of its officers being a trust fund in their hands for the benefit of its creditors, a court of equity, which never allows a trust to fail for want of a trustee, will see to the execution of the trust, although by the dissolution of the corporation the legal title to its property has been changed. Curran v. Arkansas, 15 How. 304, 14 L. ed. 703.

In contrast to the rule of the common law, the rule in equity was that while, upon dissolution, a corporation ceased to exist, yet its property was impressed with a trust in favor of its creditors and stockholders as beneficiaries, whose interests equity would protect by appointing a trustee if necessary to execute the trust. Bowe v. Minnesota Milk Co. 44 Minn. 460, 47 N. W. 151.

When a corporation is dissolved, discontinues its business, makes a general assignment, or does any other act indicating positive insolvency, its property thereafter is affected by an equitable lien or trust for the benefit of all its creditors, and these may individually be restrained by injunctions against appropriating the corporate assets to the payment of their claims. M'Claren v. Union Roller Mills & Elevator Co. 95 Tenn. 696, 35 S. W. 88.

It is well settled that the property of a corporation is a trust fund in the hands of its directors for the benefit of creditors and stockholders, that is, to the extent of preventing the directors from dealing with it to their own advantage, or in disregard of the rights of the creditors and stockholders. Goodin v. Cincinnati & W. Canal Co. 18 Ohio St. 169, 98 Am. Dec. 95.

In the view of equity the property of a dis